Short contractual time limits loom large

There is nothing new in specifying within a commercial agreement that all claims must be notified to the other party, or proceedings begun, within a set period of time. The current trend is, however, for parties to agree very short time limits. These are often only a few days, which are in practice impossible to comply with.

Judges and arbitrators typically uphold clearly worded time bar clauses, even if they are very onerous, upon the justification of a commercial need to settle claims quickly. There may, however, be arguments available to challenge short time limits.

In this article, we look at the situations where time bars will be enforced and the potential arguments to escape their consequences. The best advice though is to only agree to workable time limits which are fair to both parties.

Bunker quality clauses

Those trying to resist time bar clauses where there is a bunker quality dispute, frequently try to argue the clause has a narrow scope.  For example, if the clause only mentions claims relating to the “quality” of fuel, it might be argued that does not apply to claims for failure to comply with contractual description or specification requirements, or of the implied obligation to provide fuel that is fit for use in the ship’s engines.

This argument finds support from decisions such Board of Trade v. Steel Brothers & Co (1952), where claims for “inferior quality” had to be brought by the buyer within 60 days of the date of the discharge of the goods into a recognised warehouse. The Court of Appeal held that the words “inferior quality” referred only to the quality of the goods as shipped and did not extend to claims for deterioration of the goods in the course of a voyage arising from defective packing. The buyer could, therefore, bring an action for the latter outside the 60-day period but within the statutory limitation period.

In Cauwenberghe v. Tropical Product Sales (1986) the High Court upheld a decision of a Federation of Oils, Seeds and Fats Associations Ltd (FOSFA) arbitration tribunal that a claim was not one for inferior quality for the purpose of FOSFA time limits, but one relating to description (for which a longer time limit applied), even though the cargo contained a different product and was contaminated with some form of solid black substance/liquid materials.

Impossibility

It is often argued that a short time bar cannot apply when the claim only materialises after the time limit has passed.  For example, when bunkers are consumed and cause engine damage only after the time bar has expired. The claimant may then argue that they can rely on the presumption of interpretation that a contract does not require performance of the impossible.

Such an argument would be supported by observations made in Pinnock Bros v Lewis & Peat Ltd (1923) and in Hardwick Game Farm v Suffolk Agricultural & Poultry Producers Association Ltd (1964) to the effect that a time bar in an arbitration agreement might be limited to disputes capable of arising, and of being brought forward, within the stipulated period.

However, in the context of the Centrocon arbitration clause, which requires the presentation of the claim and the commencement of proceedings within a certain period, it has been held that the clause applies regardless of whether the claim had “come to light” within the relevant period (for example, see The Evje (1975), The Stephanos (1989) and P v. Q (2018)).

The notion of “strict compliance”

In The Abqaiq (2012), Lord Justice Tomlinson, sitting in the Court of Appeal, noted an observation made by Mrs Justice Gloster in The Sabrewing (2008) to the effect that time bar clauses require strict compliance. Tomlinson LJ disapproved of this, saying the notion of “strict compliance” was not helpful; instead, Courts should assume in these situations that commercial parties wish their relationship to be informed rather by certainty rather than by strictness.

Specifying the consequences of non-compliance

What happens if the time bar clause does not spell out the consequences of failing to notify or submit a claim in time? For example, if there is no wording to the effect that, unless the claim is lodged in time it will be “absolutely waived and time-barred”?

The time bar cases usually cited in this area – The Oltenia (1982), The Obo Venture (1999), The Yellow Star (2000), The Sabrewing (2008), The Eagle Valencia (2010), The Abqaiq (2012), The Adventure (2015), The Ocean Neptune (2018), The Tiger Shanghai (2020), The Amalie Essberger (2020) and The MTM Hong Kong (2020) – all dealt with express wording to the effect that the charterer will be discharged from liability unless (for example) the claim is notified with all supporting documents within ‘X’ amount of days.

By contrast, in The Pera (1985) the charterparty provided that “Demurrage, if any, shall be payable by Charterers against owners invoice supported by notices and statements of fact(s) from loading and discharging port(s) duly signed by shippers. Any claim for demurrage to be accordingly presented within 12 months from completion of final discharge.”  There was no explicit reference to a claim being waived if it was not presented within those 12 months.  The High Court and the Court of Appeal thought the phrasing was ambiguous and ought to be construed contra proferentum; the clause was not sufficiently clear in its terms to require the documents to be presented within 12 months in order to prevent the claim becoming time barred.

On the other hand, in The Nedon (1962) the charterparty said that “Any Claim arising under this Charter Party has to be made in writing within 6 months after final discharge”. The provision did not expressly mention that a failure to make a claim within six months of final discharge would have any particular consequences, but the Judge nonetheless thought that the provision took effect as a time bar. The Judge said he was reinforced in that conclusion by the consideration that if the clause does not operate as a time bar then it is deprived of all effect. In Metalimex Foreign Trade Corporation v. Eugenie Maritime Company Ltd, a charterparty said that “any claim arising under this Charter Party has to be made in writing within 6 months after final discharge.”  No consequences were spelled out if this did not happen. The Judge concluded that unless a claim was presented within the time allowed then it was barred and not admissible.

In Metalfer v. Pan Ocean (1998), a charterparty clause provided that any dispute had to be referred to arbitration within 30 days of the completion of the voyage but did not specify what happened if the dispute was not referred to arbitration within that time limit. The Judge decided that the clause did nevertheless bar claims that were not commenced in time, because that was most likely to have been what was intended, given that the clause served no real purpose unless it worked in this way.

Metalimex and The Nedon were recently applied in The Atlantic Tonjer (2019), which concerned the provision in the SUPPLYTIME form saying that an invoice cannot be disputed unless challenged within an agreed number of days of receipt of the invoice.  The Judge in The Atlantic Tonjer concluded the charterer is precluded from disputing the payment of any invoice unless done within the 21 days referred to in the contract.

One cannot easily reconcile the result in The Pera with the result in Metalimex, The Nedon or The Atlantic Tonjer.  The Judge in The Atlantic Tonjer cited the decision in The Pera but did not explain why he did not reach a similar result.

It may be that the impossibility argument mentioned above is more likely to succeed where a time bar clause does not specify the consequences of failing to submit claims in time.

What does “all supporting documents” mean?

It can be difficult to assess whether one has provided “all supporting documents” in time.  Practically speaking, all one can do is their best to locate and provide the required documents within the time allowed.

There may then be a factual question for the judge or arbitrator to determine as to whether the claimant did present in time all the “documents that were required to be presented…which objectively the charterers would or could have appreciated substantiated each and every part of the claim and which meant that they were thereby put in possession of the factual material which they required in order to satisfy themselves that the claim was well-founded” (The MTM Hong Kong (2020)).

This obligation can require production of potentially privileged documents such as a survey report (The Tiger Shanghai (2019)).

Multiple claims

In London Arbitration 18/91, owners presented documents within the stipulated period but subsequently increased the quantum of their claim outside that period whilst relying on the same documentation.  The arbitrators they were entitled to do so, the clause did not limit the amount due.

In The Eternity (2009), the judge said it was open to owners to present a number of separate claims and the lack of documentation supporting one or more parts of the claim would not constitute a bar to the balance.

Conflicting provisions

A time bar clause might be displaced by other conflicting provisions of the contract. For example, where the Inter-Club Agreement (ICA) is incorporated into a charter, it is intended to be paramount when it comes to the apportionment of cargo claims between the owner and charterer.  In The Genius Star 1 (2012), as well as incorporating the ICA the charter contained an amended Centrocon arbitration clause, which required any arbitration to be commenced within 12 months of final discharge. Mr Justice Teare held the Centrocon time bar did not apply to claims falling to be apportioned under the ICA.

The correctness of the decision in The Genius Star 1 is open to doubt.  There may also be question marks over in the circumstances in which the ICA does prevail over other terms of a charter.