Win some, lose some: English court considers contractual limit on period to bring a claim in arbitration under section 12 of the Arbitration Act 1996

The English Commercial Court (the Court) has considered[1] the principles governing contractual time-bars and an application under s12 of the English Arbitration Act 1996 (the Act) to extend a contractually agreed limitation period to allow the claimant to bring claims in an arbitration.

As a matter of English law, parties are generally held to the consequences of exceeding a contractual time-bar, especially when the consequences are explicit. Parties should, therefore, be wary of agreeing such a deadline in circumstances where their ability to meet a deadline may potentially be impacted by the conduct or inaction of third parties. When such time-bar relates to the bringing of proceedings by arbitration, a court dealing with an application for extension of that time-bar under s12 will first consider whether there are exceptional circumstances which explain why the time-bar has been exceeded. Assuming that there are “exceptional circumstances”, the court will then consider whether the parties would have contemplated that the time-bar “might not” have applied. Finally, in deciding whether to exercise its discretion to grant the extension, the court will consider whether the applicant has “acted expeditiously and in a commercially appropriate fashion to commence proceedings“.

Context

Factual background

The parties to the proceedings were parties to back-to-back voyage charters and occupying the middle of the charter chain. The charters included an arbitration clause and the following time-bar at Clause 67:

Any claim other than the demurrage claim under this contract must be notified in writing to the other party and claimant’s arbitrator appointed within thirteen (13) months of the final discharge of the cargo and where this provision is not complied with, the claim shall be deemed to be waived and absolutely barred.

A dispute arose regarding the condition of the cargo. The holder of the bill of lading covering the cargo issued a Statement of Claim against the head owners at the top of the entire chain. This triggered various notices down the chain, which were alleged not to comply with the contractual time bar.

The claimant applied to the Court for:

  1. declarations that their claims against the charterers had been brought in time, notwithstanding the wording of Clause 67;
  2. in the alternative, an extension of time under s12 of the Act either to validate the notices of arbitration they had served on the defendant charterers or for such extension of time as the Court saw fit.

The Court’s decision

Time-bar wording to be given literal meaning

The Court found that Clause 67 should be given a literal reading, even though the parties’ intention was that claims for breach of contract would be passed up or down the chain, and a party may not know about the claim in time. Such clauses operate mutually and make commercial sense: at the end of the relevant period the parties know where they stand regarding any outstanding claims and the difficulties of dealing with a claim only long after the event are largely averted. The parties took the risk that it may not be possible to pass on a claim validly received within the required period.

It was, therefore, necessary to consider whether the Court should exercise its power to extend time under s12.

Section 12 application

Section 12(1) provides that where an arbitration agreement “provides that a claim shall be barred, or the claimant’s right extinguished, unless the claimant takes within a time fixed by the agreement some step (a) to begin arbitral proceedings … the court may by order extend the time for taking that step.

Any party to the arbitration agreement may apply for such an order after exhausting any arbitral process to obtain an extension of time, but the Court “shall make an order only if satisfied –

  • that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time, or
  • that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.

Relevant factors

The Court accepted that where parties agreed a contractual time-bar, they must be taken to have contemplated that non-compliance “in not unusual circumstances arising in the ordinary course of business” would result in a claim being time-barred, unless the other party’s conduct would make it unjust. The Court adopted Hamblen J’s factors in SOS Corporation Alimentaria SA & Anor v Inerco Trade SA [2010] EWHC 162 (Comm), viz:

  1. whether there were circumstances beyond the parties’ reasonable contemplation and, if so, had they contemplated them, whether they would also have contemplated that the time-bar might not apply;
  2. whether the circumstances significantly contributed to the non-observance of the time limit;
  3. if the circumstance was “not unlikely” or “prone to” occur, or “not unusual“, the test would probably not be satisfied, but if was “relatively exceptional” it would be outside the reasonable contemplation of the parties;
  4. as to whether the parties would also have contemplated that the time-bar might not have applied in the circumstances in question, the test is whether they would contemplate that the time limit “might not” apply rather than it “would not” apply or “must not” apply. In general, time limit clauses are addressed at steps which the party in question can reasonably be expected to take within the prescribed time.

Application: s12 triggered in principle

Following a review of the factual history, the Court found that the “direct, dominant and effective cause” of the relevant notice being served after the expiry of the contractual time-bar was the receipt of the previous claim (that was intended to be passed down the charter chain) on the last day of the stipulated period after the recipient’s business hours. These circumstances were outside the parties’ reasonable contemplation as the eventuality was “in all probability … relatively exceptional“. Further, the parties would have contemplated that the time-bar “might not” apply given the expectation that claims could be passed up or down the charter chain.

Whether just to grant the extension of time sought under s12

However, in the Court’s view, it would only be just to extend the time following a s12 application by a party in a charter chain “if the applicant has acted expeditiously and in a commercially appropriate fashion to commence proceedings” after becoming aware that a claim is being made above or below in the chain. Two of the three applicants did not act expeditiously and in a commercially appropriate fashion. Relevant factors included (i) whether a party investigated the time-bar (either through the operational staff checking the contracts, or informing the legal department or the company’s P&I club and asking for urgent advice); (ii) how soon a party appointed solicitors and nominated an arbitrator; and (iii) how soon it served a further notice down the chain and sought an extension.

Comment

This judgment serves as a reminder of what factors a court will take into account when considering (i) contractual time-bars in an arbitration context and (ii) s12 applications. The basic position on contractual time-bars in a commercial context, especially when the consequences are explicit, is that those consequences will apply. This is the price the parties pay in exchange for certainty. At the time of contracting when it is often unclear who might sue whom, this represents a mutual acceptance of risk.

An English court considering a s12 application will look for exceptional circumstances as to why the time-bar has been exceeded, but, once those have been found, the threshold is whether the parties would have contemplated that the time-bar “might not” (as opposed to “would not” or “must not“) have applied. Finally, the court’s residual discretion whether to extend the time limit (at least in a charter chain scenario) will depend on whether the applicant has “acted expeditiously and in a commercially appropriate fashion to commence proceedings“.

For more information, please contact Nicholas Peacock, partner, Maximilian Szymanski, associate, or your usual Herbert Smith Freehills contact.

 

Nicholas Peacock
Nicholas Peacock
Partner
Email | Profile
+44 20 7466 2803
Maximilian Szymanski
Maximilian Szymanski
Associate
Email
+44 20 7466 2596

 

[1] P v Q [2018] EWHC 1399 (Comm)

Leave a Comment

Filed under Arbitration Act 1996, Arbitration clauses, Europe

Award dismissing a claim for inordinate and inexcusable delay survives challenge in the English court

In Grindrod Shipping Pte Ltd v Hyundai Merchant Marine Co. Ltd, the English High Court (“the Court“) rejected an application under s68 of the Arbitration Act 1996 (“the Act“) to challenge an Award (the “Award“). Six years after the proceedings had commenced, the tribunal (“Tribunal“) issued a final award dismissing the claim under s41(3) of the Act on the ground of inordinate and inexcusable delay. Grindod Shipping challenged the award under s68 of the Act,  arguing that the Tribunal’s decision was based on grounds not advanced by the respondent. The Court concluded that the issues had been sufficiently “in play” for all sides to have had a fair opportunity to respond. There was no breach of the tribunal’s duty to act fairly and impartially and therefore no procedural irregularity.

Continue reading

Leave a Comment

Filed under Arbitration Act 1996, Arbitration proceedings, Arbitrators, Challenges to awards, Costs, Europe

West Tankers principle unaffected by Recast Brussels Regulation; mandatory foreign jurisdictional rules do not encroach on scope of widely worded arbitration clause

In Nori Holdings Limited et al v PJSC Bank Okritie Financial Corporation [2018] EWHC 1343 (Comm) the English court has applied the Recast Brussels Regulation, finding that the West Tankers principle remains applicable and, as a consequence, refused to grant an anti-suit injunction in relation to parallel EU court proceedings.

At the same time, it found alleged Russian mandatory jurisdictional rules referring an insolvency dispute to the Moscow Arbitrazh Court insufficient to displace the wide and general wording of an arbitration clause, with the result that it granted an anti-suit injunction in relation to non-EU proceedings. Continue reading

Leave a Comment

Filed under Arbitrability, Arbitration clauses, Arbitration proceedings, Brussels Regulation, Court intervention, Europe, Jurisdiction, Russia

English Commercial Court orders stay of Lebanon-seated arbitration in ‘exceptional’ case

In the most recent decision in the Sabbagh family feud, Sabbagh v Khoury & Ors [2018] EWHC 1330 (Comm), the English Commercial Court ordered the stay of parallel Lebanon-seated arbitration proceedings. This was despite the tribunal in that case having found that it had jurisdiction to hear it. In granting the interim injunction to restrain the pursuit of the arbitration proceedings, Mr Justice Knowles was quick to acknowledge the significance of a court that is not the supervisory court granting an injunction to prevent parties prosecuting a foreign arbitration.

 

Continue reading

Leave a Comment

Filed under Arbitration proceedings, Court intervention, Europe, Interim relief, Middle East

Delhi High Court refuses to grant injuction restraining Vodafone’s second BIT arbitration against India

In a decision dated 7 May 2018, the Delhi High Court dismissed the Government of India’s application to declare Vodafone’s second BIT arbitration proceedings in relation to the retrospective tax liability imposed on Vodafone’s 2007 acquisition of Hutchison Whampoa’s Indian operations an abuse of process, and in so doing declined to grant a permanent injunction restraining Vodafone from continuing those arbitration proceedings. The Court granted liberty to India to bring the issue before the Tribunal in those second proceedings (under the India-UK Bilateral Investment Protection Agreement) for that Tribunal to decide on the alleged abuse of process on its own merits.

Continue reading

Leave a Comment

Filed under Arbitration proceedings, Asia, Court intervention, India, Investment Arbitration, ISDS

Dispute Resolution in Asia-Pacific: Parties seek efficient processes and enforceable outcomes

Following our report on the Global Pound Conference series, which brought together over 4000 stakeholders at 28 conferences worldwide, our analysis of the Asia Pacific results reveals different demands in Asia and Oceania.

Six Asia Pacific cities hosted conferences to assess how dispute resolution can be improved: Singapore; Hong Kong; Chandigarh, India; Bangkok, Thailand; Sydney, Australia and Auckland, New Zealand. Each conference addressed the demand side (commercial party perspectives on dispute resolution); the supply side (what advisers and providers are delivering to commercial parties); the key obstacles and challenges; and what needs to be addressed to effect change.

In Asia the data revealed a clear desire for enhanced regulation of mediation compared to Oceania. At first blush, this could be said to be rooted in civil versus common law traditions. But only one of the Asian countries to host a GPC event, Thailand, has a civil-law system. The reason appears to be more complex: enhanced regulation, particularly around enforcement, would lend credibility to mediation in Asia as a viable alternative to litigation or arbitration. This is particularly so in the context of commercial cross-border disputes. UNCITRAL’s proposed New York-style Convention on the mutual recognition and enforcement of mediation settlement agreements is likely to be applauded in Asia and may hail an inflection point for the use of mediation.

Continue reading

Leave a Comment

Filed under Asia, East Asia, Events, Global Pound Conference, Hong Kong & China, India, Publications and Guides, Singapore, South East Asia

ENGLISH COURT OF APPEAL CONSIDERS DISCLOSURE OF ARBITRAL APPOINTMENTS IN RELATED OR OVERLAPPING REFERENCES

In Halliburton Company v Chubb Bermuda Insurance Ltd [2018] EWCA Civ 817, the English Court of Appeal was asked to consider:

  1. whether it is possible for an arbitrator to accept multiple appointments with overlapping reference and one common party, without giving rise to doubts over impartiality?
  2. at what point should an arbitrator disclose these further appointments – if at all?

The Court of Appeal dismissed the appeal, stating that, on the facts of the case, there was no real possibility that the arbitrator was biased when viewed from the perspective of a “fair minded and informed observer”.  Nevertheless, the Court held that, in accordance with English law and best practice in international arbitration, disclosure should have been made. Continue reading

Leave a Comment

Filed under Arbitrators, Procedures in arbitration

English High Court grants an anti-suit injunction and confirms that the choice of arbitral seat is “analogous to an exclusive jurisdiction clause”

In Atlas Power v National Transmission and Despatch Company Ltd [2018] EWHC 1052 the English High Court granted a final anti-suit injunction to permanently restrain a national grid company owned by the Government of Pakistan (“NTDC“) from challenging an LCIA Partial Final Award in Pakistan (or anywhere other than England and Wales).

The injunction was granted on the “entirely straightforward” basis that the seat of the arbitration was London.  Phillips J rejected NTDC’s arguments that the courts of Pakistan had concurrent jurisdiction or that the seat of the arbitration was Lahore, Pakistan, and confirmed that an agreement on the seat of the arbitration is also an agreement on the forum for any challenges to an award.  Continue reading

Leave a Comment

Filed under Arbitration proceedings, Challenges to awards, Court intervention, Europe, Jurisdiction

HKIAC 2017 CASE STATISTICS

The HKIAC has recently published its case statistics for 2017, showing a continued healthy demand for its services. The HKIAC saw a 15.7% increase in its caseload compared to 2016, with the total amount in dispute in HKIAC arbitrations doubling since last year. The statistics demonstrate that HKIAC maintains its position as one of the world’s leading arbitral institutions, serving parties throughout Asia and beyond. Continue reading

Leave a Comment

Filed under ADR, Arbitration rules, Arbitrators, Awards, Challenges to awards, Emergency Arbitration, Expedited Arbitration, Hong Kong & China, Institutions, Publications and Guides

Ten years of the Herbert Smith Freehills corporate law moot in India

We are proud to celebrate the tenth year of the NUJS HSF National Corporate Law Moot Court Competition (“Moot“) this year. Since 2008, HSF and the WB National University of Juridical Sciences, Kolkata (“NUJS“) have worked together to host the Moot in Kolkata which sees participation from students from leading Indian universities. The Moot has grown to become one of the foremost competitions and to celebrate this milestone, we have published a book compiling the ten Moot problems. The book aims to showcase the problems that generations of Indian law students have dissected, together with forewords addressing the importance of mooting and oral advocacy.

Continue reading

Leave a Comment

Filed under Asia, India, News