When do you have a “dispute” under a C/P?


Published: 9 June 2006

Even in cases where a liability is admitted, the very failure to make payment will still constitute a “dispute” which enables arbitrators to decide on a matter and publish an arbitration award. The agreement to arbitrate cannot be avoided by simply admitting liability.

The choice of law/jurisdiction clauses in C/Ps invariably stipulate that “any dispute” or “all disputes” under the C/P shall be referred to arbitration (often in either London or New York). This therefore requires that there is in fact a “dispute” between the parties, and in arbitration law this is sometimes referred to as the need for “arbitrability” (i.e. that in order for something to be arbitrated, there must be a dispute).

This has, from time to time, resulted in a debtor trying to avoid enforcement by simply acknowledging the debt but, at the same time, going on to say that since the debt is acknowledged there is no “dispute” and therefore no dispute to be arbitrated (leading, in the debtor’s conclusion, to the result that there should then be no arbitration award which can then be enforced against the debtor and most likely forcing the creditor to commence perhaps costly and protracted litigation in a local court).

This line of thinking has recently been tested once again ((2006) 692 LMLN 1).

This most recent case concerned an owners’ claim for demurrage and following the usual payment demands, the charterers simply responded that they admitted that owners were entitled to the demurrage claimed (and also added that payment could be made in either instalments or in a lump sum at a later date). This did not satisfy owners who appointed an arbitrator (and rejected the payment proposal). The charterers paid a smaller part of the demurrage invoice but leaving an outstanding unpaid amount of approx. USD 130,000, and no further payments were made.

The issue which now had to be decided was whether there was “any dispute” between the parties which would enable the arbitrator to have jurisdiction and therefore proceed to make an award for later enforcement.

The charterers argued that there was indeed no dispute because they had admitted their liability as well as the amount of the claim. This was rejected by the arbitrator who duly made an award in owners’ favour for the total outstanding amount together with interest and costs.

The charterers then applied to the court in order to set aside the arbitration award for want of substantive jurisdiction.

The court held that this was simply yet another matter which had to be approached as one of construction of the relevant arbitration clause which had to be seen in its context and the context of the facts of the particular case.

The question was therefore whether or not the failure to make payment, which had been admitted to be due to owners, in itself constituted a “dispute” arising under the C/P.

Relying on previous case law, the court decided that a failure to pay was indeed a “dispute” under the terms of the C/P as any result to the contrary would make no commercial sense.

The attempt by charterers to avoid their liability by some form of legal technicality or formality was apparently not something which found favour with the court which went on to say that the application to set aside the arbitration award was unreasonable and also awarded the owners costs on an indemnity basis.

Even though the English courts often apply a strict interpretation of the terms of any contract, there is always the additional factor of commercial sense and, ultimately, fairness which will strike out an unreasonable interpretation of contract terms. In the court’s words, the charters acted without merit and “should pay the commercial price of doing so”.

((2006) 692 LMLN 1)