June 11, 2018

Arbitration - P v Q

A case on extending the time limit to commence arbitration

The parties in this case were parties to back-to-back voyage charters, and the arbitration clause in the charters provided that any claim "must be notified in writing to the other party and claimant's arbitrator appointed within 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".

Notice of a claim from a party higher up the chain was not received by one of the parties (P) until after the expiry of the 13 month period (although it was arguably sent to P just before the end of that deadline). P sought to claim in turn against Q, but Q argued that that notice of that claim (and the notice of commencement of arbitration) had been made too late and so the claim was deemed waived. The judge, Sir Richard Field QC, agreed that notice had been given too late and rejected an argument that the clause had to be read so as not to apply where it was impossible for a claim to be passed on within the stipulated time: "The parties desire the benefits that flow from a literal construction of the time bar because, whilst they also have an interest in passing on claims up or down the chain, that is only in so far as they are exposed to claims made in accordance with the time bar. The interest in passing on claims is no reason for giving the clear words of the clause a qualified meaning".

The judge did not decide the further question of whether, even if the court extended the time to commence arbitration (see below), notification of the claim was a step that was separate and distinct from the commencement of arbitration, and so the claim would have still been time-barred.

The judge also considered P's application under section 12 of the Arbitration Act 1996 for a sufficient extension of time for commencing arbitration to validate the notice of arbitration served on Q. The judge approved the observations of Hamblen J in SOS Corporacion v Inerco that the court should start from the assumption that when the parties agreed the time bar, they must be taken to have contemplated that if there were any omission to comply with its provisions in "not unusual" circumstances, the claim would be time barred (unless the conduct of the other party made it unjust).

In this case, the judge held that the fact that P had only received notice of a claim after business hours on the last day of the time limit (and so could only serve its own notice to commence arbitration out of time) was outside the reasonable contemplation of the parties and was not something that was merely "not unusual". However, he also went on to consider if it would be just to give the extension and as P had not acted expeditiously after receiving the notice (it had not, for example contacted its legal department for urgent advice), he concluded that it would not be just to grant the application to extend time.

COMMENT: In the Inerco case, the judge had also concluded that the fact the claim had not been reasonably discoverable before the expiry of the time limit was more than merely "not unusual" (although there could be exceptional cases where that situation was within the reasonable contemplation of the parties). However, he went on to find that delay after discovery of the loss/claim by the claimant meant that it would not be just to extend time under section 12. Accordingly, parties wishing to bring a section 12 application need to act quickly after discovering a loss or claim.