NB Three Shipping Ltd. v Harebell Shipping Ltd.

A contractual arbitration option granted to one party may constitute a binding arbitration agreement once that option is exercised. Where a charterparty gives the owner control over whether a dispute proceeds in court or arbitration, the owner may exercise that option after court proceedings have been commenced, provided the option has not been lost by taking a step in the action or by conduct creating a reasonable belief that it will not be exercised. Section 9 of the Arbitration Act 1996 is applied at the time of the stay application. The fact that proceedings were properly commenced before the option was exercised does not prevent a stay. Disclosure and mandatory orders sought under section 44 are ordinarily matters for the arbitral tribunal where no sufficient reason for court intervention is shown.

The claimant charterers commenced proceedings concerning alleged overcharges and the defendant owners’ failure to provide interest certificates under two amended Barecon 89 bareboat charterparties. The charterparties gave the English courts jurisdiction, but also gave the owners an option to determine that disputes should be referred to arbitration. After proceedings were issued, the owners exercised that option and applied for a stay under section 9 of the Arbitration Act 1996. The charterers opposed the stay and sought orders requiring production of certificates and disclosure of documents. The central issues were whether the contractual option remained available after proceedings had begun and whether the court should grant interim relief.

1. The owners’ application for a stay under section 9 of the Arbitration Act 1996 was granted. The charterers’ applications for certificates and disclosure were dismissed.

2. Properly construed as a whole, clause 47 gave the owners wider procedural rights than the charterers. Clause 47.09 limited the charterers to proceedings in the English courts, while clauses 47.02 and 47.10 preserved the owners’ option to have a dispute referred to arbitration. Construing the option as available only before court proceedings were started would deprive it of substantial practical effect and would enable the charterers to defeat it by issuing proceedings without prior discussion.

3. The arbitration provision satisfied the requirements of an arbitration agreement. A one-sided contractual choice of arbitration was sufficient, following the principle illustrated by The Messiniaki Bergen [1983] 1 Lloyd’s Law Reports 424.

4. The owners’ option was not unlimited. It would cease to be available if they took a step in the action or otherwise led the charterers reasonably to believe that it would not be exercised. On the facts, neither event had occurred.

5. Section 9 applied because, when the stay application was made, the disputes were matters which the owners had elected under the agreement to refer to arbitration. The proceedings could have been properly commenced on the assumption that the option would not be exercised. That did not prevent a stay once the option was exercised.

6. The requested mandatory and disclosure orders were inappropriate. Disclosure was a matter for the arbitrators, who had the necessary powers, and the pleadings and issues had not sufficiently developed to justify court intervention.