NCL (Bahamas) Ltd. v. O.W. Bunker USA, Inc., No. 3:17-CV-1327 (D. Conn. Nov. 29, 2017) [click for opinion]

Plaintiff Norwegian Cruise Line ("NCL") initiated this declaratory action against O.W. Bunker USA, Inc. ("O.W. USA") and its Liquidating Trust seeking to enjoin an arbitration brought by O.W. USA in London in relation to allegedly unpaid invoices. NCL brought the action in district court in Connecticut after its attempts to raise similar questions in the Bankruptcy Court were dismissed for lack of subject matter jurisdiction.

NCL's cruise ship Norwegian Spirit had ordered bunkers of fuel from O.W. USA in order to refuel when it stopped in Piraeus, Greece. O.W. USA had then subcontracted with O.W. Bunker Malta Ltd. ("O.W. Malta"), which then contracted with EKO, a Greece company, to provide the fuel. EKO was the one to actually provide the requested bunkers of fuel to NCL on October 18, 2014.

The parent company of both O.W. USA and O.W. Malta filed insolvency proceedings in Denmark on November 7 and O.W. USA filed a voluntary petition for relief under Chapter 11 on November 13. EKO, realizing the invoices would not be paid, proceeded to obtain payment directly from NCL under a threat that it would arrest the Norwegian Spirit if the invoices were not paid in full.

The O.W. USA Liquidating Trustee brought an arbitration in London to collect on the same invoices from NCL, arguing that the payment to EKO was voluntary. NCL resisted arbitration, relying on Article L.4 of the contract, which stated that the contract was "subject to variation in circumstances where the physical supply of the Bunkers is being undertaken by a third party which insists that the Buyer is also bound by its own terms and conditions." Thus, according to NCL, the arbitration clause was superseded by the terms in EKO's contract with O.W. Malta, which provided for Greek law to govern and for all disputes to be settled in Piraeus courts.

The district court first determined that English law applied to the dispute in accordance with the choice of law provision in the agreement between NCL and O.W. USA. Interpreting English law, the court next found that the plain terms of Article L.4 allowed terms in NCL's agreement with O.W. USA to be superseded if certain conditions were met. In order for EKO's terms to replace the arbitration provision, according to the court, it had to be established that a third party delivered the bunkers and that the third party had insisted on the buyer being bound by its terms and conditions at the time of contracting. There was no dispute that EKO was a third party that had, in fact, delivered the bunkers of fuels. The court held that EKO had also insisted on its terms applying to the ultimate buyer, NCL. Thus, EKO's terms and conditions governed and replaced the terms and conditions in O.W. USA's agreement, including the agreement to arbitrate. Without such an agreement, NCL could not be compelled to arbitrate the dispute with O.W. USA.

Relying primarily on In re American Express Financial Advisors Securities Litigation, the court found it had the power to enjoin arbitration when the parties had not agreed to arbitrate. The court also found that the prerequisites for a preliminary injunction—mainly irreparable harm and likelihood of success—were met here as well. The court thus enjoined O.W. USA and its Liquidating Trustee from proceeding with arbitration in London.