Australian law - Arbitration clauses in voyage charterparties, again

Australian law – Arbitration clauses in voyage charterparties, again

Federal Supreme Court of Australia decides that Section 11 of COGSA 91 applies to voyage charterparties.

An article in Gard News issue No. 205¹ reported on the decision of the Supreme Court of South Australia in the case of Jebsens Orient Shipping Services A/S & Anor v. Interert Australia Pty & Ors²that a voyage charterparty is not a “sea carriage document” for the purposes of the Carriage of Goods by Sea Act 1991 (COGSA 91), with the result that an arbitration clause in the contract is not rendered void by its Section 11. However, a subsequent recent decision of Australia’s Federal Supreme Court in Dampskibsselskabet Norden A/S v. Beach Building & Civil Group Pty Ltd³ has reversed the position, by holding that Section 11 of COGSA 91 applies to a voyage charterparty and renders an arbitration clause in the charterparty invalid.

The Jebsens case
The facts of this case can be briefly summarised as follows. Jebsens Orient Shipping Services (JOSS) had chartered their vessel to Interfert Australia (Interfert) on the GENCON 1984 charterparty form for the carriage of a cargo of fertiliser to Australia. This contract contained a clause stating that both parties agreed that the contract between them was to be governed by and construed in accordance with English law and furthermore that any disputes under the charterparty were to be resolved by arbitration in London. Following the voyage a dispute arose concerning freight and arbitration proceedings were commenced in London. JOSS obtained two London arbitration awards which they then sought to enforce in Australia.

Interfert challenged the validity of the London arbitration awards on the grounds that the law and arbitration clause in the charterparty, which they had agreed, was rendered void by section 11 of COGSA 91. Sections 11(1) and 11(2) of COGSA 91 read as follows:

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: …
b. preclude or limit the jurisdiction of a court of the Commonwealth or of a State or Territory in respect of a bill of lading or a document mentioned in subsection (1).

For Interfert’s challenge to be successful they needed to persuade the court that the voyage charterparty containing the agreement to resolve disputes by reference to London arbitration was a sea carriage document relating to the carriage of goods.

Although this may seem to be a straightforward issue, it is one which has vexed the Australian courts, lawyers and academics for a number of years. Prior to COGSA 91 coming into force the Australian courts considered that a voyage charterparty was a contract for the carriage of goods and as such a clause in that contract agreeing to arbitration abroad was void as it constrained the jurisdiction of the Australian court. However, JOSS were able to persuade the judge that when interpreting COGSA 91 regard should be made to the definitions of the amended Hague Rules, as these have been incorporated into the legislation. As such, JOSS argued, COGSA 91 deals with the rights of holders of bills of lading or other similar documents. Their argument won the day and many expected that the Federal Court of Australia would uphold this decision in the pending case of Dampskibsselskabet Norden A/S v Beach Building & Civil Group Pty Ltd. Unfortunately, this was not to be the case.

The Norden case
In this case Dampskibsselskabet Norden A/S (Norden) had chartered their vessel to Beach Building & Civil Group Pty Ltd (Beach) on the Amwelsh 93 voyage charterparty form to carry coal from Australia to China. The terms of the charterparty included a law and jurisdiction clause which provided for disputes to be settled by arbitration in London in accordance with English law.

As is not uncommon in voyage charters, a dispute arose concerning outstanding demurrage and Norden commenced arbitration proceedings. It is understood that Beach participated fully in the London arbitration proceedings and indeed had requested the London arbitrator to establish and determine whether he had jurisdiction to hear the dispute. The arbitrator ruled that he had jurisdiction by virtue of the law and jurisdiction clause in the charterparty, a fact which at the time appears to have been accepted by Beach. At least Beach appeared to accept the arbitrator’s decision until an award was given in favour of Norden, who then sought to enforce the award in Australia.

It was at this point that Beach challenged the London arbitration award. Essentially, Beach’s argument was that the voyage charterparty was entered into for the provision of a vessel to carry a cargo of coal from Australia to China. The provisions of COGSA 91 apply to the import or export of goods from Australia and Beach argued that section 11 of COGSA 91 therefore applied. It followed that the law and jurisdiction clause in the charterparty ran contrary to the provision of clause 11(2) of COGSA 91 in that the Australian courts jurisdiction had been limited. Furthermore, Beach argued, the law and jurisdiction clause was invalid and as such the awards obtained should not be capable of enforcement.

COGSA 91
As in the case of Jebsens, the decision rested on whether the judge considered a voyage charter to be a document for the carriage of goods. In reaching his decision the judge interpreted the provisions of COGSA 91 and the amendments to it in a very literal fashion. In the original text of COGSA 91 Section 11 only applied to a bill of lading or other document of title. In the mid-1990s a working group which was set the task of improving Australia’s marine cargo liability regime made a number of recommendations. Some of these found their way into the Carriage of Goods by Sea Regulations 1998, which sought to correct two technical drafting errors, make a clarificatory amendment plus a further amendment which had apparently been requested by the industry. This amendment was to widen the categories of shipping documents in line with the intention that COGSA 91 should apply to all relevant shipping documents. This amendment deleted the reference to “a bill of lading or similar document of title” and replaced it with “a sea carriage document to which, or relating to a contract of which, the amended Hague Rules apply”. The judge believed that a voyage charterparty fell within that class of documents and found in Beach’s favour. Section 11 of COGSA 91 applied, the law and jurisdiction clause in the charterparty ran contrary to Section 11(2) and therefore the arbitration clause was invalid.

The decision in Norden is a Federal Supreme Court decision and as such is a higher authority than the Jebsens case, obliging inferior courts to follow it. There is a feeling that the Norden case is ripe for appeal but it is thought that Beach may be out of business or in administration and thus there may not be any desire on Norden’s part to challenge the decision. Consequently, the decision will remain unless a new case comes along to challenge it or if the federal government decides to clarify further exactly what the legislation in COGSA 91 is designed to do.

Where does this decision leave Members?
The current position is that if the Members have a voyage charterparty for shipment of goods out of or into Australia they will be caught by the Norden decision and any agreement in that contract for arbitration outside Australia will be considered void. This may work in their favour if a claim is being brought against them. But if Members are caught in arbitration or have an award in their favour against an Australian company then there may be problems in enforcing that award in Australia, as the courts will be bound to follow the Norden decision.

In such situations, it may be beneficial for Members to attempt to obtain security for their claim. Such action may have the useful outcome of prompting negotiations to settle the dispute without recourse to proceedings.

If an attempt is made to enforce against assets held by an Australian company outside Australia, for example in England, then the Australian company that is bound to pay under the award may raise as an argument or defence to the enforcement proceedings in the UK that the enforcement is contrary to Australian law. It remains to be seen how robust an approach the courts would take in such a scenario.

Finally, although arbitration abroad may be void under voyage charterparties, section 11(3) of COGSA 91 may assist if the parties to the contract want disputes to be resolved by arbitration. However, to be recognised, and for any award to be enforced, the arbitration would need to be held in Australia.

Footnotes
¹ “Australian law – Supreme Court of South Australia upholds London arbitration clause in voyage charterparty”.
² [2012] SASC 50.
³ [2012] FCA 696.

Any comments on this article can be e-mailed to the Gard News Editorial Team.