Lavender Shipmanagement v Ibrahima Sory Affretement Trading & Ors the MV Majesty
Lavender Shipmanagement Inc v Ibrahima Sory Affrètement Trading SA and Others (The “Majesty”)
English Commercial Court: Mr Justice Calver:  EWHC 3462 (Comm) – 16 December 2020
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2020/3462.html
Karen Maxwell (instructed by Jackson Parton) for the Claimant ("Owners")
Tom Nixon (instructed by Roose & Partners) for the Defendants ("Cargo Claimants")
LETTER OF UNDERTAKING: ARBITRATION AGREEMENT: APPLICATIONS UNDER S67 AND S69 OF THE ARBITRATION ACT 1996
In the context of an arbitration award issued under a Letter of Undertaking (LOU) issued by the Owners’ P&I Club relating to claims for cargo loss and damage under five separate bills of lading (BLs), the Judge held that:-
(i) while the five BLs each contained a separate arbitration clause which referred to the LMAA Small Claims Procedure (SCP), the parties had agreed by the terms of the LOU, to consolidate those arbitrations to have them heard in a single ad hoc arbitration;
(ii) although the Notice of Arbitration had been drafted to keep open all possibilities, one of the possibilities stated was the appointment of the cargo claimants' arbitrator under the LOU, so it was valid;
(iii) time extensions granted on the claim "as per the above Bills of Lading" ought to be properly and sensibly read as applying to disputes arising under BLs which had been agreed to be resolved in a consolidated arbitration under the LOU.
Case note contributed by Cindy Ko, LLB (Hons), Advocate & Solicitor of Singapore, International Contributor to DMC’s Case Notes
A cargo of bagged rice ("Cargo") was shipped from Yangon, Myanmar, to Conakry, Guinea, in October 2017. on board the M/V “Majesty”.
The Cargo was carried pursuant to a voyage charterparty on an amended Synacomex 90 form ("Charterparty"), and five BLs. The Charterparty and the BLs provided, amongst others, as follows:-
"All terms and conditions, liberties and exceptions of the Charter Party dated as overleaf, including the Law and arbitration clause are hereby incorporated."
Clause 38 – BIMCO standard law and arbitration Clause 2009 BIMCO Standard Law and Arbitration Clause 2009 to apply – English Law, London arbitration.
Clause 69 This contract shall be governed by and construed in accordance with English law and any dispute arising out of or in connection with this contract shall be referred to arbitration in London in accordance with the arbitration act 1996 or any statutory modification or re-enactment thereof …
The arbitration shall be conducted in accordance with the London maritime arbitrators association (LMAA) terms current at the time when the arbitration proceedings are commenced. The reference shall be to two arbitrators…
In cases where neither the claim nor any counterclaim exceeds the sum of USD$100,000 (or such other sum as the parties may agree) the arbitration shall be conducted in accordance with the LMAA small claims procedure current at the time when the arbitration proceedings are commenced."
On arrival, the Cargo was found to be short-landed, damaged and wet, with torn bags and a small quantity allegedly lost overboard on the voyage.
During discharge, a first LOU was issued by ETIC SAS on behalf of Owners’ P&I Club during discharge as security for cargo claims. This was replaced by a second LOU with a reduction in the secured amount.
The LOU provided as follows:-
"Vessel: M/V "MAJESTY" Port/date: Yangon/Conakry on 30/10/2017 Cargo : 25,000 MT of bagged rice Bills of Lading: [all 5 bills of lading are listed by number] Nature of Claim: Alleged loss, shortage and/or damage to cargo. …
IN CONSIDERATION OF the Owners of and other parties entitled to sue in respect of the above-mentioned claims concerning the cargo referred to above (hereinafter together referred to as the "cargo owners") refraining from taking action resulting in the arrest, or otherwise detaining, or re-arresting at any time hereafter, the [Vessel] … or obtaining security in respect of the above claim and of your refraining from commencing and/or prosecuting legal or arbitration proceedings in respect of the above claim (otherwise than before the Court or Tribunal referred to below) against the said vessel and/or against her shipowners Messrs Lavender Shipmanagement Inc, we, ETIC SAS, acting on behalf of The London P&I Club … hereby undertake to pay to you within 30 days of receipt by us of your first written demand such sums as may be agreed by way of amicable settlement or as payment be adjudged by a final and unappealable award or order of a properly constituted London Arbitration Tribunal, to be due to you in respect of the above cargo claim, provided that the total sum of our liability hereunder shall not in any circumstance exceed USD$280,000 … inclusive of interest and costs. …
2. We undertake that we will accept on behalf of the Shipowners service of notice of appointment of Arbitrator made on behalf of the Cargo Owners.
3. We confirm that the Shipowners agree that the above-mentioned claims shall be subject to English law and shall be brought in arbitration proceedings in London.
4. We warrant that we have received irrevocable authority from the Shipowners to give this letter of undertaking in these terms…
This Letter of Undertaking is not to be considered an admission of liability and is written entirely without prejudice to any rights, defences, immunities or limitations which the shipowners may have, none of which are regarded as waived."
The Cargo Claimants sought an extension of time around the end October for bringing proceedings in respect of the damaged cargo. ETIC, acting on behalf of the Owners, agreed to two time extensions to the Cargo Claimants (the first dated 23 October 2018 until 30 January 2019 and the second dated 14 January 2019 until 30 April 2019). The material terms of the first extension were that ETIC was:
"authorised by the Owners to agree an extension of time up to and including… 30 January 2019 in favour of [the first Defendant/first Claimant in the arbitration] and their subrogated underwriters for commencement of proceedings as per the above Bills of Lading in respect of the claim for alleged loss, shortage and/or damage to cargo in so far as they can be properly proceeded against…"
A second extension was granted on identical terms, save as to the date to which time was extended.
The Cargo Claimants commenced arbitration proceedings in London against the Owners. They appointed Mark Hamsher as their arbitrator. In their Notice of Arbitration, the Cargo Claimants stated:-
"Kindly note we have today appointed Mr Mark Hamsher as arbitrator on behalf of our clients, being the lawful holders of the above-captioned bills of lading and/or the owners of the cargo carried pursuant to [the BLs] together with their insurers [the Claimants are listed]
Mr Hamsher's appointment has been made in respect of claims arising in respect of shortage and/or non delivery [etc] pursuant to the contract of carriage contained in or evidenced by each of the above-captioned bills of lading and has been made pursuant to the terms of an ad hoc arbitration agreement contained in the letter of undertaking dated 5 April 2018 issued on behalf of The London Steam-Ship Owners' Mutual Insurance Association Limited (the "LOU").
Alternatively, Mr Hamsher's appointment has been made in respect of claims arising in respect of shortage [etc] to the cargo carried pursuant to the contract of carriage contained in or evidenced by [the Bills of Lading] and has been made pursuant to clause 38 of a charterparty dated 13 June 2017 the terms of which are expressly incorporated into the contract of carriage contained in or evidenced by [the Bills of Lading].
Mr Hamsher's appointment is in respect of all and any claims our clients have against you arising pursuant to the contract of carriage contained in or evidenced by [the Bills of Lading] [etc]
[Address and information]
To the extent that the LMAA Small Claims Procedure applies to our clients' claims, please confirm within 14 days that Mr Hamsher is agreed as sole arbitrator. This is without prejudice to our position that the Small Claims Procedure does not apply as there is no reference to it in the LOU.
For the avoidance of doubt, this notice is intended to commence arbitration proceedings in respect of disputes arising pursuant to the contracts of carriage contained in or evidenced by each of [the BLs]."
Owners appointed Jonathan Elvey as their arbitrator. When they found themselves unable to agree, the arbitrators appointed Christopher Moss as the third arbitrator. Prior to the appointment of Christopher Moss, the parties had expressly agreed that he should be a third arbitrator and not an umpire.
Owners challenged the jurisdiction of the Tribunal on the basis that the tribunal was not properly constituted – there should have been five separate tribunals, one for each BL.
The Tribunal found by a majority (Jonathan Elvey dissenting) that:-
a. Whilst the BLs each contained a separate arbitration clause referring in part to the LMAA SCP, by the terms of the LOU the parties had thereby agreed to consolidate those arbitrations and to have them heard in a single ad hoc arbitration.
b. The time extensions operated to grant the Cargo Claimants an extension in respect of commencing arbitration proceedings pursuant to the ad hoc arbitration agreement in the LOU.
The Owners applied to Court under s.67 and s.69 of the Arbitration Act 1996 for an order to set aside the Tribunal’s final award on jurisdiction. If the application to set aside failed, then the Owners appealed against the Tribunal’s ruling on the time bar issue on the basis that it was wrong.
Owners argued that:-
(i) There was no arbitration agreement providing for a three-man Tribunal or for a consolidated reference; the LOU contained no such arbitration agreement:-
a. There are special benefits afforded by the SCP and Owners would not have given them up without good reason.
b. The LOU could not be a freestanding agreement; it referred to a properly constituted London Arbitral Tribunal which was a reference to clause 69 of the Charterparty.
(ii) The Tribunal was not properly constituted.
(iii) The Notice of Arbitration was ineffective to submit the claims to arbitration in accordance with the arbitration agreement or agreements.
The Cargo Claimants argued that:-
(i) By the LOU, parties agreed to an ad hoc arbitration which consolidated all the claims under the five bills of lading and replaced the arbitration clauses incorporated therein.
(ii) Alternatively, the LOU consolidated the claims under the BLs but clause 69 of the CP would otherwise govern the new global dispute.
(iii) In the further alternative, the LOU consolidated the claims under an ad hoc London arbitration governed by the 1996 Act (sole arbitrator).
(iv) The LOU did not incorporate the Small Claims Procedure.
The Court dismissed the s.67 application on the validity of the arbitration agreement and on the notice of arbitration. The Court held that the LOU was an agreement to consolidate all of the claims in respect of the entire cargo.
In reaching its conclusion, the Court applied an objective construction to the LOU, based on meaning it would convey to a reasonable person, applying business common sense to it.
Although the LOU was informally drafted, it was necessary to give effect to the wider context to determine the objective meaning of the language used. The Court would prefer the construction which was consistent with business common sense
The opening words of LOU showed that it was intended to apply to anyone who was entitled to sue in respect of the loss of/shortage to/damage to the Cargo.
The LOU was stated to cover the “above claim” (singular) not exceeding USD 280,000, which suggested that the parties were referring to one combined claim in respect of the cargo claim.
LOU provided for Cargo Claimants not to commence or prosecute legal or arbitration proceedings in respect of “the above claim” (singular) “otherwise than before the Court or Tribunal referred to below” and Owners undertook to pay such sums as may be adjudged by a final and unappealable award or order (singular) “of a properly constituted London Arbitral Tribunal”.
Read in its contractual context, this was a reference back to the Tribunal in clause 69 of the Charterparty. This construction was also consistent with clause 3 of the LOU, as the Owners had already agreed by clause 69 that English law applied and that there should be arbitration in London; therefore, the LOU was merely "confirming" that the Owners agreed to this. This was, therefore, not so much an intention to create new rights as confirming the rights which already existed in clause 69.
Commercial common sense pointed to this construction, as issues with one shipment of 25,000 MT of bagged rice could be resolved once and for all, avoiding the inconvenience of having to commence five arbitrations and the risk of inconsistent awards. This was a sound commercial reason why Owners would give up an entitlement to utilize the Small Claims Procedure.
On the validity of the Notice of Arbitration, Court found that, although it was drafted to keep open all possibilities, the Cargo Claimants did appoint their arbitrator under the LOU (which was Cargo Claimants’ primary case), so the Notice was valid.
The Court also dismissed the application under s69 on the construction of the exchange of letters concerning an extension of time to commence arbitration.
The Court found that the agreement to extend time for proceedings “as per the above Bills of Lading” ought properly and sensibly to be read to apply to disputes arising under the BLs which had been agreed to be resolved in a consolidated arbitration under the LOU. The extension was granted by the Club which had issued the LOU for and on behalf of the Owners; as such, both the arbitration agreement and the extension of time were agreed by the same party.
The case demonstrates that the Court is prepared to take a commercial approach when construing terms of an LOU.
Careful drafting is required when preparing an LOU and consideration given as to how it would affect the underlying claims. In particular, consideration ought to be given as to whether one or multiple LOUs should be issued for cargo claims under various bills of lading in the same shipment.
At the initial stage and where parties are not sure of the intended position, it may be prudent to include clear language to clarify whether or not claims are consolidated by the LOU.
It is nevertheless open to parties to reach a subsequent agreement to consolidate claims after arbitration has been commenced, or for the claims to proceed concurrently before the same Tribunal.