LJ Korbetis v Transgrain Shipping BV

An acceptance is generally ineffective until communicated to the offeror. The postal rule does not apply where an acceptance is misdirected through the acceptor’s own error. Contract formation rules should remain clear and should not depend on an open-ended discretion to determine what is fair in each case.

Under section 12(3)(a) of the Arbitration Act 1996, an extension of a contractual arbitration time bar requires circumstances outside the parties’ reasonable contemplation and justice in extending time. Clerical error by the applicant’s agent, followed by prolonged inaction, did not satisfy that test.

The owners of a vessel claimed demurrage under a charterparty containing a clause requiring a claim to be made and an arbitrator appointed within 12 months of final discharge. The charterers proposed a sole arbitrator, and the owners purported to accept by fax. The acceptance was sent to the wrong fax number and was not received.

The owners later sent a further fax to the arbitrator and copied the charterers, who disputed the arbitrator’s jurisdiction and relied on the contractual time bar. The issue was referred to the court under section 32 of the Arbitration Act 1996. The central questions were whether an agreement to appoint the arbitrator had been formed and, if not, whether time should be extended.

1. Appointment by acceptance. The charterers’ fax was an offer to agree to the appointment of a sole arbitrator, rather than merely an invitation to treat. However, the owners’ purported acceptance did not form an agreement when it was sent to the wrong fax number. The communication was not made to the offeror, and the postal rule in (1818) 1 B & Ald 681 and [1955] 2 QB 327 assumed that the acceptance had been properly addressed. It would be contrary to principle and unfair to bind an offeror through the acceptor’s own careless misdirection.
2. Acceptance after eight months. The offer remained open only for a reasonable period. The contractual reference to acting forthwith and the surrounding time-bar provision were relevant to that assessment. Eight months was far beyond a reasonable period, so the later fax could not create an agreement to appoint the arbitrator. The arbitrator therefore had no jurisdiction under the charterparty.
3. Extension of time. Section 12(3)(a) of the Arbitration Act 1996 requires circumstances outside the parties’ reasonable contemplation and a conclusion that it would be just to extend time. Following [2001] 1 Lloyd’s Rep 65, the test concerns circumstances which the parties would not reasonably have contemplated as circumstances in which the time bar might not apply. Control by the party seeking an extension is relevant but is not automatically disqualifying.
4. The effective cause was an internal clerical error by the owners’ agents, followed by months without checking the fax or pursuing the appointment. That combination was not the kind of circumstance contemplated by section 12(3)(a), and it would not be just to deprive the charterers of the contractual time bar. The application for an extension was refused.