High Court Rules On Inconsistency In Charterparty Arbitration Clauses And Applicable Curial Law

Reed Smith (Lianjun Li and Min Li of the Hong Kong office, Nick Shaw and Halani Lloyd of the London office) recently represented the successful Charterers in Shagang South-Asia (Hong Kong) Trading Co. Ltd v Daewoo Logistics [2015] EWHC 194 (Comm).

The Respondent Owners chartered their vessel to the Claimant Charterers by a fixture note, clause 23 of which stated, "ARBITRATION: ARBITRATION TO BE HELD IN HONGKONG. ENGLISH LAW TO BE APPLIED". Clause 24 stated "OTHER TERMS/CONDITIONS AND CHARTER PARTY DETAILS BASE ON GENCON 1994 CHARTER PARTY". No boxes of Part I of the Gencon 1994 form were completed, including Box 25, which was otherwise to be filled in according to the following instructions: "Law and Arbitration (state 19(a), 19(b) or 19(c) of Cl. 19... (if not filled in 19(a) shall apply (Cl 19))." Clause 19(a) provided for English law and London arbitration in accordance with the English Arbitration Act, before a Tribunal of three arbitrators if a sole arbitrator was not agreed. It also provided for the appointment of a party's appointed arbitrator as sole arbitrator if the other party failed to appoint its arbitrator within 14 days.

Owners commenced arbitration in a dispute relating to shortlanded cargo, and purported to appoint their arbitrator as sole arbitrator pursuant to Gencon clause 19(a). Charterers queried the appointment and jurisdiction of the arbitrator, arguing that the seat of the arbitration was Hong Kong, and that the law governing the arbitration (i.e., the curial law) was Hong Kong law, not English law. The sole arbitrator ruled on his jurisdiction, concluding that the arbitration was subject to the Arbitration Act 1996 and that Gencon clause 19(a) was applicable. In the circumstances, he had been properly appointed.

Charterers appealed. The key issues on appeal were:

Whether arbitration under the charterparty was subject to English or Hong Kong curial law, and If English curial law, whether the appointment of the sole arbitrator was valid. The High Court allowed Charterers' appeal, finding that the arbitration was subject to the Hong Kong Arbitration Ordinance, and that the Arbitration Act 1996 did not apply.

On the first issue, the court held that arbitration under the charterparty was subject to Hong Kong rather than English curial law. The words "English law to be applied" in clause 23 were held to refer to the substantive law applicable to disputes under the charterparty, not to the curial law. An agreement that...