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Beware the pitfalls of inconsistent dispute resolution clauses

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Transgrain Shipping BV v. Deiulemar Shipping SpA & Another (Eleni P) [2014] EWHC 4202 (Comm)

Parties should be very careful to ensure that no competing dispute resolution clauses are contained in the same contract. In this case, two competing arbitration clauses meant that it was unclear whether a time bar provision applied to a claim under the charterparty. The parties had to go to court to establish which arbitration clause applied.

The background facts

Head Owners time chartered the vessel to Disponent Owners, who chartered the vessel to Charterers who sub-let the vessel to sub-Charterers. The various charterparties were on back-to-back terms, save for the period and rate of hire. 

Each charterparty provided for arbitration in London, but there were two sets of arbitration terms incorporated into each contract that were inconsistent with each other. One set of terms (“clause 75”) contained a specific time bar in which claims had to be made within 13 months of the vessel redelivery. The other set of terms, the BIMCO arbitration clause, did not contain any specific time bar.

In the circumstances, if clause 75, which contained the 13 month time bar, did not apply, the Charterers would have been unable to rely on that time bar in order to defeat a US$ 5.56 million claim that Head Owners had sought to introduce into the arbitration after 13 months of the vessel’s redelivery, following the bankruptcy of the Disponent Owners.

In arbitration proceedings, the Tribunal made a decision that called into question whether the applicable arbitration regime was clause 75 or the BIMCO arbitration clause. An application was made to the Commercial Court to set aside the Tribunal’s decision.

The Commercial Court decision

Since the parties could not have intended both clauses to apply, the Court had to decide which clause applied. The Court concluded that the BIMCO arbitration clause applied. 

The Court relied on the following reasons:

  1. The Court was not persuaded that clause 75 had been specifically negotiated between the parties, such that it should take precedence over the BIMCO arbitration clause. Whilst clause 75 was specifically referenced throughout each charter, about 70 other clauses were also referenced. If the parties had deliberately chosen clause 75 over the BIMCO arbitration clause, the Court would have expected the parties to have deleted all references to the BIMCO arbitration clause throughout the charters. They did not do so.
  2. Both clauses allowed for arbitration under a specific set of rules – the LMAA arbitration rules. Those rules recommend the use of the exact BIMCO arbitration clause that had been included in the charters. The Court was therefore persuaded that the BIMCO arbitration clause is an “industry standard” clause and, given that the parties had contemplated that the arbitration would be conducted by members of the LMAA, they probably intended that the BIMCO arbitration clause was the applicable clause.
  3. The BIMCO arbitration clause is in two parts. The second part deals with mediation. Mediation is now a well-accepted alternative to litigation and arbitration. The Court stated that it expected commercial parties to value the benefits of a mediation and to include a clause that allowed for mediation.

The Court went on to say that the question as to whether the parties had agreed on the 13 month time limit for claims (even in circumstances where the BIMCO arbitration clause was applicable) was a matter for the Tribunal to rule on.

Comment

It is vitally important for parties to check that only one dispute resolution clause is incorporated into their contracts. If there is more than one – and they are inconsistent – costs are likely to be incurred in order to sort out which clause is applicable before the parties can turn to actually resolving the differences that exist between them.

Jamila Khan

Jamila Khan Partner

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