Martrade Shipping: choice of law means that law can decide the limits to which it wishes to be applied. Including to promote forum shopping.

In Martrade Shipping v United Enterprises Corporation, the High Court considered the appeal against an arbitration award in relation to the applicability of the Late Payment of Commercial Debts (Interest) Act 1998 to charterparties providing for English law and London arbitration.

The vessel was owned by the Defendant, a Marshall Islands company. The vessel was registered in Panama and managed by a Liberian company registered in Greece. The vessel was chartered by the Owners to the Claimant charterers for a time charter trip via the Mediterranean/Black Sea under a charterparty on an amended NYPE form dated 2 July 2005. The Charterers are a German company. The vessel was to be placed at the disposal of the Charterers on passing Aden, and was to be redelivered at one safe port or passing Muscat outbound/Singapore range in Charterers’ option. In the event the vessel loaded cargoes of steel products at Tuapse (Russia), Odessa (Ukraine) and Constanza (Romania) and discharged them at Jebel Ali (UAE), Karachi (Pakistan) and Mumbai (India). Hire was payable in US$ to a bank account in Greece. The broker named in the charterparty as entitled to commission was Optima Shipbrokers Ltd who arre Greek. The charterparty recorded that it was made and concluded in Antwerp.

Consequently, contact with England other than the governing law and arbitration clause was non-existent.

A number of disputes between the parties were referred to arbitration, including a claim by the Owners for unpaid hire, in respect of which the Charterers claimed to be entitled to deduct sums for alleged off-hire, bunkers used during off-hire, and a bunker price differential claim. By the Award the tribunal held that Owners were entitled to an award in respect of hire in the sum of US$ 178,342.73. The tribunal further held that the Owners were entitled to interest on that sum calculated at the rate of 12.75% per annum from 23 September 2005 until the date of payment under the 1998 Act.

The appeal is against the award of interest under the 1998 Act. The Charterers contended before the tribunal, and contend on the appeal, that the 1998 Act has no application by reason of s. 12(1) which provides:

“This Act does not have effect in relation to a contract governed by a law of a part of the United Kingdom by choice of the parties if –(a) there is no significant connection between the contract and that part of the United Kingdom; and (b) but for that choice, the applicable law would be a foreign law.’

Section 12 of the Act therefore provides that where parties to a contract with an international dimension have chosen English law to govern the contract, the choice of English law is not of itself sufficient to attract the application of the Act. Section 12 mandates the application of the penal interest provisions only if one or both of two further requirements are fulfilled. There must be a significant connection between the contract and England (s. 12(1)(a)); or the contract must be one which would be governed by English law apart from the choice of law (s. 12(1)(b)). Either is sufficient. Popplewell J suggests this provision has two objectives:

– the Act reflects domestic policy considerations which are not necessarily apposite to contracts with an international dimension. What is required by the significant connecting factor(s) is something which justifies the extension of a deterrent penal provision rooted in domestic policy to an international transaction. And

– subjecting parties to a penal rate of interest on debts might be a discouragement to those who would otherwise choose English law to govern contracts arising in the course of international trade, and accordingly does not make such consequences automatic.

 

The s.12(1)(a) criterion of “significant connection” must connect the substantive transaction itself to England. Whether they provide a significant connection, singly or cumulatively, will be a question of fact and degree in each case, but they must be of a kind and a significance which makes them capable of justifying the application of a domestic policy of imposing penal rates of interest on a party to an international commercial contract. They must provide a real connection between the contract and the effect of prompt payment of debts on the economic life of the United Kingdom. (at 17).

‘Such factors may include the following:

(1) Where the place of performance of obligations under the contract is in England. This will especially be so where the relevant debt falls to be paid in England. But it may also be so where other obligations fall to be performed in England or other rights exercised in England. If some obligations might give rise to debts payable in England, the policy considerations underlying the Act are applicable to those debts; and if some debts under the contract are to carry interest at a penal rate, it might be regarded as fair and equitable that all debts arising in favour of either party under the contract should do so.

(2) Where the nationality of the parties or one of them is English. If it is contemplated that debts may be payable by an English national under the contract, the policy reasons for imposing penal rates of interest may be engaged; and if only one party is English, fairness may again decree that the other party should be on an equal footing in relation to interest whether he is the payer or the payee.

(3) Where the parties are carrying on some relevant part of their business in England. It may be thought that persons or companies who carry on business in England should be encouraged to pay their debts on time and not use delayed payment as a business tool even in relation to transactions which fall to be performed elsewhere. Moreover a supplier carrying on business in England may fall within the category identified in s.6(2)(a) of those whose financial position makes them particularly vulnerable to late payment of their debts, although these are not the only commercial suppliers for whose benefit the Act is intended to apply. The policy of the Act may be engaged in the protection of suppliers carrying on business in England, whether financially vulnerable or not, even where the particular debts in question fall to be paid by a foreign national abroad.

(4) Where the economic consequences of a delay in payment of debts may be felt in the United Kingdom. This may engage consideration of related contracts, related parties, insurance arrangements or the tax consequences of transactions.’ (at 20).

 

By contrast, a mere London arbitration or English jurisdiction clause cannot be a relevant connecting factor for the purposes of s.12(1)(a).

Popplewell J therefore expressly links the non-applicability of relevant domestic English law (where such as here that law itself suggests the need for there to be a connection between the case, and England) to the need to maintain the attraction of England as a seat of international commercial arbitration  or indeed litigation. Exactly the kind of attitude in which competing courts fall short.

Geert.

 

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