QCR Autumn 2018: Contractually agreed time bars in a charterparty chain will be strictly enforced

QCR Autumn 2018: Contractually agreed time bars in a charterparty chain will be strictly enforced

P V Q; Q V R; R V S [2018] EWHC 1399 (Comm)

Facts

This case concerned a chain of back-to-back voyage charters on the Norgrain 1973 form, for the carriage of a cargo of dried grain solubles on the vessel Capetan Giorgis. The chain was as follows: Sinochart voyage-chartered the vessel to P; P sub-chartered to Q; Q sub-chartered to R; and R sub-chartered to S.

Clause 67 of each charterparty provided that any claims “must be notified in writing to the other party and claimant’s arbitrator appointed within thirteen (13) months of the final discharge of the cargo and where this provision is not complied with, the claim shall be deemed to be waived and absolutely barred.”

The time line was as follows:

  • 16 October 2015 -  Cargo discharge completed
  • 9 September 2016 - Bill of lading holder commences proceedings in Xiamen Maritime Court against Head Owners
  • 16 November 2016 - CONTRACTUAL TIME BAR
  • 16 November 2016 - Sinochart is notified of a claim. At 1844 hours, after P’s office closed, Sinochart sends claim notification to P and commences arbitration
  • 17 November 2016 - After the time bar passed, P becomes aware of claim and informs but fails to commence arbitration. P’s operations department did not notify its legal department until 23 November and no arbitration against Q was commenced until 25 November
  • 17 November 2016 - Q informs R of claim and commences arbitration against R by a notice sent to R’s broker. R became aware of Q's notice via the broker on 18 November but contested that its broker did not have authority to accept service of an arbitration notice. R did not instruct lawyers until 28 November and appointed an arbitrator on 29 November
  • 30 November 2016 - To protect its position Q serves fresh notice on R without prejudice to its 17 November notice 1 December 2016 - R informs S of claim and serves notice of arbitration

The notifications and commencements of arbitration between the parties were therefore all sent and received after the 13 month time bar had passed. P, Q and R, applied to the High Court for:

  1. Declarations that each claim had been notified in time, despite the wording of clause 67; and
  2. In the alternative, an extension of time for the commencement of arbitration in each charterparty under section 12 of the Arbitration Act 1996

Judgement

The first issue before the court was whether clause 67 should be given its literal meaning such that all claims were time barred. It was argued that there should be an implied limitation on the literal meaning of the clause in circumstances where claims could not be made within a specified time limit because a party was simply not aware of the claim before the time bar passed. But this argument was rejected by the judge. The wording of clause 67 was clear and unambiguous and it had been open to the parties when they concluded the charters to include additional wording to cater for the situation they now faced. The time bar applied even though there was no knowledge of the claim when the limit expired.

Having found against all the parties on the first issue, the Court considered whether to grant extensions of time for the commencement of arbitration under section 12 of the Arbitration Act 1996.

Having found against all the parties on the first issue, the Court considered whether to grant extensions of time for the commencement of arbitration under section 12 of the Arbitration Act 1996.

Section 12(3) provides that an extension shall only be granted if the Court is satisfied:

  1. That the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time; or
  2. That the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.”

In considering these requirements, the judge approved and applied Hamblen J’s observations in SOS Corporation Alimentaria SA & Anor v Inerco Trade SA [2010] EWHC 162 (Comm) on the construction of s.12. He said that the Court's starting point should be that the parties had contemplated that a claim should remain time barred if the circumstances faced by the barred party were "not unusual", "not unlikely" or "prone to" occur. 

He found that P's receipt of the claim after the close of business on the last day of the time bar, such that any claim down the chain could only ever be brought out of time, did not amount to "not unusual" or "not unlikely" circumstances. Therefore, the Court had to consider the actions of each party and decide whether it would be just to extend time in each case, depending on whether that party had acted “expeditiously and in a commercially appropriate fashion”.

In relation to P, the Court found that P had not acted expeditiously and in a commercially appropriate fashion, given that P’s operations department became aware of the claim on 17 November but did not notify its legal department until 23 November and no arbitration against Q was commenced until 25 November. No extension was therefore granted. P's claim was therefore time barred.

In relation to Q’s application for a time extension until 30 November, the date on which its notice of arbitration was served directly on R, the Court said that “whatever the niceties of the argument as to [R’s agent’s] authority to receive the notice sent on 17 November 2016, that notice was received by R and read on 18 November 2016”. As such Q was considered to have acted expeditiously. The extension to 30 November was therefore granted.

In relation to R’s application, the judge found that even though R said its agents could not validly accept service of a notice of arbitration, R did not instruct lawyers until 28 November and did not notify or start arbitration against S until 1 December. The Court considered that the delay after 17 November indicated R's failure to act expeditiously under section 12. The Court suggested that R should have served its notice of claim and commencement of arbitration on S by 22 November, i.e. within three business days of notification.

Comments

This case is a powerful reminder of how parties will be held to a strict interpretation of a relevant time bar clause they have freely agreed. The judge found that it had been open to the parties when they concluded the charters to include additional wording to cater for the situation they now faced.  Examples proposed by the charterers' counsel included stipulating a longer time limit, or inserting a provision similar to Art III rule 6 bis of The Hague-Visby Rules which effectively extends time bars for indemnity claims.  The judge added that “in opting for these commercial advantages by agreeing to Clause 67, the parties took the risk that it might not be possible within the 13 month time limit to pass on a claim validly received within the period”.

Members would no doubt take note that even if a claim notification is served out of time, an application to the court for a time extension might still be successful provided they act in an "expeditious and commercially appropriate" manner. In this case, the court indicated that arguments on whether the notice was validly given will not be looked at favorably and once the party becomes aware of the claim, whether or not properly notified, he has three working days to notify the next party down the chain.

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