Want of prosecution – striking out an arbitration claim / geographic deviations and the Hague Rules

Dera Commercial Estate v Derya Inc (The “SUR”) [2018] EWHC 1673 looks at the circumstances in which a tribunal may strike out a claim for want of prosecution pursuant to s. 41 (3) of the Arbitration Act 1996. The court also had the opportunity to consider whether a geographical deviation would prevent owners from relying on the one year Hague Rules time bar.

Dera (“charterers”) chartered the ship from Derya (“owners”) to carry maize they had bought in India for import into Jordan in the summer of 2011. When the ship reached Jordan the cargo authorities refused to allow its importation (fungus seems to have been the main objection). An impasse ensued whilst the charterers tried, unsuccessfully, to get the authorities to change their mind.

A short jurisdiction skirmish in London and Jordan resolved in favour of London arbitration as agreed in the charterparty. The owners’ P&I Club put up security, arbitrators were appointed and time protected thereby on both sides. The ship remained at Aqaba with the authorities refusing permission to discharge.

In November 2011 the ship sailed for Turkey with the cargo on board without the consent of the charterers or the Jordanian authorities. The owners commenced proceedings in Turkey to recover demurrage and various costs. The charterers sought to contest the Turkish proceedings. They left it too late though and their objections were dismissed, thus allowing the cargo to be sold under judicial sale and the proceeds eventually transferred to the owners in 2013. Later the ship was sold for scrap.

Nothing had happened in the London arbitration since the appointment of arbitrators. In 2015, owners served particulars of claim seeking a declaration of non-liability. This provoked the charterers to serve particulars of the cargo claim.

At a hearing on preliminary points the tribunal struck out the cargo claim on the grounds that there had been “inordinate” and “inexcusable” delay which had caused serious prejudice as set out in s. 41 (3) of the Arbitration Act.

Contract claims in England are subject to a six year limitation period as set out in the Limitation Act 1980. It is very rare that an action once commenced would be struck out for delay if the six years had yet to expire. Court of Appeal authority makes it clear that this should only be done in exceptional circumstances.

The length of the relevant limitation period sets the context in which the nature of the period or periods of delay will be assessed, specifically whether the delay overall is inordinate or not. Whether or not delay is inordinate will always be a fact-sensitive exercise in each case.

But here the parties had specifically agreed a much shorter one year limit. Could the owners rely on this? Mrs Justice Carr supported the tribunal on this and found it was a factor to be taken into account. She was clear to record, however, that it was not “the” test on the question.

“The length of the relevant limitation period sets the context in which the nature of the period or periods of delay will be assessed, specifically whether the delay overall is inordinate or not. Whether or not delay is inordinate will always be a fact-sensitive exercise in each case.”

It is always open to the parties to agree time extensions and this is a matter entirely for them. Many cargo claims take years to resolve by mutual consent. In the absence of this, though there “is no reason why the one year rule is not objectively relevant the purpose of assessing delay. It sets the tone and context for that exercise.”

In a curious feature of the judgment, Mrs Justice Carr went on to consider the question whether a carrier could rely on the one year time bar in the event of an unauthorised geographical deviation – presumably in this case by reference to the voyage to Turkey. The House of Lords in a 1936 case called Hain Steamship had held that a geographical deviation was so serious a breach that the innocent party could treat itself as “no longer bound by any of the contract terms”. As a matter of precedent she was bound by the Hain Steamship decision. The existing law is that a geographic deviation precludes a carrier from relying on the one year time bar created by Article III Rule 6 if the other party to the contract of carriage elects to terminate.

Since Hain Steamship, however, various House of Lords decisions and legislation have changed the general approach of English law to categories of breach of contract and the effects on these on the continuity of contractual terms.  As a result, she held:

“Were I not so bound…I would hold that a geographic deviation does not preclude a carrier from relying on the …time bar…The weight of modern authority supports that conclusion.”

However, as she was obliged to follow Hain Steamship, she held that owners could not rely on the Hague Rules time bar if: (a) there had been a geographic deviation; and (b) the charterer had elected to cancel the contract.

This judgment will be a useful addition to an arbitrator’s manual in relation to striking out claims for delay. There was a very little guidance on this area before. Equally the deviation point might look purely academic. It does though act as a clarion call for a reconsideration of the law relating to deviation by our appeal courts.

Were I not so bound…I would hold that a geographic deviation does not preclude a carrier from relying on the …time bar…The weight of modern authority supports that conclusion.

Mrs Justice Carr

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