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Demise charter – the demise of your recovery?

  • Market Insight 11 September 2020 11 September 2020
  • UK & Europe

  • Marine

The recent decision in Fimbank PLC v. KCH Shipping Co. Ltd [2020] EWHC 1765 (Comm) is a stark reminder of the importance in recovery claims of making inquiries as to the existence of a demise (bareboat) charter.

Demise charter – the demise of your recovery?

As many readers will know, Owners are not generally liable for cargo damage in cases where a vessel is on bareboat charter. In those cases, the bareboat charterer will be the legally liable party and the correct recovery target. Therefore any time limit will have to be protected against that party. In this case, the Claimant, Fimbank PLC ("Fimbank") commenced arbitration against Owners, but did not protect time to commence an arbitration claim against the bareboat charterer.

Fimbank then applied to the High Court under section 12(3)(a) and (b) of the Arbitration Act 1996 to extend time for commencing arbitration proceedings against the Defendant bareboat charterer, KCH Shipping Co. Ltd ("KCH").

The decision provides helpful guidance as to the circumstances in which the Court will grant an order extending time to commence arbitration, and a reminder that such orders will not be easily granted by the Court.

Background facts

Fimbank wished to make a claim for circa $7.3m against the carrier for the loss of cargo due to misdelivery without production of the bills of lading which were held by Fimbank. The bills of lading incorporated the Hague Rules which provide for a one-year time limit.

Fimbank's lawyer identified the registered owners of the vessel, Mirae Wise SA ("MW") as the carrier for the purposes of its claim.

There was a chain of charterparties for the vessel, which included: the bareboat charterer, KCH, the time charterer, Classic Maritime Inc ("Classic"), and the voyage charterer, Trafigura Maritime Logistics Pte Ltd ("Trafigura").

Fimbank's lawyer reportedly did not make any inquiries as to whether there was a bareboat charterparty in place, and so when the claim letter was sent to MW, it was misdirected, and should have been sent to the bareboat charterer KCH.

Upon receiving the claim letter, the vessel's P&I Club sent it on to Classic, who were aware of the existence of KCH, but not of the specific arrangement between them and MW.

A series of exchanges followed between Fimbank, Classic, KCH (via Classic) and Trafigura, however nothing within the correspondence alerted Fimbank's lawyer to the existence of the bareboat charter.

With the one-year time bar for the claim expiring in April 2019, Fimbank sought an extension via Classic from "owners", still believing this to be MW. Classic subsequently contacted KCH seeking confirmation that they could agree the time extension on behalf of owners. Authority was given and the extension was granted by owners.

The time extension was granted by Classic to Fimbank on 27 March 2019, which was described as being from "owners of the [vessel]" and agreed to extend the time bar to 1 July 2019. However, Fimbank's lawyer appeared to be under the impression that MW were "owners", and had understood the extension to have been granted by them.

In May 2019, Fimbank's lawyer became aware that KCH were bareboat charterers, and so were the correct recovery target for the claim as carrier. By this point, the original time limit had already passed and Fimbank's lawyer assumed that any claims against KCH were now time-barred.

In June 2019, Fimbank commenced arbitration against MW, and also sent the notice to KCH's lawyers. In response, MW argued that it was the wrong defendant to the claim, and KCH stated that any claims against them were now time-barred.

Fimbank applied to the Court for an extension of time to commence arbitration against KCH, under Section 12 (3) (a) and (b) of the Arbitration Act 1996.

The Decision

The Court dismissed Fimbank's application to extend time against the bareboat charterer KCH on both grounds:

Section 12(3)(a) – the circumstances are such as were outside the reasonable contemplation of the parties when they agreed on the provision in question, and that it would be just to extend the time

The Court found that this section imposes a double requirement: i) circumstances outside reasonable contemplation and ii) injustice. A simple omission to comply with a time bar cannot without more be said to be outside the reasonable contemplation of the parties, and it was not deemed unjust for a party to bear the consequences of its or its agent's negligence.

The Court stated that there must be something more than a mistake (referred to as "negligence plus"). However, Fimbank's lawyer had known for nearly two months before the extension expired that MW were the wrong party, and found it was a deliberate decision not to make further investigations as to who had given the extension.

Section 12(3)(b) - the conduct of one party makes it unjust not to extend

The relevant threshold is "that the conduct of one party makes it unjust to hold the other to the strict terms of the provision in question". The Court found that some positive conduct on the part of the Defendant was needed to render its reliance on the time limit unjust, but that this conduct does not have to be the sole or even the predominant cause of the failure to meet the deadline.

Fimbank sought to rely on the actions of Classic's lawyers, arguing that their various exchanges could be attributed to KCH. However, the Court found that Classic only acted with authority from KCH in relation to communicating its consent to the time extension from owners on 27 March 2019, but not otherwise.

Furthermore, although the wording of that time extension did not explicitly say who "owners" were, the court said Fimbank's lawyer failed to make the necessary enquiries in the first place. Furthermore upon becoming aware of the bareboat charter, Fimbank's lawyer failed to take steps to ascertain whether the extension came from KCH or not. Therefore the argument that there was ambiguity as to who was granting the extension, and that the extension was in fact granted by the bareboat charterer, failed. The Court found the extension was granted by the Owners, MW.

Delay

The Court was also critical of Fimbank's delay in making the application, and observed that failure to act promptly will usually be fatal to any application under this section.

Comment

This case is an important reminder of the need to establish who the recovery target actually is, especially in relation to seeking time extensions and the commencement of proceedings.

A simple oversight or negligence will not be enough to meet the requirements for the Court to grant an extension of time under Section 12 of the Arbitration Act 1996, to commence arbitration against the correct party.

There is however a practical difficulty in identifying whether a vessel is in fact on bareboat/demise charter, and professional guidance on that key issue is invaluable.

End

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