Lisnave Estaleiros Navais SA v Chemikalien Seetransport GmbH [2013] EWHC 388 (Comm)
The issue before the court was required was whether the tribunal appointed to determine the dispute had jurisdiction to do so. The question of jurisdiction was dealt with as a preliminary issue by the arbitrators, who reached a majority decision that they did have substantive jurisdiction. Here the applicants sought to challenge that decision on the basis that there was no arbitration agreement between the parties to the dispute.
The parties, a Portuguese shipyard, Lisnave, and the managers of a fleet of vessels, CST, entered into a Ship Repair Fleet Agreement, whereby Lisnave agreed to provide drydocking and repair facilities for CST’s managed fleet. The claim itself was in relation to the payment of rebates under the Fleet Agreement but the aspect of interest here was the argument heard as a preliminary issue, namely, the jurisdiction of the tribunal.
The structure of the contracts
Before looking at the points raised by each side, it is perhaps useful to set out the structure of the contracts between the parties.
CST were not a ship-owning company, rather they managed a fleet of vessels, under various ownership. As part of the management of the vessels, a number of individual ship repair contracts were concluded between the shipyard, Lisnave, and the relevant individual shipowning companies. These contracts incorporated Lisnave’s General Conditions of Contract for Dry Docking, Conversion, Maintenance and Repair of Vessels (the “General Conditions”).
The General Conditions contained an arbitration clause, providing that “all disputes arising in connection with the agreement shall be referred to arbitration in London […] in accordance with the laws of England / […] the Arbitration Act 1996.”
CST was not a party to these repair contracts. Rather, they entered a separate contract with Lisnave, namely, the Fleet Agreement, which was primarily concerned with the commercial terms on which repair services would be offered in the future. Lisnave’s General Conditions were not expressly incorporated into the Fleet Agreement.
The question for the court to decide was whether the Fleet Agreement incorporated the General Conditions, including the arbitration clause?
Inextricability of the contracts
CST’s position was that the Tribunal had been correct in finding that they did have substantive jurisdiction to hear the claim. Counsel for CST supported this by arguing that the individual ship repair contracts and the Fleet Agreement were so closely linked that they must be read together, and the contents of the Fleet Agreement must also be subject to the same method of dispute resolution, i.e. by arbitration.
It was argued that the General Conditions were germane to the Fleet Agreement; that there were terms in the Fleet Agreement which must, by their nature, refer to actions between the individual ship owners and the shipyard; likewise that there were terms within the General Conditions which could only apply to the services agreed as part of the Fleet Agreement, in relation to drydocking etc, thus encompassing the Fleet Agreement.
If this were not the case, Counsel for CST argued that the Fleet Agreement was not in any event a standalone agreement; without the individual repair contracts, the Fleet Agreement would not exist and, as such, the contracts were inextricably linked and would incorporate the General Conditions on this basis.
Interests of the parties
Along similar lines to the argument based on the “inextricability” of the contracts, CST argued that all the parties involved had an “identity of interest” such that CST, as managers of the fleet, and the individual ship owners, whose vessels were to be repaired by Lisnave, could be said to be subject to the same contractual terms. Notwithstanding the fact that the General Conditions were not referred to in the Fleet Agreement, it was not essential, CST argued, that the parties to the immediate contract must be exactly the same as the parties in the prior course of dealing. One could liken CST to the “head of a clan”, the clan being made up of the individual ship owning entities. Thus the individual ship owners and CST as the fleet managers had a common interest in the contracts such that they could be treated for all intents and purposes as one and the same party.
Previous course of dealing
A further, and very simple argument, was that around the time that the Fleet Agreement was agreed with Lisnave, CST had also finalised several ship repair contracts which stipulated that Lisnave always provided its services subject to the General Conditions.
In the event, these and several other arguments put forward by CST, (including a comparison of the situation with that of a Bill of lading which incorporated the terms of a separate, charterparty contract), were rejected by the court and the application made on behalf of Lisnave, that the Fleet Agreement did not incorporate the arbitration clause, was granted.
The decision of the Court
Mr Edelman QC, accepting the submissions made on behalf of Lisnave, stated that he could find no reason to imply the arbitration clause found in the General Conditions into the Fleet Agreement.
Counsel for Lisnave put forward several arguments in support of the position that the arbitration clause could not be implied into the Fleet Agreement including, inter alia, that the Fleet Agreement was a entire contract, which was workable without the need to imply further terms; that it was a completely different contract which did not form a part of the series of individual repair yard contracts between Lisnave and the ship owners; and that CST could not rely on a previous course of dealing to suggest that the General Conditions should now also be incorporated into the Fleet Agreement because they were not party to those previous contracts.
The Court made it clear, however, that the test to be applied was not the closeness or otherwise of the relationship (of the parties to the contract or of the contracts themselves) but the intention of the parties at the time of concluding the agreement and, importantly, not whether it would have been reasonable for the parties to have agreed a particular clause, the “officious bystander” test, but whether they must have intended to include it.
In considering this, one must also consider the requirements under English law, namely that in order to imply a term into a contract after it has been concluded, one must consider not the reasonableness of doing so, but the necessity of doing so. Essentially, the intent should have been a pre-existing one and not one that was formed later, when the parties, if asked whether it would have been reasonable to include such a term, might be inclined to agree that it would.
For the Court to decide that the parties must have intended to imply a clause because it was reasonable to do so, would be to lower the bar required under English law.
Edelman QC also took the opportunity to reiterate the fundamental principle that “a Court should accord priority to what the parties have expressly agreed and should not readily supplement what they have expressly agreed with terms which were not expressly agreed.”
Here the language of the Fleet Agreement was not consistent with any intention to incorporate the General Conditions. Furthermore, the Court decided that while it may have been in the contemplation of the parties that a dispute may arise, it was clear on the terms that any such dispute would have concerned primarily Lisnave and the individual ship owners in relation to the actual ship repair contracts, and the rights and obligations of the parties were dealt with adequately under those contracts.
In the circumstances the court held that it was impossible to imply an intention that the arbitration clause should have been incorporated into the Fleet Agreement and the application to set aside the Tribunal’s Award was granted.
Similar issues were discussed in another website article by Sarah McGuire - Interpretation of Contractual Terms – which discusses the case of BP Exploration Operating Company Limited v Dolphin Drilling Limited (“The Byford Dolphin”) [2009] EWHC 3119 (Comm)
