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The dangers of overlooking a bareboat charter in the charterparty chain

Insights / 13-07-2020

Fimbank PLC v. KCH Shipping Co Ltd (Giant Ace) [2020] EWHC 1765 (Comm)

This decision provides guidance on the circumstances in which the Court will grant a retrospective extension of time for commencing arbitration proceedings. It serves as a warning to shipping litigators to ensure that they have fully investigated the charterparty chain before taking steps to protect time, to be alert to the possibility of bareboat charters, and to take prompt action in the event that problems are identified.

The background facts

This case involved a chain of charterparties for the vessel “Giant Ace”, consisting of the registered owner, Mirae Wise SA (“Mirae”), the bareboat charterer, KCH, time charterer, Classic Maritime Inc (“Classic”), and voyage charterer, Trafigura Maritime Logistics Pte Ltd.

The claimant Bank was the lawful holder of the bills of lading, which incorporated the voyage charterparty and a London arbitration clause. The usual one-year time limit for bringing a claim under the Hague/Hague-Visby Rules applied.  As bareboat charterer, KCH was the carrier under the bills, rather than the registered owner, Mirae. 

The cargo was discharged in April 2018 without presentation of the original bills, against letters of indemnity. The Bank subsequently sought to claim damages for misdelivery. Its lawyers identified the registered owner as Mirae, but no enquiries were made about the possible existence of a bareboat charter. A letter before action was sent to Mirae and the vessel’s P&I club, which ultimately led to the claim reaching Classic and their lawyers.  Classic’s lawyers knew of KCH (who were the named owners in the charterparty with Classic) but did not know of the precise arrangement between Mirae and KCH. Extensive correspondence ensued between the lawyers of the Bank, Classic, KCH and Trafigura, none of which explicitly identified the existence of the bareboat charter.

In March 2019, the Bank sought an extension of time from the “owners” via Classic (by which they meant Mirae). Classic contacted KCH (who were Classic’s “owners”) seeking confirmation that they could agree the time extension on KCH’s behalf. That authority was duly granted.

Classic further sought agreement to the time extension down the charterparty chain and, in the process of doing so, discovered that KCH was the bareboat charterer. The time extension passed on to the Bank by Classic was described as being from “owners of the m/v GIANT ACE”.   

In correspondence in May 2019, it became clear to the Bank that there was a bareboat charter and that KCH was the carrier and correct defendant. The Bank believed, however, that the time extension had been granted by Mirae and that any claim against KCH would now be time-barred. The decision was taken not to “wake any sleeping dogs” in the hope that the point might not be taken.   

In June 2019, the Bank commenced arbitration against Mirae. In response, Mirae informed the Bank that the bills were not its bills and that it had commenced arbitration against the wrong party. KCH in turn asserted that the claim against them was now time-barred.

In November 2019, the Bank applied to the Court for a time extension for commencing arbitration proceedings under s.12 of the Arbitration Act 1996. The Bank relied on two provisions of s.12(3): (a) "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", and/or (b) "that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question".

The Commercial Court decision

After a thorough analysis of the facts and timeline, the Court held that the Bank should fail on both grounds. Its reasoning was as follows:

  1. S.12(3)(a) imposes a double requirement: (i) circumstances outside reasonable contemplation and (ii) injustice.  A simple negligent omission to comply with a time bar cannot without more be said to be outside the reasonable contemplation of the parties.  There must be something more than negligence (referred to as “negligence +”).  In this case, the Bank had known for nearly two months before the extended limitation period had expired that Mirae was not the correct defendant. Time as extended had expired because of the deliberate decision not to investigate by whom the extension had been given and not to commence arbitration against KCH.
     
  2. While the other parties may in correspondence have contributed to the Bank’s assumption that Mirae was the carrier, the Bank was not wilfully misled. 
     
  3. To rely on section 12(3)(b), a claimant must show some positive conduct on a respondent’s part that renders reliance on the time limit unjust. 
     
  4. The Bank sought to rely on the actions of Classic’s lawyers, arguing that they were attributable to KCH. However, apart from the communication of the time extension, Classic’s lawyers were not acting on KCH’s behalf and so their actions could not fall within s.12(3)(b). Further, although the wording of the time extension was ambiguous, in that it did not explicitly state who the “owners” were, a considerable portion of the causative burden lay with the Bank by not making the necessary enquiries in the first place and later choosing to ignore the position once it became clear that KCH were the correct defendant, at a point in time when the claim was not yet time-barred.

Given these findings, the Court did not need to consider whether it should refuse to exercise its discretion to grant the extension on the basis of delay. However, the Court observed that as there was no adequate explanation as to why the Bank had delayed in making the application, it would probably not have been minded to exercise its discretion in any event.

Comment

This case highlights the importance of knowing who the parties in a dispute are and not making assumptions, especially when it comes to commencing proceedings and seeking time extensions. A failure to make necessary enquiries does not amount to good grounds under s.12 of the Arbitration Act 1996. 

Further, if a potential problem with an arbitration time bar comes to light, prompt action should be taken to correct it if possible, and to apply to the Court for relief.  While each case will depend on its individual circumstances, a failure to act promptly will usually be fatal to any application under s.12.

Paul Crane

Paul Crane Partner

Jenny Efstathiou

Jenny Efstathiou Solicitor

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Maritime