Tales from Singapore on Respect for the Arbitration Clause in a Bill of Lading in The “Navios Koyo” [2021] SGCA 99; [2022] 1 SLR 413

So what happens when your bill of lading incorporates a charterparty, but you do not pay attention to the exact terms of that incorporated charterparty? When you only have the full details of the charterparty on the day before the time bar sets in, you obviously keep calm and not panic. Then you apply for an unconditional stay of the court proceedings in favour of arbitration. The fascinating issue that arises in this case is whether, when a court grants the stay of the court proceedings, thus forcing the parties to settle their dispute via arbitration, could that court impose conditions. As the court can impose ‘such terms and conditions as it may think fit’ in granting the stay, could there be conditions on substantive issues which otherwise would be decided in the arbitration? In particular could such substantive issues be excluded from arbitration as part of the court’s stay order?

In short, the answer to these questions are negative. The court should not be expected to insulate the party from its inaction. Further, the Court should be exceedingly slow to remove substantive defences (such as time bar) from the jurisdiction of the arbitral tribunal. Given the terms of the bill of lading, the arbitral tribunal entitled to determine the substantive issues without any interference from the Court.

Now let us have a look at the incorporation clause in that CONGENBILL 1994. The CONGENBILL 1994 was ‘to be used with Charter-Parties’.On the reverse side of the bill of lading, under the heading ‘Conditions of Carriage’, were the following words of incorporation:

All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause are herewith incorporated.

The allegation that was made against the carrier was that it had failed to deliver the cargo as demanded, upon presentation of the Bills of Lading. As the cargo was a security for loans, there was concern that the cargo was discharged without the knowledge of the party granting the loan. As there was an arbitration clause for London in the Charter, it was argued that this was incorporated into the bill of lading. Thus the vessel that was arrested in Singapore should be released, the court proceedings in Singapore be stayed / discontinued, and the vessel released, as the matter was to be decided by arbitration. The fundamental issue to be decided by the court at the stay application was whether the stay should be unconditional, or alternatively, the stay should be conditional on the Respondent waiving its right to rely on the defence of time bar in the London Arbitration.

If the incorporation clause merely purported to incorporate the terms of the charter, without a specific reference to incorporation of the arbitration clause, this may not be sufficient to incorporate the charterparty arbitration clause into the bill of lading. In The Channel Ranger [2014] 1 Lloyd’sRep.337, Males J at para [38] explained that ‘general words of incorporation (however wide, and whether or not including the word ‘whatsoever’) will not be effective to incorporate an arbitration (or jurisdiction) clause because such clauses are ‘ancillary’ to the main contract to which they relate, but that specific reference to an arbitration (or jurisdiction) clause will be effective’. This principle has been established for a long time in Common Law and can be seen in cases such as T W Thomas & Co v Portsea Steamship Co Ltd [1912] AC 1 at 7 in the UK, and Star-Trans Far East Pte Ltd v Norske-Tech Ltd [1996] 2 SLR(R) 196 at [28] in Singapore.

The Court of Appeal made the inference that the bill of lading holder knew of the existence of the charterparty from subsequent conduct. In an affidavit, it was mentioned that it did not have a copy of the bill of lading, the terms of which was incorporated in the charterparty. It was also further sworn that it was not aware of such terms of the charterparty. The Court of Appeal took the view that the affidavit provided grounds for inferring that there was knowledge of the existence of the charterparty that was incorporated into the bill of lading. The Court of Appeal explained that what was being said here is that the bill of lading holder was not aware of the precise terms of the incorporated terms. The presence of the incorporation clause alerted the bill of lading holder to the presence of the arbitration clause. The ignorance of the bill of lading holder could not provide grounds from being bound by those incorporated charterparty terms.

In addition to this finding, several other observations were made by the Court of Appeal. First, there were unfounded allegations that by asking for the charterparty, that would trigger litigation checks, filing of protective writs across various jurisdictions, and changing of the ship’s trading route. Second, there was also no substance to the allegation that the ownership of the ship was going to be change to frustrate any potential claimant. The Court of Appeal pointed out that the attention of the bill of lading holder was drawn to the existence of the arbitration clause through China Navigation’s solicitors. In the light of these facts and inferences, the Court of Appeal observed that ‘… the truth appeared to be that the appellant simply did not bother to ask the respondent for a copy of the charterparty. Rather, it waited until the very last minute, asking for a copy of the charterparty on the night before the time bar accrued … with the consequence that it commenced Admiralty Actions in breach of the (arbitration) clause and found its claims under the Bills of Lading potentially time-barred in the arbitration’. In the light of what it had done, or rather did not do, the bill of lading holder should not have the right to argue that ‘it should be insulated by the courts from the consequences of its own omissions’. What was really revealing was that counsel for the bill of lading holder ‘candidly and correctly acknowledged at the hearing that the sea carrier had done nothing to cause or contribute to the bill of lading holder’s omission to commence the London arbitration prior to the accrual of the time bar’.

In conclusion, the Court of Appeal declined to imposed any conditions on the order to stay the Admiralty Action in favour of the Arbitration hearing. The bill of lading holder’s own dilatory conduct in failing to check the terms of the charterparty, had put it in that disadvantageous position. Further, imposing such condition of the order for a stay of the Admiralty Action, that would deprive the sea carrier of a substantive defence in the form of a time bar. There was no justification for the Court of Appeal to impose such a condition on its order for stay of the Admiralty proceedings. The Court of Appeal declined to take into account the size of the claim in making its decision because a large quantum cuts both ways. It would also affect the party losing the time bar defence too.

Thank you for reading IMSML Website Article 21/2022

Stay tuned for the next IMSML Website Article 22/2022:

Tales from Australia on Limitation of Liability under a Contract of Carriage for Damaged Goods in Poralu Marine Australia Pty Ltd v MV Dijksgracht [2022] FCA 1038

Signing-off for today,

Dr Irwin Ooi Ui Joo, LL.B(Hons.); LL.M (Cardiff); Ph.D (Cardiff); CMILT

Professor of Maritime and Transport Law

Head of the Centre for Advocacy and Dispute Resolution

Faculty of Law

Universiti Teknologi MARA Shah Alam

Selangor, Malaysia

2 November 2022

Note that I am the corresponding author for the IMSML Website Articles. My official email address is: uijoo310@uitm.edu.my