By Robert Price
Case: Expofrut SA & Others v Melville Services Inc and Lavinia Corporation  EWHC 1950 (Comm)
The English High Court has ruled that an extension to a contractually agreed period in which arbitration proceedings must be brought will only be granted in exceptional circumstances. The case of Expofrut illustrates that it is crucial for a claimant to bring such proceedings within the agreed timeframe or risk losing the right to do so at all.
An arbitration clause in a contract between commercial parties may often be subject to a contractual limitation period. Such a contractual limitation period takes away the parties’ right to bring an arbitration claim after a certain amount of time has passed from the date on which the grounds for the claim arose and shortens the statutory limitation period.
Commercial parties often agree a shorter limitation period for the added certainty that this brings to their relationship. Standard form agreements, particularly in the commodities and shipping industries, commonly include such clauses. An example is Article 6 of the Hague-Visby Rules, a widely used set of international rules for the carriage of goods by sea, which provides that “the carrier and the ship shall in any event be discharged from all liability whatsoever in respect of the goods, unless suit is brought within one year of their delivery”.
Section 12(3)(b) of the Arbitration Act 1996
Under Section 12(3) of the Arbitration Act, a court may extend a contractual limitation period if either of two grounds are satisfied:
“(a) that the circumstances are such as were outside the reasonable contemplation of the parties when they agreed the provision in question, and that it would be just to extend the time, or
(b) that the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question.”
In Expofrut, the court considered the circumstances in which the second ground applies. The court held that section 12(3)(b) requires that the conduct of the party in question must have caused the state of affairs that makes it unjust not to grant an extension of time. That party’s mere silence or inaction will not be sufficient to engage this ground.
The decision in Expofrut
In Expofrut, an Argentinean fruit company claimed that damage to a consignment of fresh pears had been caused by the defendant shipping companies. The charter party for the shipping of the pears from Argentina to Antwerp was based on the Hague-Visby Rules and contained a one year limitation period for brining arbitration proceedings.
The claimants commenced litigation in the Belgian courts in February 2010. Before the Belgian court required the parties to make any submissions on jurisdiction, it ordered a lengthy Court Surveyor procedure, whose purpose was to establish the cause and extent of damage. This took until February 2012. The defendants only challenged the Belgian courts’ jurisdiction in November 2012, at the first procedural stage at which they were obliged to do so under Belgian procedural law (after the Court Surveyor process had concluded). In June 2014, the Belgian court disagreed with the claimants’ argument that the arbitration agreement was inapplicable under Belgian law. Accordingly, the court declined jurisdiction and ruled that the claim should have been referred to arbitration. The claimants subsequently issued arbitration proceedings and in April 2015 filed an application to the English High Court to extend time on the basis that the defendants had represented that they would not oppose the Belgian court’s jurisdiction. This, the claimants argued, made it unjust for the claimants not to be allowed an extension of some 3 years and 8 months.
The court refused the application under section 12(3)(b) on the basis that the defendants had done nothing to prevent the claimants from commencing arbitration within the applicable time limit. The claimants’ lawyers had essentially failed to take steps to protect their client’s position by commencing arbitration proceedings, which was conduct that could not be attributable to the defendants. The court considered the case law (The Catherine Helen ; The Lake Michigan ) and academic commentary on section 12(3)(b) and held that mere silence by the defendants did not trigger the relief in that section in the absence of additional conduct which would make it unjust to hold the claimant to the strict limit. Two factual findings were important: firstly, the defendants were not obliged to disclose their intention to oppose jurisdiction until the time when they actually did and secondly, the claimants themselves had delayed between November 2012 (when it became apparent that the defendants were resisting jurisdiction) and April 2015 (when the claimants finally applied for an extension). The fact that the defendants had not disclosed their position on jurisdiction until after the one year limitation period for commencing arbitration had expired was not sufficient to engage section 12(3)(b) without any further causative conduct.
The case is a reminder that it is vital to consider carefully issues such as choice of forum and limitation periods at the outset of proceedings. It is now settled case law that section 12(3) is to be interpreted restrictively. Although it is thought that the court may possess a residual discretion to extend time, it will not use that discretion simply because it considers it would be just to do so in all the circumstances. In Expofrut, a peculiarity of Belgian procedural law meant that the defendant was not required to contest the court’s jurisdiction until long after the limitation period in the arbitration clause had expired. The decision means that a defendant in court proceedings is under no duty to protect the claimant by indicating before the limitation period expires whether they will oppose jurisdiction in another forum and the onus is on the claimant to protect its position by commencing arbitration. The court’s view on the merits of the case is also irrelevant for the procedural question of whether time should be extended.
This post was prepared with the assistance of Mihail Krepchev in the London office of Latham & Watkins.