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Mr Simon Bryan (instructed by Mills & Co, Solicitors, Newcastle-upon Tyne) for the Defendant/Claimant in the Arbitration
Mr Graham Dunning, QC (instructed by Stephenson Harwood, Solicitors, London) for the Claimant/Respondent in the Arbitration Hearing dates: 20th 21st and 22nd July 2005
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Mr Justice Aikens :
A. The Issues and how they arise
On 28 February 2004, off the coast of Colombia, a disastrous explosion occurred on board the bulk carrier “Ythan” (“the vessel”) . The explosion caused the death of the Master and five crew of the vessel. “Ythan” and her cargo were totally lost. The cargo (totalling some 33,760 MT) was described in the two bills of lading as being “Metallic HBI Fines” (“the cargo”). It had been shipped on board at Palua Puerto Ordaz, Venezuela, for carriage to and discharge at Jingtang Port, China. Each bill of lading stated that the shipper was Orinoco Iron CA of Venezuela and the bills were consigned “To Order”. The shippers (“Orinoco”) had agreed to sell about 35,000 MT of metallic HBI fines on FOB terms to Primetrade AG, a Swiss company (“Primetrade”). Primetrade agreed to sell approximately the same quantity of the same commodity to Orient Prosperity Pty Ltd (“Orient Prosperity”), an Australian company, at a price CIF FO Jingtang, China. This contract identified an end – user in China.
Despite the fact that none of the principal parties involved in this case have any connection with England,1interesting and important questions that arise out of the tragic explosion and loss of the vessel now come before the Commercial Court in an appeal under section 67 of the Arbitration Act 1996 (“the 1996 Act”). The Owners wish to pursue a claim against Primetrade for losses the Owners have suffered as a result of the casualty, which they say was caused by the shipment on board of a dangerous cargo, the so – called “HBI Metallic Fines”.2 The Owners say that Primetrade became the “lawful holder” of the two bills of lading within section 2(1)(a) of the Carriage of Goods by Sea Act 1992 (“COGSA”). Further, they say that Primetrade, as lawful holder of the bills of lading, “made a claim under the contract of carriage against” the Owners, as carriers of the cargo, within section 3(1)(b) of COGSA. The Owners say that this entitles them to sue Primetrade for damages for losses they have suffered as a result of the shipment of a dangerous cargo. The claim is substantial: about US$ 15 million.
This assertion gives rise to the two principal questions that I must consider: first, was Primetrade “the holder” of the bills of lading at any relevant time, and if so, did that transfer and vest in Primetrade rights of suit under section 2(1) of COGSA? Secondly, did it or its agents “make a claim under the contract of carriage against the carrier in respect of”the cargo within section 3(1)(b) of COGSA? I have dubbed these issues “the holder point” and “the making a claim point” respectively. There is no authority on the first point. On the second, although Lord Hobhouse of Woodborough has analysed section 3(1) of COGSA extensively in Borealis AB v Stargas Ltd (the “Berge Sisar”),3this is the first time the meaning of section 3(1)(b) has come up for decision in the courts.
The third question I have to consider concerns arbitration law. It arises in this way. Each of the two bills provided that “All terms and conditions of Charter Party dated Zug, January 16, 2004 between Phoenix Bulk Carriers Ltd, Monrovia, Liberia and Primetrade AG, Zug, inclusive of Arbitration Clause are deemed incorporated in this Bill of Lading”. The “Conditions of Carriage” on the reverse of the two Bills of Lading stated, in clause (1), that all the terms and conditions of the Charter Party “dated overleaf, including the Law and Arbitration Clause are herewith incorporated”.
Those statements did not accurately describe the contractual arrangements for the carriage of the cargo. The position was that, Primetrade, as the FOB buyer from Orinoco, had entered into a contract of affeightment with Phoenix Bulk Carriers Ltd of Liberia (“Phoenix”) by which Phoenix agreed to supply a vessel to carry a cargo of about 35,000 MT of HBI fines from Venezuela to Jingtan, China. That contract was contained in a fixture note dated 15 January 2004, which provided that the voyage should be performed on the terms of a charterparty dated 7 March 1996, with certain amendments. The owners of the vessel, Ythan Limited, a Marshall Islands registered company, had chartered “Ythan” to Americas Bulk Transport Ltd (“ABT”) by a time charterparty dated 8 October 2003. ABT sub-chartered the vessel on back – to – back terms to Phoenix.
The charterparty dated 7 March 1996th contained a printed clause 28 which provided that all disputes arising out of that contract should be referred to arbitration in London. There was also a typed additional clause 44 which stated that “All disputes under this Charter Party and/or Bills of Lading are to be governed by English law”. It is accepted by both sides that the contracts contained in or evidenced by the two bills of lading are “Owners’ bills of lading”4 and are governed by English law and, by virtue of the terms in the bills of lading, incorporate a London arbitration clause.
Primetrade was not an original party to either Bill of Lading, so it was not originally a party to the arbitration clauses in the Bill of Lading contracts. However, it is common ground that if Primetrade did become the “lawful holder” of the two bills of lading so as to transfer to it rights of suit under the bills of lading and if Primetrade had also “made a claim” under the two bills of lading against the Owners, then it, as well as the Owners, would be bound by the arbitration clause in the two bills of lading.
The precise analysis of how Primetrade would be bound by the arbitration clause was not debated before me. But if English law applies to all matters (see below), then I assume that the analysis is as follows: if Primetrade becomes the “lawful holder” of the bills of lading, then, subject to an important argument, it would “have transferred to [it] all rights of suit under the contract of carriage as if [it] had been a party to that contract” within section 2(1)(a) of COGSA. Furthermore, by “making a claim” Primetrade would become “subject to the same liabilities under that contract as if [it] had been a party to that contract” within section 3(1)(b) of COGSA. Primetrade would not actually become a party to the contracts of carriage with the Owners, contained in or evidence by the bills of lading. But, as the Owners have made a claim against Primetrade based on the bill of lading, and (it is assumed) Primetrade have made a claim based on the bills of lading, then both parties would be relying on the bill of lading contracts “as if they had been a party” to those contracts. Therefore both parties would be bound by all the contract terms, including an arbitration clause. So, they would be in a similar position to others that say they can rely on contract terms, such as a legal assignee, or a person who exercises rights pursuant to a contract against an insurer under the Third Parties Rights against Insurers Act 1930. Such people will be bound by an arbitration clause in the relevant contract.5
The Owners started an arbitration against Primetrade, making their claim for damages caused by the shipment of an allegedly dangerous cargo. Primetrade retorted by saying that it was not bound by the arbitration clause, nor could it be sued for damages for shipment of a dangerous cargo, because it was neither the “lawful holder” of the bills of lading, nor had it “made a claim” within the terms of sections 2 and 3 of the COGSA. Therefore it had not become subject to the same liabilities under the bill of lading contracts “as if it had been a party to that contract”.
The arbitrators appointed by the parties, Mr Richard Shaw and Mr Patrick O’Donovan,6 in turn appointed Mr Anthony Diamond QC as third arbitrator in the reference. All three arbitrators have, of course, great experience of the shipping world and shipping law. On 23 November 2004 Primetrade applied to the tribunal to make a declaratory award under section 30(1) of the 1996 Act to the effect that the tribunal was without substantive jurisdiction because there was no valid arbitration agreement between the Owners and Primetrade. The arbitrators agreed to that course.
There was a four day hearing before the arbitrators, between 17 and 21 January 2005, at which Primetrade and the Owners were represented by solicitors and counsel. Witnesses were called by both sides and many written and oral submissions made. The arbitrators published their Award and Reasons to the parties on 8 March 2005. All three arbitrators held that Primetrade had become the lawful holder of the bills of lading at the relevant time. A majority, Mr Shaw and Mr O’Donovan, also held that Primetrade had “made a claim” against the Owners. Therefore the majority held that Primetrade was bound by the arbitration clause in the bills of lading and that the arbitrators therefore had substantive jurisdiction to hear and determine the Owners’ claim against Primetrade. Mr Diamond QC concluded that Primetrade had not “made a claim” and was therefore not bound by the arbitration clause. So, on his view, the arbitrators had no jurisdiction to hear the Owners’ claim.
The point on arbitration law arises because Primetrade now appeals the majority decision on jurisdiction, exercising its right to do so under section 67(1)(a) and (b) of the 1996 Act. It is agreed on all sides that an appeal on jurisdiction under section 67(1) involves a re-hearing of the matter by the court, at which the parties can adduce evidence and reargue entirely the issue of jurisdiction. But the Owners submit that Primetrade now wishes to run new arguments on the question of whether it was ever the lawful holder of the bills of lading and, if it was, whether rights of suit were transferred to it. The Owners say that these are new “objections” to the jurisdiction of the arbitrators. The Owners say that Primetrade cannot raise new objections because of the terms of section 73(1) of the 1996 Act.7So this raises the third important question: when there is an appeal under section67 of the 1996 Act from an arbitration tribunal’s decision on substantive jurisdiction, to what extent is the appellant entitled to adduce new “objections” to the arbitrators’ substantive jurisdiction and to what extent is the appellant entitled to adduce new evidence on the appeal in support of either an existing or a “new” objection? I have dubbed this issue “the new objection point”.
The hearing of the appeal took place before me on 20, 21 and 22 July 2005. The parties very sensibly agreed that there was no need to re-call the witnesses that had been heard before the arbitrators. I was supplied with the witness statements and transcripts of their oral evidence given in the arbitration hearing. There was also some written expert evidence before the arbitrators on P&I Club practice in relation to the grant of Letters of Undertaking (“LOU”), which are frequently given by shipowners and their P&I Clubs to provide security for claims by cargo owners so as to avoid a ship being arrested. I did not hear any expert evidence, but the reports were available to me. It was agreed that (without prejudice to the “new objection issue”) all documents should be evidence of the facts stated in them, subject to comments on weight. I am grateful for the interesting and helpful oral submissions of Mr Dunning QC, for the appellants, Primetrade, and of Mr Simon Bryan for the Owners, as well as their full written submissions. After the oral hearing, the parties put in further written submissions, which raised yet further points, particularly on the effect of sections 5(2)(c) and 2(2) of COGSA. I reserved judgment.
B. The Legislation: Carriage of Goods by Sea Act 1992 and Arbitration Act 1996
The first question that might be asked (and I put it to counsel at the hearing) is: why is English law and COGSA 1992 in particular, relevant at all? How is Primetrade, a Swiss corporation, affected by its provisions, so as potentially to be the subject of contractual obligations as a matter of English law, in relation to events which all occurred outside the jurisdiction? COGSA is not expressly stated to be extra – territorial. Nor is it mandatory in the way that the Carriage of Goods by Sea Act 1971 makes the Hague – Visby Rules mandatory as a matter of English law when applied by English Courts.8 It is, perhaps, difficult to say that English law rules apply before determination of the issue of whether a person is bound by the terms of a contract whose applicable law is English law.
I think that the proper analysis is that suggested by Mr Toh Kian Sing in an article published in the LMCLQ in 1994, which is: “…to extend the notion of the putative proper law to deal with the existence of the contract between two particular parties”. Thus the English court, which must apply English law conflicts of laws rules,9 will scrutinise the bill of lading to see what the putative proper is; if it is English law, then the COGSA 1992 will have to be considered. The parties in question will be bound by the bill of lading contract terms if the statutory requirements are satisfied. Although this point was not in issue before me, I understand that the parties were inclined to accept this analysis.
The relevant provisions of the Carriage of Goods by Sea Act 1992
The following sections are relevant:
“1. Shipping documents etc to which the Act applies
(1) This Act applies to the following documents, that is to say –
(a) any bill of lading
2. Rights under the shipping documents
(1) Subject to the following provisions of this section, a person who becomes:
(a) the lawful holder of a bill of lading;…
Shall (by virtue of becoming the holder of the bill or, as the case may be, the person to whom delivery is to be made) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been party to that contract.
(2) Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of subsection (1) above unless he becomes the holder of the bill
(a) by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such right to possession ceased to attach to possession of the bill; ………
(4) Where, in the case of any document to which this Act applies –
(a) a person with any interest or right in or in relation to goods to which the document relates sustains loss or damage in consequence of a breach of the contract of carriage; but
(b) subsection (1) above operates in relation to that document so that rights of suit in respect of that breach are vested in another person,
The other person shall be entitled to exercise those rights for the benefit of the person who sustained the loss or damage to the same extent as they could have been exercised if they had been vested in the person for whose benefit they are exercised.
3. Liabilities under shipping documents
(1) Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection –
(a) takes or demands delivery from the carrier of any of the goods to which the document relates;
(b) makes a claim under the contract of carriage against the carrier in respect of any of those goods; or
(c) is a person who, at the time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods,
that person shall (by virtue of taking or demanding delivery or making the claim, or in a case falling within paragraph (c) above, of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract.
5. Interpretation etc.
(1) In this Act -
“the contract of carriage” –
(a) in relation to a bill of lading or sea way bill means the contract contained in or evidenced by that bill or waybill….
“holder”, in relation to a bill of lading, shall be construed in accordance with subsection (2) below;
(2) References in this Act to the holder of a bill of lading are references to any of the following persons, that is to say -
(a) a person with possession of the bill who, by virtue of being the person identified in the bill, is the consignee of the goods to which the bill relates;
(b) a person with possession of the bill as a result of the completion by delivery of the bill, of any indorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill.
(c) a person with possession of the bill as a result of any transaction by virtue of which he would have become a holder falling within paragraph (a) or (b) above had not the transaction been effected at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates;
And a person shall be regarded for the purposes of this Act as having become the lawful holder of a bill of lading whenever he has become the holder of the bill in good faith.
(4) Without prejudice to sections 2(2) and 4 above, nothing in this Act shall preclude its operation in relation to a case where the goods to which a document relates-
(a) cease to exist after the issue of the document; or
(b) cannot be identified (whether because they are mixed with other goods or for any other reason);
and references in this Act to the goods to which a document relates shall be construed accordingly.”
The relevant provisions of the Arbitration Act 1996
67. Challenging the award: substantive jurisdiction
(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal apply to the Court:-
(a) challenging any award if the arbitral tribunal as to its substantive jurisdiction; or
(b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.
A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).
(3) On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order:-
(a) confirm the award,
(b) vary the award, or
(c) set aside the award in whole or in part.
73. Loss of right to object
(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection-
(b) that the proceedings have been improperly conducted,
(c) that there has been a failure to comply with the arbitration agreement or with any provision of this Part, or
(d) that there has been any other irregularity affecting the tribunal or the proceedings,
he may not raise that objection later, before the tribunal or the court, unless he shows that at the time he took part or continued to take part in the proceedings he did not know and could not with reasonable diligence have discovered the grounds for the objection.”
C. The Arbitrators’ Reasons
Subject to the possibility of adducing new evidence under the “new objection” point, the parties were content to rely on the evidence put before the arbitrators for the purposes of the appeal. Neither party has challenged the principal findings of fact made by the arbitrators. I must therefore be entitled to use their findings to assist in reaching my own conclusions on whether the arbitrators were correct on the two principal issues. I also need to refer to the arbitrators’ findings in order to set the scene for the argument on the “new objection” issue. I will indicate if there is now any dispute as to a particular finding.
Arbitrators’ findings as to the contracts for the purchase and sale of the cargo, the letters of credit and the bills of lading.
The purchase from Orinoco. The contract, dated 24 November 2003, provided that Primetrade would buy from Orinoco 35,000 MT +/- 10% of “Metallic HBI Fines Orinoco Iron “Remet” Material Unsifted”. The price was US$15.00 per MT FOB spout trimmed Palua, Venezuela. Payment was to be by irrevocable letter of credit payable at sight in favour of the seller against presentation of various documents, including three original bills of lading made out “To Order” (blank endorsed) . Risk of loss and title were agreed to pass from the sellers to the buyers as the material passed the ship’s rail at the loading port. The contract also stated that “in case of total or partial loss in transit to port of destination, final settlement shall be made on the basis of the B/L weights”.