English Court construes arbitration agreement reconciling two conflicting arbitration clauses

In the recent decision Transgrain Shipping BV v Deiulemar Shipping SpA (in liq) & Eleni Shipping Ltd [2014] EWHC 4202 (Comm), the English Commercial Court refused an application under s 67 of the Arbitration Act 1996 to set aside an award on the grounds that the arbitrators lacked jurisdiction.

In determining the question of jurisdiction, the Court needed to decide which of two conflicting arbitration clauses in the agreement governed dispute resolution between the parties.

It considered the general principles of contract construction in the case of inconsistent terms, examining the intention of the parties as evident from the terms of the agreement and relevant factual matrix. The Court focused on the common ground between the clauses, and concluded that the arbitration clause which gave most effect to their objective intentions and in this case the "industry standard" was to be preferred.

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After pirates hijacked the ship ELENI P from 2010-2011, some of the parties to her charterpartry (Transgrain Shipping BV, Deiulemar Shipping and Eleni Shipping) attempted to determine liability for the resulting losses. The relevant agreements between them contained two contradictory sets of clauses for the resolution of disputes: the "BIMCO clauses" (which provided for mediation and arbitration by a three-member tribunal); and the more recently incorporated "clause 75" (which provided for arbitration by two arbitrators and an umpire). Clause 75 also contained a substantive time bar, whilst the BIMCO arbitration clauses did not. A dispute arose between the parties over whether the request for arbitration by Transgrain had been correctly responded to. There was also a miscommunication as to which arbitrators had been appointed, leading to three potential candidates. The parties therefore asked the tribunal to determine who the parties and the arbitrators were.

The tribunal rendered an award determining these issues in March 2014. Transgrain then applied to the Court to have the award set aside on the grounds that the arbitrators did not have jurisdiction. To determine whether the arbitrators had jurisdiction, the Court needed to decide which clause governed disputes between the parties.

Reconciling Conflicting Arbitration Clauses

In construing the terms of the agreement, the Court first acknowledged that while such inquiries will generally be focused on the facts of each case, guidance could be drawn from the authorities on a number of points. Teare J applied the principles from Finagra v OT Africa Line [1998] 2 Lloyd's Rep. 662 (Rix J):

• A specifically negotiated clause should take precedence over one that is merely incorporated;
• Text written or stamped over printed text will be given precedence over the printed text;
• Most often Courts seek to give effect to both clauses rather than oust one at the expenseof the other; and
• Clear words are required for an effective time bar, so ambiguous clauses should beinterpreted in favour of the longer time limit.

In applying these principles to the dispute resolution clauses, Teare J first attempted to determine the objective intention of the parties from the surrounding text of the agreement. He noted that clause 75 was referred to by two other clauses in the agreement; however those were clauses that were added to the agreement at the same time as clause 75. Further, Teare J noted that despite the insertion of clause 75, the BIMCO clauses had not been removed. He therefore concluded that clause 75 was not designed to take precedence over the BIMCO clauses, and that the parties had incorporated two inconsistent arbitration clauses into the agreement "without appreciating the inconsistencies between them". Therefore neither clause could be considered a "specifically negotiated clause" or a "merely incorporated clause".

The Court then considered the commonalities between the two sets of clauses, noting that they both relied on the LMAA Rules. From this it concluded that the parties intended the arbitration to be conducted in accordance with the LMAA Rules.

Once it had reached this conclusion as to the intention of the parties, the Court examined which clause most gave effect to the LMAA Rules as in force at the date of the agreement. It found that the BIMCO clauses were most representative of the "industry standard", as they provided for both arbitration and mediation (as recommended by the LMAA). This was a "powerful indication" that the intention of the parties was for the BIMCO clauses to govern the resolution of a dispute.

Teare J also considered that the presence of a mediation provision in the BIMCO clauses was persuasive in demonstrating the objective intention of the parties. He noted the widespread acceptance of mediation as an adjunct to formal dispute resolution methods by commercial parties, concluding that this was further evidence that the BIMCO clauses were intended to be applied.

Although one clause contained a time bar, Teare J explicitly did not consider the relevance of Rix J's time bar consideration to the construction of the clauses, as he considered that the issue was within the scope of the issues to be determined by the tribunal.

The Form of a Request for Arbitration

The Court also emphasised that substance is to be prioritised over form when considering whether a response to a request for arbitration is effective. Teare J applied the reasoning of Rix J in The Smaro [1999] 1 Lloyd's Rep. 225, which found that the wording of a notice to commence arbitration did not need to be construed in a strict or formulaic manner, but that the focus should be on the substance of the document. In light of this Teare J concluded that even though Deiulemar had sent a fresh request for arbitration instead of responding to Transgrain's request for arbitration it was still a valid response to a request for arbitration, and Deiulemar's appointment of an arbitrator was effective.

Comment

While a unique case on its facts, this decision confirms the importance of approaching the interpretation of arbitration clauses as a matter of basic contractual construction, having regard to the intention of the parties as evidenced by the terms of the agreement and the relevant factual matrix. It is also a compelling example of why contract dispute resolution provisions should be carefully reviewed to ensure consistency.