UK: Dera Commercial Estate v. Derya Inc [2018] EWHC 1673

In Dera Commercial Estate v. Derya Inc [2018] EWHC 1673, the Commercial Court considered several issues of interest arising out of Article III Rule 6 of the Hague Rules ( "Article III Rule 6"), in the context of a bill of lading for the carriage of maize destined for Jordan which, on arrival, was not allowed into the country by the Jordanian customs authorities, due to damage and "apparent fungus".  Although, after various efforts to reverse the decision of the customs authorities, the local court gave permission to fumigate the cargo on board the vessel in the hope of preserving its condition, the vessel nevertheless sailed to Turkey, where the cargo was ultimately discharged and sold pursuant to a judicial sale order.

In the meantime, the cargo interests had brought proceedings in Jordan.  Owners then commenced arbitration proceedings in London (as the bills of lading incorporated the arbitration clause from the charterparty) and obtained an anti-suit injunction (by consent) in respect of the Jordanian proceedings.  The arbitration was commenced in October 2011, the cargo was discharged in March 2012, and the proceeds of sale transferred to the Owners in early 2013, but no steps were taken by either side in the arbitration until Owners served their Particulars of Claim in March 2015 seeking, inter alia, a declaration of non-liability. Dera served particulars of their cargo claim in June 2015.

The case raised questions as to: (i) whether there had been an inordinate and inexcusable delay pursuant to section 41(3) Arbitration Act 1996 ("AA") ; (ii) the impact of the one-year contractual time bar under Article III Rule 6; and (iii) whether such time bar applies in circumstances where there has been a geographic deviation.

The Tribunal had found that there was inordinate and inexcusable delay, and that the claim should therefore be struck out and extinguished.  The case came before the Commercial Court, which went on to consider the following issues:

1. Whether a claim which is particularised within the six year limitation period applicable to contractual claims pursuant to Section 5 Limitation Act 1980, can nevertheless be struck out for "inordinate delay" under Section 41(3) AA, because the parties have contracted for a shorter limitation period.

The simple answer here was: yes, because the parties have contracted for a shorter limitation period, and the relevant limitation period, although not the only factor, must be taken into account when considering whether the delay is inordinate, although this will always be a fact-sensitive question.

2. Whether in a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation precludes the carrier from relying on the one-year time bar under Article III Rule 6.

The court considered how the position has developed over the years, in terms of fundamental breach, and was of the view that the effect of geographic deviation should be construed in the context of the ordinary law of contract.  While geographic deviation can be said to be a serious breach, it is a question of degree. Reference was also made to what a number of the text books say on the subject, and it was the court's view that, as a matter of construction, Article III Rule 6 is sufficiently broad to apply to circumstances where there has been geographic deviation.  The court placed particular emphasis on the use of the words "in any event" at the beginning of Article III Rule 6, and made clear that in its view the Hague Rules should not be construed by reference to the fact that the Hague–Visby Rules include the word "whatsoever" in the same article.

As a matter of precedent, however, the court found that it was bound by the decision of the House of Lords in Hain Steamship v. Tate & Lyle Ltd [1936] 41 Com Cas 350 that, notwithstanding the fact that the doctrine of fundamental breach is no longer part of English law, where a carrier by sea deviates without permission from the contractual route, the cargo owner can treat itself as not bound by any of the contractual terms.  It was therefore held that, as the court was bound to follow the decision in Hain Steamship, a "geographic deviation does preclude a carrier from relying on the one year time bar created by Article III Rule 6 if the other party to the contract of carriage elects to terminate".   It is notable that the court would have found differently if it had not been constrained by the much earlier decision of the House of Lords.

3. Whether, where the one year time bar created by Article III Rule 6 applies, the period between (a) the time that the cause of action arises, and (b) the expiry of the contractual time limit, should be taken into account when assessing whether a delay is inordinate for the purposes of section 41(3) AA.

This was common ground between the parties and accepted.  The Court did comment, however, that it "will normally be appropriate to assess individual periods of delay separately and distinctly..."

4. The proper order, burden and/or standard of proof applicable to a tribunal's assessment of whether a delay is "inexcusable" for the purpose of section 41(3) AA.

The court held that the legal burden of proof lay at all times with the owners, who would need to establish that, on a balance of probabilities, the delay was not only inordinate but also inexcusable.  However, where the delay was found to be inordinate, the evidential burden would then shift to the party resisting dismissal to make out a credible case, although this does not go so far as to alter which party bears the legal burden.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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