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Business common sense applied to construing arbitration clause in contract of affreightment

23.03.2018 Maritime

Flota Petrolera Ecuatoriana v. Petroleos de Venezuala S.A. [2017] EWHC 3630 (Comm)

This judgment is important for two reasons. Legally speaking, it looks at the English Court’s approach to deciding the law of a contract where the parties have not specifically expressed their choice. Procedurally speaking, it focuses on circumstances in which the English Court may allow service of a claim form, which would otherwise have to be served in a different jurisdiction, on a party’s appointed English solicitors.

The background facts

This was an application by the Defendant, a Venezuelan company, to set aside a court order, granting the Claimant permission to serve an arbitration claim form on the Defendant’s appointed English solicitors instead of on the Defendant itself in Venezuela. The order had been granted on the basis that the dispute was subject to English law and jurisdiction.

The dispute arose out of a contract of affreightment (COA) between owners and charterers for the carriage of oil product cargoes. The COA provided for separate voyage charters to be drawn up each time the Charterers accepted a vessel nomination from the Owners. The terms of those separate voyage charters could not contradict the main terms of the COA.

The COA also indicated that those voyage charters should be made on the ASBATANKVOY standard form, which requires a choice to be made between arbitration in New York or in London (pursuant to the laws of that chosen jurisdiction). Finally, the COA provided “GA/ARB: LONDON/ENGLISH LAW to apply.”

The first issue was whether disputes under the COA were subject to English law and arbitration in London, or whether those words, when read in their full context, indicated the choice to be made for London arbitration in the underlying voyage charters on the ASBATANKVOY standard form, such that there was no choice of law or jurisdiction under the COA.

The Commercial Court decision

The Court found that the parties intended the COA to include an agreement to submit all disputes to arbitration in London subject to English law. As a matter of business common sense, the Court found it impossible to conceive that reasonable commercial parties would have intended the terms of the COA to be subject to a different system of law from the same terms when they appeared in the underlying voyage charters. Considerations of consistency between the COA and voyage charters were key. A potential discrepancy requiring three arbitrators under the voyage charters (pursuant to the ASBATANKVOY standard form) and one arbitrator under the COA (which is the standard position under the Arbitration Act 1996 absent the parties’ agreement to the contrary) was less of an inconsistency than requiring disputes to be governed by Venezuelan law under the COA and English law under the voyage charters.

The second issue was whether the order allowing the Claimants’ arbitration notice to be served on the Defendants’ English solicitors instead of on the Defendants in Venezuela was correct. The Court found that it was. It was significant that the claim arose in the context of an English arbitration and the Defendants had already appointed English solicitors. In addition, arbitrations had already been commenced under several of the underlying voyage charters, for which the same English solicitors were acting for the Defendants. An additional persuasive factor was the potential delay involved in effecting service on the Defendants in Venezuela, which would protract the proceedings significantly and would be a pointless waste of time.


A key point to note is the English Court’s reliance on business common sense and consistency in interpreting a contractual provision, where the facts allow. In circumstances where parties have agreed that underlying or related contracts will be subject to English law and London arbitration, absent other considerations, the Court will take into account business common sense to decide on the law and jurisdiction of the main contract. In addition, where the parties have already appointed English solicitors to act for them in related matters, and there is a potential delay with service out of the jurisdiction, the Court may order service on a party’s already-appointed English solicitors. However, delay in serving a claim form outside of the jurisdiction would not be enough. Rather, it would be one of a number of factors that, together, could persuade the Court that service on already-appointed English solicitors should be allowed.