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Variation of BIMCO Arbitration Clause & its effect

Author: M.Jagannath
Date: April 28, 2016

In a recent case (Shangang South – Asia (Hong Kong) Trading Co Ltd v Daewoo Logistics [2015] EWHC 194 (comm)) which dealt with the variation of the arbitration clause in Gencon C/P 1994, the English High Court held that the variation provided in the fixture note (clause 23) was inconsistent with the arbitration clause (clause 19) in Gencon C/P 1994 and due to which the appointment of the arbitrator was invalid.

  1. BIMCO c/p forms (including Gencon C/P 1994) are frequently used in the shipping industry. The BIMCO forms allow for disputes to be arbitrated either in London under the LMAA Rules or New York under the Society of Maritime Arbitrators, Inc., or in Singapore under the SCMA rules. Rules of these arbitral bodies (LMAA (Rule 8 a), The Society of Maritime Arbitrators, Inc (Rule 10) and SCMA (Rule 6.1)) all provide that unless parties have agreed on the number of arbitrators, the tribunal would be constituted of 3 arbitrators (similar provisions exist in the NYPE 2015 form clause 54 (b) and (c) which deals with arbitration in London under LMAA Rules or Singapore under the SCMA rules).

  2. While parties may revisit the number of arbitrators to be appointed following a dispute to see whether the number of arbitrators could be varied, this is seldom attempted, or even if attempted, rarely successful given that parties would take tactical positions to deal with the dispute at hand. In this regard, the BIMCO arbitration clause allows the number of arbitrators to be varied to a single arbitrator if a party fails to appoint an arbitrator. The advantage of this variation would be the significant reduction in the costs of arbitration to be borne by the initiating party if the other party fails to participate.

    Section 17(2) of the English Arbitration Act has a similar provision and states If the party in default does not within 7 clear days of that notice being given—
    1. make the required appointment, and
    2. notify the other party that he has done so, the other party may appoint his arbitrator as sole arbitrator whose award shall be binding on both parties as if he had been so appointed by agreement.

  3. The difference between the BIMCO Clause and the English Arbitration Act appears to be in the notice provisions. Again with respect to the BIMCO Arbitration Clause with London / LMAA Rules, it could be argued that upon failure of a party to nominate an arbitrator, the notice provisions stated in Clause 17(2) of the English Arbitration Act should apply. However, it is submitted that as the BIMCO Clause provides for the appointment procedure, this would fall under Section 16(1) of the English Arbitration Act dealing with the Procedure for appointment of arbitrators and which states The parties are free to agree on the procedure for appointing the arbitrator or arbitrators, including the procedure for appointing any chairman or umpire”. This being the case, the provisions of the BIMCO Arbitration Clause and the English Arbitration Act 1996 could be read without causing any conflict.

  4. In the Shangang case cited above, the Fixture Note dealing with dispute resolution stated as follows:

    23.
    ARBITRATION: ARBITRATION TO BE HELD IN HONGKONG. ENGLISH LAW TO BE APPLIED.
    24. OTHER TERMS/CONDITIONS AND CHARTER PARTY DETAILS BASE ON GENCON 1994 CHARTER PARTY.
    25. THIS CHARTER PARTY TO APPLY ENGLISH VERSION.

  5. Clause 19(a) of the Gencon C/P 1994 dealing with Law and Arbitration stated as follows: This Charter Party shall be governed by and construed in accordance with English law and any dispute arising out of this Charter Party shall be referred to arbitration in London in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or re-enactment thereof for the time being in force. Unless the parties agree upon a sole arbitrator, one arbitrator shall be appointed by each party and the arbitrators so appointed shall appoint a third arbitrator, the decision of the three-man tribunal thus constituted or any two of them, shall be final. On the receipt by one party of the nomination in writing of the other party’s arbitrator, that party shall appoint their arbitrator within fourteen days, failing which the decision of the single arbitrator appointed shall be final. For disputes where the total amount claimed by either party does not exceed the amount stated in Box 25** the arbitration shall be conducted in accordance with the Small Claims Procedure of the London Maritime Arbitrators Association.

  6. Arbitration proceedings were commenced by Daweoo against Shangang with a sole arbitrator being appointed by Daewoo (Shangang failed to nominate any arbitrator within the time allowed (14 days) as provided in the arbitration clause of the Gencon C/P 1994). The sole arbitrator gave his first final award stating that the arbitration was subject to the English Arbitration Act 1996, the Gencon Clause 19(a) was applicable and that he had been properly constituted as the sole arbitrator. Shangang appealed against the award in the English High Court under Section 67 (which deals with challenges to the substantive jurisdiction of the tribunal) of the English Arbitration Act 1996.The court held that the curial law of the arbitration under the contract was Hong Kong Law and not English Law. The court further held that even if the curial law of the arbitration was English Law, the appointment of the arbitrator would have been invalid given that it did not follow the procedure provided under the English Arbitration Act 1996. This being the case, the appointment of the arbitrator was invalid and therefore did not have jurisdiction.

  7. It is submitted that as mentioned in 3 above, the provisions of the BIMCO Clause are not inconsistent with the provisions of English Arbitration Act, particularly as Section 16 (1) allows parties to decide on the procedure. This being the case, if English Law was found to be the curial law, the appointement of the arbitrator should have been valid.
     
  8. It is further submitted that a purposive approach should have been given to Clause 25 of the Fixture Note and which provided for the application of English Version i.e. para a of Clause 25. Accordingly, Clause 19 dealing with Law and Jurisdiction on the Gencon C/P 1994 could have been read as follows: (a) This Charter Party shall be governed by and construed in accordance with English law and any dispute arising out of this Charter Party shall be referred to arbitration in Hong Kong (seat) London in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or re-enactment thereof for the time being in force. Unless the parties agree upon a sole arbitrator, one arbitrator shall be appointed by each party and the arbitrators so appointed shall appoint a third arbitrator, the decision of the three-man tribunal thus constituted or any two of them, shall be final. On the receipt by one party of the nomination in writing of the other party's arbitrator, that party shall appoint their arbitrator within fourteen days, failing which the decision of the single arbitrator appointed shall be final. For disputes where the total amount claimed by either party does not exceed the amount stated in Box 25** the arbitration shall be conducted in accordance with the Small Claims Procedure of the London Maritime Arbitrators Association.

  9. It is also submitted that the Hong Kong Arbitration Ordinance (section 24 incorporating Article 11 of the Model Law) permit parties to decide on the procedure for appointing arbitrators. Accordingly, as mentioned in 3 above, the effect would be similar such that the provisions of the BIMCO Arbitration Clause could be read together with the Hong Kong Arbitration Ordinance.

  10. To conclude, given the recent judgement in Shangang:

    1. Parties should avoid amending the BIMCO arbitration clause by way of reference in the fixture note.
    2. If it is decided to vary the arbitration clause, it would be preferable to do so by way of a “stand alone” arbitration clause and which should deal with the arbitration process together with the law governing the arbitration agreement and the procedure (curial law).
    3. Parties should be aware of the interplay between the procedural law and the arbitration process / rules so as to avoid issues as had arisen in the Shangang case.

 

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