Frota Oceanica Brasileira v Steamship Underwriting Association (Bermuda) Ltd ('The Frotanorte')
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HIRST,LORD JUSTICE SCHIEMANN,LORD JUSTICE NOURSE |
| Judgment Date | 30 July 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J0730-15 |
| Docket Number | FC3 96/6016/B |
| Court | Court of Appeal (Civil Division) |
| Date | 30 July 1996 |
[1996] EWCA Civ J0730-15
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr. Justice Longmore)
Royal Courts of Justice
Lord Justice Nourse
Lord Justice Hirst
Lord Justice Schiemann
FC3 96/6016/B
QBCMI 95/0941/B
MR. S. TOMLINSON QC and MR. A. FENTON (instructed by Messrs. Elborne Mitchell, London EC3) appeared on behalf of the Appellant Plaintiffs.
MR. J. COOKE QC and MR. D. KENDRICK (instructed by Messrs. Richards Butler, London EC3) appeared on behalf of the Respondent Defendant.
Tuesday, 30th July 1996
This is an appeal by the plaintiffs Frota Oceanica Brasileira (FOB) and Instituto de Reseguros do Brasil (IRB) against the order of Longmore J. dated 22nd May 1995 whereby, having upheld their disputed contention that there was a binding arbitration agreement in existence between them and the respondent P and I Club, Steamship Underwriting Association Bermuda Ltd (The Club), he dismissed the appellants' application pursuant to section 10 of the Arbitration Act 1950 for the appointment of an arbitrator. This judgment is now reported at 1995 2 Lloyd's Reports 254.
Both appellants are Brazilian companies. FOB, who were members of the Club, were the owners of the vessel FROTANORTE; IRB are a reinsurance company who were the reinsurers of the FOB's Brazilian hull insurers, Bradesco.
The dispute which underlay the present proceedings stemmed from a collision between the FROTANORTE and another vessel, the THEOPAES, off Puerto Rico on 21st August 1978.
The claims arising out of the collision were settled on the basis that the responsibility for the collision was divided 73.5/26.5% in favour of the THEOPAES.
This settlement as between the two shipowners was conducted on what is known as a Single Liability basis, in accordance with the decision of the House of Lords in the KHEDIVE 1882 7 AC 795, which laid down the basis on which collision damage cases have been decided as between shipowners ever since (see the LU SHAN 1993 2 Lloyd's Reports 259).
Although approximately three quarters of the blame was attributed to the FROTANORTE, seeing that she suffered considerably more damage than the other vessel, her owners became entitled under the apportionment to recover $1.320m., as against the amount they were obliged to pay of about $1.1m, with the result that they became entitled to receive a net sum of approximately $220,000 from the owners of the THEOPAES.
The owners of the FROTANORTE were insured as to 75% with Bradesco, and as to 25% with the Club. Bradesco paid out on the basis of a constructive total loss, resulting in a claim in their turn against their reinsurers IRB.
The Club rules contained a provision, known in the industry as a Running Down Clause (RDC) as follows:—
"If both ships are to blame, then unless the liability of the Owners of one or both of them become limited by law, claims under this Rule shall be settled upon the principle of Cross-Liabilities, as if the owner of each ship had been compelled to pay the owner of the other ship one half or other proportion of the latter's damages as may have been properly allowed in ascertaining the balance or sum payable by or to the former in consequence of the collision……".
The settlement between the two owners in the sum of $220,000 referred to above was concluded on 11th April 1979. Over four years later, on 20th April 1983, the reinsurers, relying on the RDC, claimed against the Club 25% of the FROTANORTE's liability to the THEOPAES, viz. approximately $275,000, plus interest, amounting to a total sum at that date of approximately $400,000.
This claim was rejected by the Club on the basis that the settlement had been entered into on a single liability basis.
There then ensued a prolonged correspondence, to which I shall have to refer in greater detail in due course, culminating in a letter from IRB's solicitors Elborne Mitchell dated 20th November 1984 by which, as the plaintiffs contend and the judge held, a binding ad hoc arbitration agreement was concluded, as a result of their acceptance of an earlier offer by the Club that the dispute should be resolved by "informal" or "simple" arbitration. There then followed intermittent further correspondence over the succeeding 7 years or so, punctuated by long intervals of inactivity which are more fully documented below, when other modes of disposing of the dispute were extensively debated, viz. in the first place resort to leading counsel for a non-binding opinion, and subsequently resort to leading counsel for a binding opinion. During this period the Club several times extended the plaintiffs' time for claim, but without prejudice to their basic contention that time had expired in April 1985, ie., six years after the settlement on the single liability basis.
This labyrinthine sequence of discussions culminated in a final breakdown at a meeting on 25th September 1991, following which, on 27th September 1991, Elborne Mitchell addressed a formal letter to the Club asserting for the first time that the arbitration had been validly commenced in November 1984, ie, within the 6 year period relied upon by the Club; but it was not until 29th June 1994, after the Club's solicitors had declined to accept service, that Elborne Mitchell sent to the Club a draft Originating Summons for the appointment by the court of an arbitrator. Leave to serve the originating summons was obtained on 11th October 1994, following which the Club's solicitors accepted service.
Before the judge there were 3 main questions with which we are also presently concerned:—
(i) Was any binding agreement to arbitrate entered into in November 1984?
(ii) If there was, was that agreement superseded by a subsequent agreement to submit a joint question to leading counsel for a non-binding opinion, and/or by an agreement to submit a joint question to leading counsel for a binding written opinion?
(iii) If the answer to both the first two questions was favourable to the plaintiffs, should the court in the exercise of its discretion under section 10 of the Arbitration Act 1950 appoint an arbitrator?
The Judge upheld the plaintiffs' case on the first two questions, but declined in the exercise of his discretion to make an appointment under section 10 on the ground that the "awe-inspiring" delay had been so inordinate and inexcusable that, even in the absence of prejudice, it would be wrong to allow the arbitration to proceed. He based this decision specifically on the delay between November 1991 and October 1994, against the background of the earlier extended periods of delay.
The plaintiffs now appeal against the judge's refusal to exercise his discretion in their favour under section 10, and, by respondents' notice, the defendants appeal against the judge's adverse findings in answer to the first two questions. I propose to consider the appeal first.
The underlying statutory framework is contained in the Arbitration Act 1950 which provides by section 10(1) and section 32 as follows:—
"10. Power of court in certain cases to appoint an arbitrator or umpire
(1) In any of the following cases—
(a) where an arbitration agreement provides that the reference shall be to a single arbitrator, and all the parties do not, after differences have arisen, concur in the appointment of an arbitrator;
(b) if an appointed arbitrator refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied and the parties do not supply the vacancy;
(c) where the parties or two arbitrators are required or are at liberty to appoint an umpire or third arbitrator and do not appoint him;
(d) where an appointed umpire or third arbitrator refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or arbitrators do not supply the vacancy;
any party may serve the other parties or the arbitrators, as the case may be, with a written notice to appoint or, as the case may be, concur in appointing, an arbitrator, umpire or third arbitrator, and if the appointment is not made within seven clear days after the service of the notice, the High Court or a judge thereof may, on application by the party who gave the notice, appoint an arbitrator, umpire or third arbitrator who shall have the like powers to act in the reference and make an award as if he had been appointed by consent of all parties.
32. Meaning of 'arbitration agreement'. In this Part of this Act, unless the context otherwise requires, the expression 'arbitration agreement' means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not."
The judge recorded that it was common ground that the section 10 power is discretionary; then, having recited the arguments which were along the same lines as those outlined below, and having held that the Club had not proved that they would suffer prejudice if the arbitration proceeded, he concluded as follows:—
" The need for prejudice
In the light of Sparrow v Sovereign Chicken Limited (infra) I agree with Mr. Cooke that I need not be shackled by a formal requirement of prejudice before I decline to exercise my discretion. The fact that Parliament has reiterated the requirement of prejudice in order to justify a...
To continue reading
Request your trial
-
Atlanska Plovidba and Another v Consignaciones Asturianas SA
...agreement between the parties as to the qualifications required of the arbitrators) and in Frota Oceanica Brasileira S.A. v Steamship Mutual Underwriting Association (Bermuda) Ltd (The 'Frotanorte') [1996] 2 Lloyd's Rep. 461 the Court of Appeal held that the discretion conferred by section ......
-
R Durtnell and Sons Ltd v Secretary of State for Trade and Industry
...cases were referred to in the judgment: Frota Oceanica Brasileira v Steamship Underwriting Association (Bermuda) Ltd (“The Frotanorte”) [1997] CLC 230. Secretary of State v Percy Thomas Partnership (a firm)UNK (1998) 65 Con LR 11. Villa Denizcilik Sanayi Ve Ticaret AS v Longen SA (“The Vill......
-
West of England Ship Owners Mutual Protection and Indemnity Association (Luxembourg) v Hellenic Industrial Development Bank SA [QBD (Comm)]
...the judgment: Cremer (Peter) GmbH & Co v Sugat Food Industries Ltd (“The Rimon”)UNK [1981] 2 Ll Rep 640 Frotanorte, The [1995] CLC 999; [1997] CLC 230 (CA) Nea Agrex SA v Baltic Shipping Co Ltd (“The Aghios Lazaros”)ELR [1976] QB 933 Swiss Bank Corp v Novorissiysk Shipping Co (“The Petr Sch......
-
R Durtnell and Sons Ltd v Secretary of State for Trade and Industry
...was intended to clarify and simplify the existing law and not to replace it. The Court should apply the principles in The Frotanorte [1996] 2 Lloyds Rep 461 to grant relief to a party that has for too long neglected its right to obtain redress. 28 Alternatively the defendants argue that the......