In the recent decision of Quiana Navigation SA v Pacific Gulf Shipping (Singapore) Pte Ltd (“The Caravos Liberty”) [2019] EWHC 3171 (Comm), available here, the English Commercial Court dismissed an appeal on a point of law in an arbitral award under s69 of the Arbitration Act 1996 (the “Act“).

The partial final award which was the subject of the appeal concerned a dispute between the owners of a vessel, Quiana Navigation SA (“Owners“) and the charterers, Pacific Gulf Shipping (Singapore) Pte Ltd (“Charterers“), in relation to a BIMCO Non-Payment of Hire Clause for Time Charter Parties (“BIMCO Clause“). In particular, the dispute centred on whether the Owners were entitled to  withdraw the vessel for non-payment of hire by the Charterers.

The Owners had been granted permission to appeal on the basis that the BIMCO Clause is a standard form clause, which meant the question of law arising out of the case was of general public importance, and because the decision of the arbitral tribunal was open to serious doubt. However, following a hearing, the Court dismissed the appeal and upheld the finding in the partial final award that, as a matter of contractual interpretation, the BIMCO Clause did not allow the Owners to withdraw the vessel.

Background

The Owners and Charterers concluded a time charter in May 2017 (“Charterparty“) and the payment terms provided for hire to be paid by the Charterers every 15 days in advance. The Charterparty contained the BIMCO Clause, which granted the Owners the right to serve an anti-technicality notice (“ATN“) if a hire payment was overdue and withdraw the vessel if the hire was not paid within a specified period following the ATN.

On the fourth payment date, the Charterers underpaid the Owners by $8,015.40 and the Owners protested but did not serve an ATN. The statements from the Owners leading up to the fifth and sixth payment dates made it clear that the Charterers were asked to pay the shortfall from the fourth payment, along with the normal hire.

The Charterers paid the fifth and sixth instalments in full, but never made up the shortfall. As a result, following the payment of the sixth instalment by the Charterers, the Owners served an ATN on the Charterers under the BIMCO Clause and subsequently withdrew the vessel. A dispute arose as to whether the Owners were entitled to invoke the BIMCO Clause and withdraw the vessel in these circumstances.

The Tribunal’s decision

The case was heard before a three-member arbitral tribunal seated in London (“Tribunal“) and the question before the Tribunal was whether (i) the BIMCO Clause had been engaged, and (ii) Owners were entitled to withdraw the vessel, in circumstances where the non-payment related to an earlier hire period.

The Tribunal held that the clause was not engaged because it could not be invoked in respect of amounts due to be paid in previous periods.

As a result, the Tribunal found that the Owners had acted in repudiatory breach by withdrawing the vessel without contractual justification.

Appeal to the Commercial Court

The Owners brought an appeal in the High Court under s69 of the Act, claiming that the Tribunal had erred in its construction of the BIMCO Clause. The Commercial Court judge noted at the outset that the partial final award issued by the Tribunal did not bear any signs of being rushed and included detailed reasoning. The Tribunal comprised two eminent QCs and one of the foremost London maritime arbitrators. The Court was “always adjured to treat the Awards of arbitrators with respect“, and this was perhaps a “paradigm case for so doing“. However, at the same time, this was a case of contractual construction on which it had been concluded (in granting permission to appeal) that the decision of the Tribunal was open to serious doubt.

After considering the natural meaning of the BIMCO Clause, the commercial context and business common sense arguments advanced by the parties, the Commercial Court  upheld the construction reached by the Tribunal. The reasons included:

  • The “gateway” to the BIMCO Clause was the hire not being received by the Owners at midnight on the due date. The use of the phrase “the hire” taken with the identification of a single “due date” indicated that the right to withdraw was linked to a specific hire instalment.
  • The ATN was to be issued within 24 hours of the payment being overdue, and was to require payment within 72 hours of the due date. If the payment was not received within this period, the Owners could by giving notice within 12 hours withdraw the vessel. The BIMCO Clause reflected the necessary connection between the relevant hire instalment and the (single) due date and it also prescribed conditions for withdrawal that could not be satisfied in respect of historic arrears.
  • The Owners’ argument that the BIMCO Clause could apply to historical arrears elided the very real distinction between the continuing entitlement to recover hire as a debt and the independent contractual entitlement to withdraw.
  • The Owners’ construction would mean that it would retain the right to withdraw the vessel in respect of an unpaid debt at any time until the debt became time barred (six years). This construction was lacking in logic or commercial coherence because it would keep the weapon hanging over the Charterers in a “Damoclean manner“.

The appeal was accordingly dismissed.

Comment

The Court’s decision to dismiss this s69 appeal serves as a helpful reminder of the very limited circumstances in which parties will be allowed to appeal arbitral awards on points of law under the Act. Although permission to appeal was granted on the basis that the question of law was one of general public importance and that the Tribunal’s decision was open to serious doubt, the Commercial Court agreed with the Tribunal’s reasoning and dismissed all of the Owners’ arguments. Had the clause not appeared in a standard form contract (and the issue not been of general public importance), the Owners would probably have struggled to establish that the construction was “obviously wrong“, as would have been required in order to obtain permission to appeal.

The case has provided clarity on the meaning of the BIMCO Clause, which is discussed at length in the judgment and is also a reminder that courts and tribunals will not only interpret clauses by reference to the natural meaning of words, but will also take into account the broader commercial context in which the contract was concluded. In particular, caution should be taken when drafting payment clauses, and the contract should specify whether remedies for non-payment are available only for a specific period of time, or for so long as the payment is outstanding.

For more information, please contact Craig Tevendale, Partner, Aaron McDonald, Senior Associate, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445
Aaron McDonald
Aaron McDonald
Senior Associate
+44 20 7466 2980