Lavender Shipmanagement Inc -v- Ibrahima Sory Affretement Trading S.A and others [2020] EWHC 3462 (Comm)

The court considered an application to set aside an award regarding the tribunal’s jurisdiction and its ruling on a time bar issue.

Background facts

In October 2017, the vessel Majesty carried a cargo of bagged rice from Myanmar to Guinea. Five bills of lading were issued for the voyage covering the total quantity of 25,000mt of bagged rice and incorporating all terms and conditions of a voyage charterparty, including the law and arbitration clause.

This was on an amended Synacomex 90 form and clause 38 provided for the BIMCO standard law and arbitration clause 2009. Clause 69 was slightly different to the standard BIMCO wording, but it was common ground that it was the applicable arbitration agreement governing each bill of lading and provided for LMAA arbitration, including the small claims procedure (SCP).

At the discharge port, the cargo was alleged to be damaged. Owners and cargo claimants appointed local surveyors for the tally. Both surveyors noted loss and damage globally and not by reference to bill of lading numbers.

Two letters of undertaking were issued with one superseding the other. The first was issued during discharge operations before any claims had been made and the second (LOU) some months later with terms materially identical to those of the first letter; only the sum secured had been reduced. It followed that the parties always envisaged that the claims under the bills of lading, when aggregated, were likely to well exceed the small claims limit of USD$100,000 and one letter of undertaking was issued covering the entire cargo.

An extension of time was sought towards the one year anniversary from discharge by the cargo claimants for bringing proceedings in respect of the damaged cargo. ETIC, acting on behalf of the owners, agreed to two time extensions. The material terms of the extensions were that ETIC was ‘authorised by the Owners to agree an extension of time … for commencement of proceedings as per the above Bills of Lading…’

The cargo claimants commenced arbitration by a notice dated 29 April 2019 (the notice). There was a dispute as to whether the notice was effective to commence arbitration. It was drafted broadly, with a view to covering different eventualities and arguments. First, the agreement was made ‘pursuant to the terms of an ad hoc arbitration agreement contained in the letter of undertaking’. Alternatively, it was made ‘pursuant to clause 38 of a charterparty’. Finally, the cargo claimants were ‘agreeable to [X] acting as a sole arbitrator’ to the extent that the SCP applied (which however was denied). In all instances, it confirmed that [X] had already been appointed to act on behalf of the cargo claimants.

Owners appointed their arbitrator ‘under protest of jurisdiction’, on the basis that there was ‘no ad hoc Arbitration Agreement in the Club LOU’ and that the claims in question fell within the SCP.

The majority of the tribunal found that whilst the bills of lading each contained a separate arbitration clause governed in part by the LMAA SCP, by the terms of the LOU the parties thereby agreed to consolidate those arbitrations and to have them heard in a single ad hoc arbitration and that the time extensions operated to grant the cargo claimants an extension in respect of commencing arbitration proceedings pursuant to the ad hoc arbitration agreement in the LOU.

Legal analysis

Owners applied pursuant to section 67 of the Arbitration Act 1996 for an order setting aside the finding that the tribunal had substantive jurisdiction to hear the parties’ dispute.

The question to be determined was one of construction: looking at the matter objectively and in the light of the relevant background, what meaning would the contract convey to a reasonable person. The relevant background here included:

1. clause 69 of the charterparty;
2. the fact that both surveyors did not classify their findings as to the cargo damage and loss by bill of lading numbers; and
3. the parties chose to issue one LOU covering the entire cargo.

As a matter of objective construction against the relevant factual background, the meaning that the LOU would convey to a reasonable person, applying business common sense to it, was that it was an agreement to consolidate all of the claims in respect of the entire cargo of 25,000mt of bagged rice before a London arbitration tribunal constituted in accordance with clause 69 of the charterparty, including for the following reasons:

1. Though the LOU was somewhat informally drafted, it was necessary to give effect to the elements of the wider context in determining the objective meaning of the language used, and to prefer the construction which was consistent with business common sense.
2. It was clear from the opening words of the LOU that it was intended to apply to anyone who was entitled to sue in respect of the loss of/shortage to/damage to the cargo.
3. The LOU was stated to cover ‘the above claim’ (singular) and ‘the above cargo claim’ (singular) not exceeding USD$280,000. The nature of the above cargo claim was described in the subject heading as consisting of ‘alleged loss, shortage and/or damage to cargo’, the cargo being defined compendiously as ‘25,000mt of bagged rice’.
4. The cargo owners agreed not to take action ‘otherwise than before the Court or Tribunal referred to below’. The owners undertook to pay the cargo owners such sums as may be adjudged by an award or order (singular) ‘of a properly constituted London Arbitral Tribunal’.
5. The parties had to be taken to have had in mind the means by which the ‘London Arbitral Tribunal’ was to be ‘properly constituted’. This had to be a reference to the London Arbitral Tribunal referred to in clause 69 of the charterparty, which explained how the tribunal was to be constituted.

It followed that whilst the LOU was to be construed in the light of clause 69, its last provision (regarding the SCP) was simply of no application to the facts of this case: the claim which formed the subject matter of the LOU exceeded the USD$100,000.

With regard to the validity of the notice, owners submitted that it read more like an invitation to begin a dialogue on the appropriate dispute resolution forum rather than an invocation of an arbitration agreement.

Whilst it was not particularly felicitously worded and sought to keep all possible bases of appointment open, the notice did nonetheless purport to appoint [X] as arbitrator under the terms of the LOU as the primary case, and expressly stated that the SCP did not apply to the claims thereunder. Against the background of the proper construction of the LOU, the judge considered the notice, on an objective and sensible analysis, to be a valid one.

The section 69 application concerned the proper construction of the exchanges regarding the time extension to commence arbitration.

The tribunal held that the time extension applied to the LOU on the basis that the extension was granted by the same party who had agreed the terms of the LOU and that on a ‘purposive’ construction, it must had been intended to cover that same arbitration. Owners submitted that this was wrong. The LOU was issued by the vessel’s Club. The extension was agreed by the owners. The extension referred to proceedings ‘as per the above Bills of Lading’ and had it been intended to apply to the LOU, it would have said so.

The judge disagreed. The reference to proceedings ‘as per the above Bills of Lading’ ought properly and sensibly be read to apply to disputes arising under the bills of lading, which had been agreed to be resolved in a consolidated arbitration under the LOU. There was no reason why the parties would want to agree to a time extension of the kind suggested by the owners.

In the circumstances, the judge dismissed both of owners’ applications.

Comments

When construing the LOU against the relevant factual background the judge placed a lot of emphasis on business common sense. As he noted, there was considerable commercial sense to that construction of the LOU, as it meant that the issues with one shipment of 25,000mt of bagged rice could be resolved once and for all in one arbitration, avoiding the inconvenience of having to commence five separate arbitrations and the risk of inconsistent awards. This afforded a sound commercial reason as to why owners would give up an entitlement to utilise the SCP.