By the letter of the law - The time bar in Article III Rule 6 of the Hague Rules

A recent decision of the English Commercial Court¹ deals with an important aspect of the application of the time bar in Article III, Rule 6 of the Hague Rules.²

Facts
Thyssen, a Detroit steel importer, contracted with Metalsrussia to buy 900 tonnes of hot rolled steel. The sale contract made provision for acceptance of charterparty bills of lading. The buyers were refused their faxed request for a copy of the relevant charterparty by the sellers on the basis that the sellers' agreement with the shipowner did not allow disclosure of the charterparty to a third party, "except for lawyer or arbitrator". There was no further correspondence between the parties to the sale contract after this.

The cargo was shipped on board the MARKOS N at Ventspils in Latvia for carriage to Philadelphia. The MARKOS N was time chartered to Western Bulk Carriers (WBC) and voyage chartered to Metalsrussia. The terms of a charterparty were incorporated into the bills of lading issued, which stated that freight was payable "as per charterparty dated 18th January 1997". The head time charter between the shipowners and WBC was dated 19th January 1997. There was also a voyage fixture to Metalsrussia, the details of which only emerged later, giving rise to the problems in this case.

During discharge at Philadelphia between 23rd and 25th February 1997, the cargo was discovered to have sustained damage.

Hague Rules: suit must entail a proper or complete action.

The US proceedings
On 5th March 1997 Thyssen (claimants) issued proceedings in Houston in personam against the shipowner, Calypso Shipping Corp SA (defendants), and in rem against the vessel. The Texas court confirmed that it had jurisdiction to hear the case. The action was moved to New York in August 1997 by mutual consent and defendants admitted the New York court's jurisdiction in February 1998.

In November 1998 claimants asked that the package limitation defence pleaded by the defendants be dismissed. This prompted defendants to seek and obtain a copy of the sub-charterparty. WBC provided defendants with a charterparty between WBC and Metalsrussia dated 27th February 1995 on the Gencon form with a typed English arbitration clause, naming a different vessel. WBC stated that it was the standard charterparty used for all their cargoes with Metalsrussia.

In January 1999 defendants applied for a stay of the New York proceedings as it had transpired that the bills of lading incorporated the London arbitration clause. The court ruled in favour of London arbitration in August 1999. Both parties appointed London arbitrators; the owners did so without prejudice to any time bar point.

The English proceeding
In January 2000 claimants approached the English Commercial Court for, inter alia, a declaration that the case was not time-barred. Claimants maintained that proceedings had been brought within one year from delivery in a court with proper jurisdiction (i.e., the US court) and should thus remain a "suit" for the purposes of Article III Rule 6 of the Hague Rules. Claimants argued that even though the US court had found in favour of London arbitration, the defendants had agreed to New York jurisdiction.

The ruling
The Commercial Court judge disagreed with claimants' arguments and ruled that despite the fact that proceedings had been commenced in the US before one year after discharge, the claim was time-barred. This was because "suit" entailed a proper or complete action. The judge explained that where suit is brought in breach of an arbitration clause, the courts do not regard that as a suit for the purpose of the rule (unless there is no application for a stay). It is not enough for the correct claimant to commence proceedings before a competent court against the correct defendant. The proceedings must remain valid and effective at the time the carrier seeks to rely on Rule 6 in a second set of proceedings. Thus where the first action has been dismissed for want of prosecution or stayed by reason of the invocation of an arbitration clause, suit has not been brought. This would also be the case if there had been a breach of an exclusive jurisdiction clause and a stay had been obtained.

The defendants' submission to US jurisdiction was held to be invalid. Despite the assertion that the right to arbitration had been waived, the defendants' application for a stay was held to be open. The admission of jurisdiction was considered to be required simply to confirm that the dispute fell within the Federal Court's Admiralty jurisdiction and did not prevent the parties from raising any defences they might have to the exercise of the Federal Court's jurisdiction, including arbitration. The court could only make a decision on its substantive jurisdiction after the subject matter jurisdiction was established. This was not contested by the claimants.

A time extension, claimed under the terms of Section 12 of the 1996 Arbitration Act, was also denied by the court.

Conclusion
The MARKOS N decision confirms that under English law "suit" must entail a proper or complete action in order to interrupt the time bar in Article III, Rule 6 of the Hague Rules. If proceedings are commenced in the wrong forum and time is not protected in respect of proceedings in the correct forum, shipowners will have a valid time bar defence.