Exchange invoice claims and counter claims

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A bill of lading dispute in Sea Master Special Maritime Enterprise & another v. Arab Bank (Switzerland) Ltd (Sea Master) [2022] EWHC 1953 (Comm) raised questions as to whether the bank financing the purchase of a cargo, and the holder of a referral bill of lading for the cargo, was a party to the arbitration agreement incorporated in the bill of lading and, if so, whether any counterclaims brought by the Owner fall within the scope of this arbitration agreement.

The Court agreed with the court’s findings that, once the Court determined that the bank was a party to the arbitration agreement, the reasonable compensation and quantum meruit counterclaims fell within the scope of the arbitration agreement. Arbitration, being claims “arising out of or in connection” with the Bill of Lading Agreement.

On April 25, 2016, the plaintiff shipowner chartered the vessel on the Norgrain 1989 form for a voyage carrying grain from Argentina to Morocco. The defendant bank financed the purchase of the shipments. In June 2016, three cargo packages – corn, soybean meal and soybean hulls – were loaded on board the ship. Thirty bills of lading in the form Congenbill 2007 were issued, all incorporating English law and the London arbitration clause into the charterparty.

The corn and soybean hull pellets were unloaded in Morocco without production of the original invoices, which led to a claim for delivery error by the bank. The initial sale of the soybean meal cargo failed and a commutation bill was issued in September 2016 for transport to Algeria instead of Morocco. A second switch bill was then issued in November 2016 for transport to Lebanon.

The bank filed an error-delivery claim in arbitration and also initiated proceedings in Connecticut to stop the ship and secure security for its claim. The charterer was insolvent at this stage, so the owner sought to bring counterclaims against the bank for demurrage and detention damages, as well as reasonable remuneration and quantum meruit.

Rewards and Orders
In the first award, the court found that it lacked jurisdiction over the counterclaims for demurrage and detention damages because the bank was not an original party to the transfer bill. He also rejected the argument that the bank was the owner of the September 2016 soybean meal invoices which required delivery and made a claim under the contract of carriage in order to become liable under the contract pursuant to Article 3(1) of the Carriage of Goods by Sea Act 1992 (1992 Act). The court added that the claims for reasonable remuneration and quantum meruit would have failed on the merits.
Having decided that the bank was not a party to the transfer bill, the court did not need to decide whether the bank was bound by the arbitration agreement.

The owner challenged the first award in court, claiming that the bank was in fact an original party to the transfer bill and therefore bound by the arbitration agreement. The judge decided the case on a different basis from that pleaded, concluding that the bank’s admitted acquisition of rights of action under the Change Bill (under Section 2 of the Act of 1992 by becoming incumbent) meant that it was bound by the arbitration. agreement in the commutation bill.

However, the question remained whether the owner was bound by the court’s decision in the first award that the bank was not an original party to the commutation bill. The court decided in the second final award that there was no estoppel as to whether the bank was a party to the change bill or otherwise owed substantial obligations under the bill.

Demurrage and damages
In the third award, the court found against the owner on the counterclaims for demurrage and damages for detention, accepting the bank’s argument that only the charterer could be liable for the delay in unloading and the extended period of afloat storage. An appeal against this decision was dismissed.

In the fourth partial final award, the court dismissed the bank’s claim for misdelivery, finding that the bank had failed to prove its loss. She also formally dismissed the reasonable compensation and quantum meruit counterclaims.

The owner sought summary judgment in the Connecticut proceeding relating to, among other things, his claims for unjust enrichment and quantum meruit. The bank sought declaratory relief from the court, as well as an anti-suit injunction.

In the fifth award, the court found that the reasonable compensation and quantum meruit counterclaims were counterclaims arising out of or related to the Change Bill. Therefore, the court granted the anti-suit injunction and declared that the counterclaims were dismissed by the fourth award.

The owner appealed, arguing that the court lacked jurisdiction to hear these counterclaims because they fell outside the scope of the arbitration agreement. They also argued that the tribunal, in the first award, had already decided that these counterclaims were not arbitrable because they fell outside the scope of the arbitration agreement (although neither party never went to court on the matter).

Decision of the commercial court
The Court agreed with the tribunal (as it found in its fifth award) that the first award did not decide whether reasonable compensation and quantum meruit counterclaims fell within the scope of the arbitration agreement.

There was therefore no issue of estoppel with respect to these claims.

As for the judge’s order, it stated that the court had jurisdiction over “plaintiff’s counterclaims in the arbitration arising out of or in connection with the contract contained in or evidenced by the bill of lading.” The wording was inclusive and, as the court had found, there was nothing on reading the order to indicate that the counterclaims of reasonable compensation and quantum meruit were excluded.

The Court found that the judge only decided the issue of arbitrability and left open the question of which particular counterclaims fell within the scope of the arbitration agreement. She agreed with the court that the counterclaims in question fell within the scope of the phrase “arising out of or in connection with”.

The Court referred to the presumption of one-stop arbitration, namely that in interpreting an arbitration clause, it must be presumed that the parties intended that any dispute arising from their relationship be decided by the same court, unless the language they used clearly indicates otherwise. Nothing in the wording of the arbitration agreement in this case rebuts this presumption.

Furthermore, a dispute over whether or not the bank, as holder of the bill of exchange, owed the owner money for the use of the vessel and storage costs while the owner acted as carrier of the cargo was clearly a dispute arising out of or related to the billing contract of commutation.

The Court therefore dismissed the challenge to the tribunal’s jurisdiction.

In a related earlier decision in 2020, the court rejected the owner’s attempts to argue that the transfer invoice contained an implied term that the bank and/or cargo recipients would: (i) take all necessary steps to allow cargo to be unloaded and delivered within a reasonable time; and/or (ii) discharge the cargo within a reasonable time. The reasonable compensation/quantum meruit counterclaims were effectively the same as those that failed for damages and/or breach of implied term.
Source: Baltic Stock Exchange

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