Viscous Global Investment Ltd v Palladium Navigation Corporation "Quest"

A later arbitration agreement may replace an earlier arbitration clause in its entirety. The issue is one of contractual construction, assessed objectively in context and with regard to business common sense. There is no general rule that complete replacement requires the later agreement to be fundamentally inconsistent with, or to go to the root of, the earlier clause. A comprehensive letter of undertaking dealing with the seat, procedure, tribunal, appointment timetable and governing law may therefore constitute a free-standing arbitration agreement. Where that construction is adopted, an omitted small-claims provision in the earlier clause does not continue to apply.

The claimant sought a declaration under section 32 of the Arbitration Act 1996 concerning the jurisdiction of an LMAA tribunal. Its cargo-damage claims arose under four bills of lading, whose arbitration terms incorporated an unidentified charterparty. The parties subsequently entered into a letter of undertaking providing security and specifying London arbitration under LMAA auspices, English law and a three-arbitrator tribunal.

The defendant contended that the letter merely varied the existing arbitration clauses, leaving a provision for claims below US $100,000 to be dealt with under the LMAA Small Claims Procedure. The central issue was whether the letter replaced the incorporated arbitration clauses entirely or left them partly in force.

1. The application succeeded. The claimant had validly commenced arbitration, and the tribunal had jurisdiction to determine all claims under the bills of lading.
2. The letter of undertaking contained a binding agreement which at least varied the pre-existing arbitration agreement. Whether it replaced that agreement entirely was a question of construction, applying ordinary objective principles in context and with business common sense.
3. There was no rule that a later agreement could replace an earlier arbitration clause only if it was fundamentally inconsistent with, or went to the root of, the earlier clause. Morris v Baron & Co and British & Beningtons Ltd v North Western Cachar Tea Co Ltd concerned the different problem of oral variation of a contract required to be in writing. Ginns v Tabor stated the relevant construction principle; its reference to fundamental inconsistency was an example, not a restrictive rule.
4. The letter was comprehensive. It specified London as the seat, LMAA procedure, a three-arbitrator constitution, a 14-day appointment period and English law, including the Hague-Visby Rules and the Carriage of Goods by Sea Act 1992. It was naturally construed as replacing the charterparty arbitration clauses in their entirety.
5. That construction avoided an incoherent arrangement involving four arbitrations, some under the ordinary LMAA procedure and others under the Small Claims Procedure. The letter also removed uncertainty as to which charterparty clause had been incorporated. Its principal security purpose did not prevent it from making provision for arbitration.
6. The question whether the letter provided for one arbitration or four was unnecessary to decide. The judge indicated that one arbitration would be preferable, but expressly left the issue open. The arbitrators remained able to adopt economical and proportionate procedures.