Dera Commercial Estate v Derya Inc [2018] EWHC 1673 (Comm) is the first opportunity the English Courts have had to examine, in any depth, the principles applicable to the operation of s. 41 (3) of the Arbitration Act 1996 when an arbitral tribunal is asked to dismiss a claim for “inordinate” and “inexcusable” delay.

For maritime lawyers, the decision of Mrs Justice Carr clarifies the longstanding debate as to whether it is still the case that, in a contract of carriage governed by the Hague Rules, a geographic deviation from the contractual route displaces the entire bill of lading contract, including the timebar provisions in Article III Rule 6 of the Rules.

The matter came before the Court by way of the Appellant cargo claimant’s (“Dera’s”) appeal under s. 68 and s. 69 of the Arbitration Act against the dismissal by a LMAA Tribunal of its cargo claim for want of prosecution.

Dera were the owners of a cargo of maize carried from ports in India to the port of Aqaba in Jordan. The vessel arrived at Aqaba on 16th August 2011 but discharge of the cargo was not permitted by the authorities due to its damaged condition. On 8th November 2011 her Owners instructed the vessel to sail  from Aqaba to Turkey without obtaining the Jordanian authorities’, or Dera’s, permission to leave port. Dera’s case was that the vessel had absconded from Aqaba in circumstances where it was still trying to discharge the cargo in Jordan and that Owners thereby converted the cargo and/or caused the vessel to deviate from the contractual voyage.

The arbitration proceedings were commenced in September 2011. Dera’s cargo claim was particularised in June 2015. In May 2016, the vessel’s Owners applied to have Dera’s claim struck out for want of prosecution. The Tribunal’s Award dismissing Dera’s claim pursuant to s. 41 (3) was issued in June 2017.

Dera obtained permission to appeal under s. 69 on the following four questions of law:

(a)   Whether a claim which is particularised within the 6 year limitation period applicable to contractual claims pursuant to s. 5 of the Limitation Act 1980 can nevertheless be struck out for “inordinate delay” under s. 41 (3) of the Act because the parties have contracted for a shorter limitation period (here 1 year under Article III Rule 6 of the Hague Rules)?

(b)   Whether, in a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation precludes a carrier from relying on the 1 year time bar created by Article III Rule 6 of the Hague Rules?

(c)   In circumstances where the 1 year time bar created by Article III Rule 6 of the Hague Rules is applicable, is the period between (i) the time the cause of action arises, and (ii) the expiry of the contractual time limit, to be taken into account when assessing whether the delay is “inordinate” under s. 41 (3) of the Act?

(d)    What is the proper order, burden and/or standard of proof applicable to a Tribunal’s assessment of whether a delay is “inexcusable” within the scope of s. 41 (3) of the Act?

The relevance of a short contractual timebar

In assessing the Court’s own power to strike out claims for delay the Court of Appeal held in Trill v Sacher that only in exceptional cases can a claim be struck out for want of prosecution within the limitation period. The issue for Mrs Justice Carr was whether the position is different where the contractual limitation period was (arguably) 1 year pursuant to Article III Rule 6 of the Hague Rules.

Dera argued that it was wrong to focus on the one-year Hague Rules timebar as the yardstick for assessing whether a delay in particularising a cargo claim is “inordinate” and that inordinate delay in the context of cargo claims should be measured instead against what is regarded as acceptable according to the standards of those normally involved in that type of arbitration.

Mrs Justice Carr disagreed, holding that absent any agreed extensions of time or consent to the delay, “…there is no reason why the one-year rule is not objectively relevant for the purpose of assessing delay. It sets the tone and content for that exercise.” [69] However, the Judge was careful to stress at [64] that “It would nevertheless be wrong to elevate the relevant limitation period to the status of being “the” yardstick.  Rather it is “a” yardstick, albeit an important one…”.

The effect of a geographic deviation

On the second question, Mrs Justice Carr found at [117] that the Tribunal had erred in law in concluding that a geographic deviation does not preclude a carrier from relying on the one year time bar created by Article III Rule 6.

In reaching this conclusion, the Judge found that she was bound by the ratio of the House of Lords’ decision in Hain Steamship v Tate & Lyle that a geographic deviation displaces all the terms of a contract of carriage in the event it is accepted by the shipowner’s counterparty as bringing the contract to an end. She held that this had not been overruled in the House of Lords’ subsequent decisions in Suisse Atlantique and Photo Production. Mrs Justice Carr confirmed however that absent such binding precedent, she would have reached the same conclusion as the Tribunal.

The relevance of the period prior to the expiry of the contractual limitation period for assessing “inordinate delay”

The Tribunal had stated that it was “entitled to consider the full period of the delay from the time the cause of action arose, once the limitation period has expired…” when comparing this to the 1-year Hague Rules time limit. Dera argued that the Tribunal had applied this period mechanistically, without regard to the usual or inevitable delays inherent in any arbitral proceedings.

Mrs Justice Carr confirmed that this exercise cannot be “a purely mechanical” one, and that “[in] cases where there are periods of procedural activity and non-activity, it will normally be appropriate to assess individual periods of delay separately and distinctly, arriving at a cumulative picture of overall delay…” [127] However, she concluded that on the facts of this case the Tribunal had not adopted a purely mechanical approach because here there had been no substantive procedural activity which would have obliged the Tribunal to demarcate individual periods of delay.

The burden of proof in s. 41 (3) applications

Dera said that the Tribunal had erred by failing to take into account the difference between an evidential burden and a legal burden when assessing whether its delay was inexcusable.

Mrs Justice Carr confirmed at [137] that the legal (or persuasive) burden of proof lies at all times on the applicant on a s. 41 (3) application to establish (on a balance of probabilities) not only that there was inordinate, but also inexcusable, delay.

The Judge said at [139], that “beyond the question of legal burden, as presaged in Trill v Sacher, it could be said that there is a shift of evidential burden on to the responding party once inordinate delay is established by the applying party…” but expressed the view that it will seldom be necessary, or helpful, to talk of a shift of evidential burden.

This was on the basis that “…[if] the responding party has good reason for the delay it will no doubt come forward with that evidence, for the applying party then to address as it can…” and that “… although each case will be fact specific, as a matter of practice it will be the responding party that identifies what it contends to be a credible excuse for the delay.  Otherwise, a tribunal will normally be driven to the conclusion that there is (probably) no such excuse.” [141]

Disposal

Mrs Justice Carr remitted the Award back to the Tribunal for findings as to whether there had, on the facts, been a geographic deviation which Dera had elected to accept as bringing the contract of carriage to an end. The Owners were given permission to appeal the Judge’s finding that she was bound by the ratio in Hain Steamship. However, the Court granted the Owners an extension of time to file their Appellant’s Notice pending the Tribunal’s reconsideration of their Award on remission.

David Semark represented the Appellant cargo claimants in the High Court proceedings.