Sonact Group Ltd v Premuda SpA - The Four Island
Sonact Group Ltd v Premuda SpA (The “Four Island”)
English Commercial Court: Males J:  EWHC 3820 (Comm): 12 December 2018
Judgment Available on BAILII @ https://www.bailii.org/ew/cases/EWHC/Comm/2018/3820.html
Jeremy Brier for Sonact (Charterers)
Ruth Hosking for Premuda (Owners)
VOYAGE CHARTER: ASBATANKVOY FORM: DEMURRAGE & HEATING COSTS CLAIM: SETTLEMENT AGREED BY EMAIL WHICH DID NOT REFER TO ARBITRATION AGREEMENT IN CHARTER: WHETHER ARBITRATORS HAD JURISDICTION TO DETERMINE CLAIM FOR THE AGREED SETTLEMENT SUM: CHALLENGE PURSUANT TO SECTION 67 OF THE ARBITRATION ACT 1996
On a challenge to an award ordering Charterers to pay USD600,000 (an agreed sum settling claims under a voyage charter) together with interest and costs to Owners, the High Court held, in dismissing the challenge, that the parties obviously intended the arbitration clause in the charter to continue to apply in the event that the agreed sum settled by email correspondence was not paid.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor of England & Wales, LMAA Supporting Member and International Contributor to DMC’s Case Notes
Owners chartered "Four Island" to Charterers for a voyage with a cargo of fuel oil from Kavkaz to Novhodka. The charter included an arbitration clause providing for “any and all differences and disputes of whatsoever nature arising out of this charter” to be resolved in London with English law to apply. Owners claimed USD718,948.08 demurrage and USD190,200 heating costs. The claim was settled by exchange of emails. Charterers agreed to pay USD600,000, by an agreed date, covering all of Owners’ outstanding claims under the charter. However, Charterers did not pay by the agreed date. Owners then pursued their claim for the amount due under the settlement agreement in arbitration in accordance with the dispute resolution provisions of the charter.
The arbitrators appointed held that they had jurisdiction to determine the claim and ordered Charterers to pay Owners USD600,000 together with interest and costs. Charterers challenged the order, pursuant to section 67 of the Arbitration Act 1996, arguing that the arbitrators lacked jurisdiction to make an award.
The judge noted that Charterers’ argument was that Owners’ claim was a claim under the settlement agreement, not the charter. The settlement agreement did not contain an arbitration clause nor any words of incorporation to incorporate the charter arbitration clause into the settlement agreement, with the arbitrators having in fact been appointed to hear disputes under the charter. The arbitrators said Charterers, had been appointed to hear disputes under the charter, not under the settlement agreement.
The judge acknowledged that it is well established that a section 67 challenge involves a rehearing, not merely a review of the issue of jurisdiction, so that the court must decide the issue for itself.
Having, in these circumstances, considered the issue for himself, the judge found the arbitrators' reasoning entirely convincing. The parties agreed in their email exchange that the sum of USD600,000 should be paid in respect of Owners’ claim for demurrage and heating costs. While the email exchange could be described as a "settlement agreement", that was, said the judge, a somewhat grandiose expression for what was, in reality, no more than an informal and routine arrangement to finalise the sums due under the charter (despite Italian lawyers having become involved for Owners).
Accordingly, the judge agreed with the arbitrators that it was obvious that the parties intended that the arbitration clause in the charter would continue to apply in the event that the agreed sum was not paid. The wide wording of the arbitration clause was sufficient to encompass such a claim, albeit that the agreement to pay USD600,000 represented a new cause of action under a new and binding agreement.
The judge also agreed that it was inconceivable that the parties intended that, if the agreed sum was not paid, Owners would be unable to pursue their claim in arbitration (the parties' chosen neutral forum) and to obtain an award which would be readily enforceable under the New York Convention. Otherwise Owners would have instead to commence court proceedings, either in Charterers' home jurisdiction or by seeking permission to serve English proceedings out of the jurisdiction.
For the same reason, said the judge, while there was no choice of law clause in the "settlement agreement" either, it was obvious that the parties intended that the choice of English law contained in the charter would continue to apply.
It was true to say that the settlement agreement gave rise to a new legal relationship between the parties, replacing the relationship under the charter. But, in the judge’s view, there was no strict rule that once the parties entered into a new legal relationship (here a settlement agreement) an arbitration clause in the underlying contract necessarily could no longer apply. The judge further considered that the settlement of accounts and the resolution of outstanding claims from a voyage performed pursuant to a charter was clearly a matter which arises under the charter.
The judgment acknowledges the practical commercial reality of how charter disputes are often settled by email exchanged via the broking channel.
The judgment confirms the commonly understood position, which leaves little room for doubt when settlements are agreed by email in the future. However, where there is a separate self-contained settlement agreement and/or lawyers represent both parties, there is an arguable distinction.
Accordingly, parties should (preferably) refer to the contract and its dispute resolution provisions when agreeing to settlement terms.