DHL PROJECT & CHARTERING LTD v GEMINI OCEAN SHIPPING CO., LTD

A charterparty negotiated on “subjects” remains non-binding until the subjects are lifted. Where the subject qualifies the parties’ agreement as a whole, it also qualifies an arbitration clause contained in the same recap. The separability principle does not preserve the arbitration agreement where the relevant subject negates any contractual commitment between the parties. In charterparty negotiations, the critical event is ordinarily the charterers’ confirmation that the subjects have been lifted, rather than the occurrence of an external approval alone. Incorporated proforma terms cannot narrow clear, unqualified subject wording where the recap gives primacy to its express terms.

The Charterers challenged an arbitration award of US$283,416.21 made in favour of the Owners for alleged repudiation of a charterparty. The proposed fixture recap was expressly subject to shipper/receivers’ approval, and the Charterers later released the vessel before confirming that the subject had been lifted.

The Charterers applied under section 67 of the Arbitration Act 1996, contending that neither a charterparty nor an arbitration agreement had been concluded. Alternatively, they sought permission to appeal under section 69, arguing that an incorporated proforma charterparty could not qualify the subject by requiring approval to be withheld reasonably.

1. Section 67 application allowed. A section 67 challenge proceeds by way of rehearing. The central question was whether the subject wording prevented both the proposed charterparty and the arbitration agreement from coming into existence.
2. The opening subject clause was prominent, unqualified and placed before the recap terms. It therefore qualified everything that followed, including the arbitration clause. In the recognised chartering-market usage of “subjects”, the parties had not entered contractual relations unless and until the subjects were lifted.
3. The relevant subject was not merely an external approval condition. Its effect depended upon the Charterers’ confirmation that the subjects had been lifted. That confirmation was never given. The Charterers were therefore free to withdraw, and no binding charterparty existed.
4. The separability principle in section 7 of the Arbitration Act 1996 did not produce a different result. The arbitration agreement formed part of the same bundle of negotiated rights and obligations, and the subject negatived any contractual commitment, including the commitment to arbitrate. The proposed charterparty and arbitration agreement consequently stood or fell together.
5. The reasoning in The “Pacific Champ” was sound and provided valuable guidance. The fact that the subject referred to third-party approval did not distinguish that case. The approach in The “Leonidas” confirmed that the material question was the lifting of the subject by the charterers.
6. The proforma terms could not qualify the subject by imposing a requirement that approval not be unreasonably withheld. Clause 20 incorporated the proforma only “otherwise” and with logical alteration. The express recap terms therefore prevailed. The proforma provisions were also directed principally to nomination of a future vessel and had no obvious or necessary application to the identified vessel in the recap.
7. The contingent section 69 application did not arise. Had it been necessary, permission would have been granted because the proforma issue raised a question of general public importance and the arbitrator’s construction was wrong. The appeal would have been allowed and the award set aside.