M H Progress Lines v Orient Shipping - The Genius Star 1

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England

M.H. Progress Lines SA v Orient Shipping Rotterdam BV and other, The “Genius Star 1”

English Queen’s Court (Commercial Court): Teare J: [2011] EWHC 3083 (Comm), [2012] 1 Lloyd’s Rep 222: 28 November 2011

Nigel Jacobs QC, instructed by Clyde & Co LLP, for the Shipowner, M.H. Progress Lines SA

Nigel Cooper QC, instructed by Bentleys Stokes & Lowless, for the third Respondent sub-charterer, Nordana Project & Chartering

TIME CHARTERPARTY: SUB-CHARTER: CARGO CLAIM AGAINST SUB-CHARTERER: APPORTIONMENT OF CLAIMS AGAINST CHARTERER AND SHIPOWNER UNDER INTER-CLUB AGREEMENT 1996: DIFFERENT TIME BARS PROVIDED IN HEAD CHARTER AND INTER-CLUB AGREEMENT: APPLICABLE TIME BAR

Summary

After settling a cargo claim with a third party, the sub-charterer of a vessel made an apportionment claim against the charterer under the Inter-Club Agreement 1996 (“ICA 96”), which in turn claimed against the shipowner under ICA 96. It was agreed between the parties that the sub-charterer and the charterer did not commence their claims within 12 months after final discharge of cargo, contrary to Clause 39(2) of the head charter, but within 24 months after final discharge as provided for in Clause (6) of ICA 96. Teare J held that, on a proper interpretation of the head charter and ICA 96, as the 12-month time bar provided in Clause 39(2) of the head charter was contrary to Clause (6) of ICA 96, it was displaced and did not apply by reason of the overriding clause in Clause (2) of ICA 96. Thus, the apportionment claims were not time- barred.

This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.

Background

The Shipowner, M.H. Progress Lines SA, (“the Shipowner”) entered into a time charterparty dated 30 May 2005 with Orient Shipping Rotterdam BV (“the Charterer”) on an amended NYPE 1946 form. The charter was for a period of two years +/- one month in charterer’s option with a further optional third year.

The Charterer in turn entered into a sub-charter with the third Respondent, Nordana Project & Chartering (“the Sub-charterer”) for a single trip time charter duration 20/25 days dated 25 August 2006.

Clause 26 of the head charter provided that:

“… all cargo claims to be settled as per NYPE Interclub Agreement 1996 and any amendments thereto….

Clause 39 was an amended Centrocon arbitration clause. Clause 39(1) provided that all disputes arising out of the head charter shall be referred to arbitration before three arbitrators carrying on business in London. Clause 39 continued as follows:

“[2] Any claim must be made in writing and the claimant’s arbitrator appointed within 12 months of final discharge and where this provision is not complied with the claim shall be deemed to be waived absolutely barred…

The Interclub Agreement 1996 (“ICA 96”) contained the following provisions:

“(2) The terms of this Agreement shall apply notwithstanding anything to the contrary in any other provision of the charterparty; in particular the provisions of Clause (6) (time bar) shall apply notwithstanding any provision of the charterparty or rule of law to the contrary…

Time Bar

(6) Recovery under this Agreement by an Owner or Charterer shall be deemed to be waived and absolutely barred unless written notification of the cargo claim has been given to the other party to the charterparty within 24 months of the date of delivery of the cargo or the date the cargo should have been delivered…

Under the sub-charter, the Sub-charterer loaded a cargo of 108 pieces of wind turbine parts for carriage. The cargo was discharged at the destination on 19 September 2006. A third party brought a cargo claim against the Sub-charterer which was eventually settled on 21 February 2008 for US$425,000. The Sub-charterer then sought to recover the sum (together with related costs) from the Charterer either in the form of an indemnity pursuant to ICA 96 or by way of damages for breach of the sub-charter. The Charterer in turn sought to pass the claim “up the line” to the Shipowner under the head charter.

Although the Sub-charterer should have been aware of the cargo claim within the one year limitation prescribed by Clause 39 of the head charter, it was agreed between the parties that the Sub-charterer only notified the Charterer in writing on 22 January 2008 and did not commence proceedings against the Charterer within 12 months of final discharge of cargo. Neither did the Charterer initiate proceedings against the Shipowner within 12 months of final discharge.

The arbitrators held that Clause 39 of the head charter did not apply to a cargo claim which was to be settled and apportioned in accordance with ICA 96. Thus, the apportionment claims by the Sub-charterer and the Charterer were not time-barred.

The Shipowner appealed against the arbitral award pursuant to Section 69 of the Arbitration Act 1996. The issue before the Court was whether or not the one-year time limit in Clause 39 of the head charter applied to claims settled and apportioned in accordance with ICA 96.

The Shipowner argued, based on Wilford on Time Charters, 6th ed, paras.20.71 and 20.72, that there was no inconsistency between Clause 39(2) of the head charter and Clause (6) of ICA 96. Thus, the one-year time limit under Clause 39 was preserved and continued to apply. On the other hand, the Sub-charterer argued, based on Hazelwood and Semark on P&I Clubs Law and Practice, 4th ed, para.15.48 that Clause 39(2) did not apply as it was contrary to Clause (6), and the applicable time limit was two years.

Judgment

Teare J dismissed the Shipowner’s appeal.

A reasonable person having the background knowledge reasonably available to the parties would approach the question of the appropriate time bar by reading the head charter and ICA 96 as a whole and, in particular, take into account Clause (2) of ICA 96 which expressly dealt with the question of what would happen if there were a time bar in the charterparty contrary to the time bar in ICA 96. Clause (2) stated that the time bar provision in Clause (6) would apply, notwithstanding any provision of the charterparty or rule of law to the contrary.

Although there was no decided case on the true interpretation of ICA 96, the Court was of the view that Clause (2) stated expressly the overriding effect of the Inter-Club Agreement, namely that it cut across the liabilities and defences set out in other terms of the charterparty. This was so recognised by Kerr LJ in The Strathnewton [1983] 1 Lloyd’s Rep 219 at 225-226. Thus, the Court held in that case that, although the Hague Rules had been incorporated into the charterparty, the time bar provision in Article III Rule 6 “has no place in a settlement between owners and charterers under the Inter-Club Agreement.”

The Court rejected the Shipowner’s argument based on Wilford on Time Charters that Clause (6) was not a limitation period in the sense of the period within which arbitration or litigation must be commenced and there was accordingly no inconsistency with Clause 39(2). While it was true that Clause (6) only dealt with the time within which written notification of the claim had to be given, the effect of non-compliance with both provisions was the same, namely, that any claim would be waived and absolutely barred.

Seen in this light, there were two respects in which Clause 39(2) of the head charterparty was inconsistent with Clause (6) of ICA 96. Firstly, the requirement for constituting the time bar in each provision was different. Secondly, Clause 39 provided for a shorter time bar than Clause (6) of ICA 96. As recognised in Hazelwood and Semark on P&I Clubs Law and Practice, para.15.66, the time limit in Clause (6) of ICA 96 was set as it was so that if a third party made a cargo claim against the shipowner or charterer just before the expiry of the one-year time limit under the Hague Rules (or two-year under the Hamburg Rules), they would still have one year to give written notification of the claim for apportionment. If the time limit in Clause 39(2) were to apply, written notification may not have been possible. Thus, although Clause 39(2) was stated to cover “any claims”, it did not apply in the present case as it was contrary to Clause (6) of ICA 96.