3PLR – Allied Marine Transport Ltd V. Vale do Rio Doce Navegacao SA
POLICY, PRACTICE AND PUBLISHING, LAW REPORTS 3PLR
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Allied Marine Transport Ltd
V.
Vale do Rio Doce Navegacao SA
The Leonidas D
QUEEN’S BENCH DIVISION
(COMMERCIAL COURT)
22, 23 MARCH, 16, 17, 18 NOVEMBER 1982, 28 MARCH, 13 MAY 1983
3PLR/1982/8 (QB)
OTHER CITATIONS
[1983] 3 ALL E.R. 737
BEFORE:
MUSTILL J
REPRESENTATION
Michael G Collins for the owners.
Richard Aikens for the charterers.
Solicitors: Ince AND Co (for the owners); Richards Butler AND Co (for the charterers).
K Mydeen Esq Barrister.
MAIN ISSUES
SHIPPING AND ADMIRALTY LAW:- Shipping practices – Dispute resolution – Claim for breach of charterparty contract – Notice of arbitration abandoned for five and half years – Effect – Whether extinguished both the claimants cause of action and the referral to arbitration – Hague Rules time limit – Whether applied to the charterers’ claim
ALTERNATIVE DISPUTE RESOLUTION – ARBITRATION:- Notice of arbitration abandoned for five and half years – Whether evidence of abandonment of claim for want of prosecution or abandonment by accord and satisfaction
COMMERCIAL LAW – CONTRACT:- Implied contract – Abandonment of notice of arbitration relating to breach of contract for five and half years – Whether silence and inactivity amount to offer to give up reference to arbitration – Whether silence and inactivity amounting to offer to give up claim – Consideration for such offer – Accord and satisfaction – How treated
Cases referred to in judgment
André AND Cie SA v Marine Transocean Ltd, The Splendid Sun [1981] 2 All ER 993,[1981] QB 694,[1981] 3 WLR 43, CA.
Birkett v James [1977] 2 All ER 801,[1978] AC 297,[1977] 3 WLR 38, HL.
Bremer Vulkan Schiffbau Und Maschinenfabrik v South India Shipping Corp [1981] 1 All ER 289,[1981] AC 909,[1981] 2 WLR 141, HL.
Glasgow and South-Western Rly Co v Boyd and Forrest 1918 SC (HL) 14.
Paal Wilson AND Co A/S v Partenreederei Hannah Blumenthal, The Hannah Blumenthal [1983] 1 All ER 34,[1983] 1 AC 854,[1982] 3 WLR 1149, HL; rvsg [1982] 3 All ER 394,[1983] 1 AC 854,[1982] 3 WLR 49, CA; affg [1982] 1 All ER 197,[1983] 1 AC 854,[1981] 3 WLR 823.
HISTORY AND SUMMARY
By a time charter dated 24 April 1975 in an expanded New York Produce Exchange form, the owners chartered a vessel to the charterers under a charterparty which provided for arbitration in England. In 1976 a dispute arose between the parties and a notice of arbitration was given by the charterers, following which two arbitrators were appointed, one by each party. Thereafter nothing happened in the arbitration for five and a half years until, in August 1981 the charterers wrote to the owners asking for an admission of liability, in default of which they intended to proceed with the pending arbitration. In November 1981 the charterers served their points of claim. The owners then issued an originating summons seeking, inter alia, a declaration that the arbitration agreement contained in the charterparty was at an end by reason of its having been (a) mutually abandoned and/or (b) repudiated by the charterers and treated as such by the owners. The charterers had in the mean time appointed a new arbitrator in respect of the same dispute to meet the contingency that the existing arbitration would be declared defunct. That appointment was made on the assumption that the appropriate limitation period for claiming under the charterparty was the six-year period applicable to a breach of contract rather than the one-year period prescribed by the Hague Rules. The charterers claimed that, if the relevant time limit was six years rather than one year, then it could not be held that the claim had been abandoned by consent. The questions arose (i) whether the existing reference alone was defunct while the claim and the arbitration agreement remained operative,(ii) whether both the claim and the reference had been abandoned by consent or (iii) whether the charterers’ conduct was such that they were estopped from pursuing their claim.
Held –
(1) Although a claimant in an arbitration concerning a breach of contract had a statutory right to wait until just before the lapse of six years from the date of the breach before commencing his action and delay in commencing an action within the limitation period could not be construed as the abandonment of the claim, once the claimant had commenced his action by appointing an arbitrator the limitation period thereafter became irrelevant in determining whether a claim had been abandoned. Accordingly, a claimant who had commenced his claim could by his conduct be held to have abandoned his claim even though the limitation period had not expired. It followed that even if the relevant time limit in which the charterers could bring their claim was six years the charterers’ conduct during that period was capable of being interpreted as being an abandonment of their claim (see p 743 b to d, post).
(2) Abandonment of a claim under an arbitration agreement could be brought about either by an estoppel or by an accord and satisfaction. In regard to the latter method, although under the general law of contract inactivity and silence would not usually be regarded as being an offer or an acceptance they could be construed as an offer to abandon a claim under an arbitration agreement or the acceptance of such an offer, so that consensual abandonment of a claim inferred from silence and inactivity could constitute a valid offer and acceptance for the purposes of an accord and satisfaction. Furthermore the cesser of the respondent’s rights under the agreement in return for the cesser of the claimant’s rights constituted sufficient consideration for the purposes of an accord and satisfaction (see p 742 h to p 743 b, post); André AND Cie SA v Marine Transocean Ltd, The Splendid Sun [1981] 2 All ER 993 and Paal Wilson AND Co A/S v Partenreederei Hannah Blumenthal, The Hannah Blumenthal [1983] 1 All ER 34 considered.
(3) In order for the court to find that only the reference had been abandoned while the claim remained operative, the court had to be satisfied that the charterers’ silence and inactivity amounted to a representation that they wished to give up the arbitration conducted by the nominated arbitrators while reserving the right to pursue their claim before another tribunal. The fact that a claimant had done nothing for a long time could not justify the inference that he merely intended to end the arbitration while reserving his right to pursue the claim. On the facts, there was nothing to show that the parties had consented to abandon the arbitration before the nominated arbitrators while leaving the claim operative or that there was a representation to that effect by the charterers which was relied on by the owners (see p 744 f to h, post).
(4) In deciding whether both the claim and the reference had been abandoned the court had to consider the conduct of the charterers and the owners as evinced to each other, and (so far as concerned the argument based on an estoppel) also the owners’ understanding of the charterers’ intention and what, if any, action they had taken in reliance of that understanding. On the facts, the charterers’ conduct could properly be interpreted as a tacit representation that they did not intend to pursue either the claim or the reference while the conduct of the owners was sufficient to amount to an acceptance of the tacit offer to abandon both the reference and the claim. The owners’ claim to have the arbitration agreement treated as at an end would therefore be granted (see p 744 h to p 745 a and h j, post).
(5) In any event the owners had reacted to the charterers’ silence by taking none of the steps in the way of preparing their case which would have been appropriate if the claim was still active and by that omission they had suffered a real detriment sufficient to estop the charterers from pursuing their claim. Accordingly the owners’ were also entitled to succeed on the grounds of estoppel (see p 746 h j, post).
Per curiam. There is a need for legislation giving either arbitrators or the courts discretionary power to dismiss a claim in an arbitration for want of prosecution (see p 747 b, post).
Observations on the principles applicable to the termination of arbitration agreements (see p 741 d to p 742 c, post).
Notes
For termination of an arbitration agreement, see 2 Halsbury’s Laws (4th edn) paras 547–554, and for cases on the subject, see 3 Digest (Reissue) 104–118, 545–646.
Originating summons
By an originating summons issued on 25 January 1982 the plaintiffs, Allied Marine Transport Ltd, the owners of the vessel Leonidas D (who were substituted as plaintiffs for Ocean Freighters Corp pursuant to an order dated 15 April 1982 under RSC Ord 20, r 1), sought, inter alia,(i) a declaration that the arbitration agreement contained in a charterparty made between the owners and the defendants, Vale do Rio Doce Navegacao SA (the charterers), dated 24 April 1975 was at an end by reason of its having been (a) mutually abandoned and/or rescinded by the parties and/or (b) frustrated and/or (c) repudiated by the charterers and treated as such by the owners,(ii) an injunction restraining the charterers by themselves their servants or agents or otherwise howsoever from taking any further steps in or otherwise attempting to pursue the arbitration commenced by the parties in April 1976 or from commencing or pursuing their claims in that arbitration against the owners in any further or other proceedings whatsoever, and (iii) damages for the charterers’ repudiatory breach of the arbitration agreement limited to the owners’ costs in the reference. The facts are set out in the judgment.
MAIN JUDGMENT
Cur adv vult
13 May 1983. The following judgment was delivered.
MUSTILL J.
This case has a long and chequered history. It began in April 1975 when Allied Marine Transport Ltd, the plaintiffs (the owners) in the present action, chartered the vessel Leonidas D to Vale do Rio Navegacao SA, the defendants (the charterers) in the action, on an expanded version of the New York Produce Exchange Form, for a period of 18 to 24 months. The charterparty incorporated the United States, Canadian and Chamber of Shipping clauses paramount, and a London arbitration clause.
During January 1976 and April 1976 the parties fell into dispute about the cost and time involved in cleaning the holds of the vessel preparatory to loading at two ports. The total sum involved was about $US110,000. Notice of arbitration was given by the charterers, and two arbitrators were appointed, one by each party. Thereafter, nothing at all happened in the arbitration for five and a half years, until on 3 August 1981 Richards Butler AND Co wrote to Ince AND Co, who were the owners’ solicitors, stating that they were instructed by the charterers and asking for an admission of liability, in default of which the charterers would proceed with the pending arbitration. Having by 20 November 1981 received no positive response from the owners, Richards Butler served their clients’ points of claim. This prompted the owners to issue an originating summons on 25 January 1982 claiming a declaration that the arbitration agreement contained in the charterparty was at an end by reason of its having been (a) mutually abandoned and/or rescinded by the parties, and/or (b) frustrated, and/or (c) repudiated by the charterers and treated as such by the owners. The originating summons also claimed an injunction restraining the further conduct of the arbitration.
Meanwhile on 4 December 1981 the charterers (who had anticipated that such proceedings might well be instituted) had appointed Mr Bruce Harris as their arbitrator in respect of the same dispute, to meet the contingency that the existing arbitration would be declared defunct. This appointment was made within the limitation period for claiming under the charterparty, always assuming, however, that the appropriate period was the six years relative to a claim for breach of contract, rather than the one-year period prescribed by the Hague Rules.
The originating summons was listed for hearing on 22 March 1982. At that time the authorities were in the following state. Bremer Vulkan Schiffbau Und Maschinenfabrik v South India Shipping Corp [1981] 1 All ER 289,[1981] AC 909 had been decided by the House of Lords, André AND Cie SA v Marine Transocean Ltd, The Splendid Sun [1981] 2 All ER 993,[1981] QB 694 had been decided by the Court of Appeal and Paal Wilson AND Co A/S v Partenreederei Hannah Blumenthal, The Hannah Blumenthal [1983] 1 All ER 34,[1983] 1 AC 854 had been heard at first instance (see [1982] 1 All ER 197,[1981] 1 AC 854). These authorities appeared to establish that, although a prolonged period of inactivity on both sides probably could not amount to a repudiation by the claimant of the agreement to arbitrate, such delay could in appropriate circumstances bring about either a frustration of the contract or a rescission by mutual abandonment. By coincidence, at the time when the case was awaiting argument, The Hannah Blumenthal [1982] 3 All ER 394,[1983] 1 AC 854 had reached the Court of Appeal and was due for judgment in only three days’ time. It was accordingly decided to adjourn the argument to see how the law stood in the light of the new judgments. In the event, the decision of the Court of Appeal largely confirmed the position as I have just summarised it. It did not, however, prove possible to restore the present case to the list until November 1982, when by a further coincidence The Hannah Blumenthal was in the course of argument in the House of Lords. Information as to the way in which the matter had been developing suggested a strong probability that frustration would disappear as a medium of discharge by long delay, but that mutual rescission would remain a possibility, subject, however, to one important new qualification, to which I shall later refer. Against this background, it seemed sensible to keep the hearing in being until after the speeches had been delivered in the House of Lords. Accordingly, all the issues not directly affected by The Hannah Blumenthal were argued to a conclusion, and the case was then once again adjourned. In the event, the forecasts of what the speeches would contain proved to be substantially correct and when the matter was restored to the list during March 1983 attention was confined to the question of discharge by mutual abandonment, the alternative pleas of repudiation being treated as untenable, at least before a judge of first instance.
At the same time as this intermittent hearing a series of other proceedings had been brought into existence and debated, for the purpose of exploring the practical consequences of various alternative solutions to the main question. To a considerable extent, subsequent developments have caused these to be of no more than academic interest, and I will not encumber this judgment by explaining them. There was, however, one which remained a live issue, namely whether the effect of incorporating the clauses paramount into the charterparty was to produce a limitation of one year for claims of the kind now brought by the charterers, or whether the claims remained subject to the normal period of six years. The relevance was this. One possible outcome of the present proceedings was a decision that the individual reference to the arbitrament of the two named arbitrators had been cancelled by mutual abandonment, but that this abandonment had left untouched the charterers’ cause of action and the agreement contained in the arbitration clause to refer disputes to arbitration. In such a situation there would be nothing to prevent the charterers from persisting in the arbitration called into existence by their ‘protective’ appointment of Mr Harris. This appointment was, however, made after the expiry of the Hague Rules time limit, if this limit applied to the charterers’ claim. Thus, if it did so apply, and if the proceedings resulted in a decision to that effect either by the arbitrators in the new arbitration or by the High Court, the claim would fail, without the merits ever being entered on at all.
In these circumstances the owners asked the court to approach the problem in the following sequence. First, consider whether the existing reference is defunct, but the cause of action and the arbitration agreement are intact. Second, decide whether any claim pursued in the new arbitration would inevitably be defeated by a plea that the appointment of Mr Harris was made outside the period prescribed by the Hague Rules. Finally, if the answer to the second question is affirmative, grant an injunction to restrain the prosecution of the new arbitration, which must inevitably result in the failure of the claim.
This line of argument raised a question of great practical and theoretical importance in the law of arbitration, namely whether there exists under English law a jurisdiction which may be regarded as the obverse of proceedings under RSC Ord 14. By virtue of the latter, the court has power to give summary judgment even though the contract contains an arbitration clause, the rationale being that summary judgment is only possiblity if there is no genuine dispute; and if there is no genuine dispute there is nothing to refer to arbitration. Can this argument be turned upside down so as to produce the result that, if the court is satisfied that there is no genuine claim, it can hold that there is no genuine dispute, and hence that there is nothing which can properly be referred to arbitration, so that the court should intervene by injunction to prevent the respondents from being harrassed by futile proceedings? To hold that such a jurisdiction exists would be to recognise that the court can pre-empt the decision of the arbitrator, even though the parties have conferred on him alone the power to adjudicate on the dispute. This would seem to accord ill with the policy expressed, in the international field, by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (10 June 1958; TS 20 (1976) Cmnd 6419), and domestically by the Arbitration Act 1979. On the other hand, real support for the owners’ argument can be found in Glasgow and South-Western Rly Co v Boyd and Forrest 1918 SC (HL) 14, and the Bremer Vulkan case. In the end, it became unnecessary to decide this question, because the parties came to an agreement that the court should rule on the application of the time bar, to the effect that, if it were held that the Hague Rules limit applied, the owners should be free to rely on it in any new arbitration which might ensue. In these circumstances I think it best to express no opinion on the question of general principle.
Principles
Without going in great detail into matters which have already been thoroughly explored in previous cases, including those already cited, and Birkett v James [1977] 2 All ER 801,[1978] AC 297, I believe that the relevant principles can now be summarised as follows.
(1) An arbitration agreement creates mutual promises to submit to arbitration all disputes falling within the stated category, and to abide by the award of the arbitrator in respect of disputes actually referred to him.
(2) On the happening of three successive events, viz (a) the making by one party of a claim falling within the arbitration agreement and (b) the invoking of the arbitration agreement in respect of the dispute raised by that claim and (c) the appointment of an arbitrator in respect of the dispute, there comes into existence a series of mutual contractual relationships between the parties inter se, and between each party and the arbitrator. I will for convenience refer to the group of relationships between the parties as ‘the reference’.
(3) As with any other bilateral contractual relationship, both the arbitration agreement and the reference are capable of discharge by consent.
(4) The reference may be terminated by consent, leaving the arbitration agreement intact.
(5) A consent to discharge the reference may be inferred from prolonged inactivity on both sides.
(6) Discharge by consent inferred from inactivity may take place in two situations: (i) where each party conducts himself so as to evince to the other party an intention to treat the reference as ended;(ii) where the conduct of B is such as to lead A reasonably to believe that B intends to treat the reference as ended, and A alters his position in reliance on that belief. This second way of procuring a consensual discharge of the reference represents the important addition to the law brought about by the speeches in the House of Lords in The Hannah Blumenthal to which I have already referred.
(7) In neither of these two situations is it material to examine the actual subjective belief and intention of B.
(8) In situation (i), since the test is objective, it is necessary to look only at the conduct of each party actually brought to the notice of the other. But in situation (ii) the court must investigate the state of A’s mind at the relevant time. The oral evidence of A will be admissible on this question. So also will be evidence of his actions at the time, even if these were not brought to the attention of B.
(9) In deciding whether the reference has been discharged by consent, the court is arriving at a conclusion of mixed fact and law, not exercising a discretion in arriving at a solution which appears just in all the circumstances of the case. The court performs a function which is quite different from that which is involved when the question is whether a High Court action should be dismissed for want of prosecution. Thus, for example, it is not necessary to consider (a) whether the claimant’s delay was culpable,(b) whether it would be in the interests of justice for the reference to be terminated,(c) whether the delay is such as to make a fair trial of the dispute impossible, save only that the longer the delay the more easy it is to infer an abandonment of the reference,(d) whether the claim is time-barred, although in an indirect sense this is material, for in such a case the abandonment of the reference will mean the abandonment of the cause of action, an inference which will be less easy to draw than in a case where the cause of action will remain in being, or (e) whether the claim is large and is likely to succeed, except to the extent that where a new arbitration would be time-barred an inference of abandonment will be less easy to draw, where the claimant appears to have a good prospect of recovering a substantial sum.
Unfortunately these propositions are not sufficient to dispose of the present case, since the possibility that the claimants can begin a fresh arbitration makes it necessary to decide whether, even if the reference has been discharged by implied consent, the claimant’s underlying cause of action still remains alive. This was not a matter for decision in The Splendid Sun or The Hannah Blumenthal, since in both instances a much longer period than six years had elapsed since the cause of action arose, so that abandonment of the reference ipso facto entailed abandonment of the claim. The question whether the claim itself had gone was explicitly discussed only by Eveleigh LJ in The Splendid Sun [1981] 2 All ER 993 at 999 ff,[1981] QB 694 at 705 ff, and in terms which did not differ significantly from the way in which the other judgments and speeches dealt with the abandonment of the reference. The present case therefore raises a novel issue.
One aspect of the problem may, I think, be taken as clear, namely that the cause of action may survive a consensual termination of the reference. Parties do from time to time agree to end an arbitration: for example, so that they can begin again before another arbitral tribunal or before the High Court. Obviously in such a case it could not be suggested that the agreement to terminate the reference was ipso facto a termination of the claim. Conversely, an express agreement to give up the arbitration might operate, in appropriate circumstances, as an agreement to terminate the dispute in all its aspects. In each case, it would be a question of interpreting what the parties said and did.
(It is convenient to mention in passing the suggestion that a similar conclusion can be arrived at by a comparison with the position in the High Court, where it is trite law that a discontinuance within the time limit does not bar a further action. This analogy is tempting, but in my judgment misleading. The discontinuance of an action is not consensual, for it is the leave of the court, not of the defendant, which is required.)
Another point is also clear, namely that on the abandonment of the cause of action the reference falls away. There is no longer any dispute in existence, and hence nothing in respect of which the arbitrator can make a binding award.
Returning to the abandonment of the claim, how can this be brought about? General principle suggests that this can take place either by an accord and satisfaction, or an estoppel. The problem with an accord and satisfaction is that there must be consideration for the abandonment of the claimant’s rights, and it is not at first sight easy to see what this could be. From a practical point of view, an agreement by the respondent to cede his right to insist on the reference against him being continued seems scant recompense for the cancellation of the claim against him. Nevertheless, The Splendid Sun and The Hannah Blumenthal take it for granted that the cesser of the respondent’s rights under the agreement to refer can be sufficient consideration for the claimant’s cesser of his own rights under the reference, and if this is so there seems no reason in principle why it should not equally be a consideration for the claimant’s agreement to abandon the totality of his rights and remedies in respect of his cause of action. Moreover, there may perhaps be more substance in the consideration than meets the eye, for, if the reference disappears, so does the respondent’s right to obtain an award in his favour on liability and, of more practical importance, an award of costs.
The idea of a consensual abandonment of the claim does therefore seem to be valid in terms of consideration, and the two leading cases also demonstrate that it is valid in terms of offer and acceptance, even though inactivity and silence would not, in the general law of contract, usually be regarded as capable of being either an offer or an acceptance.
The difficulties of this analysis are made to seem more formidable once it is set against the background of a contract or statute which limits the time for initiating proceedings. Where the time limit is six years, no inference of abandonment can be drawn if the claimant does nothing to prosecute his claim for five years and eleven months, since this is his right under the statute. Is the position different if the claimant commences an arbitration after one year and then relapses into silence for another four years and eleven months? Although in practical terms the difference might seem imperceptible, in theory at least I believe that one does exist. Once the arbitration has been launched, the limitation statute becomes irrelevant, and the claimant’s silence cannot be explained away as a simple biding of time in accordance with his statutory rights. The court could, if it thought fit, interpret his conduct as showing that he had finally lost interest in the claim, and as either an offer to give up the claim and the reference, or as a tacit representation that the claim and the reference would not be pursued. Accordingly, I reject that part of the charterers’ argument which asserts that if the relevant time limit is held to be six years rather than one year there can be no possibility of holding that the claim has been abandoned by consent.
The facts
As I have said, the vessel was chartered on 25 April 1975 on the New York Produce Exchange form. Clause 24 of the form provided that the contract would be subject to the terms of the Harter Act 1893, but the part of the clause which incorporated the United States clause paramount was deleted. However, by a typewritten cl 44 there were incorporated the three clauses paramount, to which I have referred. The charterparty also provided that any dispute between the owners and the charterers should be referred to three persons at London, one to be appointed by each of the parties and the third by the two so chosen.
The vessel appears to have traded uneventfully for more than one and a half years, until disputes arose during December 1975 and March 1976 at the ports of Beaumont and Jacinto. These concerned the fitness of the vessel’s holds to receive grain cargo. It was the charterers’ case that the holds were affected by rust and scale, so that they had to engage and pay specialised shore labour in order to make the holds fit for loading. In respect of these two incidents the charterers claimed $US26,303·15 for loss of time and $US25,500 for cleaning costs at Beaumont, and $US32,182·77 for loss of time and $US23,500 for cleaning costs at Jacinto. During February 1976 the charterers withheld $US51,682·82 from hire, in respect of the first incident. They made no deduction in respect of the second incident, because, by the time the relevant instalment was due, an arrangement had been reached on the following lines: (i) the charterers would pay the amount of withheld hire, and would also pay the next instalment;(ii) the owners would not withdraw the vessel for non-payment of hire;(iii) the owners would give the charterers an irrevocable letter of credit in the amount of $US51,878;(iv) the letter of credit would be considered null and void if the charterers failed to name an arbitrator before 30 April 1976.
In the event, the parties, by the end of April 1976, appointed Mr Cedric Barclay and Mr Donald Davies as their respective arbitrators. No third arbitrator, or umpire, as the law then required it, has ever been appointed.
Subsequently, a letter of credit was opened at the owners’ request by the Bank of Nova Scotia in favour of the charterers. In summary, this document provided: (1) the charterers were authorised to draw up to $51,878·00 against (a) a certified copy of a final award of the arbitrators, or (b) a sworn statement by the parties or their agents that the parties had settled the dispute;(2) the letter of credit would be automatically renewed from year to year, unless the bank gave written notice that they elected not to renew it;(3) if such a notice was given, the charterers could draw on the bank for the full amount of the credit, in which case the charterers were to state that the moneys drawn would be held by them in a special bank account until such time as there was either a judgment confirming an award, or the dispute had been settled. The statement was also to be accompanied by the charterers’ undertaking to return to the owners any sums in excess of the award;(4) if the owners were to satisfy any award, or if the dispute was settled, the letter of credit would be cancelled.
This ingenious document provided an acceptable commercial solution to the problem of keeping the vessel in service, on the reasonable hypothesis that the charterers would pursue their claim for $110,000 and that in due course there would be either an award or a settlement. The vessel did in fact continue to perform services under the charter until it expired in May 1977. Unfortunately, the document took no account of the possibility that the charterers would do nothing at all, and this placed the owners in an unenviable position. The only way in which they could obtain the release of the letter of credit, in accordance with its terms, would be to obtain a favourable award. The arbitrators had no jurisdiction to make an award dismissing the claim for want of prosecution. The owners would therefore have to provoke the charterers to revive their claim, and fight it, solely for the purpose of having the claim dismissed. Similarly, if the owners instructed the bank not to renew the credit, the charterers would be entitled to call for payment and the owners would then need to revive the arbitration in order to obtain the return of their money. Neither of these alternatives was attractive. The only other possibility was to go on renewing the credit from year to year until sufficient time had elapsed to justify the intervention of the court, always assuming that the court had jurisdiction to intervene. This is what the owners have in fact done, at the cost of a renewal fee amounting to $259·39 per annum.
Abandonment
It follows from what I have already said that two different types of abandonment must be considered in a case such as the present. First, abandonment of the reference alone, the claimant’s cause of action (if any) remaining intact and second, abandonment of both the reference and the cause of action.
I can deal with the first possibility very briefly. For the court to find an abandonment of this kind it would have to be satisfied that the charterers’ silence and inactivity amounted to a representation that they wished to give up an arbitration conducted by Mr Barclay and Mr Davies and an umpire, whilst reserving the right to pursue their claim before another tribunal. I find it difficult to see how the fact that a claimant has done nothing for a long time could ever justify the inference that he intended to produce such a result and, a fortiori, how inactivity by the respondent could justify the inference that he concurred. It is not, however, necessary to go so far. For present purposes, it is sufficient to say that I can see nothing in the facts of the present case on which it would be proper to find that the parties had consented to abandon the arbitration before the two named arbitrators whilst leaving the claim intact, or that there was a representation to this effect relied on by the owners.
The alternative proposition, that the claim and the reference have both come to an end, raises altogether more difficult questions. Three areas of fact must be explored. First, what were the statements and conduct of the charterers, as evinced to the owners? Second, what were the statements and conduct of the owners, as evinced to the charterers? Third, what was the owners’ understanding of the charterers’ intentions, and what (if any) action did they take in reliance on this understanding?
As regards the first question, I have already suggested that the size and apparent validity of the claim may on occasion have a bearing on the inference to be drawn from the claimant’s inactivity. In fact the present case does not appear to me to be one of those occasions. In the light of the information now before the court, I consider that the claim is neither so obviously weak that a sensible person could be expected to drop it if his initial approach produced no result, nor so obviously well founded that no sensible person could be expected to throw it away.
What other facts are material to the significance of the charterers’ conduct? The following have been relied on.
(1) The letter of credit called for an arbitration to be commenced within 30 days, and the charterers complied.
(2) The charter terminated during May 1977, and a final account was arrived at without any mention of the charterers’ claim.
(3) On an occasion during 1977 or 1978(it seems safer to assume the latter) a gentleman known as ‘Captain George’, having some connection with the charterers, inquired of the bank whether the letter of credit would be drawn on. Pursuant to instructions given by Orion and Global Chartering Co Inc (Orion), the United States agents for the owners, he was told that it would not, and that the charterers should proceed with the arbitration. Shortly afterwards, Captain George made contact with Mr Lloyd Nelson, the president of Orion, apparently trying to find out about the arbitration, and seeming not even to know who were the charterers’ solicitors. He was briskly sent about his business. No more was heard from him.
(4) The charterers continued to carry on other business transactions with the owners, until very recently.
(5) The visit of Captain George was the last mention by the charterers of the arbitration or the claim until their solicitors wrote the letter of 3 August 1981.
In my judgment, this is not just a case of a 5 1/2-year delay, significant enough as that fact would be even in isolation. There was to be a speedy commencement of the arbitration. The charterers began speedily, and then totally stopped. They did not raise the matter on the obvious occasion to do so when the time-charter accounts were finalised. The intervention of Captain George suggested that they were not serious about the arbitration, and they did not take Mr Nelson’s hint about how to effect a recovery under the letter of credit, but instead relapsed into silence for more than three years. To my mind, this course of events can properly be interpreted as a tacit representation by the charterers that they did not intend to pursue the claim, or the associated reference.
The next stage is to consider the conduct of the owners, as evinced to the charterers. Apart from the type of conduct which consists of doing nothing, this had one aspect peculiar to the present case, on which the charterers have strongly relied, namely the repeated renewal of the letter of credit. Since the credit would operate only on an award or settlement, and since no settlement had been proposed, the continuance of the credit must (so it is argued) have meant that the owners foresaw that the arbitration would, however slowly, be brought to a conclusion. This is an attractive argument, but it overlooks the very special features of the credit. Essentially, the owners were locked into the credit, until either they or the charterers did something about the arbitration. Paying a modest sum was simply a means of allowing the arbitration to stagnate. And indeed, paradoxically, to refuse a renewal might have been less, rather than more, consistent with a belief that the arbitration had died, for it would be a recognition that the owners would have to press forward with the reference to obtain the release of the special account. It seems to me therefore that the dealings with the letter of credit were at the most neutral. Apart from this the owners’ conduct, evinced to the charterers, consisted of a complete blank. It appears from the authorities which I have cited that this is sufficient to amount to an acceptance of a tacit offer to abandon the reference. This being so, I can see no reason why it should not also be sufficient to complete an accord and satisfaction of the claim. Accordingly, I hold that the owners’ application is entitled to succeed.
Having reached this conclusion, it is not strictly necessary to explore the alternative argument based on an estoppel. Nevertheless I think it right to deal with it. The starting point is the same (namely a tacit representation by the charterers that they did not intend to pursue the claim) but the analysis of the owners’ conduct takes an entirely different shape. Where an accord and satisfaction is in issue, what matters is how the owners acted towards the charterers, the investigation being of an entirely objective nature. The estoppel, by contrast, calls for an inquiry into the owners’ subjective belief and intention, and into the steps which they took in reliance on that belief, irrespective of whether those steps were manifested to the charterers. Such an inquiry could not adequately be performed without discovery of documents and oral evidence on the owners’ side, and these were duly made available for the last of the three hearings. What they revealed was as follows. As one would expect, the owners and their solicitors began to consider, quite soon after the arbitrators had been appointed, what evidence should be adduced at the hearing. They also gave some thought to the shape of the proceedings, and in particular to the question whether the charterers should be invited to take on the role of claimants. It was decided to take no action unless and until something was heard from the charterers’ solicitors. In fact nothing was heard, and accordingly on 7 February 1978 Ince AND Co wrote suggesting that it appeared unlikely that the proceedings would be revived, and that they should thereafter close their file. Orion replied on 16 February in the following terms:
‘We seriously doubt if this matter will die a natural death. The letter of credit expires May 18, 1978, and this no doubt will promote some action by Charterers. Rather than close your file we would suggest that if you desire you could submit a notice of your charges to date.’
On 20 April 1978 Orion wrote to Ince AND Co asking how long the owners must continue renewing the letter of credit before the charterers’ claim in the arbitration was time-barred. Ince AND Co did not reply in writing, although it seems that they did give some oral advice. But a year later they wrote to the effect that it appeared unlikely that the matter would proceed and asked whether they should submit a note of their charges, whilst still keeping the file open. Orion agreed and by August 1979 the owners had paid Ince AND Co’s fees and also a small appointment fee to their arbitrator. Ince AND Co did not destroy their file, but it was placed in a repository. After that, nothing happened until the owners sought to revive the reference, during August 1981.
The documentary evidence was expanded by oral testimony from Mr Nelson. That I find this rather hard to follow is no reflection on Mr Nelson, because the concept of tacit abandonment, which is difficult enough to grapple with even in a straightforward situation, was here entangled with the conundrum created by the letter of credit. It seems clear enough that Mr Nelson did consciously address his mind to the problem of getting the letter of credit released, and I believe the gist of his evidence to be that the arbitration would technically remain alive until the six-year period expired in 1982, but that there ought to be some means of obtaining a default award. However, since the renewal fee was so small, he seems to have been content to let the matter run on, troublesome though it was. Whether Mr Nelson ever consciously formed the opinion that the charterers had finally written off the claim, or indeed whether he ever asked himself the question after February 1978, is much less clear. I think it quite probable that he did not. Nevertheless this should not, in my view, be fatal to the plea of estoppel. Where the issue is whether there was reliance by A on B having done nothing, the reliance may take the shape of A also doing nothing, and there seems no reason why, for the purposes of an estoppel, A’s response should have been the result of a conscious choice. Here, the owners did spontaneously react to the charterers’ silence by taking none of the steps in the way of preparing their case which would have been appropriate if the claim was still active. By this omission, at least so far as relates to the period commencing about the middle of 1978, they suffered a real detriment which, if I have correctly understood the law, is sufficient to make good the argument based on an estoppel. Accordingly, for this reason also I consider that the owners’ application is entitled to succeed.
Limitation of time
A full and interesting argument was addressed on the question whether the Hague Rules time limit applied to the charterers’ claim by virtue of the various clauses paramount. This question would be material only if I were to conclude that, by contract or estoppel, the reference had disappeared, but the claim had survived. That this is not the correct outcome is the one aspect of this rather difficult case which does seem to me to be quite clear. The point would therefore be academic even if I were wrong about the disappearance of the claim, and, since the effect of incorporating the Hague Rules into a time charter is of considerable general importance, it is better that I should say nothing about it here, leaving it for decision where it is directly in point.
I cannot part from this case without observing that it demonstrates, not for the first time, the need for the creation by statute of a discretionary power, vested either in the arbitrator or in the court, to dismiss a claim in an arbitration for want of prosecution. The jurisdiction at common law, which has been the subject of the present action, is cumbersome and in all but the clearest cases unpredictable and s 5 of the Arbitration Act 1979 is far from providing a complete solution.
Order for the owners accordingly.
