Arrested Development: An Examination of Carriers’ Arrest Defense Under the Carriage of Goods by Sea Act and the Tort of Financial Unseaworthiness

Caroline Sanches | Comment

For Thyssenkrupp Materials N.A., Inc. (Thyssenkrupp), Monday, May 7, 2012 started out as just another beautiful spring day. Thyssenkrupp had no idea that its large shipment of steel plate, scheduled to be delivered to the United States from Turkey later that month, was about to be delayed by three months due to no fault of its own, had no idea that it would have to sell the steel at a reduced price because of the delay, and had no idea that it would not be able to recover any of the profit it was about to lose. A little more than two months earlier, Thyssenkrupp entered into a charterparty with Western Bulk Carriers A/S (WBC) for the purpose of transporting approximately 7415 metric tons of steel from Turkey to the ports of New Orleans and Houston. WBC nominated the M/V SANKO, a vessel it had time chartered from the owner, Sanko Steamship Co. of Japan (Sanko), to complete the voyage. Unbeknownst to Thyssenkrupp, Sanko was financially insolvent and had many unsatisfied creditors. On May 7, 2012, during the voyage, creditors of Sanko placed an attachment on the vessel. Sanko was unable to post bond, so the vessel was arrested in the Port of Baltimore for approximately three months before she was released and finally delivered the steel. During the three-month delay, the price of steel depleted, and Thyssenkrupp was forced to sell the shipment for almost $600,000 less than it could have sold it on the scheduled delivery date. Additionally, four plates of steel, each worth almost $11,000, were missing upon delivery. Thyssenkrupp sued WBC for the cost of the missing plates and the lost profit under theories of contract and tort, alleging that the carrier failed to provide a financially seaworthy vessel. The United States District Court for the Southern District of New York granted summary judgment against Thyssenkrupp’s tort action, holding that financial unseaworthiness as a tort has never been recognized as a cause of action in the United States Court of Appeals for the Second Circuit. With respect to the contract claim, the court determined that summary judgment was inappropriate because the factual record was both disputed and incomplete and accordingly dismissed this part of WBC’s motion.