Arbitration and Protecting Time for Counterclaims

May 2016

Arbitration People Contract

Arising out of a dispute in arbitration, the Commercial Court was asked to consider a question of law of general public importance - whether the wording of a notice of appointment of an arbitrator was sufficient to stop time running for a counter claim under s.14(4) of the Arbitration Act 1996. (Glencore International AG v (1) PT Tera Logistic Indonesia (2) PT Arpeni Pra [2016] EWHC 82 (Comm).

The Facts

The parties had entered into four contracts for the charter of floating cranes which provided that demurrage would be payable by the Respondent or detention payable by the Appelant dependent on whether delay was caused by the floating cranes or by the mother vessel. Disputes arose and PT commenced four arbitrations claiming detention. When Glencore served its defence and counterclaim in two of the arbitrations after the limitation period for claims had expired, PT claimed that Glencore’s counterclaims were time barred. PT claimed that Glencore’s notices of appointment in those arbitrations were insufficient to stop the running of time under s.14(4) of the Arbitration Act 1996 which provides:

“Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter.”

The tribunal considered the wording of each parties’ notice of appointment in the two arbitrations.

PT’s notices in each set of proceedings stated that arbitration had been commenced “in respect of their claims under this Contract” and “in respect of claims under the Contract”.

Both of Glencore’s notices responded by appointing their arbitrator “in relation to all disputes arising under the contract”.

By a majority of 2 to 1, the Tribunal decided the counterclaims were time barred, with the dissenting arbitrator taking the view that the words “all disputes” were routinely used in the market in the expectation that they encompassed claims that might only be identified after service of notices commencing arbitration; that is that they were sufficient to include both claims and counterclaims.

The Judgment:

Knowles J considered that in a situation where the claim and the counterclaim arise from a single set of facts which gives rise to a balancing of accounts, or netting-off under a contract, references to “claims” or “all disputes” would ordinarily be sufficient to interrupt the running of time in respect of the counterclaim in accordance with s.14(4) of the Act. He considered that there was a need to keep a commercially open mind when regarding how the words are used and in what context they were used. He further stated that in the situation before him, any type of delay by either party could generate claims for damages and it would be highly unlikely that the parties would have wanted detention or demurrage claims to be dealt with by separate tribunals. Allowing the appeal, Knowles J concluded that “…it is unsurprising that the Appellant should describe [this issue] as one of market interest” and that although there were particular facts arising in this case, the basis of his judgment “…would firmly indicate the same answer in a great many contract cases of what might be termed a “balance of account” nature.

Parties to a dispute should bear in mind that although the counterclaim in this case was allowed, the claim and counter claim arose from a single set of facts giving rise to a balancing of accounts. Knowles J did not address the question where disputes arise in relation to separate facts, where there is scope for more uncertainty. Although the dissenting arbitrator’s position in this respect is helpful, the decision in this case reinforces the need for clear and concise language to be used in drafting appointment notices. This would be especially necessary in situations where the counterclaims could arise from a separate set of facts which would not clearly make the case one of "a balance of accounts”.

 

    

Article by:

Sean Lima,
Syndicate Executive
Sean.Lima@simsl.com