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Court considers unclear dispute resolution clause in charterparty

Insights / / Dubai, London

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Armada Ship Management(s) Pte Ltd v. Schiste Oil and Gas Nigeria Ltd (Armada Tuah 101) [2021] EWHC 1094 (Comm)

In this case, the dispute resolution clause in the charterparty was unclear because of the manner in which amendments had been made to its standard terms. Upon the claimant making an application under s.32 Arbitration Act 1996 (“AA 1996”) for a declaration that a sole arbitrator had been validly appointed, the Court held that such applications are inappropriate where the respondent fails to participate in the arbitration. In such cases, s.72 AA 1996 preserves the non-participating party’s right to challenge jurisdiction.

The background facts

A dispute arose under an amended Supplytime 2005 charterparty (the “Charterparty”) regarding unpaid invoices allegedly due from Schiste Oil and Gas Nigeria, the Charterers of MV Armada Tuah 101 (the “Vessel”), to Armada Ship Management, the Owners of the Vessel.

Box 34 of Part I of the Charterparty provided for English law and arbitration in London. The amended standard clause 34 of Part II further provided:

34 BIMCO Dispute Resolution Centre
(a) This Charterparty shall be governed by and construed in accordance with English law and any dispute arising out of or in connection with this Charterparty shall be referred to arbitration in London in accordance with the Arbitration Act 1996 or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this Clause. The arbitration shall be conducted in accordance with the London Maritime Arbitration Association (LMAA) and UNICITRAL [sic] Terms current at the time when the arbitration proceedings are commences.
The reference shall be to three a single arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that it has done so within the 14 days specified. If the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement.
Nothing herein shall prevent the parties agreeing in writing to vary these provisions to provide for the appointment of a sole arbitrator.
[…]

In April 2020, the Owners attempted to refer the dispute to LMAA arbitration and invited the Charterers to agree to the appointment of a sole arbitrator. The Charterers did not respond substantively. The proposed sole arbitrator expressed concern that clause 34(a) was confused and left the scope of his appointment and jurisdiction unclear.

The Owners applied to the LMAA for the appointment of a sole arbitrator, given that the parties could not agree. Pursuant to para. 11 of the LMAA Terms 2017, the LMAA President duly appointed a sole arbitrator (who was different to the sole arbitrator initially proposed by the Owners).

Subsequently, the Owners obtained the arbitrator’s consent to apply to the Court under s.32 AA 1996 for a determination and declaration regarding the validity of the sole arbitrator’s appointment.

The Commercial Court decision

The Court found that the requirements of s.32 had been met in principle in this case, namely: “that the determination of the question is likely to produce substantial savings in costs”; “that the application was made without delay”; and “that there is a good reason why the matter should be decided by the court” (s.32(2)(b)(i)-(iii)).

However, the Court also held that the s.32 procedure was not appropriate in circumstances where s.72 was engaged. Where s.72 preserved a non-participating party’s right to challenge jurisdiction, an order under s.32 could result in a determination on the question of jurisdiction against the interests of a party who had the protection of s.72.

Position if s.72 AA 1996 did not apply

Nonetheless, in order to assist the tribunal, the Court gave a non-binding indication of what its decision would have been in relation to the construction of the dispute resolution clause had a s.32 application been appropriate.

The Court found that the amendments the parties had made to clause 34 evidenced their intention that disputes should be determined by a sole arbitrator. However, it was unclear how that arbitrator would be appointed given the reference to both LMAA Terms and UNCITRAL Rules. Article 8(1) of the UNCITRAL Arbitration Rules refers to a protocol for the appointment of a sole arbitrator by the “appointing authority” where the parties do not agree. Similarly, pursuant to para. 11 of the LMAA Terms 2017, the President of the LMAA may be called upon by either of the parties to appoint a sole arbitrator where the parties do not agree.

Therefore, reading these terms together, the Court considered that the President of the LMAA was the correct authority to appoint the arbitrator for the purposes of Article 8 of the UNCITRAL Rules. Furthermore, the current sole arbitrator had been appointed by the President of the LMAA in compliance with the UNCITRAL Rules, notwithstanding that he made the appointment on the basis of para. 11 of the LMAA Terms.

Comment

This decision makes abundantly clear that any amendments to standard form clauses should be made carefully, in order to ensure that the clauses remain coherent. Whilst s.32 applications are rare, this judgment also clarifies that such applications ought not to be made in circumstances where s.72 applies.

Eric Eyo

Eric Eyo Partner

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