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13 May 2015
In a recent Court of Appeal decision, the Channel Ranger,(1) a reference in a bill of lading to an arbitration clause in the underlying voyage charterparty was understood to incorporate the dispute resolution clause in the charterparty which provided for High Court jurisdiction.
The incorporation of charterparty provisions into bills of lading has given rise to extensive judicial consideration. The main question has been whether and in what manner the governing law and dispute resolution clauses contained in the charterparty will be lifted into the bill of lading.
General words of incorporation will not be enough to incorporate the dispute resolution clause contained in the charterparty. Only those terms that are directly relevant to the subject matter of a bill of lading (ie, the receipt, carriage, delivery of the cargo or the payment of freight) will be incorporated. However, the introduction into the bill of lading of terms that are not considered applicable to the bill of lading can be achieved with sufficiently clear words of incorporation.
The reasoning behind this approach is based on an acknowledgement of the nature of the bill of lading as a negotiable commercial instrument. The recipient of the bill of lading – usually an overseas party – may have no knowledge of the terms of the charterparty. Against this backdrop, at first glance the decision in Channel Ranger may seem counterintuitive.
The Channel Ranger was timechartered from the shipowners, Caresse Navigation Ltd, to U-Sea Bulk A/S on an amended New York Produce Exchange time charterparty. U-Sea sub-chartered the vessel to Glencore International AG to perform a shipment of coal under a voyage charterparty dated January 6 2011 on an AmWelsh 1979 form. Clause 5 of this voyage charterparty provided as follows: "This Charter Party shall be governed by English law, and any dispute arising out of or in connection with this Charter shall be submitted to the exclusive jurisdiction of the High Court of Justice of England and Wales." (Emphasis added.)
On shipment, a bill of lading was issued on behalf of the shipowner. The cargo was consigned to the Office National de L'Ectricite (a Moroccan state electricity company), which was the receiver of the cargo. The bill of lading therefore took effect as a contract of carriage between the shipowners and the consignee. The date of the voyage charterparty was inserted into the bill of lading, which contained the following in its printed conditions: "All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated." (Emphasis added.)
A 'hot spot' was detected in the cargo at the discharge port in Morocco and was doused with water. The consignee complained that the owner had damaged the cargo. The owner initiated English court proceedings seeking a declaration of non-liability and was granted permission to serve out of the jurisdiction on the cargo interests in Morocco.
The cargo interests later commenced proceedings in Morocco and the owner applied to the English court for an interim anti-suit injunction to restrain the cargo interests' pursuit of the Moroccan proceedings. The court held that the bill of lading incorporated the English law and exclusive jurisdiction clause contained in the voyage charterparty, and on this basis granted the owner an anti-suit injunction. The cargo interests were given permission to appeal against the injunction.
The Court of Appeal took a purposive approach and looked beyond what was written in the bill of lading. In doing so it found that it was the parties' intention to incorporate an ancillary clause and that the law and jurisdiction clause in the voyage charterparty was the only possible candidate. It therefore agreed with the first-instance judge that the charterparty clause was incorporated into the bill of lading and dismissed the appeal.
The Court of Appeal emphasised the distinction between the two situations where it is legitimate to look beyond the words of the bill of lading and to consider the language of the charterparty. The first is when considering the initial question of whether a particular charterparty clause is incorporated into a bill of lading. The second is in determining whether a charterparty clause, which would otherwise be incorporated into a bill of lading, nevertheless fails to be validly incorporated, because of the wording of the charterparty clause itself, which is inconsistent with or cannot operate in the context of a bill of lading contract.
Crucially, the Court of Appeal viewed this case in the context of the first question and was not concerned with the second. As such, unlike much of the authority in this area, the judgment was not too concerned with the degree of manipulation of language required in order for the charterparty clause to be consistent with the terms of the bill of lading.
Therefore, while the cargo interests understandably sought to rely on the principle that only specific words of incorporation in a bill of lading are sufficient to incorporate arbitration and jurisdiction clauses into a bill of lading contract, the Court of Appeal pointed to the fact that this is not a case of a party trying to rely on a generic phrase to incorporate an ancillary clause. The bill of lading specifically refers to and seeks to incorporate one kind of ancillary clause (ie, a dispute resolution clause). There was only one clause contained in the charterparty that dealt with law and jurisdiction. Therefore, the parties could have intended to incorporate only one charterparty clause.
Despite a line of judicial reasoning built on a commercial pretext which seemed to point towards the terms of the bill of lading being taken at face value, the first-instance judge arrived at the view that "in some circumstances, a reference to 'arbitration' in the bill of lading may properly be read as providing for court jurisdiction" and demonstrated how the Court of Appeal found that the references to "arbitration" in the bill of lading and to "High Court" in the charterparty could be reconciled. The underlying reasoning may have been that the original parties to the bill of lading, Caresse and Glencore, had at least not intended for there to be no dispute resolution clause, and that they would be open to contest the matter before the courts in Morocco.
Nevertheless, it is in owners' interests to insist that the dispute resolution clause in the relevant charterparty and the specific words of incorporation in the bills of lading which they issue are clear and aligned, to ensure a reliable outcome. Finally, all parties to bill of lading contracts must be conscious of the fact that the words printed on the bill may not provide the whole story.
For further information on this topic please contact Fiona Pounds or Clare Calnan at Wikborg Rein by telephone (+47 22 82 75 00) or email (email@example.com or firstname.lastname@example.org). The Wikborg Rein website can be accessed at www.wr.no.
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