Newsletter

Arbitration for Liner Contracts - 2

Author: M.Jagannath
Date: August 20, 2016

This is a continuation of our earlier article (Arbitration for Liner Contracts) which argued that Arbitration is indeed suitable for Liner Contracts. In this article, we look at the possible issues which may arise with respect to enforcement of arbitration clauses in Liner Contracts.

  1. Arbitration agreement in writing:

    1. The New York Convention(http://www.newyorkconvention.org/english)):
      As mentioned earlier in 3c of our earlier article (http://nau.com.sg/articles_detail.php?id=111), there are more than 150 signatories of The New York Conventions and which allows for easy enforcement of awards. Art II (2) of The New York Convention states " The term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams."

    2. UNCITRAL Model Law on International Commercial Arbitration (1985)(http://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/06-54671_Ebook.pdf): The UNCITRAL Model Law has been adopted by the majority of jurisdictions including Singapore, Hong Kong and India. Article 7 deals with Arbitration Agreement and states:

      1. "Arbitration agreement" is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

      2. The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.

    3. English Arbitration Act 1996(http://www.legislation.gov.uk/ukpga/1996/23/data.pdf): S5 of the English Arbitration Act requires that the arbitration agreements must be in writing and states as follows:

      1. The provisions of this Part apply only where the arbitration agreement is in writing, and any other agreement between the parties as to any matter is effective for the purposes of this Part only if in writing. The expressions “agreement”, “agree” and “agreed” shall be construed accordingly.

      2. There is an agreement in writing—
        1. if the agreement is made in writing (whether or not it is signed by the parties),
        2. if the agreement is made by exchange of communications in writing, or
        3. if the agreement is evidenced in writing.

      3. Where parties agree otherwise than in writing by reference to terms which are in writing, they make an agreement in writing.

      4. An agreement is evidenced in writing if an agreement made otherwise than in writing is recorded by one of the parties, or by a third party, with the authority of the parties to the agreement.

      5. An exchange of written submissions in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against another party and not denied by the other party in his response constitutes as between those parties an agreement in writing to the effect alleged.

      6. References in this Part to anything being written or in writing include its being recorded by any means.

    4. Chinese Arbitration Law (http://www.wipo.int/edocs/lexdocs/laws/en/cn/cn138en.pdf): Article 16 of The Peoples Republic of China's Arbitration Law states " An arbitration agreement shall include arbitration clauses stipulated in the contract and agreements of submission to arbitration that are concluded in other written forms before or after disputes arise". The wordings suggest that in order to be considered an arbitration agreement, it must be in written form.

    5. From the provisions noted above, you will note that there is a requirement for the arbitration clauses to be in writing (which can be easily fulfilled by incorporating the same into Bills of Lading). However, given that the Bills of Lading are generally issued after loading, the issue would be as to whether the arbitration clause are validly incorporated i.e. whether cargo interests were notified prior to the issue of the B/L? It would therefore be necessary to ensure that the cargo interests are aware of the incorporation of an arbitration clause in the Bills of Lading to deal with disputes prior to the formation of the contract. Invariably, a freight quotation /booking note / booking confirmation precede the loading of the cargo and this may be used to draw attention to the terms and conditions to govern the contract of carriage (including the ssue of a Bill of Lading on the Carrier’s wordings and which incorporates an arbitration clause).

  2. In para 4 c of our earlier article, we mentioned that "some jurisdictions provide that any clause in a contract which ousts the jurisdiction of the local courts is null and void."

    1. An example of such legislation would be the Australian Carriage of Goods Act 1991 ((https://www.legislation.gov.au/Details/C2016C00320).Section 11 (2)(b) deals with jurisdiction and states " An agreement (whether made in Australia or elsewhere) has no effect so far as it purports to

      a) preclude or limit the effect of subsection (1) in respect of a bill of lading or a document mentioned in that subsection; or

      b)
      preclude or limit the jurisdiction of a court of the Commonwealth or of a State or Territory in respect of a bill of lading or a document mentioned in subsection (1); or

      c) preclude or limit the jurisdiction of a court of the Commonwealth or of a State or Territory in respect of:
      1. a sea carriage document relating to the carriage of goods from any place outside Australia to any place in Australia; or
      2. a nonnegotiable document of a kind mentioned in subparagraph 10(1)(b)(iii) relating to such a carriage of goods.

    2. S 11(3)  of the Australian COGSA states “an agreement, or a provision of an agreement, that provides for the resolution of a dispute by arbitration is not made ineffective by subsection (2) (despite the fact that it may preclude or limit the jurisdiction of a court) if, under the agreement or provision, the arbitration must be conducted in Australia”.

    3. Hence,in some circumstances, it would not be possible to oust the inherent jurisdiction of the courts due to provisions in legislation such as the Australian COGSA. The Bills of Lading are documents of "Title" which allow for the transfer of the cargo from the shipper to the consignee. There are various possibilities with respect to the arbitration clause and which are as follows:

      1. The cargo and carrier interests agree to initiate or participate in an action in a third country (say for instance in the port of discharge / delivery) and in which case, the bite of the “Australian COGSA” will not affect the incorporation of the Arbitration Clause.

      2. If parties do not agree to the above (as mentioned in 2 c i.), they could consider Arbitration to be seated in Australia and is valid under the Australian COGSA.

      3. If the shipment is being effected to Australia (or a similar jurisdiction), the contract of carriage could require the original parties to the contract to provide an indemnity for all costs and consequences arising from any action initiated by the holder of the Bill of Lading  contrary to the arbitration clause. Hence, if the consignee initiates legal action in a jurisdiction contrary to the arbitration clause (as may be provided in the domestic legislation such as the Australian COGSA), the carrier may have to defend the action, and in turn, has the right to initiate arbitration proceedings action against the original party to the contract (the Shipper in this instance) to seek an indemnity for any and all costs incurred for the action initiated contrary to the provisions of the arbitration clause.

  3. Subrogated action: The English (and common law) position is that subrogated insurers stand in the shoes of the insured and have no better right then them (original assured). Hence, the subrogated insurers would be bound by the arbitration agreement provided in the contract. However, in some civil law countries, subrogated insurers have an independent right and are not necessarily bound by the contractual agreement between the original parties (including the assured) as they may not have been aware of the arbitration provisions or have agreed to it (see position of the French Courts in “The Stolt Osprey” and in “The Istanbul” who stated that in order to be binding upon the consignee, he must have had knowledge of the arbitration clause and he must have accepted it). As the position appears to be with respect of the knowledge of the consignee and subrogated insurers, in order to ensure validity of the arbitration clause, the Carrier must ask the Shipper to bring the arbitration clause to the notice of their counterparty and their Insurers, if any. In case of any failure by the Shipper to notify the relevant parties, the Carrier interests should be entitled to pursue them (Shippers / Original parties) for indemnity.

  4. Institutional or Ad hoc arbitration:

    1. Institutional: With respect to the arbitration clause, it could either provide for an Institution (DIAC, EMAC, LCIA, SCMA, SIAC, HKIAC, ICA, etc) to oversee the process or be an ad hoc arbitration (say using LMAA Rules). While there are advantages and disadvantages in each form, our comment is that as Liner Shipping extends nearly all over the world, any institution chosen should be available to oversee the process in a multitude of locations. The other alternative is to focus on specific trade lanes and provide for the available institutions to govern the process – say region wise. For example, for shipments between India and UAE, once could either consider ICA or EMAC as the Institution to oversee the process.

    2. Ad hoc arbitration: They, on the other hand, are flexible, and may be faster and cheaper than institutional arbitration but issues arise when parties do not co-operate with each other. In this case, courts assistance may have to be taken for say appointment of arbitrator and which would result in delays and additional costs. This could be avoided if the ad hoc arbitration clause provides for such issues (appointment authority to an institution / body if parties fail to appoint an arbitrator).

  5. Rotterdam Rules:

    1. Ch 15 of the Rotterdam Rules (Article 75-78) deals with Arbitration. In particular, Art 75(1&2) states as below:
       
      1) Subject to this chapter parties may agree that any dispute that may arise relating to the carriage of goods under this Convention shall be referred to arbitration.

      2) The arbitration proceedings shall, at the option of the person asserting a claim against the carrier, take place at:

      a)  any place designated for that purpose in the arbitration agreement; or
      b) any other place situated in a State where any of the following places is located:
      1. The domicile of the carrier;
      2. The place of receipt agreed in the contract of carriage;
      3. The place of delivery agreed in the contract of carriage; or
      4. The port where the goods are initially loaded on a ship or the port where the goods are finally discharged from a ship.

    2. Article 78 deals with the Application of Chapter 15 (arbitration) and states that this chapter would bind contracting states that declare in accordance with Article 91 that they will be bound by them. Hence, while the Rotterdam Rules allows for a dispute to be arbitrated, the contracting state must have bond itself to allow for arbitration to deal with disputes.

    3. Accordingly, arbitration is not mandatory under the Rotterdam Rules but permit the parties to agree to arbitrate any disputes arising out of the contract of carriage. However, the claimant is not bound to arbitrate at the designated place stated in the arbitration agreement. Instead, the claimant could choose to arbitrate at any of the locations as mentioned in Art 75.2 (a&b) and which provides for 5 options i.e. place designated in the arbitration agreement, the domicile of the carrier, the place of receipt in the contract of carriage, the place of delivery agreed in the contract of carriage and the port where the goods are loaded or discharged from the ship. This may result in the claimant deciding to arbitrate in a location most tactically beneficial to him as this would govern the procedure which the arbitration will adopt as well as the involvement and intervention of the courts exercising jurisdiction (law of the seat).

    4. Given the differences in the law of the seat, our submission is that the Arbitration procedure envisaged in the Rotterdam Rules is not only complicated but may also allow parties to frustrate the implementation of any arbitration agreement. However, as the Rotterdam Rules have only been ratified by 3 countries (Spain, Togo and Congo), we believe that it would take quite some time for this convention to come into force (requires ratification by 20 countries to come into force).

  6. The Indian Multimodal Transport of Goods Act 1993: As stated in our earlier article on “Unintended Consequences of the Indian MTGA 1993” (http://nau.com.sg/articles_detail.php?id=101), parties can incorporate arbitration clauses to deal with disputes (S 26). In the absence of Arbitration provisions in the contract, parties would instead have to litigate as provided under S 23 of the MTGA (See Sanco Trans Ltd v Addison and Co. Ltd., Hawera Probest GmbH, Schueizenstu & United India Insurance Company Ltd MANU/TN/4039/2009 - a decision of the Madras High Court where the court held the applicability of the Arbitration provisions on the basis of clause 25 of the Bill of Lading and which stated “The contract evidenced hereby or contained herein shall be governed by and construed according to Indian laws. Any difference of opinion or dispute thereunder can be settled by arbitration in India or a place mutually agreed with each party appointing an Arbitrator”). Hence, an Arbitration Clause in a contract governed by Indian MTGA 1993 would be valid and enforceable. Having said that, the Indian MTGA 1993 only applies to outward Multimodal Contracts (carriage of goods by at least two different modes of transport under a multimodal transport contract, from India to a place of delivery of the goods outside India (as provided in S 2(K)).

  7. Conclusion:

    1. Arbitration can be used to resolve Liner disputes quickly with minimum costs.
    2. In order for the arbitration clause to be enforceable, it should ensure that it does not fall foul of any applicable legislation such as the Australian COGSA.
    3. Liner contracts should contain provisions allowing original parties to seek indemnity from the original parties to the contract for the failure of any successive parties to use arbitration. This may force original parties to advise their counter-parties of the provisions of the contract, and in particular, the arbitration clause and which would lead to better enforceability of the same.

       

 

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