29/07/2014

Viscous Global v Palladium Navigation ("The Quest")

This was an application under s. 32 of the Arbitration Act 1996 which permits a court to determine a question as to the substantive jurisdiction of a tribunal if either the parties agree or the tribunal consents.  This can be an effective mechanism for avoiding lengthy arbitral hearings on jurisdiction where it is likely that the losing party will challenge the award under s. 67 or where, exceptionally, the tribunal is unable to make an award as to its jurisdiction.

This case is an example of the latter situation.  The claimant commenced arbitration in respect of cargo claims arising under four bills of lading.  All four of the bills incorporated the arbitration clause of a charterparty but failed to identify which charterparty.  There were three candidates: two provided for LMAA arbitration with claims less than USD100,000 to be submitted to the LMAA Small Claims Procedure (“SCP”); the third provided for Singapore arbitration.  After damage to the cargo was discovered during discharge, the defendant shipowner’s insurer (a P&I club) provided security for the claimant’s claims in the form of a single letter of undertaking (“LOU”) in largely standard terms.  The LOU contained an agreement providing for the Claimant’s claims to be submitted to LMAA arbitration but did not refer to the SCP.  The claimant purported to commence arbitration by reference to the agreement in the LOU and a single tribunal was constituted.  The defendant argued that the claimant had failed to commence arbitration validly since some of its claims under individual bills of lading were below USD100,000 and should, therefore, have been submitted to SCP and not ‘standard’ LMAA arbitration.  If that was right, the consequence would have been that the claimant had not validly commenced arbitration in respect of any low value claims and, since it was now time-barred from doing so, the tribunal would not have jurisdiction in respect of them.  The tribunal preferred the defendant’s position but concluded that, since it could not say which of the claims under individual bills of lading were for less than USD100,000, it could not make an award or awards declining or upholding jurisdiction in respect of any of the claims.

The matter was referred to the court with the tribunal’s consent.  Before the court, the claimant argued that the agreement in the LOU replaced any arbitration agreements incorporated into the bills of lading; the defendant argued that the agreement in the LOU only varied the arbitration agreements incorporated into the bills and since, it said, the incorporated agreements provided for the SCP, the parties remained obliged to submit claims for less than USD100,000 to the SCP.

The High Court (Males J.) found for the claimant and concluded that arbitration had been validly commenced in respect of all of the claims.  The Judge held that, on its proper construction, the agreement in the LOU had been intended to replace any arbitration agreements that had come before and that it was an independent free-standing agreement.  In so doing, he held that there were no special principles of construction to be applied and that the issue was to be determined by applying ordinary principles of construction in the light of business common sense.  As to the latter, he observed in particular that there was no good reason why the parties were to be taken to have intended either that their arbitration agreement be located in two places, partly in the LOU and partly in whatever arbitration agreement may have been incorporated into the bills of lading, or that that the claimant be required to commence different sorts of arbitration and that different tribunals be constituted in respect of materially identical claims under individual bills of lading.  These points are likely to be of wider significance in relation to the construction of arbitration agreements in P&I club LOUs.

Ben Olbourne appeared on behalf of the claimant (instructed by Grier Olubi).