## Facts

- U.S. Titan, Inc. (Titan), a Texas corporation with its principal place of business in New York, negotiated a time-charter for the tanker BIN HE with Guangzhou Zhen Hua Shipping Co., Ltd. (Zhen Hua), a Chinese state-owned shipowner.
- Negotiations occurred in 1995 through U.S.-based brokers via telexes and written communications setting out essential charter terms.
- The agreement was “subject” to: (1) Titan’s satisfactory inspection, (2) release of the vessel from a prior charter, and (3) timely approval by Titan’s board after receiving the inspection report.
- The contemplated charter form included a London arbitration clause.
- Titan asserted the “subjects” were satisfied and a binding charter party (including the arbitration clause) existed; Zhen Hua denied that a final charter party was formed and asserted, at most, a limited agreement to arbitrate only contract formation.
- Titan petitioned in the Southern District of New York to compel London arbitration under the Federal Arbitration Act and the New York Convention.
- Zhen Hua moved to dismiss, arguing sovereign immunity under the FSIA, lack of personal jurisdiction, and improper venue.

## Issues

1. Whether the district court exceeded its authority under the FAA by deciding contract formation and compelling arbitration of the entire dispute rather than only the narrow question of formation.
2. Whether the FSIA barred the action or an exception (including the commercial activity exception) supplied subject-matter jurisdiction.
3. Whether the court had personal jurisdiction over Zhen Hua under the FSIA and constitutional due process standards.
4. Whether venue was proper in the Southern District of New York under the FSIA’s venue provisions.

## Decision

- The Second Circuit affirmed the judgment compelling London arbitration and denying Zhen Hua’s dismissal motions.
- The district court properly decided the gateway question of whether a binding charter party with an arbitration clause existed and, upon finding it did, properly compelled arbitration of disputes covered by that clause.
- An FSIA exception applied, so Zhen Hua was not immune and the court had subject-matter jurisdiction.
- Personal jurisdiction was proper because FSIA requirements were satisfied and Zhen Hua had sufficient U.S. contacts connected to the transaction.
- Venue in the Southern District of New York was proper under the FSIA venue statute.

## Legal Principles

- Under the FAA and the New York Convention, a court may decide contract formation to determine whether an enforceable arbitration agreement exists.
- When the evidence supports formation of a contract containing an arbitration clause, the court may compel arbitration of all disputes within the clause’s scope.
- A foreign state instrumentality is subject to federal jurisdiction when an FSIA exception applies; commercial ship-chartering activity can qualify as “commercial activity” for FSIA purposes.
- Under the FSIA, personal jurisdiction exists when an FSIA exception supplies subject-matter jurisdiction, service is properly made, and the exercise of jurisdiction satisfies due process.
- FSIA venue is proper in a district with sufficient statutory connection to the parties or acts giving rise to the action.

## Conclusion

The Second Circuit upheld a federal court’s authority to determine whether a charter party was formed for purposes of enforcing a London arbitration clause and held that a Chinese state-owned shipowner was subject to suit because the dispute fell within an FSIA exception, with personal jurisdiction and venue properly established in the Southern District of New York.


U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 241 F.3d 135 (2d Cir. 2001)