Settlements and arbitration agreement in the underlying dispute

Sonact Group Limited v Premuda Spa (The “FOUR ISLAND”) [2018] EWHC 3820 (Comm) started as a run of the mill finalisation of final accounts on a voyage charter, each party having different views on what, primarily, demurrage had and had not been earned.  They reached agreement on a figure with a date for payment

That agreement was not drawn up in a separate settlement agreement.  Instead it was evidenced by exchanges through the broking channels.

The charterer failed to pay.  The owner commenced London arbitration by appointing an arbitrator.  The charterer ignored this, but a tribunal was then validly constituted in accordance with the charterparty arbitration clause.

It would have been open to the owner to treat the settlement agreement as repudiated and revert to the full amount of their original claim.  They chose not to do this but instead claimed only for the agreed settlement amount.

The arbitrators decided they had jurisdiction to consider this and then duly awarded the settlement amount.  But could it be truly said that the tribunal had jurisdiction over the settlement agreement.  After all, the agreement had said nothing in express terms about the law governing it, far less the forum in which claims under it should be pursued. The charterer challenged the award before the High Court pursuant to Section 67 of the Arbitration Act.

“The charterer’s first line of attack was to argue that the settlement replaced the legal relationship under the charterparty with a new one under the settlement.  The judge pointed out that even though there was this new relationship there was no legal principle to support the contention that “the underlying contract necessarily can no longer apply.””

The charterer’s first line of attack was to argue that the settlement replaced the legal relationship under the charterparty with a new one under the settlement.  The judge pointed out that even though there was this new relationship there was no legal principle to support the contention that “the underlying contract necessarily can no longer apply.”

This left Males J to review the matter overall.  He found the charterer’s arguments unpersuasive:

“….it is obvious that the parties intended that the arbitration clause in the arbitration would continue to apply…It is inconceivable that the parties intended…the owner…instead would have to commence court proceedings…”

That leaves a second point.  The arbitration notice as given did not refer expressly to the settlement agreement, only to claims for demurrage and related costs.  The judge noted that, with limitations, English legal precedent supported a “broad and flexible approach” to arbitration notices.  Although, strictly the agreed sum gives rise to a new cause of action, not specifically mentioned in the arbitration notice, nonetheless it “…could properly be regarded as a claim for demurrage…It is not stretching language to do so…”

This decision is to be applauded.  A purist might say a formal settlement agreement ought to have been drawn up complete with its own law, jurisdiction and dispute resolution clause.  That does not, however, recognise that the vast majority of charterparty accounts are, quite sensibly and rightly, finalised simply on the basis of the parties’ exchanges through broking channels.

…it is obvious that the parties intended that the arbitration clause in the arbitration would continue to apply…It is inconceivable that the parties intended…the owner…instead would have to commence court proceedings…

Males J

Get in touch

Bentleys, Stokes and Lowless, International House, 1 St Katharine's Way, London E1W 1YL - Tel: +44 (0)20 7782 0990

This form collects your contact details so that we can respond to your request. We will never share your personal information with a third party. Please read our privacy policy; to proceed, you will need to check the box below to indicate your acknowledgement:

* Required fields