Court support for arbitration: settlement agreements

Sonact Group Ltd v Premuda SpA (Four Island) [2019] EWHC 3820 (Comm)

Background
In June 2014, owners of the MT FOUR ISLAND chartered the vessel for the carriage of fuel oil from Kavkaz to Novhodka on an amended Asbatankvoy form.

The charterparty contained an agreement for London arbitration which covered “[a]ny and all differences and disputes of whatsoever nature arising out of this Charter”.

On completion of the voyage, Owners presented a claim for demurrage in the amount of USD 718,948.08 and heating costs of USD 190,200. Charterers disagreed with the sums claimed and following an exchange of emails the parties agreed to settle the claims at USD 600,000. No separate settlement agreement was drawn up.

Charterers failed to pay in accordance with what had been agreed and Owners gave notice of commencement of arbitration in respect of “a demurrage claim, a claim for heating costs, a claim for a penalty, a claim for interest and costs, plus various other matters.”

Charterers argued that on agreeing settlement of the claims the parties entered into a new agreement, i.e. a settlement agreement, and that there was no agreement for London arbitration in that new agreement. Charterers therefore concluded that the appointed arbitrators did not have jurisdiction to hear the dispute.

Arbitration
The arbitrators found against Charterers:

We had little hesitation in concluding that, given the nature of the negotiations and the manner in which they had been carried out, the objective but unexpressed intention of the parties was that the second agreement should be governed by the same provisions for dispute resolution as the original charterparty… Indeed the negotiation and agreement of demurrage claims under voyage charterparties and final hire statements under time charters is so much part and parcel of operating and chartering ships that people working in the industry would be astonished to be told that the dispute resolution provision in the governing charterparty did not apply.

Appeal
Charterers appealed to the High Court on the basis that the Tribunal lacked jurisdiction to make the award.

The Court dismissed Charterers’ challenge and found that the charterparty arbitration clause covered a dispute over failure to pay under the agreement to settle.

The following reasons were given in the judgment:

1. The agreement to settle at USD 600,000 was an agreement in respect of Owners’ claim for demurrage and heating costs. The exchange of emails was described as a “settlement agreement” but was, in reality, no more than an informal and routine arrangement to finalise sums which fell due under the terms of the original charterparty.

2. The wording of the charterparty arbitration clause was wide enough to encompass a claim for failure to pay, even though the agreement to pay USD 600,000 was a new cause of action under a new and binding agreement.

3. It was obvious that the parties intended that the arbitration clause would continue to apply in the event that Charterers failed to pay the agreed sum. It was inconceivable that the parties intended that Owners would have to commence court proceedings rather than pursue their claim in arbitration which the parties had selected as the neutral forum for disputes under the charterparty.

Comment
The judgment serves as a reminder of the Court’s willingness to give effect to an agreement to arbitrate in a manner that reflects the commercial intentions and assumptions of parties operating in the industry. It is likely a decision with which most shipping operators would agree.

The decision should, however, be treated with caution.

This was a decision reached on the facts of the particular case and is not one which gives blanket protection that an arbitration agreement in an underlying contract will be implied into related agreements, whether a settlement agreement or other subsequent contract.