Max Cross Partner
Hong Kong Court affirms rule that arbitration clauses must be expressly incorporated into bills of lading
OCBC Wing Hang Bank Ltd v. Kai Sen Shipping Co Ltd (Yue You 903)  HKCFI 375
This recent Hong Kong case confirms the rule that express wording must be used in order to incorporate an arbitration clause from a charterparty into a bill of lading. General words of incorporation will not be sufficient.
The background facts
Kai Sen was the owner of the vessel and carrier of cargoes under four tanker bills of lading. OCBC claimed to be the lawful holder of the bills of lading and to be entitled to possession of the cargoes. Ken Sen had released the cargoes without presentation of the bills of lading and OCBC brought a misdelivery claim in the Hong Kong Court.
Kai Sen applied to stay the court proceedings pursuant to Section 20 of the Arbitration Ordinance (“the Ordinance”) on the grounds that OCBC’s claim was subject to an arbitration agreement. The arbitration agreement was said to be contained in the bills of lading and to have been incorporated therein by reference to the terms of a charterparty.
Under both English and Hong Kong law, reference to a separate document which contains an arbitration clause may be sufficient to incorporate that arbitration clause even without an express reference to the arbitration clause. However, the position is different where bills of lading are concerned. In TW Thomas and Co. Limited v. The Portsea Steamship Company Limited (The Portsmouth) in 1911, the UK House of Lords held that general words of incorporation in a bill of lading are insufficient to incorporate an arbitration agreement from a charterparty into the bill of lading. Several subsequent decisions have followed that precedent.
The rationale for treating bills of lading differently is that they are negotiable instruments, which are frequently traded internationally and so the incorporation of arbitration clauses would have jurisdictional consequences, including for parties with no connection to or knowledge of the charterparty the terms of which are incorporated.
Two Privy Council decisions on appeal from the Hong Kong Courts had previously confirmed that Thomas v. Portsea applies to bills of lading or negotiable instruments, but not to other contracts. In this case, therefore, Kai Sen was seeking to persuade the Court to depart from that position and to treat bills of lading the same as other kinds of contract.
Hong Kong Court of First Instance Decision
The Court of First Instance’s decision confirms that the rule in Thomas v. Portsea is still good law in Hong Kong, despite the rule being over 100 years old. A general reference to the charterparty terms is insufficient for an arbitration clause (or other jurisdiction clause) to be incorporated. It follows that the position under Hong Kong law remains consistent with the English law position (and indeed with the position in several other common law jurisdictions).
This decision dismissed the argument that bills of lading should be treated in the same way as other types of contract, in which arbitration clauses can be incorporated by general reference. Instead, express wording is needed to incorporate an arbitration clause into a bill of lading.
Many standard forms include the required express wording. For example, Congenbill 2016 includes the following clause:
“All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause / Dispute Resolution Clause, are herewith incorporated.” [Emphasis added].
However, not all forms of bills of lading have such express wording. When using such forms, parties will need either to add express words of incorporation or simply add a provision dealing directly with jurisdiction, such as an arbitration clause. Otherwise, they risk finding that there is no effective jurisdiction provision in the bill of lading and that any disputes may be subject to being determined in an unfavourable jurisdiction. In addition, there might be a risk of proceedings being commenced in multiple jurisdictions, with potentially conflicting outcomes or, at the very least, costly and time-consuming efforts being required to consolidate the proceedings in a single jurisdiction. This could also lead to dispute as to the applicable limitation of liability regime.
This article was co-authored by Trainee Solicitor at Ince, Sophie Forsyth.
Related news & insights
News / Ince celebrates one year since Scotland office opening
23-11-2022 / Insurance, Maritime, Real Estate
We are pleased to be celebrating one year since opening our first Scottish office in the city of Glasgow. Stefanie Johnston, dual-qualified Partner and Head of Scotland, has worked tirelessly over the last year to develop our offering through the opening of an Ince office in what is arguably an established Scottish market. Starting from the ground up, Stefanie and her team have successfully gained an admirable reputation in the region and further afield in the maritime, insurance, real estate and regulatory sectors.
News / Shipping E-brief November 2022
17-11-2022 / Maritime
The Shipping E-Brief is a publication providing you with key information on legal decisions and developments in shipping and related business areas.
News / Appeals from arbitration: is reform required?
15-11-2022 / Maritime
In September 2022, the UK Law Commission published a consultation paper with provisional recommendations for updating the Arbitration Act 1996 (the Act 1996). Amongst other things, the Law Commission considered whether any changes need to be made to: (i) s.67 of the Act 1996, which deals with jurisdictional challenges to arbitral awards; and (ii) s.69 of the Act 1996, which deals with appeals on points of law.
News / Owners not in breach of charter and entitled to claim demurrage
09-11-2022 / Maritime
CM P-MAX III Limited v. Petroleos Del Norte SA (MT Stena Primorsk)  EWHC 2147 (Comm) This recent laytime and demurrage dispute demonstrates that an owner can legitimately refuse orders where such orders may jeopardise the safety of a vessel.
News / Court of Appeal finds owner should have accepted non-contractual performance
09-11-2022 / Maritime
Mur Shipping BV v. RTI Ltd  EWCA Civ 1406 A majority of the Court of Appeal has held that the Owner under a contract of affreightment (COA) should have accepted payment of freight in Euros, rather than the US dollars provided for in the COA. Its refusal to do so meant that the Owner could not rely on the force majeure clause in the COA, in circumstances where US sanctions might have restricted US dollar transfers from or on behalf of the Charterer.
News / “Due” means due!
03-11-2022 / Maritime
Ceto Shipping Corporation v. Savory Inc (Victor 1)  EWHC 2636 (Comm) The Court in this case had to construe a purchase option clause in a bareboat charter. Specifically, it considered whether the fact that the charterer had not fulfilled certain payment obligations under the charter because it was disputing them in good faith meant that the owner was not obliged to transfer title to the vessel at the end of the charter period.