Web alert: The 'ELENI P' – the pitfalls of inconsistent dispute resolution clauses

The hijacking of The Eleni P[1] by pirates gave rise to various disputes between the owner and charterer in relation to the resulting losses, for which the parties sought determination. Before liability could be considered, however, a dispute arose concerning the jurisdiction and composition of the arbitration tribunal. The issues dealt with in The Eleni P highlight the importance of reviewing charterparties carefully, in order to ensure that there are no conflicting clauses relating to dispute resolution.

Background

The owner of The Eleni P time-chartered the ship to Deiulemar Shipping SpA, who sub-charterered the ship to the claimant, Transgrain Shipping BV.
The relevant charterparties were on back-to-back terms but contained two inconsistent and contradictory clauses for the resolution of disputes. These were as follows:

• The standard BIMCO dispute resolution clause – providing for mediation and arbitration by a three-man tribunal, to be conducted in accordance with London Maritime Arbitration Association (LMAA) rules. The clause also contained the default provision that if one party failed to appoint an arbitrator, then the other party could treat his arbitrator as the sole arbitrator; and
• Clause 75 – provided for arbitration by two arbitrators and an umpire. If one party failed to appoint an arbitrator, the other could do so on his behalf. This clause also included a time bar for bringing claims within 13 months from the date of redelivery.

As a result of the above conflicting clauses, the issue arose in relation to which arbitration clause should apply. As clause 75 contained a time bar, a claim for $5.56M could potentially be time barred.  Additionally, there was disagreement as to which arbitrators had been appointed, resulting in three potential candidates.
The Tribunal, which was at the centre of the issue, decided that the BIMCO arbitration clause should prevail over clause 75 and the reference should be to a panel of all the three arbitrators.
An application was made to the English High Court to set aside this decision, on the basis that the Tribunal lacked jurisdiction.

High Court

In order to determine whether the Tribunal had jurisdiction, the court had to determine which of the dispute resolution clauses governed the applicable charterparty.
The court relied on a number of principles, such as: the principle that a clause specifically negotiated should take precedence over a clause which is merely incorporated, and that written or stamped text should take precedence over any printed (pro-forma) text.
The court opined that the parties had not appreciated the inconsistencies between both of the clauses and it was not convinced that clause 75 had been specifically negotiated, such that it should take precedence over the BIMCO standard clause.
In reaching their decision, the court considered the common aspects of the clauses, noting that both of the clauses intended the arbitration to apply LMAA rules. The court looked to the clause which gave most effect to the LMAA rules. Being an ‘industry standard’, and in providing for both mediation and arbitration, as recommended by the LMAA, the court decided that this was a powerful indication that the BIMCO arbitration clause was the applicable clause.
The fact that there was a provision for mediation, the court accepted as a further argument in support of the BIMCO clause intending on being applied, as mediation is now an accepted alternative to litigation and arbitration, the benefits of which would have been valued by the parties.
The court therefore held that the Tribunal, of a panel of three arbitrators, had been validly constituted. The court did not consider the argument of the time bar as this was within the scope of the issues for the Tribunal to decide.

Conclusion

This case, whilst dealing with dispute resolution clauses, highlights the importance of reviewing all the terms of a charterparty (especially any fixture recap if no written, final, charterparty is drawn up) and ensuring there are no conflicting provisions. Otherwise, parties involved in a dispute could find that preliminary determinations are required to deal with conflicting provisions, before the substantive dispute can be dealt with. This leads to increased costs, which could otherwise have been avoided.
In relation to arbitration clauses, we would recommend that members also ensure they are incorporating the most up-to-date dispute resolution wording or relevant entity rules into their contracts.

Defence cover is, by its very nature, discretionary in that the club must be satisfied as to the merits and quantum of the claim in question and the likelihood of achieving a successful outcome, if it is to lend support.  
 
This article intends to provide general guidance on the issues arising as a matter of English law. It is not intended to provide legal advice in relation to any specific query. Members requiring further information on this topic should direct their enquiries to either the authors of this article, or their usual club contact.

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[1] Transgrain Shipping BV v Deiulemar Shipping SpA (in Liquidation) & Eleni Shipping Ltd (The Eleni P) [2014] EWHC 4202 (Comm)