The case of Occidental Chartering Inc v Progress Bulk Carriers Ltd [2012] concerned an appeal against an arbitration award which arose out of an unsafe port claim involving a chain of charterparties.
Background
The vessel "CHADA NAREE" had been time chartered to B by registered owners A. B had entered into an internal re-let with C, a company of the same group which then time chartered the vessel to D. Finally, D entered into a voyage charterparty with E. The charterparties were on materially identical terms. The subject of the arbitration was an unsafe port claim, commenced by the registered owners, which was then passed down the chain.
The arbitrations (heard concurrently) were between A and B; C and D; and, D and E. Crucially, no arbitration took place between B and C, the two being companies belonging to the same group.
The arbitrators found inter alia that there was a breach of the safe port warranty in each of the charterparties, and that the parties could recover down the chain (A–B–C–D–E) for damages and associated expenses. However, in respect of liability for costs for defending the claim in the C–D arbitration, C could not recover from D, as C had not incurred any liability for costs they could pass down the chain. The chain was "broken" since C had not been party to the arbitration with B.
Importantly, throughout the course of the arbitration, and until D had raised the issue of liability for costs, the arbitrators had been treating B and C as "Disponent Owners" (one and the same) for the purposes of passing liability down the chain.
C appealed.
The Commercial Court's decision
The Court found in favour of C.
It was clear that in reading the awards, for the purposes of the first award, C and B were treated as the same party. The arbitrators had themselves stated that it was clear that the charterparty was a document internal to the "Occidental organisation". In addition, it was undisputed by the parties that the three charterparties were back-to-back in respect of the material provisions.
Furthermore, in the view of Cooke J, there was a "basic underlying fallacy" in the arbitrators' award. The claim made by C against D was one in damages for breach of safe port warranty. If the arbitrators had found that E was liable to D, D was liable to C, and B liable to the registered owners, they had necessarily found that C was "sub-silentio" liable to B, because, if not, C could not have recovered damages and associated expenses from D. "The same breach which gave rise to damages in respect of the cost of repairs and associated expenses, gives rise also to damages in respect of the costs of resisting the registered owner's claims which are passed on down the line of charterparties. There is no difference in character between these heads of damages."
This decision should be welcome as it sets aside arguments of a technical nature in favour of a more pragmatic, commercial interpretation. It would now seem that where there is an internal re-letting between two companies of the same group, on back-to-back terms, as part of a chain of charterparties, liability can be passed up and down the entire chain regardless of whether or not an arbitration has been held between the same group companies.
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