England and Wales High Court (Commercial Court) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		28/11/2011

Mr. Justice Teare:

1. This is an appeal pursuant to section 69 of the Arbitration Act 1996 brought with the leave of the court. The appeal is against an award of Mr. O'Donovan, Mr. Marshall and Mr. Farrington dated 28 January 2011. The award was made in two related but not consolidated references which determined preliminary issues which arose in both references. Those issues concerned the interplay between the Interclub Agreement 1996 ("ICA 96") and an amended Centrocon arbitration clause.
2. The appeal was brought by the Owners of the vessel GENIUS STAR 1, MH Progress Lines SA ("Progress"), and was resisted by Nordana Project & Chartering ("Nordana"), the sub-charterers. Orient Shipping Rotterdam BV ("Orient"), the charterers, did not appear but were content to be bound by the decision of this court.
3. The appeal was argued by reference to the terms of the head charterparty which was a time charterparty dated 30 May 2005 on an amended NYPE 1946 form. The charter was for a period of about two years +/- one month in charterers' option with a further optional third year. The sub-charter was for a single trip time charter duration 20/25 days dated 25 August 2006.
4. The material terms of the head charter were as follows:

"Clause 26

..... Charterers to pay any extra crew war bonus, crew, and all other matters, all cargo claims to be settled as per Nype Interclub Agreement 1996 and any amendments thereto, same as when trading for their own account.

Clause 39

[1] All disputes from time to time arising out of this contract shall unless the parties agree forthwith on a single arbitrator, be referred to the final arbitrament of two arbitrators carrying on business in London, who shall be members of the Baltic Exchange and engaged in the shipping trades, one to be appointed by each of the parties, with power to such arbitrators to appoint an umpire.^[1]

[2] Any claim must be made in writing and the claimant's arbitrator appointed within 12 months of final discharge and where this provision is not complied with the claim shall be deemed to be waived absolutely barred.

[3] No award shall be questioned or invalidated on the ground that any of the arbitrators is not qualified unless objections to his acting be taken before the award is made.

[4] In the event the amount of claim does not exceed US$25,000 the parties agree to refer any dispute to a sole arbitrator in accordance with the LMAA Claims Procedure 1989.

[5] This Charter Party shall be governed by and construed in accordance with English Law.^[2]

Clause 50

...... Clause Paramount ..... deemed to be incorporated in this Charter Party."^[3]

5. ICA 96 is the third edition of the Inter-Club Agreement^[4]. It applies (pursuant to its express terms) where a cargo claim has been properly settled or compromised or paid by the owners or the charterers and "apportionment" of such claim is sought. In the first case dealing with the Inter-Club Agreement, the Strathnewton [1983] 1 Lloyd's Rep. 219, the agreement was described as "analogous to "knock-for-knock" agreements in the field of motor insurance; the essential feature of such agreements is to avoid any investigation of blameworthiness as between the parties for the events which have occurred…….[it] provides for a more or less mechanical apportionment of financial liability"; per Kerr LJ at pp.223-224. Experience has shown however that some evidence is still required to operate the agreement and the agreement has itself given rise to litigation; see the Benlawers [1989] 2 Lloyd's Rep. 51 at p.62 per Hobhouse J., the Holstencruiser [1992] 2 Lloyd's Reports 378 at p.389 per Hobhouse J. and P&I Clubs Law and Practice by Hazelwood and Semark 4^th ed. paragraph 15.42.
6. The material provisions of ICA 96 were as follows:

"(1) This Agreement applies to any charterparty which is entered into after the date hereof on the New York Produce Exchange Form 1946 or 1993 or Asbatime Form 1981 (or any subsequent amendment of such forms).

(2) The terms of this Agreement shall apply notwithstanding anything to the contrary in any other provision of the charterparty; in particular the provisions of Clause (6) (time bar) shall apply notwithstanding any provision of the charterparty or rule of law to the contrary.

…………

(5) This Agreement applies regardless of legal forum or place of arbitration specified in the charterparty and regardless of any incorporation of the Hague, Hague-Visby Rules or Hamburg Rules therein.

Time Bar

(6) Recovery under this Agreement by an Owner or Charterer shall be deemed to be waived and absolutely barred unless written notification of the cargo claim has been given to the other party to the charterparty within 24 months of the date of delivery of the cargo or the date the cargo should have been delivered, save that, where the Hamburg Rules or any national legislation giving effect thereto are compulsorily applicable by operation of law to the contract of carriage or to that part of the transit that comprised carriage on the chartered vessel, the period shall be 36 months. Such notification shall if possible include details of the contract of carriage, the nature of the claim and the amount claimed.

…………

Governing Law

(9) This Agreement shall be subject to English Law and Jurisdiction, unless it is incorporated into the charterparty (or the settlement of claims in respect of cargo under the charterparty is made subject to this Agreement), in which case it shall be subject to the law and jurisdiction provisions governing the charterparty."

7. The material facts of the instant case are that Nordana loaded a cargo of 108 pieces of wind turbine parts for carriage from Brake, Germany, to Albany, USA. The cargo was discharged at Albany on 19 September 2006. A claim was brought against Nordana by General Electric in respect of the carriage of the cargo. Nordana settled the claim for US$425,000 on 21 February 2008 and sought to recover that sum (together with related costs) from Orient either as an indemnity pursuant to ICA 96 or by way of damages for breach of the sub-charter. Orient has in turn sought to pass the claim "up the line" to Progress under the head charter.
8. Although Nordana must have been aware of General Electric's cargo claim within the one year limitation period prescribed by clause 39 (an amended form of the Centrocon arbitration clause), Nordana only notified Orient in writing on 22 January 2008 and did not commence proceedings against Orient within 12 months of final discharge. For their part Orient did not seek or obtain an extension of time from Progress.

The issue of law

9. The issue of law which has to be determined is whether or not the one year time limit in clause 39 of the head charter between Progress and Orient applies to cargo claims which are to be settled and apportioned in accordance with ICA 96. In other words, are the respective claims of Nordana against Orient and Orient against Progress deemed to be waived and absolutely barred because both Nordana and Orient failed to make any claim in writing and appoint an arbitrator within 12 months of final discharge in compliance with clause 39 of the respective charters? It was common ground that neither Nordana nor Orient in fact commenced proceedings within 12 months of final discharge.
10. Mr. Jacobs QC, counsel for Progress, submitted that the arbitrators were wrong to hold that the time limit in clause 39 did not apply to a cargo claim which was to be settled and apportioned in accordance with ICA 96. Mr. Cooper QC, counsel for Nordana, submitted that the arbitrators were right so to hold. Wilford on Time Charters 6^th ed. at paragraphs 20.71-72 supports Mr. Jacobs. Hazelwood and Semark on P&I Clubs Law and Practice 4^th ed. at paragraph 15.48 supports Mr. Cooper and the arbitrators.
11. Clause 26 of the head charter provides that "all cargo claims" are to be settled as per ICA 96. Clause (6) of ICA 96 contains a time bar provision with regard to recovery under ICA 96, namely, that recovery will be barred unless written notification of the cargo claim has been given to the other party within 24 months of the date of delivery of the cargo or the date the cargo should have been delivered (save where the Hamburg Rules apply in which case the period shall be 36 months). Clause (9) of ICA 96 provides for English law and jurisdiction unless ICA 96 is incorporated in a charterparty in which case it provides for the law and jurisdiction provisions governing the charterparty. Clause 39 of the charterparty provides for arbitration of "all disputes arising out of this contract" and requires that "any claim" must be made in writing and the claimant's arbitrator appointed within 12 months of final discharge, failing which the claim shall be barred. (Clause 50 of the charterparty incorporates the Hague Rules and in particular the time bar in Article III r.6. It is however not disputed that that time bar does not apply to claims under ICA 96.)
12. These contractual provisions give rise to two possible difficulties of construction. First, both clause 39 of the charterparty and clause (6) of ICA 96 provide for time bars but they are in different terms. Which applies to cargo claims under ICA 96 ? Second, clause (9) of ICA 96 incorporates the law and jurisdiction provisions of the charterparty. Do those provisions include the time bar in clause 39 ?
13. The terms of the charterparty and the incorporated ICA 96 must be read as a whole. In seeking to do that account must be taken of clause (2) of ICA 96 which expressly deals with the applicability of the time bar in clause (6) of ICA 96. It states that "the provisions of clause (6) (time bar) shall apply notwithstanding any provision of the charterparty or rule of law to the contrary." It seems to me, or at any rate my first impression was, that clause (2) answers both questions of construction identified in the previous paragraph. The time bar in clause (6) of ICA applies to claims under ICA 96 notwithstanding the contrary time bar in clause 39 of the charterparty. Clause (9) of ICA 96 is not to be read as incorporating the time bar in the law and jurisdiction provisions in clause 39 of the charterparty because the applicable time bar is expressly stated by clause (2) of ICA 96 to be that in clause (6) of ICA 96.
14. I have therefore tested that first impression against the several arguments advanced by Mr. Jacobs in support of his submission that the time bar in clause 39 of the charterparty applied to claims under ICA 96.

The differing "purposes" of paragraph [2] of clause 39 and clause (6) of ICA 96.

15. The assumption underlying the construction of the charterparty which appeared to me on first impression to be correct is that there is a conflict between paragraph [2] of clause 39 and clause (6) of ICA 96. However, it was said that there was in fact no conflict between the two clauses because paragraph [2] of clause 39 deals with the time for the commencement of substantive arbitration proceedings whereas clause (6) of ICA 96 deals with the time for written notification of a claim.
16. Mr. Jacobs adopted the argument set out in Wilford on Time Charters 6^th ed. at paragraphs 20.71 and 20.72 which may be summarised as follows: Clause (6) of ICA 96 is not concerned with a limitation period in the sense of the period within which arbitration or litigation must be commenced. That limitation period may be either statutory or contractual. By contrast Clause 39 paragraph [2] introduces a contractual limitation period, namely, a period of 12 months within which arbitration must be commenced. That provision is not contrary to the time bar in clause (6) of ICA 96 because the latter does not deal with the period within which the arbitration must be commenced but instead deals with the time within which written notification of the claim must be given.
17. Thus the effect of the two provisions, on Mr. Jacobs' argument, is that a claim under ICA 96 will be defeated if arbitration proceedings are not commenced within 12 months of final discharge (paragraph [2] of clause 39) or written notification of the claim is not given within 24 months of the date of delivery of the cargo (clause (6) of ICA 96).
18. The opinion expressed in Wilford is to be contrasted with the opinion expressed in Hazelwood and Semark at paragraph 15.48 that, as a result of clause (2) of ICA 96, "the time bar provision in clause (6) of the Agreement will prevail over any other right which might appear to be in conflict, such as a Centrocon Arbitration Clause."
19. It is of course correct that ICA 96 does not provide for a period within which litigation or arbitration must be commenced. However, it does provide for a time bar, namely a requirement which, if not complied with, results in the claim being waived and absolutely barred. Clause 39 also provides for a time bar, namely a requirement which, if not complied with, results in the claim being waived and absolutely barred. The requirement in each case is different. In the one case it is a requirement that written notification of the claim be notified in writing within 24 months of the date of delivery. In the other case it is a requirement that a claim be made in writing and arbitration commenced within 12 months of final discharge. Because the requirement constituting the time bar in clause 39 is different from the requirement constituting the time bar in ICA 96 clause 39 is, in my judgment, "contrary" to ICA 96.
20. That is the manner in which the charterparty would be understood by a reasonable man having the background knowledge reasonably available to the parties. If he asked himself what time bar governs claims under ICA 96 he would find two potentially applicable time bar provisions expressed in different terms. He would also note that clause (2) of ICA 96 expressly dealt with the question of what should happen if there were a time bar in the charterparty contrary to the time bar provision in ICA 96, namely, that the time bar provision in ICA 96 "shall apply". He would conclude that the time bar in ICA 96 is the applicable time limit.
21. Mr. Jacobs submitted that the result of that construction of the charterparty is that there is a 6 year statutory time limit for commencing arbitration (assuming that written notification of the claim has been given within 2 years) which, he said, was "incongruous" and unlikely to reflect the parties' intentions. There is some force in this but I am not persuaded that there is so much force in it that clause 39 and ICA 96 cannot be read together as a whole in the manner I have suggested or that Mr. Jacobs' construction of the charterparty must be right. The commercial arbitrators recognised that there would be a six year limitation period and do not appear to have considered such a limit uncommercial. The reason why it is not so regarded may be that, in very many cases, once a claim has been notified within 24 months, apportionment pursuant to ICA 96 is a mechanical exercise and arbitration will usually be unnecessary. (By contrast the arbitrators found the suggestion that there must be an arbitration commenced within 12 months with a further 12 months to submit written notification of a claim "clearly uncommercial"; see paragraph 23 of the Reasons.)
22. There is a further respect in which paragraph [2] of clause 39 is inconsistent with paragraph (6) of ICA 96. The requirement in the former that claims must be made in writing within 12 months is inconsistent with the requirement in the latter that claims should be notified in writing within 24 months. It was suggested by Mr. Jacobs (and also by Wilford on Time Charters at paragraph 20.72) that the requirement in clause 39 that claims be made in writing within 12 months is not inconsistent with the requirement in ICA 96 that written notification be given "within 24 months". I agree that 12 months is "within 24 months" but clause 39 provides that a claim will be waived and absolutely barred if it is not made in writing within 12 months. Under ICA 96 written notification of a claim may be given after 12 months has expired and before 24 months has expired without the claim being waived and absolutely barred. Clause 39 is therefore contrary to ICA 96 in this respect also.
23. The reason why ICA 96 provides for written notification of claims to be made within 24 months (or within 36 months in the case of the Hamburg Rules) is not hard to identify. It provides the person seeking apportionment of a cargo claim under ICA 96 with one year in which to give written notification of his claim after the time limited for claims to be made against the owners or charterers by third parties (either one year under the Hague Rules or 2 years under the Hamburg Rules) has expired; see Hazelwood and Semark on P&I Clubs Law and Practice by para.15.66. Thus if a claim is made against the owner or charterer just before the expiry of the one or two year limit the owner or charterer, as the case may be, has a further 12 months in which to give the other notice of his claim for apportionment. Were the time limit in clause 39 to apply the owner or charterer against whom a claim is made just before the expiry of the one year limit might be unable to give notice of his claim for apportionment before the one year time limit in clause 39 had expired.
24. I therefore remain of the view that paragraph (2) of clause 39 is "contrary" to clause (6) of ICA 96 and that such conflict is resolved by clause (2) of ICA 96 providing that the applicable time limit is clause (6) of ICA 96.

The "interdependence" of paragraphs [1] and [2] of clause 39

25. It was said that paragraphs [1] and [2] of clause 39 cannot be divorced from each other. Thus in the Evje [1975] AC 797 it was held that where a claim for general average is made which arises out of the charterparty such claim is governed by both paragraphs [1] and [2] of the Centrocon clause. They cannot be divorced from each other; see the speech of Lord Morris at p.810 A-F.
26. I agree that where a claim other than a cargo claim pursuant to ICA 96 is concerned it is plain that both paragraphs must apply. However, in the present case there are words in the charterparty which show that the parties intended that the time bar in paragraph [2] of clause 39 was not to apply to cargo claims under ICA 96, namely clause (2) of ICA 96. Thus the parties intended that, to that extent, there was to be a divorce between paragraphs [1] and [2] of clause 39.

"Any claim" in paragraph [2] of clause 39

27. It was said that paragraph [2] of clause 39 refers to "any claim" without restriction. "Any" does not normally permit of any restriction.
28. But in the present case paragraph [2] must be read with ICA 96, clauses (2) and (6) of which indicate an intention that the words "any claim" in paragraph [2] of clause 39 were not to apply to claims under ICA 96.

Paragraphs [1] and [3] – [5]

29. It was said that these paragraphs apply to any dispute including one under ICA 96 and therefore the parties must have intended that clause 39 was to apply to such disputes in its entirety.
30. I agree that those paragraphs do apply to disputes under ICA 96 but, having regard to clauses (2) and (6) of ICA 96, it does not follow that the parties intended that paragraph [2] of clause 39 would apply to such disputes.

Cargo claims other than those under ICA 96

31. It was said that since other claims relating to cargo not covered by ICA 96 would be governed by the entirety of clause 39 it would be surprising if cargo claims which were subject to ICA 96 were not so governed. But clauses (2) and (6) of ICA 96 make clear, it seems to me, that cargo claims subject to ICA 96 are not governed by the time bar in paragraph [2] of clause 39 of the charterparty.

Additional clauses compared with standard clauses and incorporated clauses

32. It was submitted that clause 39 being an additional clause expressly added to the charterparty should prevail over the standard form and over any provision incorporated by reference; see the Lowlands Orchid [2010] 1 Lloyd's Rep 317 at paragraph 20 per Beatson J. However, for the reasons I have given clause 39 and ICA 96 can be read together so there is no need for any term to "prevail" over another. In any event the incorporation of ICA 96 by clause 26 was itself the result of an addition to the standard form of the NYPE form. If clause 39 and ICA 96 could not be read together the applicable rule of construction would, in my judgment, be that which states that "general things do not derogate from special things"; see Sabah Flour v Comfez [1988] 2 Lloyd's Rep. 18 at p.20 rhc per Staughton LJ. On that basis the provision which applies specially to claims under ICA 96 would prevail over the general provision (paragraph [2] of clause 39). But clause (2) of ICA 96 makes it unnecessary to have resort to any such principles of construction.

Authorities

33. There are no decided cases on the true construction of ICA 96 but it is necessary to refer to three cases which have considered the Inter-Club agreements in its previous versions. The first case was the Strathnewton [1983] 1 Lloyd's Rep. 219. This case was decided on the basis of the original form of the Interclub Agreement which dated from 1970. The question was whether the time bar in Art. III r.6 of the Hague Rules (which had also been incorporated into the charterparty) applied to claims for the apportionment of cargo claims under the Inter-Club Agreement. The Court of Appeal held that it did not. Kerr LJ held (at p.225 rhc) that the Inter-Club Agreement "cuts right across any allocation of functions and responsibilities based on the Hague Rules." In those circumstances Article III r.6 "has no place in a settlement between owners and charterers under the Inter-Club Agreement"; see p.226 lhc. It does not appear that the form of Inter-Club Agreement then in use contained its own time bar. None is mentioned by Kerr LJ.
34. The second case is the Benlawers [1989] 2 Lloyd's Rep. 51. This case also considered the original 1970 form of the Inter-Club Agreement (see p.54 rhc). One question which arose was whether the incorporation of the Inter-Club Agreement affected liability under the charterparty (see p.59 lhc and p.60 lhc). Hobhouse J. held that it followed from the decision in the Strathnewton that it did. He pointed out (at p. 56 lhc) that the references in that case to the Hague Rules were references to the Hague Rules as incorporated in to the charterparty "and therefore are really a reference to the charterparty terms." He said (at p.56 rhc): "The essence of that decision was that the inter-Club Agreement provides its own code which, in that case, was independent of the incorporation of the Hague Rules into the charterparty."
35. In May 1984 there was an amended Inter-Club Agreement which included a provision that any claims under the Agreement should be notified to the other party in writing as soon as possible but in any event within two years from the date of discharge. There was no provision comparable to clause (2) of ICA 96. The 1984 edition of the Inter-Club Agreement was considered in the third case, the Mary Elle, an unreported decision of Evans J. given on 3 August 1990. In that case the charterparty provided that all cargo claims were to be settled according to the Inter-Club Agreement amended May 1984. The charterparty also included an arbitration clause on the Centrocon form of arbitration clause providing for arbitration to be commenced within three months of redelivery. The question of construction was whether the three month time limit in the Centrocon arbitration clause applied to claims under the Inter-Club Agreement. Evans J. held that the time limit in the Centrocon arbitration clause applied with the result that the claim was time barred because arbitration had not been commenced within the three month period. His reasoning was that where parties have agreed a three month time limit for the commencement of arbitration in respect of all claims it would take much to indicate that, notwithstanding that express and apparently all-embracing agreement, the parties nevertheless intended that some term of an incorporated document should impose a different limit in some but not all of the cases with which that other clause was concerned. The judge had in mind that not all cargo claims were within the scope of the Inter-Club Agreement and on this account distinguished the decision in Sabah Flour v Comfez [1988] 2 Lloyd's Rep. 18. He made no reference either to the Strathnewton or to the Benlawers.
36. The Inter-Club Agreement was further amended in 1996. The most material addition was of course clause (2) which expressly deals with any inconsistency between the terms of ICA 96 and the terms of the charterparty in which it had been incorporated. Whether or not that amendment was in reaction to the decision the Mary Elle (as to which there was no evidence) the amendment certainly enables that decision to be distinguished. Clause (2) of ICA 96 makes clear, for the reasons I have already given, that, notwithstanding the apparently unlimited reach of paragraph [2] of clause 39, the time bar in clause (6) of ICA 96 is applicable to claims under ICA 96.
37. It seems to me that clause (2) of ICA 96 states expressly what Kerr LJ had said in the Strathnewton was the effect of the incorporation of the Inter-Club Agreement, namely, that the Inter-Club Agreement "cut across" the liabilities and defences set out in the other terms of the charterparty, such as the liabilities and defences of the Hague Rules when incorporated into the charterparty. Thus clause (2) of ICA 96 states that "the terms of this Agreement shall apply notwithstanding anything to the contrary in any other provision of the charterparty." It then gives a particular example; the provisions of the time bar in clause (6) shall apply notwithstanding any provision of the charterparty to the contrary.
38. Clause 50 of the charterparty incorporates the Hague Rules including the time bar provision in Article III r.6. It seems to me that just as the time bar in clause 39 is contrary to the time bar in ICA 96 clause (6) so the time bar in Article III r.6 of the Hague Rules (which discharges the carrier from liability if suit is not commenced within 12 months of delivery) is contrary to the time bar in ICA 96.
39. Progress accepts that although the Hague Rules have been incorporated into the head charter by clause 50 it follows from the Strathnewton that the time bar in Article III r.6 does not apply to claims under ICA 96. However, Progress maintains that the time bar in clause 39 does apply to such claims. Mr. Jacobs sought to justify this stance by saying that neither the Strathnewton nor the Benlawers concerned an express time bar provision which was part of a clause applicable to "all disputes" and specifically referred to "all claims". Clause 39 was a "stand-alone" clause dealing with the application of English law and arbitration and, as an integral part of the arbitration process, the time limit for bringing claims by way of arbitration. I agree that Clause 39 is a stand-alone provision in respect of "all claims" whereas Article III r.6 is part of the package of rights and liabilities contained in the Hague Rules and only bars cargo claims against the carrier. But I am unable to accept the conclusion that whereas the time bar in Article III r.6 does not apply to claims under ICA 96 the time bar in clause 39 does apply to such claims. Each is a time bar (though expressed in different terms) and each is contrary to ICA 96 because each leads to a time bar operating on a claim in different circumstances from those in which the time bar in ICA 96 applies.
40. Mr. Jacobs relied upon a number of other cases in support of his argument, including the Stephanos [1989] 1 Lloyd's Rep. 506, the Himmerland [1965] 2 Lloyd's Rep. 353, Fiona Trust v Privalov [2008] 1 Lloyd's Rep 254 and the Starsin [2004] 1 AC 715. However, none of these cases concerned the interplay between the time bar in ICA 96 (or its predecessor) and another time bar in the charterparty which incorporated ICA 96 (or its predecessor).

Conclusion

41. For all these reasons I have reached the conclusion that paragraph [2] of clause 39 does not apply to claims under ICA 96. Both clause 39 and ICA 96 can be read together by virtue of paragraph (2) of ICA 96 expressly resolving the conflict between the time bar in clause 39 and the time bar in paragraph (6) of ICA 96 in favour of the latter. That is the manner in which the clauses would be understood by a reasonable man having the background knowledge available to both owners and charterers. The arbitrators reached the correct conclusion and the appeal must therefore be dismissed.

Note 1   As noted in paragraph 8 of the Award, the parties agreed that clause 39 be amended by reference to a third arbitrator.    [Back]

Note 2   The paragraph numbers in clause 39 are not in the text of the charterparty but have been inserted by me for ease of reference.     [Back]

Note 3   This had the effect of incorporating the Hague Rules into the charterparty.    [Back]

Note 4   There is now a fourth edition dated September 2011; see Scrutton on Charterparties and Bills of Lading 22nd ed. at p.510.    [Back]