Further Tales from Orin Energy Investments Ltd v The Owners of The Ship Or Vessel MT ‘Cavalier’ [2022] MLJU 673 (High Court, Kuala Lumpur) per Azlan Sulaiman JC on The Effectiveness of Incorporation Clauses in Bills of Lading.

This is a continuation of a story which first started in IMSML Website Article 19/2022. The author has decided to deal with this point separately as incorporation of arbitration clauses are a big deal in the context of charters and bills of lading. Therefore this is an issue which warrants a dedicated treatment. So here is the second part of the tale concerning the MT ‘Cavalier’.

Just to recap, in this case, Orin Energy (the Seller) had contracted Kirk Ward as its consultant for advise on blending of oil cargo. Orin Energy then sold a consignment of Bituminous Mixture (the Cargo) to Jiangsu Soho International Group Corporation (the Purchaser). Kirk Ward then chartered the MT ‘Cavalier’ from Daya Marine to transport the Cargo from Linggi (Malaysia) to Zhanjiang (China). Thus Azlan Sulaiman JC had held that there was no charter contract between Orin Energy and Daya Marine. As the arbitration clause was in the charter, which was largely a pro forma ASBATANKVOY with some additional terms.

The issue that arose was whether the Bills of Lading (ie C/BM/1/2/ and C/BM/2/2) in the form of CONGENBILL 2016, issued by the ship to Orin Energy incorporated the charter’s arbitration clause. Therefore, there would be an arbitration clause creating a binding arbitration agreement between Orin Energy and Daya Marine, via the bills of lading instead. Orin Energy had conceded that the contract of carriage evidenced by the bill of lading, was a contract between Orin Energy and Daya Marine. Azlan Sulaiman JC thus phrased the issue in these words:

The question then is, whether the words “All terms and conditions, liberties and exceptions of the Charterparty dated as overleaf, including Law and Arbitration Clause / Dispute Resolution Clause are herewith incorporated” is such as to make the arbitration clause in Clause 24 of the 10 October Fixture Recap a part of the Bills of Lading.

His Lordship started by looking at the legal position of incorporation clauses under English Law. Azlan Sulaiman JC first examined T.W. Thomas & Co. Ltd v Portsea Steamship Company, Ltd [1912] AC 1. The House of Lords held that an arbitration clause was not properly described by the incorporation clause in the bill of lading. An arbitration was not a ‘term’, ‘condition’ or an ‘exception’ of the charter. Specific words must be used in the bill of lading as it was a negotiable instrument, and should not have words that reduced the effectiveness of this important function. In The Annefield [1971] 1 All ER 394 as well as Skips A/S Nordheim & Ors v Syrian Petroleum Co. Ltd & Anor [1984] QB 599, the courts came to the same conclusion because an arbitration clause is not normally germane to a bill of lading. Thus specific words of incorporation are necessary. This approach is consistent with Heyman v Darwins Ltd [1942] AC 356 where it was held that an arbitration clause is a ‘clause’, not a ‘condition’. The only case where the incorporation clause was successful was The Merak [1965] P. 223 where the incorporation clause in bill of lading was interpreted broadly so that the reference to a ‘clause’, was apt to describe an ‘arbitration clause’.

Azlan Sulaiman JC, then went on to look at the position in Malaysia, in particular Sigur Ros Sdn Bhd v Malayan Banking Bhd & Anor [2013] 8 CLJ 86. In the Sigur Ros case, Nallini Pathmanathan J (as she then was, note that her Ladyship is now a Federal Court Judge), referred to both the English cases of Thomas v Portsea and the Skips Nordheim case. The charter in Sigur Ros, in particular Clause 34, provided that disputes between the charterer and the shipowner are to be referred to arbitration. Her Ladyship followed the English cases and came to the conclusion that an incorporation clause was ineffective at incorporating and arbitration clause into a bank guarantee, largely dependent on the principle of autonomy of the bank guarantee which prevent arbitration clauses from simply being incorporated into it. Her Ladyship rejected submission by counsel that Clause 34 of the contracts was wide enough to encompass the dispute with respect to the validity of the bank guarantee. This was despite the fact that clause 34 used the words ‘any dispute arising out of or in connection with this charterparty shall be referred to arbitration’, the validity of the bank guarantee is inexorably interconnected with the charterparty agreement between the Plaintiff and Second Defendant. Therefore, Her Ladyship set a very high threshold for a successful incorporation.

Following the reasoning of Nallini Pathmanathan J (as she then was) in Sigur Ros, Azlan Sulaiman JC held that Clause 24 of the ASBATANKVOY voyage charterparty was not incorporated into the bill of lading. This is surprising in that the CONGENBILL 2016 had a very specific incorporation clause which stipulated, ‘All terms and conditions, liberties and exceptions of the Charterparty dated as overleaf, including Law and Arbitration Clause / Dispute Resolution Clause are herewith incorporated’. The incorporation clause specifically named / identified / described the arbitration clause. From a drafting perspective, this CONGENBILL 2016 incorporation clause is even more specific that the successful incorporation clause use in The Merak. In the Sigur Ros case, Nallini Pathmanathan J (as she then was) was correct to impose a very high threshold for the successful incorporation of an arbitration clause, especially in a document like a bank guarantee. However, if an incorporation clause as specific and expressly drafted as the one found in CONGENBILL 2016 does not work, it makes you wonder what indeed will work. It is not clear how much more would drafters of incorporation clauses have to go in order to cross the threshold set by Azlan Sulaiman JC in the Orin Energy case. The Orin Energy case threshold appears to be an even higher threshold than then one set by Nallini Pathmanathan J (as she then was) in the Sigur Ros case.

There are several points to note about the CONGENBILL 2016 standard form. First, it is a BIMCO standard form. BIMCO is a non-profit organisation known as the Baltic and International Maritime Council. More than 130 countries around the world are members of BIMCO. This represents more than 60 percent of the world’s shipping tonnage. Second, BIMCO has numerous standard form contracts and contractual clauses which are used around the world. Third, the incorporation clause used in CONGENBILL 2016 can be traced back to CONGENBILL 2007 and even as far back as CONGENBILL 94. So this version of the incorporation clause has been used for almost 30 years without any problems, well at least, until now in Malaysia. Fourth, BIMCO has a ‘Documents and Advice’ arm that looks specifically at its ‘Contracts and Clauses’. Some of the best legal minds in shipping work here. For example, Inga Marie Frøysa (see https://www.bimco.org/insights-and-information/general-information/20220420-legal-eagle accessed on 23 October 2022) is a leading voice in BIMCO’s Documentary Committee. Therefore, the CONGENBILL 2016’s incorporation clause is widely used and accepted in industry, has a long historical pedigree and is always reviewed by some of the best legal minds in the business. Let us just hypothetically say that if I were a betting man, I would not be putting money on BIMCO being wrong.

To end this article, I would like to tell you about an M. Night Shyamalan type twist in the tale for this Orin Energy case. This point on incorporation clauses in the Bills of Lading was never argued in the London Arbitration (see IMSML Website Article 19/2022 titled ‘A Tale of Whether An Arbitration Award Rendered Court Proceedings Academic in Orin Energy Investments Ltd v The Owners of The Ship Or Vessel MT ‘Cavalier’ [2022] MLJU 673 (High Court, Kuala Lumpur) per Azlan Sulaiman JC’). Therefore, the decision of Azlan Sulaiman JC on the incorporation clause in the bills of lading is technically not necessary for the judgment. Daya Marine cannot raise this point due to the doctrine of res judicata as the matter of the arbitration clause and who it bound, had already been dealt with in another quasi-judicial proceeding, ie the London Arbitration. Technically, the view expressed by Azlan Sulaiman JC is merely obiter dicta, ie an opinion, as it was not necessary for his Lordship to reach a final decision in the case. Hence his Lordship’s view on incorporation clauses in bills of lading does not form the ratio decidendi of the Orin Energy case. As a student of the law, I am grateful for this unexpected outcome. Otherwise, Malaysian Maritime Law would be left with a precedent that is inconsistent with the way such incorporation clauses work around the rest of the world.

Thank you for reading IMSML Website Article 23/2022

Stay tuned for the next IMSML Website Article 24/2022:

Stop Work Orders and Debts Owed Under Back-To-Back Charters in TM Global Marine Sdn Bhd (formerly known as Smart Work Co-Ordinating Sdn Bhd) v Thermatek Sdn Bhd [2022] 9 MLJ 641 (High Court, Kuala Lumpur) per Atan Mustaffa JC

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

4 November 2022

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