DHL Project & Chartering v Gemini Ocean Shipping - The Newcastle Express
DHL Project & Chartering Ltd v Gemini Ocean Shipping Co Ltd (The “Newcastle Express”)
English Commercial Court: Jacobs J:  EWHC 181 (Comm): 31 January 2022
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2022/181.html
Charles Holroyd (instructed by Reed Smith LLP) for DHL (Charterers)
Timothy Young QC (instructed by Holman Fenwick Willan LLP) for Gemini (Owners)
VOYAGE CHARTER: WHETHER VOYAGE CHARTER CONCLUDED: WHETHER BINDING ARBITRATION AGREEMENT CONCLUDED: WHETHER ARBITRATOR HAD SUBSTANTIVE JURISDICTION TO MAKE AWARD: WHETHER “SUBJECT SHIPPER/RECEIVERS APPROVAL” OF THE VESSEL PROVISION IN RECAP WAS ITSELF SUBJECT TO “APPROVAL NOT TO BE UNREASONABLY WITHHELD” TERM IN INCORPORATED PROFORMA CHARTER: APPLICATIONS UNDER SECTIONS 67 AND 69 OF ARBITRATION ACT 1996
The High Court allowed Charterers’ application to set aside an arbitration award under section 67 of the Arbitration Act 1996 because the arbitrator lacked substantive jurisdiction to make the award. The High Court held that the “subject shipper/receivers approval” provision in the in-principle fixture was a pre-condition to a binding contract. This meant that unless and until Charterers lifted the subject, which never happened, there was no binding contract. The same conclusion followed in relation to the alleged arbitration agreement, which was contained in the same contract. Thus, no binding arbitration agreement had been concluded between the parties.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, Mediator, LMAA Supporting Member and International Contributor to DMC’s Case Notes
In late September 2020, (“Owners”) negotiated an in-principle voyage charter of the bulk carrier “Newcastle Express” to DHL (“Charterers”) for a proposed laden 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 pursued a claim for damages based on an alleged repudiation of the fixture, pursuant to an alleged arbitration agreement contained in the fixture.
Charterers did not participate in the arbitration because the employee who dealt with the negotiation of the fixture 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.
Having addressed the facts (above), the arbitrator’s award and the charter terms, the Judge considered the parties’ submissions and the legal principles concerning whether a legally binding contract had been concluded.
Section 67 Arbitration Act 1996: Challenge to Substantive Jurisdiction
In essentially agreeing with the reasons given by Charterers, the Judge considered that no contract or arbitration agreement came into binding effect.
Charterers’ position that the one “subject” clause could apply to both the fixture and to the arbitration clause contained within it was correct. Indeed, such a result was clear from the decision in The “Pacific Champ” (fn.1), where Eder J concluded that the questions, whether there was a binding fixture and/or binding arbitration agreement, “stand or fall together”. That notion had also been clearly expressed in Lord Hope’s judgment in Fiona Trust v Privalov (fn.2).
The question on the section 67 application, ultimately, was whether the “subject” provision in the recap had the effect for which Charterers contended. The starting point, in the Judge’s view, was to consider and determine the effect of the “subject” provision, which was contained in bold text at the start of the fixture recap. The Judge thought that the placement and prominence of the bold text of the “subject” reflected the provision’s importance. That provision qualified everything that followed, which naturally included the arbitration clause itself.
The Judge further noted that the contractual significance of a “subject” clause of this kind had been clearly explained by Foxton J in The “Leonidas” (fn.3). The Judge had no doubt that the relevant “subject” in the present case – namely “shipper/receivers approval” – fell into the category described by Foxton J, as well as by the two practitioner works he cited: Carver on Charterparties (1st Edition, para 2-031) and Wilford on Time Charters (4th Edition, para 1.11). The result was that a binding contract would only come into existence as and when Charterers communicated to Owners that the “subject” was “lifted”, being a well-recognised practice in the chartering market, which here never happened.
Given the above, the Judge concluded that the “subject” in the in-principle fixture was a pre-condition and was not itself qualified by the terms in the incorporated proforma charter. That meant that, as the “subject” had never been “lifted” by Charterers, neither the charterparty nor the arbitration agreement contained within it came into effect, with the result that Charterers were free to withdraw from the proposed contract. Accordingly, the arbitrator lacked substantive jurisdiction to make an award, which the Judge set aside under section 67 of the Arbitration Act 1996.
Section 69 Arbitration Act 1996: Appeal on Point of Law
Having succeeded on the section 67 application, the Judge did not need to consider permission to appeal under section 69 of the Arbitration Act 1996 based on an error of law in the award. However, having heard full argument, the Judge concluded that he would have granted permission to appeal and would have allowed that appeal and set aside the award on the grounds outlined below.
In the Judge’s view, the inter-relationship between the “subject approval” provision in the recap and the purported narrowing or restricting of that “subject” by the terms in an incorporated proforma charter – namely that such approval should not be “unreasonably withheld” – raised a question of general public importance, because such a situation commonly arose in charterparty negotiations. Further, the arbitrator’s conclusion was “open to serious doubt” with the meaning of section 69 of the 1996 Act (indeed, the Judge concluded that the arbitrator was wrong). The reason why Charterers had not participated in the arbitration, namely their employee’s misconduct, was unfortunate but it was no bar to making a section 69 appeal. Thus the Judge concluded that the award contained an error of law on the construction of the “subject” clause, which was a decisive factor in the award of substantial damages.
This judgment is another reminder 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 instance, in line with The “Pacific Champ”, is that where a dispute resolution agreement is within the in-principle fixture, its effectiveness/validity may also be dependent on the “lifting” of the “subject”.
Given the above, if parties wish there to be a separate and binding arbitration agreement, in the event a dispute arises as to whether or not a binding fixture has been concluded, clear and express terms to that effect are required.
Footnote 1:  EWHC 470 (Comm)
Footnote 2:  UKHL 40
Footnote 3:  EWHC 1986 (Comm)