Article: The 'Giant Ace' – English High Court refuses application to extend time bar on the basis that proceedings were knowingly issued against the wrong defendant

FIMBank plc v KCH Shipping Co Ltd (The 'Giant Ace') – QBD (Comm Ct) (Cockerill J) [2020] EWHC 1765 (Comm)

This case involved a chain of charterparties for the ship Giant Ace, consisting of the registered owner, Mirae Wise SA ('MW'), the demise charterer, KCH Shipping Co Ltd ('KCH'), time charterer, Classic Maritime Inc ('Classic'), and voyage charterer, Trafigura Maritime Logistics Pte Ltd ('Trafigura').

In April 2018, the cargo carried on board the ship was discharged against letters of indemnity without presentation of the bills of lading. 

The claimant, FIMBank plc (the 'Bank'), was the lawful holder of the bills of lading, which it held as security for funds lent to cargo interests. The bills incorporated the voyage charterparty terms, including a London arbitration clause. The usual one-year time limit for bringing a claim under the Hague/Hague-Visby Rules applied. As demise charterer, KCH was the carrier under the bills, rather than the registered owner, MW. 

The Bank sought to claim damages for misdelivery. The Bank’s lawyers performed an online search that showed that the vessel’s registered owners were MW. In January 2019, the Bank sent a letter before action to MW without making further enquiries about the possible existence of a demise charterer. However, as demise charterers and carriers under the bills, the claim should have been addressed to KCH.

The Bank's letter before action was also sent to the vessel’s P&I Club, which forwarded it to the time charterers (Classic) and their lawyers. At the time, Classic's lawyers knew their clients had a charter with KCH, but not that KCH were demise charterers. Classic’s lawyers referred to 'head owners' in ongoing correspondence without mention of KCH, and nothing in the ensuing exchanges alerted the Bank’s lawyers to the existence of the demise charter.

In March 2019, within the one-year time limit, the Bank sought a time extension from the 'owners' via Classic. Classic contacted KCH seeking confirmation that they could agree the time extension on KCH’s behalf.

Classic subsequently discovered that KCH was the demise charterer. On 27 March 2019, a time extension until 1 July 2019 was granted to the Bank from the 'owners of the M/V GIANT ACE', with no specific mention of KCH.

The limitation period expired in April 2019.     

In May 2019, the Bank’s lawyers were informed by KCH’s lawyers that the latter were demise charterers. The Bank’s lawyers did not take any action as they believed that KCH never granted them a time extension and they then (and knowingly) commenced arbitration against the wrong party, MW, it seems in an attempt to avoid the issue being raised at all.  However, KCH subsequently informed the Bank that its claims against them were time barred.

In July, the Bank applied to the court for an extension of time to commence arbitration against KCH, under section 12(3) (a) and (b) of the Arbitration Act 1996.

Section 12 of the Act (the power of court to extend time for beginning arbitral proceedings), provides that the court shall make an order to extend time only if:

(i) satisfied that the circumstances were outside the reasonable contemplation of the parties when they agreed the provision in question, and furthermore, that it would be just to extend the time (section 12(3)(a)), or
 
(ii) that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question (section 12(3)(b)).

The court held that the Bank’s application should fail on both grounds for the following reasons:

Section 12(3)(a) - circumstances outside the reasonable contemplation of the parties

This section imposes two requirements:

a) the relevant circumstances had to be outside the parties’ reasonable contemplation, and

b) if the parties had contemplated them, they would have drawn a conclusion that the time bar might not apply?

The Bank alleged that the parties at the contractual chain misled the Bank and its lawyers into wrongly believing that some party other than KCH was liable under the bills.

The court found that, in this instance, the Bank’s lawyers had known that MW were the wrong party for two months prior to the expiry of the extension and  took a deliberate decision not to make any further investigations as to who had granted the extension.

Further, it was held that the circumstances were within the reasonable contemplation of the parties when they entered into the contract.  In addition, the mistaken belief was not caused by the other parties, but was a consequence of the Bank’s or its agent's negligence and failure to make further enquiries into the capacity of KCH.

If the parties had considered these circumstances, they would have realised that the time bar might apply.

Section 12(3)(b) - Respondent’s (KCH) conduct making it unjust not to extend

Under this section, the claimant must show some positive conduct on the respondent’s (KCH in this case) part that renders reliance on the time limit unjust. The respondent’s behaviour did not have to be the sole or even the predominant cause of the failure to meet the deadline. It was common ground that there was no need for the respondent’s conduct to be wrongful or blameworthy. 

The Bank sought to rely on the actions of Classic's lawyers, arguing that their various exchanges could be attributed to KCH. However, the court found that Classic only acted with authority from KCH in relation to the time extension, but not otherwise.

Although the wording of the time extension was ambiguous, the court found that the Bank and its lawyers, who took a rather passive approach, bore ultimate responsibility for missing the time bar.

Delay

The court was also critical of the Bank’s delay in making the application. It was material that there was a very long gap between the expiry of the extended limitation period (July 2019) and when the application was made (November 2019), especially considering that the Bank knew from May 2019 that the right party was KCH. The court observed that failure to act promptly will usually be fatal to any application under this section.

Comment

This case underlines the importance of identifying all the parties and their roles in the contractual chain to avoid obtaining time extensions from, or commencing proceedings against, the wrong party. A failure to make necessary enquiries does not amount to good grounds for the court to exercise its powers and grant an extension under Section 12 of the Arbitration Act 1996.

It further highlights the crucial importance of acting promptly in applying to the court for redress, should the need arise.

类别: Defence