PARDALIS & NOHAVICKA MARITIME LAW UPDATE
Southern District New York Rules Not All Freight Forward Agreements Fall under Maritime Jurisdiction — CASE DISMISSED
D’Amico Dry Limited v. Primera Maritime (Hellas) Limited
Issue: Whether the FFA had a direct and substantial link between the agreement and the operation of the ship, its navigation, or its management afloat.
Generally, an FFA is an option contract on freight rates traded on the Baltic exchange, through which shippers and ship owners hedge against the volatility of the ocean freight market. It is a principal-to-principal contract used by two parties to bet on the price of a particular freight-route on a particular date.
The court held after trial that the FFA specifically at issue was not used for hedging and managing market risks relating to the employment of marine vessels but was, instead, used for speculative purposes. In fact, D’Amico took its profit from the FFA when it “closed out” two days after it entered into the D’Amico/Primera FFA. (When an FFA is “closed out,” it is no longer hedging against the future.). At that point, D’Amico left its shipping position uncovered, evidencing the speculative nature of the FFA. Therefore, the FAA did not have the furtherance of maritime commerce as its “principal objective” because the FFA was not used for hedging and managing market risks relating to the employment of marine vessels but was, instead, used for speculative purposes.
Therefore, a claim for the breach of that FFA is not a maritime claim, and the Court lacked federal maritime jurisdiction to enforce a foreign judgment for breach of that contract.