In a recent Maritime and Commercial Court decision the court were confronted with some interesting international private law issues relevant to a dispute between an owner and a charterer who had been parties to a English law London Maritime Arbitrators Association's (LMAA) arbitration. The Danish court should decide whether an English arbitral award rendered had finally concluded the parties' dispute, in which case the court would be precluded from deciding on the merit. The court also had to decide whether the parties were bound by the submissions made in the arbitration or whether they could make opposite claims before the court.
In May 2019, a Danish charterer entered into a time charter agreement of a Liberian-registered ship with a Cypriot owner. At the same time, the parties entered into a revenue agreement (the "side letter") on the calculation and distribution of profits from an agreement on the sub-chartering of the ship. The charter party agreement included the following arbitration clause: "All disputes arising out of this contract shall be arbitrated at London . . . . Any dispute arising hereunder shall be governed by English Law."
The parties' side letter stated as follows:
In case of any conflict or inconsistency between this Side Letter and the Charter party, the provisions of this Side Letter shall prevail . . . . The Parties agree that this Side Letter shall be governed by the laws of England and shall be subject to the exclusive jurisdiction of the courts in England.
Disagreement arose over the distribution of proceeds from the sub-charter agreement, and the owner made a claim for payment of $208,000 to the charterer. Settlement negotiations took place between the parties. In an email dated 21 May 2020, the owner's lawyers wrote the following to the charterer's lawyers:
I refer to our telephone conversation yesterday in which you put forward Charterers' offer of USD155,000 in full and final settlement of Owners' claim. I have now taken instructions and confirm that Owners accept Charterers' offer to settle at USD155 000 in full and final settlement. We will run up a settlement agreement and send over to you for review.
In an email dated 2 June 2020, the owner's lawyers forwarded an email with an attached draft settlement agreement to the charterer's lawyers. The email stated as follows:
Do you have instructions?
To expedite finalisation of the agreement, please see attached […]. The only change is the payment terms. My client has asked for payment within 3 days which, given the delays already, is entirely reasonable.
The draft settlement agreement stated as follows:
The Charterer agrees to pay and the Owner agrees to accept the sum of US$155,000 (One Hundred and Fifty Five Thousand United States Dollars) (the "Settlement Sum") in full and final settlement of any and all disputes, claims and counterclaims whatsoever and howsoever arising under or in connection with the Charterparty, the Side Letter and the Brazil Charterparty.
. . .
This Agreement is subject to English law and any and all disputes or differences arising out of or in connection with this Agreement shall be referred to arbitration in London before a sole arbitrator who shall be agreed between the Parties, and if the Parties cannot agree within 14 days of a request for such agreement from one Party to the other, shall be appointed by the then current president of the London Maritime Arbitrators Association.
The charterer's lawyers sent the following by email on the same date:
The draft is far from perfect but at least settles all disputes. The issue is the payment of the settlement amount where you will know that 14 days is usual. Is there any reason to depart from that in this instance? 14 days is also realistic where our client has incoming payments delayed due to Covid issues. Please can you take instructions and confirm?.
The charterer's lawyers reverted on 3 June 2020 with the following message to the owner's lawyers: "I am ready to send over the signed agreement but please can you clarify why your clients have designated a different bank account to that used previously".
The owner's lawyers confirmed the change of the bank account as follows the same day: "The details are indeed different to the details in the CP however I am informed that the details in the agreement are also correct and valid for remittance. I look forward to receiving the signed agreement".
The settlement agreement was not signed and, on 17 June 2020, the carrier initiated arbitration proceedings in London in accordance with the LMAA's rules in order to seek to enforce the settlement agreement, which, in the owner's view, had been finally agreed between the parties. The charterer pleaded in the arbitration proceedings that, even though a settlement agreement had been entered into, the draft settlement agreement of 2 June 2020, including its arbitration clause, had not been agreed. On this basis, the charterer disputed that the arbitrator had jurisdiction over the claim.
On 25 November 2020, the arbitral tribunal handed down its final partial award and ruled that the draft agreement had not been agreed and that, consequently, the parties had not agreed to arbitrate the dispute. The arbitrator stated, among other things, the following:
The final paragraph of [Owner's] email of 21 May lacks express words such as "subject to", but I am satisfied that the words used clearly reflected the parties' mutual intention to have a formal signed agreement to record the terms of settlement and that neither party intended the matter to be concluded before that point was reached.
. . .
I accordingly hold that no binding agreement was concluded on 21 May, but merely an agreement that, in effect, was 'on subjects'.
I turn now to the events of 2 and 3 June. [Owners] sent to [Charterers] an initial draft Settlement Agreement. Thereafter the [parties] negotiated the wording of the Settlement Agreement with a final (sic) draft circulated on 2 June 2020.
. . .
I accept that the words "I am ready to send over the signed agreement", taken on their own, would normally suffice to show final and unqualified assent to the terms of the Settlement Agreement. The crucial question is whether [the request] for clarification regarding the Owners' bank account qualifies such assent. I am reluctantly driven to the conclusion that it does.
. . .
The consequence of this conclusion is that final agreement on the text of the draft Settlement Agreement was never reached, from which it follows that the entire document, including the arbitration clause, lacks effect. It also necessarily follows that this award is, strictly speaking, a final award, rather than a final partial award.
On this basis, the owners filed legal proceedings against the charterer before the Maritime and Commercial Court of Copenhagen and claimed payment of $155,000. In support of their claim, the owners submitted that a binding settlement agreement had been entered into and that the charterers had accepted to pay this amount. The charterer submitted that the proceedings were inadmissible and submitted, among other things, that:
- the English arbitral tribunal had bindingly ruled that no settlement agreement had been entered into, to the effect that this claim could not be judged again by the Maritime and Commercial Court of Copenhagen;
- if the Court should find that the arbitration tribunal had not decided that a settlement had been agreed, then the proceedings should, in any event, exclusively be heard before the English courts in accordance with the jurisdiction agreement of the side letter;
- the charterer had not acknowledged that a settlement agreement had been entered into (on payment of $155,000); and
- the question of whether a settlement agreement had been entered into should be decided in accordance with English law.
The Maritime and Commercial Court of Copenhagen made its judgment on 17 December 2021.(1)
The Court first had to decide whether it had jurisdiction over the proceedings or whether the dispute, according to the charter party agreement or "side letter", should be decided in the United Kingdom. The Court ruled that the arbitration clause in the charter party agreement could not be deemed to extend to the dispute as to whether a settlement agreement had been entered into. The Court stated: "[T]here is no connection between the charter party and the settlement in terms of performance of the parties' obligations".
The Court further held that the charterer's claim that the dispute fell under the jurisdiction agreement in the side letter had been made too late and, hence, could not be taken into consideration.
The Court then ruled on whether the English arbitral tribunal could be considered to have decided whether a settlement agreement had been entered into, as the Court – in that case – would be barred from rendering a decision on this. The Court did not find that the "final partial award" could be deemed as a decision on the substance of the case, but that the award was only a decision on the arbitral tribunal's jurisdiction. The Court therefore found that it was not precluded from deciding whether a settlement agreement could be considered to have been entered into.
The Court proceeded to determine whether a settlement agreement had been reached.
In connection with deciding this issue, the Court stated that the submissions and points made by the parties in the arbitration proceedings were not binding on the parties in the proceedings before the Court. In particular, the fact that the charterer had acknowledged that it had entered into a settlement agreement during the arbitration proceedings did not bind the charterer in the present proceedings before the Court.
In order to determine whether a settlement agreement had been reached, the Court had to make a choice of law to decide the applicable law to the case. The Court found that the applicable law, in accordance with article 4(5) of the Convention on the Law Applicable to Contractual Obligations, was English law; the Court found from the circumstances as a whole that the alleged settlement agreement had its closest connection with the United Kingdom. In making this decision, the Court attached emphasis on the facts that:
- the settlement discussions had taken place in the United Kingdom;
- the discussions between the parties' lawyers should be deemed to have "taken place in accordance with English law";
- it had been set out in the draft settlement agreement that it was subject to English law; and
- arbitration proceedings had been brought in the United Kingdom pursuant to the LMAA rules.
Finally, the Court had to decide whether, under English law, a settlement agreement could be considered to have been concluded. The parties had not provided specific information on the content of English law, including an expert opinion or other basis. Nevertheless, the Court found that it had sufficient grounds to make an assessment based on English law and decided that a settlement agreement had been entered into. The Court reasoned as follows:
In this connection, the court attach emphasis to that the defendant submitted a settlement offer which the plaintiff accepted by e-mail of 21 May 2020 after which the parties negotiated the details of the agreement which were accepted by the defendant accepted latest by its e-mail of 3. June 2020 stating that: "I am ready to send over the signed agreement but can you please clarify why your clients have designated a different bank account to that used previously".
The fact that the defendant's e-mail of 3 June 2020 contained a question about bank details cannot lead to a different result. The court notes in this connection that all other conditions were agreed, including the settlement amount. The ambiguity regarding the Charterer bank account number cannot be regarded as a "key term", but rather as a practicality and a detail which, in any event, according to the wording, did not have the character of a reservation.
In its judgment, the Maritime and Commercial Court of Copenhagen ruled on a number of international private and procedural law issues.
It is important to note that the Court did not find that the submissions and statements made by the parties in the arbitration proceedings in the United Kingdom were binding on the parties during the subsequent proceedings before the Court. The fact that the charterer had acknowledged, in the arbitration proceedings, that a settlement agreement had been entered into did not bar the charterer from taking an opposite position in the Danish proceedings.
It is further worth noting that the Court, without being provided with specific advice on English law by an expert witness or otherwise, did itself establish the content of English law and applied English law to decide that a settlement agreement had been reached under English law. This is interesting, as it could be considered that the decision of the English arbitral tribunal gave rise to such uncertainty as to whether a settlement agreement had been entered into that a decision on the matter required specific advice on English law on the disputed point.
It was relevant to the case whether the charterer could, in support of its claim that the Court lacked jurisdiction, refer to the fact that the dispute fell under the jurisdiction agreement contained in the side letter (which stated that disputes were to be decided by the English courts). The Court found that this plea, which had not been submitted by the charterers in their first submissions, had been precluded as it was made too late according to the section 358(2) of the Danish Administration of Justice Act, notwithstanding the fact that the charterers had in fact submitted that the Court lacked jurisdiction on other grounds.
For further information on this topic please contact Jesper Windahl at WSCO Advokatpartnerselskab by telephone (+45 3525 3800) or email ([email protected]). The WSCO Advokatpartnerselskab website can be accessed at www.wsco.dk.
(1) Maritime and Commercial Court decision of 17 December 2021 in case BS-7126/2021-SHR.