Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2004] 1 Lloyd's ...

Facts

• The dispute involved charterparty agreements between Nisshin Shipping Co Ltd and charterers, each containing arbitration clauses.
• Cleaves & Co Ltd, shipbrokers involved in negotiating the agreements, claimed unpaid commissions and sought to invoke the arbitration clauses as third parties.
• The issue arose as to whether Cleaves & Co could use the arbitration clauses to resolve their claim for unpaid commissions.
• The Court of Appeal assessed if the Contracts (Rights of Third Parties) Act 1999 enabled Cleaves & Co, not parties to the contract, to enforce the arbitration provisions.

Issues

1. Whether Cleaves & Co Ltd, as a third party, could enforce the arbitration clauses in the charterparty agreements under the Contracts (Rights of Third Parties) Act 1999.
2. Whether the terms of the charterparties were intended to confer a benefit on Cleaves & Co sufficient to give rise to third-party rights.
3. Whether the charterparties expressly excluded the application of the 1999 Act to arbitration clauses.

Decision

• The Court of Appeal held that Cleaves & Co Ltd could rely on the arbitration clauses under the Contracts (Rights of Third Parties) Act 1999, as the clauses conferred a benefit upon them.
• The Court found there was a presumption in favour of third-party enforceability where a contract term intended to benefit the third party, unless expressly excluded.
• The panel clarified that the arbitration clauses provided a method for Cleaves & Co to resolve commission disputes, and absent explicit exclusion, the third-party right was valid.

Legal Principles

• Under section 1(1)(b) of the Contracts (Rights of Third Parties) Act 1999, a third party may enforce a contract term if the language and context objectively show an intention to benefit that party.
• There is a default position in favour of third-party enforcement of such clauses, rebuttable only by clear contractual exclusion of third-party rights.
• The determination of whether a term confers a benefit focuses on objective contract interpretation, disregarding parties’ undisclosed motives.
• Later cases may reach a different result where a contract term does not plainly benefit the third party or contains explicit exclusions.

Conclusion

The decision in Nisshin Shipping Co Ltd v Cleaves & Co Ltd confirmed that arbitration clauses and similar contract terms conferring clear benefits on third parties are enforceable by default under the 1999 Act unless explicitly excluded, emphasizing the need for precise drafting to clarify parties’ intentions on third-party rights.