Bulk & Metal Transport (UK) Llp v Voc Bulk Ultra Handymax Pool Llc

This is an appeal about the question of when an arbitration is commenced within section 14 of the Arbitration Act 1996. At the hearing on 19 January 2009 I allowed the appeal but said that I would give written reasons so that it was clear to the arbitrators why the court had differed from their view. As I gave reasons when dealing with two subsidiary issues I shall refer to them only briefly in this judgment.

By a charterparty on a New York Produce Exchange form the Owners chartered a vessel to the Charterers for a time charter trip from Jeddah to the Persian Gulf. The facts of the dispute which arose are irrelevant because this is a time bar point. The parties appointed Mr Brian Williamson and Mr Alan Oakley as arbitrators on LMAA terms. This appeal by Charterers is from the first interim award of 13 May 2008 by which the Tribunal held that Charterers are time-barred (by virtue of Article ĪĪĪ rule 6 of the Hague Rules) from advancing claims under Article ĪĪĪ rule 2, because a message from the Owners’ solicitors dated 2 November 2006 did not commence arbitration proceedings for the purposes of section 14 (4) of the Arbitration Act.

On 10 June 2008 Charterers sought permission to appeal raising two questions of law, essentially:-

On 15 October 2008 Mrs Justice Gloster granted permission to appeal under section 69 of the Arbitration Act giving the following reasons:-

“given authorities such as The Agios Lazaros [1976] QB 933, and other authorities cited in the claimant’s witness statement, which show that a broad and flexible approach has to be adopted as to whether a document complies with the notice requirements of section 14 of the Act, I am satisfied that:

i)

the decision of the Tribunal is open to serious doubt;

ii)

the relevant question of law raises a point of public importance; and

iii)

the point does substantially affect the rights of the parties.”

Section 14 of the Arbitration Act provides as follows:-

“14.

Commencement of arbitral proceedings

(1)

The parties are free to agree when arbitral proceedings are to be regarded as commenced for the purposes of this Part and for the purposes of the Limitations Acts.

(2)

If there is no such agreement the following provisions apply.

(3)

Where the arbitrator is named or designated in the arbitration agreement, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties a notice in writing requiring him or them to submit that matter to the person so named or designated.

(4)

Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter …”.

Before setting out the terms of the message of 2 November 2006 I mention the first ancillary point which arose. The Tribunal’s reasons cite only a part of one sentence of that message which is several paragraphs long. Furthermore, the Tribunal’s reasons summarise the arbitration clause which is Clause 45 (b) of the charterparty but do not set it out. Mr Coburn for the Owners argued that the full terms of the message and the clause were extraneous evidence not contained in the award and reasons and therefore inadmissible. I rejected that submission essentially for two reasons. First, I respectfully agreed with the view expressed by Mr Justice Jackson, as he then was, in Kershaw Mechanical Services Limited -v- Kendrick Construction Limited [2006] EWHC 727 (TCC) in which he said:-

“The principal document which should be considered in any appeal under section 69 of the 1996 Act is the arbitral award itself. In addition to that however the court should also receive any document referred to in the award, which the court needs to read in order to determine a question of law arising out of the award.”

Furthermore, I doubt that observations in earlier decisions, particularly those of the Commercial Court, excluding extraneous material, would have been intended to apply to documents as essential as the arbitration clause itself and the short message at the heart of the appeal. Secondly, I do not consider that justice could fairly be done without the court looking at documents which have been expressly referred to in the award and, I infer, read as a whole by the Tribunal.

The message of 2 November 2006 reads as follows:-

“We are instructed by [Owners] …in respect of a claim they have for outstanding hire due from you under the charterparty dated 1 June 2005.

We understand that there remains an outstanding sum of US$162,222.60 due to our clients in respect of unpaid hire. We therefore attach a copy of their hire statement dated 1 August 2008. There is no justifiable reason for your failure to pay the outstanding hire and you remain in breach of the charterparty.

In the circumstances, therefore, we are instructed to notify you that failing payment of the US$162,22.60 [sic] within 7 days of today’s date we are instructed to commence arbitration against you pursuant to clause 45 of the charterparty. At this point in time interest and costs will also accrue on the claim.

Further in the absence of agreement to settle this outstanding claim we hereby invite you in accordance with clause 45 of the charterparty to agree to one of thrse [sic] following arbitrators, all of whom are full LMAA members, as sole arbitrator.

1.

William Packard

2.

Patrick O’Donovan

3.

Brian Williamson

Failing payment, or in the alternative agreement to the appointment of one of the above arbitrators as sole arbitrator, we will appoint our own arbitrator … “.

Charterers accepted that the message should be seen in the context of Owners’ solicitors’ message of 13 November 2006 which reads as follows:-

“We refer to your fax of 10^th November 2006 and confirm we will address further correspondence to you.

As your members have failed to pay the outstanding balance of US$162,222.60, and have decided not to agree to appoint a sole arbitrator, we are now instructed to appoint our client’s arbitrator in order to commence arbitration proceedings for the recovery of the full amount together with interest and costs.

In accordance with clause 45(b) of the charterparty we hereby give you notice of our appointment of Brian Williamson, on behalf of Disponent Owners. Mr Williamson’s contact details are:

115 Hounsditch

London

EC3A 7BR

Further details can be found on the LMAA website at www.Imaa.org.uk

Please appoint your Member’s arbitrator within 14 days pursuant to Section 16 of the Arbitration Act 1996.”

Clause 45 (b) provides in full:-

“All disputes arising out of this contract shall be arbitrated in London and, 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 full members of the LMAA and engaged in Shipping, one to be appointed by each of the parties, with power to such Arbitrators to appoint an Umpire …”

It is well established and was common ground at the hearing that a broad and flexible approach must be adopted when determining whether a communication satisfies the requirements of section 14 (4). Mr Phillips’ skeleton argument put it thus:-

“(1)

In Seabridge AB v AC Orsslef’s Eftf’s A/S [1992] 2 Lloyd’s Rep. 685 (cited in Taylor Woodrow Construction v RMD Kwikform Ltd. [2008] 2 Lloyd’s Rep. 345 by Ramsey J. at paragraph 34), Thomas J. stated at p. 690 (RHC):

“Section 14 should, in my view, be interpreted broadly and flexibly. A strict and technical approach to this section has no place in the scheme of the 1996 Act. Notices are given by international traders and businessmen who often use shorthand expressions, or ways of doing things, which are objectively clear in giving notice to the other party of a reference and of the requirement to appoint an arbitrator.”

(2)

In The Lapad [2004] 2 Lloyd’s Rep. 109, Moore-Bick J. stated in paragraph 17:

“Arbitration is widely used by commercial parties, often acting without the benefit of legal advice, and there are good reasons, therefore, for concentrating on the substance of their communications rather than the form. If a notice of arbitration is to be effective, it must identify the dispute to which it relates with sufficient particularity and must also make it clear that the person giving it is intending to refer the dispute to arbitration, not merely threatening to do so if his demands are not met. Apart from that, however, I see no need for any further requirements. Whether any particular document meets those requirements will depend on its terms which must be understood in the context in which it was written. The weight of authority supports a broad and flexible approach to this question: see Vosnoc Ltd. v. Trans Global Projects Ltd., [1998] 1 W.L.R. 101, Allianz Versicherungs-Aktiengesellschaft v. Fortuna Inc. (The Baltic Universal), [1999] 1 Lloyd’s Rep. 225, (all decisions on the former s. 34(3)(a) of the Limitation Act, 1980) and Seabridge AB v. A. C. Orssleff’s Eftf’s A/S, [1999] 2 Lloyd’s Rep. 685 (a decision on s. 14 of the Arbitration Act, 1996 itself)”.”

Although in Seabridge Thomas J expressed the view that it would be a retrograde step to refer to pre-Act UK cases, Moore-Bick J did so in The Lapad. It is right to assume that the approach since the Act will be no less flexible than under its predecessors. The earlier authorities therefore give a measure of reassurance in this particular case. That is particularly so with The Agios Lazaros [1976] 2 Lloyd’s Rep 47, referred to by Mrs Justice Gloster. In that case the message held to commence arbitration stated:-

“Please advise your proposals in order to settle this matter or name your arbitrators expecting your reply …”.

In The Rimon [1981] 2 Lloyd’s Rep 640 Robert Goff J held that two messages which stated: “Settling of claims of both sides will be done by arbitrators according to GAFTA rules” and “ …the point of who is to be blamed for … content above 8% on dry material shall be decided by arbitrators” were sufficient to commence arbitration. That approach was effectively endorsed after careful examination by Rix J in The Smaro [1999] 1 Lloyds’ Rep 225.

Mr Phillips contended, and it seemed to be largely common ground, that the following principles relevant to this appeal can be drawn from the cases:-

“(1)

A broad and flexible approach must be adopted with respect to the effect of s. 14(4).

(2)

The requirements of that section will be satisfied provided that it is objectively clear that a communication is intended to refer a dispute to arbitration and to require the necessary steps in that regard to be taken. In that regard the communication must be viewed in its context and not taken in isolation.

(3)

A communication will satisfy that test if, by its wording (construed in a matter which is not unduly strict, scrutinous, technical, legalistic orformulaic, and which focuses upon its substance rather than its form) that intention is objectively express or implied.

(4)

That intention will be implied from a communication which simply demonstrates that an arbitration clause is being invoked, or which intimates that a dispute is to be submitted to arbitration or that an arbitration is to be resorted to, or which states to the effect that “I demand the right to have this dispute decided by arbitration as we agreed and require your co-operation in bringing about” or “I require the difference between us to be submitted to arbitration” or “unless you are prepared to make proposals for settlement, you must take this letter as requiring you to appoint your arbitrators”.

(5)

A communication which makes the invocation of the arbitration clause conditional upon the failure to accept an offer of settlement will also suffice, provided that the time of commencement is made clear (by way of a time limit for acceptance of any proposal). Thus, a communication to the effect of “Unless you are prepared to settle the matter amicably, we must ask you to agree to the appointment of an arbitrator” will suffice to commence proceedings as from the expiry of the stated time limit for acceptance.”

Mr Coburn submitted that the paramount consideration was the intention (viewed objectively) of the person giving the notice, and he relied on the requirement stated by Moore-Bick J in the Lapad, i.e. that in order to be effective a notice of arbitration must “make it clear that the person giving it is intending to refer the dispute to arbitration, not merely threatening to do so if his demands are not met”. He also submitted, in each case by reference to The Agios Lazaros, that a notice could not be effective to commence arbitration unless it was possible to determine the date of commencement with reasonable certainty, and that Mr Phillip’s fifth principle was to be treated with caution.

At paragraph 14 of the reasons the Tribunal, aware of the requirement for arbitration proceedings to be commenced within one year of discharge as required by Article ĪĪĪ rule 6, considered the message of 2 November and focussed on the following passage:-

“We are instructed to notify you that failing payment of the US$162,22.60 [sic] within 7 days of today’s date we are instructed to commence arbitration against you pursuantto clause 45 of the charterparty. At this point in time interest and costs will also accrue on the claim.”

The Tribunal then concluded at Paragraph 16:-

“The message makes it clear that the Owners are demanding payment and only in default of that demand are their solicitors instructed to commence arbitration proceedings. Even though the wording is such that it gives the Charterers a deadline of 7 days to pay the demand, this does not (we believe on any view) constitute a formal notice for the commencement of arbitration proceedings, even in the event of the Charterers’ failure to comply with the demand to pay within 7 days. We are therefore satisfied that the Owners only declared arbitration proceedings on 13 November 2006 when they gave notice of the matter to the Charterers.”

Mr Phillips submitted that consideration of the objective meaning and intention of the message involves asking how it would be understood by an ordinary commercial man reading it without the close scrutiny of a commercial lawyer. Applying that test he suggested that the letter was the invocation of the right to refer the dispute described under the arbitration clause, subject to the acceptance of the settlement proposal, and was not a mere threat of possible future proceedings which if not responded to, would remain to be commenced by way of a further notification. The message invited Charterers to agree upon a sole arbitrator if they were not willing to pay up. The references to the possibility of a settlement at the beginning of the message should not affect that conclusion. The Charterers were “hereby” invited to agree the identity of a sole arbitrator “in the absence of agreement to settle this outstanding claim”. That intention was flagged by reference to the point at which “interest and costs will also accrue on the claim” and the invitation in the penultimate paragraph. The message is a more explicit notice than several of those which have been found in the cases to meet section 14 (4) and its predecessor.

Mr Coburn submitted that read as a whole the message was merely a threat to refer the dispute to arbitration and that the reference to Clause 45 has to be read in the light of the earlier part of the message and was clearly a precursor to the carrying out of the threat to commence arbitration. The message recognised that the Charterers could not be required to agree a sole arbitrator and that if there was no voluntary agreement all that would remain would be an agreement to arbitrate before two arbitrators. The message contemplated that in that event the arbitration would be commenced precisely as happened on 13 November. The Owners also drew attention to the fact that the Charterers had identified three alternative dates (2, alternatively 9 or 10 November) as the date of commencement of the arbitration. The Owners contended that this was in itself a fatal flaw, given the principle that it must be possible to ascertain the time of commencement with certainty. As the Owners see it the central message was “if you do not pay within seven days we are instructed to commence an arbitration against you.” The rest of the message means in effect:-

Both sides recognised in their oral submissions that detailed argument about particular words and sentences in the message risked adopting the strict and technical approach to the section which the cases make clear has no place in the scheme of the 1996 Act. The oral submissions were therefore brief.

The section is to be interpreted broadly and flexibly concentrating on substance not form. The issue is not whether a message “commences” arbitration in some broad sense but whether one party has served a notice requiring the other “to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter …”. As I see it the message does that. The message starts by referring to the sum said to be outstanding. It claims that alleged failure to pay is a breach of the charterparty and that if payment is not received within seven days the solicitors will commence arbitration under Clause 45, at which point interest and costs will also accrue. If the amount is not paid Charterers are invited to agree to a sole LMAA arbitrator otherwise Charterers will appoint their own arbitrator.

It is important not to confuse commencing arbitration under section 14 (4) with taking a step towards constituting the Tribunal. Moore-Bick J pointed this out in The Baltic Universal [1999] 1 Lloyd’s Rep 497 (see the head note and p503 column 1) holding that what was important was not whether a notice contained a particular form of words but whether it made it clear that the arbitration agreement was being invoked and that a party was required to take steps accordingly; provided that was done both the policy of the Act and the requirements of commercial life were satisfied. Similarly, the fact that a subsequent message, in this case that of 13 November, gives notice of appointment of Mr Williamson as arbitrator explicitly, does not, as I see it, prevent an earlier communication complying with section 14 (4). The message of 2^nd November stated that if payment was not made the dispute would be arbitrated, gave the opportunity explicitly envisaged by Clause 45 (b) for the parties to agree upon a single arbitrator, and made it clear that if that invitation was not accepted then Owners would appoint an arbitrator. Mr Coburn made the point that the decision of the arbitrators reflected the common-sense approach of commercial men. That submission has force but only to a limited degree when the Tribunal has not had the benefit of the education about the approach to section 14 (4) which has been provided to me. In those circumstances it is in my judgment quite clear that the message complies with section 14 (4) and I therefore allow the appeal and answer the first question of law “yes”.

Mr Coburn’s skeleton argument, but not the earlier material submitted by Owners to the court as part of the permission process, contended that the answer to the second question, which otherwise appeared to be a formality, should be “no”. The Owners submit that Charterers would remain barred by Article ĪĪĪ rule 6 because the commencement of arbitration by the Owners for their claim for hire did not constitute the bringing of suit by the Charterers in respect of their claims for breach of Article ĪĪĪ rule 2. The message of 2 November, if it commenced arbitration, referred only the Owners’ claim for hire. While the reference to arbitration necessarily included valid defences the bringing of suit on a cross claim was a different matter. Mr Coburn relied upon The “Standard Ardour” [1998] 2 Lloyd’s Rep 159. Mr Phillips rejected that submission on procedural and substantive grounds. As I gave reasons for disagreeing with the Owners’ submission at the hearing I do not repeat them now. Essentially I considered that the point was one of mixed fact and law and so should not be permitted to be argued at this late point. Further, I considered that the arbitrators’ approach on this point had, as it happened, involved them carrying out the same or a very similar exercise to that laid by Saville J in The “Standard Ardour” following Neill J in The “World Ares” [1984] 2 Lloyd’s Rep 481.

It follows that the appeal succeeds and that the answer to both questions is “yes”. I have determined and assessed the costs. I have also provisionally refused permission to appeal because this case does not meet the requirements of section 69 (8). The question is not one of general importance, it involves the application of established principles, and there is no special reason for it to be considered by the Court of Appeal. At the hearing I informed Mr Coburn that justice required that he should have the opportunity, should he wish to invoke it, to renew his application for permission to appeal in the light of the written reasons after he has seen them. That application, if made, may be submitted in writing and I will then respond after Mr Phillips has had an opportunity to reply. I shall be grateful for corrections from Counsel of the usual kind. There is however no need for anyone to turn up when this judgment is handed down. I am grateful for the very able and concise submissions from both counsel.