In a robust judgment of 12 June 2014 in Martrade Shipping & Transport GmbH v. United Enterprises Corporation [2014] EWHC 1884 (Comm), the Commercial Court has held that the Late Payment of Commercial Debt (Interest) Act 1998 (the “Act”) does not apply to charterparties simply on the grounds that they provide for English law and London arbitration, and has clarified what is meant by Section 12(1) of the Act which provides that the Act does not have effect in relation to a contract governed by, for example English law, if (a) there is no significant connection between the contract and England; and (b) but for that choice, the applicable law would be a foreign law.

The underlying Tribunal had awarded interest under the Act following an arbitration award in favour of the Marshall Island owners of a vessel registered in Panama and managed by a Liberian company registered in Greece. The vessel was time chartered to German charterers on the basis of a charter made in Antwerp, which incorporated an additional typed clause providing for English law and arbitration.

The Court held that the Tribunal had acted in error  in construing, inter alia, the use of the English language in the contract, and the vessel’s logs, the fact that GA was to be adjusted in London and that the vessel was entered in the London P&I Club, as meaning that there was a significant connection between the contract and England.

In a short Judgment, the Court considered the policy underlying the Act. It has a domestic purpose (the protection of vulnerable commercial suppliers and to act as a deterrent to the late payment of commercial debts in the United Kingdom) which it is not appropriate to apply to international contracts unless there is a real domestic connection.  The Court held that what is meant by “significant connection” in Section 12(1)(a) of the Act, is a connection between the substantive transaction itself and England: the factors relied upon “must provide a real connection between the contract and the effect of prompt payment of debts on the economic life of the United Kingdom”.

This will be a relief to all those who have London arbitration clauses in their contracts: the effect of the application of the Act, which currently awards penal interest at a level of 8% over base rate, would have been a strong disincentive for the application of English law and reference to London arbitration in shipping contracts.

The Court also held that a trip time charter, as any other time charter, is a contract for the use of the vessel and her crew, as a means for the charterer to transport goods, rather a contract with its main purpose being the carriage of the goods by the owners, and is therefore not a “contract of carriage” within the meaning of Article 4(4) of the Rome Convention.  Reference in this regard was made to the decision of the European Court of Justice in Intercontainer Interfrigo SC (ICF) v. Balkenende Oosthuizen BV [2010] QB 24.