Charterparty arbitration clauses: too much of a good thing?

It is a fact of commercial life that, at least with the benefit of hindsight, contracts are not always drafted clearly.

Parties know what they intend at the time (though that is not always the same on both sides) and the priority is to get the deal done rather than worry about the details.  This is particularly so when it comes to charterparties – not only short-term spot fixtures, but sometimes also long-term multi-million dollar deals. 

Even if a charterparty is drawn up, it is sometimes left as a "working copy" and not signed.  More often, to work out what the terms of a charterparty are, it is necessary to consider the effect of several layers of terms:

• a printed form such as the NYPE 1946 or Asbatankvoy, usually heavily amended;
• a set of rider clauses from a previous fixture, either bespoke or one party's standard terms; and
• a recap email which summarises the particular commercial terms of this fixture and often also contains specific amendments to the rider clauses.

There is one particular type of provision which receives little if any consideration – the dispute resolution clause.  Of course, nobody enters into a contract expecting there to be a dispute.  However, as with insurance, it is good to know there is a clear and workable dispute resolution clause there if you need it.  Unfortunately, it is common to find a variety of such clauses spread across all three layers of terms – e.g. in clause 17 of the NYPE 1946 form, in a rider clause and in the recap email.

Fortunately, Courts and Tribunals take a purposive approach to interpreting such terms, trying to work out what the parties really intended and giving effect to that.  A good example of this is the recent decision of the English Commercial Court in Shagang South-Asia (Hong Kong) Trading Co Ltd v Daewoo Logistics [1].

The charterparty

Clause 23 of the fixture note provided for "ARBITRATION TO BE HELD IN HONGKONG.  ENGLISH LAW TO BE APPLIED."  Clause 24 incorporated the terms of the Gencon 1994 form of charter.  Clause 19 of that form is a detailed law and arbitration clause with three options:

• English law and London arbitration,
• US law and New York arbitration, or
• arbitration in and subject to the laws of the place indicated in box 25.

Clause 19 further provided that, if box 25 was not filled in, disputes would be subject to English law and London arbitration. 

The dispute

A dispute arose between Daewoo (as disponent owners) and Shagang (as charterers).  Daewoo purported to commence a London arbitration against Shagang.  When Shagang did not respond to notices, Daewoo purported to appoint their chosen arbitrator as sole arbitrator in accordance with clause 19(a) of the Gencon form.

Shagang then instructed lawyers who questioned the sole arbitrator's appointment, suggesting that the seat of the arbitration was Hong Kong, not London.  In line with principles of kompetenz-kompetenz, the parties first addressed submissions on the point to the arbitrator himself.  He determined that he had been properly constituted as sole arbitrator.  Shagang then challenged this decision (as of right) in the English Court.

The dispute depended on the resolution of two related questions:

• the meaning of clause 23 of the fixture note; and
• its relationship with clause 19 of the Gencon form.

Daewoo argued that the reference to Hong Kong in clause 23 merely required any hearing to take place in Hong Kong because that would be convenient for the parties.  They argued that it was not a choice of Hong Kong as the legal "seat" of the arbitration, which would require it to be conducted in accordance with the Hong Kong Arbitration Ordinance (Cap. 609).  Daewoo said that the reference to English law applied to both the substance of the dispute and the procedural law of the arbitration.

Shagang's case was that the two parts of clause 23 dealt with different matters – the seat of the arbitration was Hong Kong, but English law would determine the substantive dispute.

The decision

The Court found clearly in favour of Shagang that this was a "Hong Kong arbitration" clause. 

Agreeing that an arbitration was "to be held" in a particular place indicated that all aspects of the arbitration process would take place there, including any supervisory court proceedings.  It would be surprising (to say the least) for an arbitration to be held in one place but subject to the procedural law of another place.  Indeed, Daewoo could only point to one reported case in which the Court had ever found such "bifurcation" [2].  That case was distinguished and confined to its particular facts, as it had been in at least two other reported cases.

As to clause 19 of the Gencon form, the Court held that it was not possible to read it together with clause 23 of the fixture note.  Clause 19 contains a particular set of options, but all of them contemplate a unitary approach to the place of arbitration, the procedural law and the substantive law.  Clause 23 does not fit into that scheme, and accordingly it cannot have been intended to incorporate clause 19 of the Gencon form into this charterparty.

Comment

This judgment is of wider interest because the question often arises whether specially-agreed terms in a fixture recap are intended to be read with or simply replace the equivalent terms in a "proforma" document incorporated by the words "otherwise as per…".  Each case depends on its own facts but this is a good example of an inconsistent term in the proforma giving way entirely to a brief but sufficient provision in the fixture recap.

The time and expense of these proceedings could have been saved if the charterparty had been drawn up because (one assumes) the inconsistency between clause 23 and clause 19 would then have become apparent.  However, for as long as commercial parties prefer to get the deal done first and worry about the details later, it is comforting to know that the Courts will strive to identify and give effect to their intentions, however imperfectly expressed.

[1]  [2015] EWHC 194 (Comm)

[2]  Braes of Doune Wind Farm v Alfred McAlpine Business Services [2008] 1 Lloyd's Rep. 608