ENGLISH HIGH COURT REFUSES TO GRANT EXTENSION OF TIME TO COMMENCE ARBITRATION PROCEEDINGS UNDER BOTH LIMBS OF S12 ARBITRATION ACT 1996

In the recent case of Fimbank PLC v KCH Shipping Co Ltd [2020] EWHC 1765 (Comm), the High Court (the “Court”) refused to grant an extension of time under either s12(3)(a) or s12(3)(b) Arbitration Act 1996 (the “Act”) for FIMbank PLC (“Fimbank”) to pursue a claim in arbitration against KCH Shipping Co Ltd (“KCH”).

Background

Fimbank’s application for an extension of time under s12 of the Act was made in the context of a complex factual and contractual background, in which Fimbank sought to bring a claim for damages against the carrier of cargo discharged without production of the relevant bills of lading (the “Bills”). The Bills incorporated the Hague Rules, which imposed a one year time bar on claims arising under the Bills, requiring claims to be made in April 2019, one year from the date of delivery of the cargo.

Section 12 of the Act allows a court to make an order to extend any agreed time to commence arbitral proceedings. Section 12(3) states that:

"The court shall make an order [to extend time] only if satisfied-

• that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed to the provision in question, and that it would be just to extend time, or
• that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question."

Fimbank’s Maltese Counsel (“Fimbank’s Counsel”) had mistakenly identified the registered owners (“MW”) of the vessel (“The Giant Ace”) as the carrier (the “Original Mistake”). In fact, KCH was the carrier and the proper recipient of Fimbank’s claim for mis-delivery.

Proceeding on the basis of the Original Mistake, Fimbank’s Counsel sent a letter before claim to MW indicating Fimbank’s intention to pursue MW for mis-delivery of the cargo. The letter was forwarded to the legal representatives of other parties in the contractual chain (the “Charter Chain”), including counsel for Classic Maritime Inc. (“Classic”), which had time-chartered the vessel from KCH (“Classic’s Counsel”).

The mistaken identification of MW as the carrier appeared to Fimbank’s Counsel to be confirmed through correspondence with Classic’s Counsel and the other parties in the Charter Chain.

In the course of corresponding with the other parties in the Charter Chain over Fimbank’s request for an extension of time to bring its claim against MW, Classic’s Counsel became aware that KCH was in fact the carrier. Once approval for an extension of time to July 2019 had been agreed by MW, KHC, and the other members of the Charter Chain, Classic’s Counsel informed Fimbank’s Counsel that: “the owners of the m/v GIANT ACE hereby grant FIMbank plc a time extension … for the commencing of proceedings in respect of claims arising under … the bills of lading” (the “Extension Letter”). Fimbank’s Counsel interpreted this as MW having granted an extension.

Fimbank’s Counsel only realised their error in the Original Mistake in May 2019, following an exchange with KCH’s lawyers. At this point, in light of its interpretation of the Extension Letter, Fimbank’s Counsel came under a further misapprehension that any claim against KCH would be time barred owing to the limitation period contained in the Bills having expired (the “Further Error”). Instead of taking steps to clarify which party granted the extension or commencing arbitration against KCH, Fimbank’s Counsel decided to continue the claim against MW on the basis that it was not their “responsibility to alert any party to possible defences to [Fimbank’s] claim”, with Fimbank commencing arbitration against MW in June 2019. On 9 July 2019, MW informed Fimbank that it had directed its claim to the wrong party.

On 5 November 2019, Fimbank applied to the Court for an extension of time to commence arbitral proceedings against KCH on the basis that either (i) the circumstances were outside of the reasonable contemplation of the parties when agreeing to the contractual time bar and it would be unjust not to extend the time (s12(3)(a)), or (ii) that KCH’s conduct was such that it would cause injustice to Fimbank for KCH to be able to rely on the time bar (s12(3)(b)).

Decision

The Court rejected Fimbank’s application, refusing to grant an order extending time on the basis of either s12(3)(a) or s12(3)(b), observing (citing earlier authorities) that satisfying the requirements of s12 is “extremely difficult”, with extensions only being granted in circumstances “entirely out of the ordinary”.

Circumstances outside the reasonable contemplation of the parties?

The Court emphasised that in order to satisfy s12(3)(a), the circumstances in question must be both (i) outside the reasonable expectations of the parties at the time they agreed to the contractual time bar, and (ii) such that if the parties had contemplated them they would have also contemplated that the time bar might not apply. Fimbank argued that the parties could not have reasonably foreseen that the other parties in the Charter Chain would contribute to misleading Fimbank’s Counsel into wrongly believing that a party other than KCH was the carrier.

The Court held that a negligent omission to comply with a time bar cannot ordinarily be said to be outside the reasonable contemplation of the parties. The Court observed that it was not unjust for a party to bear the consequence of its (or its agent’s) negligence. Equally, the Court considered that even where there is “something more” than negligence or mistake, the requirements of s12(3)(a) will not always be satisfied.

The Court considered on the facts that the circumstances in question would have been in the reasonable contemplation of the parties, and that the parties would also have contemplated that the time bar applied to these circumstances. The Court considered that the circumstances in the case were in fact no more than Fimbank’s Counsel’s Original Mistake “compounded (but not caused) by correspondence with other parties innocently reinforcing that mistake, compounded by a yet further error”. As such, Fimbank had failed to satisfy the requirements of s12(3)(a).

Unjust to hold Fimbank to the time bar?   

The Court observed that s12(3)(b) required some positive conduct on the part of KCH that would make KCH’s reliance on the time bar unjust. In terms of causation, the Court considered that KCH’s conduct need not be the sole or predominant cause of Fimbank’s failure to meet the deadline, but that there must be “some causative nexus” between the conduct attributable to KCH and Fimbank’s non-compliance with the time bar.

As Classic’s Counsel was not acting for KCH, but rather his own client who had chartered The Giant Act from KCH, the Court considered that the only action that could properly be attributed to KCH was the communication of KCH’s consent to the extension of time to Fimbank’s Counsel.

The Court held that the letter sent by Classic’s Counsel was misleading (KCH was “owner” from the perspective of KCH, but was not the “owner” as this term was used in Fimbank’s Counsel’s correspondence), and that it would have made Fimbank’s Counsel realise their misapprehension sooner if the letter was drafted differently. However, the letter could only be said to have caused Fimbank’s Counsel to be unclear as to who granted the extension. Although this was a sufficient causative nexus, when balanced against Fimbank’s Counsel’s own “considerable portion of the causative burden”, it was not unjust for KCH to insist on Fimbank’s compliance with the time bar.  KCH’s “contribution to the muddle” was “unfortunate” but not “a deliberate misrepresentation”.

The Court’s discretion

Although the Court had decided that neither s12(3)(a) or s12(3)(b) were satisfied, the Court also  observed that even in circumstances that did satisfy the jurisdictional requirements of s12, the Court nonetheless has discretion as to whether to grant an extension of time. The Court considered that it would probably not have exercised this discretion to grant an extension in cases like this one, where there was a long period of time between the expiry of the time bar / any agreed extension and the application to the Court for an extension under s12 of the Act.

Comment

This decision of the High Court serves as a reminder of the high hurdles an applicant must surmount to obtain an extension of time to bring their claim in arbitration when they have failed to comply with a contractually agreed time bar. The English Courts remain reluctant to undermine the commercial bargain struck by the parties when agreeing to a time bar, requiring extraordinary circumstances or heavy fault on the part of the respondent to justify intervention.

The case further underlines the importance of ensuring that all relevant parties have agreed to any extension of time to bring an arbitration claim, particularly in circumstances where the contractual matrix is in any way unclear. Where an application under s12 is required it is important to bring it promptly and this judgment demonstrates the potential consequences for failing to do so.

For more information, please contact Nicholas Peacock, Partner, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.