DMC Category Rating: Confirmed and Developed

By Jim Leighton, BSc (Hons) (University of Plymouth), LLM (Maritime Law) (University of Southampton) and Claims Consultant

Background
Following the discharge of the cargo on 24 April 2003 a dispute under the amended Centrocon form charterparty arose in relation to a demurrage claim. An exchange of faxes regarding the appointment of an arbitrator occurred between the charterer (“Transgrain”) and shipowner (“Korbetis”) which left Korbetis to accept one of three nominated arbitrators specified by Transgrain. On 05 April 2004 Korbetis sent a fax accepting one of the arbitrators and asked for Transgrain’s confirmation. A further acceptance fax was sent on 25 August 2004, as no reply to the first acceptance fax was received. On 24 December 2004 Korbetis realised that the acceptance fax had been sent to the wrong fax number and then sent the fax to the correct fax number and appointed the arbitrator. Transgrain replied that they never received the earlier faxes, rejected the final acceptance fax of Korbetis for being made out of time, claiming that Korbetis had waived its claim under Clause 39 of the charterparty, and that the arbitrator’s acceptance of the appointment was therefore void. The issue of the arbitrator’s jurisdiction was referred to the court under s.32 of the Arbitration Act 1996.

Clause 39 of the charterparty [an amended Centrocon arbitration clause] stated:
“All disputes from time to time arising out of this contract shall, unless the parties forthwith agree on a single Arbitrator, be referred to the final arbitrament of two Arbitrators, carrying on business in London, who shall be Members of the Baltic and engaged in the Shipping and/or Grain Trades, one to be appointed by each of the parties with power to such Arbitrators to appoint an Umpire. The Arbitrators shall be members of the London Maritime Arbitrators’ Association, and the Rules for arbitration processings of that Arbitration shall apply. Any claim must be made in writing and Claimant’s Arbitrator appointed within 12 months of final discharge and where this provision is not complied with the claim shall be deemed to be waived and absolutely barred. No award shall be questioned or invalidated on the ground that any of the Arbitrators is not qualified as above unless objection to his acting be taken before the award is made.”

Judgment
Communication of Acceptance: The Postal Rule

Korbetis argued that the agreement to appoint the arbitrator was concluded as a matter of law when the fax of 05 April 2004 was sent to the mystery recipient. The judge indicated “the general rule is that an acceptance has no legal effect until it is communicated to the offeror” (Chitty on Contracts, 29th edn, para 2-034). Korbetis sought to rely upon the postal rule established in Adams v Lindsell (1818) 1 B & Ald 681, as confirmed in Entores v Miles [1955] 2 QB 327 (CA), “that an acceptance by post is complete as soon as the letter is put into the post-box.” The judge however indicated “those cases assume that the letter has been properly addressed.” He continued “if the letter is wrongly addressed, very different considerations apply. Common sense dictates that it is unfair to the intended recipient that he should be bound by something which he is unlikely to receive because of the fault of the sender.” The judge approved the general approach of Chitty, para 2-056, as it corresponded with principle and justice.

Communication of Acceptance: A Reasonable Time

Korbetis alternatively argued that the offer had been accepted on 24 December 2004, submitting that Transgrain’s offer had not been withdrawn and remained open for acceptance. Transgrain argued that the acceptance of the offer on 24 December 2004 was beyond an implicit ‘reasonable time’ in which the offer could have been accepted. Korbetis submitted that eight months in the context of maritime arbitrations was not a lengthy period; Transgrain submitting that the claim was now time barred in accordance with clause 39. The judge stated “clause 39 is not well drafted, but I think that it would be possible for one party to make an offer to agree to the appointment of a sole arbitrator, which would be open for acceptance within a reasonable period, which might extend beyond the date on which the claim would otherwise become barred. But in deciding what was a reasonable period for acceptance of the offer, the contractual context in which the offer was made is certainly very relevant. The reference to ‘forthwith’ in the opening part of clause 39 connotes some urgency, and the offer should not be construed as intended to give a lengthy period beyond the time at which the bar would otherwise apply. In the circumstances, I am satisfied that eight months was far in excess of a reasonable period for acceptance of the charterers’ offer. It follows that there has been no agreement for the appointment of Mr. Rayment, and that he has no jurisdiction under the charterparty.”

Arbitration Act 1996: Section 12(3)

In seeking an extension of time to commence arbitration proceedings Korbetis relied on s.12(3)(a) of the Arbitration Act 1996.¹ Section 12 had been considered in Harbour and General Works Limited v Environment Agency [2001] 1 Lloyd’s Rep 65 (CA), per Waller LJ, p.81, which the judge in this case considered to limit s.12(3) to instances where the circumstances were not only beyond the reasonable contemplation of the parties but were also such that if the parties had contemplated the circumstances they would have contemplated that the time bar might not apply in such circumstances. The judge noted that in any case s.12(3) was still subject to circumstances where the court thought it just to grant relief. In terms of the stringency of the ‘reasonable contemplation’ element of the test (in s.12(a)) the judge considered that this was a reference to some “sort of extraneous things which in other contexts might be considered force majeure or frustrating events”. The present case was only concerned with an internal clerical error by failing to fax the acceptance to the right number and omitting to follow up the matter with promptitude with Transgrain or the arbitrator. The judge held that “I do not think that this combination of error and omissions was within the reasonable contemplation of the parties at the time when the contract was made as the kind of circumstance which might trigger an extension of time, or that it would be just to extend the time for commencing arbitration proceedings in circumstances where the respondents have the benefit of a contractual time bar.”

The practical lesson to be learnt is to ensure that good and timely clerical practices have been implemented so that all legally significant written communications have been properly sent and received by the intended recipient before any critical deadline has expired.

Postal Rule
The decision on the postal rule highlights the requirement for the offeree to have properly sent the message in order to take the benefit of the postal rule when it applies. However, it must be questioned whether the postal rule even applies to faxes: are faxes ‘instantaneous communications’ in the same manner as telephone calls and telex messages to which the postal rule was said not to apply in Entores (as approved in Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34)?

Reasonable Time & Time Bar
The judge’s observation regarding the possibility of the acceptance of the offer to appoint an arbitrator within a reasonable time but after the expiry of the contractual time bar is an interesting one. Ordinarily once a contractual time bar has expired that is the end of the matter unless the time bar is inapplicable or invalidated.

Section 12
The present decision, in considering and applying Harbour v EA, indicates that only in very limited circumstances will relief be granted under s.12; namely in cases analogous to force majeure or frustration (under s.12(a)) or possibly due to the predominant fault and/or conduct of one of the parties (under s.12(b)), which may be akin to issues of estoppel or waiver, leading to a failure to commence a claim within the time bar limit. This marks a clear move away from the former governing provision, s.27 of the Arbitration Act 1950, which was liberally interpreted. A looser interpretation of s.12 would be likely to increase the number of out of time claims brought between parties to agreements to arbitrate, so that a strict interpretation is to be preferred to avoid a possible circumvention of an otherwise applicable and valid contractual time bar where reasonably prompt and proper steps to commence proceedings have not be taken by the applicant.