UK: Incorporation Of Charterparty Clause Into Bill Of Lading: Arbitration Or Court Jurisdiction?

Caresse Navigation Ltd v. Office National de L'Electricite and others (Channel Ranger) [2013] EWHC 3081 (Comm)

In this case, the bill of lading incorporated the "law and arbitration clause" (our emphasis) of a charterparty identified in the bill of lading. The dispute resolution clause in that charterparty, however, provided for English law and court jurisdiction, rather than arbitration. The Court held that although a mistake had been made in the words of incorporation used in the bill of lading, this mistake could be rectified to give effect to the parties' intentions. The Court's view was that the parties had intended for the words "law and arbitration" in the bill of lading to incorporate the law and court jurisdiction clause from the charterparty, despite the reference to "arbitration".

The background facts

The Claimants (Owners of the vessel) sought a declaration of non-liability from the English Commercial Court regarding salt-water damage to the cargo at the discharge port in Morocco. The Defendants (cargo receivers and their insurers) challenged the English Court's jurisdiction under the English Civil Procedure Rules, Part 11. The insurers also commenced proceedings in the Moroccan Court against the Owners in relation to the cargo damage. The Owners applied for an anti-suit injunction from the English Court to restrain pursuit of the Moroccan proceedings on the ground that this was a breach of the exclusive jurisdiction clause in the charterparty which the Owners argued was incorporated into the bill of lading.

The Owners chartered the vessel to U-Sea Bulk A/S (U-Sea) for a one time charter trip with a cargo of coal in bulk. In turn, U-Sea had concluded a voyage charterparty with Glencore International AG. The voyage charterparty contained the following clause:

The vessel loaded the cargo at Rotterdam and the local agents signed a bill of lading on behalf of the master. The bill of lading was negotiable, naming Glencore as the shipper but consigned to the order of the first defendant.

The bill of lading was concluded on the Congenbill 1994 standard form. The front of the form included the following typed clause: "Freight payable as per Charter Party. All terms, conditions, liberties and exemptions including the law and arbitration clause, are herewith incorporated."

The reverse of the bill of lading further provided that: "All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated." Box 1 on the front of the bill identified the charterparty by date.

There was, therefore, an inconsistency between the jurisdiction clause in the charterparty, which provided for English High Court jurisdiction and the express words in the bill of lading, which purported to incorporate the "Arbitration Clause" from the charterparty. There was no arbitration clause in the charterparty.

In their claim before the Commercial Court, the Owners invoked two of the jurisdictional gateways under which they argued the English court should accept jurisdiction. These were, first, that the bill of lading contract was governed by English law and, second, that the bill contained a term conferring jurisdiction on the English court.

The Commercial Court decision

In relation to the first jurisdictional gateway, the Court found that the express reference to the governing law of the charterparty amounted to an irrefutable case that the parties to the bill of lading intended for that contract to be governed by the same law as was applicable to the charterparty. The Court therefore held that the bill of lading was governed by English law.

As to the second jurisdictional gateway, the Court held that the provision in the bill of lading expressly seeking to incorporate an arbitration clause from the charterparty, which did not contain an arbitration clause, was sufficient to incorporate the English High Court jurisdiction clause in that charterparty.

The Court reiterated the established principle that general words of incorporation, however wide and whether or not these include the word "whatsoever", are not effective to incorporate an arbitration (or court jurisdiction) clause. This is because such clauses are "ancillary" to the main contract to which they relate. Therefore, specific reference to an arbitration (or court jurisdiction) clause is required and provided there is such specific reference, the Court will allow some degree of verbal manipulation of the relevant clauses to ensure compatibility.

In this case, the Court found that the words "law and arbitration clause" were sufficiently specific and that the issue was one of construction of those words, rather than an issue of incorporation. The Court took the view that the "real question is what the parties should reasonably be understood to have meant by the words 'law and arbitration clause' which plainly contemplates the incorporation of at least one kind of ancillary clause".

The Court held that the only clause in the charterparty that the parties could have intended to refer to was the law and court jurisdiction clause. The Court took the view that construing the clause in this way did not offend against the need for clarity and certainty. The consignee would know from the specific words of incorporation that the incorporation of charterparty terms extended to at least some ancillary clauses related to choice of law and dispute resolution.

On this basis, the Court held that the Defendants were bound by the court jurisdiction clause in the charterparty. The Judge found the Defendants to be in breach of the exclusive English jurisdiction clause and granted the anti-suit injunction to restrain the proceedings that the insurers had instigated in Morocco.

The Commercial Court has granted the Defendants permission to appeal.

Comment

The Court's ruling confirms that where specific words are used to incorporate a clause from a charterparty into a bill of lading, a mistake in those words of incorporation may still be rectified to give effect to the parties' intentions. In this case, the words "law and arbitration" in the bill of lading were sufficient to incorporate the law and court jurisdiction clause from the charterparty despite the reference to "arbitration" rather than "jurisdiction". For certainty, however, and to avoid any potential disputes in this area, it is advisable to use clear words in bills of lading and, where possible, to refer to the correct law and jurisdiction clause(s) in the relevant charterparty that the parties wish to be incorporated.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.