Does A LOU Arbitration Agreement For The Underlying Cargo Claim Completely Replace The Bill Of Lading Arbitration Clause?

Viscous Global Investments Ltd. v. Palladium Navigation Corporation (Quest) [2014] EWHC 2654

In the context of cargo claims brought under four bills of lading, the Commercial Court has recently considered whether an arbitration provision in a Club Letter of Undertaking (LOU) had entirely replaced the arbitration agreement in the bills of lading. If it had not, the Cargo Interests may have been faced with a time bar argument in respect of some of their claims. Luckily for them, the Court found in their favour.

The background facts

The dispute arose out of a shipment of a cargo of bagged rice from Thailand to Nigeria pursuant to four Congenbill 1994 bills of lading.

There was a head time charterparty, a sub-trip time charterparty and a sub-sub voyage charterparty. The first two charterparties provided for LMAA arbitration in London, with the LMAA Small Claims Procedure (SCP) to apply to claims of less than US$100,000. The sub-sub voyage charterparty provided for Singapore arbitration. All three charterparties were governed by English law. Each bill of lading incorporated the "Law and Arbitration Clause" of the "Charterparty, dated as overleaf", but no charterparty was actually identified (by date).

Cargo damage was alleged upon discharge, and the Cargo Interests sought security from the Owners for their claims under the bills of lading. The Owners' P&I Club issued a LOU which, among other things, confirmed the Owners' agreement that the Cargo Interests' claims (to which the LOU would respond if they succeeded) would be referred to LMAA arbitration in London before three arbitrators and that English Law would apply (including the Hague-Visby Rules and the English Carriage of Goods By Sea Act 1992). The Cargo Interests commenced arbitration under the standard LMAA Terms, but no references were made under the SCP.

The Owners argued that the commencement of arbitration was invalid because the Cargo Interests should have commenced four separate arbitrations (not one) of which some should have been under the SCP (before a sole arbitrator) because the claim values under some of the bills of lading were apparently less than US$100,000; and so the arbitrators had no jurisdiction to decide the claims in this arbitration (and the Cargo Interests were time-barred from commencing new arbitration proceedings to correct this). The Owners argued this on the basis that (1) the head time charterparty's law and jurisdiction provisions had been incorporated...