Incorporation of dispute resolution clauses in England

Incorporation of jurisdiction clauses in England

The incorporation of choice of forum clauses in England stems from shipping practice developed over centuries. One conceptual challenge for this chapter is whether and why a jurisdiction clause is considered to be a ‘dispute resolution' clause especially in the context of English law - given that, as discussed in Chapter 2, English law has a divide between substance and procedure. In this regard, it is worth considering The Mahkutai, where the Privy Council did not consider a jurisdiction clause to relate to the substance of the legal relationship, stating:

Their Lordships draw support for this view from the function of the Himalaya clause. That function is, as revealed by the authorities, to prevent cargo owners from avoiding the effect of contractual defences available to the carrier (typically the exceptions and limitations in the Hague-Visby Rules) by suing in tort persons who perform the contractual sendees on the carrier’s behalf.^[1]

This statement shows that the court was not prepared to entertain the argument that a jurisdiction clause relates to substantive rights (defences).

The rights and obligations under a B/L can be transferred to consignees and endorsees of any B/L. Under COGSA 92, the ‘lawful holder of a B/L’ to whom the B/L is transferred is supposed to have succeeded in ‘all rights of suit’ as well as liabilities under the B/L, in order to enforce the contract of carriage, according to s 3 of COGSA 92.

The endorsees or consignees must possess the B/L. A straight B/L is excluded from COGSA 92, being treated as a seaway bill and not excluding shipper’s rights that would be extinguished in other types of B/L under s 2(5). However, the situation differs when the B/L is issued ‘to the order’ and the shipper transfers it to the consignee. According to s 2(5)(a) of COGSA 92: ‘where rights are transferred ... the transfer ... shall extinguish any entitlement to those rights which derives - (a) where that document is a bill of lading, from a person having been an original party to the contract of carriage’.

Specific words of incorporation are required in the B/L, although there can be a certain degree of manipulation. Consistency with express B/L terms must be kept. A clear clause in a B/L using general words of incorporation will not itself incorporate the jurisdiction or arbitration clause of the charterparty, according to English case law, even if the charterparty itself clearly states that any B/L issued under it should incorporate the jurisdiction clause: an English choice of law clause from the sub-charterparty was incorporated into a B/L but not an English arbitration clause since the reference was too general.^[2]

The modern doctrine does not support a prima facie incorporation using insufficiently broad terms in the B/L. A transferee of the B/L will have to check that the words of incorporation for jurisdiction or arbitration clauses are sufficiently clear and consistent with other express terms, as well as compatible with the language used in the charterparty.

Consignees or endorsees can effectively succeed the shipper in all rights and obligations derived from a B/L, giving the carrier the possibility of suing the B/L holder under a jurisdiction clause in the B/L. However, as Ozdel points out, when the holder does not succeed the shipper in all rights or obligations under domestic law, Article 25(1 )(c) of the Brussels I Regulation (recast) does not apply since the express or incorporated jurisdiction clause of the B/L is not considered to be a written one against such holders, unless the requirements of Article 25( l)(a) or (b) are fulfilled (‘in writing or evidenced in writing or in a form which accords with practices which the parties have established between themselves’).

Nevertheless, as Baatz explains, in The Channel Ranger² the English Court of Appeal went further than previous case law, which led to the incorporation of an English jurisdiction clause from a voyage charterparty into a B/L, binding a third party. The panel found that the B/L contained no general words of incorporation but a specific reference to English law and an arbitration clause. The English jurisdiction clause was incorporated in the B/L, despite specific reference to the fact that the terms of the charterparty were recorded in an emailed fixture recap and the charterparty had not been drawn up. The flexibility of the English courts in adapting to business practice allows the incorporation of such clauses while keeping a liberal approach, as in another case where a charterparty was drawn up by the brokers but never signed. In The Meralc"- the wording of the charterparty clause, which applied to claims under the B/L, led to an effective incorporation of the charterparty arbitration clause into the B/L. The Court of Appeal's judgment would not have been the same today, because the B/L referred to clause 30 of the charterparty (shipowner’s right to substitute another vessel) and the arbitration clause was contained in clause 32.^[3] The principles of construction of contracts may lead to a different decision.

This principle is an exception to the general approach of English law, which ‘in principle ... accepts incorporation of standard terms by the use of general words’. Third parties need certainty under negotiable B/Ls since they might not be aware of the charterparty terms, including the jurisdiction clause, when a consignee is not a party to the charter-party or even when the carrier is the shipowner and is unaware of the terms of a voyage sub-charterparty incorporated into the B/L.

According to The Varenna,* the operative words of incorporation must normally be found in the B/L itself, since incorporation can be achieved only by the agreement of the parties to that contract. If a general incorporation clause in a B/L ‘catches' a term in a charterparty, that term must be read literally and disregarded if it is inappropriate in a B/L context or inconsistent with the B/L, so a wish to incorporate a particular clause must be express. Specific words of incorporation, as found in The Nerano, will be sufficiently certain, even if it is necessary to manipulate the wording of a charterparty clause. In The Nerano, the B/L holder argued that the incorporated arbitration agreement between the shipowner and the charterer was not ‘in writing’ between the carrier and the B/L holder. The B/L holder’s argument was dismissed by the court which treated such adapted wording as ‘in writing’ and thus binding the B/L. The court held that the express reference of the clause in the B/L showed the clear intention of the parties to refer disputes arising under the B/L to arbitration. As a result, the clause was manipulated to cover also the disputes arising under the B/L. Thus to incorporate an arbitration clause requires an express reference to it in the B/L.

Verbal manipulation in search of the parties’ intentions is not permitted. A demurrage clause that was not directly germane to the shipment, carriage and delivery of goods, could not substitute ‘charterer’ for ‘consignee’ or ‘B/L holder' because it was not presumed to be incorporated into the B/L. ‘Freight payable per charterparty’ was held to incorporate the whole of the relevant charterparty's terms as to the payment of freight, not only the rate of freight payable but also ‘the manner of payment, when and where and to whom freight shall be payable'.^[4] The failure to insert the date of the relevant charter in a space provided in a B/L will not automatically mean it is not incorporated. An incorporation clause in a B/L will not normally have the effect of incorporating oral terms that have not been reduced to writing; however, such a clause may affect incorporation where the charter contract is contained in or evidenced by a recap telex or email and a standard form to which the telex or email refers. In practice, most charterparties are concluded by email exchange, but the system is the same.

Under COGSA 92, a third-party consignee or endorsee of the B/L will also be bound by the arbitration clause in a B/L. In The Epsilon Rosa, the English Court of Appeal held that the consignee of the B/L was bound by an arbitration clause incorporated into the B/L from the charterparty, evidenced by the fixture recap. A subrogated cargo insurer would also be bound by the London arbitration clause in the B/L. This decision was followed in The Good Luck.™

In The Good Luck, a dispute ‘arising under the contract’ was arbitrable despite the insurer’s argument that it was not bound by the arbitration clause under the law of the People’s Republic of China. It was held by the CJEU in The Front Comor (English courts could no longer grant an anti-suit injunction restraining a party to an English arbitration agreement from litigating in the EU) and The Ivan ZagubanskP (anti-suit injunction was incompatible with the Brussels Convention) that the only rights transferrable to the insurers by subrogation were those that had to be enforced by arbitration, as an inseparable component of the claim transferred.

In recent years, English courts have taken a liberal approach to construction when there is a specific reference to arbitration in the B/L, but the charterparty clause was a hybrid court and arbitration clause or a court jurisdiction clause. In The YM Saturn,in which the B/L incorporated a law and arbitration clause and the charterparty a law and litigation clause, the dispute had to be referred to arbitration under the LMAA's Small Claims Procedure.

Following the construction doctrine in The YM Saturn, the judgment in The Channel Ranger^[5] regarding a vessel hired on time charter and sub-voyage charter, in turn, points to an incorrect incorporation of the charterparty clause. The term referred to ‘English Law and the exclusive jurisdiction of the High Court of Justice of England and Wales’, but the B/L terms included a generic law and arbitration clause. The Channel Ranger carried 39,000 mt of coal from the Netherlands to Morocco. The cargo was damaged due to self-heating, and being doused with seawater. The Protection & Indemnity Club (P&I Club) provided security accounting for a USSSl.l million bank guarantee, which allowed the ship to be released. The receivers arrested the ship in Nador, Morocco. Clause 1 of the applicable Congenbill 2007 states: ‘All terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, including the Law and Arbitration Clause/Dispute Resolution Clause, are herewith incorporated'.

In June 2011, the shipowners started proceedings in England in order to not be declared liable for any cargo damage, while the cargo insurers commenced proceedings against them in Morocco, alleging that there was no incorporation of English law and jurisdiction into the B/L. The English High Court considered that the intention of the parties in the charterparty prevailed over that of the B/L, as the Hague-Visby Rules were applicable and did not consider the prorogatio fori. Thus, it was found that the Hague-Visby Rules were applicable, and an anti-suit injunction was issued, effectively removing the possibility of the Moroccan courts' competence to resolve the merits of the dispute.

Moroccan law would apply the Hamburg Rules rather than the Hague-Visby Rules, depriving the claimant from the benefit of the agreed jurisdiction (English High Court) and the applicable law (English law) and avoiding the time-bar of the Hague-Visby Rules at the hearing. The Court of Appeal upheld the decision, taking a slightly different approach to that followed in the High Court, holding that the wording used for incorporation of the law and jurisdiction clause into the B/L must be considered in each case: the clause must have specific words of incorporation and then it is a matter of construction as to which clause is incorporated.

A modern contextual approach to construction led to an effective incorporation of a ‘law and arbitration’ clause that referred to a Taw and jurisdiction’ clause contained in the charterparty. Therefore, if a shipper, consignee, endorsee or their subrogated insurer intends to start or threaten to start proceedings at extra-EU or extra-Lugano Convention courts in order to breach an arbitration agreement, they can apply under English jurisdiction for an anti-suit injunction to restrain the first party from commencing or pursuing the proceedings.^[6]

Even if the evidence pointed to Morocco rather than to England, the express choice of England made it the most appropriate forum. In The Lucky Lady, the claimant could refer to ‘a solid practical benefit’ to having proceedings in England, thus helping the owners to resist enforcement in a third country. The owners could show that the intention was to incorporate the dispute resolution clause of the charterparty in favour of English courts and that the parties were mistaken when referring to ’arbitration' instead of ’jurisdiction’ in the B/L, so a reasonable person would have understood their real intention. Thus the cargo interests’ challenge to English jurisdiction was dismissed and the owners' arguments were accepted.

The difference with The YM Saturn lies in the fact that the law and litigation clause contained arbitration provisions only in certain cases and jurisdiction clauses in others. A problem arises when a B/L holder has not seen the terms of the head charterparty, in the case of a carrier under an incorporated voyage sub-charterparty and a consignee of a straight B/L or B/L holder to whom the B/L has been transferred, who is unaware of the dispute resolution clause. This stresses why, when transferring a B/L incorporating a charterparty, it is important that a copy of that charterparty is also presented. As Baatz points out, however, the problem is that the presentation of documents under a letter of credit requires waiting until the goods are delivered at the discharge port, which may be too late.

Thus, when incorporating jurisdiction clauses in England, the reference must be clearly expressed, although the court will seek the ’real intention of the parties’ if there is doubt. General words are not enough to incorporate a dispute resolution clause, although incorporation may be possible through an appropriate reference to a charterparty in the B/L. Disputes arising out of a jurisdiction or arbitration clause are normally resolved in accordance with the charterparty terms, since incorporation by reference is normally sufficient for a valid incorporation. English case law recognises dispute resolution clauses unless the claimant provides compelling reasons not to. However, English courts have no discretion if there is an arbitration clause or Article 25 of the Brussels I Regulation (recast) applies. English courts may not enforce a dispute resolution clause if or when it is not possible to have a judicial process with guarantees, enforcement of the judgment, or the dispute resolution clause may be aimed at providing a procedural advantage, with no connection to the relevant facts of the case.^[7]

As a general rule, a choice of forum clause is valid, except where one of the parties wants to resort to procedural or legal fraud or due to an international public policy (ordre public), for both EU and international law. Thus, both public policy and overriding mandatory rules may constitute a limitation to the parties’ intention. However, the court may issue anti-suit injunctions to restrain the parties from starting proceedings in other non-EU jurisdictions, in breach of an English arbitration agreement.

• [1] The Mahkutai [1996] 2 Lloyd’s Rep 1 [166] (Lord Goff of Chieveley); the statement that is frequently ‘found in one form or another in all the “Himalaya” clause cases’was reproduced by the House of Lords m Mokros Hout BVv. Agrosin Private Ltd (The Starsin) [2003] UKHL 12 [151], acknowledging that ‘ the shipowners were attempting to enforce an exclusive jurisdiction clause against the bill of lading holders and failed as a matter of construction both under the “Himalaya” clause and the principle of bailment upon terms ... The shipowners in the present case are, of course, not seeking to use the clause for any such purpose. They are not seeking to share the benefit of the contracting carriers’ exceptions under the Hague Rules. That would not assist them. They are seeking to use the clause as the actual carriers to avoid all liability whatsoever. It is they not the cargo owners who are seeking to avoid the application of the contractual defences available to the carrier’; see Carlo Corcione, Third Party Protection in Shipping (Informa 2019) [7.59]—[7.84]. 2 Section 1(2), 2(1) and 5(2) COGSA92. 3 See Borealis AB v. Stargas and others (The Beige Sisar) [1998] 2 Lloyd’s Rep 475 (CA). 4 Section 5(2) COGSA 192. 5 Section l(2)(a) COGSA 92. 6 See AP Moller-Maersk A/S(t/a Maersk Line) v. Sonaec Villas Cen Sad Fadoul [2010] EWHC 355 (Comm). 7 Ozdel, Bills of Lading Incorporating Charterparties (n 18) 61-69. 8 A B/L clause referring to ‘disputes arising under this charterparty’ exceeds the manipulation limits, but the mcoiporation was accepted in The Annefield (n 3) 186; Navigazione Alta Italia SpA v. Svenska Petroleum
• [2] The Siboti (n 7) and Navig8 Pte Ltd v. Al-Riyadh Co for Vegetable Oil Industry (The Lucky Lady) [2013] EWHC 328 (Comm), respectively. 2 The Varenna (n 11) 618 and 621-622; The Federal Bulker (n 11) 108,110; The Siboti (n 7). 3 The Annefield (n 3); The Merak (n 3); Thomas v. Portsea (n 3); TheNjegos [1936] P 90; The Phoenizien (n 12); The Federal Bulker (n 11). 4 Ózdel, Bills of Lading Incorporating Charterparties (n 18) 61-69. 5 See Case 71/83 Partenreederei ms Tilly Russ and Ernest Russ v. NV Haven- & Vetvoerbedrijf Nova and NV Goeminne Hout (The Tilly Russ) EU:C: 1984:217, [1984] ECR2417). 6 Baatz, ‘Should Third Parties Be Bound by Arbitration Clauses in Bills of Lading?’ (n 18). 7 The Channel Ranger (n 8). 8 WelexAGv. Rosa Maritime Ltd (The Epsilon Rosa) [2003] EWCACiv938. 9 Golden Ocean Group Ltd v. Salgaocar Mining Industries Pvt Ltd [2012] EWCA Civ 265. 10 ii3.
• [3] See, for instance, Richard Aikens, Richard Lord and Michael Bools, Bills of Lading (2nd edn, Infonna 2015), [7.92]. 2 Sea Trade Maritime Corp v. Hellenic Mutual Association (Bermuda) Ltd (The Athena) [2006] EWHC 2530 (Conrni) (Langley J). 3 The Federal Bulker (nil); The Channel Ranger (n 8); The Siboti (n 7) [24]. 4 National Navigation Co v. Endesa Generation SA (The Wadi Sudr) [2009] EWHC 196 (Comm). See also The Channel Ranger (n 8), upheld on appeal, where Males J held that general words of incorporation were sufficient, applying The Njegos (n 34) and Pacific Molasses Co and United Molasses Trading Co Ltd v. Entre Rios Compania Riviera SA (The San Nicholas) [1976] 1 Lloyd’s Rep 8, although in that case there were specific words referring to the law and arbitration clause, and The Dolphina [2011] SGHC 273, a decision of the Singapore High Court. General words of uicorporation cannot incorporate an arbitration clause. 5 The Varenna (n 11). 6 Hamilton v. Mackie (n 12). 7 The Nerano (n 31), the clause refereed to ‘all disputes arising out of this charterparty to arbitration by adding and under any bill of lading issued hereunder ’; see also The Delos (n 31) and The Epsilon Rosa (n 39). 8 Baatz, ‘Should Third Parties Be Bound by Arbitration Clauses in Bills of Lading?’ (n 18). 9 Ozdel, Bills of Lading Incorporating Charterparties (n 18) 61-69. 10 The Delos (n 31). 11 The Miramar (n 14).
• [4] India Steamship Co v. Louis Dreyfus Sugar Ltd (The Indian Reliance) [1997] 1 Lloyd’s Rep 52. 2 The San Nicholas (n 45); Bangladesh Chemical Industries Corporation v. Нету Stephens Shipping Co and another (The SLS Everest) [1981] 2 Lloyd’s Rep 389. 3 TheHeidberg [1994] 2 Lloyd’s Rep 287. 4 The Epsilon Rosa (n 39). 5 In the Schiffahrtsgesellschaft Detlev von Appen GmbH v. Voest Alpine Intertrading GmbH (The Jay Bota) [1997] 2 Lloyd’s Rep 279,285-286, Hobhouse LJ stated, after examining earlier authorities: These authorities confirm that the rights which the insurance company has acquired are rights which are subject to the arbitration clause. The insurance company has the right to refer the claim to arbitration, obtain if it can an award in its favour from the arbitrators, and enforce the obligation of the [other party] to pay that award. Likewise, the insurance company is not entitled to assert its claim inconsistently with the terms of the contract. One of the terms of the contract is that, in the event of a dispute, the claim must be referred to arbitration. The insurance company is not entitled to enforce its right without also recognising the obligation to arbitrate. 6 Niagara Maritime SA v. Tianjin Iron & Steel Group Co Ltd (The Good Luck) [2011] EWHC 3035 (Comm). 7 Case C-185/07 Allianz SpA (formerly Riunione Adriatica Di Sicurta SpA) v. West Tankers Inc (The Front Comor) EU:C:2009:69, [2009] ECR1-663.' 8 Navigation Maritime Bulgare v. Rustal Trading Ltd (The Ivan Zagubanski) [2000] EWHC 222 (Comm). 9 YMMars Tankers Ltd v. Shield Petroleum Co (Nigeria) Ltd (The YMSatum) [2012] EWHC 2652. 10 Baatz, ‘ Should Tim'd Parties Be Bound by Arbitration Clauses in Bills of Lading? ’ (n 18).
• [5] The Channel Ranger (n 8) (HC), per Males J. 2 For Males J, the clause is that which the parties would incorporate according to the usual trade; Robert Veal, ‘Case Update: How arbitration clauses refer to High Court jurisdiction’ (2014) 14(10) Lloyd’s Shipping & Trade Law 5. 3 The Channel Ranger (n 8) (CA), per Beatson LJ. 4 Beatson LJ followed the approach in The Siboti (n 7) [36]: the words of the B L must be looked at as a whole in their context for the incorporation and Tn every case, the court is seeking to ascertain the intention of the parties and, when construing the language, it is necessary to have regard to the individual context and commercial background’) and The Delos (n 31), but not The Rena K (n 16), TheNerano (n 31), nor The Merak (n 3), that Beatson LJ considered an ‘old-fashioned and outdated approach to interpretation’. He treated the law and arbitration clause as ‘a jurisdiction clause based on the modem approach on interpretation of contracts’; Serpil Yihnaz, ‘Three Problems Caused by Arbitration Clauses Incorporated mto Bills of Lading’ (2016) 48(65) Annales de la Faculté de Droit d’Istanbul 193, 213.
• [6] Ust-Kamenogorsk Hydropower Plant JSC v. AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35 (Kazakhstan); Kallang Shipping SA v. Axa Assurances Senegal (The Kallang) [2006] EWHC 2825 (Senegal); Sotrade Denizcilik Sanayi ve Ticaret AS v. Amadou Lo (The Duden) [2008] EWHC 2762 (Conun) (Senegal); Noble Assurance Co v. Gerling-Konzem General Insurance Co [2007] EWHC 253 (Conun); C v. D [2007] EWHC 1541 (Conun); Market International Co Ltd v. Craft (The Norseman) [2006] EWHC 3150 (Comm); Starlight Shipping Co v. Tai Ping Insurance Co Ltd [2007] EWHC 1893 (Comm) (China); Midgulf International Ltd v. Groupe Chhnique Tunisien [2010] EWCA Civ 66 (Tunisia); Royal Bank of Scotland Pic v. Hicks [2011] EWHC 287 (Ch) (Texas, US, where the defendant sought punitive damages); The Good Luck (n 58) (China). However, this was not true in The Lucky Lady (n 32) (Jordan), where the party sued in Jordan was not a party to the arbitration clause.For the position where the proceedings are in the court of an EU Member State or a Lugano contracting state, the position would be the same where there is a court jurisdiction clause in the B/L; see The YM Saturn (n 61), which involved a court jurisdiction clause in the charterparty incorporated mto a B/L; The Channel Ranger (n 8); Campania Sud Americana de Vapores SA v. Hin-Pro Logistics International Ltd [2014] EWHC 3632 (Comm) (in which the anti-suit injunction was granted), [2015] EWCA Civ 401. See Baatz, ‘ Should Third Parties Be Bound by Arbitration Clauses in Bills of Lading?’ (n 18). 2 The Lucky Lady (n 32). 3 Baatz, ‘ Should Tim'd Parties Be Bound by Arbitration Clauses in Bills of Lading? ’ (n 18). 4 Article 22, UCP 600.
• [7] Ana María Sánchez-Homeros Adán, ‘La ley 14/2014, de 24 de julio, de navegación marítima: Última llamada para la jurisdicción española en asuntos marítimos’(2016) 8802 Diario La Ley 2. 2 Aitor Zurimendi Isla, ‘Responsabilidad del porteador frente al adquirente de un conocimiento de embarque con cláusulas de jurisdicción y arbitraje’ m Pedro Jesús Baena Baena and Nieves López Santana (eds), Estudios Sobre la Responsabilidad de los Operadores de Transporte en la Ley de Navegación Marítima (Aranzadi 2017) 239-263. 3 Baatz, ‘Should Third Parties Be Bound by Arbitration Clauses in Bills of Lading?’ (n 18). 4 Jonathan Hill, The Law Relating to International Commercial Disputes (Informa 1994) 457 et seq., in which the author reflects on the causes and origin of the growing importance of arbitration. 5 International Convention on Civil Liability for Oil Pollution Damage, 1969 (CLC Convention), replaced by the 1992 Protocol and International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1979 (FUND), superseded by the 1992 and 2003 Protocols. 6 Arbitration Act 1996 (Commencement No 1) Order 1996, SI 1996 No 3146 (c 96), Schedule 2; the UKAA is in force since 31 January 1997 in England, Wales and Northern Ireland according to section 2(1). 7 Article 21 (Applicable Rules of Law) states: The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate. The arbitral tribunal shall take account of the provisions of the contract, if any, between the parties and of any relevant trade usages. The arbitral tribunal shall assume the powers of an aimable compositeur or decide ex aequo et bono only if the parties have agreed to give it such powers. 8 Michael J Mustill, A New Arbitration Act? The response of the Departmental Advisory Committee to the UNCITRAL Model law on International Commercial Arbitration (HMSO 1989).