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SUN SHIP, INC. v. MATSON NAVIGATION CO.

March 29, 1985

SUN SHIP, INC.
v.
MATSON NAVIGATION COMPANY



The opinion of the court was delivered by: KATZ

 KATZ, District Judge.

 Sun Ship, Inc. petitions this Court to vacate or to correct an award in a commercial arbitration between it and Matson Navigation Company. *fn1" I will deny the Petition and affirm the arbitration award in all respects.

 On May 8, 1980, the parties entered into a "Contract for the Reconstruction of one Roll-on/Roll-off Trailervessel named "LURLINE." The contract called for Sun Ship to modify the vessel for Matson in order to make the ship suitable for carrying containerized cargo. The contract price was $30,624,500 and required redelivery of the vessel by December 31, 1981. Sun Ship agreed to pay $10,000 in liquidated damages for each day of unexcused delay.

 The contract contained a broad arbitration clause which provided for arbitration "in the event of any dispute or difference as to any matter or thing between Matson and Shipbuilder in the contract which cannot be settled. . . ." Although the contract provided for the application of Pennsylvania law in all other respects, the arbitration clause provided that arbitration was to be conducted in accordance with the Federal Arbitration Act, 9 U.S.C. § 1 et seq.

 Article 2 of the contract allowed Matson to direct a change in the Plans and Specification of the work to be performed. If Matson and Sun Ship were unable to reach agreement as to the effect of the change on the contract price and the contract redelivery date, Matson was to make progress payments to Sun Ship according to Sun Ship's own estimate, with the issue ultimately "resolved by arbitration under Article 23." Article 12(i)(ii) stated:

 
If an increase or decrease in the contract price due to a change is not finally agreed upon or determined by arbitration prior to redelivery of the vessel, appropriate adjustment of any overpayments or underpayments shall be made after redelivery of the vessel promptly upon . . . determination by arbitration of the increase or decrease.

 The arbitration here concerned three contract change orders issued by Matson. As to the first, Contract Change Number (CCN) 4, there is no dispute that Matson overpaid Sun Ship $14,892.

 The next change order at issue, CCN 13, directed Sun Ship to blast and coat four ballast tanks on the Lurline. Matson, however, claimed that this was work Sun Ship should have done pursuant to the original contract. Matson, therefore, took the position from the outset that CCN 13 should have had no effect on the contract price or contract redelivery date. To avoid delaying progress on the work, Matson issued a contract change order and made progress payments based on Sun Ship's estimates. The arbitration panel determined that Sun Ship did not have a pre-existing contractual duty to perform the work required in CCN 13. Although the arbitrators decided that Matson did have to pay for CCN 13, they held that Matson, by its advance payments, overpaid Sun Ship $71,475 for that contract change.

 Because of its position that Sun Ship's work pursuant to CCN 13 was incompetent, Matson issued a third change order, CCN 14, to require Sun Ship to recoat and reblast the tanks. As with CCN 13, Matson made progress payments based on Sun Ship's estimate and deferred determination of who should bear the cost of recoating and reblasting until arbitration. The arbitrators decided that CCN 14 should have effected no change in the contract price or contract redelivery date, thus apparently accepting Matson's argument that Sun Ship did not perform the work properly the first time. The arbitrators ordered Sun Ship to repay Matson the entire $1,707,790 Matson had paid pursuant to Sun Ship's estimate. The panel also ordered Sun Ship to pay Matson $1,450,000 in liquidated damages due to 145 days of inexcusable delay in the redelivery of the vessel. With respect to CCN 14, Sun Ship argues that Matson, by executing a contract change order, waived any argument about Sun Ship's preexisting contractual duty to perform the work, and that in an arbitration proceeding pursuant to Article 2 of the contract the arbitrators did not have authority to decide whether Matson was liable for the contract change. With respect to CCN 4, CCN 13 and CCN 14, and to liquidated damages, Sun Ship claims that the arbitrators erred in awarding interest to Matson at the prime rate rather than at the statutory rate prescribed by 41 P.S. § 202. Sun Ship also complains that the arbitrators erred in awarding interest from the time of Matson's overpayment of progress payments rather than from the time of the arbitrators' decision.

 I. Arbitrability of Liability For CCN 14

 To determine whether an issue is arbitrable, the Court may look both to the original contract between the parties and to the parties' submission to the arbitration panel. Piggly Wiggly Operators' Warehouse, Inc. v. Piggly Wiggly Operators' Warehouse Independent Truck Drivers Union, Local No. 1, 611 F.2d 580, 584 (5th Cir.1980). In this case, both of those sources show that liability for the work ordered in CCN 14 was an arbitrable issue. Article 23 of the contract made arbitrable "any dispute or difference as to any matter or thing . . . arising out of or relating to the Contract. . . ." This provision would have certainly allowed arbitration of liability for recoating and reblasting in the absence of a contract change order. The arbitration clause was also worded broadly enough to give the arbitration panel the authority to decide whether the contract allowed Matson to execute a contract change order while reserving the question of liability for the work ordered. Although because of the parties' request the arbitrators did not issue a written decision, this was an issue the arbitrators resolved against Sun Ship by their award.

 Sun Ship argues that because this was an arbitration about change orders pursuant to Article 2 of the contract, the arbitrators could only consider the effect of the change on the cost and redelivery date in the agreement. This argument, however, is without merit. Article 2 of the contract does not provide that execution of a change order waives any question of liability, nor does Article 2 establish an arbitration proceeding different from the proceeding described in the broad arbitration clause of Article 23. In fact, Article 2 provides that if the parties cannot agree on the effect of a change, then the issue "shall be resolved by arbitration under Article 23."

 Although the contract itself makes clear that the arbitrators had the power to resolve the question of liability for CCN 14, examination of the submission to the arbitrators of the issues to be resolved requires the same conclusion. The parties jointly submitted a series of ...


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