In the case of Dera Commercial Estate v. Derya Inc.  EWHC 1673 (Comm), the English Commercial High Court dealt with several issues regarding time limitation provided under Section 5 of the English Limitation Act 1980 and its application for assessing “inordinate delay” under Section 41(3) of the English Arbitration Act where the parties have decided for a shorter time period than what is applicable under the Limitation Act. The Court also dealt with the one year time bar created by Article III Rule 6 of the Hague Rules in relation with geographic deviation. Read the case analysis below:
Dera purchased Indian maize from Rika and Rika chartered it to MV Sur (the Vessel) from the Owners on a voyage charter to carry the cargo from India to Jordan. Five bills of lading were issued in Mumbai on the Congen form and Dera was named as the Notify Party in respect of the cargo. On their reverse there was a General Paramount Clause incorporating Article III Rule There was also a clause incorporating the terms of the charterparty between Rika and the Owners. The Charterparty was on an amended BIMCO form and made provision for disputes to be referred to arbitration in London and for English law to apply. The Vessel arrived at Jordan and the Jordanian customs authorities, after analyzing the samples from the cargo held that the cargo would not be permitted to enter Jordan and must be returned to its country of origin on account of “broken percentage, foreign matters, impurities, damaged kernels…and apparent fungus”. Dera issued proceedings against the Owners in Jordan seeking damages in respect of the damage to the cargo. The Owners’ insurers appointed the Owners’ arbitrator (in the exercise of their subrogated rights) with reference to this dispute arising under the bills of lading. The Owners made an application to the English Court for an anti-suit injunction restraining Dera from taking further steps in the Jordanian Proceedings on the basis that to do so would be in breach of the arbitration provisions in the Charterparty. Dera appointed an arbitrator, the anti-suit proceedings were sealed under a consent order and Jordanian Proceedings were subsequently struck out. The Vessel sailed to Turkey with the cargo on board without the consent of Dera or the Jordanian customs authorities where the cargo was sold by pursuant to a judicial sale ordered by the Turkish court and the proceeds of the sale were transferred to the Owners. The Owners claimed that the Vessel had incurred demurrage during transit to Turkey and they commenced proceedings in the Turkish courts to recover those sums from Dera in which enforcement orders against the cargo were made with a condition that Dera had to raise its objections until three months after formal service. Dera’s raised objections but they were dismissed on the basis that they had been raised outside time limit. Thereafter, the Owners sold the Vessel for scrap.
The matter went into arbitration and in addition to other conclusions, the Tribunal held that that there been inordinate and inexcusable delay on the part of Dera, and that such delay had caused serious prejudice to the Owners and created a substantial risk that it was not possible to have a fair resolution of the cargo claim. Accordingly, the Tribunal struck out the cargo claim under Section 41(3). The present proceedings are pursued by Dera as a challenge under Section 68 and 69 of the English Arbitration Act (the Act).
Applicable Legal Principles
Section 41 of the Act
“41 Powers of tribunal in case of party’s default
(3) If the tribunal is satisfied that there has been inordinate and inexcusable delay on the part of the claimant in pursuing his claim and that the delay—
(a) gives rise, or is likely to give rise, to a substantial risk that it is not possible to have a fair resolution of the issues in that claim, or
(b) has caused, or is likely to cause, serious prejudice to the respondent, the tribunal may make an award dismissing the claim.”
Section 5 of the English Limitation Act 1980
“5 Time limit for actions founded on simple contract
An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.”
Dera argued the fact that the parties necessarily contemplate proceeding with litigation with dispatch where the applicable time bar is one year is not consistent with the real-world experience of those dealing with cargo claims and that the Tribunal was wrong to focus on the one-year limitation period as the yardstick for assessing whether a delay in particularising a cargo claim is inordinate. Multiple extensions of the one-year time bar are a commonplace of cargo claim handling. Dera also argued that adoption of the one-year rule as the principal yardstick for assessing delay creates an unfair imbalance between claims asserted against shipowners on the one hand and claims brought by shipowners against other parties to the contract of carriage on the other hand.
While commenting on Section 41(3), the Court held that it would nevertheless be wrong to elevate the relevant limitation period to the status of being “the” yardstick. Rather it is “a” yardstick, albeit an important one. The length of the relevant limitation period sets the context in which the nature of the period or periods of delay will be assessed, specifically whether the delay overall is inordinate or not. Whether or not delay is inordinate will always be a fact-sensitive exercise in each case.
The Court relied on Rix J’s statement from The Finnrose  and Tag Wealth Management v West  2 Lloyds Rep 699 to conclude that where, without more, the parties sign up to the one-year limitation period in Article III Rule 6, remains accurate. If the parties choose subsequently to extend time for commencement of proceedings or consent to a prolonged timetable for particularisation, that is a matter for them. Such a course would doubtless be taken into account in assessing whether any delay could be said to be inordinate. But absent any such extensions or consent to delay, there is no reason why the one-year rule is not objectively relevant for the purpose of assessing delay. It sets the tone and context for that exercise.
The further stated that Article III Rule 6 represents the product of the commercial compromise between stakeholders in the maritime industry at the time that the Hague Rules were agreed. Any imbalance is one inherent in the Hague Rules to which the parties in this case agreed to submit. The court cited that recent judgment of Deep Sea Maritime Ltd v Monjasa A/S  EWHC 1495 (Comm) where David Foxton QC pointed out while the Article III Rule 6 time bar has come to be seen as a provision benefiting the shipowner, this was not the position when the Hague Rules were agreed. Read the case analysis at English Commercial High Court (QB): Whether the proceedings commenced in a foreign court in breach of arbitration clause can be termed as “suit” for the purposes of time limitation stipulated in Article III Rule 6 of the Hague Rules
While dealing with the issue of whether, in a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation precludes a carrier from relying on the one year time bar created by Article III Rule 6, the Court aligned with the view of Lloyd LJ in The Antares to the effect that geographical deviation cases should now be assimilated into the ordinary law of contract as there is no sound basis for treating such cases differently from cases involving the unauthorised stowage of cargo on deck. Both are examples of very serious breach. That geographical deviation can be said to be a more serious breach, is a question of degree not principle. The seriousness of the breach is no longer a self-sufficient yardstick for determining whether limitations or exemptions apply to particular breaches. The discredited the doctrine of fundamental breach stating that uncertainty is as undesirable in a contract of carriage as it is in any other type of contract. The Court relied on Lord Wilberforce in Photo Production Ltd v Securicor Transport Ltd  AC 827 and held that although the provisions of the Unfair Contract Terms Act 1977 are largely inapplicable in cases involving contracts of carriage by sea, “in commercial matters generally, when the parties are not of unequal bargaining power, and when risks are normally borne by insurance… there is everything to be said, and this seems to have been Parliament’s intention, for leaving the parties free to apportion the risks as they think fit and for respecting their decisions”. These points apply with equal force to a contract of carriage by sea as they would to any other type of commercial contract.
With regard to inordinate delay the Court held that although time elapsed before the issue of a writ within the limitation period could not of itself constitute inordinate delay such as to justify dismissal of the action, once a writ had been issued the plaintiff was bound to observe the rules of court and proceed with reasonable diligence. Accordingly, the inordinate and inexcusable delay by the plaintiffs within the limitation period could be relied upon to support the defendants’ applications to strike out after the expiry of the limitation period.
On the issue of proper order, burden and/or standard of proof applicable to a tribunal’s assessment of whether a delay is “inexcusable” for the purpose of Section 41(3), the Court held that the legal (or persuasive) burden lies on the applying party to prove on a balance of probabilities that the inordinate delay in question is inexcusable. Although each case is fact-specific, and whilst it is not generally helpful to speak in terms of a shift of evidential burden in this context, it will normally be the responding party that identifies a credible excuse for the delay.
The Court held that a claim which is particularised within the six year period applicable to contractual claims pursuant to the Limitation Act 1980 can nevertheless be struck out for inordinate delay under Section 41(3) because the parties have contracted for a shorter period. The statutory limitation period is irrelevant in circumstances where the parties have contracted for something different.
The Court further held that as a matter of construction, Article III Rule 6 is sufficiently broad to apply to circumstances of a geographic deviation. But at the same time, the Court held that it is bound by ratio decidendi of Hain Steamship Company Ltd v Tate & Lyle Ltd  41 Com Cas, 350 wherein it was held that a geographic deviation does preclude a carrier from relying on the one-year time bar created by Article III Rule 6 if the other party to the contract of carriage elects to terminate and therefore, the Court found that the Tribunal erred in law in concluding that, in a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation does not preclude a carrier from relying on the one year time bar created by Article III Rule 6.