The shuttered transpacific liner carrier The Containership Co. earlier this month won a decision in U.S. Bankruptcy Court that could help the line recoup lost revenue from its former shipper customers.
On Feb. 10, a U.S. Bankruptcy judge in New York found in favor of Norway-based TCC in a motion filed by a group of its customers, who were seeking to have to breach-of-contracts proceedings moved before the Federal Maritime Commission. U.S. Judge Sean Lane denied the motion, meaning nearly three dozen of TCC’s former customers (all freight forwarding companies) will face proceedings in U.S. Bankruptcy Court unless they settle with the line.
TCC, which went into administration in Norway and Denmark in April 2011, filed “adversary proceedings” against 77 shippers in early August, “alleging breach of pre-petition service contracts entered into between the debtor and the shippers,” according to the court document.
The key aspect of the dispute centers around the so-called minimum quantity commitment (MQC) clause in ocean freight service contracts. The clause is an exceedingly common feature of service contracts, and requires the shipper to provide a certain quantity of containers to the contracted container line with the term of the contract. MQCs, however, have traditionally been used by both parties more as guidelines than hard-and-fast, binding contractual elements.
TCC, which launched its business as a no-frills express carrier from China to California, saw its business falter last year as spot rates plummeted and its customers failed to live up to their MQCs, prompting the line to suspend operations and seek reparations, as American Shipper reported
in May 2011.
TCC is seeking liquidated damages plus interest and attorneys' fees from its former customers. TCC Chief Operating Officer Franck Kayser told American Shipper
the Feb. 10 decision paves the way for the line to recoup claims based on the MQCs its customers signed.
“The shippers know they have breached their contractual obligations by failing to meet their minimum quantity commitments and as they are short of defenses they have tried to delay the process by filing the motion to lift the automatic stay,” the line’s attorneys said in a statement to American Shipper
Monday. “As we had hoped and expected, the U.S. Bankruptcy Court, Southern District of New York in the decision of 10 February 2012, clearly rejected the shippers’ motion and confirmed that the adversary proceedings against TCC’s former shippers could continue in New York. We expect the remaining shippers to now reconsider their tactics and follow in the footsteps of the third of the TCC shippers who have already settled their outstandings with TCC.”
TCC is being represented in the case by the law firm Blank Rome.
According to the court decision
, the motion was denied “because it concludes that the Federal Maritime Commission does not have exclusive or primary jurisdiction over the movants' allegations, which are in the nature of defenses to the Chapter 15 debtor's breach of contract actions.”
Lane further wrote TCC’s former customers failed to explain “why or how the FMC's expertise would be needed to resolve this question in these cases. Movants do not provide any factual allegations regarding the actual MQCs at issue in these contracts, the amount of cargo actually shipped, or debtor's practices in connection with the use of MQCs. Moreover, the Movants have not explained how the FMC's concern about whether MQCs are ‘meaningful’ – presumably whether the MQCs are so small as to be of no real consequence – is implicated here given that Movants were allegedly unable to satisfy such MQCs.”
wrote about MQCs in its January 2011 issue
. Whether other carriers would follow suit in similar circumstances is questionable, given the strained relation it could cause with current or potential customers.
“This is altogether a significant development as the perception that such service contracts are only worth the paper on which they are written will now be something of the past,” the maritime consultant Dynamar wrote last week. “That said, very few carriers with an ongoing business would be prepared to go the same court way as defunct TCC to enforce such contracts.” — Eric Johnson