In this recent jurisdictional challenge, the Commercial Court had to decide which of two inconsistent arbitration clauses in a charterparty was intended to apply and whether the arbitrators had been properly appointed. The case provides an example of the court’s approach to resolving conflicting arbitration clauses and its preference for substance over form when interpreting arbitration notices.

By a charterparty on the NYPE form, charterers sub-chartered the “ELENI P” to sub-charterers. Disputes arose between the parties following the hijacking of the vessel by pirates; the disputes went to arbitration and charterers subsequently applied to the court pursuant to section 69 of the Arbitration Act 1996 to set aside an award by the tribunal for lack of jurisdiction.

The charterparty contained two sets of arbitration clauses which were inconsistent with each other in certain respects. The first clause (clause 75) had been included in the charterparty by way of general incorporation and provided for the appointment of two arbitrators and an umpire. It also provided that if one party commenced arbitration and appointed an arbitrator, but the other party failed to appoint an arbitrator within 20 days, the first party could appoint an arbitrator on behalf of the other party.

The second arbitration clause was a BIMCO arbitration clause typed at the end of the NYPE form, providing for three arbitrators. The BIMCO arbitration clause stated that where one party appointed its arbitrator, but the other party failed to appoint an arbitrator within 14 days, the first party could appoint its arbitrator as sole arbitrator. The BIMCO arbitration clause also contained an option to agree to mediation at any time.

The court held that the inconsistency should be resolved in favour of the BIMCO arbitration clause. As the parties had not deleted all references in the charterparty to the BIMCO arbitration clause, the court ruled that the parties had not deliberately chosen clause 75 over the BIMCO arbitration clause, but had instead chosen to incorporate both sets of arbitration rules without appreciating the inconsistencies between them. As both clauses referred to the LMAA rules, which recommended the BIMCO arbitration clause, this was a powerful indication that, objectively, the parties had intended the BIMCO clause to apply. Commercial parties could be expected to value the benefits of mediation and this was a further indication of the parties’ objective intention that the BIMCO arbitration clause – which included a mediation regime – should apply.

The court rejected an argument that charterers were estopped from denying that clause 75 was the applicable clause after both parties had allegedly proceeded to appoint their arbitrators and notify the other side under a common assumption that clause 75 contained the applicable arbitration agreement. This was because an estoppel could not create an agreement.

The next question for the court was whether the tribunal had been properly constituted. Sub-charterers first commenced arbitration against charterers in October 2011, requiring the latter to nominate their arbitrator within 20 days failing which sub-charterers would make a default appointment. In January 2012, charterers issued a similar notice of arbitration against sub-charterers, apparently not appreciating that sub-charterers had already commenced arbitration against them. On the same day, sub-charterers appointed an arbitrator on behalf of charterers on the basis that the latter had not appointed their arbitrator within 20 days as required by clause 75. Sub-charterers contended that the default appointment was valid and that charterers’ appointment of their arbitrator was in relation to a new and separate arbitration.

The court decided that there could be no sense or purpose in having two arbitrations between the parties on the same issue. It applied an objective and sensible analysis to conclude that despite the form of the appointment purporting to commence arbitration, charterers’ appointment of their arbitrator was in substance an appointment in the arbitration commenced by sub-charterers and was valid. Therefore, the tribunal had been properly constituted.