Subject: In re M/V PACIFIC VIRGO
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked]
Date: Tue, 7 Nov 2000 23:58:00 -0800 (PST)

Gentlemen:

1.  I have spoken with David Best about the difficulty Paul Henking has 
encountered so far with getting any agreement from Mitsubishi to delay both 
the joint survey/testing and arbitration in hopes of a settlement.  As I 
understand Paul's suggestion, Paul wants to switch fronts and press our cargo 
underwriters to pay us off and handle the arbitration themselves (Paul, if I 
have misstated your strategy, please let me know).  I understand from Paul's 
e-mail that he does not think Mitsubishi will settle prior to arbitration and 
joint testing.

Unfortunately, while we want to consider all options, neither David nor I 
think that this approach will succeed.  We believe that our cargo 
underwriter's response to our claim will be that they, too, want us to 
proceed with the joint testing before they will consider paying anything on 
this claim.  We should also all recall that ECT performed a pre-sale survey 
of product from the same location that was off-spec.  Although we do not 
think that either Mitsubishi or the cargo underwriters are yet aware of that 
survey, such a survey would seem to raise an inherent vice issue in both 
proceedings.  Last, until at least the joint testing has been done, I think 
that the cargo underwriters would require us to act as a prudent uninsured; 
i.e., to name an arbitrator and vigorously litigate our claims.

Of particular note, Steve Jones, our expert chemist, has notified us that the 
samples taken for joint testing have a shelf-life that may be coming to an 
end in the near future.  If the samples begin to "turn" before the joint 
testing has taken place, the delay of the testing could be used against us in 
the arbitration.  Parenthetically, it also appears that a representative of 
the shipowner's P&I club wants to be involved in the testing.  It may be that 
Mitsubishi, as the vessel's charterer, has placed the head owner on notice of 
our claim against Mitsubishi, and of Mitsubishi's potential claim for 
indemnification against the head owner.

Under the circumstances, David and I agree that we should get the joint 
testing scheduled and done as soon as possible.

2. David and I have also spoken about Paul's idea of advancing payment to 
Mitsubishi for the freight claim of $760,000, and agreeing to revert to 
Mitsubishi regarding the demurrage claim by the end of November.  I assume 
that Paul means that we would in fact pay what we believe we owed on the 
$250,000 demurrage claim at or near that time, and that all these amounts 
would be paid on a "without prejudice" basis; i.e., that ECT could later 
pursue recovery of those amounts in arbitration against Mitsubishi.

The obvious downside of payment is that we lose our best potential leverage 
for bringing Mitsubishi to the bargaining table, but Mitsubishi has resisted 
that leverage so far.  We are very exposed to advance payment of freight and 
demurrage, subject to our later right of counterclaim if we can successfully 
assert that the ship was at fault.  By paying now, we can avoid the 
attorneys' fees (and, hopefully, some or all of the interest) that would go 
with an interim award to Mitsubishi.  I have not been advised of any 
anticipated problem with getting Mitsubishi to fund a substantial arbitration 
award should ECT be successful in proving its contamination claim and 
recouping the freight and demurrage paid.  

Under these  difficult circumstances, both David and I agree with Paul's 
suggestion that we pay the freight and demurrage up front, without prejudice, 
but only after we have informally discussed this on a solictor-to-solicitor 
basis, so that there is no misunderstanding of ECT's intent to pursue the 
contamination claim, and after a tribunal has been agreed to and any other 
concessions extracted that we can think of.  This will prevent Mitsubishi 
from dragging its feet after we make this payment.  

3.  David and I have spoken about the choice of arbitrators for this 
single-arbitrator proceeding.  He and Neale agree that using a Q.C. would 
give us the best shot at a well-thought-through legal opinion, and here, our 
best argument may be simply to argue that Mitsubishi has not borne its legal 
burden to provide a cargoworthy ship.  Based on David and Neale's suggestion, 
I have asked David to approach Mitsubishi's solicitors on an informal basis 
to discuss three Q.Cs that David and Neale find acceptable, and determine 
whether Mitsubishi's solicitors also find them acceptable.  Once that occurs, 
I will revert back to each of you with a recommendation of a single 
arbitrator.  That should hopefully occur today or tomorrow.

I will continue to keep you advised.

Britt