Glencore International AG v (1) PT Tera Logistic Indonesia (2) PT Arpeni Pratama Ocean Line TBK [2016] EWHC 82 (Comm)

Charles Kimmins QC and Leonora Sagan acted for Glencore International AG (“Glencore”), the successful claimant in a challenge to an award under s.69 of the Arbitration Act 1996.

In this briefing, Leonora Sagan provides an insight into Knowles J’s judgment, which will be important to all commercial arbitration practitioners.

The Question of Law

Glencore had been granted permission to refer the following question of law to the Court on the basis that it was one of general public importance:

“In circumstances where a claim and a counterclaim arise from a single set of facts giving rise to a balance of accounts or netting-off, does a reference to “claims” or, alternatively, to “all disputes arising under the contract” in a notice of appointment of an arbitrator, suffice to interrupt the running of time in respect of a counterclaim for the purposes of s.14(4) Arbitration Act 1996?”

The Facts

The Parties had entered into four contracts for the charter of floating cranes to be  used by Glencore in loading   coal onto vessels at anchorages in Indonesia. The contracts provided for a two-way demurrage regime whereby delays caused to the cranes past an agreed laytime would result in damages payable to PT (“FC Detention”), and delays caused to the mother vessels would result in damages payable to Glencore (“MV Demurrage”). Both calculations would be based on the ships’ statement of facts.

Disputes arose as to the amounts due under each of the contracts, and PT commenced four arbitrations in order to recover sums said to be due to it by way of FC Detention. In two of the four references, the limitation period for claims had expired by the time Glencore had served its defence and counterclaim submissions, by which it sought to recover MV Demurrage. PT argued that Glencore’s counterclaims for MV Demurrage were time-barred; there had been no indication that such claims existed before service of  the  defence  and  counterclaim submissions, and the language in Glencore’s notices of appointment had therefore been insufficient to stop the running of time under s.14(4) Arbitration Act 1996.

The Notices

For the two references in which the issue arose, PT had commenced arbitration “in respect of their claims under [the] Contract” and “in respect of claims under [the] Contract” respectively. Glencore had responded to both notices in identical terms, appointing its arbitrators “in relation to all disputes arising under the [contract]”.

Glencore argued that both parties’ claims were based on a single calculation, arising from a single set of facts. Each “claim” was therefore properly  to   be   characterised   as a request for an account, and an assertion by either party that the balance  of  that  account   was   in its favour. Accordingly, the word “claims” in PT’s notices anticipated that Glencore’s entitlement would be netted from PT’s, and therefore embraced Glencore’s counterclaims. In the alternative,  Glencore submitted that the language in its own notices (“all disputes arising”) could hardly have been wider, and ought to be construed as bringing its counterclaims within s.14(4).

The Tribunal, by a majority, rejected both submissions and found Glencore’s counterclaims to be time- barred. By contrast, the dissenting arbitrator  described   the   words “all disputes” as the “usual formula”, which he said was used routinely in the  market  in  the  expectation  that even if specific claims had not been identified by the time of the parties’ notices, they would be included in the reference by virtue of that language.

The Judgment

In ascertaining whether the notices sufficed to stop the running of time, Knowles J, in reliance on The Standard Ardour [1988] 2 Lloyd’s Rep. 159 and Harper Verischerungs v River Thames Insurance Company [2009] EWHC 1500 (QB), noted that it is necessary to look objectively at what has passed between the parties to the reference, which in turn requires that the relevant words are construed in the context in which they were used.

The relevant context was that “delay was capable of giving rise to money obligations on either side of an account,with a net sum falling for payment”. Against that background, the reference to “claims” and to “all disputes arising” in both sets of notices was sufficient to bring Glencore’s counterclaims within s.14(4). Knowles J was fortified in his analysis by the fact that it was “commercially unlikely” that the parties would contemplate MV Demurrage and FC Detention as separate  for the purposes of a reference to arbitration,  which  could  have  the  further, unintended, consequence that separate tribunals could be constituted to deal with each.

Knowles J answered the question as follows:

In circumstances where a claim and counterclaim arise from a single set of facts giving rise to a balance of accounts or “netting off ” under a contract, a reference to “claims” and to “all disputes arising under the contract” in notices of appointment of an arbitrator will ordinarily suffice to interrupt the running of time in respect of the counterclaim for the purposes of s14(4) Arbitration Act 1996, and does so in this case.”

Importantly,   although    Knowles J based his judgment on both reference to “claims” and “all disputes”, refusing Glencore’s invitation to base his decision on the former alone, he recognised that “the foundations of the answer are nonetheless those that would firmly indicate the same answer in a great many contract cases of what might be termed a “balance of account” nature.”