THE NAVIOS KOYO – A REMINDER OF GOOD PRACTICE

INTRODUCTION

A Bill of Lading operates in common law as a document of title to goods. Much of global trade is driven by the carriage of goods onboard sea-going vessels, which are then transacted up-stream and down-stream through the transfer of Bills of Lading against financing facilities.

Bills of Lading are often drawn up on standard forms containing details on the cargo that travels under cover of the Bill of Lading. Some standard form Bills of Lading, such as those provided by the Baltic and International Maritime Council (BIMCO), generally contain terms determining the law and jurisdiction on its reverse stating the law and jurisdiction under which Disputes arising under the Bill of Lading are to be determined by[1].

Be that as it may, many Bills of Lading seek to incorporate the bulk of their governing terms by making express reference to a particular charterparty. Oftentimes, this is the charterparty that the cargo is being carried under.

One reason for incorporation is that it makes certain what law and jurisdiction will apply between the carrier and the consignee.

For example, the Congen 2007 form seeks to incorporate all terms including the law and jurisdiction of the referenced charterparty, and reads:

“(1) all terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause/Dispute Resolution Clause, are herewith incorporated”.

The importance of the “law and jurisdiction clause” cannot be understated. It is oftentimes the first clause that lawyers will look for when considering whether to commence a dispute as it determines where the dispute is to be heard, the medium through which it is to be resolved, and the applicable law.

BRIEF FACTS

In The Navios Koyo [2021] SGCA 99, the Plaintiffs arrested the MV NAVIOS KOYO in HC/ADM 206/2020, HC/ADM 207/2020 and HC/ADM 208/2020 (the “Singapore Admiralty Proceedings”), claiming that the Defendants failed to deliver the Cargo as required.

The Bills of Lading, which the Plaintiffs relied on as proof of its ownership of the Cargo, specifically contained a clause incorporating the terms of the relevant Charterparty. The Court of Appeal noted that the terms incorporating the Arbitration Clause were clear, satisfying the Channel Ranger test[2] that express reference had been made, and that:

“Fundamentally, the truth appeared to be that the appellant simply did not bother to ask the respondent for a copy of the charterparty. Rather, it waited until the very last minute, asking for a copy of the charterparty on the night before the time bar accrued. When the request was made, a copy of the charterparty was duly provided to the appellant. The appellant took the risk in not finding out about the terms of the Bills of Lading, which it recognised were its security, with the consequence that it commenced the Admiralty Actions in breach of the arbitration clause and found its claims under the Bills of Lading potentially time-barred in the arbitration. Having taken that risk, it does not lie in the appellant’s mouth to assert that it should be insulated by the Courts from the consequences of its own omissions.”[3]

The Defendants sought to stay the Singapore Admiralty Proceedings pursuant to S6(1) of the International Arbitration Act (“IAA”) in order to pursue arbitration proceedings according to the Arbitration Agreement, and succeeded.

The Plaintiffs argued that no dispute was to be referred to a London Arbitration, and even if so, the stay should be conditional on the Defendant waiving any defence of time-bar it might seek to rely on in the arbitration.

In support of the latter contention, the Plaintiff argued that while its claims would have been time-barred after 23 September 2020 (1 year from the date of delivery), it had “done all that was reasonable in the circumstances to protect its position in light of the upcoming time bar”, and that the grant of an unconditional stay would cause “undue and disproportionate hardship to it.”[4]

In this regard, the Plaintiffs relied on S6(2) of the IAA, which gave the Court the power to impose conditions on the stay.

The Court of Appeal after examining case-law, held at [26] that an objective approach should apply, and that:

there exists a broad range of conditions which might be imposed. In our view, whether the Court’s discretion to impose a condition ought to be exercised depends on the true nature of the condition(s) sought, in the context of the relevant circumstances”.[5]

THE DECISION OF THE COURT OF APPEAL

In its decision, the Court of Appeal found that:

  • The Plaintiffs knew of the potential arbitration clause and chose not to take any steps to verify or find out about that clause. The Plaintiffs “sat on its hands for almost a whole year, taking a risk which was clear and apparent from the Bills of Lading, a risk it could be inferred that it had elected to accept[6];
  • The Plaintiffs claim that it had asked a third party for the charterparty was “disingenuous”, as “there was simply no documentary evidence whatsoever of the appellant’s efforts to obtain a copy of the Charterparty from Amrose”;
  • The Plaintiffs had elected to look to the buyer of the cargo for payment notwithstanding its own awareness that the respondent was allegedly in breach of the Bills of Lading for misdelivering the cargos;
  • The Plaintiffs’ allegation that the Defendant would attempt to avoid the arrest of its vessels was “speculative and outrageous” as there was no basis to suggest that the Plaintiffs’ alleged concerns were in any way engendered by the Defendant’s conduct.
  • The Plaintiffs’ claim that the size of its claim was relevant in determining whether or not a condition should be imposed was ultimately “irrelevant” as (a) it would be completely arbitrary whether a claim was deemed to be sizeable or not, (b) the party who was required to waive the time bar defence would suffer hardship, especially if it was in no way responsible for the other party’s omission or failure, and (c), a condition that the defence be waived would operate in absolute terms.[7]

CONCLUSION

The decision in The Navios Koyo sets out in crystal clear terms the test which a Court would apply to impose conditions on a stay in favour of arbitration. Indeed, this decision serves as an acute reminder of the interplay between practice and law.

The conduct of the Plaintiffs in The Navios Koyo demonstrates the tension between good practice and the reality of business. It is not uncommon for protracted negotiations to be carried out between parties before further funds are devoted to commencing a claim. That is the reality and practice of business, and indeed, trade finance. After all, it is not uncommon that negotiations often lead to haircuts for the trade finance party, and that saving costs (especially legal costs) is a paramount consideration in such situations.

The Navios Koyo reinforces that preparedness cannot be replaced by practice. A party seeking to enforce its rights should first ensure that it has an arguable case in the Courts before commencing negotiations. Gathering and preparing of key documents (which is often done by in-house legal teams with the limited assistance of external counsel) should be the first course of action before (and during) negotiations. This ensures that the claim can be immediately made if negotiations fall through, especially with a time-bar looming

The importance of limitation periods (and time-bars) cannot be understated. Rights that a party might have are immediately extinguished upon the time-bar being breached. A determination that a claim is out of time is immediately destructive of a claim.

It should therefore be good practice for finance players to first build their case (i.e. by ensuring that all the relevant documents are in order and obtained) before commencing negotiations. This ensures that if negotiations are not concluded by the time the time-bar is about to run out, the plaintiff may still commence a claim against the defendant without the risk of its claim being dismissed.

As observed by the Court of Appeal in The Navios Koyo, a party who fails to protect its own commercial interests cannot expect the Court to insulate it from the consequences of its own actions or inaction.

[1] Combiconbill 2016

[2] The Channel Ranger [2015] 1 Lloyd’s Rep 256 at [12]

[3] The Navios Koyo [2021] SGCA 99 at [38]

[4] Id, at [13].

[5] Id, at [26].

[6] Id, at [34].

[7] Id, at [42].

Contributing Advisors