Hyundai Merchant Marine Company Limited v. Americas Bulk Transport Limited (Pacific Champ) [2013] EWHC 470 (Comm)

The Commercial Court has set aside a maritime arbitration award on the basis that there was no consensus between the parties regarding the fixture of the Pacific Champ and, as a result, no binding charterparty or arbitration agreement ever came into existence. The court found that the questions of whether there was a binding main contract and/or a binding arbitration agreement (as incorporated into the main contract) stood or fell together. A complete lack of consensus not only prevented the main contract (i.e. the charterparty) from coming into existence, but also the arbitration agreement.

The background facts

The dispute related to an alleged fixture of the Pacific Champ in February 2008 between the bareboat charterers of the vessel, Hyundai Merchant Marine (“HMM”), as Disponent Owners, and Americas Bulk Transport Limited (“ABT”), as Charterers. The negotiations for the alleged fixture were conducted through a series of telephone and email exchanges. The trading limits in the bareboat charter excluded the Orinoco River. ABT wished to transport a cargo of hot moulded iron briquettes (HBI) via the Orinoco River.

A first recap was sent by ABT to HMM on 11 February. It was common ground that there was no agreement at that stage, as the parties had not agreed on a place for redelivery. On 12 February, HMM sent to ABT a proforma charter which excluded the carriage of HBI. A number of phone calls ensued. A second recap was sent by email by ABT on 12 February. The second recap contained two “subjects” or conditions precedent, namely: (a) the review of owner’s head charterparty back to back; and (b) the charterers’ reconfirmation.

HMM contended that, following receipt of the second recap, it informed ABT by phone that, although the bareboat charter contained no restriction on the carriage of HBI, it did not permit trading via the Orinoco River. This was disputed by ABT. Subsequently, HMM sent ABT an email containing comments and proposing amendments permitting the carriage of the cargo, but excluding the Orinoco River.

The following day, ABT purported to lift the subjects of the second recap and confirmed that the vessel was fully fixed and that a binding fixture had been entered into. HMM argued, among other things, that one of the subjects or conditions precedent (review of the owner’s head charter, to ensure that the charter being negotiated was back to back with the bareboat charter) had not been complied with. As a result, HMM contended that there was no binding contract between the parties. ABT referred the dispute to arbitration, alleging a repudiatory breach of the charter by HMM.

The arbitration award

The Tribunal held in favour of ABT, declaring that a valid and binding contract had been concluded between ABT and HMM on the basis that the subjects had been lifted and that, on their true construction, the meaning of the words “subject to review of the owner’s head charter back to back” was that it was for the charterers to review the owners’ proforma charter, rather than the owners’ bareboat charter. The Tribunal found that ABT had accepted the terms of the proforma charter in full, satisfying the back to back requirement, and that they lifted the subject within the agreed time limit. The Tribunal also held that the wording referring to the exclusion of HBI in the proforma charter would have been deleted as being a logical amendment to reflect the main terms agreed by the parties. HMM appealed to the Commercial Court on various grounds, including that the Tribunal had no jurisdiction because there was no valid arbitration agreement between the parties.

The Commercial Court decision

The court was faced with considerable evidential difficulties, due to a number of factors, including factual disputes between the parties about what was said in their telephone calls, as well as the passage of time and the lack of contemporaneous documents. Ultimately, the Court preferred HMM’s account of events and found that HMM had not confirmed to ABT that the cargo could be carried before the second recap was sent. On that basis, the Court found that there was no consensus and therefore no binding charterparty before or at the time of the second recap and no binding arbitration agreement.

In summary, the Court’s reasoning was as follows:

  1. The questions of whether there was a binding fixture and/ or a binding arbitration agreement stood or fell together and were to be determined on the basis of a full rehearing.
  2. The arbitration agreement in the charter was, like all of the other terms of the second recap, conditional on the two subjects contained in that recap. Accordingly, if one of those subjects was not satisfied (as HMM contended), there could be no operative arbitration agreement.
  3. If there was no consensus at all between the parties, the lack of consensus not only prevented any charterparty, but also any arbitration agreement, from coming into existence.
  4. There was no evidence in the particular circumstances of the case that the parties intended that any alleged arbitration agreement was intended to have effect independently of the existence of the proposed charter.

The court also expressed the view, that, if it was wrong and, contrary to its conclusion a binding agreement had been reached between the parties, then the acronym BTB (back to back) in the subjects of the second recap had the effect of incorporating the proforma rather than the bareboat charter into the contract.

Comment

First, this case helps to clarify the role of the doctrine of severability of an arbitration agreement from the main contract. The doctrine of severability is enshrined in section 7 of the Arbitration Act 1996 and provides that arbitration clauses are to be treated as “distinct agreements” separate from the main contract which has been found to be invalid, ineffective or non-existent. Whilst the English Courts have traditionally held that arbitration agreements can only be invalidated for reasons relating to the arbitration agreement itself (Fiona Trust v. Privalov [2008] 1 Lloyd’s Rep 254), this case highlights that a complete lack of consensus will prevent the arbitration agreement from coming into existence, just as it will prevent the main agreement (in this case, the charter) from coming into existence. This case does not make new law, but illustrates the limits of the doctrine of severability of an arbitration agreement.

Second, this case serves as a good reminder of what has to be agreed for a charter to be final and binding. Under English law, the parties must have reached a firm agreement on all essential terms. Such essential terms may fall into two categories: (a) terms which, if not settled, render the entire agreement unworkable or too vague and uncertain to be enforceable, for example, provisions of objectively fundamental importance such as loading and discharging ports, quantity of cargo and size of the ship; and (b) terms on which agreement is regarded by the parties themselves as an essential prerequisite of the making of the contract. These are terms which parties expressly agree to settle before any agreement becomes legally binding and which, in practice, are usually shortened to SUBS (subjects).