B-95334, B-95335, B-95336, JANUARY 27, 1953, 32 COMP. GEN. 333

B-95334,B-95336,B-95335: Jan 27, 1953

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CONTRACTS - DISPUTES - ARBITRATION THERE IS NO GENERAL AUTHORITY FOR THE ESTABLISHMENT OF A BOARD OF ARBITRATION TO THE RIGHTS OF THE UNITED STATES IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORITY. 1953: REFERENCE IS MADE TO YOUR LETTER OF JUNE 18. USE AND HAVE MADE IN THE UNITED STATES FOR THE UNITED STATES USE" CERTAIN BOFORS 40 MM GUNS. UPON DELIVERY OF THE INFORMATION CALLED FOR BY THE CONTRACT BOFORS WAS PAID THE STIPULATED PRICE OF $500. THEREAFTER BOFORS GUNS WERE MANUFACTURED BY THE UNITED STATES FOR THE USE OF ITS ARMED FORCES AND WERE ALSO DELIVERED TO OTHER GOVERNMENTS UNDER LEND-LEASE AND SIMILAR PROGRAMS. SOUGHT TO HAVE THE MATTER SUBMITTED TO ARBITRATION UNDER ARTICLE 4 OF THE CONTRACT WHICH READS AS FOLLOWS: IN CASE OF DIFFICULTIES ARISING WITH REGARD TO THE INTERPRETATION AND EXECUTION OF THIS CONTRACT.

B-95334, B-95335, B-95336, JANUARY 27, 1953, 32 COMP. GEN. 333

CONTRACTS - DISPUTES - ARBITRATION THERE IS NO GENERAL AUTHORITY FOR THE ESTABLISHMENT OF A BOARD OF ARBITRATION TO THE RIGHTS OF THE UNITED STATES IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORITY, AND THEREFORE A GOVERNMENT CONTRACTING OFFICER HAS NO AUTHORITY TO SETTLE AND ADJUST DISPUTES ARISING OUT OF A CONTRACT BY ANY FORM OF SUBMISSION TO ARBITRATION.

ACTING COMPTROLLER GENERAL FISHER TO THE SECRETARY OF THE NAVY, JANUARY 27, 1953:

REFERENCE IS MADE TO YOUR LETTER OF JUNE 18, 1952, REQUESTING TO BE ADVISED WHETHER A DISPUTE WHICH HAS ARISEN BETWEEN THE SWEDISH FIRM, AKTIEBOLAGET BOFORS, AND THE DEPARTMENT OF THE NAVY IN CONNECTION WITH A CERTAIN CONTRACT ENTERED INTO ON JUNE 21, 1941, PROPERLY MAY BE SUBMITTED TO ARBITRATION UNDER THE TERMS OF THE CONTRACT.

THE CONTRACT GRANTED THE NAVY AN EXCLUSIVE AND IRREVOCABLE LICENSE "TO MAKE, USE AND HAVE MADE IN THE UNITED STATES FOR THE UNITED STATES USE" CERTAIN BOFORS 40 MM GUNS, AND ALSO PROVIDED FOR THE FURNISHING OF SECRET MANUFACTURING "KNOW-HOW" BY BOFORS. UPON DELIVERY OF THE INFORMATION CALLED FOR BY THE CONTRACT BOFORS WAS PAID THE STIPULATED PRICE OF $500,000. THEREAFTER BOFORS GUNS WERE MANUFACTURED BY THE UNITED STATES FOR THE USE OF ITS ARMED FORCES AND WERE ALSO DELIVERED TO OTHER GOVERNMENTS UNDER LEND-LEASE AND SIMILAR PROGRAMS. BOFORS PROTESTED THE DELIVERY OF SUCH GUNS TO OTHER GOVERNMENTS AS A VIOLATION OF THE CONTRACT, AND SOUGHT TO HAVE THE MATTER SUBMITTED TO ARBITRATION UNDER ARTICLE 4 OF THE CONTRACT WHICH READS AS FOLLOWS:

IN CASE OF DIFFICULTIES ARISING WITH REGARD TO THE INTERPRETATION AND EXECUTION OF THIS CONTRACT, THE CONTRACTING PARTIES AGREE HEREBY TO CHOOSE EACH PARTY ONE ARBITRATOR. THESE TWO ARBITRATORS SHALL CHOOSE A THIRD ONE, AND THE DECISION OF THESE THREE ARBITRATORS SHALL BE BINDING UPON BOTH PARTIES.

THE ARBITRATION SHALL TAKE PLACE AT STOCKHOLM, SWEDEN.

THE VARIOUS AGENCIES OF THE UNITED STATES GOVERNMENT INVOLVED REFUSED TO STOP DELIVERIES OF THE GUNS TO OTHER GOVERNMENTS OR TO ARBITRATE THE MATTER, AND BOFORS FINALLY BROUGHT SUIT AGAINST THE UNITED STATES FOR $2,000,000 AS COMPENSATION FOR ALLEGED UNAUTHORIZED MANUFACTURE OF THE GUNS. THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT DENIED RELIEF FOR THE REASON THAT THE FEDERAL DISTRICT COURT HAD NO JURISDICTION OVER BREACH OF CONTRACT ACTIONS AGAINST THE UNITED STATES IN EXCESS OF $10,000. HOWEVER, THE OPINION OF THE COURT CONTAINS THE FOLLOWING LANGUAGE, 194 F.2D 145, 149:

* * * THE ALLEGED REFUSAL OF THE MILITARY AND NAVAL AUTHORITIES OF THE UNITED STATES TO DISCUSS OR ARBITRATE THE QUESTION OF COMPENSATION FOR SUCH UNAUTHORIZED USE HAD NO JUSTIFICATION.

YOU STATE THAT THE SWEDISH EMBASSY HAS CALLED THIS STATEMENT OF THE COURT TO THE ATTENTION OF THE SECRETARY OF STATE, AND HAS REQUESTED RECONSIDERATION OF THE PREVIOUS REFUSAL OF THE UNITED STATES TO ARBITRATE THE DISPUTE. THE QUESTION OF ARBITRATION HAS BEEN RECONSIDERED BY THE INTERESTED FEDERAL DEPARTMENTS, AND YOU STATE IT HAS BEEN CONCLUDED THAT THE UNITED STATES SHOULD CONSENT TO ARBITRATION PROVIDED SUCH ACTION IS PROPER. YOU REQUEST MAY ADVICE AS TO WHETHER, UNDER THE CIRCUMSTANCES DESCRIBED, THE UNITED STATES MAY LEGALLY AND PROPERLY AGREE TO SUBMIT THE MATTER TO ARBITRATION UNDER ARTICLE 4 OF THE CONTRACT.

THE RIGHT OF PRIVATE PERSONS TO SUBMIT THEIR CONTRACTUAL DISPUTES TO FINAL DETERMINATION OUTSIDE THE COURTS HAS LONG BEEN RECOGNIZED, DESPITE AN EARLY JUDICIAL HOSTILITY TO ARBITRATION AGREEMENTS. THE TREND OF MODERN AUTHORITIES AND STATUTE LAW IS TOWARD THE RECOGNITION OF ARBITRAL AGREEMENTS AS A METHOD OF SETTLING DISPUTES. LEGISLATION HAS BEEN ENACTED IN THE LEADING COMMERCIAL STATES PROVIDING FOR JUDICIAL ENFORCEMENT OF ARBITRATION AGREEMENTS. SEE, GENERALLY, RED CROSS LINE V. ATLANTIC FRUIT CO., 264 U.S. 109. SIMILAR ENFORCEMENT PROCEEDINGS IN FEDERAL COURTS ARE PROVIDED FOR BY THE UNITED STATES ARBITRATION ACT, 43 STAT. 883, CODIFIED 61 STAT. 669, 9 U.S.C. SECS. 1 14, IN THE CASE OF MARITIME TRANSACTIONS AND TRANSACTIONS INVOLVING COMMERCE.

THE EARLY OBJECTION THAT PARTIES COULD NOT OUST THE JURISDICTION OF THE COURTS BY ARBITRATING INSTEAD OF LITIGATING THEIR CONTROVERSIES WAS HELD TO BE PARTICULARLY APPLICABLE TO AGREEMENTS TO ARBITRATE FUTURE DISPUTES AS DISTINGUISHED FROM AGREEMENTS TO SUBMIT EXISTING DISPUTES. THE RIGHT TO APPEAL TO THE COURTS FOR REDRESS OF WRONGS HAS BEEN STATED TO BE INALIENABLE IN ITS NATURE ( MITTENTHAL V. MASCAGNI, 183 MASS. 19, 66 N.E. 425), AND TO BE A RIGHT THEREFORE, WHICH CANNOT BE RENOUNCED IN ADVANCE ( RESTATEMENT, CONTRACTS, SEC. 551), ALTHOUGH IT MAY BE WAIVED AFTER IT HAS ACCRUED. IN PRACTICAL EFFECT, THE DISTINCTION BETWEEN COMMON-LAW AGREEMENTS TO SUBMIT EXISTING AND FUTURE DISPUTES IS MORE APPARENT THAN REAL, SINCE EITHER MAY BE REVOKED AT ANY TIME BEFORE AWARD, NEITHER WILL BE SPECIFICALLY ENFORCED, AND AN AWARD ONCE MADE IS EQUALLY BINDING UNDER EITHER.

THE UNITED STATES ARBITRATION ACT APPARENTLY HAS NEVER BEEN HELD TO INCLUDE WITHIN ITS SCOPE TRANSACTIONS TO WHICH THE UNITED STATES IS A PARTY. NOR DID BOFORS MAKE SUCH A CONTENTION IN ITS SUIT IN THE DISTRICT COURT. MOREOVER, AS TO AGREEMENTS COVERED BY THE ARBITRATION ACT, SECTION 4 GIVES AN AGGRIEVED PARTY THE CLEAR RIGHT TO A COURT ORDER DIRECTING ARBITRATION IN ANY CASE WHERE THERE IS AN UNJUSTIFIABLE REFUSAL TO ARBITRATE.

HOWEVER, THE SUBMISSION TO ARBITRATION OF CLAIMS AGAINST THE UNITED STATES IS SPECIFICALLY AUTHORIZED UNDER OTHER STATUTES. THE SUITS IN ADMIRALTY ACT, 64 STAT. 1112, AUTHORIZES THE SECRETARY OF ANY GOVERNMENT DEPARTMENT TO "ARBITRATE, COMPROMISE, OR SETTLE" ANY CLAIM UNDER THAT ACT. 46 U.S.C. 749. THE PUBLIC VESSELS ACT GIVES SIMILAR AUTHORITY TO THE ATTORNEY GENERAL AFTER A LIBEL OR CROSS LIBEL HAS BEEN FILED. U.S.C. 786. THE CONTRACT SETTLEMENT ACT OF 1944 AUTHORIZED CONTRACTING AGENCIES TO SUBMIT CLAIMS OF TERMINATED WAR CONTRACTORS TO ARBITRATION. 41 U.S.C. 113 (E).

THE FACT THAT CONGRESS APPARENTLY DEEMED IT NECESSARY TO PROVIDE FOR ARBITRATION BY ENACTMENTS IN THESE INSTANCES RAISES A QUESTION AS TO THE AUTHORITY OF A GOVERNMENT CONTRACTING OFFICER, IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORIZATION, TO BIND THE UNITED STATES BY ARBITRATION. THE GENERAL STATEMENT WAS MADE IN UNITED STATES V. AMES, 24 FED. CAS. NO. 14,441 AT PAGE 789 ( C.C.D. MASS. 1845), THAT NO GOVERNMENT OFFICER COULD BIND THE UNITED STATES BY SUBMISSION TO ARBITRATION. TO THE SAME EFFECT, SEE MCCORMICK V. UNITED STATES, 1 REP. CT. CLS. NO. 199, 36TH CONG., ST SESSION, 1,44 (1860). THE RULE OF THESE DECISIONS IS NOT NECESSARILY INCONSISTENT WITH THE LATER DECISION OF THE SUPREME COURT IN THE CASE OF UNITED STATES V. FARRAGUT, 22 WALL. 406 (1874), WHERE PENDING SUIT AGAINST THE UNITED WAS REFERRED BY RULE OF THE COURT TO ARBITRATION UNDER AN AGREEMENT THAT THE AWARD WOULD BECOME THE DECREE OF THE COURT. THE EFFECT OF THE AWARD WAS STATED IN THE DECISION AS FOLLOWS (P. 420):

WHERE THE AWARD FINDS FACTS IT IS CONCLUSIVE, WHERE IT FINDS OR ANNOUNCES CONCRETE PROPOSITIONS OF LAW, UNMIXED WITH FACTS, ITS MISTAKE, IF ONE IS MADE, COULD HAVE BEEN CORRECTED IN THE COURT BELOW, AND CAN BE CORRECTED HERE. WHERE A PROPOSITION IS ONE OF MIXED LAW AND FACT, IN WHICH THE ERROR OF LAW, IF THERE BE ONE, CANNOT BE DISTINCTLY SHOWN, THE PARTIES MUST ABIDE BY THE AWARD.

HOWEVER, THE QUESTION OF THE AUTHORITY OF GOVERNMENT OFFICERS TO BIND THE UNITED STATES BY ARBITRATION DOES NOT APPEAR TO HAVE BEEN SPECIFICALLY RAISED OR CONSIDERED IN THE FARRAGUT CASE. IN THE SUBSEQUENT CASE OF BRANNEN V. UNITED STATES, 20 C.CLS. 219, 224 (1885), THE COURT OF CLAIMS STATED THAT---

IT HAS NOT YET BEEN FINALLY DETERMINED HOW FAR EXECUTIVE OFFICERS HAVING AUTHORITY TO SETTLE AND ADJUST CONTROVERTED DEMANDS AGAINST THE GOVERNMENT CAN BIND THE LATTER BY ANY FORM OF SUBMISSION TO ARBITRATION.

THE COURT WENT ON TO STATE IN THE BRANNEN CASE THAT IN ANY EVENT OFFICERS OF THE GOVERNMENT COULD HAVE NO AUTHORITY TO BIND THE UNITED STATES BY THE ARBITRATION OF CLAIMS WHICH THEY THEMSELVES HAD NO AUTHORITY TO ALLOW. THIS RULE WAS ALSO STATED IN THE CASE OF DISTRICT OF COLUMBIA V. BAILEY, 171 U.S. 161 (1898), WHERE AN ALLEGED SUBMISSION BY THE DISTRICT COMMISSIONERS WAS UNDER CONSIDERATION. THE SUPREME COURT STATED THAT THE POWER TO SUBMIT TO ARBITRATION WAS AN INCIDENT OF THE POWER TO CONTRACT AND THE POWER TO SETTLE AND ADJUST DEBTS. THE COURT STATED THAT THE DISTRICT COMMISSIONERS WOULD HAVE HAD NO AUTHORITY TO PASS A RESOLUTION SETTING ASIDE MONEY TO PAY THE DAMAGE CLAIM INVOLVED, AND HENCE (P. 177):

* * * BUT IF THE EXPRESS ACTION OF THE COMMISSIONERS TO THIS END WOULD HAVE BEEN VOID, HOW CAN IT BE CONTENDED THAT BY INDIRECTION, THAT IS, BY ENTERING INTO AN AGREEMENT TO SUBMIT TO AN AWARD, THE COMMISSIONERS HAD THE POWER TO DELEGATE TO A THIRD PERSON AN AUTHORITY WHICH THEY THEMSELVES DID NOT POSSESS?

THE CONCLUSION SEEMS WARRANTED THAT IN THE ABSENCE OF STATUTORY AUTHORIZATION, EITHER EXPRESS OR IMPLIED, OFFICERS OF THE GOVERNMENT HAVE NO AUTHORITY TO SUBMIT OR TO AGREE TO SUBMIT TO ARBITRATION CLAIMS WHICH THEY THEMSELVES WOULD HAVE NO AUTHORITY TO SETTLE AND PAY.

CERTAIN CLAIMS AGAINST THE UNITED STATES CANNOT BE SETTLED AND PAID BY THE EXECUTIVE BRANCH OF THE GOVERNMENT. FOR EXAMPLE, ONLY THOSE TORT CLAIMS COMING WITHIN THE SCOPE OF THE FEDERAL TORT CLAIMS ACT ARE SUBJECT TO EXECUTIVE SETTLEMENT.

MOREOVER, THE EXECUTIVE BRANCH OF THE GOVERNMENT WOULD HAVE NO AUTHORITY TO SETTLE AND PAY A CLAIM FOR DAMAGES UNDER A CONTRACT WHEN THE ONLY APPROPRIATION FROM WHICH FURTHER CONTRACT PAYMENTS COULD BE MADE IS EXHAUSTED. DISTRICT OF COLUMBIA V. BAILEY, SUPRA.

THE CLAIM BY BOFORS HERE IS BASICALLY ONE FOR DAMAGES FOR BREACH OF CONTRACT. IT WOULD SEEM THAT EVEN IF THE CLAIM HAS MERIT, THE DAMAGES WOULD BE NOT ONLY UNLIQUIDATED BUT POSSIBLY EVEN CONJECTURAL. THUS, THERE IS FOR APPLICATION THE RULE MOST FREQUENTLY STATED IN THE FOLLOWING EXCERPT FROM 33 OP. ATTY. GEN. 354 (1922):

IT IS WELL ESTABLISHED THAT THE HEAD OF AN EXECUTIVE DEPARTMENT IS WITHOUT AUTHORITY TO SETTLE A CLAIM FOR UNLIQUIDATED DAMAGES.

THIS "UNLIQUIDATED DAMAGES" RULE HAS BEEN STATED IN NUMEROUS DECISIONS. WILLIAM CRAMP AND SONS SHIPBUILDING CO. V. UNITED STATES, 216 U.S. 494, 500; CARMICK V. UNITED STATES, 2 C.CLS. 140; MCCLURE V. UNITED STATES. 19 C.CLS. 18, 28; ID STATES, 20 C.1CLS. 119, 120-121; BRANNEN V. UNITED STATES, SUPRA; 18 COMP. GEN. 199; ID. 261; 19 ID. 933. THE DISTINCTION BETWEEN THE NATURE OF CLAIMS WHICH CAN AND THOSE WHICH CANNOT BE SETTLED BY THE EXECUTIVE BRANCH OF THE GOVERNMENT IS DISCUSSED IN THE DENNIS AND BRANNEN CASES, SUPRA. SEE ALSO ON THIS POINT, THE DISSENTING OPINION OF JUDGE RICHARDSON IN MCKEE'S CASE, 12 C.CLS. 504, 552-562.

IT IS BELIEVED THAT THE BASIS FOR THE FOREGOING RULE RESTS ON THE FACT THAT THE EXECUTIVE BRANCH OF THE GOVERNMENT CAN BIND THE UNITED STATES TO MAKE PAYMENTS ONLY FROM EXISTING APPROPRIATIONS DULY AUTHORIZED BY THE CONGRESS, AND UNLESS AN EXPENDITURE MEETS SOME PURPOSE AUTHORIZED BY AN AVAILABLE APPROPRIATION OR IS OTHERWISE AUTHORIZED BY THE CONGRESS, NO EXECUTIVE DEPARTMENT OR AGENCY CAN OBLIGATE THE UNITED STATES THEREFOR. NOR IS THIS RULE CONTRARY TO THE LAW OF UNITED STATES V. MOORMAN, 338 U.S. 457, A DECISION OF THE SUPREME COURT WHICH IS COMMONLY VIEWED AS HOLDING THAT THE FINALITY ACCORDED ADMINISTRATIVE FINDINGS OF FACT UNDER AN UNLIMITED CONTRACT ,DISPUTES" CLAUSE IS NOT CONFINED TO QUESTIONS OF FACT BUT EXTENDS ALSO TO QUESTIONS OF LAW. SEE, ALSO, UNITED STATES V. JOHN MCSHAIN, INC., 308 U.S. 512; UNITED STATES V. BEUTTAS, 324 U.S. 768,. THE QUESTION IS ONE OF THE COMPETENCY OF AN OFFICER OF THE GOVERNMENT, AND THE HOLDING IN MOORMAN IS RESTRICTED TO "PARTIES COMPETENT TO DECIDE FOR THEMSELVES" THE MATTERS IN DISPUTE.

THE POWERS OF OFFICERS OF THE FEDERAL GOVERNMENT ARE THOSE OF SPECIAL AGENTS ONLY AND CANNOT EXCEED THE AUTHORITY CONFERRED UPON THEM FOR THE DISCHARGE OF SPECIFIC DUTIES. HENCE, AN OFFICER WHO DOES NOT HIMSELF HAVE AUTHORITY TO SETTLE UNLIQUIDATED DAMAGE CLAIMS MAY NOT CONFER SUCH AUTHORITY BY CONTRACT UPON ARBITRATORS. OF COURSE, ASIDE FROM THAT PRINCIPLE, THE ACTION OF THE CONGRESS, UNDER THE STATUTES HEREINABOVE MENTIONED, IN AUTHORIZING THE HEADS OF EXECUTIVE DEPARTMENTS TO ARBITRATE CERTAIN SPECIFIC AND WELL DEFINED MATTERS MIGHT WELL INDICATE, AS STATED ABOVE, THAT THE EXECUTIVE BRANCH HAS NO GENERAL OR INHERENT POWER TO SUBMIT CLAIMS AGAINST THE UNITED STATES TO ARBITRATION. IN THIS CONNECTION, IT IS ALSO SIGNIFICANT THAT WHILE SEVERAL BILLS HAVE BEEN INTRODUCED IN CONGRESS WHICH PROPOSED TO GRANT SUCH GENERAL AUTHORITY, NO SUCH LEGISLATION HAS EVER BEEN ENACTED. SEE H.R. 435, H.R. 436, 79TH CONG., ST SESS.; H.R. 3665, 78TH CONG., ST SESS.; H.R. 7163, 77TH CONG., 2D SESS.; S. 2350, 77TH CONG., 2D SESS.

IT IS MY CONCLUSION, THEREFORE, THAT NO AUTHORITY EXISTS FOR SUBMISSION BY THE NAVY DEPARTMENT OF THE INSTANT DISPUTE TO ARBITRATION UNDER THE PROVISIONS OF ARTICLE 4 OF THE CONTRACT; AND THAT THE CONTRACTOR'S REMEDY FOR THE ALLEGED BREACH OF CONTRACT, AS WAS STATED BY THE UNITED STATES COURT OF APPEALS, 194 F.2D 145, 149, DIES IN APPROPRIATE PROCEEDINGS IN THE COURT OF CLAIMS.