DHL Project & Chartering Ltd v. Gemini Ocean Shipping Co Ltd (The “Newcastle Express”) – Court of Appeal – (Males, Birss and Snowden LJJ) [2022] EWCA Civ 1555 – 24 November 2022

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Summary of Facts

DHL Project & Chartering and Gemini Ocean Shipping negotiated through a broker a proposed voyage charter for the carriage of 130,000 metric tons of coal from Newcastle, Australia, to Zhoushan, China. The vessel nominated for the voyage was the NEWCASTLE EXPRESS, a gearless bulk carrier built in 2002 that the Owner had recently purchased.  

The broker sent out the main terms of the agreement on August 25, 2020, which began with the following:

AS PER YOUR AUTHORITY/INSTRUCTIONS, IN LINE WITH NEGOTIATIONS/EXCHANGES, PLEASED TO CONFIRM HAVING – FIXED M’TERM AS FOLLOWS:

SUB SHIPPER/RECEIVERS APPROVAL WITHIN ONE WORKING DAY AFMT & RECEIPT OF ALL REQUIRED/CORRECTED CERTS/DOCS

RIGHTSHIP INSPECTION WILL BE CONDUCTED ON 3RD/SEPT. OWNERS WILL PROVIDE REQUIRED CERTS LATEST BEFORE VESSEL SELLING [sc. SAILING] (INT. 5/SEP). OWNERS WILL ENDEAVOR TO PROVIDE ALL REQUIRED CERTS/DOCS EARLIEST POSSIBLE.

In addition, Clause 2 of the agreement required that “prior to charterers lifting their subjects” Gemini would provide speed and bunker consumption figures and a detailed itinerary for the proposed voyage. 

Additionally, Clause 17 stated:

CONTRACT LAW AND ARBITRATION FORUM: GA/ARBITRATION TO BE IN LONDON, ENGLISH [sc. LAW] TO BE APPLIED, SMALL CLAIMS PROCEDURE TO APPLY FOR CLAIMS USD 50,000 OR LESS.

And Clause 20 read:

CHARTER PARTY: OTHERWISE AS PER ATTACHED CHARTERER’S PROFORMA C/P WITH LOGICAL ALTERATION.

Dated 2017, the attached proforma charterparty included a “Nomination” clause detailing the terms for nominating a vessel, which included a provision that acceptance “shall not be unreasonably withheld.”

The vessel was to be inspected by RightShip on September 3, 2020, before the Vessel sailed from Zhoushan, where it was discharging. However, approval by RightShip had yet to be obtained by that date.  That morning, Charterers advised, “Shippers is not accepting Newcastle Express due to RightShip not rectified, kindly consider this vessel free.”

Later that evening, DHL forwarded the broker a message from the shipper that “We prefer not to wait for the said rectification from Owners and please arrange for substitute vessel …” and added, “We hereby release the vessel due to RightShip and not holding her any longer. Really appreciate owners’ understanding and cooperation in this respect.” 

When these communications were sent, DHL had not “lifted” the “subject” of “shipper/receivers approval.” Charterers did not confirm to Owners that either the shipper or receiver had approved the vessel.  Owners asserted that a binding charterparty had been concluded, and thus the arbitration clause was binding.  Furthermore, by releasing the vessel this way, the Charterers were in breach of the charterparty.

The Arbitration

Gemini began the arbitration process, however, notice of the proceedings did not come to the attention of DHL senior representatives.  Hence, a sole arbitrator, nominated by Owners, conducted the proceedings without Charterers’ participation.  The decision was for Owners with an award to include damages, interest, and costs.

The First Ruling

DHL challenged the arbitration award on the grounds that the arbitrator did not have substantive jurisdiction under section 67 of the 1996 Arbitration Act.  The justice overturned the arbitration decision, agreeing with Charterers that the arbitrator did not have substantive jurisdiction, for there was no binding contract in effect until the “subject” was lifted.  Both parties were free to withdraw from the proposed contract until that time.

The Appeal

The Court began by examining three established charterparty documents:

  • The Leonidas [2020] EWHC 1986 (Comm), [2021] 2 Lloyd’s Rep 165
    • The Justices concluded that the “subject” in the claim was also a pre-condition, which by design prevented a binding contract from existing until and unless these “subject” were “lifted” by the Charterer.
  • Carver on Charterparties, 2nd Ed (2021), para 2-031, which stated:
    • The parties may agree the terms of a charterparty and one term may be a condition precedent that unless and until the condition precedent is satisfied, no binding contract comes into being. In charterparty negotiations, such conditions precedent are often referred to as ‘subjects’ and the satisfaction of those conditions precedents is referred to as the ‘lifting of the subjects.’ 
  • Time Charters, 7th Ed (2014), para 1.11, which read:
    • In practice, parties very often indicate that they do not yet intend to make a binding contract by saying that their agreement is ‘subject to’ conditions. To say an agreement is ‘on subjects’ means that it is not binding until the ‘subjects’ in question have been ‘lifted’. Generally, only when all subjects are lifted does an agreement become a binding contract. At that point the ship is ‘fully fixed.’

The justices also referenced The Pacific Champ [2013] EWHC 470 (Comm), [2013] 2 Lloyd’s Rep 320, which supported the position that the fixture and arbitration agreements became effective together; thus, arbitration could not be sought unless and until the subjects were fully lifted. 

Decision

The appeal was dismissed, with the Court holding that the first justice was correct that the arbitrator had no substantive jurisdiction and that, per section 67 of the Arbitration Act of 1996, the arbitration award should be put aside.