Recognition of Arbitration Clauses Incorporated into Bills of Lading - French Case Law

September 2006

The new and unified position of the Cour de Cassation

For many years the general approach of French law has been that when a bill of lading issued under a charter party purports to incorporate the arbitration clause of a charter party, without actually reproducing the arbitration clause itself, that clause will not be enforceable as against third party holders of the bill of lading because the latter is not deemed to have known of content of arbitration clause or accepted it (often referred to as "special acceptance"). However, where the consignee is proven to have been aware of the clause at or before the completion of delivery of the cargo, he has been held to be bound by it. But in this latter event the issue remains how to prove that the consignee was aware of the clause.

In addition, the reference to another document containing an arbitration clause should be detailed and precise. For example, a general stipulation in the bill of lading that the "freight and conditions as per the charter party" would not make the arbitration clause binding on the holder of the bill of lading, when the text of the arbitration clause of the charter party was not attached to the bill of lading.

The Civil and Commercial Chambers of the Cour de Cassation had previously handed down conflicting decisions on this issue. While the Civil Chamber considered a jurisdiction clause an integral part of the "economy" of the contract of carriage and as such, enforceable against the subrogated insurer (case of "Bonastar II" 2001), in a number of recent decisions the Commercial Chamber had held that absent "special acceptance of the clause, an arbitration clause can not be binding on the consignee and endorsees. Neither the mere possession of the bill of lading by the consignee or the endorsee nor its accomplishment, nor the fact that the receiver takes delivery of the goods would constitute "special acceptance" to demonstrate that the receiver had accepted the incorporation of an arbitration clause into the bill of lading. (The cases of "Nagasaki" and "Stolt Osprey" 1994 , "Apt Mariner" 2002, "Houston Express" 2003 and "Jerba" 2005).

However, the most recent decisions (see below) of both Chambers indicate a common position and acceptance of charter party arbitration clauses incorporated into bills of lading. Further, that the condition of "special acceptance" of the clause may have disappeared in favour of a role given by priority to the Tribunal arbitral to determine jurisdiction for any such dispute.

(1) The case of the vessel "Lindos": Cour de Cassation , Civil Chamber 22/11/2005

The vessel owner loaded a consignment of bagged rice to be carried from China and Vietnam to Abidjan, Monrovia and Freetown. Damage was reported at each discharge port on discharge and delivery. The French co-insurers subrogated to the rights of the receivers commenced proceedings against the vessel owner before the Commercial Court of Marseilles on the basis of article 14 of the Civil Code which allows a French national to sue in a French Court any foreigner, even with respect to contracts entirely unconnected with France (subject to European regulations to the contrary [regulation 44/2001] or to binding contractual provisions or international conventions, to which France is a party).

The owners argued that the bills of lading incorporated a clause of the charterparty calling for arbitration in London, and requested the Court to decline jurisdiction.

The Court refused, and said that while some bills of lading indicated "Arbitration/London", others contained the standard clause : "all terms and conditions , liberties and exceptions of the Charterparty, dated as overleaf, are herewith incorporated". The Court rejected the clause on the grounds that it did not expressly designate the arbitrators, in violation of the stipulations of article 1492 and 1493 of the New Code of Civil Procedure ("NCCP")

The Court of Appeal of Aix En Provence overturned the judgement and ruled that all the bills of lading make reference to the charter party which determines the country, the city, the rules to designate the arbitrators and the applicable law. In addition, the receivers were aware of the arbitration clause as of the moment of discharge of the goods and the joint surveys they attended. The Court of appeal added that it is a common practice to insert an arbitration clause in an international sea carriage contract, and that clause was an integral part of the "economy" of the contract.

The cargo underwriters appealed to the Cour de Cassation. The Civil Chamber rejected the appeal and ruled as follows:

" Whereas the ruling states, first of all, that bills of lading issued under cover of a voyage charter party to which they expressly refer make it possible to determine the country, the city, the procedure for appointment and the applicable law concerning arbitration, and whereas the consignees were able to have knowledge of the clause as of the discharge and the joint surveys, and lastly, whereas the subrogated underwriters cannot claim that the clause is not binding on them in the absence of express agreement inasmuch as it is usual for an international arbitration clause to be inserted in an international sea carriage contract; whereas the court of appeal thus legally justified its decision from the standpoint of the material rule of arbitration law whereby the arbitrator has priority to rule, if appropriate under the control of the judge, on his jurisdiction, unless the arbitration clause is manifestly null or inapplicable;

Whence it follows that the argument cannot be admitted in any of its branches; On these grounds; Dismisses the appeal. "

(2) The case of the vessel "Pella" 21/02/2006 : the new jurisprudence of the Commercial Chamber of the Cour de Cassation

French cargo underwriters, subrogated to the rights of the receivers, commenced proceedings before the Commercial Court of Rouen, against Owners and Master of the vessel "Pella" representing owners, charterers and operators, in respect of damage to a consignment of flour following a voyage from Rouen to Cuba.

Owners requested that the matter be referred to arbitration since the bill of lading incorporated the terms and conditions of the charter party, including the arbitration clause. The first instance Court and the Court of appeal held that the bill of lading did incorporate the arbitration clause and declined jurisdiction. The cargo underwriters, subrogated to the rights of the receivers, appealed to the Supreme Court. They maintained that the arbitration clause was not enforceable and argued that the Court of appeal did not ensure that the receiver had specifically expressed his acceptance of the arbitration clause for it to be binding, as required by the jurisprudence.

The Commercial Chamber, breaking with established principles, rejected the appeal and ruled as follows:

"Whereas in ruling that there was not any cause of nullity or a manifest inapplicability of the arbitration clause and without having to consider the allegation of non acceptance of that stipulation, the Court of appeal, which declined its jurisdiction by virtue of the principle that it is up to the Arbitrator, by priority, to rule over his own jurisdiction, did not violate the argument raised by the appeal;

On these grounds; Dismisses the appeal."

The disappearance of the condition of "special acceptance".

In the "Lindos", the Cour de Cassation continued to consider the condition of acceptance of the arbitration clause by the consignee. However, the evidence it required for the clause to be binding, is not difficult to establish: owners will need to demonstrate that the receivers attended a joint survey on discharge/delivery of the cargo, and the as the Court said the existence of the arbitration clause incorporated from a charter party is common practice in an international sea carriage contract. In the "Pella", the Cour de Cassation went further and seems to have abandoned the condition of "special or express acceptance" of the arbitration clause that had previously and for many years been required. The only ground on which to decline jurisdiction is now the absence of a manifest nullity or a manifest inapplicability of the arbitration clause.

The priority to the arbitration tribunal to decide on jurisdiction

The Cour de Cassation in the above cases confirmed the role given to the Arbitrator to rule, by priority, over his own jurisdiction.

Article 1458 of the NCCP provides that when a dispute submitted to an arbitral tribunal by virtue of an arbitration agreement is brought before a national court, such court shall decline jurisdiction. If the arbitral tribunal has not yet been seized of the matter, the court shall also decline jurisdiction unless the arbitration agreement is manifestly void. In either case the court should not decline jurisdiction on its own motion.

The Cour de cassation clearly said in the "Pella" that it is up to the Arbitrator to rule by priority on his own jurisdiction, pointing out that the Court does not have jurisdiction to determine whether the arbitration clause is binding on the receivers. Therefore unless the incorporated clause appears to be "manifestly" null or inapplicable, then the Court will have to decline jurisdiction in favour of the arbitrator who has priority to determine jurisdiction for the dispute. The matter "belongs" to the Arbitrator who will determine whether the clause is valid, applicable and binding.

The recent decisions of the Cour de Cassation are in conformity with article 1466 of the NCCP which provides that if , before the arbitrator, one of the parties challenges the principle or scope of the arbitrator's jurisdiction, the arbitrator shall rule on the validity or scope of his jurisdiction.

What happens if the arbitration Tribunal has not yet been seized? Reading the decisions rendered by the Supreme Court, it seems sufficient that a vessel owners / contractual carrier need only invoke and demonstrate the existence of an arbitration clause which is manifestly not null or inapplicable, and the Court should decline jurisdiction.

It is anticipated that both Chambers of the Cour de Cassation will reiterate and confirm these decisions in any new cases that come before them over the next few coming years reinforcing the jurisprudence. Indeed in the most recent case decided on 11 July 2006, (Generali France v Universal Legend), the Cour de Cassation (Civil Chamber) upheld a decision of the Court of Appeal of Bordeaux and said that, when the bill of lading has been issued under a charter party which contains a clause calling for foreign arbitration (London) that clause is binding on the successive holders of the bill of lading unless the cargo insurers demonstrate it's nullity.

As a matter of French procedural law, there is no binding precedent and the courts are generally not bound by decisions of higher courts. However, in practice the cases of "Lindos" and "Pella", and the recent case of "Generali France v. Universal Legend" will be influential on the lower courts. Before these decisions the Commercial Courts and Courts of Appeal were handing down conflicting decisions, and each Court was influenced by the position of either the Civil or the Commercial Chamber of the Cour de Cassation. Now that both Chambers have a unified position, the lower Courts should be more inclined to accept that arbitration clauses incorporated into bills of lading are binding on both the cargo receiver and cargo underwriter.

 

With thanks to André Jebrayel, Avocat au Barreau de Marseille, for preparing this article.