England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Dated: 23 June 2000

Hon. Mr. Justice David Steel:

Introduction

1. This is an application by the Claimants, who were receivers of a steel cargo, for a declaration that their claim against the Respondents, who were the owners of the carrying ship, is not time-barred. In the alternative, the Claimants seek an extension of time to commence arbitration proceedings pursuant to Section 12 of the Arbitration Act 1996.

Background

2. The Claimants ("Thyssen") are importers of steel based in Detroit. They concluded a contract with Metalsrussia dated the 26^th of October 1996 whereby they agreed to purchase about 900 metric tonnes of hot rolled steel sheet in coils of Russian origin at US$277 per metric tonne CFR Philadelphia. Payment terms were by letter of credit providing for payment against the usual documents including freight pre-paid bills of lading.
3. The contract provided that charter party bills of lading were acceptable. Alerted by this, Mr Golding, General Manager of the Claimants, sent a fax to the Sellers, Metalsrussia, asking for a copy of the relevant charter party :- "We kindly ask you to forward to us a copy of your standard charter party for our review. We do not wish to check any rates, commission, demurrage/despatch etc but we would like to read through the applicable clauses as they apply to receivers." The reply from Metalsrussia was as follows :- "As mentioned earlier, it is not stipulated in c/p which did not mention any clause regarding c/p bill of lading. Furthermore as agreed with ship owner we are not allowed to disclose c/p to third party except lawyer or arbitrator." There was no further exchange between the parties to the sale contract on this topic thereafter.
4. Metalsrussia were responsible for the shipping arrangements and the coils were shipped on board the vessel MARKOS N at Ventspils in Latvia for carriage to Philadelphia, the bills of lading being issued on the 23^rd and 24^th of January 1997 on the Congenbill form. On the face of the bills of lading, freight was expressly payable as per charter party dated January 18, 1997. The terms on the reverse side of the bills incorporated the terms of the charter party "dated as overleaf". In fact the vessel was subject to a head time charter to Western Bulk Carriers dated 19^th January 1997. There was also a voyage fixture to Metalsrussia but the details of that only emerged later, giving rise to the problem in this case.
5. The relevant documentation was duly presented and payment was made. The cargo was thereafter discharged between the 23^rd and 25^th of February 1997 at Philadelphia during the course of which it became apparent that it had sustained damage. Accordingly Thyssen issued a claim against the Owners on the 5^th March 1997 in the United States District Court, Southern District of Texas, in Houston. The complaint was both in rem and in personam. The vessel was duly arrested and thereafter released on the posting of security by the Club. The basis of jurisdiction was asserted in paragraph 1 of the Complaint which reads:-

"This Court has jurisdiction under Title 28 United States Code Section 1333 and Rule 9(h) to the Federal Rules of Civil Procedure. The Court has supplemental jurisdiction with respect to the remaining aspects of the claim."

6. The action was then transferred by consent to the Southern District Court of New York in August 1997. On the 20^th February 1998 the Defendants prepared an Answer admitting that the Court had jurisdiction. This was filed in March. Various "affirmative defences" were pleaded including a plea to the effect that the matter should be dismissed pursuant to forum non conveniens: paragraph 17.
7. As is apparent, a few days after the answer had been prepared the one year time limit expired. Thereafter there ensued a request for discovery by the Claimants in respect of which there was no response. However in November 1998 the Claimants filed a motion seeking dismissal of the Respondents pleaded package limitation defence. Faced with this the Respondents' Club then sought to obtain a copy of the sub charter. On making enquiries they received the following letter from the time charterers, Western Bulk Carriers :- "Please find enclosed a copy of CP dated the 27.02.1995 between WBC Oslo and Metalsrussia. This is the CP we have done all our cargoes with Metalsrussia under, and the dates you refer to must be the recap for this particular voyage". The enclosed charter was on the Gencon form for a vessel called BELNOR. Clause 36 of the charter party was a typed English law and arbitration clause.
8. The significance of this charter party was outlined in an affidavit of Mr Fleming Buhl which was served on behalf of the Defendants in the American proceedings. He explained that, following the BELNOR charter party, Western Bulk Carriers had subsequently entered into some 36 charters with Metalsrussia for the shipment of steel products to the United States, all of which had been on effectively identical terms. The affidavit went on :- "In January 1997 negotiations commenced between Western Bulk carriers and Metalsrussia for the charter of the MARKOS N to carry a cargo of steel from Ventspils Latvia to Camden and Houston. On January 17, final agreement was reached on the freight rate and the other main terms of the charter and the brokers confirmed the agreement in a telex. A copy of this confirmation known in the chartering business as a fixture recap is attached....the remaining details of the charter were reconfirmed some days thereafter".
9. There are indeed various exhibits to that affidavit, including a fixture recap telex which is dated the 15^th January expressed to be subject to the subcharterers reconfirmation "latest Friday 17^th - otherwise as per NIKOLAS P CP". Also annexed to the affidavit was a commission invoice from the brokers making reference to a charter party for the MARKOS N dated the 17^th January 1997 and a commission invoice in respect of the freight making reference to a charter party for the MARKOS N dated the 21^st January 1997.
10. .It was against this background that on the 15^th January 1999 the shipowners applied for a stay of the New York proceedings on the grounds that the bills of lading incorporated a London arbitration clause. Thyssen resisted this application on various grounds but were unsuccessful. On the 12^th August 1999 Judge Mukasey gave judgment and stayed the New York claim in favour of London arbitration. As regards the assertion of waiver he said as follows:-

"Whether or not there has been a waiver depends on such factors as the time elapsed from the commencement of the litigation to the request for arbitration, the amount of litigation (including exchanges of pleadings, any substantive motions and discovery) and proof of prejudice to the opposing party (including taking advantage of pre-trial discovery not available in arbitration, delay and expense). ...Here the length of litigation weighs slightly towards a finding of waiver...This factor alone however is not dispositive...The standard is whether there has been litigation of "substantial issues going to the merits", a standard not met on the current record. Rather than involving substantial issues the parties litigation activity has been relatively minor: the record shows no more than the filing of the original pleadings and the filing of the present motion. As for discovery Thyssen has presented no evidence of the extent or nature of discovery nor does it appear from the record that either party has participated in discovery beyond that necessary for the current motions. ...Nor has Thyssen shown any real prejudice resulting from the delay in asserting this defense. Under these circumstances the Defendants cannot be found to have waived their right to arbitration."

11. .On the 19^th August 1999 Thyssen appointed its arbitrator so as to commence London arbitration proceedings and on the 21^st September 1999 the Owners appointed their arbitrator without prejudice to any time bar point. For a significant period, particularly in September and October 1999, correspondence took place between the parties solicitors as to the appropriate way forward procedurally. Thyssen finally issued the present application on the 20^th January 2000.

Issue One

12. .The first issue that arises is whether the claim is time barred by reason of Article III Rule 6 of the Hague Rules which of course reads :- "The carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods unless suit is brought within one year of their delivery."
13. .The claimants say that there is no such time bar and advance two propositions :-

(i) the proceedings within the United States were brought within one year by the right claimants, against the right defendant and in a court with jurisdiction to determine the merits: it is thus a suit for the purposes of Article III Rule 6; or

(ii) the proceedings in the United States were brought within one year by the right claimant against the right defendant in a court with jurisdiction to determine the merits and, albeit the United States court yielded up a decision on the merits of the dispute to the arbitrators, the defendants had in fact submitted to the jurisdiction of the United States courts as a matter of English law: it was thus a suit for the purposes of Article III Rule 6.

The respondents contended that both these propositions were contrary to principle and authority.

14. .There can be no doubt that the first proposition is of breathtaking proportions. It would mean, for instance, that if the claimants in the present case had instituted proceedings in rem in any jurisdiction in the world which was a party to the 1952 Convention on Arrest of Ships, or otherwise recognised jurisdiction in rem for cargo claims, regardless of whether the vessel was in the jurisdiction at the time, let alone whether, following arrest the proceedings were later stayed in the face of an arbitration clause, those proceedings would remain a suit for the purposes of Article III Rule 6.
15. .This is not just a surprising proposition. It gives rise to absurd results. The mere institution of proceedings in any court with jurisdiction in principle, regardless of whether service of those proceedings could in fact be affected and even regardless of any contractual commitment to use another forum, would prevent the shipowner from being discharged from liability by reason of the passage of time and allow the claimant to institute proceedings in an appropriate contractual forum at any time thereafter, immune from any time bar threat (at least so far as English jurisdiction is concerned given the provisions of s. 39 of the Limitation Act 1980).
16. .No doubt in recognition of the extreme nature of the first proposition, Mr Lord on behalf of the claimants advanced the alternative, more conservative proposition. But this too gives rise to surprising results. For instance, in the present case, the United States court stayed the proceedings pursuant to Section 3 of the Federal Arbitration Act. It did so despite the assertion that the right to arbitration had been waived. The Respondents' application for a stay was held to be open to them despite their pleaded admission of the court's jurisdiction and their subsequent passage of some ten months before the time bar was pleaded. The rationale behind this was set out in the witness statement of Mr Keates, a partner in the Respondent's solicitors, where he set out the nature of the advice he had received on American law on this topic. It was his evidence that the admission of jurisdiction: "was required simply to confirm the subject matter of the dispute fell within the Federal court's Admiralty jurisdiction. Such an admission does not thereafter prevent the parties from raising any defences they may have to the exercise of the Federal Courts jurisdiction, including arbitration. Indeed for the court to be competent to make decision upon it substantive jurisdiction, it is first necessary for the subject matter jurisdiction to be established." That evidence was not disputed by the Claimants.
17. .It follows that it is common ground that as a matter of American law no submission to the jurisdiction took place let alone was there any election to abandon the right to a stay. Despite all that, the Claimants assert that, if the English court would have regarded the circumstances as amounting to a step in the action for the purposes of Section 9(3) of the Arbitration Act 1996, then it remains a suit for the purposes of Article III. It would be surprising if inconsistencies of approach to well established and similar principles on such a topic as submission to the jurisdiction could lead to a situation in which, despite as a matter of US law no waiver to arbitration having been involved in the response to the suit, it remained a suit as a matter of English law for the purposes of keeping time open for arbitration.
18. .Furthermore, there is something of a contradiction in the Claimants' argument. As I understand it, it is conceded that, in the event that the United States proceedings had been struck out for want of prosecution, it could not constitute a suit for the purposes of Article III. That is even so when the English court would not have struck out the action in those circumstances.
19. .In any event, if it were to be relevant, I am not fully persuaded that the activities of the Defendants in the United States action constituted steps in the action for the purposes of Section 9 given that the new requirements that the step in the proceedings has to be "to answer the substantive claim". The answer, apart from the plea of forum non conveniens, merely asserts that the complaint does not contain or set out a cause of action and secondly that the claim does not give rise to a maritime lien.
20. .But even if it is a step so far as concerns English law, English conflict rules are to the effect that, if steps are not regarded as a submission by the foreign court, it is not to be regarded as a submission so far as the English court is concerned. This is the rule as regards enforcement of judgments: see Adams v. Cape Industries [1990] Ch 433. The rule is also valid in the present context: see The Eastern Trader [1996] 2 Lloyds Rep. 583 and Akai v. Peoples Insurance [1998] 1 Lloyds Rep. 90.
21. .In respect of the overall issue I have the advantage of being guided by the decision of Rix J. in the Finnrose [1994] 1 Lloyds Rep 559. The particular question that he was called upon to decide was whether proceedings which had been struck out for want of prosecution could nonetheless constitute a suit within the meaning of Article III for the purposes for a second set of proceedings. Having had all the relevant authorities cited to him, he concluded that it could not. In a passage which begins by adverting to some of the practical problems which I have outlined already in this judgment, he said this :-

"In my judgment the rule should be given a broad and purposive construction, but the solution still has to be found within the words of the rule. The words are "unless suit is brought". It is now established in English law that that means that the action must be a proper or competent one. However, the current doctrine that, in the case of two sets of proceedings, one looks to the first as well as the second set, in determining whether suit has been brought in time, has only been introduced comparatively recently in The Nordglimt, and neither that case, nor those that have followed it, have had to consider a situation where the question-mark hanging over the first set of proceedings has involved the conduct of those proceedings, as distinct from a problem which may be said to be hanging over it from its inception. The fact remains, however, that the issue raised by the present case is part of a wider context. Suppose an action is commenced in England by issue of a writ, but that writ is never even served, and in due course its validity expires. In the absence of service, the intended defendant will not even know of the commencement of that action. On Mr Gaisman's principle, the plaintiff can commence a fresh action at any time within at least six years. Suppose the writ is served, but before service of any pleadings, it is discontinued. There again, on Mr Gaisman's principle, there is nothing to stop the issue of fresh proceedings within the time limited by any applicable limitation statute. The present case is one stage further: the writ has been served, and the proceedings have gone a certain way down the line, but there has been want of prosecution in such circumstances that the defendants have been or are likely to be seriously prejudiced. To permit fresh proceedings in any of these situations runs counter to the whole purpose of the rule, which is to ensure speedy notifications of claims and the prompt pursuit of litigation: see The Leni, sup., and Colombiana at p. 494 col. 2: p. 123c, where Mr Justice Roskill said:- "Secondly, the crucial paragraph in the rule occurs in a rule the whole purpose of which (whether the earlier part is of any legal effect) is to protect shipowners from being subjected to claims for loss of or damage to cargo which have not been promptly made and promptly pursued."

It seems to me that the earlier proceedings cannot be relied on as having been brought within one year if they have been conducted in such breach of the time-table laid down by English rules of civil procedure that they are liable to and have been dismissed for want of prosecution. If one asks the question: When under English law is suit brought in England? the answer may well be: Upon issue of the writ. But if one asks the question: Can those proceedings be relied on as proceedings brought within one year, if they have been so conducted? the answer must in my judgment be: No. It is true that the rule focuses, as a limitation rule must do, upon the time when proceedings are brought ("unless suit is brought within one year"). Once, however, it is accepted that the inquiry is not simply whether the suit has been commenced within a year, but whether, at some subsequent time, that suit can survive a challenge, either jurisdictional (e.g. based on breach of an exclusive jurisdictional clause) or even upon the merits (no title to sue), I do not see that it makes any difference in principle that the defect in question cannot be necessarily predicted, but only contingently so. It is not as though the suit must be a nullity, for the proviso to the rule to go unfulfilled. A suit brought in breach of an exclusive jurisdiction clause is not a nullity, nor is one brought in breach of an arbitration clause. A suit brought in the name of a wrong party is not a nullity - it fails on the merits. It is rather that the Courts have, pragmatically, rather than on any essential principle of logic, regarded some suits, although commenced within a year, as not counting for the purpose of the rule."

22. .In accordance with that pragmatic approach, where, as here, the first suit is brought in breach of an arbitration clause, the courts do not regard that as a suit for the purposes of the rule (unless of course there is no application for a stay). That was the view of Parker LJ. in The Amazona [1989] 2 Lloyds Rep. 130 and Saville J in The Havhelt [1993] 1 Lloyds 523 (a view with which Rix J expressly concurred). It is not enough for the correct claimant to commence proceedings before a competent court against the correct defendant. The proceedings must remain valid and effective at the time when the carrier seeks to rely on Rule 6 in the second set of proceedings. Thus where the first action has been dismissed for want of prosecution or stayed by reason of the invocation of an arbitration clause, suit has not been brought. So also if there had been a breach of an exclusive jurisdiction clause and a stay obtained. It may be there is some doubt as to the implications of a first suit stayed on the grounds of forum non conveniens: see the example of Parker LJ. in The Capetan Markos [1986] 1 Lloyds Rep. 211. But there is no doubt in my judgment as to the effect of the stay in this case. It means that the arbitration claim is time barred.

Extension of Time

23. .The application is made under Section 12 (3) of the Arbitration Act 1996 which reads as follows:-

"(1) where an arbitration agreement to refer future disputes through arbitration provides that a claim shall be barred, or the claimant's right extinguished, unless the claimant takes within a time fixed by the agreement some step -

a) to begin arbitral proceedings... the court may by order extend the time for taking that step...

(3) the court shall make an order only if satisfied -

a) 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

b) the conduct of one party makes it unjust to hold the other party to the terms of the provision in question."

24. .It is common ground (indeed it is notorious) that the provision was introduced with a view to restricting the circumstances in which time might be extended as compared with the scope of Section 27 of the Arbitration Act 1950.
25. .So far as subsection (b) is concerned, I can take the matter shortly. The threshold question as I see it is whether the claimants can attribute their failure to comply with the time bar to the conduct of the Respondents: The Seki Rollette [1998] 2 Lloyds 638 per Mance J at page 650, Harbour and General Works v. Environment Agency [2000] 2 Lloyds Reports 65 per Colman J at page 73. I can detect no such conduct in this case. The fact that the defendants in the American proceedings were as ignorant of the existence of the arbitration as the Claimants and that it was only fortuitous that, after the expiry of the one year time bar, they ascertained the same is not to the point. This is even less to be categorised as a causative conduct than a passive failure to warn the other party when fully aware of the arbitration clause.
26. .In the circumstances I turn to subsection (a). The threshold requirement here has been considered by the Court of Appeal in Harbour and General, supra. In the judgment of Lord Justice Waller with which Lord Justice Tuckey agreed, there is this important passage page 81:-

"The subsection is concerned with party autonomy. Its aim seems to me to be to allow the Court to consider an extension in relation to circumstances where the parties would not reasonably have contemplated them as being ones where the time bar would apply, or to put it the other way round the section is concerned not to allow the court to interfere with a contractual bargain unless the circumstances are such that if they had been drawn to the attention of the parties when they agreed the provision, the parties would at the very least have contemplated that the time bar might not apply; it then being for the court finally to rule whether justice required an extension of time to be given."

27. .Do the circumstances in the present case fall within that category? The first question is the relevant timing of the objective assessment. The only fair conclusion is it falls to be decided at the time when the receivers became parties to the bills of lading i.e. upon endorsement. Viewed from that stage it was the Claimants' case that the circumstance which justified liberty to extend time was that it was not reasonably to be contemplated that it would prove impractical for the Claimants to ascertain the terms of the bill of lading before the expiry of the time limit.
28. .At the forefront of this submission is of course the exchange of letters with the Sellers in January 1997. But the difficulty with reliance on the Sellers reply is that, given the prescient request for a "standard" charter party, the answer is manifestly unsatisfactory. Indeed the second sentence is incomprehensible.
29. .Mr Goulding's declaration of the 25th January 1999 refers to Western Bulk Carriers. As I understand it he was aware that they were the time charterers of the vessel. He would also have been aware from his own dealings with Western Bulk Carriers that an arbitration clause would be likely to be included in any sub charter (although in his experience it would have been a New York arbitration clause). Furthermore, the letter from Metalsrussia referred to the possibility of producing the subcharter to an arbitrator.
30. .Yet despite all this there was no follow up of the letter from Metalsrussia. This is all the more remarkable when shortly thereafter Mr Goulding would have seen the bills of lading which expressly referred to a charter party on the 18th January and expressly incorporated any arbitration clauses within it.
31. .I appreciate that Mr. Goulding has said in a statement dated the 27th April 2000 that he made numerous requests for copies to Mr Buhl of Western Bulk Carriers by telephone but was advised there was no charterparty. I regret that I approach that evidence with considerable scepticism - not merely because it is so late in the story:-

i) it is surprising that there were no written requests to Western Bulk Carriers;

ii) it is even more surprising that there were no references to these requests in his earlier statement in the American proceedings;

iii) it is somewhat odd that he would be so persistent with Western Bulk Carriers when he never chased Metalsrussia and

iv) in remarkable contrast, the Owners were able to obtain a copy of the original charter in November 1998 without any difficulty at all.

32. .I have concluded the Claimants have fallen a long way short of establishing that it was not reasonably practicable to obtain a copy of the charterparty. Thus on the assumption that only then would the parties have regarded it as appropriate to allow the court to consider extending time, the application fails.
33. .Further even if I was wrong about this threshold issue, I would still not regard it as just in all circumstances to extend time :-

(i) the United States proceedings were prosecuted in a desultory manner. Even after 20 months little if any progress had been effected. If more vigorously pursued, it is likely that the arbitration clause would have been unearthed in time.

(ii) Even when the United States court stayed the matter and the Respondents took the time point in the English arbitration, the issuance of the present application required an inordinate period of gestation even allowing for discussions as to the manner in which the point should be raised. The need for despatch referred to in The Eurotrader [1987] 1 Lloyds Rep 418 remains in my judgment good law.

34. .In all these circumstances I am unable to accede to the application to extend time.