English Maritime Cases

London Arbitration 4/23

by Haugen Consulting · Published August 23, 2023 · Updated January 4, 2024

A vessel was chartered for a time charter trip from India to Cotonou and Tema. The cargo was bagged rice, and the charter included the BIMCO Standard Dispute Resolution Clause. A sole arbitrator presided over the arbitration, which addressed the validity of an addendum agreement signed after the commencement of arbitration proceedings. The owners claimed a balance of hire due of US$3,233,062.79 and further asserted that charterers had an obligation to provide counter-security for specific cargo claims. The charterers countered with a claim for US$3,705,033, alleging that owners disregarded voyage instructions and discharged cargo that charterers had exercised a lien on.

Arbitrator’s Jurisdiction

Upon appointment, the owners’ arbitrator promptly notified charterers of the proceedings. As charterers failed to appoint their own arbitrator within 14 days, the owners’ arbitrator became the sole arbitrator at their request. The owners then asked the arbitrator to broaden his jurisdiction for new matters. Initially, charterers didn’t object or respond. Then, when an additional request to extend his authority was made five months later, charterers claimed a lack of awareness and requested arbitration notice copies. The arbitrator and owners’ representatives countered this, asserting that charterers were duly informed. Subsequently, charterers engaged in proceedings without contesting the arbitration’s commencement or jurisdiction.

Validity of the Addendum

At the heart of the arbitration was an addendum that emerged three weeks after the initial arbitrator’s appointment. The addendum aimed to resolve the disputes that had arisen under the charterparty. It outlined specific terms, including a lump sum settlement amount of $1,000,000 to be paid by the charterers to the owners. This amount was divided into two payments, with $500,000 due before discharging at Cotonou and the remaining $500,000 upon arrival at Tema. The relevant clauses of the addendum were as follows:

WHEREAS:

1. Pursuant to a charter party/fixture note … the Charterers chartered the vessel … for carriage of bagged rice … from India to Cotonou & Tema.

2. Disputes arose between the Owners and Charterers relating to inter alia off-hire periods, tendering of NoR at Cotonou and payment of hire.

3. Pursuant to negotiations/discussions, the Owners and Charterers have agreed to resolve disputes which have arisen under the CP on the terms and conditions recorded in this Addendum No. 1 …

NOW IT IS AGREED BY AND BETWEEN THE PARTIES THAT:

A. The recitals form part and parcel of this Addendum and shall have full force and effect.

B. The Charterers shall make payment of a lump sum amount of US$1,000,000 … [“Settlement Amount”] to Owners. The amount of USD500,000 to be paid before discharging at Cotonou … and a second amount of USD500,000 to be paid upon arrival at Tema …

C. Upon payment of the Settlement Amount in terms of this Addendum, Charterers shall not be required to make any further payments to owners under the CP for any reason whatsoever, save and except as specifically provided for in this Addendum.…

G. Owners confirm that upon receipt of payment from Charterers in terms of this Addendum, they will have no further claims against Charterers for any reason whatsoever under/related to the CP.

H. Save and except as modified by this Addendum, the CP shall continue to have full force and effect. In case of conflict between the CP and this Addendum this Addendum shall prevail.

I. Cargo claims to be dealt as per fixture i.e., any shortages for charterers/ receivers, any other claims as per ICA.

One key point of contention was the validity of the addendum. The owners argued that the addendum lacked consideration and was thus unenforceable. At the time, charterers owed $1,734,750 for hire and $38,500 for daily berth fees. Owners argued that an agreement to pay a lesser sum than had already accrued due, plus $15,000 per day going forward for those limited periods, did not benefit the owners or impose any detriment upon the charterers.

The charterers countered that the resolution of existing disputes, along with the relinquishment of claims, constituted valid consideration.

The owners said there was no express release by them of the charterers’ alleged claims, nor could it be implied. Supporting their argument were the decision in Royal Insurance Co Ltd v G&S Assured Investment Co Ltd [1972] 1 Lloyd’s Rep 267 at page 274, and the passage from Lord Esher in Ex Parte Dawes, Re Moon (1886) 17 QBD 275, which stated:

“If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred.”

Thus, the owners claimed the operative part of the addendum did not release the charterers from their claims.

The arbitrator ruled in favor of the charterers, stating that the addendum was valid and enforceable. The arbitrator emphasized that the intent of the addendum was to resolve disputes. Therefore, the disputes mentioned in the recitals were to be resolved through the obligations outlined in the operative part of the addendum.

However, subsequent events led to a shift in the proceedings. The owners saw the charterers’ failure to make a payment under the addendum, coupled with their response indicating that the question of payment did not arise, as a repudiation of the addendum.

The arbitrator concurred with the owners’ interpretation, concluding that the addendum had effectively fallen away. Consequently, the owners’ rights reverted to those provided for in the original charterparty, and the addendum’s provisions were no longer applicable.

Owners’ Balance of Hire Claim

The arbitrator upheld the owners’ claim for a balance of hire due. The charterers did not assert a counterclaim that could offset this claim.

The owners then argued that charterers violated the “Deductions from Hire” clause in the charterparty which read:

“Charterers do not have the right to withhold from Charter hire during the period of this Charter any disputed off hire/damages unless same explicitly agreed in Charter Party.”

The arbitrator ruled that since “the period of this Charter” was over, he did not need to decide this point.

Counter-Security for Cargo Claim

Additionally, the owners sought counter-security for cargo claims per the terms of the charterparty and the incorporated Inter-Club Agreement. The charterers attempted to rely on the addendum as a defense against providing counter-security. However, the arbitrator rejected this argument, ruling that the charterers were obligated to provide counter-security as outlined in the charterparty and the Inter-Club Agreement.

The charterparty provided:

“All cargo damage claims to be settled as per NYPE Interclub Agreement 2011 … or any further amendment/modification thereof.”

The Inter-Club Agreement provided:

“Security

(9) If a party to the charterparty provides security to a person making a Cargo Claim, that party shall be entitled upon demand to acceptable security for an equivalent amount in respect of that Cargo Claim from the other party to the charterparty, regardless of whether a right to apportionment between the parties to the charterparty has arisen under this Agreement provided that:

(a) written notification of the Cargo Claim has been given by the party demanding security to the other party … and

(b) the party demanding such security reciprocates by providing acceptable security for an equivalent amount to the other party to the charterparty in respect of the Cargo Claim if requested to do so.”

Counterclaim

The arbitration mentions a potential counterclaim by the charterers, which the arbitrator suspected would require further proceedings. [Editor’s note: This counterclaim is covered in London Arbitration 5/23, Lloyd’s Maritime Law Newsletter, (2023) 1134 LMLN 3.)]

Conclusion

The addendum, which aimed to settle disputes and outline payment terms, was deemed valid and enforceable despite earlier debates. However, when charterers failed to uphold the addendum and did not make the agreed payments, it was no longer applicable and the charterparty terms were restored. The owners’ claim for a balance of hire was upheld, and the charterers were ordered to provide counter-security for cargo claims.

Award

The owners succeeded in their claim for $3,233,062.79, plus interest and their arbitration costs. Charterers were also instructed to provide appropriate security for cargo claims, with the arbitrator reserving the authority to decide this if needed.