In a recent arbitration award on a preliminary issue, Owners successfully overcame Charterers’ attempts to arbitrate their time-barred claim for damages, arising out of the cancellation of a voyage charter. Alexandra Bailey, Senior Claims Manager, summarises London Arbitration 3/24.

Facts

On 5 October 2021, the Charterers chartered the Owners’ vessel under a Booking Note for one voyage. The vessel embarked on its ballast voyage to the first load port under the Booking Note on 28 February 2022. During this voyage, the Owners informed the Charterers that the vessel had damaged its propellor and the damage would need to be repaired in dry-dock. For this reason, Owners informed Charterers that they were invoking “force majeure”.

The Charterers requested more information and a time estimate for performance, but ultimately the charter was cancelled on or about 31 March 2022.

Later that year, in August 2022, the Charterers sent a letter of claim to the Owners for their alleged losses arising from the cancelled charter. The letter specified that, absent a satisfactory response within 7 days, Charterers would appoint an arbitrator to deal with their claim. Owners neither responded nor did Charterers appoint an arbitrator. No steps were taken to commence arbitration proceedings until 27 April 2023, when the Charterers’ liquidator did so.

Had the voyage taken place, the latest possible date it could have ended was 31 March 2022. So, the arbitration proceedings commenced after the expiry of 1 year. This was relevant because under clause 21 of the charter:

"Any disputes arising under this Charter ... shall be referred to arbitration in England under English law. Any possible alleged claim against the Operator shall be instituted by lawsuit before latest within one year after the end of the voyage. Otherwise the claim or claims to be null and void."

Against Charterer’s objections, the Tribunal ordered the question of whether Charterers’ claim was timebarred to be heard as preliminary issue.

Award

So, on what basis did the Charterers assert that their claim was not time barred? Charterers dissected the wording of clause 21 above (the “Dispute Resolution Clause”) on 3 counts, each of which were addressed by the tribunal in their award:

1. Meaning of “any alleged claim”.

The Charterers asserted that their claim was not captured by the Dispute Resolution Clause because the clause could only relate to breach of obligations on the voyage. Charterers did not admit the vessel was on its approach voyage at the time the claim arose and argued that documents may show (presumably if the matter were allowed to progress) that either the Owners never intended to commence the voyage or were not in a position to start it.

Only, therefore, if clause 21 applied to any claim whatsoever, however framed, whether in relation to the approach voyage, repudiation or any other breach could it apply to time bar Charterers’ claims.

The tribunal were dismissive of Charterers’ assertion, however, because the Charterers had already agreed during preparation work for the preliminary issue that the vessel had started to sail to the first load port.

Further, the Tribunal considered the words “Any possible alleged claim” were indeed sufficiently wide to cover any possible claim however framed.

2. Meaning of “law suit”.

Charterers’ second assertion was that the reference to “law suit” in the Dispute Resolution Clause did not encompass “arbitration” proceedings, such that the first and second sentences of the clause were irreconcilable.

The tribunal did not accept Charterers’ argument in this regard either. It was held that any reasonable reader of the Dispute Resolution Clause would almost certainly assume that the reference to commencement of proceedings in the second sentence of the arbitration clause was a reference to the commencement of arbitration in the first sentence. Further, that there was judicial authority to support the Owners’ position that “suit” extended to “arbitration”, in Syska v Vivendi Universal SA [2008] 2 Lloyd’s Rep 636 and The Merak [1964] 2 Lloyd’s Rep 527.

3. Unilateral time bar.

Amongst other minor points, Charterers’ third and final assertion dealt with by the tribunal was that the Dispute Resolution Clause imposed mutual rights and intentions. It was accordingly difficult to ascribe to the parties an objective intention that one party should have the benefit of the clause i.e. the benefit of the 1-year time bar, but the other not.

The tribunal disagreed with Charterers’ view because they considered that it was perfectly possible to make such an agreement and on the clear wording of the clause, the parties had done so.

Decision

The Charterers’ claim was time-barred in all respects. Charterers were ordered to pay Owners’ costs to be assessed if not agreed together with interest on those costs at 7 per cent per annum compounded at three-monthly rests from the date of the award until payment. In addition, Charterers were ordered to bear the cost of the award together with their own costs.

Comment

Although concerned with jurisdiction, this claim highlights the potential benefits and risks of a preliminary issue.

As to the benefits, from the report it appears that the Charterers wanted issues relating to the time bar to be considered with the other issues in the claim. Had this occurred, although (given the Tribunal’s conclusion that the claim was timebarred) Owners would have won in any event, achieving this result would have incurred the costs and management time of pursuing arbitration proceedings to the very end.

As to the risks, it appears (as is common) that the preliminary issue commenced with the parties having agreed a set of facts. One of those facts was that the vessel was on its approach voyage at the time of cancellation. It further appears from the report that the Charterers attempted to resile from this agreed fact, but the Tribunal would not allow Charterers to do so. This highlights the need to be clear on what facts can and cannot be agreed at the very outset of such a process.

More generally, Campbell Johnston Clark is regularly involved in disputes that could be avoided either by asking a lawyer to briefly review a law and jurisdiction clause, or by the use of industry-wide clauses such as BIMCO Standard Dispute Resolution Clause 2017.

For further information, please contact:

Alexandra Bailey
Senior Claims Manager
Alexandra@cjclaw.com