Nisshin Shipping Company Ltd v Cleaves & Company Ltd

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeMr Justice Colman
Judgment Date07 November 2003
Neutral Citation[2003] EWHC 2602 (Comm)
Date07 November 2003
Docket NumberCase No: 2003 Folio 176

[2003] EWHC 2602 (Comm)




Royal Courts of Justice

Strand, London, WC2A 2LL


The Honourable Mr Justice Colman

Case No: 2003 Folio 176

Nisshin Shipping Co Ltd
Cleaves & Company Ltd and Others

Mr Michael Ashcroft (instructed by Messrs Jackson Parton) for the Applicant

Miss Philippa Hopkins (instructed by Messrs Ince & Co) for the Respondent

Hearing dates : 16 July 2003

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic. Colman J.

Mr Justice Colman

Mr Justice Colman:



In 1999, following an admirable report by the Law Commission, Parliament dealt a long overdue body blow to the doctrine of privity of contract. It enacted the Contracts (Rights of Third Parties) Act 1999. That broadly had the purpose of enabling a third party to a contract under which one party had promised to confer a benefit on that third party to enforce that promise direct against the promisor. That facility is of particular importance to chartering brokers, like the Respondents to this application, and to others who create contracts under which one party promises to pay them commission.


This case is, I understand, the first time that the 1999 Act has been before the courts. It raises questions highly relevant to the shipping industry as to how a third party may enforce a promise of a benefit for him where there is an arbitration clause in the underlying contract.


This is an application under section 67 of the Arbitration Act 1996 for the court to declare that arbitrators have no jurisdiction to determine claims for commission said to be due to the Respondent chartering brokers ("Cleaves"), payment of such commission having been sought from the Applicant owners/guarantors.


There were nine relevant time charters negotiated by Cleaves on behalf of the Applicant, Nisshin. Each charterparty contained an arbitration clause. The Applicant challenges the entitlement of Cleaves to commission on the principal ground that Cleaves were in repudiatory breach of the agency relationship because their principal and controlling interest became a shareholder and member of the senior management team of a competitor of the Applicant. It is said that this breach was accepted by Nisshin as terminating the agency relationship.


Each charterparty provided for the payment of commission to Cleaves. Each arbitration clause contained wording referring to disputes between the "parties" to the charterparty or between Owners and Charterers. However, the wording was in each case in terms wide enough to cover a claim by the charterers against the owners for failure by the owners to perform their promise to pay commission to Cleaves.


The issue of entitlement to commission was referred by Cleaves to arbitration notwithstanding it was not a party to any of the nine arbitration agreements.


The issue as to the arbitrators' jurisdiction was raised and argued on paper before a tribunal consisting of Mr Timothy Young QC and Mr Timothy Rayment. Both are extremely experienced in the field of maritime law and arbitration. In an interim final arbitration award dated 24 January 2003 they concluded that the effect of sections 1 and 8 of the 1999 Act was that they did have jurisdiction.


There are four other charterparties involved which are not covered by the 1999 Act. The Respondents, Cleaves, have commenced proceedings in this court claiming commission in relation to all 13 charterparties. The Applicant wishes all the claims to proceed in one set of proceedings before the court.


The relevant sections of the 1999 Act are as follows:

Section 1:

"(1) Subject to the provisions of this Act, a person who is not party to a contract (a "third party") may in his own right enforce a term of the contract if –

(a) the contract expressly provides that he may, or

(b) subject to subsection (2), the term purports to confer a benefit on him.

(2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

(3) The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.

(4) This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract."

Section 8

"Where –

(a) a right under section 1 to enforce a term ("the substantive term") is subject to a term providing for the submission of disputes to arbitration ("the arbitration agreement"), and

(b) the arbitration agreement is an agreement in writing for the purposes of Part 1 of the Arbitration Act 1996

the third party shall be treated for the purposes of that Act as a party to the arbitration agreement as regards disputes between himself and the promisor relating to the enforcement of the substantive term by the third party."

Do Cleaves fall within Section 1 of the 1999 Act?


It is accepted on behalf of Cleaves that in none of the charters did the commission clauses expressly provide that Cleaves could enforce such clauses directly against the owners. However the real issues are (i) whether those clauses purported to confer a benefit on Cleaves within sub-section (1)(b) of section 1 and (ii) whether sub-section 1(b) is disapplied by sub-section (2) because "on a proper construction of the contact it appears that the parties did not intend the term to be enforceable by the third party".


It is argued by Mr Michael Ashcroft, on behalf of Nisshin, that under four of the charterparties – those numbered (ii), (iii), (iv) and (v) in the arbitration award – the commission clauses did not purport to confer a benefit on Cleaves alone. Although there was an issue before the arbitrators as to whether certain words had been deleted from numbers (iv) and (v) before or after the contract was entered into, it is common ground that, for the purposes of this application only, I should disregard deletions of part of these clauses which were made at some stage. The relevant wording for all four charterparties is thus as follows:

"A commission of 2 per cent for equal division is payable by the vessel and owners to Messrs Ifchor SA Lausanne and Messrs Cleaves and Company Ltd, London on hire earned and paid under this Charter, and also upon any continuation or extension of this charter".


It is argued that the phraseology is such that the benefit conferred by the clause is to be subsequently divided between the two firms as distinct from a provision which specifies that a particular percentage should be paid to a particular broker.


I cannot accept this argument. These provisions leave no doubt as to the identity of the broker to whom payment is to be made and as to the amount to be paid. It is in substance exactly the same as if the clause had provided that there was to be a commission of 2 per cent of which 1 per cent was to be paid to Ifchor and 1 per cent to Cleaves. There is nothing in this clause to suggest that the total 2 per cent commission is to be paid to Ifchor and that Ifchor will then pay half of that to Cleaves. The words "for division" do not, in my judgment, bear that connotation in the absence of any indication as to the broker to whom payment is first to be made. Nor do the words support the submission that the obligation to pay commission can only be enforced jointly by both the firms of brokers. There is no conceivable commercial purpose in a construction which creates a joint and indivisible right of enforcement. Absent of much clearer wording than this, I do not consider that the clause should be thus construed.


Accordingly, I hold that the effect of the clause was to confer a benefit to the extent of 1 per cent commission on Cleaves alone.


It is then further argued by Mr Ashcroft, on behalf of Nisshin, that on the proper construction of the charterparties the parties to them did not intend the commission clause to be enforceable by Cleaves and accordingly section 1(1)(b) of the 1999 Act is disapplied by section 1(2).


In support of this argument Nisshin relies on three distinct points.


First, it is argued that the arbitration clauses in all of the charterparties do not make express provision for enforcement by a broker of a claim for commission. All except those numbered (viii) and (ix) include substantially the standard New York Produce Exchange arbitration clause:

"Should any dispute arise between Owners and the Charterers, the matter in dispute shall be referred to three persons at London, one to be appointed by each of the parties hereto, and the third by the two so chosen."


Those charterparties numbered (viii) and (ix) which substantially incorporated the Shelltime 4 standard claims provided as follows:


This charter shall be construed and the relations between the parties determined in accordance with the laws of England. (b) Any dispute arising under this charter shall be decided by the English Courts to whose jurisdiction the parties hereby agree. See also LMAA Arbitration Clause. See additional Clause 48. (c) Notwithstanding the foregoing, but without prejudice to any party's right to arrest or maintain the arrest of any maritime property, either party may, by giving written notice of election to the other party, elect to have any such dispute referred to the arbitration of a single arbitrator in London in accordance with the provisions of the Arbitration Act 1950, or any statutory modification or re-enactment thereof for the time being in force."


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