NEWS & ARTICLES
In FIMBank plc v KCH Shipping Co Ltd  EWHC 1765 (Comm), the High Court refuses an application under section 12 of the Arbitration Act 1996 to extend the time bar for commencing arbitration seeking damages for misdelivery of cargo without presentation of bills of lading. The court provides an analysis of the relevant provision and authorities related, and its application to the complex factual and contractual background presented in the case.
This case involves a shipment of 85,000 mt of coal from Indonesia to India. The cargo was carried on the vessel Giant Ace under a chain of charterparties where: Miare Wise was the registered owner, KCH Shipping was demise charter, Classic Maritime was time charter and Trafigura Maritime Logistics was voyage charter. The claimant, FIMBank, was the holder of bills of lading as security for the money lent to the purchaser.
The facts play a key role; Cockerill J carefully presents the timeline of the events, as it will be determinant for the court’s decision.
In April 2018, the cargo was discharged against letters of indemnity rather than the bills. The bank sought to claim damages for misdelivery, considering an initial time limit to start London arbitration in April 2019, following the provisions from Article III rule 6 of Hague / Hague-Visby Rules incorporated in the bills.
After a website search on Equasis, the Bank’s lawyers mistakenly identified Miare Wise as owners and carriers under the bills. In January 2019, the Bank sent a letter before action to Miare Wise, but the letter was misdirected and said claim should have been addressed to KCH as demise charters. The letter was also sent to the vessel’s P&I Club, which forwarded it to the time charterers, Classic Maritime, and their lawyers. At the time, Classic’s lawyers were unaware that KCH was demise charterer, nor knew anything about Miare Wise, and referred to KCH as “owners”. Thus, both parties, each of whom had partial and mistaken information, started to share correspondence that did not amount to either of them clarifying the situation.
In March 2019, FIMBank’s lawyers requested a time extension from the “owners” through Classic’s lawyers. Classic’s lawyer contacted KCH and obtained authority to agree the time extension on its behalf. Classic‘s lawyers subsequently discovered that KCH was demise charterer. Nonetheless, by the end of March a time extension until 1 July 2019 was granted to FIMBank via email from Classic’s lawyers using the unfortunate wording “owners of the M/V GIANT ACE hereby grant FIMBank plc a time extension […]”, with no specific mention to KCH.
In May 2019, lawyers acting for KCH informed FIMBank’s lawyers that there was a bareboat charterparty and that KCH were demise charterers. At that moment, FIMBank’s lawyers realized that the carrier was KCH and the claim should be addressed to them. However, based on their evidence, they believed that the extension came from Miare Wise and KCH never granted such extension, thus misapprehending that action against KCH would be time-barred by April 19.
FIMBank’s lawyers, instead of trying to clarify the situation, decided to proceed with the claim against Miare Wise as they did not want to “alert any party to possible defences to the Bank’s claim […]”. By the end of June notice of arbitration was served to Miare Wise, but not KCH, who promptly informed FIMBank that they had directed its claim to the wrong party.
Further correspondence followed between the parties, and it was not until November 2019 that FIMBank applied to the court for an extension of time to commence arbitration against KCH under section 12(3) of the Arbitration Act 1996.
The power of court to extend time for beginning arbitral proceedings under Section 12 of the Act shall be considered only if:
(a) that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time, or
(b) that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.
The court for S.12 (3) (a) held that, following Haven Insurance v Elephant Insurance and SOS v. Inerco Trade, this paragraph imposes two requirements: i) the relevant circumstances had to be beyond the parties’ reasonable contemplation when they agreed the provision, and ii) and if so, whether they would have contemplated that the time bar might not apply in such circumstances.
FIMBank alleged that the parties could not have foreseen that other parties from the contractual chain would mislead the FIMBank, and its lawyers, into wrongly believing that a party other than KCH was the carrier and liable under the bills.
However, the court found that failure to comply with an arbitration deadline due to the own negligence of a party, without more, could not be considered outside the parties reasonable contemplation. Thus, the circumstances were no more than a misapprehension from FIMBank’s lawyers, “compounded (but not caused) by correspondence with other parties innocently reinforcing that mistake, […]”. Further, FIMBank’s lawyers nearly two months before the extended limitation period expired realized that the claim should be addressed to KCH and yet decided not to investigate by whom the extension was granted and proceed with arbitration solely against Miare Wise.
In respect of the second limb of the test, the court held that even if parties had contemplated the events, they also wouldn’t contemplate the time bar not to apply in such scenario. Thus, FIMBank failed to comply with the test provided by S.12 (3) (a).
The court for S.12 (3) (b) held that positive conduct is required from KCH that renders reliance on the time bar unjust. As for causation, the conduct did not have to be the sole or predominant cause of FIMBank failure to meet the deadline, but there must be a “causative nexus”.
The dispute under this section was to ascertain whether the communications of FIMBank with Classic’s lawyers could be attributed to KCH. However, the court found that the only action attributable to KCH was the communication of its consent to the extension via Classic’s lawyers. Although the wording of the time extension was in fact misleading, the court finds that it did not constitute a misrepresentation. Further, the court insists to blame FIMBank’s lawyer’s passive approach to the issue and attributes FIMBank a “considerable portion of the causative burden”.
It seems that Cokerill J, as Obiter Dictum, found appropriate to make some considerations in respect of the Court’s discretion to exercise relief under S.12 of the 1996 Act. Thus, he considered that even if one of the grounds in S.12 had been made out, he would have probably refused to exercise relief on discretionary grounds due to the long gap between the expiry of the extended limitation period and when the application was made, a delay of nearly 4 months that he found to be material.
In conclusion, this decision shows the difficulties of obtaining an extension of time under Section 12 of the 1996 Arbitration Act when one of the parties failed to comply with a contractual time bar. In fact, as it is well pointed out, not only “the authorities suggest that the tests will be extremely difficult to satisfy and an extension will probably only be granted if the circumstances are entirely out of the ordinary” (Ambrose, Maxwell and Collett, London Maritime Arbitration, 4th ed.), but the sight of Section 12 is to reflect the philosophy of party autonomy, changing the previous provisions under 1950 Act that were found to be rather broad and benevolent.
Arizon Abogados S.L.P