QCR Autumn 2018: Hague Rules time bar may be inapplicable where there has been a deviatio
DERA COMMERCIAL ESTATE V DERYA INC  EWHC 1673 (Comm)
This was an appeal from an arbitration award in which shipowners successfully applied for a strike out of a cargo claim due to “inordinate”/”inexcusable” delay in particularising the cargo claim. A cargo of maize was carried onboard the MV Sur. The one year time bar in article III rule 6 of the Hague Rules was incorporated into the Congen form bills of lading and the charterparty on an amended BIMCO form. The bills of lading were subject to English law and arbitration. The cargo arrived at the discharge port in Jordan damaged and with apparent fungus, and was rejected by the customs authorities.
Cargo interests issued proceedings against the shipowners in Jordan. The shipowners’ P&I Club provided cargo interests with security in the form of a Club LOU for USD 9 m. The vessel was nevertheless not cleared for departure. After waiting some 3 weeks, the vessel departed from Jordan without permission from either cargo interests or the Jordanian Authorities and sailed to Turkey where the cargo was sold by way of judicial sale in April 2012.
In October 2011, the shipowners commenced London arbitration within the one-year time bar, and obtained an anti-suit injunction (by consent) in respect of the Jordanian proceedings. The arbitration thereafter remained dormant until March 2015 when particulars of claim were served by the shipowners, seeking a declaration of non-liability in respect of the cargo claim, and a return of the LOU put up by their P&I Club. In June 2015, cargo interests served particulars of their cargo claim. In 2016, the shipowners sought the striking out of the cargo interests’ claim for want of prosecution, to be dealt with as a preliminary issue.
The tribunal found that there had been inordinate and inexcusable delay on the part of cargo interests and that such delay had caused prejudice to the shipowners’ ability to have a fair resolution of the cargo claim. The tribunal therefore struck out the cargo claim under s. 41(3) of the Arbitration Act 1996. Cargo interests appealed.
On appeal, the judge held that:
- A claim that was particularised within the six-year limitation period applicable to contractual claims pursuant to section 5 of the Limitation Act 1980, can nevertheless be struck out for "inordinate delay" under section 41(3) of the Arbitration Act 1996 because the parties had contracted for a shorter limitation period, such as here, for one year under article III rule 6 of the Hague Rules.
- In a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation precludes a carrier from relying on the one-year time bar under article III rule 6, where the other party elected to terminate. The judge, although reluctant, considered herself bound by the House of Lords’ decision in Hain Steamship Co v Tate & Lyle Ltd (1936) 55 Ll L Rep 159, that , where a carrier by sea deviates without permission from the contractual route, the cargo owner can treat itself as not bound by any of the contractual terms. The deviation cases were to be treated as a body of substantive law with rules of its own. Therefore, the court held that a geographic deviation does preclude a carrier from relying on the one year time created by Article III rule 6 if the other party to the contract elects to terminate.
Where the one-year time bar created by article III rule 6 applies, the period between the time that the cause of action arises, and the expiry of the contractual time limit, was to be taken into account when assessing whether the delay was "inordinate" for the purposes of section 41(3). The court noted that multiple extensions of the one-year time bar are commonplace in cargo claim handling. When parties consent to a prolonged timetable for particularisation (by granting the time extensions), that is a matter for them but absent any such extensions or consent to delay, there is no reason why the one-year rule is not objectively relevant for the purpose of assessing delay. Once the limitation period has expired the tribunal is entitled to take account of all the earlier periods of inexcusable delay since the commencement of the arbitration. These periods can include a period of delay occurring before the expiry of the limitation period which, at an earlier stage, could not be treated as inordinate.
The court found that cargo owners were aware of their cargo claim from an early stage and this was supported by the fact that they filed an action against the shipowners at the Aqaba Court of First Instance on 12th September 2011 for the full value of the cargo following the decision of the Jordanian Ministry of Agriculture to reject it. The tribunal took the clear view that cargo owners could have commenced and particularised the cargo claim in the arbitral proceedings as early as September 2011.
2.5 years elapsed between November 2012, which is when the one-year time limit would have expired, and June 2015 when the cargo owners finally particularised their claim. No valid reason was provided for the delay and as such the judge concluded that the delay was inordinate for the purpose of section 41(3).
(4) As for the proper order, burden and/or standard of proof applicable to a tribunal's assessment of whether a delay was "inexcusable" for the purpose of section 41(3), the legal (or persuasive) burden lay at all times on the applying party to prove on a balance of probabilities that the inordinate delay in question was inexcusable. Although each case was fact-specific, and whilst it was not generally helpful to speak in terms of a shift of evidential burden in this context, it would normally be the responding party that identified a credible excuse for the delay. Section 41(3) of the Arbitration Act 1996 provides that the tribunal can dismiss a claim if it "is satisfied that there has been inordinate and inexcusable delay on the part of the claimant in pursuing his claim".
This case serves as a reminder to shipowners that Hain Steamship Co v Tate & Lyle Ltd (1936) 55 Ll L Rep 159 is still a good law and if the vessel geographically deviates from the intended voyage, shipowners will not be able to rely on the one-year time bar under article III rule 6 of the Hague Rules.
It also cautions parties in the arbitration proceedings that commencing arbitration by serving an arbitration notice might not protect time if the parties do not particularise their claim in a prompt manner once all the information to bring the claim is gathered. Some might be surprised to note that although the court found that the 6 year time limit applied to the captioned matter, the cargo claim was still struck out for inordinate delay given 2.5 years elapsed between November 2012, which is when the one-year time limit would have expired had the claim been subject to article III rule 6 of the Hague Rules, and June 2015 when the cargo owners finally particularised their claim.
You may also be interested in:
The Sinking of the Titanic
In this short article, the Club takes a look back one of the most notorious historical incident in maritime history, the sinking of Titanic; this casualty gives us the opportunity to examine the reported facts, to reflect and understand human error and avoid those mistakes from being repeated that others have made.