London Arbitration 3/24: Time bar still too high a bar for claimants to get over | ZFZ Postcard Cases

London Arbitration 3/24 concerned a voyage concluded under a booking note dated 5 October 2021.   As readers will be aware, a booking note is issued to a shipper who books space for cargo onboard a ship. In Electrosteel Castings v Scan-Trans Shipping and Chartering, Gross J stated a booking note is intended to “embody the contract” agreed between the parties and “to continue in existence as the contract between them.”[i] This position is supported by the terms specified in the widely used CONLINEBOOKING note which states “[i]t is hereby agreed that this Contract shall be performed subject to the terms contained on Page 1 and 2 hereof which shall prevail over any previous arrangements …”.[ii]

Clause 21 of the booking note scrutinised in London Arbitration 3/24 specified that “any possible alleged claim against the Operator” under the booking note was subject to arbitration in England under English law.  In addition, any claims against the “Operator” were to be brought within one year of the end of the voyage. Should the claim not be “instituted” within that timeframe, any claim was to be deemed “null and void.”

The parties’ dispute arose as a result of owners’ declaration of force majeure on 16 March 2022, due to damage sustained to the vessel’s propeller during the voyage to the first load port. This led to the vessel’s withdrawal by owners and therefore their failure to perform the voyage, ultimately resulting in owners cancelling the booking note on or about 31 March 2022. The factual circumstances which led to owners’ withdrawal of the vessel were undisputed.

In relation to ‘institute of proceedings’, whilst correspondence was exchanged between the parties relating to the dispute in the ensuing months, arbitration proceedings were not actually commenced by charterers until 27 April 2023 (i.e. more than a year after the contract was cancelled by owners), at which point a panel of three arbitrators were appointed.

The question to be determined by the tribunal was “[w]hether any claim brought by the charterers in this arbitration is time-barred”.  In order to determine that question, the tribunal was forced to consider a number of issues, including whether the particular claim fell outside of the time-bar and whether the time bar itself was, in fact, unjust. We deal with these and the other issues below.

One year time bar

Time bars are, of course, common in the maritime world, whether they are implemented through parties’ express agreement or, more commonly, through convention/legislation.  As a matter of English law, the statutory limitation period for contractual claims (including those under a charterparty) would be six years from the date that the breach occurs. However, as stated in Atlantic Shipping and Trading Co Ltd v L Dreyfus & Co [at 253], “[p]arties are at liberty to impose any conditions they please in regard to the constitution of their contractual obligations,[iii] allowing parties to expressly agree to a (shorter) contractual time bar.

In this case, charterers submitted to the tribunal that they had incurred significant losses due to the vessel’s failure to perform the voyage and owners’ cancellation of the booking note. Owners, however, argued that whilst charterers may have a claim, it was time barred under the terms of the booking note, stating that charterers’ claim was “instituted” more than one year after the end of the voyage.

Agreements to vary the usual six year contractual time bar limitation are frequently the rule rather than the exception in a maritime world, where the Hague/Hague-Visby Rules (incorporated in this jurisdiction through the UK’s Carriage of Goods by Sea Act 1971) are the most commonly adopted conventions in relation to the carriage of goods by sea.  Inclusion of the Hague/Hague-Visby Rules discharges all liability for cargo claims one year after the delivery date, unless the parties agree to an extension.  The Hamburg Rules and Rotterdam Rules provide a two year time bar.  Whilst London Arbitration 3/24 does not explicitly state that the Hague or Hague-Visby Rules applied or were otherwise incorporated into the booking note, the contractually agreed one year time bar is consistent with those Rules.

There is commercial justification for time bars which shorten the usual limitation position.  The time bars provide certainty in business whereby stakeholders know that if claims are not brought within the year, then there shall be no looming liabilities which might come out of the woodwork later. As an ancillary benefit, it also means that claims can be dealt with whilst operational evidence is relatively fresh.

Did the claim fall outside of the time bar?

In trying to find a way around the time bar provision, Charterers argued that the time bar applied solely to obligations breached during the voyage and therefore owners’ cancellation of the voyage (i.e. before it had started) fell outside of the time bar exclusion. However, the tribunal emphasised the broad scope of the term “any possible alleged claim,” which they found established its relevance to claims beyond those directly related to the voyage and highlighted that, despite charterers attempt to drag their claim outside the scope of the time bar provision, it did in fact apply to charterers’ claim and therefore prohibited charterers from pursuing it.

The meaning of ‘lawsuit’

The wording used in clause 21 specifically required any dispute to be “instituted by lawsuit” within a year of the end of the voyage. It did not reference arbitration. In another well-trodden line of argument, charterers argued that the term “lawsuit” did not include arbitration.

The tribunal addressed the disagreement surrounding the term “lawsuit” within clause 21 by referencing Syska v Vivendi Universal SA. In this case, Clarke J stated [at 52] that:

I can see no good reason why “lawsuit” should not be regarded as including a reference to arbitration. If the draftsman intended only to exclude lawsuits pending in court, he could easily have used phraseology which was unequivocally clear when translated into each of the languages of the Community.[iv]

Citing Syska v Vivendi Universal SA, the tribunal emphasised the overarching objective of clause 21, namely, to facilitate the timely resolution of disputes through appropriate legal channels, regardless of the selected forum.   Following the court in Syska v Vivendi Universal SA, the tribunal in London Arbitration 3/24 held that “lawsuit” included arbitration. It is extraordinary that parties continue to run this argument, given the clear and consistent stance of the courts and tribunals on the point.

Was the time bar unjust?

In a last ditch attempt to preserve their claim, charterers argued that the “unilateral” nature of the time bar provision was unjust, as it was unreasonable for one party to benefit from a time bar while the other did not. Case law has established that the reasonableness of a clause hinges on whether parties are of equal bargaining power and whether they have sought professional advice. In this instance, this was not a ‘corporation versus little old lady’ case. It concerned two sophisticated business parties engaging in contract negotiations and as stated by Chadwick LJ in Watford Electronics v Sanderson [at 55]:

… experienced businessmen representing substantial companies of equal bargaining power negotiat[ing] an agreement … should, in my view be taken to be the best judge of the commercial fairness of the agreement which they have made; including the fairness of each of the terms in that agreement. They should be taken to be the best judge on the question whether the terms of the agreement are reasonable … Unless satisfied that one party has, in effect, taken unfair advantage of the other — or that a term is so unreasonable that it cannot properly have been understood or considered — the court should not interfere.[v]

Consequently, commercial parties are deemed to be free to negotiate and agree to contractual terms, including asymmetric time bar clauses.

The tribunal dismissed charterers’ argument that the time bar was unjust, emphasising the independence of the parties whilst drafting the contract and the resultant enforceability of the agreed contractual clauses. This position is consistent with previous cases, including London Arbitration 10/14,[vi] affirming the parties’ right to rely upon the agreed time bar. This principle not only facilitates business efficacy but also provides the parties, particularly owners in this case, with the assurance that any claims will be addressed within the specified timeframe following the end of the voyage, providing certainty regarding liabilities within the specified period.

London Arbitration 10/14, alongside London Arbitration 3/24, underscores that while time bar clauses are intended to provide certainty, they will be strictly interpreted according to their precise language.  There was no suggestion of uncertain drafting in this case, however, where there is uncertainty, that uncertainty will be “resolved against the party seeking to rely on the provision” consistent with the contra proferentem principle.

Reflection

The parties in London Arbitration 3/24 were of equal bargaining power, and charterers voluntarily agreed to the words used in clause 21, including the unilateral one year time bar provision. Such clauses have practical advantages and, in fact, are often the rule, rather than the exception in the maritime world.  As such, it was the parties’ prerogative to include or exclude the clauses found within their booking note, negating any claim that clause 21 was unfair or imbalanced and as such the tribunal was right to “not interfere.”

Even the most diligently planned voyages can be derailed by force majeure events leading to disputes (often resolved through arbitration). Whilst not ground-breaking law, London Arbitration 3/24 continues to remind parties as to the primacy that will typically be afforded to the black letter law of the contracts they sign – as ever, caveat subscriptor.  In this case, it would have been much easier (and less expensive) to comply with the agreed time bar, rather than to try and find a way around it.

Jody Wood and Jennifer Holdway

To read the London Arbitration 3/24 decision, please click here.

References:

[i] Electrosteel Castings v Scan-Trans Shipping and Chartering [2003] 1 Lloyd’s Rep. 190 at [24] – [28].

[ii] Contracts and Clauses, ‘Sample copy CONLINEBOOKING 206’ (Bimco.org, 2016 ) <https://www.bimco.org/contracts-and-clauses/bimco-contracts/conlinebooking-2016> accessed 20 March 2024.

[iii] Atlantic Shipping and Trading Co Ltd v L Dreyfus & Co [1922] 2 AC 250, HL, 253.

[iv] Syska v Vivendi Universal SA [2008] 2 Lloyd’s Rep 636.

[v] Watford Electronics v Sanderson [2001] EWCA Civ 317, 39.

[vi] London Arbitration 10/14.