DHL Project & Chartering Limited v Gemini Ocean Shipping Co Limited

An arbitration agreement is subject to the ordinary principles of contract formation. Separability preserves an agreed arbitration clause against challenges to the validity of the main contract. It does not establish an agreement to arbitrate where the parties lacked an intention to enter any binding contract.

In charterparty negotiations, an agreement made on “subjects” will ordinarily prevent contractual relations until the subjects are lifted. Where such a pre-condition governs the whole proposed fixture, it also governs the proposed arbitration clause. The presumption favouring one-stop dispute resolution concerns the interpretation of an existing arbitration agreement. It does not determine whether such an agreement was formed.

The parties negotiated a voyage charter for the vessel Newcastle Express. Their fixture recap was expressly “subject shipper/receivers approval” and included a London arbitration clause. The subject was never lifted, but the owner commenced arbitration after the charterer released the vessel. The charterer did not participate, and the arbitrator awarded damages to the owner.

On the charterer’s jurisdictional challenge, Jacobs J held that no binding charterparty or arbitration agreement had been concluded. He set aside the award under section 67 of the Arbitration Act 1996: [2022] EWHC 181 (Comm). The owner appealed. The central issue was whether separability nevertheless gave the arbitrator jurisdiction to decide whether the charterparty had been formed.

1. Appeal dismissed. The arbitrator lacked substantive jurisdiction, and the award was correctly set aside under section 67 of the Arbitration Act 1996.

2. A “subject” used in charterparty negotiations ordinarily signifies a pre-condition to contractual formation. “Subject shipper/receivers approval” required the charterer to communicate that the subject was lifted. Approval was a commercial matter for the charterer, rather than a performance obligation controlled by whether a third party had objectively approved the vessel. Until the subject was lifted, either party remained free to withdraw.

3. Separability distinguishes challenges to contractual validity from questions of contractual formation. Where the parties have agreed an arbitration clause, section 7 may preserve it despite invalidity, non-existence or ineffectiveness of the main contract, unless the ground of invalidity also impeaches the arbitration agreement. Where the contention is that the parties never intended to be contractually bound, ordinary formation principles apply equally to the proposed arbitration clause. Separability cannot supply the missing agreement.

4. The question of formation must, in principle, be asked separately for the main contract and the arbitration agreement. The parties may exceptionally agree to arbitrate before concluding their main contract. Their agreement upon the wording of a proposed arbitration clause does not itself demonstrate an intention to be immediately bound by it. Here the subject applied to the whole proposed fixture. The parties had agreed only that any later binding charterparty would contain the arbitration clause.

5. The one-stop presumption in Fiona Trust concerns the construction of an arbitration clause which has already been agreed. It has no role in deciding whether an arbitration agreement was formed.

6. The proforma clause requiring reasonable acceptance of a nominated vessel did not alter the result. It concerned a charter for a vessel to be nominated and could not apply to this proposed charter for a named vessel. The subject therefore remained a pre-condition, not a performance condition.

1. Court of Appeal (Civil Division): The owner’s appeal was dismissed. The court affirmed that the arbitrator lacked substantive jurisdiction and that the award should be set aside under section 67 of the Arbitration Act 1996: [2022] EWCA Civ 1555.
2. Commercial Court: Jacobs J upheld the charterer’s section 67 challenge because neither the charterparty nor its arbitration clause had become binding. He also granted permission for an appeal under section 69, while indicating that he would have allowed that appeal had it arisen: [2022] EWHC 181 (Comm).
3. Arbitration: The sole arbitrator found a binding charterparty, held that the charterer had repudiated it, and awarded the owner damages, interest and costs. The charterer had not participated.