Stellar Shipping Co Llc v Hudson Shipping Lines

An application under section 67 of the Arbitration Act 1996 is a rehearing. The court must decide afresh whether an arbitration agreement exists. Where a guarantor expressly agrees to endorse a contract containing an arbitration clause, the endorsement may constitute the guarantor’s own agreement to arbitrate disputes concerning the guarantee. This is a matter of construction, not necessarily incorporation by reference or implication of a term. A restrictive approach developed for arbitration clauses incorporated from another contract has less force where the guarantee and principal contract form part of one negotiated commercial package and are to be contained in one document. The court may construe the arbitration clause with appropriate verbal modification so that it applies to the guarantor’s contractual relationship.

Stellar applied under section 67 of the Arbitration Act 1996 to challenge an arbitration award and amended award on the ground that the tribunal lacked substantive jurisdiction. Hudson alleged that Stellar had guaranteed the obligations of Phiniqia under a contract of affreightment and had agreed to the London arbitration clause contained in that arrangement.

The tribunal had decided, as a preliminary issue, that the arbitration agreement was incorporated into the contract of affreightment and encompassed Stellar’s guarantee obligation. The central question was whether Stellar had entered into an arbitration agreement with Hudson in respect of the guarantee.

1. Application dismissed. The section 67 application was a rehearing rather than an appeal or review. The court therefore determined afresh whether a concluded arbitration agreement existed, following Electrosteel Casting Ltd v Scan-Trans Shipping & Chartering [2003] 1 Lloyd's Rep. 190.

2. On the proper construction of the correspondence, Stellar entered into a contract of guarantee with Hudson. The guarantee term was initially expressed as a requirement for a separate letter, but was later superseded by the proposal that the contract of affreightment should be mutually endorsed by Phiniqia and Stellar. The acceptance of that proposal communicated Stellar’s agreement, because Stellar alone could guarantee and endorse the contract in the proposed manner.

3. Stellar’s endorsement of the contract of affreightment included its arbitration clause. The clause could have meaningful effect for Stellar only if Stellar personally agreed to arbitrate disputes concerning its own guarantee obligations. That construction was natural and commercially sensible, particularly given the tripartite relationship, the single negotiation and the intention that the arrangements be embodied in one document.

4. The reasoning in Fiona Trust v Privalov [2008] 1 Lloyd's Rep. 254, concerning the expectation that rational commercial parties will ordinarily intend disputes arising out of their relationship to be determined by the same tribunal, applied by analogy.

5. The restrictive rules concerning incorporation of arbitration clauses in “two contract” cases, summarised in Habas v Sometal [2010] 1 Lloyd's Rep. 661, did not govern. This was not incorporation by reference from an external contract: Stellar had endorsed all the relevant terms as part of a single commercial package. Even if the distinction mattered, the arrangement was closer to a single-contract case. Any necessary verbal manipulation of the arbitration clause was permissible where the parties’ intention was clear, as explained in The Nerano [1996] 1 Lloyd's Rep. 1.

6. The arbitration agreement was not merely implied. Stellar’s express agreement to endorse the contract, properly construed in context, was an express agreement to arbitrate on the terms of the contract’s arbitration clause as appropriately modified. The guarantee and arbitration agreement findings remained subject to unresolved authority issues, which were outside the application.