“SEA MASTER” – bill of lading

The familiar principle that an arbitration clause is a separate agreement from that containing it came up again in the “SEA MASTER” [2018] EWHC 1902 (Comm), a decision that initially caused concern among trade financing banks.

Such banks commonly retain the B/L until payment, and whenever a new one (usually called a switch Bill) is needed, all is generally done under bank control, to safeguard that security. Here the first B/L was cancelled and the bank retained the switch Bill, as the original B/L was made out to its order, incorporating the CP and the arbitration clause.

Under UK COGSA 1992 the transfer of rights and liabilities under a B/L is often signposted according to who: is its lawful holder or has made a claim or sought delivery under it.

When charterers defaulted, owners sought demurrage from the bank, via the B/L contract. The bank said they were not party to the switch Bill, and though initially they were its lawful holder they had not claimed under it, so there was no basis for arbitration.

The English Commercial Court ruled that just being a lawful holder did not trigger any of the B/L obligations, but it nevertheless made the bank subject to the arbitration clause. That was so even though the bank no longer held the B/L. As the arbitration agreement was separate from the B/L contract, even a bank that had made no claim was, and remained, subject to its arbitration clause if it had once been the lawful holder.

Owners might now more readily invoke a B/L arbitration clause against a bank, but any claim would still have to be proven and will not necessarily succeed.

“SONGA WINDS” – letter of indemnity

The notion of a distinct agreement was also a core theme in the “SONGA WINDS” [2018] EWCA Civ 1901, where the Court of Appeal dismissed an attempt to time bar a claim under an LOI.

A voyage CP contained a common term for discharge against owners’ P&I Club LOI. Also, in respect of claims, it sought to limit the LOI validity period “ … [to] 3 months from date of issue …”, subject to prompt and perhaps repeated extension.

The LOI was issued in standard P&I terms, with no restriction on its validity. (Pausing here, some LOI wordings do carry inbuilt time limitation – see for instance clause 31.2 of BPVOY5.) Charterers argued however that the above CP time limit was a continuing collateral term which had to be read together with the LOI, as one complete contractual structure.

But the Court of Appeal rejected that, mainly because:

(a) the term that captured charterers’ liability under the LOI contained no time limit;

(b) the CP and LOI were separate agreements with discrete rights and obligations – the CP limitation could not be “carved out” and construed as part of the LOI, which stood alone; and

(c) while the above clause gave charterers a contractual right to insist that the LOI was confined as claimed, they had agreed it without any limitation, reservation or reference to the CP wording.

So, instead of relying on incorporation (or, indeed, transposition) of CP or other provisions, charterers should ensure that any LOI limitation is part of its express terms.

Lastly, two English decisions, just a fortnight apart, remind Claimants of the care that is needed in seeking to serve notice of arbitration by email.

Arbitration notices

In each case challenge came only after service of the Award. In the first, Sino Channel v Dana Shipping [2017] EWCA 1703, the Court of Appeal ruled that the arbitration had been validly commenced – on the unusual facts, the addressee of the notice had (not express, but) implied actual authority to receive it. However, in Glencore v Conqueror [2017] EWHC 2893, notice emailed to a relatively junior employee was invalid as there was neither actual nor ostensible authority.

Alongside review and specific application of these agency principles, discussion in both cases highlights the need to identify and serve someone with sufficient authority to receive notice of commencement of formal process. In summary:

  1. Service by email to a generic address, which is published as the Respondent’s only one, can be valid; however
  2. While, just as for a law firm or P&I Club, an employee or agent may have broad general authority, that does not on its own usually include accepting service of notice of arbitration; so
  3. Emailing an individual business address might not be valid – all depends on the person’s authority; therefore
  4. Simply emailing the person involved in the underlying transaction – even if the sole or main contact – or perhaps someone later involved in handling the dispute, might not (and in many cases will not) be good service.

Parties should consult section 76 of the Arbitration Act 1996 and locate effective authority, and not simply rely on operational contact without consideration.

If you would like to discuss anything arising from this commentary please contact Ed Floyd at ed.floyd@floydzad.com and +1 (917) 999 6914 or Luke Zadkovich at luke.zadkovich@floydzad.com and +1 (917) 868 1245 / +44 (20) 8068 6844.

This article is to be considered general commentary only and not to be relied upon as legal advice for any particular circumstances.

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