UK: Australian Federal Court Rules Against Foreign Arbitration When Carrying Goods From Australia

Dampskibsselskabet Norden A/S v. Beach Building and Civil Group Pty Ltd [2012] FCA 696

In this recent decision,the Australian Federal Court has refused to enforce a London arbitration award.

The background facts

The case concerned a voyage charterparty on the AMWELSH 93 form between disponent owners, Dampskibsselskabet Norden A/S ("DKN") and charterers, Beach Building and Civil Group Pty Ltd ("Beach"). The charterparty provided for the carriage of coal from Australia to China and included at clause 32 an arbitration clause as follows:

"All disputes arising out of this contract shall be arbitrated at London and, unless the parties agree forthwith on a single Arbitrator, be referred to the final arbitrament of two Arbitrators carrying on business in London who shall be members of the Baltic Mercantile & Shipping Exchange and engaged in Shipping, one to be appointed by each of the parties, with power to such Arbitrators to appoint an Umpire. No award shall be questioned or invalidated on the ground that any of the Arbitrators is not qualified as above, unless objection to his action be taken before the award is made. Any dispute arising hereunder shall be governed by English Law."

A dispute arose between the parties in relation to demurrage payable under the charterparty in respect of delays to the vessel at both the load and discharge ports. In accordance with the charterparty, the dispute was referred by DKN to arbitration in London, and the parties subsequently agreed to the appointment of a sole arbitrator to hear the disputes between them.

Beach participated fully in the arbitration and the sole arbitrator was asked during the course of the arbitral process to determine a preliminary issue regarding his jurisdiction to hear the dispute. The arbitrator found in an award on that preliminary issue that he had jurisdiction to hear the substantive dispute between the parties.

In due course, the arbitrator determined the substantive dispute finding in a further award that Beach was liable to DKN in the amount of US$824,663.18 plus interest and costs. DKN then sought to have the awards recognised in Australia

Australian Carriage of Goods By Sea Act 1991

As a general rule, Australian law recognises and will enforce foreign arbitration awards. The Australian International Arbitration Act 1974 does, however, provide for exceptions to this general rule, including where it is found that the relevant arbitrator lacked jurisdiction to make the award.

More specifically, section 11 of the Australian Carriage of Goods by Sea Act 1991 ("ACOGSA") provides that:

(1) All parties to:

(a) a sea carriage document relating to the carriage of goods from any place in Australia to any place outside Australia; ...

are taken to have intended to contract according to the laws in force at the place of shipment.

(2) 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; ...

Beach argued before the Australian Federal Court that the charterparty was a "sea carriage document" within the meaning of section 11(1)(a) of ACOGSA such that the reference to London arbitration was ineffective.

The Federal Court decision

With no definition of "sea carriage document" stated in ACOGSA, the court looked to the changes that have been made over time to ACOGSA and also considered the ordinary English language usage of that phrase. The court concluded that a charterparty is a "sea carriage document" and that clause 32 of the charterparty had no effect because its purpose (leaving aside the last sentence, which is a choice of law provision) was to preclude or limit the jurisdiction of the Australian court.

Uncertainty

This decision is striking, given the apparently clear wording of the arbitration clause in the charterparty and the participation by both sides in the London arbitration.

There is, however, a 2011 decision of the Supreme Court of South Australia in Jebsens International (Australia) Pty Ltd v. Interfert Australia Pty Ltd, where a charterparty was found not to be a "sea carriage document". In Jebsens, the finding was that a "charterparty is a document of a different genus". This decision was not raised before the Federal Court in Dampskibsselskabet Norden. So there is some uncertainty as to what the position will be should Dampskibsselskabet Norden be challenged in a future case.

Comment

As a result of Dampskibsselskabet Norden, parties to any voyage charterparty or contract of affreightment that concerns the carriage of goods from Australia should consider afresh the arbitration provisions in their contracts. Until the law is clarified, there remains a risk that the arbitration provisions in any such contracts, even if apparently clearly worded, will be held invalid if they do not provide for arbitration in Australia.

Despitethe decision in Dampskibsselskabet Norden it is possible that an arbitration under English or some other foreign law may be enforceable in Australia if the parties to the relevant sea carriage document agree that the arbitration shall take place in Australia. This is because Section 11(3) of ACOGSA, provides as follows:

(3) 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.

This would, however, be a convoluted state of affairs and, until the position is clarified, we urge caution.

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