DHL Project & Chartering Ltd v Gemini Ocean Shipping Ltd (the "Newcastle Express") [2022] EWCA Civ 1555
In The Newcastle Express, Owners of the vessel and the would-be Charterers agreed the terms of a recap for a voyage charterparty which expressly provided "subject shipper/receivers approval."
In addition to the substantive provisions, the recap included a clause providing for the agreement to be governed by English Law, with disputes to be resolved by arbitration in London.
Had the parties bound themselves to an agreement to arbitrate? The Court of Appeal held that they had not. A condition providing "subject shipper approval" - much like "subject to contract" or "subject to details" - negatived the intention to contract. No binding main contract was formed, and neither was any arbitration agreement.
The Separability Principle
The Court of Appeal distinguished between questions of contract formation and contract validity.
Where it is alleged that the contract apparently agreed is void or voidable (for example for illegality), the Court must consider whether the invalidity amounts to "an attack on" or "impeaches" the arbitration clause. The Court of Appeal found that it will not necessarily do so and, indeed, will be presumed not to do by virtue of the principle of separability, unless the issue relates directly to the arbitration agreement.
By contrast, where it is successfully contended by one party that no binding main contract was ever agreed, this was said to "necessarily affect the arbitration clause because it means that the arbitration clause was not agreed either." The principle of separability was said to have no application to this scenario.
The End of the One-Stop Shop?
The decision of the Court of Appeal is clear and well supported by the appellate authorities cited within. But there are at least two potentially problematic practical consequences.
First, I am sceptical that business persons who had agreed all terms including an arbitration agreement (subject to a condition such as shipper approval) would consider that it was left entirely open where any disputes as to whether a final agreement had been reached would be resolved - including a dispute as to whether shipper approval had actually been granted.
The answer of the Court of Appeal was that "One-stop shopping is all very well, but if the parties have not entered into an arbitration agreement, the shop is not open for business in the first place."
However, whether the shop is open for business is not an entirely straightforward question. By way of illustration, the Court of Appeal's view was that if the condition in question had instead read "subject to shipper approval...such approval not to be unreasonably withheld", the arbitration agreement would have been binding even if shipper approval was never granted. The distinctions in this area are fine and are unlikely to be on the minds of those negotiating charterparties.
Second, a difficult respondent (is there any other kind?) is given multiple bites at the cherry - a jurisdiction challenge before the Tribunal, a Section 67 challenge by way of re-hearing, and potentially an appeal to the Court of Appeal. Plus even if successful on jurisdiction, there will be subsequent arguments on liability and contractual interpretation before the Tribunal, with the potential for further Section 68 and 69 challenges to the Courts.
It is an unsatisfactory position for efficiency in dispute resolution by arbitration. Indeed, in part citing concerns arising from The Newcastle Express, the Law Commission has proposed restricting new grounds of objection and new evidence in jurisdictional challenges under Section 67 of the Arbitration Act.
Whilst the Law Commission's consultation is ongoing, this change is unlikely to significantly mitigate the problems above. The preferable practical solution is likely to be for a claimant to start arbitration proceedings and apply for a preliminary determination of jurisdiction by the Court under section 32 of the Act, provided it can obtain the agreement of their counterparty or the Tribunal.
So, is it the end of the one-stop shop for arbitration? No. But there is certainly at least potentially a degree of erosion of the arbitral tribunal as the 'first stop.'
Download Quadrant on Shipping Issue 5
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.
