FFAs: Maritime Contracts or Not?
A forward freight agreement, or "FFA" (also commonly referred to as a "forward freight swap agreement" or an "FFSA"), is an agreement "to pay the difference between a price agreed today and the future price of moving a product from one location to another, or for the future price of hiring a ship over a period of time." Glory Wealth Shipping Services Ltd. v. The Rice Co., 2008 U.S. Dist. LEXIS 106468 at * 1 (S.D.N.Y. 2008) (citing Adam Sonin, Managing Risk with Forward Freight Agreements, Commodities Now, June 2005, at 2). It may be traded by bankers and speculators, as well as by ship owners and charterers. However, the parties to an FFA are not parties to a charter party with each other; nor is an FFA part of a transaction between the same parties involving a particular charter party, vessel, cargo, or voyage.
Although no U.S. Circuit Court of Appeals has addressed whether (or not) the breach of an FFA gives rise to admiralty jurisdiction, District Courts considering this issue have long relied on the 2007 S.D.N.Y. opinion by Judge McMahon in Brave Bulk Transp. Ltd. v. Spot On Shipping Ltd., 2007 U.S. Dist. LEXIS 81137 at * 4, 2007 A.M.C. 2958 (S.D.N.Y. Oct. 30, 2007), where she held that an FFA is "sufficiently part of the business of maritime commerce to confer admiralty jurisdiction." See, e.g., Flame, S.A. v. Primera Maritime (Hellas) Ltd., 2010 U.S. Dist. LEXIS 9830 (S.D.N.Y. Jan. 28, 2010); Armada (Singapore) PTE, Ltd. v. North China Shipping, Co. Ltd., 2010 U.S. Dist. LEXIS 11014 (S.D.N.Y. 2010);Glory Wealth Shipping Services Ltd. v. The Rice Co., 2008 U.S. Dist. LEXIS 106468 (S.D.N.Y. 2008).
Despite the extensive case law authority, District Judge Koeltl held this week that he did not have subject matter jurisdiction to enforce Plaintiff's foreign judgment arising from the Defendant's alleged breach of an FFA. D'Amico Dry Limited v. Primera Maritime (Hellas) Limited, Docket No. 09 Civ. 7840 (JFK) (S.D.N.Y. March 26, 2011). Although Judge Koeltl declined to expressly address whether the parties' underlying dispute (i.e. – the breach of an FFA) would give rise to an admiralty claim under U.S. law, he noted that a U.S. admiralty court would only have admiralty jurisdiction to enforce the judgments of a foreign admiralty court. Accordingly, the Judge looked to whether the Plaintiff's foreign judgment was rendered by the English Court sitting in admiralty. Because the Judge found that theEnglish Court was not sitting in admiralty when it rendered the judgment, he concluded that the Southern District of New York did not have jurisdiction over an action to enforce that judgment and dismissed the case. Judge Koeltl further commented that the specific FFA at issue did not identify or otherwise relate to a specific vessel; rather, it related to average Baltic Panamax Index ("BPI") rates for four (4) standardized Panamax routes.
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