A Tale of Two Timebars

December 2018

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Time Bars

P v Q (‘ The Capetan Giorgis’) [2018] EWHC 1399 (Comm)

No one needs reminding the importance of heeding time bars in contracts, but this High Court decision is an example of the difficulties that can be caused in a charter chain and how parties may be held to strict contractual interpretation of a time bar clause.

The case involved four parties in a back-to-back voyage charter chain on Norgrain 1973 form. Due to the anonymity of the underlying arbitrations they are identified as P, Q, R and S. Clause 67 in each charter party provided that any claims: “must be notified in writing to the other party and claimant’s arbitrator appointed within thirteen (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.” (Emphasis added).

The timeline: 

  • 16 October 2015- discharge of cargo was completed
  • 16 November 2016- the final day of the 13 month period- Disponent Owner China National Chartering Co Ltd gave notice to their Charterer P of a third party claim brought against them at 6:44pm when P’s office was closed. The first P knew about this was the next day on their opening, after the time bar had passed.
  • 17 November- P gave notice to their Charterers, Q. When Q received this, they gave their own notice of claim and commenced arbitration against R, via the brokers. R then claimed that their brokers/agents did not have authority to accept service of an arbitration notice.
  • 23 November- P’s operations department notified their legal department
  • 25 November- P commenced arbitration against Q.
  • 28 November- R instructed lawyers, despite being aware of the notice from Q since 18 November,
  • 29 November- R’s lawyers appointed an arbitrator
  • 30 November- To protect their position, Q served the arbitration notice directly to R.
  • 1 December- R gave notice of the claim and commenced arbitration against S.

The parties all sent the notifications and commencements of arbitration after the 13 month time limit had passed. P, Q and R then applied to the High Court under two issues.

The first issue: whether each claim had been notified in time, despite Clause 67.

It was argued that there was an implied limitation on the literal meaning of this clause, in circumstances where the party was simply unaware of such a claim before the prescribed time had passed. Sir Richard Field QC, sitting as Deputy High Court Judge, rejected this. He did not see a reason to depart from the literal construction of the clause as the wording was clear and unambiguous. If the parties intended for there to be this restriction, if a party was unaware of a claim, they would have concluded the charter on this basis, for example a provision similar to the Hague-Visby Art III rule 6 bis, which extends time bars for indemnity claims. The commercial advantage of an undeniable time limit, such as Cl 67, is that parties are not at risk of validly receiving a claim outside the 13 month time limit.

The second: Alternatively, whether there could be an extension of time for each commencement under each charter under S.12 of the Arbitration Act 1996.

S.12(3) provides for an extension to be granted only if the Court is satisfied with: 

  • The circumstances were out of the parties’ reasonable contemplation when they agreed the provision and consequently it would be just to extend time; or
  • The behaviour of one party means that it is unjust to hold the other stringently to the terms of the provision.

The Court considered whether the circumstances confronted by the time barred party were ‘not unusual’ or were ‘prone to’ happen, and that this should be the starting point in the determination. Because P’s receipt of the claim was after close of business on the last day of the time bar, any other claim down the chain could only be brought out of time- but the Court decided that this did not amount to ‘not unusual’ circumstances. The issue would turn on whether each party acted expeditiously and in a commercially appropriate fashion. 

  • As P did not inform their legal department for 6 days after becoming aware of the claim, the Court found that they did not act expeditiously and in a commercially appropriate fashion. P’s claim was time barred.
  • As Q gave notice to R’s brokers on 17 November, they sought an extension to 30 November, the date they served directly on R. The Court granted this extension as they were considered to have acted expeditiously as the notice was received by R on 17 November and read by them on 18 November.
  • As R did not instruct lawyers until 28 November, although first notified on 17 November, the Court considered this delay as a failure to act expeditiously and suggested that R should have served the notice of claim and commencement of arbitration on S by 22 November, i.e./ within 3 business days of notification. This was in spite of R thinking that its agents could not validly accept service of the notice of arbitration.

P v Q highlights the risks of contracting parties becoming aware of claims immediately after the expiry of a time bar. The case also emphasises the limited relief available from English Courts in those circumstances. Alongside the precise interpretation of the time bar clause, it is important to note how the Court exercised discretion under S.12 Arbitration Act 1996- with particular thought being given to whether parties acted expeditiously and in a commercially appropriate fashion- and specifically within 3 days. A party to a contract needs to react quickly if a claim is presented just before or just after a time bar something emphasised by the Court’s vigorous approach in P v Q.

Dera Commercial Estate v Derya Inc – The ‘SUR’ [2018] EWHC 1673 (Comm)

This decision, handed down one month after P v Q , adds a layer of complexity to time bar questions, at least until the case goes further to the Court of Appeal.

The timeline: 

  • 27 July 2011- The loading of 18,000 Mts of Indian maize was completed. Bills of Lading were issued, which incorporated the Hague Rules and provided for disputes to be determined by English law and London arbitration.
  • 16 August 2011- The Vessel arrived in Aqaba for discharge.
  • 8 September 2011 - In a letter of this date, the Jordanian customs authorities refused to permit discharge on account of alleged ‘broken percentage, foreign matters, impurities, damaged kernels… and apparent fungus’
  • 12 September 2011– Dera issued proceedings against Derya (Owners) in Jordan for USD 8million for cargo damage.
  • 16 September 2011- The Owners’ P&I Club put up a USD 9million Letter of Undertaking in connection to this and all disputes and differences arising under the Bills of Lading.
  • During October 2011- the parties appointed LMAA arbitrators in relation to ‘all disputes.’
  • 8 November 2011- the vessel departed from Aqaba for Turkey without permission from Dera or the Jordanian authorities. The cargo was discharged in Turkey following the issuance of proceedings and was consequently sold, with the proceeds going to Owners. Then the vessel was scrapped.
  • 23 March 2015- The London arbitration remained dormant until the claim submissions were served, on the P&I Club’s instructions, exercising their subrogated rights. The claim was for a declaration of non-liability for the cargo claim and for the LOU to be released.
  • 1 June 2015- Dera responded and served particulars of the cargo claim relying on the Hague Rules’ obligations and the Bills of Lading.
  • 26 August 2015- Reply submissions were served by Owners.
  • 16 October 2015- Reply submissions were served by Dera.
  • March 2017- a hearing on the following preliminary issues took place and the tribunal determined that:
    • The cargo claim was not extinguished because of the Turkish proceedings, since Dera had not submitted to the jurisdiction of the Turkish court; but
    • The cargo claim would be struck out for want of prosecution under s41(3) Arbitration Act 1996.

Dera then raised a section 68 challenge, alleging serious irregularity on the part of the tribunal and seeking permission to appeal under s.69 of Arbitration Act 1996. Carr J heard the matter and handed down a detailed judgment. She held that Dera’s s.68 challenge failed but that they succeeded with the second of their legal challenges. In considering whether there had been inordinate delay, whilst the judge held that a contract and limitation period was a relevant consideration on the facts, a further voice arose - the question of whether the geographic deviation prevented the carrier from relying on the one year time bar created in Art III rule 6, when the contract evidenced by the Bill of Lading is subject to the Hague Rules.

On the first issue, Dera had to show serious irregularity under s.68(2) for a s.68 challenge. The court had to consider whether a fair minded observer, having considered the facts, would conclude that there was a real possibility that the Tribunal was biased (Porter v Magill [2002] 2 AC 357). The judge scrutinised the complaint and found that there was no real prospect of the Tribunal being found biased by a fair-minded but informed observer.

The second issue is more crucial. The Judge reluctantly held that she was bound by Hain Steamship Company Ltd v Tate & Lyle Ltd [1936] 41 Com Cas 350- such that where there was a geographical deviation from the voyage, the cargo interests, Dera, were entitled to retrospectively declare themselves no longer bound by the contract terms, including the one year time bar. Owners were given permission to appeal to the Court of Appeal on this point.

Conclusion

The English Courts continue to consider time bars in shipping contracts- but with one hand have provided certainty in P v Q and with the other have taken some away in Dera v Derya. Being aware of and observing time bars is vitally important and these two time bar cases have highlighted some additional areas to consider, whilst noting that Dera v Derya is still subject to appeal. We will report further when the result of the Appeal is known. 

Article by Lorna Watkin

Syndicate Executive

Eastern Syndicate