Channel Ranger

December 2014

ChannelRanger SSM Library Bulk Cargo Ship istock 10188670

The Court of Appeal recently reviewed the law on incorporation of charterparty law and dispute resolution clauses into bills of lading. In Caresse Navigation Ltd v Zurich Assurances MAROC & Ors [2014] EWCA Civ 1366, the Court of Appeal confirmed that the modern contextual approach to contractual interpretation applies equally to the interpretation of bills of lading. As a result, wording in a bill of lading stating that it incorporates the law and arbitration clause of a specific charterparty was effective to incorporate the law and jurisdiction clause in the charterparty referred to.

The facts

A cargo of coal carried from the Netherlands to Morocco on the "MV Channel Ranger" was alleged to be damaged on outturn in Morocco. Cargo receivers and their insurers sought to hold the vessel owners responsible for the damage. The bill of lading under which the cargo was carried stated that it incorporated the law and arbitration clause of a specified charterparty. However, the charterparty referred to did not contain a law and arbitration clause. Instead, it contained a clause providing for English law and the exclusive jurisdiction of the High Court of England and Wales.

The vessel owners commenced proceedings in England in June 2011 for a declaration that they were not liable in respect of any damage to the cargo. In March 2013, cargo insurers commenced subrogated proceedings in Morocco against the vessel owners in respect of the alleged cargo damage, and challenged the jurisdiction of the English High Court. They argued that the reference in the bill of lading to the law and arbitration clause in the charterparty did not incorporate the law and English High Court jurisdiction clause from that charterparty into the bill of lading.

In Caresse Navigation Ltd v Office National de l'Electricité & Ors (the Channel Ranger[2013] EWHC 3081, the Commercial Court rejected cargo interests' application and held that the charterparty law and jurisdiction clause was incorporated into the bill of lading and cargo interests were therefore bound by it. Owners applied for and obtained an anti-suit injunction to restrain cargo insurers from pursuing the Moroccan proceedings. Cargo interests were refused permission to appeal the jurisdiction order but were granted permission to appeal against the anti-suit injunction. The hearing of that appeal took place in the Court of Appeal in October 2014.

The judgment

It is established law that the rules which apply to the construction of contracts generally are applicable to the construction of bills of lading. The question, however, arose as to whether the court must look only at the bill of lading when seeking to determine whether a particular charterparty clause is incorporated, or whether it is permissible to make reference to the charterparty itself.

Cargo insurers argued that a bill of lading is a negotiable instrument and, as such, must be construed according to its terms, without reference to the charterparty. They noted that this would give certainty to the consignees as to what was meant by the bill. For those reasons, they contended that the words "and arbitration clause" should be struck out.

The court held that if the bill of lading is acquired by a consignee with no knowledge of the charterparty terms, that consignee cannot ignore the charterparty and will nevertheless need to look at it so as, for example, to find out the place of arbitration and number of arbitrators where a charterparty arbitration clause is incorporated. It was therefore not correct to say that the charterparty could be ignored. The court went on to uphold the earlier decision of Males J in this case that the consignee of a bill of lading is equally bound by a clause in a charterparty which the parties to the bill clearly had in mind when referring to the charterparty clause in question, provided that clause was usual in the trade.

An argument was also asserted by cargo insurers that due to the previous Court of Appeal judgment in The Merak [1965], which the court in this case was bound to follow, it is not possible to read the words of a bill of lading in such a way as to correct an obvious mistake in it. Therefore, they argued that it was not possible in this case to read a reference to an arbitration clause as a reference to a jurisdiction clause.

The Court of Appeal rejected cargo insurers' argument. They noted that The Merak had been decided in 1965, before the modern, contextual approach to construction laid down in non-shipping cases such as Investors Compensation Scheme Ltd v West Bromwich BS [1998] and Chartbrook Ltd v Persimmon Homes Ltd [2009]. In concluding that the court is not entitled to remedy an obvious mistake in the bill of lading, the majority in The Merak had taken "what to modern eyes is a very old-fashioned and outdated approach to interpretation" (Lord Justice Beatson, at paragraph 37). The court had to consider what the parties should reasonably be understood to have meant by the words 'law and arbitration clause', which plainly contemplate the incorporation of at least one kind of ancillary clause. The modern approach had been applied by Males J in the Commercial Court, where he held that it is necessary to consider this question objectively, having regard to the background circumstances, which include the fact that the charterparty does not contain an arbitration clause but does contain a law and jurisdiction clause.

The words of the bill of lading must therefore be looked at as a whole in their context. The court cited Gross J in The Siboti [2003] who stated that "in every case, the court is seeking to ascertain the intention of the parties and, when construing the language, it is necessary to have regard to the individual context and commercial background". The court has now confirmed that the context can include the charterparty.

The Court of Appeal concluded that, had The Merak been decided today, in the light of the modern approach to the construction of contracts set out above, it is very likely that the issue of construction would have been approached differently. Applying the modern approach in this case, the words "law and arbitration clause" were effective to incorporate the law and jurisdiction clause in the charterparty.

Comment

The Court of Appeal have helpfully summarised that a modern, contextual approach should be applied in order to determine whether a clause in the bill of lading is effective to incorporate a particular clause from a charterparty. The relevant context can include the charterparty, and this does not offend against the need for certainty in the case of a negotiable document such as a bill of lading, because a consignee would have to make reference to the charterparty in order to find out what the incorporated terms provided.

In this case, these principles resulted in a finding that a reference to a "law and arbitration clause" was effective to incorporate the charterparty English law and jurisdiction clause. However, the scrutiny given by the court to the wording of the bill of lading is a reminder that each case will depend on its own facts and, in particular, the words of incorporation used in the bill.  

We are grateful to David Morriss and Jenny Salmon of Holman Fenwick Willan LLP for this article. Holman Fenwick Willan LLP acted for the successful vessel owner, Caresse Navigation Ltd, in this case.