Massachusetts Trustees of Eastern Gas & Fuel Associates v. United States

PETITIONER:Massachusetts Trustees of Eastern Gas & Fuel Associates
RESPONDENT:United States
LOCATION:Hooper’s Restaurant

DOCKET NO.: 137
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the First Circuit

CITATION: 377 US 235 (1964)
ARGUED: Feb 24, 1964
DECIDED: May 25, 1964

Facts of the case

Question

Audio Transcription for Oral Argument – February 24, 1964 in Massachusetts Trustees of Eastern Gas & Fuel Associates v. United States

Earl Warren:

Number 137, Massachusetts Trustees of Eastern Gas and Fuel Associates, Petitioner, versus United States.

Mr. Fort.

J. Franklin Fort:

Mr. Chief Justice and may it please the Court.

This case involves two questions arising under the Merchant Ship Sales Act of 1946.

The petitioner here chartered 10 ships during the years 1946 and 1947 under that Act, and the argument revolves around whether a statutory provision fixing the charter hire is paramount over a contractual provision which we claim differs from the statute.

The statutes that are involved, Your Honors, are set forth in a foldout sheet to our brief, the petitioner’s brief.

We have set forth there that the relevant statutes, the provisions of the applicable regulations, the first form of charter that the Maritime Commission used, and in the last column, the form of charter which is in issue here.

In substance, the Merchant Ship Sales Act was designed to dispose either by sale or charter of the large fleet of war-built merchant vessels resulting from World War II.

The statute provided for the fixing of a basic monthly or annual charter hire and for a — the sharing of profits with the government arising out of the operation of the chartered vessels.

The first section in concern is Section 5 (b), which you will see up at the left-hand corner of the foldout sheet, which says, in substance that the charter hire, the fixed charter hire shall be in an amount not less than 15% of the statutory sales price of the vessels as fixed for sale under the 1946 Act.

The second section, Section 5 (c) states that the provisions of certain sections of the Merchant Marine Act 1936, including Section 709, shall be applicable to charters made under this section and 709, which is the principal statutory provision in question here is quoted at the bottom of that column.

That says that every charter made by the Commission pursuant to the provisions of this Title shall provide whenever at the end of any calendar year, subsequent to the execution of such charter, the accumulative net voyage profit shall exceed 10%, and I’m giving you the substance now on the ca — charter’s capital necessarily employed, that the charter shall pay over to the Commission as additional charter hire, one-half of such cumulative net voyage profit.

In the next column, you will find the regulations, the regulation relating to the fixed 15% hire, reiterates and summarizes the statute, the regulation relating to the profit-sharing hire, the 50-50 division of profits describes this as a mandatory provision in the charters and provides for one-half.

The third column is the original charter which the Maritime Commission used with the industry which provides for a one-half division of profits with the government.

And in the last column, you will find the provision of the charter, Clause 13, at the bottom, of which we complain.

In substance, what happened was that the Maritime Commission took Section 709 (a) and rewrote it to include a sliding scale of additional charter hire up as high as 90%.

And the first controversy here is whether they had the legal authority to charge the excess amounts.

Now, the Ship Sales Act form of charter was adopted in September 1946.

The Maritime Commission fixed the basic annual hire, and I’m using liberty vessels now for purposes of illustration because they were the type of this company charter, fixed a basic hire of $96,000 a year for those ships payable, irrespective of profits and losses.

That was about $14,000 more than the minimum that they could have fixed per annum under that section.

They then proposed this sliding scale of additional charter hire for the charterers and the industry associations objected to it and after these objections were raised, the provisions of the charter were amended.

A further provision was added to Clause 13 which is not on the foldout sheet but which is at page 7 of our brief in a footnote stating that any payments of additional charter hire based on profits which were made under that clause would be tentative and preliminary until the final audit of the charterer’s accountings for profits and losses and that the — at the time of the final audit, an adjustment would be made and amounts refunded to the charterers as may be required.

Now, that clause has been the subject of some litigation.

We’ve cited the cases in our brief.

It’s been admitted that it was put in there to protect our position with respect to our dispute as to whether the charter provision calling for this sliding scale of additional charter hire conflicted with the statutory provision.

Arthur J. Goldberg:

(Inaudible)

J. Franklin Fort:

Yes, it is, Your Honor.

And I won’t go into the details of — of that.

I think the record is clear.

The District judge in this case found that we have reserved our rights and that we have relied on — on those rights in — in holding — holding back and raising the issue at a later time.

J. Franklin Fort:

And there are a series of regulations and I will quote you — we quote one on this foldout sheet, toward the bottom of the second column.

It says, “Referring to this additional charter hire, such payment shall be deemed to be preliminary and subject to adjustment that come — upon the completion of audit by the Commission covering the period involved.

And neither the tender thereof by the charterer nor its acceptance by the Commission shall prejudice the rights of either under the applicable bareboat charter agreement or otherwise.”

Now of course, the petitioners signed the form of charter subject to the reservation.

And after their accountings were in, there were some minor matters to be settled.

As a matter of fact, several disputes were settled within the framework of — of the — of the charter.

The remaining dispute was this question involving the sliding scale of additional charter hire and one other question which I’ll come to later.

We have litigated this question in numerous courts.

There are nine decisions squarely in point.

They range from a decision which says that we are absolutely right and there shouldn’t be any doubt about it to the decision of the court below which indicated that they thought the decision in our favor had been lost in a Forest of Pedagogy and —

(Inaudible)

J. Franklin Fort:

In a Forest of Pedagogy.

The decisions — the divergence in the reasoning of the decisions seems to be this.

The Government has argued that Section 709 (a) which provides for the inclusion of this 50-50 profit-sharing clause really fixes a minimum that it is drafted for the benefit of the Government and that any amount in excess of 50% could be contracted for outside of the scope of the statute.

Relying upon the first sentence of Section 5 (b) which says that the charter hire for any vessel chartered under the provisions of this section shall be fixed by the Commission as such — at such rate as the Commission determines to be consistent with the policies of this Act.

And they stopped there.

But our argument is of course that the next word in that statute is “but”.

And there followed numerous restrictions on what decisions the Maritime Commission can make in respect to this charter hire.

The first one is that the rate shall not be less than 15% per annum unless four members of the Maritime Commission decide that it may be.

The second restriction is the restriction imposed by Section 709 (a) which says that every charter shall contain a provision providing for an even division of profits with the Government.

Further, and we argue this that it’s quite obvious from the legislative history as well as the plain language of Section 5 (b) itself, that they were not talking in that section about any discretion with respect to the fixing of profit-sharing.

They talked about a rate of charter hire fixed in advance, payable annually based upon the statutory sales price of the vessels being sold.

And that in our view does not authorize any profit-sharing arrangement.

Furthermore, the first part of that section, which speaks of charter high — hire being fixed by the Commission as such rate as the Commission determines to be consistent with the policies of this Act, cannot be interpreted to permit a profit-sharing arrangement which was inconsistent with the next section of the Act which fixes a profit-sharing arrangement of 15%.

And further, the legislative history indicates — the legislative history of Section 5 (b), which we quote in our briefs indicates that Congress was consistently thinking of a — of a fixed charter hire based on a percentage.

Originally, the percentage proposed to Congress was 8.5% of the statutory sales price which was a figure derived from the 1936 Merchant Marine Act and it kept progressing.

The next draft of the legislation fixed a rate of 12.5% and the third proposal was of 15%.

And when they put the 15% in there, the Congress considered that might be too high a rate and they therefore added the sentence at the end which would permit the 15% to be lowered.

Now the — the Government as well as the court below took the position that the provisions of 709 (a) should be construed as a minimum profit-sharing arrangement on the theory that it was the purpose, a dominant purpose of the 1946 Ship Sales Act to sell vessels rather than to charter them.

But obviously, Congress intended that vessels should be chartered or they would not have put that authority in the statute.

J. Franklin Fort:

And it is clear also from the legislative history that Congress expected the chartering program to aid in the rehabilitation of the post-war Merchant Marine as well as the sales provisions.

There were a number of companies who — none of the companies had ships available right after the war and the chartering would fill-in their needs for vessels while they were either reconverting vessels which had been converted to military use or while they were constructing new vessels.

In the — as I indicated before, Section 709 (a) comes out of the 1936 Merchant Marine Act.

In the case of that Act, there is no question but that the profit-sharing arrangement is a 50-50 minimum and maximum arrangement.

The legislative history is clear on that and we of course argue that there should be no distinction between the interpretation of the section in the 1946 Act and there is the interpretation of the section in the 1936 Act.

I might say, Your Honors, under this bareboat form of charter which the Maritime Commission promulgated, that all the risk of laws was on the charterers.

The ship was turned over to them in a bareboat state.

They were to man the ships, to supply them, to insure them, to keep them in repair, and redeliver them to the Government at the end of the charters.

If they lost money, the loss was on them, but in the meantime, the Government would be receiving this 15% basic charter hire.

The second question which we have for — before Your Honors is one that we refer to as the split accounting in 1947.

In the middle of 1947, the shipping market declined quite markedly.

The Maritime Commission and — but before that, during the year 1947, there had been substantial profits.

The Maritime Commission became concerned that if there would be a turn in the market and they left the ships in the hands of the companies, that the high profit-sharing rates of 90% might be diluted by losses which occurred later in 1947.

So, in August of 1947 they sent telegrams to all of the charterers and said that they were terminating the charters on 15 days notice but that the charterers might continue the use of the vessels if they would agree that the profits earlier in the year might not be offset against any losses which they might sustain later in the year.

Now, the companies of course had developed their trade routes and were trying to get back in the business and this abrupt termination would’ve been quite serious to them because they had continuing charters which they had signed going on into the end of the year and into the next year.

So, they signed an addendum to the contract called the Foreign Trade Addendum, the principal provision of which was that for profit-sharing purposes the year 1947 would be divided into two parts as of September 1, 1947 and that the profits before that date would be accounted for separately from the profits or losses which they turned out to be after that date.

The — there was no termination of the charter.

The ships were not redelivered to the Maritime Commission.

The — they simply amended this term and one or two other terms in minor respects but the principal term which — to which we have — to the — the companies objected was this divided accounting term.

Now the — the effect of this particular requirement on this petitioner was that, after the charter was over, under the regulations of the Maritime Commission, it had suffered an overall loss of $50,000 on the charter and the Government took some $500,000 of profits for the period prior to September 1, plus, $700,000 of the basic charter hire which was paid monthly on the charter.

So that the Government received about $1,200,000 from the charter and the company lost $50,000.

The court below, in respect to this issue — well, to get back to — to the complaint we have here, the Section 709 (a), to get back to that section, says that every charter made by the Commission pursuant to the provisions of this Title shall provide that whenever at the end of any calendar year subsequent to the execution of such charter, accumulative net voyage profit is so much, then the profit shall be shared 50-50.

Our contention is that that section not only fixes a 50-50 profit-sharing division with the companies but that it requires that accounting be made on a calendar year basis under the charter.

And that it was a violation of this section as well to require the companies to agree on some other accounting basis rather than the calendar year, in other words, to split the year in two parts.

The court below and the Government, both point out that — take the position that 709 (a), that’s mandatory, as we say, provision of the statute merely fixed minimum terms.

And that any terms, although in conflict with this section which were more beneficial to the Government could be provided for by contract.

We say the law is otherwise that this is a mandatory section and they could not change our basis of accounting simply for the purpose of attempting to get more additional charter hire out of the companies than the statute required.

(Inaudible)in your —

J. Franklin Fort:

What —

— present contract —

J. Franklin Fort:

On this —

— asking you to litigate these questions?

If you have to rely on the fact that this contract was in excess of the —

J. Franklin Fort:

No, no.

We — we have — we have reservation clause — we have a reservation clause in the contract, a general reservation clause which I referred to earlier.

And we have the regulations of the Maritime Commission issued pursuant to that reservation clause which state that our rights are reserved under the contract or otherwise.

And that reservation applies equally to this problem, as well as to the problem of the sliding scale of additional charter hire.

(Inaudible) string to this argument is that its ultra vires anyway, is that it?

J. Franklin Fort:

It’s inconsistent with the statute that the con — the addendum to the contract was inconsistent with the statute because the statute requires calendar year accounting and they made us divide the accounting into two parts into — in one calendar year.

Now, if Your Honors please, while this case deals with charters entered into under the Ship Sales Act of 1946, I think that the decision of this Court may have an impact on the administration of the Merchant Marine Act of 1936 which is of course the Act under which the Maritime Commission subsidizes the shipping industry at the present time.

There are other sections of the — there are sections of the Merchant Marine Act of 1936, such as Section 606 (5), which is on page 52 of our brief which were of course passed at the same time that Section 709 was passed, where there is a provision that every contract entered into under the Merchant Marine Act of 1936 shall provide for a 50-50 division of profits with the companies arising under the subsidy agreements.

There are many other provisions of that Act which speak in mandatory terms.

And if this Court holds that some general grant of authority, either in the 1936 Act or, in this case, in the 1946 Act, permits the Maritime Commission to modify these mandatory provisions on the theory that they fix minimum requirements, then it will undermine the administration of the 1936 Act and — and permit in effect, the government agency involved here to — to rewrite in our view the mandatory provision set down by Congress after considerable debate and discussion.

Going through one other point, Your Honors, the — the decisions which have been against us have implied that the companies were making tremendous profits out of these charters if they could use them in the world, in the open market that the market was high and for that reason they seem to feel if there’s some justification for — in our view, stretching the statute to permit the sliding scale, although it speaks in terms of 50-50.

We don’t agree that that argument is material but I would like to say a word about it.

In the first place, after World War II, the United States really had a monopoly of vessels which were available for charter or sale.

There were some 4,000 vessels that were built during the war, 20 million tons of shipping.

In handling the chartering program, the Maritime Commission was careful to specify in the charters and their regulations that the ships could only be used on certain routes that they could charge only certain rates to the shippers and that in some cases the sub-charters were negotiated with the — with the shippers on the basis of cost.

In this way, the Commission itself confined the profits of the industry and you will find that not all of the companies had profits in excess of — of the — that were subject to recapturing excess of the 50% rate and a great many of them had no claims.

It’s only the ones that have come to court that involved the payment of this additional charter hire at the higher rates of the sliding scale rates.

So that, we say that the profits — the Maritime Commission attempted and accomplished a squeezing out of the profit element in these charters when they made the charters, and that any argument that’s based on exorbitant value or excessive profits is not material in this case.

And further, one last point, obviously the — in the case of all of the companies, if they made — even at the 50% rate, made profits, their share of the profits was of course subject to income tax which again would have the impact of — of leveling off the profit factor in these charters.

I’d like to reserve the rest of my time for rebuttal.

Byron R. White:

(Inaudible)

J. Franklin Fort:

I think —

Byron R. White:

(Inaudible)

J. Franklin Fort:

Well, I — I don’t think I would admit that, Your Honor.

I think that this Section 5 (b) in itself is so restricted in the nature of the rate to be fixed that there would be a question about that.

(Inaudible)

J. Franklin Fort:

But I think that the presence of 709 (a) in the Act makes it abundantly clear if they did not mean that profit-sharing should be dealt with under the — under Section 5 (b).

Byron R. White:

(Inaudible) — do you suggest (Inaudible) profit-sharing at all.

J. Franklin Fort:

I — I don’t think it does read in conjunction with 709 (a) and I think there would be a doubt it even if 709 (a) were not in the Act.

But I — we would have a different case then, Your Honor.

Byron R. White:

And your second point turns on whether there was or was not a termination of the charter?

J. Franklin Fort:

It depends upon whether the termination —

Byron R. White:

But if there was, are your — are you — do you lose that point if there was a termination of the charter?

J. Franklin Fort:

No, I think not, Your Honor.

There — well, there was and there was not a termination.

The ships were not redelivered and all they did in substance was change this one provision.

Byron R. White:

Were just saying they were terminated?

J. Franklin Fort:

Yes, it’s all — it all depends upon what the court — how the court views the — the documents which we signed, whether they regard that as a new charter or simply a continuation of (Voice Overlap) —

Byron R. White:

But if there was a termination of the charter and a new charter was issued, the annual accounting feature doesn’t — wouldn’t worry anybody, would it?

J. Franklin Fort:

If there were a new charter of a new vessel, not under the old charter, then your accounting would naturally start when the new ship was —

Byron R. White:

And the old one would end when the old charter ended.

J. Franklin Fort:

If — if the old charter had ended, that’s correct.

Byron R. White:

So, it’s all a question of whether what happened can be interpreted as a termination.

J. Franklin Fort:

Yes, that’s right, Your Honor.

And — in on that point, we — we rely upon the — the reason given by the Maritime Commission for sending out this notice of termination.

The reason was that they wanted to segregate the earlier profits.

That was the reason they gave for terminating the charter.

It was not that they wanted the ships back or they wanted to chart them to someone else or they wanted to contract the fleet.

It was simply because they were afraid that the profits which had previously accrued to them at the higher rates might be dissipated.

Byron R. White:

Do — is your plans — did the charters have the — have the — I suppose if they had wanted to they could’ve returned the ships and then taken them back again under a new charter.

Who would’ve wanted to have done that, anybody?

J. Franklin Fort:

Well, no.

No one would want to do that, Your Honor.

Byron R. White:

I mean if the cha — if the — your client said they’d wanted to keep the ships and accept the amended terms, they weren’t very interested in — in returning the ships.

J. Franklin Fort:

Well, that wouldn’t be a most uneconomical (Inaudible).

Byron R. White:

Yes.

So that — that fact doesn’t become very persuasive if they weren’t turned in, does it?

J. Franklin Fort:

Well, I think it — it all revolves, Your Honor, to the — resolves itself into the question of — of why they did this and whether they were not trying to circumvent the provisions of Section 709 (a).

There are a number of cases that say that if the purpose of the execution or amendment of a contract or the exaction of a condition is to circumvent a mandatory provision of the statute, then what was done will be regarded as a fiction, and we contend that this was a fiction, a —

Byron R. White:

(Inaudible)

J. Franklin Fort:

— fictional termination.

Byron R. White:

This same thing had happened on December 31st, you wouldn’t say there was a — there was not a termination or there was?

J. Franklin Fort:

Well, I don’t think we would have a question if it happened on December 31st.

Byron R. White:

You just wouldn’t have raised it.

J. Franklin Fort:

Although — I — I won’t — I won’t admit that, Your Honor.

It depends upon what happened after December 31st.

If it happened — we wouldn’t have the question because we would be on a calendar year basis there.

Byron R. White:

But it still would be a — it still would be a perfectly sensible question to ask whether the charter terminated or not?

J. Franklin Fort:

Well, no.

The — the charter — if — if the same thing had happened here on December 31st, I think we would have the same question, the same question as we have here.

Because what they then would’ve done would have been to say that your accounting for additional charter hire terminates on December 31st and you start off anew on January 1st.

And there, you come back to another question which has been in the courts under these charters as well, as to the meaning of cumulative net voyage profits.

The courts have held — the Fourth Circuit has held that accumulative net voyage profits mean the combining of profits from year to year over the entire period of the charter.

And if the Maritime Commission attempted to prevent that accumulation from year to year, that it would be contrary to that statute.

And that is precisely what happened and the Commission had a regulation which said that you could carry forward losses from one calendar year to offset profits in the next calendar year but that you could not carry forward profits in one calendar year to offset losses in a subsequent calendar year.

And the Fourth Circuit has held that that regulation was improper.

That this statute means that you take the charter in its entirety from beginning to end and you accumulate the results of voyages in every given year and that you also, in computing the profits, offset profits and losses which occur from year to year.

Byron R. White:

(Inaudible) say in the charter or elsewhere that that Clause 13 rested upon 709?

J. Franklin Fort:

Well, I — I think —

Byron R. White:

They did it — set of regula — in a circular — public circular or something, isn’t it?

J. Franklin Fort:

No, they never said that, Your Honor.

Byron R. White:

What?

J. Franklin Fort:

They never said that but I think if you will read the — the underlying memoranda here you will see that they were changing 709 (a) and I can —

Byron R. White:

Yes, but I’m — is there any indication that the Commission ever relied on 5 (b) for this count?

J. Franklin Fort:

No, there is not.

Byron R. White:

And did the courts below rely on 5 (b)?

J. Franklin Fort:

The courts below, in effect said that even though the Commission had relied on 709 (a) when they made this excess charge that it could be ratified under 5 (b) later.

J. Franklin Fort:

That’s —

Byron R. White:

By the courts?

J. Franklin Fort:

By the courts.

And of course we — we dispute that and there are a number of cases on that point.

We say that it can’t — that the sliding scale can’t be retroactively validated under a section of the law on which the government agency never relied when it — when it made its finding.

Earl Warren:

Mr. Barnett.

Wayne G. Barnett:

Mr. Chief Justice, may it please the Court.

I want to emphasize at the outset what the shipping lines are seeking.

In this litigation, the related litigation, is a windfall.

It’s a windfall of millions of dollars.

They were offered charters at a very low fixed rate on condition that they agreed to pay to the Government a high percentage of any excessive profits, specifically 50% of its profits in excess of 10% return, 50% of the first $100 a day per ship, 75% of the next $200 a day per ship, and if there were profits in excess, even of $300 a day, 90% of those excessive profits.

The shipping lines were not entitled to be given charters or to be given charters on more favorable terms, and they were in no way required to accept the charters.

They chose to do so presumably because they though the terms were advantageous.

And even now, they do not claim that the total hire paid under the charters was greater than the fair value of the ships and in point of fact, it was considerably less than the world market rate.

Now having gotten the benefit of their contracts, they asked the court to revise the bargain to give them even more favorable terms.

They do that on the ground allegedly that a part of the consideration provided for was provided for in a form forbidden by Congress.

And the remedy they asked is that the court excise from the contract that additional part of the consideration but otherwise to enforce the contract despite the failure of consideration, according to its terms.

Now specifically, they agreed to pay a fix rate equal to 15% of the statutory sales price, plus up to 90% of excessive profits.

What they asked the court to do is to give them the benefit of the contract, agreed to by no one, at a rate equal to the same low fixed rate plus only 50% of the excessive profits.

Now, the result obviously have no relationship to the contract that was agreed to.

But more than that, I want to show it would have no relationship to any contract that the Commission would ever have agreed to had it been told in 1946 that it could not use this form of contracting.

Now, I think that’s self-evident simply in the relationship of the low fixed hire and the high percentage of profit recovery, but we have more than that in this record.

Earl Warren:

(Inaudible) provide for that accelerated rate than the original contract?

Wayne G. Barnett:

Oh, the — they did provide it in the original contract issued under the authority of the Ship Sales Act of 1946.

Some of the vessels had been leased, I would develop this history, had been leased under — actually, be — when the Ship Sales Act was passed in 1946, the Commission established a policy committee, a special policy committee, charter committee to advise it on the terms on which it should charter — charter vessels.

Now in the interim, before the — the 1946 Act was implemented, the War Shipping Administration, under its preexisting emergency war time powers, had chartered vessels.

Now, the War Shipping Administration had done so at a rate equal to 15% of the statutory sales price, basically the same fixed rate that these contracts provide for, plus only 50% of the excess profits.

Now, the policy committee that was appointed, with high-level officials of the Maritime Commission, immediately and unanimously agreed that those rates were entirely too low, that they permitted exorbitant profits and if they were continued, it would undermine the whole purpose of the Act, namely to sell ships not — not to charter ships.

The purpose was to get the Government out of the shipping business and to sell ships.

Chartering was tolerated only as a necessary interim measure to satisfy the world’s needs for shipping.

Wayne G. Barnett:

There were not sufficient tonnage available and until the privately owned fleet was reestablished, it was necessary to allow the Commission to charter vessels for use during the interim period.

And, the Commission — the committee unanimously agreed that the existing rates charged by the War Shipping Administration would frustrate that policy and must be increased.

There was no question whether they should be increased.

The only question was how.

The committee thought it preferable not to increase the fixed charge but rather to increase the percentage of profits to be recaptured.

It argued that while shipping rates generally were very high, there were some trades which were less remunerative and — and in those, a high fixed charge could not be paid.

And it was impracticable to negotiate different terms for each chartered, depending upon the trade the ship was going to be used in.

And much more convenient to provide the increase in the form of profit-sharing which would provide an automatic adjustment of the total hire to the profitability of the particular trade.

In addition they argued that a decline of shipping rates could be anticipated as the immediate post-war demand slackened and as other capacity became available.

And that a flexible rate, i.e. the greater profit-sharing rate, would provide the needed flexibility and adoptability.

Now one member — one member of the committee disagreed with that recommendation.

He argued that the terms of the Act consistent with the policy of discouraging chartering and encouraging purchase required that they set a fixed rate more nearly equal to the world’s shipping rate, the world charter rate for the prevailing market rate.

And he urged that they more than double the fixed rate, 15%, I think up to about 34% which was still below — at least below the world rate, at least as he computed it.

Now, the Commission itself initially — initially directed the — after the — there were actually two co — two study committees and after the first one reported, the Commission initially directed it — they had recommended not raising the fixed rate but increasing the profit-sharing rate.

And the Commission initially rejected that proposal and told them to go back and come forth with a proposal to increase the fixed rate.

Actually, they reconstituted the — the advisory committee.

But the new committee persisted in its view that a — it’s a much preferable way to increase rates to increase the rate of profit-sharing.

And ultimately the Commission agreed with the advisory committee and adopted — kept the rates, the fixed rates at the rate charged by — basically the same rate charged by the War Shipping Administration but increased the rate of profit-sharing and finally settled on the sliding scale formula, a 50% at the first $100, 75% of the next $200, and 90% of any excess over that.

Now, all this is unique — uniquely documented in this record which contains not only the reports of the two committees and the minutes of the Commission’s meetings, but a very long detailed affidavit by a member of one of the committees on the evolution of the chartering policy.

Now here, the shipping lines asked the Court to excise from the contract the increase in the profit-sharing rate but otherwise, to enforce the contract according to its terms.

In effect, they claimed the right to retain the use — the benefit of the use of the ships but to pay for them only 15% of the statutory price plus only 50% of the excessive profits, precisely the rates that the Commission and the committee were in unanimous agreement permitted exorbitant profits and would wholly undermine the purposes of the Act.

Now —

Earl Warren:

Mr. Barnett, may I ask you, was the Act of 1946 specifically enacted for the purpose of raising this 50% rate for the — for the excess profits?

Wayne G. Barnett:

No, Your Honor.

My argument —

Earl Warren:

I thought you said that the 1900 and 1936 Act, the —

Wayne G. Barnett:

Oh, no.

Earl Warren:

— the 50% was the most that the Government could take.

Wayne G. Barnett:

No, no.

The — the 1946 Act, it’s —

Earl Warren:

1936

Wayne G. Barnett:

The three — the 1936 Act made mandatory the inclusion of a clause providing for payment of 50%.

Earl Warren:

Yes.

Wayne G. Barnett:

And the 1946 Act adopted that provision requiring that clause.

Earl Warren:

Yes.

Wayne G. Barnett:

What I’ve been talking about is the administrative practice.

The War Shipping Administration under — not under the 1936 Act, under a separate authority, a war time authority, had chartered ships at 50% —

Earl Warren:

Well —

Wayne G. Barnett:

— with the profit-sharing.

And —

Earl Warren:

What I was — but I was wondering about, they had a — they had a contract here for the chartering of the — of the ship.

What was the intention of Congress in passing this law so far as existing contracts was concerned?

What if for the purpose of accelerating the — the part with the Government (Voice Overlap) —

Wayne G. Barnett:

No.

Earl Warren:

— on — on these excess profits?

Wayne G. Barnett:

No.

The — the 1946 Act did not as such deal with the contract terms.

It — its policy was however, to sell ships and not to charter them and they required that —

Earl Warren:

That was it from the beginning, wasn’t it?

Wayne G. Barnett:

That’s right, the 40 — of the 1946 Act, that is correct.

But from the beginning in the implementation of the 1946 Act, we’ve always used at least up until 1957, this 50%-75%-90% scale.

That’s the only profit — the only profit-sharing provision that has been used under the 1946 Act.

The —

Earl Warren:

Well, what was it that — that Congress did that called for that change?

Wayne G. Barnett:

Oh, nothing, nothing.

I — I —

Earl Warren:

Oh, I thought you were basing —

Wayne G. Barnett:

I will get —

Earl Warren:

— it upon the intention of Congress.

Wayne G. Barnett:

No.

Wayne G. Barnett:

I — I’ve just been dealing with the — the Commission’s exercise of its judgment in deter — deciding which kinds of contracts would be consistent with the overall policy of the Act.

I haven’t — I haven’t gotten to the question of specific statutory authority.

I will deal with the effect of the incorporation of Section 709 and show that that does not limit their basic authority, contracting authority.

But, I’ve just been showing the evolution of the administrative policy.

My point really has been simply that never would the Commission have agreed to the contract that the shipping lines now seek.

Had the Commission been told in 1946 that it could not increase the profit-sharing rate, it would have and that’s demonstrable from the record, it would have instead increased the fixed rate.

My point is that they are seeking to have the court throw out the increase in the profit-sharing rate but allow them to keep the low fixed rate.

And it is that, I say, that would produce solely a windfall to the shipping companies.

Now, they’re asserting no right of their own to receive a contract on those terms, those specific terms.

They say simply that the addition, the form of the additional consideration is unauthorized and to prevent frustrating the intent of Congress, the Commission should not be allowed to collect it.

But they say, they should be able to keep the contract and all — all the benefits of the contract and pay only the reduced rate.

The fact that giving them the ships at such bargain basement terms would even more flagrantly frustrate the intent of Congress seems to be irrelevant.

Now in fact — of course that would not be the result.

Even if it were true — even if it were true that the Commission did not have the authority to bargain for additional profit-sharing terms the result would be that the whole contract would fall.

The low fixed rate and the high profit-sharing rate are parts of a single system of compensation and if one falls, the other falls, wouldn’t — then the whole contract must fall for the failure of the bargain for consideration.

The parties would then be remanded to the law of restitution to adjust their rights and the shipping lines, having had the use of the vessels, would be obligated to pay quantum valebant, the fair value of that use.

And as it so happens in this case, the fact is that the fair value of that use exceeds the total hire payable under the contract, or at least the Government would undertake so to prove.

The result would be that they would have to pay us more, unless the contract was effective at least to limit their liability.

As — secondly before I — I get to the details of the attack on statutory authority, there’s another answer and that is having accepted the contract and accepted the benefits under it, the shipping lines are estopped and have no standing to challenge the validity of the terms.

I think that is particularly true of a contract which was made not for the benefit of the charterers but for the convenience of the Government.

There’s nothing in the Act that suggest any purpose to benefit charterers.

The purpose of the Act was to sell ships and not to charter them, and chartering was permitted only as an interim measure to satisfy the need for ships in the transitional period.

The purpose was to foster and maintain a domestic fleet.

It is true, but a privately owned domestic fleet and not a chartered fleet.

Now, that being so, the — that the purpose of the chartering was simply to — to get the ships afloat to serve the world’s needs, not to benefit the charterers.

The dealings between the Commission and the shipping lines were simply an arm’s length business transaction.

The only concern of the Commission was to set the rates low enough that there would be people willing to take the ships.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Well —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

The industry, the overall industry interest was to get the ships — to buy the ships.

The industry throughout kept — as the business declined, kept protesting the extent of chartering that the Commission was engaged in.

And the — and the Congressional Committee in authorizing a further extension deplored the extent of chartering and insisted that the Commission tightened up on charter —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Oh, well, no, no.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Sure.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Anybody — anybody is interested to get the best terms available, but you can find nothing in the — in the Act or in the history to suggest a purpose to confer a benefit on those who served as charterers.

They were concerned — Congress didn’t like the Government in the business.

They wanted them to sell the ships and nec — that it was necessary before the private fleet became rehabilitated to have something to carry the grain and coal.

And the heavy demand is part of the rehabilitation program.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

In —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Well, we — we are told repeatedly, and it’s been repeated in all the courts, that the industry protested.

That what it comes down to when you try to find out how they protested was a telegram sent by an industry association saying, “We think the rates are too high — high and besides we question illegality.”

Now, what the legal effect of such a generalized advocates kind of urging is nil.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Now —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Yes.

(Inaudible)

Wayne G. Barnett:

No.

No, no.

I’m not — I — I’m not as sure on these details as I would like to be.

I think there was no protest at all by any of the shipping lines doing the life of the charters.

There was no protest at the time of signing charters.

I think there was no protest at the time of the annual accountings.

The controversy came up after all the charters were terminated and somebody found this argument.

Wayne G. Barnett:

And this has been a after-the-fact argument about their right to get a windfall, get back some of the money they bargained to pay, and that’s all this case is about.

Earl Warren:

When was the (Inaudible) Mr. Barnett?

Wayne G. Barnett:

In this case, I’m —

Earl Warren:

In what — in what year?

Wayne G. Barnett:

I’m told, in this case, 1953.

Earl Warren:

And (Voice Overlap) —

Wayne G. Barnett:

The charter terminated, in this case, 1947.

It was six years after the charter terminated and they raised the question.

The — and of course, since the initial victory, there’s been a plethora of litigation.

Earl Warren:

When was the first initial victory?

Do you recall?

Wayne G. Barnett:

That was 1957 also — that was 1957, that’s right.

Earl Warren:

1957?

Wayne G. Barnett:

Now — yes.

The — when the industry got the idea that they had a claim and started to per — process it generally, I don’t know.

Here, the first time they raised it was in 1953.

Now, I’d like to say that the simplest answer to this case is not estoppel or anything else.

It’s the grounds that Judge Aldrich decided the case on.

And that is that even passing all those questions, passing any deference to administrative expertise, there’s not the slightest substance to the challenge to the Commission’s authority to bargain as it did.

The Act — the basic chartering power is granted by Section 5 (a) and (b) of the Act which are at the Government’s brief at page 46.

Section 5 (a) provides that the Commission may in its discretion charter vessels if in its opinion the chartering would be consistent with the policies of the Act.

Now the policies of the Act as suggested by the title, Ship Sales Act, and in fact the declaration of policy in Section 2 of the Act says that it is declared to be the policy of this Act to foster the development, encouragement — encourage the maintenance of an efficient and adequate American-owned merchant marine, as it further defined as a merchant marine owned and operated under the United States flag by citizens of the United States.

The committee reports likewise emphasized this purpose to sell ships.

The objective of the measure is of course to transfer the Government owned tonnage to private ownership and later in as much as the policy of the measure is to put as many war-built vessels as possible into private ownership.

The Commission is directed not to approve applications to charter unless chartering is consistent with the policies of the Act.

It’s also shown by the Act in the statutory requirement that the Commission prefer applications to buy or applications to charter and by the very stringent time limitations imposed upon the Commission’s chartering authority.

This chartering authority was initially, although it was later extended, to expire on December 31, 1947, about one year-and-three-quarters after the Act.

This is strictly an interim measure to utilize the ships until the privately owned tonnage had been sufficiently augmented.

The — now, as to the terms on which ships will be — were to be chartered, that is governed by — initially by Section 5 (b).

Insofar as it’s relevant here, that provides that the charter hire for any vessel, chartered under the provisions of this section, shall be fixed by the Commission at such rate as the Commission determines to be consistent with the policies of the Act.

Wayne G. Barnett:

Now, at that point, just up to that point, the chartering terms were left entirely to the Commission subject only to the guideline that it was to encourage ship sales and not to encourage chartering as such, but charter only to the extent necessary to take up the slack until the privately owned fleet was — was rehabilitated.

Now, if that provision stood alone, if that were all there was in the Act, I don’t see how there can be any doubt that the Commission, if it thought it the best way to get the necessary ships into operation and yet prevent excessive profits, could have charged a fixed rate plus any percentage of excessive profits it deemed appropriate and can get the charterers to agree to.

That is that this charter would be wholly authorized, there can be no doubt about it, if this is all the Act contained.

I would like to point out also that there would be no doubt that the Commission was authorized to make charters that contained no profit-sharing provision.

That — that’s another implication of 5 (a) and (b).

It didn’t have to under — so far as they’re concerned, have any profit-sharing provision.

So the question is — the only question is the effect of Section 5 (c) in its incorporation by reference of Section 709 of the 1936 Act.

5 (c) says that the provisions of, among others, Section 709 of the Merchant Marine Act of 1936 shall be applicable to charters made under this section.

709 is in our brief at page 48 and 49, and it says that every charter made by the Commission shall provide that whenever the voyage profits exceed 10% return on the capital necessarily employed the charterer shall pay over to the Commission as additional charter hire one-half of such cumulative net voyage profits in excess of 10%.

Now, we agree that the petitioner is quite right that that is a mandatory provision, and he’s quite right that there’s a limitation on the Commission’s chartering power.

As I’ve said, so far as 5 (b) was concerned, the Commission didn’t have to include any profit-sharing provision.

Section 709 (a) takes away that freedom and provides that the Commission, however unwise it may think it is, however much the industry resist it, however inconsistent the Commission may think it is with the statute or with the overall policies, the Commission must include a 50% profit-sharing provision.

If it failed to do so, it actually would be unauthorized and the Government could collect the 50% anyway.

It is a mandatory provision.

Now, the answer however, that this got nothing to do with the issue in this case.

This contract did include a provision requiring the charterer to pay to the United States 50% of excessive profits.

The Commission went beyond what Congress required and in fact required the charterers to pay up to 90%.

It didn’t flout the will of Congress, it want Congress one better.

Congress said you must require them to repay 50%.

We require them to pay up to 90%.

Now, the argument the petitioners make cannot simply be that this is a mandatory provision.

That doesn’t answer the question.

The argument must rather be one about the collateral implications of Section 709.

As I understand it, it’s essentially in occupation of the field theory that Congress in directing that they must include a 50% provision, must have intended to forbid the Commission to bargain for any greater percentage.

Now, the — the argument is —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

— an intelligible one.

I understand the argument, but I don’t understand what possible reason there is for attributing to Congress a purpose to forbid the Commission to bargain for better terms if it could get it.

The — now, it makes —

(Inaudible)

Wayne G. Barnett:

Of course, it makes perfect sense.

It makes perfect sense for Congress to insist on a 50% provision and not leave it to the Commission.

That they thereby assure that the Commission does inadvertently or otherwise set too low rates, at least 50% will be recaptured.

But it makes no sense to leave the Commission free to set all the other terms of the contract, the fixed rates and the other kind of rate, but single out profit-sharing provisions and forbid the Commission to bargain for better terms in terms of profit-sharing.

The — that is — the pur — there was not — as I say, there’s nothing in the Act but just the purpose to benefit charterers.

Why would Congress say that however exorbitant profits may be, even if they exceed $300 a day, you must allow, you must allow the shipping lines to keep half of it?

You cannot bargain for a higher percentage of the profits.

Now, in mandatory direction that you include 50%, however much the industry may resist it, to require that you have a 50% provision, on the one hand.

On the other hand, a provision that you may not bargain for more than that would serve two totally separate disparate, and I think inconsistent purposes.

And I don’t see how a direc — the direction to include the one contains in any way the implication that you may not add on the other.

There is just simply no inconsistency, no basis for contrary implications.

Now, by way of analogy, Mr. Fort has told you there are other provisions of the Act that might be affected by his line of argument.

I would like to point some, too.

Another provision of the 1936 Act that was incorporated in precisely the same fashion in the 1946 Act provides, “Every charter shall provide a mandatory provision that the charterer shall at its own expense keep the chartered vessel in good state of repair and in efficient operating condition.”

Does that mean the Commission may not bargain for the charterer to make capital improvements rather than repairs?

The answer is, of course, it doesn’t.

Perhaps more germane, it also provides, “Every charter shall provide a mandatory provision that, whenever the President shall proclaim that the security of the National Defense makes it advisable, the Commission may terminate the charter.”

Does that provision occupy the field of termination clauses?

Would it make — would’ve make invalid a clause authorizing termination by either party, say, on 15-day’s notice at any time?

Apparently not even the shipping lines are willing to go quite that far for these charters do contain a 15-day termination clause, not limited to the President’s making a determination about National Defense, they can just terminate any time on 15-day’s notice and the validity of that clause would be germane to their second argument.

But it — and none of this litigation for all of the — what seem to be extreme arguments that could’ve been made, no one has ever challenged the validity of the 15-day termination clause on the grounds that the statute requires a clause saying only that the President may determine the interest of National Defense.

Now, the point is the statutory requirement, you include one provision for the benefit of the Government, carries with it no implication at all that the contracting agency may not bargain for better terms.

It only requires that he —

Earl Warren:

Well Mr. Barnett —

Wayne G. Barnett:

— in that term.

Earl Warren:

I’m a little confused about this.

I guess I thought Section 709 (a) of the 1936 Act was incorporated into the 1946 Act.

Am I correct in that?

Wayne G. Barnett:

Yes sir.

Earl Warren:

And I thought that that — that said every charter made by the Commission shall provide that whenever at the end of any calendar year, subject to the execution of such charter, the accum — the cumulative net voyage profits after payment of the charter hire —

Wayne G. Barnett:

Yes.

Earl Warren:

— reserved in the charter and payment of the charter is fair and reasonable overhead expenses applicable to operation of the chartered vessels, shall exceed 10% per annum on the charterer’s capital necessarily employed in the business of such chartered vessels, the charterer shall pay over to the Commission an addition — as additional charter hire one-half of such cumulative net voyage profits in excess of 10% —

Wayne G. Barnett:

Yes sir.

Earl Warren:

— per annum.

Now, it doesn’t say it must pay at least 50%.

Wayne G. Barnett:

No.

No sir.

Earl Warren:

It says it must pay one-half.

Wayne G. Barnett:

You must — you must provide — you must provide that the charterer shall pay 50%.

Earl Warren:

One-half, now, that’s — that was specifically brought into the 1946 —

Wayne G. Barnett:

That is correct.

Earl Warren:

— Act.

Wayne G. Barnett:

That is correct.

Earl Warren:

Now, how do you read that out?

Wayne G. Barnett:

I don’t read it out.

Earl Warren:

How — but what then (Voice Overlap) —

Wayne G. Barnett:

If the Commission — if the Commission —

Earl Warren:

Yes.

Wayne G. Barnett:

— issued a charter that did not provide, did not require profit-sharing at all.

Earl Warren:

I beg your pardon?

Wayne G. Barnett:

If the Commission agreed to a charter that did not require profit-sharing at all, that would be unauthorized.

It must include a provision requiring the charterer to pay 50%.

I agree.

Earl Warren:

Isn’t that profit-sharing?

Wayne G. Barnett:

That is correct.

And it must include that provision.

Earl Warren:

Yes.

Wayne G. Barnett:

I’m not reading it out.

It has to.

If it didn’t, we would still collect — I say, this contract does provide that.

Wayne G. Barnett:

It provides that they shall pay us 50% and more.

And, I say that it —

Earl Warren:

Why does it say, “and more”?

Wayne G. Barnett:

It — the statute doesn’t say “and more.”

Earl Warren:

It says you must make —

Wayne G. Barnett:

The statute says you must provide that they shall pay 50%.

Earl Warren:

No, it doesn’t.

It says “must pay half.”

Wayne G. Barnett:

50%, I am sorry —

Earl Warren:

“Half”.

Wayne G. Barnett:

— half.

Earl Warren:

Now, that’s different from saying —

Wayne G. Barnett:

“Shall provide that they must pay half.”

Earl Warren:

It must pay half —

Wayne G. Barnett:

Right.

Earl Warren:

— to the excess profit over —

Wayne G. Barnett:

The —

Earl Warren:

— 10%.

Wayne G. Barnett:

— this — this contract, I am saying, does require the charterer to pay half.

Half is included in 75%.

They are required to pay half.

Earl Warren:

What?

Wayne G. Barnett:

They are required to pay half and more.

Earl Warren:

Well, this doesn’t say —

Wayne G. Barnett:

This fully satisfies the congressional direction.

Earl Warren:

This — this doesn’t say “half or more.”

Wayne G. Barnett:

Oh, (Inaudible) not in the — alright.

Earl Warren:

It says it must pay half —

Wayne G. Barnett:

Okay, let —

Earl Warren:

— of the excess profit.

Wayne G. Barnett:

Okay.

Let — let me frame —

Earl Warren:

(Voice Overlap) —

Wayne G. Barnett:

Let me suppose a three — a contract containing three clauses.

The first clause, the first clause provides a fixed rate of charter hire.

The second clause is called “contingent basic charter hire” and provides that the Commission — that the charterer must pay the 50% of all excessive profits over $100 and 80% above that.

But, it doesn’t satisfy the statute.

It doesn’t require all the excessive profits.

It’s not a statutory clause at all.

But then, the third clause in the statute — in the contract was in hike thereabout — this — the clause required by Section 709 requiring that after payment under the first two clauses the net voyage profit left, the charterer must pay 50% to the United States.

It would be a clause in the very terms of — of the contract.

It would be preceded by another payment term which was also in the form of profit-sharing, but there’s nothing here to forbid other terms in the form of profit-sharing.

All this does and this insist that there’d be a 50% profit-sharing.

And there’s just no reason to read that as forbidding the Commission to bargain for more if they can get it.

There’s a lot of reason — there’s lot of reason not to require the Commission not to include a provision for more.

It might be unacceptable to the charterers.

But there’s no reason to forbid it to, if it can get it.

Now —

(Inaudible) your argument is that 709 should be read (Inaudible) just as the 1936 provision fixing 15% fixed rate (Inaudible)

Wayne G. Barnett:

That’s the minimum.

(Inaudible)

Wayne G. Barnett:

I — I think — I think it is more like this termination clause.

It — it’s not quite a minimum.

It’s simply a requirement of inclusion of this and not a prohibition of something else.

So the Commission couldn’t —

Wayne G. Barnett:

It — its —

(Inaudible)

Wayne G. Barnett:

That’s right.

You’ve got to include that.

(Inaudible)

Wayne G. Barnett:

Well, alright.

It operates as a minimum but I wouldn’t try to —

(Inaudible)

Wayne G. Barnett:

What — I get it, no.

(Inaudible) inclusion of profit should be read the same way.

Wayne G. Barnett:

Well, alright, yes.

But what I’m — what — yes.

That should be your argument?

Wayne G. Barnett:

Right.

But — but my rationale is that any kind of statutory requirement that you include one particular clause or another for the benefit of the government, such as a clause allowing the President to terminate the contract in times of national emergency, carries no implication that you can’t bargain for broader powers of termination.

There is not a negative implication in a requirement that you include a particular clause for the benefit of the Government.

Byron R. White:

So far as the — under the previous — pre-1946 situation (Inaudible) there, they didn’t — they — what they do?

Bid for charters, is that what they did?

How did they set rates?

Wayne G. Barnett:

The main —

Byron R. White:

By bids?

Wayne G. Barnett:

Yes.

The — the main authority was — there was a special authority.

Byron R. White:

But anyway, in many ways, in any charter that was issued they had to include 709 (a) first.

Wayne G. Barnett:

That’s correct.

Well — well, no.

Byron R. White:

Right?

Wayne G. Barnett:

The practice —

Byron R. White:

Well, isn’t that what it said?

709 (a) —

Wayne G. Barnett:

No.

Byron R. White:

— said — it’s been in there since 1936, hasn’t it?

Wayne G. Barnett:

Oh — yes.

They had to include that.

The question whether the —

Byron R. White:

And my question is, not yours, my question is, couldn’t they — whoever was issuing charters also have, under 709 (a), if you’re correct, prior to 1946, put in a sliding scale up to 90%?

Wayne G. Barnett:

Well, so far as 709 is concerned, I think that is correct.

Now, whether —

Byron R. White:

Well do you think it is correct?

Wayne G. Barnett:

Well, no.

Byron R. White:

Prior to —

Wayne G. Barnett:

I would (Voice Overlap) —

Byron R. White:

— 1946?

Wayne G. Barnett:

No, I would have some question about it.

Byron R. White:

Well, why would you for heaven’s sake?

Wayne G. Barnett:

There — there’s an issue (Voice Overlap) —

Byron R. White:

The minimum?

Wayne G. Barnett:

But they have to include that.

The question whether they could’ve included 90% clause.

Byron R. White:

Well, of course, of course.

Now — now think about it, prior to 1946 —

Wayne G. Barnett:

Well —

Byron R. White:

Before there was a 5 (b), and — and —

Wayne G. Barnett:

But —

Byron R. White:

— and the —

Wayne G. Barnett:

Yes.

Byron R. White:

— Commission puts in a sliding scale up to 90%.

Wayne G. Barnett:

Right.

Byron R. White:

And says, “I’m doing it under 709.”

Wayne G. Barnett:

The question would be —

Byron R. White:

Because what all that does is provided for and I can certainly —

Wayne G. Barnett:

Yes.

Byron R. White:

— go beyond that.

Wayne G. Barnett:

The question would be — the question would be is whether the direction to let the contracts on competitive bidding to the person bidding the highest price is somehow inconsistent with the inclusion of profit-sharing terms because that was the basic authority.

They didn’t have this general grant of discretion.

Wayne G. Barnett:

The Commission was directed —

Byron R. White:

So you do need —

Wayne G. Barnett:

-– previously.

Byron R. White:

— to decide 709, all you say is that this is a limitation —

Wayne G. Barnett:

It is —

Byron R. White:

— on — on — on —

Wayne G. Barnett:

That is correct.

Byron R. White:

You really have to go somewhere else (Voice Overlap) 709.

Wayne G. Barnett:

You’ve got to go back to the basic chartering authority.

There was —

Byron R. White:

Well, let’s go back to 5 (b) in this case.

Wayne G. Barnett:

In this Act.

That Act, it was a — a direction to let the (Voice Overlap) —

Byron R. White:

But the charter never did, did it?

Wayne G. Barnett:

I’d — I believe that the Commission did not, that is correct.

Byron R. White:

Did — did — never — never referred to 5 (b), never thought it was actually under 5 (b).

Wayne G. Barnett:

I’m sorry.

I thought you were talking about the 1936 Act.

Byron R. White:

No, but the Commission in this case.

Wayne G. Barnett:

In this case, that — that’s the ground — I’d like to deal with that.

There’d been — if I may, I’d like to summarize the — the state of the law.

Hugo L. Black:

(Inaudible) is right, whether the 1936 Act did forbade the Commission to get more than 50% of the (Voice Overlap) —

Wayne G. Barnett:

No, that the 7 — Section 709 did not.

There would be a question — you have got to go back to their basic contracting authority.

In the 1936 Act, the basic contracting authority was different.

They were directed to let charters by competitive bidding.

It would a question of whether a direction to let contracts by competitive bidding implies that it should always be a bidding on a fixed price and not authorizing them to include profit-sharing type terms under the basic authority.

Now, I would argue — I would argue in the 1936 Act, you could in competitive bidding have an invitation for bids provided for profit-sharing in addition to that required by 709.

I would argue that.

I’m — i’m prepared for purposes of this case —

Hugo L. Black:

(Inaudible)

Wayne G. Barnett:

Oh, I don’t — I don’t have to.

Hugo L. Black:

(Inaudible) to get more than 50% of the profit if it wanted to?

Wayne G. Barnett:

Well, it — it’s —

Hugo L. Black:

And under the new law than it did under the old?

Wayne G. Barnett:

No, no.

There might be more question under the old.

Hugo L. Black:

I thought under the old —

Wayne G. Barnett:

No, I’m saying there might be more questions under the old.

Hugo L. Black:

I thought under the old, it was written on the basis of trying to protect the Government’s interest to the last notch.

Wayne G. Barnett:

Well, I think the —

Hugo L. Black:

(Inaudible) competitive bidding, they get as much —

Wayne G. Barnett:

1Competitive bidding —

Hugo L. Black:

— for everything they’ve sold —

Wayne G. Barnett:

Yes.

Hugo L. Black:

— is impossible to get.

Wayne G. Barnett:

I think that’s right.

And — and I —

Hugo L. Black:

Yes, but has that been repealed?

Wayne G. Barnett:

I would — I would have read that authority as permitting them to —

Hugo L. Black:

Has that been repealed?

Wayne G. Barnett:

Oh, no.

It doesn’t apply to these vessels.

Hugo L. Black:

It’s what?

Wayne G. Barnett:

This Act, I think, is exclusive as applied to the war — the war-built vessels.

I don’t think the 1936 Act, by its own terms, applies to this fleet, the war-built fleet.

Hugo L. Black:

But has there been any law since then that’s forbidden government agencies to get all they could from these companies?

Wayne G. Barnett:

None that I know of, and that’s really what I’m arguing.

That — we — we — which is entitled —

Hugo L. Black:

And as I understand it —

Wayne G. Barnett:

Yes.

Hugo L. Black:

— the claim here is that the Government Maritime Commission is without authority under the law.

Wayne G. Barnett:

Right.

Hugo L. Black:

To get to agree — will it mutually agree with the shipping company to — for a certain price, they’ll (Inaudible) the profits they’ll share with them?

Wayne G. Barnett:

That’s right.

Hugo L. Black:

So what statute do they point to, to show that that is this case?

Wayne G. Barnett:

I — I think you — you should ask my co-counsel.

I see — I see nothing in this statute that does it.

Now the — there had been five decisions holding invalid, or at least tentatively invalid, the additional charter hire provision four by District Courts and one by the Court of Claims.

Only one of those, only one, disagrees with anything I’ve said thus far, that’s the American President Lines case and it rest in the California District Court.

It’s printed in the petitioner’s appendix.

Now, they have said that 709 carries with it a negative implication.

I at least understand the rationale of that, though much as I disagree that any such implication can be drawn.

The others are on much more obscure grounds.

They start out by agreeing, or at least assuming, for purposes of argument, that the Commission did have authority, did have power, to do what it did.

That is, specifically, they agree in the three clause kind of contract that you could have a fixed — you’d have three-clauses, one is fixed hire.

The second is contingent basic charter hire or something.

It’s a profit-sharing clause and then the third, which is in statutory form, requiring that they pay 50% of the profits remaining after they pay the hire under the first two clauses.

Now by — in the three — four — three clause contract, you can achieve exactly the same results.

All you have to do is the second clause, the first profit-sharing clause.

You leave — you leave the charterer twice as much and then leave it to the third clause to cut him down by half.

So, you can do almost the same thing in as many clauses as you want.

Now — but, I take it, there’s nothing in the Act that requires the Commission to clutter up charters which are already complicated enough by redundant provisions and to use two clauses when one will serve.

So what — what is the objection that those courts have found to what the Commission did?

Whether it is put by petitioner who presumably understands it better than I, it is that, while the Commission could’ve done what it did under Section 5 (b), it didn’t act under Section 5 (b) but acted under Section 709.

All I can say is I don’t understand what he means when he says the Commission acted under Section 709.

Byron R. White:

Do you think the profit-sharing concerned here, 90% is basic charter hire or not?

Wayne G. Barnett:

I don’t — I don’t care what you —

Byron R. White:

You don’t care?

Wayne G. Barnett:

I don’t care what you call it.

Wayne G. Barnett:

The Commission has broad contracting power.

It can contract any way that it sees fit basically, and there’s basic grant of power to contract.

Byron R. White:

Well, the Commission purports to say though that the 90% is going to be figured after the basic charter hire is — is served.

I don’t know why — now, you say — I think you have to care what the Commission thought.

Wayne G. Barnett:

Any time —

Byron R. White:

Well, in figuring your charter hire —

Wayne G. Barnett:

Sure.

Anytime you have a profit-sharing provision, then you of course have to say that the profits we’re talking about are those that are left after the fixed charges come out.

That’s all it says.

It’s the — the profits left after the fixed charges come out shall be split 50-50 —

Hugo L. Black:

(Inaudible)

Wayne G. Barnett:

— or 50 —

Hugo L. Black:

(Inaudible) profit-share?

Wayne G. Barnett:

Well, this is — its excess profit-sharing as defined.

It’s excess of 10% of the capital necessarily employed in the operation.

Now —

Arthur J. Goldberg:

You said, have expressed that the (Inaudible)

Wayne G. Barnett:

Yes.

The —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

That — that’s the argument —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

That’s the argument.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Right.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Yes.

But — but 709 never was, it never will be, a source of authority to do anything.

And how anybody can suppose that anyone ever thought that it was escapes me.

5 (a) and (b) create the basic authority to charter ships, and that’s the only authority the Commission has.

Wayne G. Barnett:

It’s the only authority could’ve exercised and there’s no reason in the world to think that it thought that Section 709 —

Byron R. White:

You read —

Wayne G. Barnett:

— authorized anything.

Byron R. White:

(Inaudible) grant of authority before 1946, was it?

Wayne G. Barnett:

709?

It was never a granted authority.

In 1946 —

Byron R. White:

Except — except for the purpose of —

Wayne G. Barnett:

It was a requirement.

It was a limitation.

It was in — these —

Byron R. White:

Oh, yes, requirement.

It requires you to exercise this authority.

Wayne G. Barnett:

What — but the authority that was —

Byron R. White:

Nobody could challenge the authority of the Commission if it put it — put that provision in the charter.

Wayne G. Barnett:

The — the basic —

Byron R. White:

Even if it was left out.

You say that (Voice Overlap) —

Wayne G. Barnett:

Apart from 709.

Apart from 709, they could put it in or not.

709 says they must.

It’s a limitation.

But there can be no — I — that —

Earl Warren:

What you said (Inaudible) Mr. Barnett is, discretion of the — the Commission to be used in the — the basic charge of the charter not less than 10%.

But when you get to the excess profits, it says that they shall pay half of all the excess profits to the —

Wayne G. Barnett:

Well, I — I can only say I —

Earl Warren:

— to the government.

Wayne G. Barnett:

I — I —

Earl Warren:

Now isn’t — isn’t one — one place where they have discretion and where the other doesn’t?

Wayne G. Barnett:

No.

Wayne G. Barnett:

That they are — they are told to charter ships on the best terms they can get.

But that’s —

Earl Warren:

Now, where do the —

Wayne G. Barnett:

— the basic grant of authority.

Earl Warren:

Where do you find that in there?

I — I don’t find it.

Wayne G. Barnett:

The charter terms on such terms at such rate as they determine to be consisted with the policies of the Act.

It — its — it’s a broad charter to the Commission to carry out the policies of the Act to charter ships.

Now, as a matter of fact, also incorporated into the 1946 Act from the 1936 Act is a provision that said, the Commission may enter into such contracts on behalf of the United States and its — as — as may in its discretion be necessary to carry out the activities authorized in the same manner that a private corporation may contract within the scope of the authority conferred by the charter.

They’ve given broad — initially broad.

I’m not arguing that there isn’t an argument that 709 doesn’t carve down their authority, but the initial grant of authority has no effective limitation other than the 15% floor, such terms as they determine to be consistent with the policies of the Act.

The policies of the Act are to sell ships.

The thing that Congress is concerned about and what the committee report showed, that provision was included, was to tell the Commission, “Don’t make this term so favorable that lines would rather charter than buy.

Make them stiff terms, just enough so that the ships will be available in the post-war emergency period, but not favorable enough to encourage people to charter.

We want them to buy the ships.

We want you to get out of the chartering business.”

That’s all consistent with the policies of the Act mean.

So the initial grant of authority is virtually unlimited and the only — and they could certainly have included such profit-sharing provision under that basic grant of authority.

The question — the only question is whether the incorporation of 709 takes away their authority to bargain for anything more than 50%.

That’s the only question, and my argument is that there’s no implication in requiring that they included 50% clause that they may not bargain for something better than 50%.

Now, I’d like to say — I’ve dealt with this case as though it were an open question to be decided de novo in reading the statute.

Well the fact is, the Maritime Commission is charged to carry out the Act and it not only made an abstract interpretation of this clause, it chartered thou — at least hundreds and hundreds of ships under charters containing this clause.

Now, certainly, whatever is left of the Doctrine of Deference to administrative agencies requires the courts not lightly upset a whole pattern of con — a whole group of contracts executed over many years on the basis of arguable negative implications to be drawn from mandatory provisions.

Arthur J. Goldberg:

Unless (Inaudible) prevails, it might be disastrous for the shipping industry?

Wayne G. Barnett:

Well —

Arthur J. Goldberg:

The Commission might (Inaudible) which would be much more onerous than a sliding scale can do for them.

There’s no argument that the statute could be delivered (Voice Overlap)?

Wayne G. Barnett:

That’s correct.

Then —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

That’s what the internal arguments were about in 1946, which to do?

Whether to raise one or the other?

Arthur J. Goldberg:

Well at least in here (Inaudible) the Government does prevail (Inaudible)

Wayne G. Barnett:

The act —

Arthur J. Goldberg:

And now we change the policy.

Wayne G. Barnett:

Well — and — and — we — we — in 1947, we did change the form of the charter.

Arthur J. Goldberg:

The charter?

Wayne G. Barnett:

I think now we do use higher fixed rates —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

— and 50% profit-sharing.

Not — I don’t think it’s because of this litigation.

It may have been.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Actually — actually there was litigation prior to that time.

They may have just wanted to avoid the question.

Arthur J. Goldberg:

But I’m correct in my initial point.

Wayne G. Barnett:

Yes.

Arthur J. Goldberg:

There’s no argument (Inaudible)

Wayne G. Barnett:

Well —

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Yes.

That’s — that’s quite right.

(Inaudible)

Wayne G. Barnett:

That’s quite right.

(Inaudible)

Wayne G. Barnett:

Yes.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

Oh yes.

Arthur J. Goldberg:

(Inaudible)

Wayne G. Barnett:

That’s correct.

William J. Brennan, Jr.:

Mr. Barnett, did I understand you to say, when you opened your argument, that this is really only a fight over some dollars in the past, any decision would have no perspective application?

Wayne G. Barnett:

I think since the current charters, since 1947, I believe, have included only 50% profit-sharing provision, I don’t think — except for the charters prior to that time, I don’t think the question would now be raised.

It could be raised if the Commission changes the charter policy.

William J. Brennan, Jr.:

Under outstanding charter?

Wayne G. Barnett:

Under outstanding charter.

William J. Brennan, Jr.:

Unless the Commission, you mean, returned to the old —

Wayne G. Barnett:

Yes, it went back to it, yes.

William J. Brennan, Jr.:

— 90% —

Wayne G. Barnett:

That’s right.

Correct.

William J. Brennan, Jr.:

— rate or something like that.

Byron R. White:

I thought you said that the — that Commission had never writ — gone and entered a charter without these provisions in it.

Wayne G. Barnett:

From — from 1946 — from 1946 up through I think 1957.

Byron R. White:

Just for —

Wayne G. Barnett:

All the charters.

Byron R. White:

Only for a year, it included these provisions.

Wayne G. Barnett:

No, no.

For 10 years.

(Inaudible)

Wayne G. Barnett:

From —

Byron R. White:

Well, if you said —

Wayne G. Barnett:

From 1946 –1957, 1957.

Byron R. White:

But since that time, they have been issuing charters with 50%.

Wayne G. Barnett:

Right, right.

But I think with proportionally increased fixed charges.

I’m not certain of that.

I (Inaudible) — the condition of the shipping industry has changed and — and what they now consider to be a proper charge, I’m not familiar with.

Earl Warren:

Mr. Barnett, I understood you to say that the charter in this case terminated in 1947, is that correct?

Wayne G. Barnett:

They — they turned the ships in the lighter part of 1947.

Earl Warren:

Yes, 1947.

Earl Warren:

Now, was there an accounting —

Wayne G. Barnett:

Yes.

Earl Warren:

— and an adjustment before this suit was brought.

Wayne G. Barnett:

Yes.

Earl Warren:

There — there was?

Wayne G. Barnett:

Yes.

Earl Warren:

Did you know how long before —

Wayne G. Barnett:

No.

Earl Warren:

— it was completed?

Wayne G. Barnett:

Do you know when —

Earl Warren:

Is that a matter over the years or?

Wayne G. Barnett:

The accounting — I’m told that the accounting went on through 1940 through 1951.

Earl Warren:

Through 1951?

Wayne G. Barnett:

Now —

Earl Warren:

And that it was two years after that that this suit was brought.

Wayne G. Barnett:

Correct.

The — there has been a lot of litigation on the statute of limitations question.

Earl Warren:

I beg your pardon?

Wayne G. Barnett:

There has been a lot of litigation on the statute of limitations question.

Earl Warren:

Yes.

Wayne G. Barnett:

It’s not before this Court.

It is in this case and we reserve the point and with that we still have that defense.

Earl Warren:

But the — the petitioner in this case actually paid off under the charter and according to its terms —

Wayne G. Barnett:

That’s correct.

Earl Warren:

And then, a matter of years, two or three years later —

Wayne G. Barnett:

That —

Earl Warren:

— it brought this —

Wayne G. Barnett:

That is correct.

Earl Warren:

— it brought this suit.

Wayne G. Barnett:

That is correct.

Earl Warren:

And no —

Wayne G. Barnett:

And at that time of the final payment, it made no protest.

Earl Warren:

There was no reservation in the contract at all.

Wayne G. Barnett:

Oh, I — I would — I would like to — to discuss in the claim that there was a reservation clause in the contract very, very briefly.

I’m told that the Government has admitted that this clause was included to protect the rights of the charterers, and the Government admits no such thing.

Earl Warren:

The Government what?

Wayne G. Barnett:

Does not admit that and in fact I think all you do is read the clause to see that it is dealing with an entirely different subject matter.

Byron R. White:

This is Clause 13?

Wayne G. Barnett:

Yes.

The second part of Clause 13 which is at page 1 — it’s set forth in full at page 182 of the record, 182 and 183.

You will see that the first clause provides accounting annually and requires them to pay within 30 days end of the year.

Potter Stewart:

When did the first of these District Court decisions, the District and —

Wayne G. Barnett:

19 —

Potter Stewart:

— Court of Appeals decision?

Wayne G. Barnett:

1950 —

Potter Stewart:

When did it begin to come along?

Wayne G. Barnett:

1957.

Potter Stewart:

Not until 1957.

Wayne G. Barnett:

Right.

Potter Stewart:

That was the first one.

Wayne G. Barnett:

Right.

Potter Stewart:

1956.

Wayne G. Barnett:

1956?

I’m told 1956.

Potter Stewart:

And, what are there, a total of 89 of them?

Wayne G. Barnett:

There are five, other than this one.

On — on the basic question, there are — let’s see.

There was litigation (Inaudible) — the Second Circuit on the statute of limitations question.

There were earlier questions about admiralty jurisdiction.

I must say, there’s been a lot of preliminary litigation over an issue.

Wayne G. Barnett:

When you get to it, it seems to me, to turn out to be rather disappointing.

But the — the — this —

Potter Stewart:

I’ll — I asked you that because you’ve emphasized the consistent and continued administrative practice as an important —

Wayne G. Barnett:

No, preceded any litigation.

Potter Stewart:

— as an important consideration.

Wayne G. Barnett:

No, oh — oh —

Potter Stewart:

And to be — make clear that that all did precede any litigation.

Wayne G. Barnett:

Yes.

Potter Stewart:

It did?

Wayne G. Barnett:

Yes.

Earl Warren:

Mr. Barnett —

Wayne G. Barnett:

Yes.

Earl Warren:

(Inaudible) what claim of reservation —

Wayne G. Barnett:

Yes, yes.

The — the basic clause provides that at the end of each calendar year, he shall account within 30 days and pay over what’s due.

There was added to the clause a provision that says that the charterer agrees to make preliminary payments on account of additional charter hire at basically any time during the year on demand.

Now, that means that he has had a voyage and has made profits.

The clause doesn’t require him to account for those until the end of the year.

The Government may however, by this new provision, require him tentatively to give us our share of those profits and if he has losses later during the year, we will then, on the later accounting, adjust for that and pay it back.

So, this is a provision for tentative payments during the life of the contract and it provides that no payments of this sort will prejudice anybody’s rights.

Of course they don’t prejudice anybody’s rights.

It’s just a payment on account and then at the end, you towed up the profit and loss and who is entitled to what share.

Now, I have only a few minutes.

I want to deal very briefly with the second question on this split-year accounting.

In December of 1947, December 1947, the shipping industry which have previously been very profitable, the immediate post-war demand and the shortage of ships had produced very great profits and most of the charterers had large profits.

By 1947, the demand had slackened and the fleet had been increased.

There was excess tonnage.

Many complaints were made to the Commission about the excessive number of chartered vessels afloat and the committees of Congress complained about it and wanted the Commission to do something about it.

They were undercutting the privately owned fleet.

And, after all, the purpose of that was to move the privately owned fleet and the charterers were out undercutting the privately owned fleet.

Wayne G. Barnett:

It was reported that they were operating at losses.

Now, since they had the right to terminate the contract on 15-day’s notice, it may be wondered why they continued to operate at losses undercutting other people since they could always turn the ship back.

But the fact is that there was an unintended — this is an unintended effect of the progressive rate of profit-sharing.

Now, the first profit which was 10% of return, which — by the way, for convenience, I could reduce that 10% return to a fixed amount a day.

It works out to be basically a fixed amount a day.

Let’s say its $20 a day, represents the 10% return.

So, the structure of the contract was the first $20 the charterer kept.

The next $100 he split 50-50 with the Government.

The next $200 he split 75 to the Government, 25 to the charterer, and anything over that was 90% to the Government.

Now, it was on a per day accounting basis.

Now, the more days — if he had — he had profits in the beginning of the year that were in the 90% bracket, the more days that he had stay — he was afloat, he could use in the accounting, with making no additional profits, he could reduce — he could take the 90% money and put it down in a lower bracket so that it paid a charterer who had beginning of the year profits to continue to operate even if necessary at a loss.

He could not afford to turn the ship back.

I — I can demonstrate that.

I had an example some place.

Here it is.

If he had $640 profits in one day, just take a very simplified case.

One day, you have $640 profits.

The charterer would keep only $152 of that.

Most of it, $320 of it, will be the 90% bracket.

He could keep only $152.

If he could spread that same profit over two days, he would keep $240 of it.

So — and, in fact, on the second day, so long as he didn’t suffer a loss after $340, he was still ahead.

So, the fact of this progressive rate structure, I think, unanticipated, as it turns out in 50 — 1947, was that charterers were continuing to operate at a loss with the pressure of the — beginning of the year profits forcing them to.

They made money by operating in a loss, which is at — not what Congress wanted assuredly to have the charterers out undercutting the private fleet and carrying trade at a loss.

Now, it was to force charterers to turn in their ships if they didn’t have profitable use of them, that the Commission terminated the existing contracts and require the charterers, if they want to keep the ships, to agree to an addendum requiring them to account separately from thereon so that anybody who didn’t foresee, who was engaging in loss traffic, couldn’t afford to continue.

It didn’t pay him any longer to continue to engage in loss traffic and he would turn it in, and it was effective.

Byron R. White:

(Inaudible)

Wayne G. Barnett:

No, no.

1947?

No, it was 1946.

Wayne G. Barnett:

In 1946 we — they adopted the provision that is in this contract.

That was adopted in 1946.

(Inaudible)

Wayne G. Barnett:

In — in 1946.

Actually, the Eastern Company had held some more shipping administration charters.

In 1946, those were terminated and they signed the new form of contract in 1946.

There’s no issue about that.

The issue about the termination is in 1947.

In the summer of 1947, in order to prevent these excess chartered boats from staying out in the traffic and demoralizing the traffic, the Commission found it necessary to terminate and require them, if they wanted to keep the ships, to do so under a new contract.

Let me say, this fully is in accord with their rights under the contract and I think, fully consistent with the policies of the Act.

Thank you.

Earl Warren:

Mr. Fort.

J. Franklin Fort:

May it — may it.

Earl Warren:

(Inaudible)

J. Franklin Fort:

Yes.

Earl Warren:

(Inaudible) that on the argument of Mr. Barnett that the shipping companies entered into these charters in 1946 with their eyes open and made no protest against this excess — this excess profit-sharing and completed the — the charter.

J. Franklin Fort:

Yes.

Earl Warren:

And received their money for it and then, two or three years later, filed a — filed a suit without more to — to sustain your theory.

J. Franklin Fort:

Your Honor, this — this form of charter was proposed on August 12, 1946 to the industry with the sliding scale.

Earl Warren:

Yes.

J. Franklin Fort:

On August 15, 1946, three days later, the Ship Operators Association sent a — wrote to the Maritime Commission and included a copy of a resolution which they had adopted at their meeting that reads this way.

Result that it is the consensus of opinion of the members of this Association that the recapture of profits under the proposed form of bareboat charter is not commensurate with the risks which the charterer assumes under his charter party and the Association, under Title 7, Section 709 of the Merchant Marine Act 1936, questions the legality of the Commission’s right to recapture more than 50% of the net voyage profits in excess of 10% per annum and in behalf of its members, the Association reserves all rights under such section.

By the same date, the American Merchant Marine Institute which represents the New York companies and the West Coast Associations protested in a telegram in which — which included a sentence that said the proposed rate of additional charter hire exceeds the rate authorized by applicable law.

Now, when we litigated the time bar issue here, it was brought out that the form of charter was changed.

The War Shipping Administration which had the 50% provision in it was changed to add this preliminary payment language.

And, the Government has admitted many times, and I’ll read from one of their briefs in the time bar litigation, “because of the disputes as to possible violation of the statute, Maritime changed the language of the charter to make it even clearer that suit should be filed at once.”

Now, that —

Earl Warren:

To make it what?

J. Franklin Fort:

Make it even clearer that suit should be filed at once.

In other words, a —

Earl Warren:

That’s on this particular issue?

J. Franklin Fort:

Yes, on this issue.

That was the only issue that was in dispute at the time the charters were signed.

Now, in 1951, which is approximately the time this company submitted its final accounting which you asked about and which was submitted on the sliding scale theory.

The Maritime Commission sent a circular letter to all of the charterers insisting, and that’s at the foot of page 40 of our brief, insisting that if they made any payments of additional charter hire with any of their accountings that they should be accompanied by a statement signed by an authorized official of their company, stating in part that the acceptance of the payment shall not be construed as an approval of the correctness of the amount thereof nor as a waiver of the rights or remedies of either party under the terms of the agreements involved or otherwise.

And, as late as 1955, the Maritime Commission, and I think this is an indication of what they thought the charter meant, the Maritime Commission wrote to a number of the companies, and we have put the correspondence in the record, stating that, well, I refer you, for example, to —

Earl Warren:

It’s typical (Voice Overlap) — well —

J. Franklin Fort:

— page 103 of the record.

Earl Warren:

103.

Hugo L. Black:

1955 is the year your company first complained, was it?

J. Franklin Fort:

Your Honor, we were a member of this group that protested in 1946, at the time the charter clause was put in there, and that’s —

Hugo L. Black:

(Inaudible) you protested.

That’s right.

J. Franklin Fort:

Yes.

Hugo L. Black:

But, as I gather from this — I don’t know if this affidavit is correct.

I don’t even know who made it.

Page 179, you did protest or written (Inaudible) but the matter was taken up and you had read it and sign — your company and redesigned it.

According to this statement, Maritime was never advised on February 15th, 1955 that Eastern Gas in any way objected to the sliding scales.

Is that correct?

J. Franklin Fort:

No, Your Honor.

I don’t think that’s correct.

We — we objected with the industry protest which I’ve just —

Hugo L. Black:

At — in the beginning?

J. Franklin Fort:

In the beginning.

Hugo L. Black:

But this says at the inference, you that did protest for one thing and then, Maritime Commission insisted that they were not going to make it any less.

That you agreed and suggested that although the sliding scale was objected to, the boats traveling on the route, they themselves proposed a modified sliding scale of additional charter, a half or 50%.

J. Franklin Fort:

We — we did not object or protest further after we obtained the reservation of rights in the charter and in the regulations —

Hugo L. Black:

This Court —

J. Franklin Fort:

But —

Hugo L. Black:

— hadn’t said, in any event, if such attempt failed, Eastern Gas unqualifiedly accepted the sliding scale, gave bond to perform and operate it under — with increased allocation of vessels.

Hugo L. Black:

Almost a year, waited over eight years before contending the sliding scale was invalid.

J. Franklin Fort:

Well, Your Honor —

Hugo L. Black:

Is that right?

J. Franklin Fort:

— that’s not correct because it says that we unqualifiedly accepted the charter but we accepted it with the qualification that if this provision was unlawful, we would have a right to raise the issue —

Hugo L. Black:

Where is that —

J. Franklin Fort:

— at a later time.

Hugo L. Black:

Where is that qualification in the record?

J. Franklin Fort:

Well, that’s in — that’s in — in the regulations and the clause — in Clause 13, which is on page 7 of our brief and also in the record, which stated that any payments we made of additional charter hire would be preliminary.

And, this issue, Your Honors, was tried in the District Court in Washington and I read from Judge Beeks’ opinion on this point.

He says that “from a review of all the evidence, I am convinced that the revision”, meaning the change in the terms of the charter, “resulted from the charterer’s protest and was intended to postpone the approval — accrual of all claims, including those based on illegality.”

And he goes on to say, “Regulations issued by the Maritime Commission with respect to preliminary determination of additional charter hire, instructions issued by Maritime covering restrictive legends on voucher checks, numerous letters from Maritime to (Inaudible) and other charterers effective — to the effect that the charterer’s claims based upon illegality were anticipated at the time of entering into the charters and that such rights are reserved in the charters.”

And, we — this point goes to the heart of our argument on the question of reservation, on the question of whether we have completed our charter and taken the benefits of it and are now renouncing the charter.

We’re not doing that.

We are insisting on per — being permitted to litigate this issue which we reserved at the time the charters were signed, so that there’s no windfall.

There’s no denial of the terms of the charters were abiding by the charterers.

Now, your — Mr. Chief Justice, you asked about a letter in 1955.

At pages 103 and 104, there is a letter that was written to one of the charterers.

And on page — this is written by the Maritime Commission, and on page 104, it says, “From the provisions of clause” — this type of letter was written when the Maritime Commission was asking the companies to pay charter hire and they were refusing to pay it, and this company did refuse to pay some $63,000 of charter hire because of this dispute.

But they wrote letters to the companies and say, “You’ve agreed in the charter to pay this.

If you pay us, your rights are reserved.”

And this is such a letter written in 1955 which is after litigation was commenced.

Earl Warren:

(Inaudible) is to the same effect, isn’t it?

J. Franklin Fort:

Same effect, yes Your Honor.

Earl Warren:

The same effect.

J. Franklin Fort:

There’s four or five of them in here that we have —

Earl Warren:

Yes.

J. Franklin Fort:

— included in the record.

Earl Warren:

Yes.

J. Franklin Fort:

Now, getting back to the 1936 Act and the 1946 Act —

Arthur J. Goldberg:

(Inaudible)

J. Franklin Fort:

I — I don’t regard that as — as unfair, Your Honor, for two reasons.

Once it — one is that we did protest at the time and if they were to make a change, they should’ve made the change at that time.

Now, the second and paramount and very important reason which goes through this case is that the Maritime Commission did consider whether they wish to raise this as 15% rate.

And they did not raise it because the vessels were operating under sub-charters to shippers and government agencies which said that if the 15% rate were raised, then those agencies and shippers would pay a higher rate.

And the impact of all of that would have fallen on the Government of the addi — raise in 15%.

And the only way that they could get a hire or get a higher contingent hire would be to try to take it out of something that would otherwise stay with the shipping companies.

So I — I don’t feel that that argument has any substance and then again, as I said before, the — the profit was squeezed out of these charters in — in our view by the regulations and requirements of the Maritime Commission which controlled the rates and where the ships could be operated.

And some of the charters or sub-charters were negotiated on a cost-plus basis which of course took the profit out as well.

Hugo L. Black:

(Inaudible) normal profit which was — was the base before they considered other profits’ excess?

J. Franklin Fort:

Well, the — there wasn’t anything considered a normal profit, Your Honor.

The statute — you take every dollar of addition — of profit.

Hugo L. Black:

The what?

J. Franklin Fort:

You — you would take every dollar of profit, for example, that a company made and out of that dollar would come 10 cents which would go to the Steam Ship Company for the capital which it employed in operating the ship, and these ships required substantial capital.

Hugo L. Black:

You mean 10% profit on the capital.

J. Franklin Fort:

On their capital, that’s right.

Hugo L. Black:

You — the money used in operating the ship only.

J. Franklin Fort:

And — and other equipment if they needed to use that.

There were several factors that entered into the — into the computation of what the capital was.

You would need working capital to hire the crew, load cargo and things of that nature and there was a fixed formula for that.

Let us say, $150,000 a ship per year, and they would get 10% on that.

And then, the profit-dollar — the balance of the profit-dollar would be divided either 50-50 or $10 to — or $90, depending upon which profit bracket they were in.

Hugo L. Black:

(Inaudible)

J. Franklin Fort:

These ships were — the ones involved in this case were in the Transatlantic Coal Trade.

Now, I would bring out also that there was not a consistent practice of using this sliding scale because in the coastwise trade they had the 50% profit-sharing arrangement there.

And on a number of passenger ships, they used the 50% profit-sharing arrangement.

And that this sliding scale of profit-sharing was used only with respect to certain dried cargo vessels.

Hugo L. Black:

(Inaudible) investment in this ship, it is — it was a bareboat charter?

J. Franklin Fort:

No, it had no investment in the — in the — it’s a bareboat charter, that’s correct.

Only the investment in the working capital and terminals and — and things —

Hugo L. Black:

You mean the capital used in transporting the ship, moving the ship.

J. Franklin Fort:

Moving the ship, hiring the crew, outfitting the vessel, paying stevedores, and so on, normal expenses of — of ship operation.

And of course, they paid the Government the 15% basic charter hire for the ship as well of the statutory sales price.

In other words, they paid the Government $96,000 a year to use these ships, pro — irrespective of profits and losses.

And so —

Hugo L. Black:

Well that wouldn’t enter into this, I guess, because this is for the division of the excess profits.

J. Franklin Fort:

It’s a division of the profits, that’s correct.

Hugo L. Black:

(Inaudible)

J. Franklin Fort:

Your Honor, there is one point that — I have just two minutes.

Under the 1936 Act, and I think that’s why this is perhaps a more important case than just applying to the 1946 Act.

There is a — there are two provisions for fixing the basic charter hire.

Here, it was15% but under the 1936 Act, there’s a provision, Section 706, which permits the fixing of basic charter hire on competitive bids out at a flat rate per annum.

There is another provision that says that they may build ships and charter them to the industry at 8.5%, not less than 8.5% of the cost to the Government of constructing the vessel and that’s a provision that’s very parallel to Section 5 (b).

And if the Court holds that Section 709 (a) here is only a minimum, then it can be held to be a minimum for purposes of the 1936 Act as well, and that goes to some other sections of the 1936 Act which have specific provisions in them.

Hugo L. Black:

Do you rely on the 1936 Act or the 1947?

J. Franklin Fort:

I’m — we’re relying on the 1940 — 46 Act.

Hugo L. Black:

1946 Act?

J. Franklin Fort:

Yes.

But we feel that there’s a parallel between the two Acts and that any construction under the one Act is likely to carry over to the construction of the statute.

Hugo L. Black:

Well, does that mean that you are saying that the agency was without authority under the 1936 Act to make a contract like this?

J. Franklin Fort:

I — I don’t think they could make a contract like this under the 1936 Act, and all of the cases seem to agree with us on that point.

Hugo L. Black:

Why?

J. Franklin Fort:

Because this is a minimum and a maximum.

Section 709 (a) is a minimum and a maximum and if Your Honor will read the legislative history, you will find that statements that say that under the 1936 Act, that 50% goes to the Steam Ship Company and 50% goes to the Government.

And the whole evolution of the 1936 Act was one I’m trying to lay down firm standards of (Inaudible) — to lay down firm standards, guide —

(Inaudible)

J. Franklin Fort:

That the objective was to lay down firm standards of — for the handling of shipping the Government’s vessels and to — not to permit the government agency to have a great deal of discretion because of what had happened prior to the 1936 Act.

Hugo L. Black:

But certainly not exclusion of the power to sell them probably too cheap or to make subsidies too big.

J. Franklin Fort:

No.

I — I think Congress — that’s correct, and I think Congress wrote those safeguards right into the Act.

And that they did not intend that — that the agency could make a different deal with one company than they could with another where the provision of the Act was specific under the 1936 Act.

J. Franklin Fort:

They meant that provision to apply specifically and it was a minimum and a maximum.

Thank you.

Earl Warren:

(Inaudible)