Flota Petrolera Ecuatoriana v Petroleos De Venezuala S.A.

This is an application made by the defendant, a Venezuelan company, to set aside an order of Knowles J, dated 21 June 2017, granting the claimant permission under CPR r.6.15 to serve an arbitration claim form on the defendant by an alternative method consisting of service on its London solicitors, Stephenson Harwood LLP.

The arbitration claim form seeks an order under s.18(3)(d) of the Arbitration Act 1996 to constitute an arbitration tribunal consisting of a single arbitrator under what is said to be an arbitration agreement contained in clause 18 of a contract of affreightment dated 27 April 2011. The underlying dispute which the claimant wishes to submit to arbitration, and maintains that the parties have agreed to arbitrate, is a claim under that contract. The contract of affreightment was made between the claimant as owner and the defendant as charterer for the carriage of oil product cargoes. It provided, in clause 1, that the defendant would nominate to the claimant all their cargo requirements for a minimum of two months with up to eight cargoes a month. There was also a provision whereby, if the defendant did not perform a minimum of six voyages over the course of a three-month period, a penalty of US$330,000 was to be paid for each lifting missed. The claimant contends that there was a failure to perform a sufficient number of voyages and that a penalty is accordingly payable under the terms of the contact of affreightment.

Clause 13 of the contract of affreightment provided:

“Each time Charterer accepts Owner’s nomination for a voyage hereunder, a separate charter party shall be drawn up. The C/P is to be dated on date when Charterer accepts vessel for the voyage. This C/P shall govern Owner’s vessel and Charterer’s rights and obligations in respect of the subject voyage, but the terms and conditions stipulated in this C/P never are in contradiction with the main terms agreed in the present COA.”

Clause 15 stated, "C/Form: ASBATANKVOY", thereby indicating that any voyage charters entered into pursuant to the contract of affreightment should be made on the Asbatankvoy standard form of voyage charter for tankers. Clause 18 of the contract of affreightment, on which the present dispute centres, provided "GA/ARB: LONDON/ENGLISH LAW to apply." The claimant contends that this clause contains an agreement to submit any disputes between the parties, whether they be under the contract of affreightment or under any voyage charters entered into pursuant to the contract of affreightment, to arbitration in London and provides that English law should apply to such a dispute.

The defendant takes issue with that contention and maintains that the sole purpose of those words, when read in their full context, is to indicate that the arbitration clause contained in the standard Asbatankvoy form, which envisages arbitration in London or New York as alternative possibilities, should in the case of any voyage charter made pursuant to the contract of affreightment be completed so as to provide for London arbitration.

The claimant first served a notice of arbitration on the defendant in June 2015. In the claim submission served in that arbitration, the claimant claimed compensation of US$990,000 for an alleged failure to perform the minimum number of voyages required by the contract of affreightment and also demurrage in respect of individual voyages which were performed under six separate voyage charters. When the defendant served its submission in response, it took two points relevant for present purposes. The first was that it was necessary to commence separate arbitrations in relation to each individual voyage in order to maintain the claim for demurrage. The second was to dispute that the arbitration clause which forms part of the standard Asbatankvoy form was incorporated in the contract of affreightment.

The claimant's response to that was, first of all, to commence six new separate arbitrations in order to pursue its claims for demurrage. That was done in December 2015. Secondly, after some delay, the claimant gave a new notice of arbitration in January of this year, purportedly under clause 18 of the contract of affreightment, in which it called on the defendant to agree to the appointment of a sole arbitrator. The intention was that, if the claimant was correct in its primary contention that there is an agreement to arbitrate contained in the contract of affreightment but wrong in its further contention that such arbitration is to be in accordance with the arbitration clause contained in the Asbatankvoy form (which provides for arbitration before a board of three arbitrators), then the claimant wished to cover the alternative possibility that arbitration was required to take place before a sole arbitrator.

No response was received from the defendant or its solicitors, Stephenson Harwood, to the notice of arbitration. This was then followed by a letter from the claimant's solicitors dated 24 April 2017, which eventually elicited a response directly from the defendant in a letter of 18 May 2017. That letter stated in relevant part:

"…if your client wishes to litigate and as the [contract of affreightment] contains no arbitration agreement, any claim against [the defendant] should be referred to the Venezuelan courts applying Venezuelan law."

Against that background, three issues have been raised by the defendant which have been argued today. First, it is argued that there was no proper basis for giving permission to serve the arbitration claim form out of the jurisdiction and in those circumstances the possibility of ordering service by an alternative method does not arise. Secondly and alternatively, it has been argued that, even if there was a proper basis for permitting service out of the jurisdiction, there was no good reason to permit that service to take place by alternative means. Thirdly, a complaint is made that the claimant, in making its application to Knowles J, failed to comply with its duty of full and frank disclosure. I will consider those issues in turn.

The relevant jurisdictional gateway on which the claimant relies is that contained in CPR r.62.5(1)(c), which provides:

"(1)

The court may give permission to serve an arbitration claim form out of the jurisdiction if –

…

(c)

the claimant -

(i)

seeks some other remedy or requires a question to be decided by the court affecting an arbitration (whether started or not), an arbitration agreement or an arbitration award; and

(ii)

the seat of the arbitration is or will be within the jurisdiction…"

That gateway applies where there is an arbitration agreement to submit relevant disputes to arbitration in this jurisdiction. It is common ground that the test which the court should generally apply in deciding whether the claim comes within the gateway is to ask whether the claimant has shown a good arguable case. There has been discussion in the course of the hearing as to what is meant by a good arguable case in this context. In a number of recent decisions the view has been taken that it means that one side has a much better argument than the other. The origin of that formulation is the decision of the Court of Appeal in Canada Trust Co & Ors v Stolzenberg & Ors (No.2) [1998] 1 WLR 547, where the Court of Appeal was considering the relevant test in the context of deciding on jurisdiction under the Brussels Regulation. However, the judgment of the Privy Council in the case of Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Limited & Ors [2012] 1 WLR 1804, at paragraph 71, has given currency to the idea that the same interpretation of a good arguable case applies where a court is being asked to give permission for service out of the jurisdiction in a case not governed by the Brussels Regulation or, for that matter, the Lugano Convention. In my respectful view, that is a heretical notion which is contrary to clear authority of the House of Lords starting with the case of Vitkovice Horni a Hutni Tezirastvo v Korner [1951] AC 869 and confirmed in Seaconsar Far East Limited v Bank Marcazi [1994] 1 AC 438 at 452–454.

As Professor Adrian Briggs has pointed out in his book on Civil Jurisdiction and Judgments and in a lecture given to the Commercial Bar Association in 2015, there are important differences between a case which is governed by the Brussels Regulation and one which is not. In particular, in a case governed by the Brussels Regulation the court, in deciding that the case comes within a particular head of jurisdiction is, by implication, deciding where the case should be determined. If the court decides, for example, that there is English jurisdiction, this also means that no other state to which the Brussels Regulation applies has jurisdiction, and vice-versa.

Where the case is not covered by the Brussels Regulation, the position is different. In particular, there is a requirement for the claimant to show not only that the claim falls within the scope of the court’s jurisdiction but also that England and Wales is the most appropriate jurisdiction in which the claim should be decided. In that context, there is not the same requirement to apply a stringent test to the question of whether the claim falls within a particular jurisdictional gateway. It would also, to my mind, be wholly illogical for the court to apply a “better of the argument” – let alone a “much better of the argument” – test at the jurisdictional stage when on the arbitration claim itself under s.18 of the Arbitration Act the relevant test as to whether there is or is not an arbitration agreement is at most a good arguable case and may only be a requirement to show a real prospect of success.

All that, however, at the end of the day, probably does not matter for present purposes because another principle referred to in the Altimo Holdings case, which certainly is good law, is that where a question of law arises on an application in connection with service out of the jurisdiction and that question of law goes to the existence of jurisdiction, the court will normally decide the question rather than only asking whether there is a good arguable case (see paragraph 81 of Altimo Holdings). There are exceptions to that, as on summary judgment applications, where the question is a particularly difficult one or is in a controversial or developing area. In the present case, however, the question raised is one of construction of the contract of affreightment which it seems to me is properly regarded as a question of law, given that the court has all the materials before it today to rule on that question. It is not one of any special difficulty, let alone in a controversial or developing area, and it seems to me in those circumstances that, as no issue of disputed fact arises, I ought to seek to decide that question on its merits rather than simply applying the criterion of whether the claimant has shown a good arguable case.

Turning then to the issue of construction itself, I have already mentioned the competing interpretations. Mr Bird, who has argued the defendant's case today with great skill, has pointed to the fact that the Asbatankvoy form falls into two parts. The first part is to be filled in with various details such as the description and position of the vessel, the loading port, discharge port, freight rate, demurrage rate, etc. The second part consists of the standard terms. One of those standard terms is clause 24, the arbitration clause. However, that encompasses within it two possibilities since it provides for arbitration in New York or in London, whichever place is specified in part 1 of the charter, pursuant to the laws of that jurisdiction. The same applies to the general average clause which is to be found at clause 20(b)(3) of part 2 of the Asbatankvoy standard form. Section K of part 1 of the form envisages that the parties will complete it by indicating that the place of general average and arbitration proceedings is to be one or other of London or New York. Mr Bird submits that, read in that context, it is clear that clause 18 of the contract of affreightment is simply intended to indicate that, when charterparties are being completed on the Asbatankvoy form, the choice of where general average and arbitration are to take place is to be made by indicating that those matters will be dealt with in London rather than New York. That, he submits, is consistent with other parts of the contract of affreightment which, for example, give a rate for demurrage, and the same for lay time and other details. The function of those clauses, Mr Bird submits, is to agree what information will be contained in part 1 of the Asbatankvoy form for each voyage charter.

On behalf of the claimant, Mr Kulkarni argues that that is not the correct interpretation of clause 18, although the clause does indirectly have the effect that the Asbatankvoy form should be completed in that way. On the claimant's case, clause 18 is to be read as an agreement that all disputes under the contract of affreightment or under charterparties made pursuant to it are to be arbitrated in London subject to English law and also that questions of general average are to be dealt with in the same way. In support of that construction, Mr Kulkarni relies strongly on considerations of commercial common sense. It would, he submits, make no sense at all from a business point of view for the parties to agree that disputes under charterparties for individual voyages should be decided in accordance with English law and by London arbitration but, at the same time, that disputes under the contract of affreightment itself should be governed by Venezuelan law and jurisdiction. That is particularly so, he submits, when the contract of affreightment contains a number of terms which are plainly intended to be incorporated in individual charterparties. It would, he argues, be a nonsense to suppose that the parties would reasonably have intended that, for example, a provision about requiring the loading port to be a safe port should be interpreted in accordance with Venezuelan law when it appears in the contract of affreightment and yet in accordance with English law when it appears in an individual voyage charter. Mr Kulkarni further relies on clause 13 of the contract of affreightment to which I referred earlier, where it provides that "the terms and conditions stipulated in this charterparty never are in contradiction with the main terms agreed in the present contract of affreightment." That, he submits, is an express indication that the parties intended there to be a consistency which can only be achieved if clause 18 is read, as he argues it should be, as an agreement that all disputes under all contracts between the parties are to be governed by English law and arbitrated in London.

To that argument, Mr Bird responds that on any view there is no such consistency because disputes under the charterparties are to be decided by a board of three arbitrators whereas, if the version of the claimant's case which has been put forward in this arbitration claim is correct, only a single arbitrator is to be appointed to resolve a dispute under the contract of affreightment itself. He also argues that there is not, in fact, a contradiction between terms of a charterparty which would require it to be arbitrated in London and terms of contract of affreightment which make no express provision for law and jurisdiction.

Clause 18 is, on any view, elliptically worded. I see force in the points made by Mr Bird that it is naturally to be understood, when read against the background of the Asbatankvoy form, as indicating how the parties intend the form to be completed. But, in my view, the alternative interpretation put forward by the claimant, that it is intended to be an agreement to submit all disputes to arbitration in London subject to English law is at least a possible interpretation of the language of the clause. When one looks to matters of business common sense, it seems to me that they point overwhelmingly in favour of the claimant's interpretation, essentially for the reasons that I have already indicated. I find it impossible to conceive that reasonable commercial parties would have intended the terms of the contract of affreightment to be construed in accordance with a different system of law from the same terms when they appear in the underlying charters. Furthermore, it seems to me that there would, potentially at least, be a contradiction in those circumstances between the terms and conditions of the charters and the terms agreed in the contract of affreightment which, as I interpret clause 13, are envisaged as being the main terms of the charterparties themselves. Accordingly, considerations of consistency point in my view overwhelmingly in favour of giving clause 18 the meaning contended for by the claimant. The fact that, potentially, there is a discrepancy between a requirement to arbitrate before a tribunal of three arbitrators under the charterparties but only one arbitrator under the contract of affreightment seems to me to pale into insignificance as an inconsistency by comparison with that which would arise if the contract of affreightment were governed by the law of Venezuela.

I do not think it necessary to decide, for today's purposes, whether the claimant is also right in its further contention advanced in the original arbitration reference that the effect of clause 15 is to incorporate into the contract of affreightment the mechanism for arbitration contained in the Asbatankvoy form. In my view, Mr Kulkarni is correct in submitting that all the court needs to decide for the purpose of dealing with the question of jurisdiction is whether there is an agreement to refer disputes under the contract of affreightment to arbitration in London. It is unnecessary to go further and answer the question of what form that arbitration should take. I therefore conclude that there was a proper basis under CPR r.62.5(1)(c) for the order made by Knowles J giving permission for service out of the jurisdiction and turn to the question of whether there was a good reason to permit alternative service.

On this point, Mr Bird submitted that the test under CPR r.6.15 is whether there is a good reason to authorise service by an alternative method. That test is to be given a particular gloss in cases such as this one, where arrangements have been made for service in accordance with the Hague Convention because both the UK and Venezuela are parties to it. Mr Bird referred to the decision of the Court of Appeal in Cecil v Byatt [2011] 1 WLR 3086 at paras 65-68, where Stanley Burnton LJ expressed the view that, in a case which is covered by the Hague Convention, permitting service by an alternative method under CPR r.6.15 should be regarded as exceptional, to be permitted in special circumstances only. This question has recently been considered by Popplewell J in the case of Societe Generale v Sanayi [2017] EWHC 667 (Comm). In paragraph 49.9(b) of the judgment, the judge refers to a situation where the method of service which the court is being asked to sanction is one which is not permitted by the terms of the Hague Convention. He gives an example of a situation where the country in which service is to be effected has stated its objections under article 10 of the Hague Convention to service otherwise than through its designated authority and says that in such cases relief should only be granted under rule 6.15 in exceptional circumstances.

Mr Bird submits that that was intended to be given as an example only, and that Popplewell J was in fact endorsing the wider proposition that exceptional circumstances are required in any case where the country in which service is to be effected is a party to the Hague Convention. I, for my part, do not read the judgment in that way. Nor, I must confess, can I see any reason of principle why the fact that a country has subscribed to the Hague Convention should be seen as a reason to permit alternative service only in exceptional circumstances, unless the country in question has indicated some positive objection to persons resident in its territory being served by any means other than in accordance with the Convention.

Mr Bird further submitted that, whatever the relevant test to be applied, it is not a sufficient reason to permit alternative service that service in accordance with the Hague Convention through diplomatic means will take a long time. He argued that the reason relied on in this case really amounts to no more than a complaint that it would be likely to take eight months to serve the defendant in Venezuela and that this cannot, on any view, be regarded as a sufficient reason to permit service on Stephenson Harwood as an alternative means. That, generally speaking, must be right but I think it significant that the present claim arises in the context of arbitration. In Department of Civil Aviation v Finrep [2006] 2 CLC 402 at paragraphs 36 and 37, Tomlinson J (as he was) drew attention to the particular considerations which arise in relation to an arbitration which has its seat in England and explained that, in such a context, where a party has already appointed English solicitors the court will much more readily permit service by an alternative method than would be the case where it is asked to do so in support of an original claim. I respectfully agree with and adopt the reasoning in those paragraphs. True it is that, in the present case, the claim does not relate to an existing arbitration. However, it relates to a proposed arbitration which is extremely closely related to seven arbitrations which have already been commenced in which Stephenson Harwood are already acting for the defendant. Furthermore, there are particular reasons, it seems to me, of the kind referred to by Tomlinson J at paragraph 38 of his judgment why it is desirable that the arbitration process should be completed as soon as reasonably practicable. Although delay is not normally a sufficient factor and I would not treat it as sufficient on its own in the present case, it also seems to me that a delay of eight months, which is the estimate of how long it would take to effect service in Venezuela, would protract the proceedings to a very significant extent and would, frankly, in the present context, where the parties already have solicitors acting for them in this country, be a pointless waste of time.

I was not impressed by the further argument that the defendant had been indicating that it will avoid the service of process. Nevertheless, it seems to me that there is good reason in this case to permit service to take place on the defendant's English solicitors when that method of service is guaranteed to give adequate notice to the defendant, when the delay that would otherwise occur would be very substantial and when this claim forms part of a wider dispute which is already subject to English arbitration. Had it been necessary to do so, although in my view it is not, I would have gone further and found that these particular circumstances are exceptional.

The final issue is whether, as the defendant contends, there was failure to provide full and frank disclosure in the witness statement filed in support of the claimant's application. Three criticisms are made. The first is that, although the claimant's solicitor explained that the defendant was taking a point that the claim should be referred to the Venezuelan court applying Venezuelan law, no explanation was given of the argument which might be put forward to that effect. I find it difficult to see merit in that complaint when the defendant raised for the first time in its letter of 18 May 2017 the contention that the claim should be referred to the Venezuelan court applying Venezuelan law but chose not to condescend to give reasons in support of that position. The defendant would be in a stronger position to complain about lack of disclosure had it deigned to set out in correspondence the arguments which have been made on this application.

The second criticism made is that the witness statement did not explain that the claimant had been guilty of delay in commencing its claim. In my view, Mr Kulkarni is right that the relevance, or certainly the principal relevance, of delay would be if there had been any delay either before issuing the claim form after giving notice of arbitration or after issuing that claim form, and that any prior delay is of little relevance to the questions of whether to give permission for service out of the jurisdiction or to allow alternative service. That said, I do consider that the witness statement was misleading in paragraph 7 in giving an impression that the gap which did occur between the end of 2015, when this question was identified as an issue, and January 2017, when it was taken up by the claimant's solicitors, could be explained by without prejudice negotiations. The reality turns out to be that those negotiations occupied only a few weeks of that period of a year. Nevertheless, I do not consider this defect to be of sufficient materiality that it could have affected the decision of the judge in deciding whether to grant the order applied for.

The third criticism made is that there was no explanation of the test for permitting service by an alternative method, nor was the court informed that the length of time that it would take to serve in Venezuela could not, by itself, count as a good reason for permitting alternative service. There seems to me some force in the criticism that the explanation was not as full as it ought to have been. Nevertheless, I do not consider that, on a fair reading, the claimant was suggesting that the length of time that it would take to serve in Venezuela was, by itself, a sufficient justification for permitting service by alternative means. The arbitration context was also relied on and explained, as was the fact that the claimant was relying on a point – albeit not one to which I would myself give much weight – that the defendant was allegedly seeking to or was likely to seek to avoid or delay service by the conventional means. Accordingly, although I consider that the witness statement relied on in support of the application was not as full as it should have been, I do not consider that this is a case where there was material non-disclosure such as would make it appropriate to set aside the order made by the judge or, indeed, to impose any sanction.

For those reasons, the defendant's application is dismissed.