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.
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