REUTERS | Alexandre Meneghini

The courts and arbitration: the Eleni P Case, an example of “maximum support, minimum interference”

Back in 2016, Lord Thomas suggested that arbitration, and its inherent privacy, was seriously impeding the development of common law, particularly within the sphere of commercial law. In 2017, he went on to describe the courts as “complementary” to arbitration, with the courts providing “maximum support, minimum interference,” where necessary.

The recent case of Eleni Shipping Limited v Transgrain Shipping B.V. (the Eleni P case) demonstrates this complementary relationship. In the Eleni P case, the High Court was able to consider points of English law (specifically in respect of contractual construction), correcting one legal conclusion of the tribunal, while reaffirming another, and ultimately declining to overturn an award.

Facts

The case stemmed from a challenge to an arbitral award (the award) rendered in a maritime arbitration. The owners of a ship (the owners) commenced arbitration proceedings against the ship’s sub-charterers (the charterers) for certain losses stemming from the ship being out of service following a pirate attack. After passing through the Gulf of Aden, the ship was attacked by pirates in the Arabian Sea in May 2010. The ship was released in December 2010 and finally redelivered to the owners in January 2011. The owners claimed US $4.5 million from the charterers for unpaid fees for the lost hire time.

The tribunal rejected the owners’ claim, on the basis that two charterparty clauses (clauses 49 and 101) excluded the charterers from liability to pay. Consequently, the owners applied to the High Court under section 69 of the Arbitration Act 1996 (AA 1996) to challenge the tribunal’s interpretation of clauses 49 and 101 of the charterparty.

The court’s decision

Clause 49 of the charterparty excluded liability if the ship was “captured or seized or detained or arrested by any authority or by any legal process during the currency of the [charterparty]”. The owners contended that the words “by an authority or by any legal process” qualified the clause, so that exclusion from liability would only apply in such limited circumstances. The charterers disagreed, arguing that the clause was not so restricted or qualified. The tribunal agreed with the charterers and concluded that the hire payment was not due to the owners and thus rejected the owners’ claim.

The court disagreed with the tribunal. The court noted that the meaning of clause 49 was clear, and considered how the clause should be interpreted within the rest of the agreement, with the charterers’ arguments leading to “surprising and uncommercial results”. Instead, the court sided with the owners’ interpretation and, since the capture here had not been by an authority or a legal process, the charterers would have been liable.

Turning to clause 101, this permitted the charterers to transit the Gulf of Aden and stipulated that, if the ship were threatened or kidnapped by piracy, payment of hire would be suspended. The owners argued that the piracy would have to have taken place within the Gulf of Aden, while the charterers submitted that the piracy must take place either within the Gulf of Aden, or as a direct consequence to the ship needing to transit the Gulf of Aden. The tribunal agreed with the charterers.

The court, dismissing the owners’ challenge, noted that the tribunal had found, as a finding of fact, that the “Gulf of Aden” is not geographically defined in the context of a charter of this kind and such a finding of fact is not able to be challenged under section 69 of the AA 1996. Furthermore, the court also noted that the principal purpose of clause 101, that is, to allow the charterers to transit through the Suez Canal, worked in the owners’ favour. Accordingly, the risk of delay from piracy as a result of such transit should be borne by the owners and thus the US $4.5 million hire claimed was not due.

Section 69 and the court’s oversight

The Elena P case reasserts the basis upon which parties may challenge an arbitration award on the basis of an error of law, noting the court’s acute wariness to stray into any questions of fact that stem from the arbitral proceedings.

Nevertheless, the Eleni P case serves as an example of the court demonstrating the substance of its supervisory role, evidencing the complementary relationship that Lord Thomas referenced in his 2017 speech. Notwithstanding the fact that the practical consequences of the award were unchanged, the court was able to apply its interpretation of the English law of contractual construction.

On a practical note, it is useful to keep in mind that section 69 of the AA 1996 is a “non-mandatory provision” of the AA 1996. Pursuant to section 4(1) of the AA 1996, parties may “opt-out” of section 69. When choosing the applicable arbitral institution rules within an arbitration agreement, parties should note that certain institutional rules expressly exclude any non-mandatory right of appeal in any event, for example, the ICC and LCIA Rules.

Leave a Reply

Your email address will not be published. Required fields are marked *

Share this post on: