London Arbitration 1/25 

Editor’s Note: Please reference London Arbitration 2/25 and London Arbitration 3/25 for the final arbitration decisions.

The Parties entered into a voyage charterparty for the carriage of bulk petcoke under a Pro-Forma Gencon 1994 Form. That same day, the Charterers entered into a sub-voyage charterparty for the same voyage with the Sub-Charterers. Once at the loadport, the vessel tendered a notice or readiness (NOR). The Owners attempted to load 53,000 mt of cargo, but the cargo was not “ready at the port”. 

Voyage Details

The Parties agreed on a freight rate of US$9.25 per mt, to be paid within 24 hours of finalizing the main charter terms, and a demurrage rate of US$15,000 per day based on a loading rate of 15,000 mt per day.  After tendering Notice of Readiness, Vessel awaited cargo  By May 10, the Charterers had paid US$450,000+ in freight. Roughly a month later, the vessel was ordered to another port to take on provisions, with orders to return within 48 hours. On June 12, the Charterers paid US$57,208.59 in demurrage to the Owners, who requested further payments. The Charterers passed the responsibility to the Sub-Charterers.

The vessel was redelivered under a time charter to the Head Owners on June 26, while the Charterers were sent a demurrage bill of US$511,299.17, beginning May 22. The Owners never terminated the charterparty, instead opting to nominate another vessel when the cargo was ready to be loaded. After several requests, the Owners nominated another vessel on July 13. While working on the terms of the new charterparty, the Owners requested an addendum regarding demurrage payments. The Charterers tried to continue negotiations, leading the Owners to cancel the vessel nomination on July 16, and offer to extend the deadline for the declaration of cargo readiness to July 26. The Charterers’ did not receive a response from the Sub-Charterers; in response, the Owners terminated the charter, claiming a “repudiatory breach” from the Charterers’ failure to deliver the cargo.

Claims and Counter Claims

The Owners claimed damages for the Charterers’ breach of their non-delegable duty to provide cargo for loading, including damages of US$522,273.62 under Owner’s time charter, US$483,885.42 in demurrage, a freight balance of US$17,816.25, and interest on all sums. After the Charterers paid US$457,208.59, the Owners claimed the alleged remaining balance of US$526,676.83 and sought laytime from 13:00 on May 18 to 01:48 on May 22, when demurrage began. The Owners also claimed they’d repeatedly requested evidence of readiness, but received no response.

The Charterers counterclaimed, maintaining that the Owners were aware of and consenting to the sub-charter. Because the sub-charter was a collateral contract, they argued responsibility for cargo readiness at the loadport and any delay(s), and damages, was solely the Sub-Charterers’. Based on this, they motioned to pause arbitration, pending the addition of the Sub-Chartererers. Finally, they filed a counterclaim for “of freight, demurrage, and commission”.

The Owners rejected the counterclaim, stating neither LMAA Terms, nor English Law permitted adding a third party to arbitration without unanimous consent of the Parties. They went on to assert no collateral contract existed between them and the Sub-Charterers; in fact, they were unaware of the sub-charter until the cargo delivery issue arose. Had the Charterers disclosed their intent to delegate responsibilities to a third party, they would not have entered the charterparty, at all.

Furthermore, they asserted the arbitrator had no jurisdiction, and refused to address disputes relating to the sub-charter, stating a back-to-back charterparty does not automatically create a collateral contract, nor did one exist, and if one did, it did not negate their right to sue only the Charterers for the breach. Per Gravy Solutions Ltd v Xyzmo Software GmbH [2013] WHC 2770 (QB), a collateral contract still requires the “elements of a valid contract”. The Owners’ claim they were not made aware of the sub-charter until after it was agreed upon, and the cargo was missing, allowed the Charterers to avoid liability. 

Once again, the Charterers maintained the Owners were aware of the sub-charter and, even if a collateral contract did not exist, the original and sub-charter contained identical clauses, thus an arbitrator could “easily assume” jurisdiction. However, their arguments hinged on the existence of a collateral contract, contradicting the Owners’ position that the arbitration should focus solely on the original charterparty per the Parol Evidence Rule.

Quantum

This case proved difficult because the standard scenario wherein the Parties involved in the charterparty are also the parties involved in the dispute did not create the conditions for a collateral contract to exist. The Charterers’ claim that the time and voyage sub-charters were collateral contracts given their identical language to the original charter, highlighted the overall weakness of their case – common terms did not automatically create collateral contracts. If they did, anyone related to a dispute involving multiple contracts could sue sub-chartered third parties.

Additionally, the elements required by Gravy Solutions Ltd v Xyzmo Software GmbH [2013] WHC 2770 (QB) were not present. There was no evidence of contact between the Owners and the Sub-Charterers, despite claiming the Owners were aware of and consented to the sub-charter when the cargo was missing from the loadport. The tribunal questioned why the Owners weren’t informed about the sub-charter when it was agreed upon, rather than when the cargo dispute arose. It was held that back-to-back charters did not automatically shield intermediary Parties from responsibility. If that were the case, it would undermine the principle of privity of contract.

Conclusion/Award

The tribunal concluded the arbitrator had no grounds to add the Sub-Charterers as an official Party. The identical language of the original and sub-charters was not withstanding, given the contracts were “separate and independent”. It was also noted that neither The Arbitration Act of 1996, nor the LMAA Terms allowed the arbitrator to add or remove Parties without unanimous consent.

Further, it was decided the Sub-Charterers could not and should not be made an official Party, nor was the sub-charter collateral to the main charter, meaning no collateral contract existed.

The Owners succeeded, entitling them to their costs associated with the award.