Sea Master v Arab Bank: when “challenging yourself” goes too far

02 Sep 2022

Not every case begins with the declaration that “this is an odd case”. An application under section 67 of the English Arbitration Act 1996 to contest the jurisdiction of the tribunal is normally brought against claims by one’s opponents. However, Sea Master v Arab Bank concerned a section 67 application by the claimants (together “Sea Master”) that claims which they themselves had brought were outside the jurisdiction of the tribunal.

It is also odd for a second reason. That is because the claimant’s case was that the claims they were seeking to challenge fell outside the ambit of the relevant arbitration agreement. However, neither party had addressed the tribunal on this issue.

Underlying dispute

The first claimant, Sea Master Special Maritime Enterprise (Sea Master Special) was the registered owner of the vessel “the Sea Master” (vessel) until 26 January 2017. On this date, it assigned all of its rights, claims and obligations arising under or in any way related to the relevant charterparty and bills of lading issued pursuant to it to the second claimant, Sea Master Shipping Inc (Sea Master Inc).

Sea Master Special chartered the vessel to Agribusiness United DMCC (Agribusiness) for a voyage from Argentina to Morocco between April 2016 and February 2017.

The defendant, Arab Bank (Switzerland) Ltd (Arab Bank), was a bank which had provided finance to Agribusiness for the purchase of the cargoes shipped on the vessel.

The relevant cargoes were 7,000mt of soya bean meal, 26,696.15mt of corn and 7,000mt of soya bean hulls.

Before the cargoes reached their destination, two switch bills were issued. The second switch bill incorporated the arbitration agreement, which was the subject of the instant application.

Following the production of the corn and soya bean hulls in Morocco without bills of lading, Arab Bank brought a claim for misdelivery against SeaMaster as the holder and pledgee of those bills.

At the same time, the sale of the soya bean meal fell through, and it remained onboard longer than expected. Consequently, SeaMaster bought two groups of counterclaims against Arab Bank for:

  • Demurrage and damages for detention on the one hand.
  • Reasonable remuneration and quantum meruit on the other.

Arab Bank sought determination of the tribunal’s jurisdiction to hear these counterclaims as a preliminary issue. The tribunal handed down its award on jurisdiction (first award) on 18 August 2017, whereby it held that it did not have jurisdiction to hear the counterclaims:

  • It held that it did not have jurisdiction to hear the counterclaims for demurrage and damages for detention because Arab Bank was not an original party to the second switch bill, and at paragraphs 104 to 112 that Arab Bank could not claim under section 3(1) of the Carriage of Goods by Sea Act 1992 (paragraph 103).
  • It held that the counterclaims for reasonable remuneration and quantum meruit failed on their merits, and in any case, that the tribunal did not have jurisdiction to hear them (paragraphs 113 to 115).

Sea Master brought a section 67 challenge in respect of the scope of the arbitration agreement contained in the second switch bill. It argued that Arab Bank was an original party to the second switch bill and consequently bound by the arbitration agreement contained therein. Popplewell J held that by virtue of section 2 of the Carriage of Goods by Sea Act 1992, having become the holder of the second switch bill, Arab Bank was bound by the arbitration agreement.

In a separate set of proceedings, which had been running parallel to this in Connecticut, on 10 September 2021, Sea Master sought summary judgment “under quasi-contract principles of unjust enrichment and quantum meruit “. Given the findings of the tribunal in the first award, Arab Bank applied to the tribunal seeking declaratory relief and anti-suit injunctions.

By its fifth award, dated 1 November 2021, the tribunal decided that the counterclaims for reasonable remuneration and quantum meruit were counterclaims in the reference that arose out of or in connection with the second switch bill.

It is the fifth award which was the subject of the instant section 67 challenge.

The case provides useful guidance on three issues, that is, the interpretation of arbitral awards, issue estoppel, and the dominance of the Fiona Trust one-stop presumption.

Interpretation of arbitral awards

Where neither party addressed the tribunal on a particular issue, that issue could not easily be read into the meaning of the award.

The principles

Lord Sumption in Sans Souci Ltd v VRL Services Ltd held that the court’s reasons “are an overt and authoritative statement of the circumstances which it regarded as relevant. They are therefore always admissible to construe the order” (paragraph 13). He went on to caution against looking for ambiguity in an order which arose simply as a matter of language, when the meaning of the language may not be ambiguous when read through the lens of other admissible factors, such as the reasons set out in the judgment (paragraph 14).

Picken J considered whether the parties’ submissions were admissible for the purpose of construing the award, in light of the differing views expressed in SDI Retail Services Ltd v The Rangers Football Club Ltd. He held that, although caution must be exercised, they are relevant to ascertaining what the judge or tribunal understood the issues to be (paragraph 43). Additionally, where submissions are accepted by a judge, they become part of the reasons for the order or award.

Correct interpretation of the instant award

The tribunal held that there was no jurisdiction in relation to the counterclaims for demurrage and damages for detention (paragraph 112).

Separated from paragraph 112 by the sub-heading “Reasonable remuneration/quantum meruit” were the paragraphs of the first award, which were the subject of the instant challenge.

They were paragraphs 113 to 115. In particular, at paragraph 115, the tribunal had held that:

“Even if the claims had any merit, it is difficult to see why they should be covered by the additional bills and the arbitration clause. As we have said, they are ex-contractual and so we have no jurisdiction to determine them in this arbitration.”

The defendant’s case was that the tribunal at paragraph 115 were addressing “The Party Point” (that is, that Arab Bank was not a party to the bills for the soya bean hulls and the corn), and consequently not the point that the counterclaims for reasonable remuneration/quantum meruit were outside the scope of the arbitration agreement.

Picken J considered the reasoning of the tribunal in the fifth award and agreed with it:

  • The Party Point was the only point which had been raised before the tribunal.
  • It was inherently unlikely that the tribunal would consider the scope of the arbitration agreement without setting out the law as laid down in the Fiona Trust, or setting out the text of the agreement itself.
  • The relevant paragraphs only appeared in their own subsection on the basis that separate, alternative arguments had been raised in relation to the other counterclaims which were not relevant to the counterclaims for reasonable remuneration/quantum meruit and therefore needed to be considered in isolation.
  • When paragraph 115 was read in light of the submission it was responding to, it became clear that it was referring to “the party point”.

Issue estoppel

This is relevant when there has already been a section 67 challenge to a different award, but on the same issue.

In deciding the meaning of Popplewell J’s order, Picken J looked first to the ordinary meaning of the words. He held that on its face, Popplewell J’s order couldn’t be taken to exclude the counterclaims for the reasonable remuneration and quantum meruit. This is because it was expressed in neutral language which tracked the wording of the arbitration agreement. It wasn’t expressed in exclusive terms which only referred to certain claims “arising out of or in connection with” the bills of lading.

Moreover, the same fact which had been influential in determining the meaning of the first award was again relevant. The scope of the arbitration agreement had not been a matter on which Popplewell J had been addressed.

Dominance of the Fiona Trust one-stop presumption

Picken J considered a submission that the Fiona Trust one-stop presumption ought to be displaced.

Counsel for the claimants submitted that it gave no practical guidance as to when a claim can be said to arise in connection with a contract. A better test was to ask whether a claim was “causatively connected” with the contract (Eastern Pacific Chartering Inc v Polar Maritime Ltd).

However, the test in Eastern Pacific was a reference to a test deployed by the Court of Appeal in The Playa Larga, which asked whether the dispute was “closely knitted together on the facts with a contractual dispute.

Picken J explained that it was sufficient for a dispute to pass this test for it to “arise in connection with” a contract; but it was not necessary. In this respect, Mustill J’s test was stricter than the Fiona Trust one-stop presumption.

In any case, there was no reason to displace the test on the facts.


Consequently, the application was dismissed.

Article by Thomas Mitty – first published by Thomson Reuters Practical Law


Thomas Mitty

Call: 2021


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