A recent marine law arbitration case that originated in the USA and concluded in the UK has some valuable lessons for construction lawyers involved in disputes beyond British borders.

Time was when all the interesting cases had to do with ships and international trade. The Admiralty Court was the place to be if you wanted to make a name for yourself as a contract lawyer. Those were the days when Official Referees were thought of as being a rather inferior sort of clerk to whom real judges “referred” dull calculations of numbers of bricks in building disputes and the like. Building litigation was the lawyer's nightmare. It was always accompanied by loads of paper and impenetrable reports by quantity surveyors who devoted most of their calculations to working out how much was to be subtracted from one figure before the result was subtracted from another, in order to calculate an omission from a figure long since forgotten. It was much more exciting to argue about shipments of exotic cargoes to far flung corners of the Empire.

Things have changed. Construction now produces most of the ground-breaking contract law decisions and dominates the development of the law of arbitration. To cap it all, construction has provided us with adjudication, the first truly innovative means of dispute resolution in the common law world for centuries. The Official Referees have escaped from their cells in the deepest corner of the Royal Courts of Justice and have been renamed Judges of the Technology and Construction Court. And we now call them “My Lord”.

Occasionally, we are reminded that there are still marine lawyers about and that they still have something to tell us. The Commercial Court recently produced a cautionary tale about arbitration, Thyssen Inc vs Calypso Shipping Corporation SA, of which construction lawyers, particularly those involved in international disputes, should take note.

Thyssen of Detroit bought a consignment of 900 tonnes of hot rolled steel sheet in coils from Russia. They were shipped from Latvia on board the good ship Markos N and were duly delivered to Philadelphia. During the course of discharge in February 1997, the steel was found to be damaged.

One of the joys of marine litigation is that when you issue your claim you can arrest the relevant ship. This is what Thyssen did. The Markos N had sailed to Houston where she was arrested, and the owners of the ship were obliged to put up security for the claim. By consent, the action was transferred to New York, but not much else happened for some time.

  • A 1997 marine law case in the US was stayed in 1999 and turned over for UK adjudication
  • By this time, though, the UK’s one-year time limit for claims in marine cases had expired

In March 1998, the shipowners filed what in New York is called an “Answer”, and the parties started the American discovery process and other procedural manoeuvres. During this, the shipowners realised that there was an English law and arbitration clause in the relevant contract. They filed an application for a stay of the New York proceedings on the strength of that clause.

By now, though, it was January 1999. English lawyers familiar with Section 8 of the Arbitration Act 1996 may be forgiven for assuming that this was a bit late. Any application to stay legal proceedings in England on the basis of an arbitration agreement must be made before the party making the application has taken any step in the proceedings to answer the substantive claim. A lot of steps had been taken over the two years, but things aren't quite as simple in New York.

Judge Mukasey of New York’s Southern District Court explained that what mattered was whether there had been litigation of “substantial issues going to the merits”. The two years' worth of messing about hadn't been substantial enough, so the case was stayed.

Now the construction lawyers who know their limitation law start shaking heads and asking what all the fuss is about. The problem had arisen in February 1997 and the case was stayed in New York in August 1999. There was plenty of time to start arbitration proceedings in England before the six years ran out.

Unfortunately, it was not six years. This contract was subject to another feature of shipping law: the one-year time limit for bringing claims. By August 1999, the case was time barred. Thyssen applied to the Commercial Court for an order extending the time limit under Section 12 of the Arbitration Act, but the judge decided against them. He determined that they could have found out about the arbitration clause much earlier than they did, and there was nothing about the conduct of the shipowners that made the application of the time limit unjust.