Difference between revisions of "Sea Master Shipping v Arab Bank (Switzerland)"

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'''Comment'''
 
'''Comment'''
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This case provides a helpful clarification of the relationship between bills of lading incorporating arbitration clauses and sections 2 and 3 of COGSA.  It also demonstrates how parties financing transactions, and holding bills of lading merely as security, can still be bound by the arbitration clauses contained in the underlying contracts of carriage.
 
This case provides a helpful clarification of the relationship between bills of lading incorporating arbitration clauses and sections 2 and 3 of COGSA.  It also demonstrates how parties financing transactions, and holding bills of lading merely as security, can still be bound by the arbitration clauses contained in the underlying contracts of carriage.
  
Fn.1 Section 2 of COGSA provides:
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Fn. 1 Section 2 of COGSA provides:
  
 
2. – Rights under shipping documents
 
2. – Rights under shipping documents
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shall (by virtue of becoming the holder of the bill...)  have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract...
 
shall (by virtue of becoming the holder of the bill...)  have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract...
  
Fn.2 Section 3 of COGSA provides:
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Fn. 2 Section 3 of COGSA provides:
  
 
3. – Liabilities under shipping documents.
 
3. – Liabilities under shipping documents.

Revision as of 21:41, 17 July 2019

DMC/Arbn/19/02

England

Sea Master Shipping Inc v Arab Bank (Switzerland) Limited

English Commercial Court: Popplewell J.: 25 July 2018: [2018] EWHC 1902 (Comm)

Mr M. Collett QC, instructed by Jackson Parton Solicitors, for the Claimant.

Mr Chirag Karia QC, instructed by Holman Fenwick Willan LLP, for the Defendant.

CHALLENGE TO ARBITRATORS’ JURISDICTION UNDER S.67 ARBITRATION ACT 1996: WHETHER BILL OF LADING HOLDER BOUND BY ARBITRATION CLAUSE INCORPORATED INTO THE BILL OF LADING: WHETHER STATUS OF LAWFUL HOLDER UNDER S.2 OF CARRIAGE OF GOODS BY SEA ACT (1992) SUFFICIENT: WHETHER IN ADDITION, HOLDER MUST HAVE ASSUMED LIABILITIES UNDER S.3 OF THAT ACT

Summary

This was an application under Section 67 of the Arbitration Act 1996 challenging a tribunal’s decision that it lacked jurisdiction to decide against the lawful holder of a bill of lading, Arab Bank (Switzerland) Limited (the “Bank”) in respect of a claim for demurrage and detention brought by the Vessel’s Owners. The Court held that the intended effect of the Carriage of Goods by Sea Act 1992 (“COGSA”) on arbitration clauses was to bind the holder of a bill of lading to the arbitration clause incorporated into that bill, by reason of him being treated as an original party to the contract of carriage under section 2 of the Act. Therefore, for the Tribunal to have jurisdiction over the Bank, it was not necessary for the Bank to have first assumed liabilities to the carrier under section 3 of the Act.

Case Note contributed by Edward White BA(Hons), GDL, Associate at Penningtons Manches Cooper in Singapore.

Background

On or around 24 June 2016, a cargo of soyabeanmeal was shipped on board the vessel MV “SEA MASTER” at San Lorenzo, Argentina, by Oleaginosa Moreno Hnos. S.A.C.I.F.I.Y.A. (“Oleaginosa”). Oleaginosa had sold the cargo on FOB terms to Glencore Grain BV, who in turn sold it on to Agribusiness United DMCC (“Agribusiness”) on FOB terms.

Agribusiness entered into a voyage charterparty with the owners of the vessel to carry the cargo to discharging ports in Morocco, where Agribusiness had lined up buyers for the cargo. The charterparty provided for London arbitration on LMAA Terms for “any dispute arising out of or in connection with this Contract”.

Seven bills of lading were issued for the cargo, naming Oleaginosa as shipper and providing for discharge in Morocco. The terms of the charterparty were expressly incorporated, including the arbitration clause.

Agribusiness’ initial contract of sale to buyers in Morocco fell through, as did its attempted replacement contract of sale to buyers in Algeria. Agribusiness eventually finalised a third contract with new buyers in Lebanon. This contract provided for payment to be made to Agribusiness under a letter of credit following the presentation of documents (including the bills of lading).

By this point, however, the original bills of lading providing for discharge in Morocco had already been issued, presented by Glencore to the Bank, and accepted by the Bank under the documentary credit opened on behalf of its client, Agribusiness. The Bank became the lawful holder of the bills. As Agribusiness’ new buyers required delivery to Lebanon, Agribusiness and the owners of the vessel had to amend the charterparty to provide for new discharge ports. The bills of lading would also have to be switched to reflect the change. The addendum to the charterparty was signed on 7 November 2016 and, the next day, one switch bill of lading covering all the cargo was issued at the counters of the Bank against the cancellation of the original bill of lading. As with the original bills, the switch bill incorporated the charterparty arbitration clause. The cargo was delivered against the switch bill of lading.

The Arbitration

On 22 March 2017, the bank commenced arbitration proceedings against the owners of the vessel under different bills of lading relating to a cargo of corn carried on the same voyage. The Owners brought a counterclaim against the Bank under the switch bill of lading for demurrage and detention. The Bank challenged the tribunal’s jurisdiction to hear the counterclaim, by arguing that as it had not demanded delivery of the cargo or made a claim under the switch bill so as to trigger liabilities under section 3 of the Carriage of Goods by Sea Act of 1992 (“COGSA”) (fn.1), it had not therefore become a party to the arbitration clause. The Tribunal agreed with the Bank and found that it did not have jurisdiction to hear the counterclaim.

The Section 67 appeal

The Owners’ appeal was brought before the Commercial Court.

The Bank conceded that it was the lawful owner of the switch bill of lading. It also conceded that it had the right of suit under the bill pursuant to section 2 of COGSA (fn.2). However, the Bank repeated its primary argument that it had not performed any of the acts triggering liability under section 3 of COGSA, and could not therefore be bound by the arbitration clause contained in the switch bill.

Popplewell J allowed the Owners’ appeal and held that the Bank had been bound by the arbitration clause by virtue of the fact that it had acquired rights under the contract of carriage under section 2 of COGSA. Under this section, the Bank was treated as having become a party to the original contract of carriage upon becoming the lawful holder of the bill of lading. This, the Court held, was enough to bind the Bank to the arbitration clause notwithstanding the fact that section 3 of COGSA had not been triggered.

The Doctrine of Separability

In reaching its decision, the Court considered the principle that arbitration clauses are treated as separate and independent from the contracts in which they are contained. Popplewell J was therefore not prepared to assume that COGSA intended to treat an arbitration clause in a contract of carriage in the same way as it would the other terms of that contract. He found that an arbitration agreement contains obligations by which a party is bound irrespective of the assertion of substantive rights by that party. It was held, therefore, that the intended effect of COGSA on arbitration clauses was not to treat arbitration rights (under section 2) and arbitration obligations (under section 3) differently, but rather automatically to bind the holder of a bill of lading to the arbitration clause upon him being treated as an original party to the contract of carriage under section 2. Therefore, for the Tribunal to have jurisdiction over the Bank, it was not necessary for the Bank to have first triggered its liabilities under the contract of carriage.

Mr Justice Popplewell commented that it would reflect the expectations of the industry if all disputes in relation to the maritime venture between the shipowners and those interested in the cargo were the subject of a single, defined dispute resolution mechanism.

Comment

This case provides a helpful clarification of the relationship between bills of lading incorporating arbitration clauses and sections 2 and 3 of COGSA. It also demonstrates how parties financing transactions, and holding bills of lading merely as security, can still be bound by the arbitration clauses contained in the underlying contracts of carriage.

Fn. 1 Section 2 of COGSA provides:

2. – Rights under shipping documents (1) Subject to the following provisions of this section, a person who becomes -

(a) the lawful holder of any bill of lading: ...

shall (by virtue of becoming the holder of the bill...) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract...

Fn. 2 Section 3 of COGSA provides:

3. – Liabilities under shipping documents.

(1) Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection

(a) takes or demands delivery from the carrier of any of the goods to which the document relates; or

(b) makes a claim under the contract of carriage against the carrier in respect of any of those goods....

that person shall (by virtue of taking or demanding delivery or making the claim....) become subject to the same liabilities under that contract as if he had been a party to that contract.