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Second Circuit Rules that Demurrage and Deadfreight Claims Are Not Severable Maritime Obligations In A Mixed Contract And Existence of a Demurrage Clause Does Not Create Maritime Jurisdiction

By Summary Order dated November 20, 2009, the Second Circuit Court of Appeals has ruled that demurrage and dead freight claims arising from a "mixed contract" containing both maritime and non-maritime obligations are not severable from the non-maritime obligations contained in those contracts. The Court further ruled that the existence of a demurrage clause alone in a mixed contract is not sufficient for such a contract to properly be subject to the Court's admiralty jurisdiction. See Tradhol Internacional S.A. v. Colony Sugar Mills Limited, No. 09-0614-cv (2d Cir. Nov. 20, 2009) (Summary Order).

In so ruling, the Court referred to its decision Folksamerica Reinsurance Co. v. Clean Water of New York, Inc., 413 F.3d 307, 314 (2d Cir. 2005), in which it found that mixed contracts traditionally fall outside of the Courts' admiralty jurisdiction unless it falls into one (1) of two (2) exceptions. First, a court can exercise admiralty jurisdiction over a mixed contract if the claim arises from a breach of maritime obligations that are severable from the non-maritime obligations found in the contract. Id. The second exception allows a court to exercise admiralty jurisdiction if the non-maritime claims are "merely incidental" to the maritime ones. 

The plaintiff in Tradhol had appealed from the district court judge's order denying plaintiff's application for a Rule B order of attachment. In denying plaintiff's application, the district court stated that the plaintiff's complaint "fail[ed] to show that the parties' contractual dispute [was] severable and maritime in nature." The plaintiff argued on appeal that its demurrage and dead freight claims against the defendant were severable from the rest of its claims and that the inclusion of the demurrage claim in the contract made it maritime in nature.  

The Court first considered whether the maritime obligations in the contract were severable from the non-maritime obligations found in the contract, and noted that the determination of severability "turns on whether 'maritime subject matter is capable of being divided from the rest so that the rights of the parties which flow from the non-maritime party of the contract may be, if necessary, litigated separately and only that part which is maritime be put in issue in the admiralty suit." Berwind-White Coal Mining Co. v. City of New York, 135 F.2d 443, 447 (2d Cir. 1943). The Court found that the demurrage and dead freight claims against the defendant were "intertwined" with all of the breach of contract claims, and accordingly did not fall into the first exception on mixed contracts.

The Court then noted that the "focal point" of the contract at issue was the purchase and loading of ethyl alcohol. Since the demurrage clause was "only one piece of a contract that covered the larger sale and loading of goods", demurrage alone could not raise a claim to which the remaining claims were merely incidental. Accordingly, the Court affirmed the district court's denial of the request for a Rule B maritime attachment.

Read a copy of the Second Circuit's Summary Order

For more information concerning this decision, please do not hesitate to call on us at info@chaloslaw.com

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