Legal decision by Court leaves Time Bar open to doubt where there is a deviation

Lewis Moore, Toby Miller, Chris Primikiris and Beatrice Cameli of Hill Dickinson have written on the recent decision in Dera Commercial Estate v Derya Inc (The SUR) EWHC 1673.

The Commercial Court dealt with a section 68 challenge and appeals on four issues of law under section 69 of the Arbitration Act 1996, from an LMAA arbitration award which had dismissed the counterclaim for ‘inordinate and inexcusable delay’.

The claim related to the purchase by Dera Commercial Estate of 18,000 metric tons of Indian maize shipped aboard the Sur in Diamond Harbour and Vizag, which completed on July 27th 2011.

Bills of lading were issued, incorporating the Hague Rules, and providing for disputes to be settled under English law by arbitration in London.

The vessel then departed for Aqaba, where the cargo was to be discharged. Following her arrival on August 16th 2011, the Jordanian customs authorities refused to allow the cargo to be discharged. The authorities stated in a letter dated September 8th 2011 that they had done so because of an alleged ‘broken percentage, foreign matters, impurities, damaged kernels and apparent fungus’.

September 12th 2011 Dera issued proceedings against the owners Derya Inc in Jordan claiming $8m for cargo damage.

On September 16th 2011 American Club put up a $9m LOU in connection with all disputes and differences arising under the bills of lading.

LMAA arbitrators were then appointed by the parties in October 2011.

The impasse in Jordan continued until November 8th, when the vessel departed from Aqaba without permission from either Dera or the Jordanian authorities, and sailed to Turkey.

Following the issuance of proceedings in Turkey, the cargo was discharged from the vessel, subsequently sold and the sale proceeds paid to the owners. After this the vessel was scrapped.

The London arbitration remained dormant until March 23rd 2015, when claim submissions were served by Hill Dickinson on instructions from the club exercising their subrogated rights. The claim was for inter alia a declaration of non-liability for the cargo claim and an order that the LOU be released.

Dera responded on June 1st 2015 and served particulars of the cargo claim relying on the bills of lading and owners’ Hague Rules obligations.

Reply submissions were served on August 26th 2015 by the owners and on October 16th 2015 by Dera.

A hearing then took place in March 2017 on preliminary issues and the tribunal determined that:

  • the cargo claim was not extinguished by virtue of the Turkish proceedings because Dera had not submitted to the jurisdiction of the Turkish court; but
  • the cargo claim was struck out for want of prosecution under section 41(3) Arbitration Act 1996

Dera then raised a section 68 challenge, alleging serious irregularity on the part of the tribunal and sought permission to appeal under section 69 of the Arbitration Act 1996.

By order of Leggatt J on December 18th 2017, Dera was given permission to pursue its section 68 challenge on one out of the four issues which it had put forward. The remaining three failed to survive owners’ challenge under order 8, rule 5 of the Commercial Court guide. Dera was also given permission to appeal on four out of five questions of law under section 69:

  1. Whether a claim which was particularised within the six-year limitation period applicable to contractual claims pursuant to section 5 of the Limitation Act 1980 could nevertheless be struck out for ‘inordinate delay’ under section 41(3) because the parties had contracted for a shorter limitation period.
  2. Whether, in a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation precluded a carrier from relying on the one year time bar created by Article III rule 6
  3. Whether, where the one year time bar applied, the period between a) the time that the cause of action arises and b) the expiry of the contractual time limit was to be taken into account when assessing whether the delay was ‘inordinate’ for the purpose of section 41(3)
  4. The proper order, burden and/or standard of proof applicable to a tribunal’s assessment of whether a delay was ‘inexcusable’ for the purpose of section 41(3)

The matter was heard by Carr J, who handed down a detailed judgment on July 13th 2018. The judge held that Dera’s section 68 challenge failed, but Dera succeeded with the second of the legal challenges.

Hill Dickinson noted that, dealing first with the section 68 challenge, Dera had to show a serious irregularity under section 68(2) of the Act by alleging bias. The judge made a detailed analysis of Dera’s complaints and found that there was no real possibility that a fair-minded and informed observer would conclude that the tribunal was biased.

In the judgement on issue two the judge held that she was bound by the decision in Hain Steamship Company Ltd -v- Tate & Lyle Ltd [1936].

Therefore, where there was a geographical deviation, the other party to the contract was entitled, upon discovering the deviation, to retrospectively declare itself as ‘no longer bound by any of the contract terms’.

If it did so, it was not bound by ‘the promise to pay the agreed freight any more than by his other promises’. However, the innocent party could also elect to treat the contract as subsisting and, if it did so with knowledge of its rights, it would be bound by all of its terms.

Since it was clear that the judge came to this decision reluctantly because she considered she was bound by the Hain Steamship case, the owners were given leave to appeal on this point.

Hill Dickinson noted that “accordingly, until the issue is taken further, this first instance decision reignites the controversy over where there is a deviation owners may lose the benefit of the 12 month time bar. This is so even though the doctrine of fundamental breach no longer exists…”

In relation to the other issues, the court decided:

” where the parties have stipulated for a short limitation period, the proceedings can be struck out for inordinate delay where that, shorter, limitation period has been exceeded.

  • ” all time can be taken into account when assessing whether there has been inordinate delay and, in the instant case, it was not necessary to assess individual periods of delay separately and distinctly, in order to arrive at a cumulative picture of overall delay’
  • ” the burden is on the party seeking to strike-out for inordinate and inexcusable delay to prove its case and not on the party against whom the application is made to justify the delay’

Hill Dickinson said that the decision was a disappointing one for owners and clubs, although, in order to rely on a deviation, cargo interests (and charterers under the clause paramount) would have to elect as to whether it will be bound by the bill of lading contract and this should be done within a reasonable time of their learning of any deviation.

“However, until the matter goes further, there is an added layer of complexity to time bar issues. The case also shows the benefit of a challenge to a section 68 application on paper in order to filter out unmeritorious challenges”, the legal firm said/

https://www.hilldickinson.com/insights/expert-commentary/expert-commentary-dera-commercial-estate-v-derya-inc-%E2%80%9Csur%E2%80%9D