Thursday, May 23, 2024

Weather routing company report final and binding

The parties sometimes neglect the weather routing clause. The clause functions to extend to the source of data from which good weather might be derived and permit the engagement of a weather routing company (“WRC”) to assess the vessel’s performance strictly as per the contractual yardstick. Notably, it adds that the parties refer the dispute to another WRC or expert for final and binding determination or provide an alternative procedure before the parties commence arbitration.

Then, in case of dispute, the parties realise the costly and time-consuming process of interpreting or implementing the clause, e.g. what at first glance seems to be a ‘final and binding’ determination; on closer reading, it is not always the case. In consequence, an awkward party may want to raise the issue as a tactical obstacle to push for settlement, especially in low-value claims. Therefore, the matter needs detailed examination when it arises, and it can be very challenging. 

Current case

In this case that was settled, the parties disagreed on these matters: (1) whether the issue falls within the scope of the weather routing clause; (2) whether, as a matter of construction, the issue falls to be determined by a 3rd WRC (construed as an ‘expert determination clause’) or shall be referred to arbitration without delay; (3) whether the parties should agree on the instructions to be given to a 3rd WRC to make the assessment(citing case law to support that otherwise the experts’ appointment is not complete), (4) whether it is a prerequisite the WRC prove it is independent, and (5) whether there are grounds to challenge the performance analysis of the expert or another WRC.

Previous cases- observations

Based on experience in similar cases, the parties less frequently challenge the findings of a 3rd WRC if adequately appointed. Instead, a third-party involvement fails to get off the ground simply because of a failure in the appointment process, mainly when the primary issue concerns a question of interpretation, e.g. whether positive currents apply or not, whether 24 hours of good weather should prevail between noon-noon, ECO WOG,  etc.  

Some debated issues (the list is not exhaustive) were:

Part A

(1) whether the clause is enforceable (an agreement to agree);(2) whether the clause bites in the circumstances or not (words like independent, reputable, well-established, substantial / significant / consistent discrepancies or differences, etc. caused a point of argument);(3) whether it is a proscription of an optional contractual procedure as distinct from a mandatory one (”shall be referred” make the alternative procedure mandatory?); (4)Whether other dispute resolution procedures must be exhausted before arbitral proceedings commence;(5) whether there are procedural prerequisites that, on its true construction, are conditions precedent to a valid arbitral reference; (6) whether the condition has been waived by the party relying on the clause; (7) whether commencing proceedings would breach the agreed dispute resolution mechanism set by the clause (premature claim, real vs hypothetical dispute);(8) whether and when it is the right moment to refer the matter to arbitration as to avoid potential challenge (it is for the arbitrator to determine the consequences of any alleged breach of the procedural requirements stipulated in the relevant clause); (9) whether this is a matter of jurisdiction or admissibility;

Part B

(10) whether the clause contains the elements of an ‘expert determination clause’ and can be construed in this way under this context; (11) if yes, whether there are grounds to challenge/attack the determination;(12) whether the parties must agree on the instructions/methodology before the WRC make an assessment and same to be on reasonable terms; (13) whether implied duty of the parties to cooperate and expedite or not impede the procedure (duty of reasonable diligence to bring about the event) ; (14) whether the ‘expert’ has exclusive jurisdiction to decide the issues in dispute (say, there is an ECO WOG claim, will this be referred to a WRC for determination?);(15) whether the expert/ WRC is precluded as he has predetermined the issue (e.g. a WRC that has shared/published their general methodology to clients, etc.). (16) whether the expert (when the clause referred to expert and not to WRC- an important distinction to be made) applied the agreed weather data and the proper methodology in assessing performance, etc.

For the above, the parties referred to authorities to support their position but under a different context. For speed and consumption claims, a few published London Arbitration awards touch on this topic.

The issue becomes more challenging when: there is (not often) a ‘pathological arbitration clause’ (i.e. specific characteristics are not satisfied as to be an effective arbitration agreement), there is a multi-tiered dispute resolution clause or a time bar provision or when hire deductions were made against the express wording of the charter- a party makes an application for a partial final award without delay.

Since the possibility of challenging the expert’s decision is limited, the parties rely either on points of construction, especially when the clause is ambiguous or on technical procedural obstacles that may strangle this process at birth. Fewer disputes arose when: (1) the wording was precise (without words like consistent/ significant/ reputable, etc.), (2) the clause listed the companies to be appointed in case of a dispute over the vessel’s performance or (3) as most times the parties would not leave the entire process at the discretion of the expert (or a WRC), there was an option to either settle amicably within [x] number of days or refer the matter to arbitration. The parties engaged more in settlement discussions and settled the dispute without following time-consuming procedures.

The above makes clear that, when the clause is said to be construed as an expert determination clause, there are some well-known critical areas of complexity and uncertainty, which might be said to be not within the background knowledge of the parties and did not qualify as part of the “matrix of fact” ( a literal interpretation should be avoided). Besides, it is necessary to examine the contract itself to decide what the parties intended in every case, and only limited assistance can be gained from previous cases decided under different contexts. Therefore, the issue needs detailed examination when it arises, and it can be very challenging. Still, it is more sensible that the parties’ presumed intention was to leave the WRC to consider the evidential part only. As said, it is unlikely the parties to have intended the tribunal to deal with deductions from hire based on breach of the performance warranty but the WRC to decide the validity of the claim, as this would preclude both disputes from being determined by the same dispute resolution process; thus the clause cannot be construed as an expert determination clause and a WRC is not the final decision-maker.

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