Many a heart-stopping moment has been had at desks around the globe on becoming aware of an imminent time bar. The recent High Court decision in P v Q [2018] EWHC 1399 (Comm) highlights not only the risks facing parties when they learn of claims immediately after a time bar, but also the limited relief available from the English courts in those circumstances.
Key Facts
The case concerned four parties in a chain of back-to-back voyage charters on the Norgrain 1973 form, anonymised to reflect the confidentiality of the underlying arbitrations and so identified as 'P', 'Q', 'R' and 'S'.
Clause 67 of each charterparty provided that any claims "must be notified in writing to the other party and claimant's arbitrator appointed within thirteen (13) months of the final discharge of the cargo and where this provision is not complied with, the claim shall be deemed to be waived and absolutely barred."
Discharge was completed on 16 October 2015. At 6:44pm on 16 November 2016, the final day of the 13 month period, China National Chartering Co Ltd, as disponent owner, gave notice to P, its charterer, of a third party claim brought against it.
P received this notification after its office had closed and so the first P knew about it was the following morning, 17 November, after the time bar had passed.
On 17 November, P gave notice of the claim to its charterer, Q, and requested details of whether other parties in the chain had received notifications of any claims. Crucially, however, P's operations department did not notify its legal department until 23 November and no arbitration against Q was commenced until 25 November.
On receipt of P's notice on 17 November, Q gave its own notice of claim and commenced arbitration against R by a notice sent to R's broker.
R became aware of Q's notice via the broker on 17 November but contested that its broker did not have authority to accept service of an arbitration notice. To protect its position Q eventually served a notice of arbitration directly on R on 30 November.
Although aware of Q's notice of claim since 18 November, R did not instruct lawyers until 28 November. On 29 November R appointed an arbitrator and on 1 December gave notice of the claim and commenced arbitration against S.
The notifications and commencements of arbitration between the parties were therefore all sent and received after the 13 month time bar had passed. P, Q and R, applied to the High Court for:
- Declarations that each claim had been notified in time, despite the wording of clause 67; and
- In the alternative, an extension of time for the commencement of arbitration in each charterparty under section 12 of the Arbitration Act 1996.
The Court's Decision
Construction of Clause 67
The first issue was whether clause 67 should be given its literal meaning such that all claims were time barred.
It was argued that there should be an implied limitation on the literal meaning of the clause in circumstances where claims could not be made within a specified time limit because a party was simply not aware of the claim before the time bar passed.
Sitting as a Deputy High Court Judge, Sir Richard Field QC, rejected this argument. He said the wording of clause 67 was clear and unambiguous and found no reason to depart from its natural and ordinary meaning.
Specifically, he found that it had been open to the parties when they concluded the charters to include additional wording to cater for the situation they now faced. Examples proposed by the charterers' counsel included stipulating a longer time limit, or inserting a provision similar to Art III rule 6 bis of The Hague-Visby Rules which effectively extends time bars for indemnity claims.
Reinforcing its decision, the Court said that "in opting for these commercial advantages by agreeing to Clause 67, the parties took the risk that it might not be possible within the 13 month time limit to pass on a claim validly received within the period".
Extensions of time pursuant to s.12 Arbitration Act 1996
Having found against all the parties on the first issue, the Court considered whether to grant extensions of time for the commencement of arbitration under section 12 of the Arbitration Act 1996.
Section 12(3) provides that an extension shall only be granted if the Court is satisfied:
- That the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time; or
- That the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.
In considering these requirements, Sir Richard Field QC approved and applied Hamblen J's observations in SOS Corporation Alimentaria SA & Anor v Inerco Trade SA [2010] EWHC 162 (Comm) on the construction of s.12. He said that the Court's starting point should be that the parties had contemplated that a claim should remain time barred if the circumstances faced by the barred party were "not unusual", "not unlikely" or "prone to" occur.
The Court accepted that P's receipt of the claim after the close of business on the last day of the time bar, such that any claim down the chain could only ever be brought out of time, did not amount to "not unusual" or "not unlikely" circumstances. Therefore, the Court had to consider the actions of each party and decide whether it would be just to extend time in each case, depending on whether that party had acted "expeditiously and in a commercially appropriate fashion":
- P first became aware of the claim on 17 November; however, its
legal department were not told about it until 23 November and a
notice of arbitration was not then given to Q until 25
November.
The Court found that P had not acted expeditiously and in a commercially appropriate fashion and no extension was therefore granted. P's claim was therefore time barred. - Q gave notice of the claim and commenced arbitration against R to R's agents on 17 November. Q therefore sought an extension until 30 November, the date on which its notice of arbitration was served directly on R. The Court said that "whatever the niceties of the argument as to [R's agent's] authority to receive the notice sent on 17 November 2016, that notice was received by R and read on 18 November 2016" such that Q was considered to have acted expeditiously. The extension to 30 November was therefore granted.
- R was first notified of the claim by Q on 17 November, through its agents. However, even though R said its agents could not validly accept service of a notice of arbitration, R did not instruct lawyers until 28 November and did not notify or start arbitration against S until 1 December. The Court considered that the delay after 17 November indicated R's failure to act expeditiously under section 12. Instead, the Court suggested that R should have served its notice of claim and commencement of arbitration on S by 22 November, i.e. within three business days of notification.
Comment
It is unlikely that anyone in the industry needs reminding of the importance of heeding contractual time bars. However, this case is an especially powerful example of how time bars can cause difficulties in a charterparty chain, and how parties will be held to a strict interpretation of a relevant time bar clause they have freely agreed.
Alongside the Court's literal construction of clause 67, it is equally important to note how its discretion was exercised under section 12 of the Arbitration Act. Although the claim started by China National Chartering Co Ltd stopped at P, given the Court's construction of clause 67 and refusal to extend time to commence arbitration against Q, the Court's approach to the circumstances faced by each party give a stark insight into what conduct will be considered "expeditious and commercially appropriate" when seeking relief from a contractual time bar.
Perhaps most interesting is the Court's indication that Q was taken to have acted expeditiously and appropriately despite R disputing its agents' authority to accept service; and that it thought R should have started arbitration against S no later than 22 November, just three working days after giving notice on 17 November.
Considering the Court's robust approach, and the potential impact of any time bar, we would recommend as quick a response as possible when presented with a claim hard up against, or just after, any time bar which may apply. The Court's reference to the delay in P's legal department becoming involved, highlights the importance of getting urgent legal advice in such situations.
As a final point, a fast response may be especially important should a party wish to rely on the cooperation of its Club or commercial insurer. Given the common requirement in many policies for an insured to protect rights of recovery against other parties, a delayed response when faced with an imminent time bar could also impact the provision of cover should relief not be granted.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
