Dera Commercial Estate v Derya Inc

Under s. 41(3) of the Arbitration Act 1996, a claim may be dismissed for inordinate and inexcusable delay even where it was particularised within the statutory limitation period, if the parties agreed a shorter contractual time bar. The applicable limitation period is an important yardstick, not an automatic rule. Delay is assessed factually and may include time elapsed after commencement but before expiry of the contractual period.

The legal burden remains on the applicant to prove, on the balance of probabilities, both inordinate and inexcusable delay. A geographic deviation ordinarily raises a question of contractual construction, but the court was bound by Hain Steamship Co Ltd v Tate & Lyle Ltd to hold that an effective election to terminate precluded reliance on the Hague Rules one-year time bar.

Dera challenged an LMAA tribunal award which struck out its cargo-damage counterclaim under s. 41(3) of the Arbitration Act 1996. The tribunal found inordinate and inexcusable delay, serious prejudice to the owners and a substantial risk that the claim could not be fairly resolved.

Dera brought a challenge under s. 68 alleging serious procedural irregularity and apparent bias. With permission, it also appealed under s. 69 on questions concerning the interaction between contractual limitation, geographic deviation, delay, and the burden and standard of proof under s. 41(3).

1. Section 68 challenge. The challenge based on apparent bias was dismissed. Applying the fair-minded and informed observer test, the tribunal’s questions and remarks, considered in context and cumulatively with its procedural decisions and costs order, did not establish a real possibility of bias. The high threshold for intervention under s. 68 was not met.
2. Contractual limitation as yardstick. A claim particularised within the six-year statutory period under s. 5 of the Limitation Act 1980 may nevertheless be dismissed under s. 41(3) where the parties agreed a shorter limitation period. The contractual period is an important context or yardstick, but whether delay is inordinate remains fact-sensitive.
3. Geographic deviation. The modern authorities supported assimilation of deviation cases into ordinary contractual construction. However, the court held that Hain Steamship Co Ltd v Tate & Lyle Ltd remained binding. Accordingly, where there is geographic deviation and the innocent party elects to terminate, the carrier cannot rely on the one-year time bar in Article III Rule 6 of the Hague Rules. No finding was made on whether deviation or election had occurred. The tribunal had therefore erred on this point of law. The judge stated that, if not bound by Hain Steamship, she would have reached the opposite conclusion.
4. Periods of delay. Where Article III Rule 6 applies, time between accrual of the cause of action and expiry of the contractual time bar may be considered when assessing inordinate delay. Separate periods should normally be examined where procedural activity and inactivity can be distinguished, but a single block period may be assessed where there was no substantive procedural activity.
5. Burden and standard of proof. The applicant retains the legal or persuasive burden throughout of proving, on the balance of probabilities, that delay was both inordinate and inexcusable. It is unnecessary to impose a rigid evidential-burden analysis. In practice, the responding party will normally identify the credible excuse because it is likely to possess the relevant evidence.
6. The appeal on the burden and standard of proof failed because, read fairly as a whole, the tribunal asked the correct question and its confusion about burdens was immaterial to the outcome. The parties were directed to draw up an order reflecting the judgment and agree consequential matters, including costs.

The tribunal’s award dated 13 June 2017 dismissed Dera’s cargo counterclaim under s. 41(3) of the Arbitration Act 1996. Leggatt J granted permission for the specified appeals under s. 69 and directed a hearing of the apparent-bias challenge.

The High Court dismissed the s. 68 challenge. It answered the permitted questions of law as stated at paragraph 183, including holding that the tribunal erred on the geographic-deviation issue because Hain Steamship Co Ltd v Tate & Lyle Ltd remained binding. The tribunal’s strike-out decision was not otherwise disturbed.