QLU Summer 2017: This arbitration decision serves to remind Members of the importance to correctly identify parties to a charterparty
This arbitration decision serves to remind Members of the importance to correctly identify parties to a charterparty.
In London Arbitration 14/17 a vessel was time-chartered under a charterparty evidenced by two recaps. Disputes had arisen during the course of the charter and an agreement (the Agreement) and reciprocal corporate guarantees (the Guarantees) were executed a day before the vessel was redelivered.
A few months later solicitors purporting to act for the “owners” commenced arbitration. The claim submissions were not served until 3 years later and shortly thereafter, Charterers served their defence submissions in which they raised an objection to the tribunal’s jurisdiction.
Thereafter it took Charterers a further 3 years to apply for a determination of two preliminary issues, namely: (1) the identity of the parties to the charterparty, the Agreement and the Corporate Guarantees, in particular who constituted “the owners”; and (2) the identity of the party (or parties) who commenced the arbitration.
If the preliminary issues were determined in Charterers’ favour, some or all of the substantive claims in the arbitration might have been time-barred and/or some of the losses claimed might have been irrecoverable because they had been suffered by another party.
In the two fixture recaps, “owners” were identified as X Ltd while in fact, X Ltd was the manager of the vessel and Y Ltd owned the vessel. The management agreement between Y Ltd and X Ltd required the managers to perform such managerial duties as the owners required in connection with the operation and management of the vessel, including the keeping of necessary and proper accounts and the handling of claims and the institution of legal proceedings in the name of and on behalf of the owners. It did not make specific mention of the conclusion of charterparties or contracts of affreightment but referred to the managers’ obligations in relation to “all and any of the matters and things which concern the day to day operation of the Vessel”.
Owners accepted that when the charterparty was made Charterers had no knowledge that X Ltd was entering into the charterparty as agent for Y Ltd as its undisclosed principal but they argued that by the time the Agreement and the Guarantees were executed, Charterers were aware that X Ltd had only entered into the charterparty as agent for Y Ltd and that the reason why X Ltd was referred to as owners of the vessel was simply to ensure that the Agreement and the Guarantees were consistent in that respect with the charterparty.
Charterers’ case was that only X Ltd was a party to the charterparty, the Agreement and the Guarantees on the owners’ side. Charterers also challenged the authenticity of the management agreement.
The tribunal did not accept any of the reasons put forward by Charterers to cast doubt on the authenticity of the management agreement. In the tribunal’s experience it was by no means unheard of for a management agreement to be concluded in anticipation of the acquisition of the vessel and, it did not regard the fact that Y Ltd’s ownership status was incorrectly stated in the management agreement nor the fact that the official place of business of X Ltd was mis-stated as suspicious. The tribunal accepted Charterers’ submission that the management agreement, on its true construction, did not confer express or implied authority on X Ltd to conclude charterparties on behalf of Y Ltd. X Ltd’s authority was limited to negotiating such charters. However the tribunal accepted the evidence of X’s witness, Mr A, who had signed the management agreement and to whom Charterers had addressed their Corporate Guarantee that Y Ltd expressly authorised X Ltd to enter into the subject charter on its behalf.
The tribunal was satisfied that there was no reason why Y Ltd could not have been the undisclosed principal of X Ltd. The crucial factor was that although X Ltd was described in the charterparty as the owner of the vessel, there was no reliable evidence that it had at any material time been the owner or disponent owner of the vessel. The tribunal also concluded that there was no reason as a matter of legal principle why X Ltd should not have entered into the Agreement and the Guarantees as agent for Y Ltd as undisclosed principal.
The arbitration was commenced on behalf of whichever entity or entities was/were the owners of the vessel under the charterparty, and therefore the arbitration was commenced on behalf of Y Ltd as the disclosed principal of X Ltd and Owners’ solicitors had authority to commence proceedings on behalf of Y Ltd. In the tribunal’s experience it was perfectly normal for those appointing an arbitrator on behalf of one of the parties to a charterparty to refer simply to the nomination as having been made on behalf of “the owners” or “the charterers”. The tribunal believed that those familiar with such matters in the industry would be surprised to hear that an appointment of an arbitrator on behalf of “the owners” or “the charterers” respectively was invalid because it did not state at that time the precise identity of the legal entity in question.
Whilst the decision in this case was very much dependent on its own facts, litigation could have been avoided and costs saved if the parties had been properly identified in the charterparty in the first place. Members are recommended always to seek clarification on any ambiguities, particularly in relation to the identity and the capacity held by their counter parties signing contracts and agreements. It is also important to be clear on the extent of the authority conferred on these parties.