HIGH COURT CONSIDERS TWO S69 APPEALS ON QUESTION OF LAW WITH ONE APPEAL SUCCESSFUL

In the recent decision of Navision Shipping A/S v Precious Pearls Ltd and Conti Lines Shipping NV v Navision Shipping A/S [2021] EWHC 558 (Comm), the High Court (the “Court”) considered two appeals on points of law under s69 Arbitration Act 1996 (the “Act”) by Navision Shipping A/S (the “Navision Appeal”) and Conti Lines Shipping (the “Conti Lines Appeal”) in relation to two related arbitral awards following the detention of a vessel in Conakry, Guinea. Whilst the Court dismissed the Conti Lines Appeal, the Navision Appeal was notably successful on one of the points of law raised.

Background

Navision Shipping A/S (“Navision”) chartered (the “Head Charter”), the MV Mookda Noree (the “Vessel”) from Precious Pearls Ltd (“Precious Pearls”) and sub-chartered the Vessel (the ”Sub-Charter”) to Conti Lines Shipping NV (“Conti Lines”). Conti Lines further sub-sub-chartered the Vessel to Cerealis.

The Vessel, then chartered by Cerealis, arrived at Conakry in early December 2018. On 15 December 2018, the Vessel was arrested at the insistence of Societe Moulin d’Or Guinea (“SMG”) to secure a claim for short delivery that SMG asserted against Cerealis in respect of a delivery of cargo in June/July 2018 on a different vessel (“SMG’s Claim”). The cargo then carried by the MV Mookda Noree was for a different buyer. The Vessel remained on arrest until 12 January 2019.

The Head Charter and the Sub Charter were on amended Asbatime terms. One additional clause in both charterparties (“Clause 47”) provided that the vessel would be off hire when detained or arrested “unless [the] arrest [etc] [was] occasioned by any personal act or omission or default of the charterers or their agents”. The Head Charter also contained an additional clause (“Clause 86”) that provided, inter alia: “When trading to West African ports Charterers to accept responsibility for cargo claims from third parties in these countries (except those arising from unseaworthiness of vessel) including putting up security, if necessary, to prevent arrest/detention of the vessel or to release the vessel from arrest or detention and vessel to remain on hire” (emphasis added). The Sub-Charter did not contain Clause 86.

The arbitrations in relation to the disputes arising from these events were conducted together and in February 2020 the arbitrators made two awards that were accompanied by a single set of reasons.

The arbitrators found (i) that Clause 47 applied (it was common ground that Cerealis was a sub-charterer for the purposes of Clause 47) and that the Vessel was not off hire from 12:00 hrs on 17 December 2018. This was because the Vessel’s detention from that point was caused by Cerealis’ failure promptly to deal with or secure SMG’s claim in order to procure the Vessel’s release; and (ii) that in respect of the Head Charter, Clause 86 applied, meaning that under this clause the Vessel never went off hire. Navision accordingly was liable in damages to Precious Pearls for breach of Clause 86.

Conti Lines and Navision then appealed to the High Court under s69 of the Act on the following points of law:

The Conti Lines Appeal

In its appeal, Conti Lines argued that the tribunal had misconstrued Clause 47, arguing that “omission” by a sub-charterer occurs only when the sub-charterer fails to do something that it is obliged to do under its sub-charter (the “Clause 47 Construction Issue”).

The Navision Appeal

In its appeal, Navision argued that the arbitrators had misconstrued Clause 47 for the same reasons advanced by Conti Lines (the Clause 47 Construction Issue), but also additionally argued that the arbitrators had misconstrued Clause 86 in finding that SMG’s claim was a “cargo claim” for the purposes of Clause 86 (the “Clause 86 Construction Issue”).

Decision

The Court dismissed the Conti Appeal, finding that the arbitrators had not misconstrued Clause 47 (meaning the Navision Appeal also failed to the extent it was also founded on the Clause 47 Construction Issue). However, the Court upheld the Navision Appeal on the Clause 86 Construction Issue.
The Clause 47 Construction Issue

Conti Lines and Navision had argued that an “omission” by a sub charterer only occurred when the sub charterer failed to do something that it was obliged to do under its sub charter and that the arbitrators had been wrong to give “omission” a broader meaning so that it applied to Cerealis’ conduct regarding SMG’s Claim.

In response, Precious Pearl (and Navision in regards to the Conti Lines Appeal) argued that while not all inaction would amount to an “omission” for the purposes of Clause 47, a failure to act where “circumstances are such that it could reasonably be expected that a party in that position would or should appreciate that action is appropriate and/or that failing to act might give rise to adverse consequences” would amount to an omission for the purposes of Clause 47.

The Court considered that the language of Clause 47 – “act or omission or default of… sub charterers” was not confined to conduct in breach of a contractual obligation, and agreed with the arbitrators that inaction in circumstances where a sub-charterer would be expected to act can fairly be characterised as an omission. The Court further noted that it was “unsurprising” that the arbitrators found that Cerealis should have realised that it ought to have dealt with SMG’s Claim, although noted that this was a finding of fact and so it would not have been open to the Court to interfere with this finding even if it disagreed.

The Clause 86 Construction Issue 

In regards to Clause 86, in the s69 proceedings Navision argued that the arbitrators were wrong to find that clause 86 applied, as the “cargo claims” contemplated by Clause 86 were limited to claims “connected with cargo carried under the head charter or other contract of carriage entered into pursuant to the head charter”.

Navision contended that this was how the term “cargo claims” was used in Clause 43 of the Charter. As Clause 86 was “carved out” of Clause 43, departing from the default position under Clause 43 which provided that “cargo claims” were the responsibility of Precious Pearls and not Navision, Clause 86 also took this meaning of “cargo claims”. In their award, the arbitrators had “given weight” to the “natural language” of the provision and did “not believe the language of the generally applicable clause 43 assists in construing clause 86”.

Notwithstanding “the respect that is always due to the views of an experienced arbitral tribunal as the parties’ chosen primary tribunal”, the Court found that the arbitrators erred in their construction of clause 86, and agreed instead with Navision’s construction. The Court held that although the arbitrators correctly appreciated that Clause 86 was “carved-out” of Clause 43, it was “no more than the logical consequence of that linkage to say … that clause 86 … is concerned with the same universe of claims as is clause 43, viz. claims concerning cargoes carried or ordered to be carried pursuant to the charter, a ‘limitation’ (if that is how it is to be labelled) that is so obvious as not to need spelling out.” SMG’s Claim was not a “cargo claim” for the purpose of Clause 86 as “it did not concern Mookda Naree’s West African trading pursuant to that charter but a different ship altogether”, and therefore the Vessel was off hire “until the proviso bit from 12:00 hrs on 17 December 2018”, and it followed that the arbitrators had “wrongly held that Navision had a liability for damages to be assessed for breach of clause 86”.

Comment

The decision on these two s69 appeals, in which one was successful while the other failed, is a clear demonstration of the respect English courts accord to the findings of arbitral tribunals on issues of law, whilst demonstrating the willingness of the court to intervene in the case of error. The judgment also underlines that the supervisory court will not interfere with the tribunal’s findings of fact, and that the court will keep a close eye on any attempt to reopen those findings on appeal.

The specific points decided will be of interest to the maritime arbitration community. The judgment also serves as a useful reminder that the construction of contractual provisions are points of law that can be only be appealed under s69, as here, where the ability to appeal has not been excluded – for example, by the selection of institutional arbitration rules which exclude all non-mandatory rights of challenge.

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

The authors would like to thank Luke Hard for his assistance in preparing this blog post.