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Four Island: a tale of two agreements and one arbitration clause

04.04.2019 Maritime

Antonia Jackson

Antonia Jackson Partner

Lida Logotheti

Lida Logotheti Associate

Sonact Group Ltd v. Premuda SpA (Four Island) [2019] EWHC 3820 (Comm)

The Court had to consider whether a charterparty arbitration clause also applied to a settlement agreement subsequently entered into by the parties. The issue arose as the settlement agreement did not contain an express dispute resolution clause, nor words incorporating the charterparty arbitration clause. Nonetheless, the Court held that the charterparty arbitration clause did apply to the dispute that had arisen under the settlement agreement.

The background facts

Sonact Group Limited (“Charterers”) chartered the vessel Four Island from her owners, Premuda Spa (“Owners”). The charterparty was subject to English law and, amongst other things, provided:

“Arbitration.

Any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration in the City of New York or in the City of London whichever place is specified in Part I of this charter pursuant to the laws relating to arbitration there in force, before a board of three persons…”

Part I of the charterparty specified London.

The Owners asserted a claim for demurrage and heating costs against the Charterers and, following an exchange of emails, the Charterers agreed to pay the Owners US$600,000 in settlement of all of the Owners’ outstanding claims under the charterparty. However, the Charterers did not make payment and the Owners commenced an arbitration pursuant to the charterparty arbitration clause. The Owners’ notice of arbitration referred to “a number of claims against charterers, including a demurrage claim, a claim for heating costs, a claim for a penalty, a claim for interest and costs, plus various other matters”.

The Charterers did not appoint an arbitrator and a second arbitrator was appointed in accordance with the charterparty arbitration clause (not quoted) and the Tribunal was completed, in due course, by the appointment of a third arbitrator.

The Tribunal’s decision

The Owners claimed the sum of US$600,000 i.e. the amount agreed in settlement of all their outstanding claims under the charterparty. The Charterers alleged that the Tribunal did not have jurisdiction to determine the Owners’ claim. Among other things, the Charterers contended that, as the settlement agreement did not provide for London arbitration, the Tribunal’s appointment could not extend to the Owners’ claim for the agreed settlement sum.

The Tribunal found in favour of the Owners. The Tribunal concluded that “given the nature of the settlement negotiations and the manner in which they had been carried out”, it was “the objective but unexpressed intention of the parties that the [settlement] agreement should be governed by the same provision for dispute resolution as the original charterparty under which the claims arose”. The Tribunal reached this conclusion as:

  1. In circumstances where the negotiation and agreement of demurrage claims under voyage charterparties/final hire statements under time charters was part and parcel of operating and chartering ships, the industry would be astonished if the dispute resolution provision in the governing charterparty did not apply;
  2. On the Charterers’ argument, a party would have to take their chances and attempt to establish the jurisdiction of the courts in a country that might or might not be appropriate to the claim in issue. In the Tribunal’s view, this would be an extraordinary result; and
  3. In the absence of a separate standalone agreement, agreement as to a different dispute resolution clause would have to be expressly agreed and, unless expressly raised in the exchanges, could not be inferred. 

As the Charterers had not advanced a defence on the merits, the Tribunal then went on to award the Owners the sum claimed.

The Commercial Court decision

The Charterers appealed, alleging that the Tribunal did not have substantive jurisdiction to determine the Owners’ claim. The Court, however, dismissed the Charterers’ challenge. The Court’s reasoning was as follows:

  1. Although described as a “settlement agreement”, in reality, the exchange of emails was no more than an informal and routine arrangement to finalise sums due under the charterparty. On this basis, the Court agreed with the Tribunal that it was obvious that the parties intended the charterparty arbitration clause to apply in the event that the Charterers did not pay the agreed amount to the Owners;
  2. Whilst the Charterers’ agreement to pay the Owners the sum of US$600,000 was a new cause of action under a new and binding agreement, the wording of the charterparty arbitration clause was wide enough to encompass the Owners’ claim for the agreed sum;
  3. In the Court’s opinion, it was inconceivable that the parties intended that, in the event of non-payment by the Charterers, the Owners would be unable to pursue a claim in arbitration and would instead have to commence court proceedings; and
  4. While the notice of arbitration did not expressly refer to the Owners’ claim for the agreed sum, it was effective to refer the claim for the agreed sum to arbitration. In particular, commercial parties could properly regard the agreed sum of US$600,000 as a claim for demurrage and heating costs.

Comment

This judgment is a useful reminder of the potential dangers, and additional costs, which can arise in the absence of an express jurisdiction clause in a settlement, or, indeed, any agreement. While in this case the Court decided that the charterparty arbitration clause applied to the Owners’ claim under the settlement agreement, this will not always be the case, as each matter will turn on its own facts.

Accordingly, to avoid disputes, parties should look to include express wording that sets out how disputes are to be determined in their settlement (and other) agreements.

Article authors:

Antonia Jackson Lida Logotheti