DHL Project and Chartering v Gemini Ocean Shipping - The Newcastle Express
DMC/Arbn/23/01
England
DHL Project & Chartering Ltd v Gemini Ocean Shipping Co Ltd (The “Newcastle Express”)
English Court of Appeal: Males, Birss and Snowden LJJ: [2022] EWCA Civ 1555: 24 November 2022
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWCA/Civ/2022/1555.html
Charles Holroyd (instructed by Reed Smith LLP) for DHL (Charterers)
Timothy Young KC (instructed by Holman Fenwick Willan LLP) for Gemini (Owners)
VOYAGE CHARTER: WHETHER VOYAGE CHARTER AND ARBITRATION AGREEMENT THEREIN CONCLUDED: WHETHER ARBITRATOR HAD SUBSTANTIVE JURISDICTION TO MAKE AWARD: WHETHER “SUBJECT SHIPPER/RECEIVERS APPROVAL” OF THE VESSEL PROVISION IN RECAP A CONDITION PRECEDENT AND SUBJECT TO “APPROVAL NOT TO BE UNREASONABLY WITHHELD” TERM IN INCORPORATED PROFORMA CHARTER: APPLICATION UNDER SECTIONS 67 OF ARBITRATION ACT 1996
Summary
The Court of Appeal dismissed Owners’ application, to uphold an arbitration award against a section 67 of the Arbitration Act 1996 challenge, because the arbitrator lacked substantive jurisdiction to make the award. The Court of Appeal agreed with the High Court that the “subject shipper/receivers approval” provision in the in-principle fixture was a pre-condition to a binding contract, and was not subject to the “approval not to be unreasonably withheld” term in the incorporated proforma charter. This necessarily meant that unless and until Charterers “lifted” the “subject”, which never happened, there was no binding contract for either the charter or the arbitration agreement clause therein.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Registered Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes
Background
Owners negotiated an in-principle charter of “Newcastle Express” to Charterers for a proposed voyage from Newcastle, Australia to Zhoushan, China, the fixture being “subject” to obtaining “shipper/receivers’ approval” of the vessel.
In the event, Charterers walked away from the in-principle fixture, whereafter Owners – pursuant to an alleged arbitration agreement contained in the purported charter – brought a claim for damages, based on an alleged repudiation of the fixture.
Charterers did not participate in the arbitration because the employee who negotiated the purported charter neglected to bring the alleged arbitration proceedings to the attention of Charterers’ management. In the event, Owners obtained an arbitration award in their favour for damages of USD283,416.21.
That award was set aside by the High Court on the basis that no binding contract, neither for the charter nor the arbitration agreement it contained, came into effect, with the result that the tribunal lacked substantive jurisdiction to make the award. Owners sought to challenge that decision before the Court of Appeal.
Judgment
The judgment – with which Birss and Snowden LLJ agreed – was given by Males LJ. Having addressed the issue on the appeal, the charter terms, the basis of deciding an appeal, the facts, the arbitrator’s award, the first instance judgment and the parties’ submissions, Males LJ proceeded to analyse the dispute.
In relation to “subjects” in charterparty negotiations, Males LJ endorsed the judgment in The “Leonidas” (fn.1) and concluded that the “subject” in the present case was also a pre-condition, the purpose of which was to prevent a binding contract coming into existence unless and until it was “lifted” by Charterers.
Although Owners did not seriously dispute that the above was the case, they relied on two further points. First, because of the separability principle (see below), the “subject” did not negative contractual intent so far as the arbitration clause in the recap was concerned. Second, the “subject” should be read together with clause 20 of the proforma attached to the recap, so as to provide that approval could not be unreasonably withheld. Males LJ proceeded to consider each point in turn.
On the separability principle, which means an arbitration clause is, or must be treated as, a contract separate from the main contract of which it forms part, Males LJ noted its application in English law was confirmed by Harbour v Kansa (fn.2) and given statutory recognition in section 7 of the Arbitration Act 1996 (fn.3). Based on his analysis, Males LJ concluded that the three Court of Appeal opinions and the one High Court judgment given in Harbour v Kansa provided no support for any argument that an arbitrator had jurisdiction to determine an issue of contract formation; the clear tenor was to the opposite effect.
The above position was confirmed by the background report that led to the Arbitration Act 1996, which confirmed section 7 went no further than that which Harbour v Kansa had already decided. The result was, in Males LJ’s view, that section 7 was concerned with issues of contract validity, not contract formation.
Further, an analysis of the two leading speeches in the primary case on which Owners relied, Fiona Trust v Privalov (fn.4), indicated, in Males LJ’s view, that there is a distinction between contract formation and contract validity. In the former, if no contract was ever agreed, this necessarily affected the arbitration clause contained within it, because it meant that the arbitration agreement was not agreed either. Males LJ further noted that this distinction had also been applied to the same effect in The “Pacific Champ” (fn.5) on facts very similar to those in the present case.
In applying the key principle of contract formation relevant for present purposes (fn.7), Males LJ held, subject to the clause 20 point, that the position in this case was clear. As such, no contract came into effect and this was not affected by the separability principle.
On reading the “subject” with clause 20 of the proforma, Males LJ agreed with the first instance judge that the position taken by the arbitrator, that the “subject” was qualified by “approval not to be unreasonably withheld” under clause 20, was untenable. In that regard, in Males LJ’s judgment, it was sufficient to say that Clause 20, which concerned the nomination of a vessel under the charter, had no application to this charter, which was for a named vessel. The result was that there was no question of seeking to read the two provisions together.
Accordingly, the appeal was dismissed. The Court of Appeal held that the first instance judge had been correct in concluding that the arbitrator had no substantive jurisdiction and that his award should be set aside pursuant to section 67 of the Arbitration Act 1996.
Comment
This judgment confirms that, in the ship-chartering context, the “lifting” of “subjects” is ordinarily considered to be a pre-condition to an in-principle fixture becoming legally binding, in line with The “Leonidas”.
The additional twist in this case, in line with The “Pacific Champ”, is that where an arbitration agreement is within the in-principle fixture itself, its effectiveness or validity may in turn also depend on the “lifting” of the “subjects”.
As Males LJ stated, “whether a binding arbitration agreement has been concluded is subject to ordinary principles of contract formation”, and so “there is no justification for treating the question whether such an agreement has been concluded as subject to special presumptions uniquely applicable in arbitration”.
In that regard, Males LJ highlighted the important distinction between the interpretation of arbitration clauses, to which the presumption of “one-stop shopping” (that all disputes related to a purported contract are to be resolved in one dispute resolution forum only) applies, and the question of whether the parties have formed a contract (including a contract to arbitrate) in the first place.
Footnote 1: [2020] EWHC 1986 (Comm)
Footnote 2: [1993] QB 701
Footnote 3: “Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement.”
Footnote 4: [2007] UKHL 40
Footnote 5: [2013] EWHC 470 (Comm)
Footnote 6: Being that (in the ordinary “subject to contract” case), even if the parties have reached agreement on all terms, they may intend the contract not to be binding until some further condition has been fulfilled (fn.7)
Footnote 7: RTS v Molkerei [2010] UKSC 14 approving Pagnan v Feed Products [1987] 2 Lloyd’s Rep. 601
