Download THE RULES FOR INCORPORATION OF CHARTERPARTY

UNIVERSITY OF SOUTHAMPTON
FACULTY OF BUSINESS AND LAW
School of Law
Incorporation of Charterparty Clauses into Bills of Lading
by
Melis Özdel
Thesis for the degree of Doctor of Philosophy
December 2010
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INDEX
1)
2)
3)
4)
5)
6)
Abstract
Table of Contents
Detailed Table of Contents
Table of Cases and Legislation
Thesis
Bibliography
2
THE RULES FOR INCORPORATION OF CHARTERPARTY CLAUSES
INTO BILL OF LADING: HALF FULL OR HALF EMPTY?
Much has been said about the unfairness of binding bill of lading holders with the
charterparty contracts, the copies of which are rarely provided together with the bills of
lading. Besides, many people felt strongly that importing the provisions of an unseen contract
creates a more risky international trade environment. Yet, it is an undeniable fact that
incorporation clauses can make the holders subject to the charterparty provisions, even though
the copies of these contracts are not shown to them. Nonetheless, since the early years, the
issue of whether the charterparty terms are actually imported into a bill of lading has given
rise to a great amount of litigation between the carriers and the holders.
After a long line of judicial decisions given in this vein, it is now clear that for the
charterparty clauses to be incorporated, both the bill of lading and the charterparty need to
overcome a set of hurdles, which are popularly known as “the rules of incorporation”. It is
equally clear that while these rules establish the formulas to incorporate, they also cause
numerous discussions about their workability and longevity in the ever-changing shipping and
international trade practice. In the meantime, the rules raise the questions of to what extent the
holders are protected against the potential pitfalls arising from the incorporation clauses, and
whether the solutions to the problems are adequate in terms of giving commercial efficacy to
these clauses. In particular, the overall impact of the rules of incorporation forces all the
concerned parties to ask one question: Is the glass half full or half empty?
With a view to bringing these issues to light, this thesis thoroughly examines and compares
the respective rules of incorporation adopted in English and U.S. law, which offer strikingly
different methods to tackle the question of incorporation. In order to illustrate the impacts of
the incorporation clauses on the contractual position of the bill of lading holders, the thesis
looks at the incorporation of the particular charterparty clauses which have mostly given rise
to disputes between the parties, such as forum selection, demurrage, fiost and similar clauses.
Notably, the thesis discusses the viability of the incorporation rules in the wake of the new
international movements concerning the unification of the laws governing the bills of lading.
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Finally, this study, inter alia, concludes that the trend is more receptive to the carriers’
imposition of monetary liabilities through the incorporation of charterparty terms than the
enforcement of charterparty forum selection clauses.
Melis Özdel
December, 2010
4
TABLE OF CONTENTS
INTRODUCTION .................................................................................................................. 27
CHAPTER I: WHICH LAW GOVERNS INCORPORATION?...................................... 31
CHAPTER II: WHICH CHARTERPARTY IS INCORPORATED INTO THE BILL
OF LADING? ......................................................................................................................... 43
CHAPTER III: WHAT INCORPORATION WORDING BRINGS WHICH
CHARTERPARTY TERMS INTO THE BILLS OF LADING? .................................... 109
CHAPTER IV: DO THE TERMS OF THE CHARTERPARTY OR THOSE OF THE
BILL OF LADING PROVE DECISIVE FOR INCORPORATION? ............................ 165
CHAPTER V: DO THE INCONSISTENT CHARTERPARTY TERMS SURVIVE IN
THE BILL OF LADING? ................................................................................................... 178
CONCLUSION ..................................................................................................................... 239
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DETAILED TABLE OF CONTENTS
INTRODUCTION .................................................................................................................. 27
CHAPTER I: WHICH LAW GOVERNS INCORPORATION?...................................... 31
1. What legal system generally governs the incorporation issue? ............................................ 32
2. Presumptive solutions in ascertaining the applicable law .................................................... 35
3. Should the presumptive solutions lead the way? ................................................................. 41
CHAPTER II: WHICH CHARTERPARTY IS INCORPORATED INTO THE BILL
OF LADING? ......................................................................................................................... 43
1. Does the charterparty need to be specified in the bill of lading? ......................................... 45
(a) Is there a prerequisite to identify the charterparty in the bill of lading? ......................... 46
(b) How is the charterparty to be identified in the bill of lading? ........................................ 53
(c) Can the bill of lading incorporate when the charterparty is specified inaccurately or
ambiguously? ....................................................................................................................... 56
aa. Ambiguities and inaccuracies in the stated particulars of the charterparty ................ 57
bb. Ambiguous incorporation language ........................................................................... 59
(d) Is the omission to print the incorporation clause on the bill of lading fatal to
incorporation?....................................................................................................................... 61
2. Which charterparty is deemed to be referred to in the bills of lading? ................................ 65
(a) The position under U.S. law ........................................................................................... 66
(b) The position under English law ...................................................................................... 70
aa. What is the commercial impact of The San Nicholas and The SLS Everest? ............. 74
3. Is there a charterparty to incorporate? .................................................................................. 78
(a) Can a charterparty which is concluded orally, or which is evidenced merely by fax or
telex messages, be incorporated? ......................................................................................... 80
aa. Oral charterparties ...................................................................................................... 81
bb. Charterparties contained or evidenced by fax or telex exchanges ............................. 83
cc. Formal requirements of forum selection clauses: the English view ........................... 84
dd. Formal requirements of forum selection clauses: the U.S. view ................................ 88
ee. Rules of formality: where do they take us? ................................................................ 92
(b) Do we need an existing charterparty by the time the bill of lading is issued? ............... 92
aa. English Law ................................................................................................................ 93
bb. U.S. Law ..................................................................................................................... 96
(c) Are the bill of lading holders bound by the charterparty terms which are amended or
rectified before and after the bill of lading is made out?...................................................... 98
aa. Form of amendments .................................................................................................. 99
bb. Time of making the amendments ............................................................................. 101
cc. Incorporation of rectified charterparties ................................................................... 103
dd. Concluding remarks ................................................................................................. 105
(d) Can a charterparty be incorporated even though it has been rescinded, terminated or
invalidated? ........................................................................................................................ 106
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4. Conclusion .......................................................................................................................... 107
CHAPTER III: WHAT INCORPORATION WORDING BRINGS WHICH
CHARTERPARTY TERMS INTO THE BILLS OF LADING? .................................... 108
1. What words of incorporation are apt to introduce which charterparty terms into the bills of
lading? .................................................................................................................................... 114
(a) How are the charterparty terms to be described under bill of lading? .......................... 116
(b) What words of incorporation can aptly describe the charterparty forum selection
clauses?............................................................................................................................... 127
aa. An overall image ....................................................................................................... 127
bb. What words are operative for incorporation of forum selection clauses? ................ 133
(c) What should the carriers anticipate in seeking to incorporate their charterparties? ..... 141
2. To what extent are the incorporated charterparty provisions applicable to bill of lading
holders? .................................................................................................................................. 146
(a) Are the rules of manipulation justifiable? ..................................................................... 154
3. Do the incorporated charterparty terms have sufficient breadth for application? .............. 155
4. Conclusion .......................................................................................................................... 162
CHAPTER IV: DO THE TERMS OF THE CHARTERPARTY OR THOSE OF THE
BILL OF LADING PROVE DECISIVE FOR INCORPORATION? ............................ 164
1. Is the charterparty or the bill of lading the driving force for incorporation? ..................... 165
2. Are these rules well-founded and workable? ..................................................................... 172
3. Conclusion .......................................................................................................................... 175
CHAPTER V: DO THE INCONSISTENT CHARTERPARTY TERMS SURVIVE IN
THE BILL OF LADING? ................................................................................................... 177
1. Applicability of the charterparty clauses which are repugnant to bill of lading ................ 178
(a) When is there any inconsistency between the provisions and which one prevails? ..... 179
aa. General ...................................................................................................................... 179
bb. Freight Clauses ......................................................................................................... 181
cc. Demurrage Clauses ................................................................................................... 185
i. Liabilities of the cargo interests for demurrage incurred at the loading port .......... 186
ii. Liabilities of the cargo interests for the total amount of demurrage ...................... 188
iii. Lien for Demurrage ............................................................................................... 189
dd. Cesser Clauses .......................................................................................................... 190
ee. Arbitration clauses .................................................................................................... 193
(b) Where do these rules take us? ....................................................................................... 194
2. Consistency of the incorporated charterparty clauses with the Hague and the Hague-Visby
Rules ....................................................................................................................................... 195
(a) Which one prevails? ...................................................................................................... 201
(b) Validity of incorporated forum selection clauses under the rules ................................ 210
aa. Could article III/8 invalidate forum selection clauses? ............................................ 211
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bb. The effects of The Sky Reefer and The Hollandia ................................................... 216
dd. The future of forum selection clauses ...................................................................... 224
3. Validity of carrier’s terms on loading and discharge of the cargo under the rules ............ 230
4. Final remarks: Do the rules of inconsistency pose a challenge to the carriers in seeking to
bind the holders with the incorporated charterparty clauses? ................................................ 236
CONCLUSION ..................................................................................................................... 238
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Table of UK Cases
A/G Europa (UK) Ltd. v. The Ethniki [2000] C.L.C. 446
Adamastos Shipping Co. Ltd. v. Anglo-Sakson Petroleum Co. [1959] A.C. 133
Airbus Insdustrie G.I.E. Respondents v. Patel [1999] 1 A.C. 119
Akai Pty Ltd. v. People’s Insurance Co. Ltd. [1998] 1 Lloyd’s Rep. 90
Akt. Ocean v. Harding [1928] 2 K.D. 371
Amin Rasheed Shipping Corp. v. Kuwait Insurance Co. [1984] A.C. 50
Andreas Vergottis v. Robinson David & Co. Ltd. (1928) 31 Ll. L. Rep. 23
Ashville Investments Ltd. v. Elmer Contractors Ltd. [1989] Q.B. 488
Baghlaf Al Zafer Factory Co. BR for Industry Ltd. v. Pakistan National Shipping Co. (No.1)
[1998] C.L.C. 716
Bas Capital Funding Corporation v. Medfinco Ltd. [2004] 1 Lloyd’s Rep. 652
BBCI v. Ali [2002] 1 A.C. 251
Bell v. Cundall (1750) Amb. 101
Bonython v. Commonwealth of Australia [1951] A.C. 201
Burroughs v. Abbott [1922] 1 Ch. 86
Calcutta Company, Limited v. Andrew Weir & Co. [1910] 1 K.B. 759
Chappel v. Comfort, (1861) 10 C.B. (N.S.) 802
Chartbrook Ltd. v. Persimmon Homes Ltd. [2009] UKHL 38
Clink v. Radford & Co. [1891] 1 Q.B. 625
Compagnie d’Armement Maritime S.A. v. Compagnie Tunisiennne de Navigation S.A. [1970]
2 Lloyd’s Rep. 99
Credit Lyonnais Bank Nederland NV v. Export Credits Guarantee Department [1998] 1
Lloyd’s Rep. 19
Crooks v. Allan (1979) 5 Q.B.D. 38
Dairy Containers Ltd. v. Tasman Orient Line CV [2004] 2 C.L.C. 794
Dakin v. Oxley (1864) 15 C.B. 646
Denny, Mott & Dickson, Ltd., and others v. Lynn Shipping Company Ltd. [1963] 1 Lloyd’s
Rep. 339
Diederichsen v. Farquharson Brothers [1898] 1 Q.B. 150
Donohue v. Armco [2002] C.L.C. 440
Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [1915] A.C. 847
Egon Oldendorff v. Libera Corp. [1996] 1 Lloyd’s Rep. 380
9
Excess Insurance Co. Ltd. v. Mander [1997] 2 Lloyd’s Rep. 119
Federal Bulker [1989] 1 Lloyd’s Rep. 103
Fidelitas Shipping Co. v. V/O Exportchleb [1963] 2 Lloyd’s Rep. 113
Fillite (Runcorn) Ltd. v. Aqua Lift 45 B.L.R 27, 26 Con. L.R. 66 (1989)
Finagra (UK) Ltd. v. OT Africa Line Ltd. [1998] 2 Lloyd’s Rep. 622
Fort Shipping Co. v. Pederson [1924] 19 Ll. L. Rep. 26
Fry v. Chartered Mercantile Bank of India (1866) L.R. 1 C.P. 689
G.H. Renton & Co. Ltd. v. Palmyra Trading Co. of Panama [1957] A.C. 149
Garbis Maritime Corp. v. Phillipine National Oil Co. [1982] 2 Lloyd’s Rep. 283
Gardner & Sons v. Trechmann (1884) 15 Q.B.D. 154
Glynn v. Margetson & Co. [1892] 1 Q.B. 337
Gray v. Carr and Another, (1870-1871) L.R. 6 Q.B. 522
Gullischen v. Stewart Brothers (1883-84) L.R. 13 Q.B.D. 317
Habas Sinai ve Tibbi Gazlar Isthisal Endustri A.S. v. Sometal S.A.L. [2010] EWHC 29
Hamilton & Co. Mackie Sons (1889) 5 T.L.R. 677
Hamlyn v. Talisker Distillery [1894] A.C. 202
Hansen v. Harrold Brothers, [1894] 1 Q.B. 612
Harbour Assurance Co. (U.K.) Ltd. v. Kansa General International Insurance Co. Ltd. and
Others [1993] Q.B. 701
Hingston v. Wendt (1876) 1 Q.B.D. 367
Hoblyn v. Hoblyn (1889) 41 Ch. D 200
Hogarth Shipping Company, Limited v. Greene, Jourdain & Co. Limited [1917] 2 K.B. 534
Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd. [1989] Q.B. 433
Investors Compensation Scheme Ltd. v. West Bromwich Building Society (No.1) [1998] 1
W.L.R. 896
Jindal Iron & Steel Co. Ltd. v. Islamic Solidarity Shipping Co. [2005] 1 Lloyd’s Rep. 57 (HL)
[2003] 2 Lloyd’s Rep. 87 (CA)
Kern v. Deslandes, (1861) 10 C.B. (N.S.) 205
Kish v. Taylor [1912] A.C. 604
L. Schuler A.G. v. Wickman Machine Tool Sales Ltd. [1974] A.C. 235
Leduc v. Ward (1888) L.R. 20 Q.B.D. 475
Lignell v. Samuelson [1921] 9 Ll. L. Rep. 415
Lyme Valley Squash Club Ltd. v. Newcastle-under-Lyme BC. [1985] 2 All E.R. 405
Machester Trust v. Furness [1895] 2 Q.B. 539
10
Mackender v. Feldia [1972] 2 Q.B. 590
Mannai Investment Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749
Mata K. [1998] Lloyd’s Rep. 614
May v. Platt [1900] 1 Ch. 616
McCausland v. Young [1949] N.I. 49
Miramar Maritime Corp. v. Holborn Oil Trading Ltd. [1984] A.C. 676
Modern Building (Wales) Ltd. v. Limmer & Trinidad Co. Ltd [1975] 2 Lloyd’s Rep. 318
Murray v. Parker (1854) 19 Beav 305
National Navigation Co. v. Endesa Generacion SA [2009] EWCA Civ 1397 (CA), [2009]
EWHC 196
O.K Petroleum A.B. v. Vitol Energy S.A [1995] 2 Lloyd’s Rep. 160
Ocean v. Harding [1928] 2 K.B. 371
Oriental Maritime Pte. Ltd. v. Ministry of Food Government of People’s Republic of
Bangladesh [1982] 2 Lloyd’s Rep. 371
Pagnan SPA v. Tradax Ocean Transportation [1987] 2 Lloyd’s Rep. 342
Polskie Ratownictwo Okretowe v. Rallo Vito & C.SNC, The Posejdon [2009] EWHC 2249
(Comm)
Porteus v. Watney (1877-78) L.R. 3 Q.B.D. 534
Premium Nafta Products Ltd & Ors v. Fili Shipping Ltd. & Ors. [2007] 2 C.L.C. 553
Prenn v. Simmonds [1971] 1 W.L.R. 1381
President of India v. Jebsens (UK) Ltd [1991] 1 Lloyd’s Rep. 1
President of India v. Metcalfe Shipping Co. Ltd. [1970] 1 Q.B. 289
Pyrene Co. Ltd. v. Scindia Navigation Co. Ltd., [1954] 2 Q.B. 402
Quark Ltd. v. Chiquita Unifrutti Japan Ltd. and Ors, QBD (Com Ct.) (Andrew Smith J), 25
April 2005, (2005) (The Vinson) 677 LMLN 1
Reardon Smith Line Ltd. v. Hansen-Tangen [1976] 2 Lloyd’s Rep. 621
Reliance Industries Ltd. v. Enron Oil & Gas India Ltd. [2002] 1 All ER (Comm) 59
Renton v. Palmyra [1956] 1 Q.B. 462
Rodocanachi, Sons & Co. v. Milburn Bros [1886] 20 QBD 67
Russell and Others v. Niemann (1864) 17 C.B. (N.S.) 163
Samsun Logix Corp v. Oceantrade Corp. [2008] 1 Lloyd’s Rep. 450
Vitol BV v. Compagnie Europene des Petroles [1988] 1 Lloyd’s Rep. 574
Schuler v. Wickman Machine Tool Sales Ltd. [1974] A.C. 235
Serraino & Sons v. Campbell and Others [1891] 1 Q.B. 283
11
Siboti K/S v. BP France S.A. [2003] 2 Lloyd’s Rep. 364
Sirius International Insurance Co. v. FAI General Insurance Ltd. [2004] 1 W.L.R. 325
Smidt v. Tiden, [1973-74] L.R. 9 QB 446
Smith v. Jones [1954] 1 W.L.R. 1089
Smith v. Sieveking, (1855) 5 E. & B. 589, 119 E.R. 600
Societe Nationale Industrielle Aerospatiale (SNIA) v. Lee Kui Jak [1987] A.C. 871
Steamship Calcutta Company, Limited v. Andrew Weir & Co. [1910] 1 K.B. 759
Stensted Shipping v. Shenzen Nantian Oil Mills [2000] All E.R. (D.) 1175
T.W. Thomas & Co., Limited v. Portsea Steamship Company, Limited [1912] A.C. 1
The Abidin Daver [1984] A.C. 398
The Adolf Warksi [1976] 1 Lloyd’s Rep. 107
The Aegis Britannic [1987] 1 Lloyd’s Rep. 119
The Agios Giorgis [1976] 2 Lloyd’s Rep. 192
The Amstelmolen [1961] 2 Lloyd’s Rep. 1
The Angelic Grace [1995] 1 Lloyd’s Rep. 87
The Annefield [1971] P. 168
The Antaios [1985] A.C. 191
The Anwar Al Sabar [1980] 2 Lloyd’s Rep. 261
The Arctic Trader [1996] 2 Lloyd’s Rep. 449
The Ardennes [1951] 1 K.B. 55
The Athena [2006] 2 C.L.C. 710
The Atlantic Emperor [1989] 1 Lloyd’s Rep. 548
The Benarty [1984] 2 Lloyd’s Rep. 244
The Berkshire [1974] 1 Lloyd’s Rep. 185
The Blue Wave, [1982] 1 Lloyd’s Rep. 151
The Cebu [1993] Q.B. 1
The Constanza M [1981] 2 Lloyd’s Rep. 147
The Coral [1993] 1 Lloyd’s Rep. 1
The CPC Galia [1994] 1 Lloyd’s Rep. 68
The Delos [2001] 1 All E.R. (Comm) 763
The Duden [2009] 1 Lloyd’s Rep. 145
The El Amria [1981] 2 Lloyd’s Rep. 119
The Eleftheria [1969] Lloyd’s Rep. 237
The Elli 2 [1985] 1 Lloyd’s Rep. 107
12
The Emmanuel Colocotronis [1982] 1 Lloyd’s Rep. 286
The Epsilon Rosa [2003] 2 Lloyd’s Rep. 509 (CA), [2002] 2 Lloyd’s Rep. 81
The Ethniki [2000] C.L.C. 446
The Eurymedon [1975] A.C. 154
The Federal Bulker [1989] 1 Lloyd’s Rep. 103
The Fehmarn [1958] 1 W.L.R. 159
The Fjord Wind [2000] 2 Lloyd’s Rep. 191
The Freights Queen [1977] 2 Lloyd’s Rep. 140
The Garbis [1982] 2 Lloyd’s Rep. 283
The Hai Hing [2000] 1 Lloyd’s Rep. 300
The Happy Ranger [2002] 2 Lloyd’s Rep. 357
The Heidberg (No.2) [1994] 2 Lloyd’s Rep. 287
The Hollandia [1983] 1 A.C. 565
The Ikariada [1999] 2 Lloyd’s Rep. 365
The Indian Reliance [1997] 1 Lloyd’s Rep. 52
The Ion [1971] 1 Lloyd’s Rep. 541
The Irbenskiy Proliv [2005] 1 Lloyd’s Rep. 383
The Junior K [1988] 2 Lloyd’s Rep. 583
The Kallang [2009] 1 Lloyd’s Rep. 124
The KH Enterpise [1994] 2 A.C. 324
The Leonidas [2001] C.L.C. 1800
The Mahkutai [1996] A.C. 650
The Makefjell [1975] 1 Lloyd’s Rep. 528
The Mata K. [1998] C.L.C. 1300
The Merak [1965] P 223
The Metamorfosis [1953] 1 Lloyd’s Rep. 196
The Nai Matteini [1988] 1 Lloyd’s Rep. 452
The Nanfri [1979] A.C. 757 (HL), [1978] Q.B. 927 (CA), [1978] 1 Lloyd’s Rep. 581
The Nema (No:2) [1982] A.C. 724
The Nerano [1996] 1 Lloyd’s Rep. 1
The Njegos [1936] P. 90, 100
The Northern Progress (No.2) [1996] 2 Lloyd’s Rep. 319
The Northumbria [1906] P. 292
The Oinoussin Pride [1991] 1 Lloyd’s Rep. 126
13
The Olympic Pride [1980] 2 Lloyd’s Rep. 67
The Parouth [1982] 2 Lloyd’s Rep. 351
The Petr Schmidt [1995] 1 Lloyd’s Rep. 202
The Phonizien [1966] 1 Lloyd’s Rep. 150
The Pioneer Container [1994] 2 A.C. 324
The Reborn, [2009] 1 C.L.C. 909
The Rena K [1978] 1 Lloyd’s Rep. 377
The San Nicholas [1976] 1 Lloyd’s Rep. 8
The Sevonia Team [1983] 2 Lloyd’s Rep. 640
The Sibi [1998] 2 Lloyd’s Rep. 229
The Sinoe [1972] 1 Lloyd’s Rep. 201
The SLS Everest [1981] 2 Lloyd’s Rep. 389
The Soemba [1956] 1 Lloyd’s Rep. 552
The Sormovskiy [1994] 2 Lloyd’s Rep. 266
The Spiros C [2000] 2 Lloyd’s Rep. 319
The Star Texas [1993] 2 Lloyd’s Rep. 445
The Starsin [2004] 1 A.C. 715
The Varenna [1983] 2 Lloyd’s Rep. 592
Thor Navigation Inc. v. Ingosstrakh Insurance Co. Ltd. & Anor [2005] 1 C.L.C. 12
Trafigura Beheer BV and Another v. Mediterranean Shipping Company SA [2007] 2 Lloyd’s
Rep. 594
Trafigura Beheer BV v. Kookmin Bank Co., [2006] 1 C.L.C. 1049
Tsakiroglou & Co Ltd. v. Noblee Thorl Gmbh [1962] AC 93
Vita Food Products Inc. v. Unus Shipping Co. Ltd. [1939] A.C. 277, 289-290
Wegener v. Smith (1854) 15 C.B. 285
Whitworth Street Estates (Manchester) Ltd. v. James Miller Partners Ltd. [1970] A.C. 583
Wood v. Scarth (1855) 2 K & J 33
Table of European Court of Justice Cases
Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v. West Tankers (C-185/07) [2009]
1 Lloyd’s Rep. 413
Coreck Maritime GmBH v. Handelsveem, [2001] C.L.C. 550
Erich Gasser Gmbh v. MISAT Srl [2005] Q.B. 1
14
Estasis Salotti Colzani Aimo E Gianmario Colzani v. RUWA Polstereimaschinen Gmbh,
[1976] E.C.R. 1831
Marc Rich & Co. A.G. Societa Italiana Impianti P.S., The Atlantic Emperor [1992] 1 Lloyd’s
Rep. 342
Owusu v. Jackson (C-281/02) [2005] Q.B. 801
The Tilly Russ [1985] Q.B. 931
Transporti Castelletti Spedizioni Internazionali SpA v. Hugo Trumpy SpA [1999] I.L.Pr. 492
Turner v. Grovit (Case C-159/02) [2005] 1 A.C. 101
Table of U.S. Cases
A.P. Moller-Maersk v. Ocean Express Miami, 2008 A.M.C. 1236 (S.D.N.Y. 2008)
Alucentro Div.Dell’alusuisse Italia S.P.A. et al v. M/V Hafnia etc. 1992 A.M.C. 267 (M.D.
Fla. 1991)
American Home Assurance Co. v. M/V Jaami, 2007 A.M.C. 1461 (S.D.N.Y. 2007)
American Home Assurance Co. v. TGL Container Lines, Ltd., 347 F.Supp.2d 749 (N.D.Cal.
2004)
American President Lines Ltd. v. United States, 821 F.2d 1571 (Fed. Cir. 1987)
American Steel Barge Co. v. Chesapeake & Ohio Coal Agency Co., 115 F. 669 (1st Cir. 1902)
Americas Ins. Co. v. Stolt Nielsen, Inc., 2004 A.M.C. 2542, (S.D.N.Y. 2004)
Amoco Oil Co. v. M.T. Mary Ellen, 1982 A.M.C. 1758 (S.D.N.Y. 1981)
Amoco Overseas Co. v. S.T. Avenger, 1975 A.M.C. 782, (S.D.N.Y. 1975)
Ansell Healthcare, Inc. v. Maersk Line, 545 F.Supp.2d 339 (S.D.N.Y. 2008)
Ariate Compania Naviera S.A. v. Commonwealth Tankship Owners, 310 F.Supp. 416,
(S.D.N.Y. 1970)
Asoma Corp. v. M/V Southgate, 2000 A.M.C. 399, (S.D.N.Y. 2000)
Asoma Corp. v. M/V. Seadaniel, 971 F.Supp. 140, (S.D.N.Y 1997)
Associated Metals & Minerals Corp. v. M/V Arktis Sky, 1993 A.M.C. 509, (2d Cir. 1992)
Associated Metals & Minerals Corp. v. M/V Venture, 554 F.Supp 281 (D.C.La 1983)
Associated Metals & Minerals Corp. v. S/S Jasmine, 983 F.2d 410, 413, (2d Cir. 1993),
Astra Oil Co. Inc. v. Rover Navigation Ltd, 344 F.3d 276, 2003 A.M.C. 2415 (2d Cir. 2003)
AT & T Technologies Inc. v Communications Workers of America, 475 U.S. 643 (U.S. 1986)
Atlantic Richfield Co. v. Good Hope Refineries, 604 F.2d 865 (5th Cir. 1979)
Atlas Assurance Ltd. v. Sterling International, 1975 A.M.C. 2358, (9th Cir. 1975)
15
Backer Management Corp. v. Acme Quilting Co., 385 N.E.2d 1062, (N.Y. 1978)
Baxter v. Leland, 1 Abb. Adm. 348, 2 F.Cas. 1048, No. 1124 (D.C.N.Y. 1848)
Benship Int. v. Bangladesh Agricultural Development Corp., F.Supp., 1991 WL 710 (S.D.N.Y.
1991)
Berdex International v. M/V Kapitan Grishin, 1992 A.M.C. 1559 (N.D. Cal. 1992)
Bernuth, Lembcke Co., Inc. v. Steamship Acasta 1952 A.M.C. 1789, (E.N.D.C. 1951)
Bieghl & Co Inc. v. Apollonia Holding Inc.,1993 A.M.C. 2408 (E.D.La., 1988)
Bominflot, Inc. v. The M/V Henrich S., 2006 A.M.C. 2510, 465 F.3d 144 (4th Cir. 2006)
Bowen v. Amoco Pipeline Co., 254 F.3d 925 (10th Cir. 2001)
Bradstreet v. Heran, 2 Blatchf. 116, 3 F.Cas. 1183, No. 1792A, (C.C.N.Y. 1849)
Bremen v. Zapata Off-Shore Co., 1972 A.M.C. 1407, 407 U.S. 1 (U.S. 1972)
Bridas S.A.P.I.C. v. Government of Turkmenistan, 345 F.3d 347 (5th Cir. 2003)
Brothers v. Commodity Futures Trading Association, 33 F.3d 405 (4th Cir. 2002)
Bruce v. Lumbermens Mutual Casualty Company, 222 F.2d 642, 645, (4th Cir. 1955)
C.A. Seguros Orinoco v. Naviera Transpapel C.A. 1988 A.M.C. 1757 (D.Puerto Rico 1988)
Cabot Corporation v. S.S. Mormacscan, 441 F.2d 476, (S.D.N.Y. 1971), cert. denied, 404
U.S. 855, (U.S. 1987)
Capitol Bus Co. v. Blue Bird Coach Lines Inc, 478 F.2d 556 (3d Cir. 1973)
Carbon Black Export Inc. v. The S.S Monrosa, 1958 A.M.C. 1335, (5 Cir. 1958)
Cargill B.V. v. S/S Ocean Traveller, 1989 A.M.C. 953 (S.D.N.Y. 1989)
Cargill Ferrous International v. Sea Phoenix M/V, 2003 A.M.C. 1027 (5th Cir. 2003)
Cargill v. Golden Chariot M/V, 1995 A.M.C. 1077 (5th Cir. 1994)
Carnival Cruise Lines Inc. v. Shute, 499 U.S. 585, (U.S. 1991)
Cementos Andinos Dominicanos, S.A. v. East Bulk Shipping S.A, 2006 WL 846551 (S.D.N.Y.
2006)
Central National-Gottesman Inc. v. M.V. Gertrude Oldendorff, 204 F.Supp. 2d 675 (S.D.N.Y.
2002)
Centrosoyus-America v. U.S., 30 F.2d 302 (D.C.N.Y. 1928)
Centrosoyus-America v. U.S., 31 F.2d 610 (S.D.N.Y. 1929)
Chan v. Society Expeditions 123 F.3d 1287 (9th Cir. 1997)
Chateu des Charmes Wines Ltd. v. Sabate U.S.A. Inc., 328 F.3d 528 (9th Cir. 2003)
Chembulk Trading LLC. v. Chemex Ltd., 393 F.3d 550 (5th Cir. 2005)
Chevron USA, Inc. v. Consol Edison Co. of New York Inc., 872 F.2d 534 (2d Cir. 1989)
Chiacchia v. National Westminster Bank USA, 124 A.D.2d 626 (2d Dep’t 1986)
16
Chilean Nitrate Sales Corp. v. Steamship Nortuna, 1955 A.M.C. 1576 (S.D.N.Y. 1955)
Chimart Associates v. David Paul, 66 N.Y. 2d 570 (N.Y. 1986)
Chiyoda Fire & Marine Insurance Co. of America v. M/V Hundai Freedom, 1999 A.M.C.
1603 (S.D.N.Y. 1999)
Chloe Z. Fishing Co. v. Odyssey Re Ltd., 2000 A.M.C. 2409 (N.D. Cal. 2000)
Cia Platamon v. Empresa Colombiana, 1980 A.M.C. 538 (S.D.N.Y. 1979)
Citrus Marketing Board of Israel and Agrexco Ltd. v. M/V Ecuadorian Reefer, 1991 A.M.C.
1042, (D.Mass. 1990)
Coastal States Trading Inc. v. Zenith Navigation, 446 F.Supp. 330 (S.D.N.Y. 1977)
Collins & Aikman Products Co. v. Building Systems Inc. 58 F.3d 16, 23 (2d Cir. 1995)
Commonwealth Petrochemicals Inc. v. S/S Puerto Rico, 1979 A.M.C. 2772, (4th Cir. 1979)
Conklin & Garret v. M/V Finnrose, 1988 A.M.C. 318, (5th Cir. 1987)
Continental Florida Materials Inc. v. M/V Lamazon, 334 F.Supp 2d 1294, (S.D.Fla 2004)
aff’d (11th Cir. 2005)
Continental Grain Company v. Puerto Rico Maritime Shipping Authority, 1993 A.M.C. 1578,
(1st Cir. 1993)
Continental Ins. Company v. Polish Steamship Company, 2003 A.M.C. 2718 (2d Cir. 2003)
Continental Insurance Company v. M/V Nikos N, 2002 A.M.C. 1287 (S.D.N.Y 2002)
Continental Insurance Company v. Polish Steamship Company, 2003 A.M.C. 2718 (2d Cir.
2003)
Continental U.K. Ltd. v. Anagel Confidence Compania Naviera, S.A., 1987 A.M.C. 2012
(S.D.N.Y. 1987)
Cornish Shipping Ltd. v. International Nederlanden Bank N.V., 53 F.3d 499 (2d Cir. 1995)
Crossman v. Burril, 179 U.S. 100 (U.S. 1900)
Cruden v. Bank of New York, 957 F.2d 961, (2d Cir. 1992)
Daval Steel Products v. M/V Acadia Forest, 1988 A.M.C. 1669, (S.D.N.Y. 1988)
Davis v. Smokeless Fuel Co., 196 F. 753, (2d Cir. 1912), Cert. denied 229 U.S. 617 (U.S.
1912)
Dayton v. Parke, 97 Sickels 391, 37 N.E. 642 (N.Y. 1894)
Demsey & Associates Inc. v. S/S Sea Star, 1972 A.M.C. 1440 (2d Cir. 1972)
Duferco Steel Inc. v. M/V Kalisti, 1998 A.M.C. 171, (7th Cir. 1997)
Duferco Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, (2d Cir. 2003)
Dun Shipping Ltd. v. Amerada Hess Shipping Corp., Hovensa, L.L.C and ABC Corp., 234
F.Supp. 2d 291, (S.D.N.Y. 2002)
17
Empreza Publica v. SS Yukon Mart, 1976 A.M.C. 2235, (S.D.N.Y. 1976)
Encyclopaedia Britannica Inc. v. Hong Kong Producer, 422 F.2d 7, (2d Cir. 1969)
Energy of Transport Ltd. v. M/V San Sebastian, 348 F.Supp.2d 186, (S.D.N.Y 2004)
F.D. Import & Export Corp. v. M/V Reefer Sun, 2003 A.M.C. 60 (S.D.N.Y. 2002)
Fairmont Shipping and Botelho Shipping Corp. v. Primary Industries Corp., F.Supp., 1988
WL 7805 (S.D.N.Y 1988)
Fairmont Shipping Ltd. v. Primary Industries, F.Supp, 1987 WL 10389, 1 (S.D.N.Y. 1987)
Federal Insurance Co. v. M/V Audacia, 1987 AMC 566 (S.D.N.Y 1986)
Federal Insurance Company and Turbana Corp. v. M.V. Audacia, 1987 A.M.C. 566
(S.D.N.Y. 1986)
Fidelity Bank v. Lutheran Mutual Life Insurance Co., 465 F.2d 211 (10th Cir. 1972)
Field Line (Cardiff) v. South Atlantic S.S. Line, 201 F. 301, (5th Cir. 1912)
Finora Co. Inc. v. Amitie Shipping Ltd., 1995 A.M.C. 2014 (4th Cir. 1995)
Fireman’s Fund v. Cho Yang, 1998 A.M.C. 583, (9th Cir. 1997)
Fisher v. International Bank, 282 F.2d 231, (2d Cir. 1960)
Fishman v. LaSalle National Bank, 247 F.3d 300 (1st Cir. 2001)
Fleet National Bank v. H&D Entertaintment Inc., 96 F.3d 532, 538 (1st Cir. 1996), cert.
denied, 117 S.Ct. 1335 (U.S. 1997)
Foster Wheeler Energy Corp. v. An Ning Jiang MV, 2004 A.M.C. 2409, (5 Cir. 2004)
General Authority for Supply Commodities v. S.S. Capetan Costis I, 631 F.Supp. 1488
(S.D.N.Y 1986)
Genesco Inc. v. T. Kakiuchi & Co., 815 F.2d 840, (2d Cir. 1987)
Glyphics Media Inc. v. M.V. Conti Singapore, 2003 A.M.C. 667, (S.D.N.Y. 2003)
Gomez v. Rivera Rodriguez, 344 F.3d 103, (1st Cir. 2003)
Goodpasture Inc. v. M/V Pollux, 602 F.2d 84, (5th Cir. 1979)
Great American Insurance v. M/V Handy Laker, 2003 A.M.C. 116, (S.D.N.Y. 2003)
Great Atlantic Insurance Co. v. Liberty Mutual Insurance Co., 773 F.2d 976, (8th Cir. 1985).
Great Circle Lines Ltd. v. Matheson & Company, Ltd., 1982 A.M.C. 2321, (2d Cir. 1982)
Gronstadt v. Withoff, 21 F.253 (S.D.N.Y. 1884)
Gulf Oil Corporation v. Gilbert, 330 U.S. 501, (U.S. 1947)
Gulf Trading & Transportation Co. v. Vessel Hoegh Shield, 658 F.2d 363, (5th Cir. 1981)
Hall Street Associates v. Mattel Inc., 128 S.Ct. 1396 (U.S. 2008)
Hanover Insurance Co. v. Shulman Transport Enterprises Inc., 1979 A.M.C. 520, (1st Cir.
1978)
18
Hartford Fire Insurance Company v. Orient Overseas Containers Lines (UK) Ltd, 2001
A.M.C. 25, (2d Cir. 2000)
Hawkspere Shipping Co. Ltd. v. Intamex S.A., 330 F.3d 225 (4th Cir. 2003)
Hellenic Lines Ltd. v. U.S. 1975 A.M.C. 697, 712 (2d Cir. 1975)
Henkel K.G. v. M/T Stolt Hipo, 1980 A.M.C. 2618, (S.D.N.Y 1980)
Home Insurance Co. of New York v. Morse, 87 U.S. 445 (U.S. 1874)
Hornbeck Offshore Operators, Inc. v. Ocean Line of Bermuda Inc., 849 F.Supp. 434, (5th Cir.
1993)
Hughes Drilling Fluids v. M/V Luo Fu Shan, 1988 A.M.C. 2848, (5 Cir. 1988)
Hyundai Corp. U.S.A. Inc. v. M/V An Long Jiang, 1998 A.M.C. 854 (S.D.N.Y. 1998)
Ibeto Petrochemical Industries Limited v. M/T Beffen, 2007 A.M.C. 213, (2d Cir. 2007)
Import-Export Steel Corp. v. Mississippi Valley Barge Line Co., 1966 A.M.C. 237 (2d Cir.
1965)
In Re Southwind Shipping Co., 709 F.Supp. 79, (S.D.N.Y. 1989)
Indemnity Insurance Company of North America v. M/V Eastline Tianjin, 2008 A.M.C. 716
(S.D.N.Y. 2008)
Indussa Corporation v. S.S. Ranborg, 1967 A.M.C. 589, (2d Cir. 1967)
In re Prudential Insurance Co. of America, 148 S.W. 3d 124, (Tex. 2004)
In re The Tragenna, 1941 A.M.C. 1282, (2d Cir. 1941)
Institute of London Underwriters v. Sea-Land Service Inc., 881 F.2d. 761, (9th Cir. 1989)
Instituto Cubano De Establizacion Del Azucar v. T/V Golden West, 1957 A.M.C. 1481
(S.D.N.Y. 1957)
Interline v. Zim Israel Navigation Ltd, F.Supp. 2d, (N.D.Cal. 2000)
J.S. & H. Construction Company v. Richmond County Hospital Authority, 473 F.2d. 212, (5th
Cir. 1973)
Japan Sun Oil Co. Ltd. v. M/V Maasdijk, 1995 A.M.C. 726, (E.D.La. 1994)
Joo Seng Hong Kong Co. v. S.S. Unibulkfir, 493 F.Supp. 35 (S.D.N.Y. 1980)
Kanematsu Corp. v. M/V Gretchen W, 1995 A.M.C. 2957, (D.Oregon 1995)
Kaystone Chemical Inc. v. Bow-Sun, F.Supp, 1989 WL 39498, 2 (S.D.N.Y. 1989)
Keytrade USA, Inc. v. Ain Temouchent M/V, 2005 A.M.C. 948, (5th Cir. 2005)
Kinoshita & Co.,1961 A.M.C. 1974 (2d Cir. 1961)
Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, (U.S. 1941)
Klos v. Lotnicze, 133 F.3d 164, (2d Cir. 1997)
Kurt Orban Co. v. S/S Clymenia, 1971 A.M.C. 778 (S.D.N.Y. 1970)
19
Lamb v. Emhart Corp., 47 F.3d 551 (2d Cir. 1995)
Lauritzen v. Larsen, 345 U.S. 571, (U.S. 1953)
Law Debenture Trust Co. of New York v. Maverick Tube Corp., 595 F.3d 458 (2d Cir. 2010)
Limonium Maritime S.A. v. Mizushima Marinera S.A., F.Supp.2d, 1999 WL 46721 (S.D.N.Y.
1999)
Liverpool and London S.S. Protection and Indemnity Association Ltd. v. Queen of Leman MV,
296 F.3d 350, (5th Cir. 2002)
Logistics Management Inc. v. One Pyramid Tent Arena, 1996 A.M.C. 1826 (9th Cir. 1996)
Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 2001 A.M.C. 1939, 1945 (2d
Cir. 2001)
Lowry & Co. Inc. v. SS Le Moyne D’Iberville, 1966 A.M.C. 2195 (S.D.N.Y. 1966), 372 F.2d
123 (2d Cir. 1967)
Lowry & Co. v. S.S. Nadir, 1965 A.M.C. 1340 (S.D.N.Y 1963)
Luckenbach S.S. Co. v. American Mills Co. 24 F.2d 704, (5th Cir. 1928)
Lucky Metals Corp. v. M/V Ave., 1996 A.M.C. 265 (S.D.N.Y. 1995)
Ludwig Honold Mfg. Co. v. Fletcher, 405 F.2d 1123, 1131, (3d Cir. 1969)
Lykes Lines Ltd. V. M/V BBC Sealand, 2005 A.M.C. 865, (5th Cir. 2005)
Macsteel International USA Corp. v. M/V Jag Rani, 2004 A.M.C. 220, (S.D.N.Y 2003)
Mannesman Demag Corp. v. M/V Concert Express, 2000 A.M.C. 2935 (5th Cir. 2000)
Manufacturers’ Finance Co. v. McKey, 294 U.S. 442 (U.S. 1935)
Maria Arlete az Borralho v. Keydril Co., 1984 A.M.C. 728, (5th Cir. 1983)
McAdams v. Massachusetts Mutual Life Insurance Co., 391 F.3d 287, (1th Cir. 2004)
Mediterranean Enterprises Inc. v. Ssangyong Corp., 708 F.2d 1458 (9th Cir. 1983)
Metric Constructors, Inc. v. National Aeronautics and Space Administration, 169 F.3d 747,
(Fed. Cir. 1999)
MISR Ins. Co. v. M/V Har Sinai, 1978 A.M.C. 1223, (S.D.N.Y. 1977)
Michael v. S.S. Thanasis, 311 F.Supp. 170, (N.D. Cal. 1970)
Midland Tar Distillers Inc. v. M/T Lotos, 362 F.Supp. 1311, (S.D.N.Y. 1973)
Ministry of Commerce v. Marine Tankers Corp., 1961 A.M.C. 320, (S.D.N.Y. 1960)
Mitsubishi Motors Corp. v. Soler Chyrsler-Plymouth Inc., 473 U.S. 614, (U.S. 1985)
Mitsui & Co. v. M/V Mira, 1997 A.M.C. 2126, (5th Cir. 1997)
Monsanto International Sales Co. v. Hanjin Container Lines Ltd., 1991 A.M.C. 2741,
(S.D.N.Y. 1991)
Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, (U.S. 1983)
20
Mutual of Omaha Insurance Co. v. Russell, 402 F.2d 339, (10th Cir. 1968), cert. denied, 394
U.S. 973 (U.S. 1969)
Nashua River Paper Co. v. Hammermill Paper Co., 223 Mass 8, 111 N.E. 678, (Mass. 1916)
National Material Trading v. M/V Kaptan Cebi, 1997 WL 915000, 1998 A.M.C. 201, (D.S.C.
1997)
National Tax Institute, Inc. v. Topnotch at Stowe Resort and Spa, 388 F.3d. 15, (1st Cir. 2004)
New Hampshire Insurance Co. v. Seaboard Marine Ltd, F.Supp. 1992 WL 33861, (S.D.Fla.
1992)
New York Marine & General Ins. Co. v. M/V Admiralengrancht, 1999 A.M.C. 1647 (S.D.N.Y.
1999)
New York Marine Managers, Inc. v. Ektrans Int’l Transp. & Trade, Inc., 1989, U.S. Dist.,
Lexis 389, 1989, WL 4030 (S.D.N.Y 1989)
Nichimen Co. v. M.V. Farland, 462 F.2d 319, (2d Cir. 1972)
Nippon Express U.S.A. Inc. v. M/V Chang Jiang Bridge, 2008 A.M.C. 1735, (S.D.N.Y. 2007)
Nissho Iwai Corporation v. The M/V Thalia, F.Supp., 1996 A.M.C. 723 (E.D.La. 1996)
North American Construction Corp. v. The United States, 56 Fed. Cl 73
Northern Assurance v. M/V Caspian Career, 1977 A.M.C. 421, (N.D. Cal. 1977)
O’Connel v. One Thousand & Two Bales of Sisal Hemp., 75 F. 408 (S.D. Ala 1896)
Office of Supply, Government of the Republic of Korea v. New York Navigation Co., 1973
A.M.C. 1238 (2d Cir. 1972)
Organes Enterprises Inc. v. M/V Khalij Frost, 1989 A.M.C. 1460 (S.D.N.Y. 1989)
Pacific Lumber & Shipping Company Inc. v. Star Shipping, 1979 A.M.C. 2137, (W.D.Wash.
1979), cert. denied in 444 U.S. 1017, (9th Cir. 1979)
Painewebber Inc. v. Elahi, 87 F.3d 589 (1st Cir. 1996)
Painewebber Incorporated v. Bybyk, 81 F.3d 1193 (2d. Cir. 1996)
Paramedics Electromedicina Comercial Ltda. v. GE Medical Systems Information
Technologies, Inc., 369 F.3d 645 (2d Cir. 2004)
Piper Aircraft Co. v. Reyno, 454 U.S. 235, (U.S. 1981)
Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, (U.S. 1967).
Production Steel Co. of Illinois v. S.S. Francios L.D. 1968 A.M.C. 2529 (S.D.N.Y. 1968).
Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela, 1993 A.M.C. 2916,
(2d Cir 1993)
Quaak v. Klynved Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, (1st Cir. 2004)
Ralston Purina Co. v. Barge Juneau, 1981 A.M.C. 2829, (5th Cir. 1980)
21
RJE Corp. v. Northville Industries Corp., 329 F.3d 310 (2d Cir. 2003)
Royal Insurance Co. of America v. Orient Overseas Container Line Ltd, (6th Cir. 2008), cert.
denied, 129 S.Ct. 299, 77 USLW 3203
Royal Insurance Co. v. Sea-Land Service, 50 F.3d 723, (9th Cir. 1995)
Russul Corp. v. Zim American Integrated Shipping Services Co., 2009 3247141, (S.D.N.Y.
2009)
Salim Oleochemicals, Inc. v. M/V Shropshire, 169 F. Supp.2d. 194, (S.D.N.Y 2001)
Seattle Totems Hockey Club Inc. v. National League, 652 F.3d 852, (9th Cir. 1981)
Sembawang Shipyard, Ltd. v. Charger Inc., 955 F.2d 983, (5th Cir. 1992)
Shaw v. Regents of University of California, 58 Cal. App. 4th 44, 67 Cal. Rptr. 2d 850, 121
Ed. Law Rep. 261 (3d Dist. 1997)
Siderius Inc. v. M/V Ida Prima, 613 F.Supp 916, (S.D.N.Y 1985)
Sigri Carbon Corp. v. Lykes Brothers Steamship Co. Inc. 1988 A.M.C. 1787, (W.D.Ky. 1987)
Silgan Plastics Corp. v. M/V Nedlloyd Holland, 1998 A.M.C. 2163 (S.D.N.Y. 1998)
Simula Inc. v. Autoliv Inc., 175 F.3d 716 (9th Cir. 1999)
Snell v. Insurance Company, 98 U.S. 85, (U.S. 1878)
Son Shipping Co, Inc. v. De Fosse & Tanghe, 1952 A.M.C. 1931 (2d Cir. 1952)
Southwestern Sugar & Molases Co. v. Eliza Jane Nicholson, 1955 A.M.C. 746, (S.D.N.Y
1954)
Splosna Plovba v. Agrelak S.S. Corp., 1975 A.M.C. 146, (S.D.N.Y. 1974)
St. Paul Fire & Marine Insurance Company v. Sea-Land Service Inc., 1991 A.M.C. 523,
(S.D.N.Y. 1990)
Stamm v. Barclays Bank of New York, 960 F.Supp. 724 (S.D.N.Y. 1997)
State Establishment for Agricultural Product Trading v. M/V Wesermunde, 1988 A.M.C.
2328, (11th Cir 1988)
State Trading Corp. of India v. Grunstad Shipping, 582 F.Supp. 1523 (S.D.N.Y. 1989)
Steel Coils Inc. v. Captain Nicholas I M/V, 197 F.Supp. 2d. 560, (E.D.La 2002)
Steel Coils, Inc. v. M/V Lake Marion, 2001 A.M.C. 115, (E.D.La.2001).
Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 1998 A.M.C. 2054, (5th Cir. 1998)
Stemcor U.S.A. Inc. v. M/V Archimedes, 2004 WL 2996797, 2004 A.M.C. 1651, (S.N.D.Y.)
Stonington Partners Inc v. Lernout & Hauspie Speech Products, 310 F.3d 118 (3d Cir. 2002)
Strachan Shipping Co. v. Dresser, Industries, 1984 A.M.C. 237 (5th Cir. 1983)
Sumitomo Corporation of America v. M/V Sie Kim, 1987 A.M.C. 160 (S.D.N.Y. 1985)
Swamiathan v. Swiss Air Transport Co., Ltd., 962 F.2d 387 (5th Cir. 1992)
22
Teg-Paradigm Environmental Inc. v. United States, 465 F.3d 1329 (Fed. Cir. 2006)
The Albert Dumois, 54 F. 529 (D.C.N.Y. 1893)
The Albert F.Paul, 1924 A.M.C. 967 (2d Cir. 1924)
The Bird Paradise, 72 U.S. 545, (U.S. 1866)
The Delaware, 81 U.S. 579 (U.S. 1872)
The Firestone Tire & Rubber Co. v. Almacenes Miramar, Inc., 1980 A.M.C. 1590, (D. Puerto
Rico 1978)
The Fri, 154 F. 333 (2d Cir. 1907)
The Hans Maersk 266 F. 806 (2d Cir. 1920)
The Lake Galera, 1932 A.M.C. 1228 (2d Cir. 1932)
The Marpesia, 292 F. 957, 973 (2d Cir. 1923)
The Michael Thanasis, 311 F.Supp. 170 (D.C. Cal 1970)
The Pelotas 1933 A.M.C. 1188 (5th Cir. 1933)
The Rice Company (Suisse), S.A. v. M/V Nalinee Naree, 2008 A.M.C. 1152 (5th Cir. 2008)
The Robin Gray, 1933 A.M.C. 766, (2d Cir. 1933) cert. denied 290 U.S. 653 (U.S. 1933)
Thyssen Inc. v. Calypso Shipping Corp. S.A., 2002 A.M.C. 2332, (2d Cir. 2002)
Thyssen Inc. v. Nobility M/V, 2005 A.M.C. 2067, (5th Cir. 2005)
Thyssen Inc. v. M/V Markos N., 1999 A.M.C. 2515 (S.D.N.Y. 1999)
Tracer Research Corporation v. National Environmental Services Co., 42 F.3d 1292 (9th Cir.
1994)
Trade Arbed v. M/V Kandalaksha, 2003 A.M.C. 1732, (S.D.N.Y. 2003)
Trans-Asiatic Oil Ltd., S.A. v. Apex Oil Company, 1987 A.M.C. 1115, (1st Cir. 1986).
Trans-Tec Asia v. M/V Harmony Container, 518 F.3d 1120, (9th Cir. 2008), cert. denied, 129
S.Ct. 628, 172 L.Ed. 2d 639, (2008)
Travelers Indemnity Co. v. M/V Mediterranean Star, F.Supp, 1988 A.M.C. 2483, (S.D.N.Y.
1988)
Travelers Indemnity Co. v. S/S Alca, 1989 A.M.C. 1843 (S.D.N.Y. 1989)
Triton Marine Fuels Ltd., S.A. v. M/V Pacific Chukotka, 575 F.3d 409 (4th Cir. 2009)
Tubacex Incorporation v. M7V Risan, 1995 A.M.C. 1305, (5th Cir. 1995)
U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 2001 A.M.C. 2080 (2d Cir. 2001)
Union Carbide Corporation v. M/T Monte Carmelo, 2002 WL 31812676 (S.D.N.Y. 2002)
United States Barite Corp. v. M/V Haris, 1982 A.M.C. 925, (S.D.N.Y. 1982)
United States of America v. Lamborn & Co., 1932 A.M.C. 1228, (2d Cir. 1932)
United States v. Cia Naviera Continental, S.A., 1962 A.M.C. 2403 (S.D.N.Y. 1962)
23
United States v. Donovan, 348 F.3d 509, (6th Cir. 2003)
United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574 (U.S. 1960)
Uniwire Trading LLC v. M/V Wladyslaw Orkan, 2008 A.M.C. 2152 (S.D.N.Y. 2008)
Usinor Steel Corporation v. M/V Koningsborg, 2004 A.M.C. 438 (S.D.N.Y. 2004)
Valero Refining Inc. v. M/T Lauberhorn, 1987 A.M.C. 2100 (5th Cir. 1987)
Ventura Maritime Co. Ltd. v. A.D.M. Export Co, 1998 A.M.C. 1676 (E.D.La 1999)
Vimar Seguros v. Reaseguros, S.A. v. M/V Sky Reefer, 1994 A.M.C. 2513 (1st Cir. 1994), 515
U.S. 528 (U.S. 1995)
Volgotanker Joint Stock Company v. Vinmar International Limited, F.Supp. 2d, 2003 WL
23018798 (S.D.N.Y 2003)
Wells Fargo & Co., Express, S.A. v. Tribolet, 46 Ariz. 311, 50 P.2d 878 (Ariz. 1935)
Wemhoener Pressen v. Ceres Marine Terminals Inc., 5 F.3d 734 (4th Cir. 1993)
Western Lumber Manufacturing v. U.S., 1926 A.M.C. 91 (N.D.Cal. 1925)
William H. Muller & Co. v. Swedish American Line Ltd, 1955 A.M.C. 1687, (2d Cir. 1955)
Williams v. Metzler, 132 F.3d 937, (3d Cir. 1997)
Winmar Co. Inc. v. Teachers Insurance and Annuity Association of America, 870 F.Supp. 524
(S.D.N.Y. 1994)
Yasuda Fire & Marine Insurance Co. v. M/V Tribels, 2000 A.M.C. 2606 (E.D.La 2000)
Yone Suzuki v. Central Argentine Railway Limited, 1928 A.M.C. 1521, (2d Cir. 1928), Cert.
Denied, 278 U.S. 652 (1929)
Table of International Conventions
Inter-American Convention in International Commercial Arbitration, The Panama Convention,
1975
International Conventions for the Unification of Certain Rules of Law relating to Bills of
Lading, 1924, The Hague Rules
International Convention for Unification of Certain Rules of Law relating to Bills of Lading
as Amended by Brussels Protocol, 1968, The Hague-Visby Rules
New York Convention on the Carriage of Goods by Sea, 1978, The Hamburg Rules
Uncitral Convention on Contracts of Carriage of Goods Wholly or Partly by Sea, 2009, The
Rotterdam Rules
24
Table of European Legislation
Convention on the Law Applicable to Contractual Obligations (EEC) No: 80/934, Rome
Convention
Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008
on the Law Applicable to Contractual Obligations (Rome I)
Council Regulation (EC) No: 44/2001 on Jurisdiction and the Recognition and Enforcement
of Judgments in Civil and Commercial Matters
Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil
and Commercial Matters, The Brussels Convention
Convention of 16 of September 1988 on jurisdiction and the enforcement of judgments in
civil and commercial matters, The Lugano Convention
Table of UK Legislation
Arbitration Act, 1996
Carriage of Goods by Sea Act, 1992
Carriage of Goods by Sea Act, 1971
Carriage of Goods by Sea Act, 1924
Civil Procedural Rules, 1998
Table of US Legislation
Carriage of Goods by Sea Act, 1936, 46 U.S.C. § 30701 et seq.
Federal Arbitration Act, 1925, 9 U.S.C. § 190 et seq.
Harter Act, 46 U.S.C § 190 et seq.
Uniform Commercial Code
Table of Arbitration Awards
A/B Olson & Wright v. Foresta Trading Corporation, Arbitration at New York, 1928 WL
58500 (arbit.), 1929 A.M.C. 19
In Re Alpine Shipping Company of Monrovia and Fuel Oil Trading Co Geneva SMA No:
1485 (October 22, 1980)
In Re Arbitration between Alimentos Precocidos Guayana C.A. and Her An Shipping S.A.,
SMA No: 3468, (August 14, 1998)
In Re Arbitration Between Alpine Shipping Company of Monrovia and Palm Shipping Co,
SMA No: 1485, (October 22, 1980)
25
In Re Arbitration between Amoco Transport Company and Amoco Iran Oil Company, SMA
No: 2315, (October 10, 1986)
In re Arbitration Between Cementos Andinos Dominicanos S.A. and East Bulk Shipping S.A.,
SMA No: 3993, (February 11, 2008)
In Re Arbitration between Esquire Marine Corporation and Sumande Shipping Corporation,
SMA No: 1082, (December 30, 1976)
In re Arbitration Between The Office of Supply, Government of the Republic of Korea and
New York Navigation Company Inc., SMA No: 654 (August 1971)
In Re Arbitration between World Carrier Corp. and United States District Court Southern
District of New York, SMA No: 1397, (December 20, 1979)
The Eastern Saga, SMA no: 1742 (September 16, 1982)
The John Weyerhaeuser, SMA no: 654 (August 1971)
The M/V Reliant, SMA Award No: 3077, (May 12, 1994)
The Osrock, SMA no: 654
The Silverhawk, SMA no: 1041
26
INTRODUCTION
A vast amount of goods is carried on vessels by virtue of the contracts of carriage evidenced
under bills of lading. Frequently, international sale of the goods is performed with reliance on
these contracts, which usually pass through the hands of numerous traders. While the way
international trade is conducted does not allow the holders to negotiate the bill of lading
provisions with their respective carriers, incorporation clauses frequently stipulated
thereunder also leave them wondering about the actual conditions of the carriage. The reason
for this is that it has proved difficult for these parties to ascertain their rights and obligations
under bills of lading, since they are seldom provided with the copies of the referred
charterparties. Not surprisingly, this position has prompted a long array of disputes as to
whether merely directing the holders to a charterparty is sufficient to bind them to the terms
of this contract.
In the face of these difficulties and disputes, referring to a charterparty in order to make its
provisions a part of bills of lading has been used as a contract drafting technique for a long
time. Above all, it is no longer unexpected that the holders may be bound by a number of
unseen charterparty provisions, so long as the bills of lading and the relevant charterparty
overcome a set of hurdles, which are popularly known as the rules of incorporation. It is
evident that the rules of incorporation have large-scale impact not only on the contractual
position of carriers and cargo interests, but also on relations between sellers and buyers.
Equally evident is that the rules lead to a considerable number of discussions as to whether
they are viable in the ongoing and fast-changing shipping and international trade practice. In
particular, these rules raise various questions about the protection they afford to cargo
interests, their contribution to the attainment of certainty in international trade and finally
about the eventual implications this may entail.
In this study, the English and United States rules of incorporation are compared and examined
in light of an extensive research largely based on international conventions, statutes, case law
and landmark legal studies in order to address these specified questions. In so doing, the
English and U.S. approaches towards the issues are usually explained conjunctively so as to
convey to the reader a comparative evaluation of these jurisdictions in a more effective and
simple manner. With a view to avoiding repetition, this method is employed particularly in
cases where the courts of England and the U.S. provide similar answers to the questions posed.
27
However, where there are considerable differences between English and U.S. law relating to a
particular issue, the two approaches are considered separately.
A number of significant factors shape the suggestions raised in this study. To begin with, due
consideration is given to the fact that the rules of incorporation need to be commercially
workable, fair, simple, certain and consistent with each other. Priority is given to certainty and
consistency by reason of the heavy reliance on the bills of lading as transferable instruments.
Notably, whilst evaluating the issues, the sharp differences in the legal methods adopted in
English and U.S. law are also not undermined. Rather, the opinions in the thesis are mainly
underpinned by the fact that, in establishing the rules of incorporation, U.S. law takes the
position of every subsequent holder as a basis, whereas English law rejects resolving the issue
upon such variable grounds.
In light of these observations, the central premise of the thesis is that neither the actual
position of the bill of lading holders, nor their closeness to the referred charterparty, should be
relevant in resolving the issues of incorporation. In support of this view, the thesis further
stands against inclining towards the actual or constructive knowledge of the individual
holders with regards to the referred charterparty terms. The justification for this is made upon
the grounds that a safer international trade environment can only be achieved upon the
satisfaction of two conditions: the bill of lading needs to provide invariable terms of carriage
to its every indorsee, and the intention of the original parties to bills of lading which can
objectively be ascertained from the wording of the incorporation clause which must always be
regarded as “paramount” in resolving the incorporation question.
In order to reach the latter objective, the thesis goes on to suggest that charterparty clauses
should not be decisive on incorporation, nor should they in any way be of assistance in
interpreting the incorporated charterparty terms. Consequently, the thesis reinforces the
argument that bill of lading is to be looked at in isolation from the referred charterparty when
making decisions relating to incorporation. In so doing, it also underlines the possibility that
the effect and nature of the incorporated charterparty terms may be modified in the bill of
lading context. Since the current position in both jurisdictions is far from the ideal, the
criticisms stipulated hereunder support the opposition to the identified charterparty
interference.
28
Considering the latest international attempts to unify the rules governing bills of lading which
are embodied in the “United Nations Convention on Contracts for the International Carriage
of Goods Wholly or Partly by Sea” (the Rotterdam Rules), the thesis arrives at another critical
conclusion: there is a greater tendency to protect cargo interests against forum selection
clauses, rather than the provisions whose application merely causes monetary liabilities. As a
response to this, the thesis raises the criticism that these movements should have been in the
direction of limiting the incorporation and enforceability of the charterparty clauses of the
latter type, since failing to do so inevitably increases “the risk of international trade”. The
thesis also takes the view that the provisions of the Rotterdam Rules on jurisdiction and
arbitration aggravate the jurisdictional battles due to the convoluted formula employed to
tackle the issue. With the suggestion that a more receptive policy towards forum selection be
adopted, this study finds the Rotterdam Rules inefficient to ensure “one-stop-adjudication”1,
inasmuch as they substantially curb the carriers’ right to incorporate and to enforce the
charterparty forum selection clauses.
As the underpinnings of these findings, the thesis presents a detailed analysis of the rules of
incorporation, under four main chapters. The first chapter examines the formal requirements
of incorporation, discussing the main question of what forms of charterparties and bills of
lading are appropriate for incorporation. Leaving aside the formalities, the second chapter
moves onto the construction of the incorporation wording in bills of lading. In so doing, it
provides a guideline of the extent to which the charterparty provisions can be introduced into
the bills of lading through the words of incorporation. At this stage the reader’s attention is
also drawn to how U.S. and English courts read the incorporated charterparty provisions in
the context of bills of lading.
In light of these observations, the third chapter examines whether the charterparty provisions,
or those in bills of lading, determine the scope of incorporation. Thereafter, the fourth chapter
goes on to discuss how English and U.S. courts resolve the inconsistencies between the
express bill of lading terms and those incorporated charterparty clauses. While exploring
these issues, a closer inspection is taken of the incorporation of charterparty clauses, which
have largely attracted disputes between the parties to bills of lading, such as forum selection,
demurrage, fiost and similar clauses. With this analysis, the positions of the holders and
See Harbour Assurance Co. (U.K.) Ltd. v. Kansa General International Insurance Co. Ltd. and Others, [1993] Q.B. 701,
724, per L.J. Hoffmann.
1
29
carriers under the rules of incorporation are identified, and the critical steps they must
necessarily take for their own benefit are highlighted. Consequently, the ramifications of
incorporation clauses will be evaluated from both practical and theoretical perspectives.
Before any question of incorporation, a preliminary point of law must be considered: pursuant
to what law are the incorporation issues resolved? How English and U.S. courts approach this
matter will now be examined.
30
CHAPTER I: WHICH LAW GOVERNS INCORPORATION?
The reason for asking which law governs the question of incorporation is that contracts of
carriage usually have connections with more than one state. When there is a dispute arising
from a contract of carriage with such connections, what system of law should be selected as
the applicable law? It is clear that the courts of England and the United States address this
issue by reference to the conflict of law rules of the forum2. Surely, the identified question can
also be considered in arbitration, but not always pursuant to the conflict of law rules in the
place of arbitration. Rather, arbitrators have the right to apply the rules which they consider
suitable, where arbitration is conducted in one of these jurisdictions3.
In broad terms, the logical step of resorting to the conflict of law rules has great significance
for those parties who are well aware of what system of law is more favourable to them. The
incorporation cases are not an exception to this proposition. Instead, what law is applied to the
incorporation issue has undeniable importance to both carriers and bill of lading holders,
inasmuch as there are drastic differences between U.S. and English law with respect to the
rules of incorporation, a point which will be thoroughly analysed in this thesis. This question
of the conflict of law reveals its practical importance where jurisdictional disputes arise. The
reason for this is far from unclear: due to the wide use of incorporation clauses, the battles
over jurisdiction usually boil down to the question of whether the bill of lading has
incorporated a forum selection clause.
Despite the vitality of the issue, challenging conflict of law questions await the parties when
the bill of lading contains an incorporation clause. The difficulties in finding the law
governing the incorporation issue emerge especially in cases where the referred charterparty
For U.S. law, Restatement (Second) On Conflict of Laws, § 4(1) and § 6(1); Klaxon Co. v. Stentor Electric Mfg. Co., 313
U.S. 487, 61 S.Ct. 1020, 1022 (U.S. 1941). Nevertheless, the federal admiralty courts apply the U.S. federal conflict of law
rules which are mainly established in Lauritzen v. Larsen, 345 U.S. 571 (U.S. 1953), see Triton Marine Fuels Ltd., S.A. v.
M/V Pacific Chukotka, 575 F.3d 409, 413 (4th Cir. 2009); Trans-Tec Asia v. M/V Harmony Container, 518 F.3d 1120, 1124
(9th Cir. 2008), cert. denied, 129 S.Ct. 628, 172 L.Ed. 2d 639 (U.S. 2008), quoting Gulf Trading & Transportation Co. v.
Vessel Hoegh Shield, 658 F.2d 363, 366-367 (5th Cir. 1981). For English law, see The Star Texas [1993] 2 Lloyd’s Rep. 445,
450 per Lord Steyn; Compagnie d’Armement Maritime S.A. v. Compagnie Tunisiennne de Navigation S.A. [1970] 2 Lloyd’s
Rep. 99, 117; Trafigura Beheer BV v. Kookmin Bank Co., [2006] 1 C.L.C. 1049, 1064 and 1069.
2
3
This discretion is exercisable in the absence of an express choice of law agreement made between the parties. For English
law, see Article 46(3) of the Arbitration Act, 1996; DAC Report on Arbitration Law, para 222-225; and Collins L., “Dicey
Morris & Collins on the Conflict of Laws”, (14th edn, 2006), para 16-055. For United States law, Organes Enterprises, Inc. v.
M/J Khalij Frost, 1989 A.M.C. 1460, (S.D.N.Y. 1989); Oehmke T.H., “Arbitrating International Claims – At Home and
Abroad”, 81 Am. Jur. Trials 1, § 77. Nonetheless, in London maritime arbitration, the arbitrators generally resort to the
English choice of law rules, Ambrose C. and Maxwell K., “London Maritime Arbitration”, (2002). In New York arbitration,
usually the U.S. federal maritime choice of law rules are applied, The M/V Reliant, SMA Award No: 3077, May 12, 1994.
31
contains a choice of law. This is simply because applicable law of the bill of lading, in those
circumstances, depends on whether such clauses are incorporated thereto. Since the applicable
law of the bill of lading can, therefore, be determined only after the issue of incorporation is
determined, by what system of law is the question of incorporation governed? With all its
complexity, the solution to this issue lies at the heart of one key question: what should come
first “decision on incorporation” or “decision on the applicable law”?
As the explanations below will show, both the U.S and English courts to date have overcome
this difficulty by adopting a somewhat hypothetical thinking, thereby making presumptions
on the incorporation of the charterparty. This section will further underline the fact that the
presumptions set out in these jurisdictions are diametrically opposed to each other. In light of
these observations, the suggestion will be that the law of forum be applied to such cases.
1. What legal system generally governs the incorporation issue?
Leaving aside the cases where the highlighted conundrum arises, it is necessary first to set out
what law is applied to the question of incorporation in general. The legal position in both
jurisdictions sends the general message that incorporation clauses are interpreted and given
effect pursuant to the applicable law of the bill of lading. Under English law, this proposition
draws support largely from Article 12 of Rome I, which stipulates that the law applicable to
the contract governs the interpretation of the contract4. In U.S law, the main underpinning is
section 186 of the Restatement (Second) on Conflict of Laws, for it dictates that all
contractual issues are resolved in accordance with the applicable law5.
There follows that when the bill of lading designates a particular system of law as the
governing law, the legal system so chosen resolves the incorporation issue. The reason is clear:
both English and U.S. courts to date have shown willingness to enforce parties’ choice of law
4
Rome I is the shorthand form of Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June
2008 on the law applicable to contractual obligations. Rome I has been the successor to the convention on the law applicable
to contractual obligations (“Rome Convention”). There is no complete succession in that the Rome Convention is still
applicable to contracts concluded before December 17, 2009. See Article 28 of Rome I. It must be noted that for present
purposes, the rules do not contain any substantial differences.
See Restatement (Second) On Conflict of Laws, § 186. See also Davies, M. and Force R., “Jurisdiction and Forum Selection
in International Maritime Law: Essays in Honour of Robert Force”, (2005), 32
5
32
agreements. Hence, in light of the ruling in Chan v. Society Expeditions6, it is clear in U.S law
that parties generally have the freedom to choose the law applicable to their contracts7.
U.S courts do not, however, adhere to this receptive approach so long as the choice is
unreasonable, unfair, or fraudulent8. Nor do they apply the selected legal system, where it runs
counter to the public policy or where there is an “overweening bargaining power” between the
parties to the choice of law agreement9. Under U.S law, there is another point of departure
from the freedom of choice: for the disputes relating to the formal or material validity of the
contract, U.S courts apply the legal system of the state agreed by the parties provided that (1)
the chosen state has a “substantial” connection with the transaction or the parties, (2) the
choice of the parties is founded on a “reasonable basis”, and (3) the designated state both has
“the most significant relationship with the transaction and the parties” and has a “greater
interest” in resolving the issue10.
The overall position under English law suggests that party autonomy is given greater weight
in this jurisdiction. This mainly derives from the fact that English courts do not, in any case,
require a connection between the contract and the country whose legal system is selected as
the applicable law11. Rather, the courts to date have been inclined to uphold the choice of law
agreement12 to the extent that they do not run counter to mandatory rules13. While this liberal
approach has its roots in common law14, it now mainly draws support from Article 3(1) of the
Rome I, which sets out the freedom of choosing the applicable law on similar grounds.
See 123 F.3d 1287, 1297 (9th Cir. 1997) quoted in Hawkspere Shipping Co. Ltd. v. Intamex S.A., 330 F.3d 225, 233 (4th Cir.
2003)
7 Ibid.
6
8
M/S Bremen v. Zapata Off-Shore Co., 407 U.S.1, 92 S.Ct. 1907, 1914, 1917 (U.S. 1972)
9
Ibid.
Restatement (Second) On Conflict of Laws, § 187(2), § 188 § 6, and comment (d). See also, Chan v. Society Expeditions,
Inc., above at 1297.
10
11
Bas Capital Funding Corporation v. Medfinco Ltd., [2004] 1 Lloyd’s Rep. 652, 678
See Vita Food Products Inc. v. Unus Shipping Co. Ltd. [1939] A.C. 277, 299. See also Collins L., et al, “Dicey Morris &
Collins on the Conflict of Laws”, (14th edn, 2006), para 1-080.
12
See The Hollandia, [1983] 1 A.C. 565, where the court struck down the choice of law clause providing for Dutch law on
the basis of Article III/8 of the Hague-Visby Rules, which prohibits carriers to contract out or lessen their liabilities otherwise
than as provided therein. For more discussions on this decision see Chapter 5(2)(b).
13
14
See Vita Food Products, above.
33
In both jurisdictions, the selected system of law thus governs all the issues arising thereunder,
including the question of incorporation, insofar as the scope of the choice of law is broad
enough to encompass these matters15. Here, it proves valuable to highlight the fact that the
choice of applicable law can be made either expressly or by implication 16. Hence, U.S. courts
take the view that incorporation of the Hague Rules into the bills of lading could indicate an
implied choice of U.S law17. Where the parties merely designate the seat of arbitration in their
contracts, the courts further uphold the inference that the legal system of the forum is intended
to be the applicable law18.
On the other side of the Atlantic, English courts have also taken a similar line both before and
after the adoption of the Rome Convention. They have, therefore, acknowledged that tacit
agreements of the parties on the choice of law are given effect provided that the choice is
reasonably certain19. Given that there is no substantial difference in this respect between the
Rome Convention and its successor, Rome I Regulation, this position will surely remain the
same. In that spirit, on the evaluation of all the factors which may reflect the intention of
parties on the applicable law, forum selection clauses usually tip the balance in favour of the
law of the chosen forum20.
For U.S. law, see Liverpool and London S.S. Protection and Indemnity Association Ltd. v. Queen of Leman MV, 296 F.3d
350, 353-354 (5th Cir. 2002) where the court applied U.S. law to the issue of whether maritime lien existed, despite the
English law being chosen as the applicable law. The reasoning of the court was that the choice of law clause thereunder
contained an exception which gave the insurers the right to assert lien in “any jurisdiction in accordance with the local law”.
English law was, therefore, not applied to that particular issue in order not to render the lien provisions “meaningless”. Under
English law, the parties have the right to choose more than one system of law to govern different issues arising under their
contracts, see Article 3(1) of the Rome I. This right was recognised at common law, Hamlyn v. Talisker Distillery, [1894]
A.C. 202, 207. In both jurisdictions, where the choice of law clauses stipulate only one system of law, the courts are inclined
to give a wider scope to these choices, for U.S. law, Bominflot, Inc. v. The M/V Henrich S., 2006 A.M.C. 2510, 465 F.3d 144,
148-150, (4th Cir. 2006) and Sembawang Shipyard, Ltd. v. Charger Inc., 955 F.2d 983, 986, (5th Cir. 1992), for English law,
Egon Oldendorff v. Libera Corp., [1996] 1 Lloyd’s Rep. 380, 387. See also, Article 12 of Rome I.
15
16
For U.S. law, Restatement (Second) On Conflict of Laws, § 187, comment a. For English law, see Article 3(1) of Rome I.
See Duferco Steel Inc. v. M/V Kalisti, 1998 A.M.C. 171, 121 F.3d 312, 325 (7th Cir. 1997). See also, Davies, M. and Force
R., “Jurisdiction and Forum Selection in International Maritime Law: Essays in Honour of Robert Force”, (2005), 36.
17
18
Splosna Plovba v. Agrelak S.S. Corp., 381 F.Supp. 1368, 1975 A.M.C. 146, 148 (S.D.N.Y. 1974). See also ibid.
For the pre-Rome Convention position see Compagnie Tunissienne de Navigation S.A. v. Compagnie d’Armement
Maritime S.A., [1970] 2 Lloyd’s Rep. 99. See Egon Oldendorff v. Libera Corporation, [1996] 1 Lloyd’s Rep. 380, which was
decided after the Rome Convention was adopted.
19
Ibid. It is important to note that English courts have also drawn such inference when the parties use a standard form, see
Amin Rasheed Shipping Corporation v. Kuwait Insurance Co. [1983] 2 Lloyd’s Rep. 365, 369. Another inference is that
interrelated contracts are governed by the same applicable law, see The Njegos [1936] P. 90, 100; The Elli [1985] 1 Lloyd’s
Rep. 107; Egon Oldendorff v. Libera Corporation [1996] 1 Lloyd’s Rep. 380; The SLS Everest, [1981] 2 Lloyd’s Rep. 389,
392
20
34
Having accepted that implied or express agreements on choice of law thus govern the
question of incorporation, a further problem arises where there is no such agreement in the
bill of lading. Evidently, the applicable law of the bill of lading will, in such cases, be the
legal system of the country with which the bill of lading has its strongest ties, and this system
of law will therefore be applied in determining incorporation21.
2. Presumptive solutions in ascertaining the applicable law
When the applicable law of the bill of lading can be determined with any of the identified
methods, there are no formidable obstacles in addressing the incorporation issue. The position
is, however, quite the contrary where the applicable law cannot be ascertained with
reasonable certainty by reason of the implied or express choice of law in the referred
charterparty. To tackle the incorporation issue in those circumstances, English and U.S law
set diametrically opposed presumptions on the applicable law of the bill of lading. In both
jurisdictions, the courts have been inclined to avoid the application of the law of the forum,
inasmuch as they have predominantly taken the view that every contract should be governed
by its own applicable law22.
Under English law, this approach can be best supported by Article 10(1) of Rome I, which
provides that the material validity of a contract is to be decided pursuant to the law which
would govern it, if the contract or the term therein were valid. Under Article 10(2) there is an
exception to the application of this putative thinking. On this basis, the parties opposing the
application of the putative applicable law need to establish that (1) it is unreasonable to apply
the putative applicable law to the issue of the contract formation (2) they have not consented
to be bound by a contract23.
Given that bill of lading holders seldom have the chance to see the referred charterparties,
could they make use of Article 10(2) of Rome I? In The Epsilon Rosa, the holders sought to
For English law, Article 5 of Rome I. The “connecting factors” are also used at common law in determining the governing
law, see Bonython v. Commonwealth of Australia, [1951] A.C. 201, 219; Whitworth Street Estates (Manchester) Ltd. v.
James Miller Partners Ltd. [1970] A.C. 583. For U.S law, see Restatement (Second) On Conflict of Laws, § 188. In this
respect, U.S. courts are also guided by the connecting factors established in Lauritzen v. Larsen, 345 U.S. 571, 73 S.Ct. 921,
97 L.Ed. 1254 (U.S. 1953). See also, Trans-Tec Asia v. M/V Harmony Container, 2008 A.M.C. 684, 518 F.3d 1120, 11241125 (9th Cir. 2008).
21
For English law, see Amin Rasheed Shipping Corp. v. Kuwait Insurance Co. [1984] A.C. 50, 64 quoted in Briggs A,
“Wider still and wider: the bounds of Australian exorbitant jurisdiction”, (1989) LMCLQ 216, 219. For U.S. law, see
Restatement (Second) On Conflict of Laws, § 186.
22
The opposing parties need to establish the “consensus ad idem” in light of the legal system of their habitual residence,
Article 10(2) of Rome I, and Mackender v. Feldia, [1972] 2 Q.B. 590.
23
35
rely on this exception in order to prevent incorporation of the charterparty arbitration clause
providing for London arbitration24. For this purpose, they argued that the arbitration clause
was unreasonable on the grounds that the charterparty was not identified in the bills of lading
and they were not cognisant of the charterparty. Despite the force of these arguments, the
court was not prepared to accept that the arbitration clause was unreasonable, since arbitration
clauses are widely used in charterparties. Having found that the charterparty arbitration clause
implied a choice of English law, the court, therefore, held that the incorporation issue would
be resolved pursuant to English law, as the putative proper law of the bill of lading25.
The ruling was surely aligned with the predominant approach of the English courts, which has
been to apply the putative applicable law to the question of incorporation 26 . Nonetheless,
reliance of the court on the Rome Convention ran counter to Article 1(2)(d) thereof, which
excludes the forum selection clause from its scope. Given that the successor of the Rome
Convention, Rome I, contains the identified exception, drawing support from this instrument
in a case similar to The Epsilon Rosa will also attract the same criticism27.
Where the referred charterparty contains an express or implied choice of law agreement, there
are a trio of judicial decisions, namely The Parouth, The Atlantic Emperor and The Heidberg,
which throw light on the question of what law is applicable to the incorporation issue. In
particular, these decisions set out the key rule that the incorporation issue is to be resolved
under the putative applicable law of the bill of lading. At the outset, the foundations of this
rule were laid in The Parouth, which involved an arbitration clause in an arguably binding
charterparty28. At the heart of the dispute was the question of whether leave for service of the
claim form out of jurisdiction should be granted on the basis that the contract is governed by
English law29. In granting the leave on these grounds, the court underlined the fact that the
question of the validity of the contract would be governed by English law as the putative
proper law of the charterparty.
24
[2002] 2 Lloyd’s Rep. 701
25
Ibid, at 704
26
See the explanations below.
27
See Article 1(2)(e) of Rome I.
28
[1982] 2 Lloyd’s Rep. 351
29
See CPR r.6.36 and CPR PD 6B 3.1(6)(c), which is formerly R.S.C., O.11, r.1(1)(f)
36
Unlike The Parouth, the court in The Atlantic Emperor was not concerned with the question
of whether there was a binding contract which contained an arbitration clause30. Rather, they
were asked to resolve whether there was an arbitration clause in an existing contract of sale.
To address this issue, the court relied on the putative applicable law of the contract of sale
which was ascertained on the assumption that the contract had a valid arbitration clause. In so
doing, they extended the scope of the application of putative applicable law to the questions
of contract formation.
HHJ Diamond QC in The Heidberg acknowledged the views suggested in these judicial
decisions, while determining the law governing the incorporation of the charterparty
arbitration clause into the bill of lading 31 . Therefore, he upheld the proposition that the
incorporation issue is to be resolved under the putative applicable law of the bill of lading,
which is the law that would govern the bill of lading, if the charterparty or its particular term
were incorporated32. Nonetheless, it was not possible to employ this method, for there were
two different charterparties that could be incorporated, and each of them were suggesting
different putative applicable laws. This being the case, HHJ Diamond QC had to choose
between the law of the forum and the “putative objective law”, which would be the applicable
law of the bill of lading, if the incorporation were completely ignored 33 . Considering the
probable effects of the incorporation on the governing law of the bill of lading34, he preferred
the law of the forum, as obiter, in addressing the incorporation issue35.
30
[1989] 1 Lloyd’s Rep. 548
31
[1994] 2 Lloyd’s Rep. 287
32
Ibid, at 304
33
Had the court applied the objective putative applicable law, this would have resolved the issue under French law which
was most closely connected to the bill of lading, see ibid, and Article 5 of Rome I.
34
Another reason for the court to take this view was that there was no evidence justifying the application of a system other
than English law, see [1994] 2 Lloyd’s Rep. 287, 307-308.
35
Having decided that the ruling of the French court on the question of incorporation is binding, the views of HHJ Diamond
QC on incorporation were obiter. In the wake of the Court of Appeal decision in National Navigation Co. v. Endesa
Generacion SA, to what extent the judicial decisions of the courts of member states on incorporation could constitute estoppel
for English courts is now clear; see [2009] EWCA Civ. 1397. In sharp contrast to the view taken by Gloster J in the
Commercial Court, the Court of Appeal therein held that the judgment of the Spanish court on incorporation was binding.
Surely, the decision was predicated on the landmark European Court of Justice decision in The Front Comor, where it was
held that the preliminary decision of the court, first seised with respect to arbitration, binds the other courts of member states,
where the subject-matter of the actual dispute falls within the scope of the EC Regulation 44/2001, see The Front Comor
[2009] 1 A.C. 1138.
37
These rulings provide the underpinnings of one key rule: forum selection clauses; which are
usually treated as tacit choice of law agreements, and express choice of law clauses in the
referred charterparties, supposedly become a part of the relevant bills of lading when
determining the law applicable to the question of incorporation. This approach creates
circularity 36 , for it first raises a presumption in favour of incorporation with a view to
ascertaining the governing law of the bills of lading, and later it throws back the incorporation
issue to decide whether the charterparty is actually imported into the bill of lading.
This presumptive thinking surely produces effective and pragmatic results37 in cases where the
question of incorporation arises from the contracts made between the same parties, or where
the dispute is merely concerned about the incorporation of standard rules 38. The reason is that
not only does the use of this hypothetical method in such cases help the parties reach what
they sought to attain in their flawed contracts, but it also prevents them from avoiding the
contractual obligations they have undertaken39.
No such satisfactory results, however, emerge when the presumptive reasoning is applied in
the cases of the incorporation of charterparties into the bills of lading 40 . This proposition
draws support from two critical facts: in almost all cases the parties to the bill of lading are
different from those of the charterparty41, and these parties seldom have the chance to see the
referred charterparty provisions. With the use of the putative proper law, the bill of lading
holders, therefore, cannot reasonably anticipate what legal system will apply to the thorny
For a similar view, see McKeown J in Trans-Tec Asia v. M/V Harmony Container, 518 F.3d 1120, 1124 (9th Cir. 2008)
and Crawford E.B., “The uses of putativity and negativity in the conflict of laws”, (2005) I.C.L.Q. 829, 842
36
37
See generally Crawford E.B., above.
See Habas Sinai ve Tibbi Gazlar Isthisal Endustri A.S. v. Sometal S.A.L., [2010] EWHC (Comm) 29, para 13, where the
rules of an organization to which both parties are members, or those standard terms which are relevant in a particular area of
business were treated as standard terms. There, the court treated these incorporation cases as falling into the category of “onecontract cases”. Another similar pragmatic result arises in the event of a dispute arising from the existence and validity of a
single contract, see ibid.
38
39
See supra note 36.
See Habas above and The Athena, [2007] 1 Lloyd’s Rep. 280, where the incorporation cases of this type are referred to as
“two-contract-cases”.
40
41
It is important to note that when the parties to the charterparty are the same as those of the bills of lading, in both
jurisdictions, their contract of carriage usually lies under the charterparty, and the bill of lading merely functions as a receipt
of the goods shipped. For English law see Rodocanachi, Sons & Co. v. Milburn Bros, [1886] 20 QBD 67, for U.S law see
The Fri, 154 F. 333, 337, (2d Cir. 1907); Associated Metals & Minerals Corp. v. S/S Jasmine, 983 F.2d 410, 413, (2d Cir.
1993), quoting Nichimen Co. v. M.V. Farland, 462 F.2d 319, 328 (2d Cir. 1972). Under English law, if the charterer happens
to receive the bill of lading from the shipper as a result of his or her purchasing the goods, while running the vessel as a
“general ship”, carriage of these goods will, however, be governed by the bill of lading, see Calcutta Company, Limited v.
Andrew Weir & Co. [1910] 1 K.B. 759 quoted in Debattista C., “Bills of Lading in Export Trade”, (2008), paras 8.7-8.12.
38
question of incorporation, which has a great impact on their contractual rights and liabilities
under the bill of lading. Another difficulty in justifying this reasoning is that it does not sit
comfortably with the well-recognised rule of incorporation introduced by the Court of Appeal
in The Varenna: the bill of lading is the primary document to be considered when determining
incorporation42. Therefore, predicating on the charterparty provision in order to ascertain the
legal system governing incorporation is at odds with the rule that the inquiry, in these
incorporation cases, needs to end and start with the terms of the bill of lading43.
These weaknesses raise the question of whether the previous methods of resolving this
conundrum were more satisfactory. Before the concept of putative proper law was introduced
into the context of incorporation, there was a different, yet equally circular, method suggested
by the leading judgment in The Njegos44. The suggestion was that the governing law of the
referred charterparty be applied to the question of incorporation. In support of this rule, it was
argued that the bill of lading and charterparty are interrelated contracts when there is an
incorporation clause 45 . Another reason for this rule was the presumed intention that the
carriers in those circumstances would be willing to govern both their charterparties and bills
of lading with the same legal system46.
Even though The Njegos approach largely found acceptance47, it attracted criticism due to the
suggested mechanical presumption that the bill of lading is always governed by the applicable
law of the referred charterparty. The interrelation between these contracts fell short of
drawing such inference on two main grounds: the content and form of the bill of lading could
suggest a different applicable law48, and this possibility is strengthened by the fact that the
parties to the bill of lading are, in most cases, not the same as those of the charterparty49.
42
[1984] Q.B. 599
43
See ibid, at 616. See also Chapter 4 hereof.
44
(1935) 53 Ll. L. Rep. 286
See ibid, at 297. See also, Collins L., et al, “Dicey Morris & Collins on the Conflict of Laws”, (14th edn, 2006), para 32093.
45
46
Ibid.
See The Elli 2, [1985] 1 Lloyd’s Rep. 107; The Freights Queen, [1977] 2 Lloyd’s Rep. 140; The San Nicholas, [1976] 1
Lloyd’s Rep. 8.
47
48
The Metamorfosis, [1953] 1 Lloyd’s Rep. 196
49
See supra note 40
39
In stark contrast to the previous and current English law position, the U.S court to date have
ascertained the legal system governing the bill of lading without regard to the probable effects
of incorporation on bills of lading. Hence, the court in Duferco Steel Inc. v. M/V Kalisti
addressed the incorporation issue under the system of law which would govern the bill of
lading, if the incorporation of the referred charterparty were ignored50.
This line of reasoning has recently been endorsed in Trans-Tec Asia v. M/V Harmony
Container51, which raised the question of whether a bunker agreement incorporated a choice
of law clause providing for U.S. law. In resolving this particular question of conflict of law,
the court therein refused to rely on the choice of law agreement without examining whether it
was actually a part of the bunker agreement. Most importantly, they took the view that failing
to take this anterior step and thereby applying U.S law to this issue would “put the tug before
the barge”52. Consequently, the incorporation issue is resolved by reference to Malaysian law,
which had “the most significant relationship” with the agreement, since both the flag of the
vessel and nationality of its owner were Malaysian.
From a purely practical perspective, the bill of lading holders are better positioned when the
U.S approach finds application. The reason is that the stance of the U.S courts on this issue
enables the holders to anticipate what legal system will govern the critical question of
incorporation, and whether the bill of lading will be apt to bring in the referred charterparty
provisions. It is also in line with the notion that bill of lading needs to be considered on its
own while dwelling on the incorporation issue53.
Nonetheless, this line of thinking brings another logical shortcoming: the U.S formulation
loses sight of the fact that implied or express choice of law agreements in the referred
charterparties may have the probable effect of determining nationality of the bill of lading.
Consequently, another circular solution to the incorporation issue flows from the assumption
that the charterparty was not a part of the bill of lading. Clearly, the direction of this
50
121 F.3d 321, 324-325 (7th Cir. 1997)
51
583 F.3d 1120 (9th Cir. 2008)
52
Ibid, at 1124
Similar to English law, this so called “bill-centric” approach also dominates the U.S legal position, Keytrade USA, Inc. v.
Ain Temouchent M/V, 2005 A.M.C. 948 (5th Cir. 2005). However, in certain circumstances, this inquiry embraces
construction of both the charterparty and bill of lading, Cia Platamon v. Empresa Colombiana, 1980 A.M.C. 538, 539
(S.D.N.Y. 1979). For English law, see The Varenna, [1983] 1 Lloyd’s Rep. 416, 419.
53
40
hypothetical reasoning, in this jurisdiction, is opposite to that suggested under English law,
and yet it creates a similar logical gap.
3. Should the presumptive solutions lead the way?
Leaving aside the identified shortcomings, it is clear that the U.S. approach deserves merit for
being aligned with the notion that contracts need to be governed by their own applicable laws.
This is best supported by the fact that bill of lading can both function as a contract and have
its own applicable law54, even though it does not import any express or implied choice of law
agreement from a charterparty55. Equally clear is that, through the eyes of English courts, the
U.S formula falls short of giving adequate weight to the probable effects of incorporation on
the applicable law of the bill of lading. It follows that, similar to the English hypothetical
thinking, the U.S view does no more than make another presumption on the governing law of
the bill of lading.
Nonetheless, these two different solutions highlight the fact that when the referred
charterparty contains an implied or express choice of law agreement, there are actually two
different putative proper laws: the one which would govern the bill of lading, if the
incorporation were ignored, and the other which supposedly becomes the governing law of
the bill of lading when charterparty is assumed to have been incorporated. These conflicting
putative approaches raise a more logical solution: the law of forum should operate in cases
where the bill of lading is subject to more than one putative proper law by reason of the
incorporation clause.
It proves valuable to remember that the cases of incorporation of charterparties into the bill of
lading typically fall within the category of “two-contract cases”56. The reason is that here the
reference is almost invariably made to a charterparty which is either entered into between one
of the parties to the bill of lading and a third party, or made between two non-parties57. This
pattern in the two-contract cases strengthens one key argument: the courts must approach the
54
See supra note 40.
See Briggs A, “Wider still and wider: the bounds of Australian exorbitant jurisdiction”, (1989) LMCLQ 216, 219 quoting
Amin Rasheed Shipping Corp. v. Kuwait Insurance Co. [1984] A.C. 50, 64.
55
Habas Sinai ve Tıbbi Gazlar Isthisal Endustri A.S. v. Sometal S.A.L., [2010] EWHC (Comm) 29; The Athena, [2007] 1
Lloyd’s Rep. 280, see also supra note 38.
56
57
Ibid.
41
matter on the footing of the likely possibility that two different proper or putative proper laws
may govern these two distinct contracts58. A further point to bear in mind is that the identified
situation is rather distinct from the popularly called “one contract cases” where the reference
is made either to a contract which was previously made between the same parties or to a set of
standard terms59. In stark contrast to the “two-contract cases”, here the likely inference would
be that there is one proper or putative proper law governing the contract60.
In light of these observations, it is unsound to endorse the reasoning of The Parouth and The
Atlantic Emperor while ascertaining the law governing the incorporation of charterparties into
the bill of lading. The reason for this suggestion is that these rulings fall into the category of
one-contract cases, and their application to two-contract cases ignores the fact that there may
be two different putative proper laws applicable to the question of incorporation in bills of
lading cases.
This suggestion is clearly justifiable, even though there is a price to pay when the lex fori is
favoured: fortuity of the solution to the incorporation issue provided under the law of the
forum61. It is true to say that this adverse effect largely explains why the U.S and English
courts have chosen to adhere to a putative reasoning when the proper law of the contract
cannot possibly be determined. However, when there is even no putative proper law that can
be ascertained with reasonable certainty, the only logical solution is to apply the law of the
forum.
This section briefly examined the conflict of law rules in determining the law applicable to
the question of incorporation. In the following chapters, the significance of this issue and how
the governing law affects the interests of the relevant parties, will be seen more clearly with a
detailed examination of the issues surrounding the incorporation of the charterparty clauses
into the bills of lading.
58
This is best supported by the fact that, in both jurisdictions, party autonomy is largely given weight; see section (a) above.
59
See supra note 55
60
See supra note 58 and Guiliano Lagarde Report, para 3 under the heading entitled “Article 3 Freedom of Choice”.
61
The Heidberg, [1994] 2 Lloyd’s Rep. 287, 303
42
CHAPTER II: WHICH CHARTERPARTY IS INCORPORATED INTO
THE BILL OF LADING?
For those cargo interests who hold bills of lading as their contract of carriage 62, incorporation
of the charterparty provisions into the bills of lading is likely to be of little importance, unless
their goods are lost or damaged in transit. This is because it is only in these circumstances that
cargo interests’ concerns over the terms of their carriage contract usually arise 63 , and
incorporation of charterparty clauses becomes a vital issue to consider.
It is nevertheless clear that these parties will not be able to see their respective contracts of
carriage in their entirety, where the bills of lading contain an incorporation clause. One of the
reasons for this difficulty is that such bills of lading do not set out all the contract provisions
in extenso, but merely direct the holders to a separate contract with a view to importing its
provisions which are not explicitly stipulated thereunder. Notably, the significant factor
giving rise to this problem is that cargo interests are usually not provided with the referred
contracts along with the bills of lading.
Consequently, bills of lading with an incorporation clause resemble a puzzle with missing
pieces. In order to find the missing parts of this puzzle, cargo interests naturally seek to obtain
a copy of the charterparty to which the bill of lading refers. Where the bill of lading is not
helpful as to which charterparty it actually refers to, and where the picture involves more than
one charterparty, the necessity of resorting to the incorporation rules inevitably arises. In
searching for the overall contractual picture, it seems to be a fruitless task to chase a
charterparty copy without actually knowing which charterparty is deemed to be referred to
under the bills of lading. It is therefore in the best interest of the aggrieved cargo interests to
find the answers to three vital questions: first of all, for the charterparty terms to be
incorporated into the bills of lading, is there a condition to specify the charterparty? If the
governing law, which is determined pursuant to the conflict of law rules, as set out in the
previous section, affirms this requirement and if cargo interests have a bill of lading with no
statements about the particulars of the charterparty, these parties should no longer be
Hereinafter referred to in this paper as “cargo interest(s)”, “bills of lading holder(s)” or “the holder(s)” as the case may be.
In this paper, all these phrases are used to indicate the holders whose contract of carriage is either evidenced or contained
under bills of lading.
62
63
See Martin P.V. and Balick S.E., “A Trader’s Concern: what is the complete contract?” (1996) 4 I.J.O.S.L., pg. 219.
43
concerned about incorporation. This is precisely because their respective bills of lading
contracts will not be apt to incorporate any charterparty in such cases.
If the situation is to the contrary, then they should move on to the second question: which
charterparty is deemed to be referred to under the bills of lading? Undoubtedly, the rules of
incorporation relating to this issue are essential for the aggrieved cargo interests whose bills
of lading do not provide any guidance as to the charterparty sought to be incorporated.
Likewise, these rules are also crucial for carriers who wish to be certain about the
incorporation of their respective charterparties, as opposed to the others in the picture.
Having followed the rules of incorporation, it is not uncommon to see the rules pointing to a
charterparty which is concluded during a telephone conversation or executed under some
telex messages. Equally common is that the referred charterparty can be executed, amended
or rectified, after the bill of lading is issued and surrendered to shippers. Alternatively, the
rules of incorporation could also direct cargo interests to a charterparty that is already
terminated, rescinded, or that has become null and void.
These likely scenarios highlight the third critical issue that cargo interests need to consider
before asking for a copy of the relevant charterparty: do the laws of England and America
allow incorporation of the charterparties which carry any one of the specified features? It is
clear that the rules regarding incorporation of the charterparties that are identified under the
first and second scenarios, radically affect the chances of cargo interests to obtain a copy of
the referred charterparty. In a similar vein, the United States and English law, with respect to
incorporation of the charterparties specified under the second scenario, has a profound effect
on the contractual position of cargo interests under the bills of lading. This is because
allowing incorporation of such charterparties causes the contract of carriage to be vulnerable
to any future amendments, which can be made between carriers and other third party
charterers without the involvement of the cargo interests. In particular, the laws governing
this issue also have a knock-on effect on the reliability and transferability of the bills of lading
in that many traders would be reluctant to accept a contract of carriage whose terms are
exposed to future change.
With respect to incorporation of the charterparty clauses that are described under the final
scenario, three major benefits can be drawn from being familiar with the governing rules:
44
firstly, the rules determine whether cargo interests have another card to play in order to defeat
incorporation; secondly, they also bring to the carriers’ attention the question of whether they
need to keep their charterparties in force in order to incorporate them into the bill of lading;
finally, the rules governing this issue reveal the tenor of incorporation, for they underlie the
answer to the following pivotal question: is incorporation of the charterparty an importation
of the contractual provisions that are in effect, or should it be regarded merely as an
incorporation of some freestanding terms?
This chapter will address the first step in the rules of incorporation to be followed by the
cargo interests before tracking down the missing parts of their contract of carriage. It also
provides a guideline to carriers regarding the formal requirements of incorporation that need
to be fulfilled before seeking to compel charterparty provisions against bill of lading holders.
More precisely, in this chapter the following issues will be examined in turn: first, the
question of whether a proper incorporation entails a clear specification of the charterparty in
the bills of lading will be analysed. The outcome of this analysis will be that, save in
exceptional circumstances, the charterparty has to be specified under U.S. law, while the
position is to the contrary under English law. Taking this finding one step further, the issue of
which charter party is deemed to be referred to under the bills of lading, in absence of a
charterparty specification, will then be examined. Thirdly, whether carriers will succeed in
their attempts to incorporate a charterparty will be investigated through the analysis of the
cases where the charterparty (1) is not reduced to writing before the bill of lading is issued, or
is contained under fax or telex messages, or (2) is not executed before the issue of the bills of
lading, or (3) is amended before or after the bill of lading is issued, or (4) is rescinded,
terminated or becomes null and void.
The first section will discuss the question of whether U.S. and English rules of incorporation
require charterparties to be specified under the bills of lading.
1. Does the charterparty need to be specified in the bill of lading?
Where there is an incorporation clause, bills of lading no longer remain the only guideline for
bill of lading holders to see their respective contracts of carriage in their entirety. The position
of the holders is made worse by the fact that a great number of bills of lading do not direct
these parties to a specific charterparty, and incorporation clauses usually do not contain any
details about the charterparty sought to be incorporated. At the heart of this practice lies the
45
fact that, in most cases, the people that are in charge of drafting the bills of lading do not have
sufficient knowledge to be able to identity the relevant charterparty64.
Against this background, it is for the benefit of cargo interests to pause to consider one
question before seeking the copy of the relevant charterparty, whose identity is not provided
under the bills of lading: for a charterparty to be incorporated, is there a need to specify the
charterparty in the bills of lading? It is clear that, if there is such a requirement, a cargo
interest whose bill of lading contains no identification of any charterparty will not need to be
concerned with any other rules of incorporation, for in these cases this specific rule will itself
debar incorporation. In cases where a cargo interest holds a bill of lading with some details
about the charterparty, the requirement may not, however, seem to be helpful in defeating
incorporation. Whether or not there is such a condition, it is still in the best interest of third
party bill of lading holders to know whether there is room to challenge incorporation when
these details contain some inaccurate and misleading information.
To begin with, this section will discuss and examine the issue of whether United States and
English law require the charterparty to be specified in the bill of lading for the purposes of
incorporation. Having arrived at the conclusion that U.S. law recognises such a requirement,
the focus will be on the question of how the charterparty needs to be identified. Thereafter, to
what extent inaccurate or ambiguous charterparty details may prevent incorporation will be
analysed. Finally, considering the likelihood of being confronted with such mistakes in trade,
a further analysis will be conducted into the possibility of incorporating a charterparty in
cases where the terms of the contract of carriage, including the incorporation clause, are
mistakenly not printed on the reverse side of the bill of lading.
(a) Is there a prerequisite to identify the charterparty in the bill of lading?
From the standpoint of cargo interests, the rule that the charterparty has to be specified for the
purpose of its incorporation is favourable in many respects. Even though this requirement
does not guarantee obtaining a copy of the relevant charterparty65, it at least provides reliable
guidance to these parties whilst they are seeking a copy of the charterparty. Moreover, due to
this rule, it becomes likely that cargo interests will be subject to a firm contractual position as
64
The Heidberg, [1994] 2 Lloyd’s Rep. 287, 308
Thyssen, Inc. v. M/V Markos N, 1999 A.M.C. 2515 (S.D.N.Y 1999), involved a carrier who refused the request of the
holder to see the referred charterparty terms.
65
46
they turn out to be party to the contract of carriage evidenced under the bills of lading. This
likely benefit emanates from the fact that the requirement urges carriers not only to act more
consciously as to which charterparty they wish to incorporate, but also to conclude the
charterparty by the time the bill of lading is issued.
In a different context, the condition to identify the charterparty for incorporation also has a
significant impact on the contractual relations between shipowners and charterers. This is
especially the case where a charterer is required by the terms of the charterparty to issue bills
of lading with an effective incorporation clause 66 . In these circumstances, the charterer’s
obligation to issue and present67 a bill of lading, with an incorporation clause which is apt to
import the charterparty, will be harder to pursue, so long as incorporation entails specifying
the charterparty under the bills of lading68. To this end, the charterer may be deemed to have
breached the charterparty, where they present a bill of lading whose incorporation clause falls
short of adequately identifying the charterparty69.
Under U.S law, the general rule is that specifying the charterparty is a condition for
incorporation. Approaching the question of incorporation under contract law principles 70 and
fairness to the parties71, U.S. courts require that the incorporation clause make an adequate72,
clear 73 reference to an identifiable 74 charterparty in “unmistakable language” 75 . In this
66
See, for instance, clause 20(b) of the Asbatankvoy Charterparty.
67
In some cases, it may be the charterer, who issues and signs the bill of lading without having to present it to the Master for
signature, see for instance The Heidberg, [1994] 2 Lloyd’s Rep. 287, 311.
See for English law, The Garbis, [1982] 2 Lloyd’s Rep. 283 and for U.S. law, Field Line (Cardiff) v. South Atlantic S.S.
Line, 201 F. 301, 306-307 (5th Cir. 1912).
68
69
Ibid
Volgotanker Joint Stock Company v. Vinmar International Limited, F.Supp. 2d, 2003 WL 23018790 (S.D.N.Y 2003);
Midland Tar Distillers, Inc. v. M/T Lotos, 362 F.Supp. 1311, 1313 (S.D.N.Y 1973)
70
71
The Michael Thanasis, 311 F.Supp. 170, 175 (D.C. Cal 1970)
72
Coastal States Trading Inc. v. Zenith, S.A., 446 F.Supp.330, 338 (S.D.N.Y. 1977)
Dun Shipping Ltd. v. Amerada Hess Shipping Corp., Hovensa, L.L.C and ABC Corp., 234 F.Supp. 2d 291, 296 (S.D.N.Y.
2002); Poor, W., “American law of Charter parties and Ocean Bills of Lading”, (5th edn, 1968), pg. 72.
73
Volgotanker Joint Stock Company v. Vinmar International Limited, F.Supp. 2d, 2003 WL 23018790 (S.D.N.Y 2003);
Southwestern Sugar & Molases Co. v. Eliza Jane Nicholson, 1955 A.M.C. 746 (S.D.N.Y 1954)
74
Son Shipping Co. Inc. v. De Fosse & Tanghe, 1952 A.M.C. 1931, 1932 (2d Cir. 1952); Import-Export Steel Corp. v.
Mississippi Valley Barge Line Co., 1966 A.M.C. 237, 240 (2d Cir. 1965); Martin P.V. and Balick S.E., “A Trader’s Concern:
what is the complete contract?” (1996) 4 I.J.O.S.L., 219-220; Sturley M.F., “Benedict on Admiralty”, (2007, April), Vol: 2A,
Section 184, paras 17-61, 17-62
75
47
jurisdiction, the requirement of specifying the charterparty survives, even if there is only one
charterparty in the picture 76 . Moreover, such is the strictness of this rule that it finds
application even in cases where it is the cargo interest who favours the charterparty terms to
be imported into the bills of lading77. The reason for having to specify the charterparty for
incorporation, even in those cases, suggests that for U.S. courts the unqualified incorporation
clause indicates an implied intention not to incorporate78.
Presumably, the purpose underlying this rule is to alleviate, at least to some extent, the
unfairness of binding the cargo interests with the charterparty provisions, which they have no
means of knowing79. Inasmuch as U.S. law seeks to give relief exclusively to such parties, it
departs from this rigid requirement only where the cargo interest is not a “stranger” to the
charterparty80. In this respect, the decision in Cargill Ferrous International v. Sea Phoenix is
illustrative, as the court therein refused to treat the bill of lading holder as such due to their
being the charterer of the referred charterparty81. At this point it is important to note that U.S.
courts do not restrict the scope of this exception to cases where the holder is party to the
charterparty. Rather, the main suggestion arising from U.S. law is that carriers may
circumvent the requirement to specify the charterparty where the holders are closely
affiliated82 with the respective charterers, or where they are the agents83 or the alter egos84 of
such charterers.
Hawkspere Shipping Company Limited v. Intamex, S.A., 330 F.3d 225, 2003 A.M.C. 1374 (4th Cir. 2003); Macsteel
International USA Corp. v. M/V Jag Rani, 2004 A.M.C. 220 (S.D.N.Y 2003)
76
77
See for instance, United States v. Cia Naviera Continental, S.A., 1962 A.M.C. 2403 (S.D.N.Y. 1962)
Amoco Oil Company v. M.T. Mary Ellen, 1982 A.M.C. 1758, 1761 (S.D.N.Y. 1981); Amoco Overseas Co. v. S.T. Avenger,
1975 A.M.C. 782, 387 F.Supp. 589 (S.D.N.Y. 1975)
78
New York Marine Managers, Inc. v. Ektrans Int’l Transp. & Trade, Inc., 1989, U.S. Dist., Lexis 389, 1989, WL 4030
(S.D.N.Y 1989); Davies M., “Jurisdiction and Forum Selection in International Maritime Law”, (2005), 28-29
79
Associated Metals and Minerals Corp. v. M/V Venture 554 F.Supp. 281, 282 (D.C.La 1983); Amoco Overseas Company v.
S.T. Avenger, 1975 A.M.C. 782, 789 (S.D.N.Y. 1975); Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891 (5th Cir.
2005); Coastal States Trading Inc. v. Zenith, S.A., 446 F.Supp. 330 (S.D.N.Y. 1977). With respect to this exception, the
position of the parties is the same, where the dispute is referred to the Society of Maritime Arbitrators, see In Re Arbitration
between Amoco Transport Company and Amoco Iran Oil Company, SMA No: 2315, (October 10, 1986)
80
81
2003 A.M.C. 1027 (5th Cir 2003). See also, Coastal States Trading Inc. v. Zenith, S.A., 446 F.Supp. 330 (S.D.N.Y. 1977)
See Amoco Overseas Co. v. S.T. Avenger, 387 F.Supp. 589 (S.D.N.Y. 1975). See also Davies M., “Jurisdiction Clauses and
Forum Selection in International Maritime Law”, (2005), pg. 28
82
83
Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891 (5th Cir. 2005)
See Amoco Overseas Co. v. S.T. Avenger and Coastal States Trading Inc. v. Zenith, S.A., above. Even though in both cases
the courts did not find that there was an alter-ego relationship between the holder and the charter, the views therein reinforce
this proposition.
84
48
A further question, of some difficulty, is what other factors are decisive for the purposes of
establishing that the holder is not a “stranger” to the charterparty. This question was
considered in Amoco Oil Co. v. M.T. Mary Ellen, where the vessel owner therein argued that
the holder was the alter-ego of the charterer, and the charterparty arbitration clause was
therefore incorporated despite the unqualified incorporation clause 85 . Accepting that two
corporate entities were affiliated, the court nevertheless held that there was no alter-ego
relationship between them. This finding was mainly predicated on the facts that the business
operations of the charterers and the holders were quite separate, and the transactions between
the parties were made on an arm’s length basis86.
With respect to the issue of whether the charterparty was incorporated, the court in Amoco Oil
went on to suggest that the connection between these entities was not sufficient to find that
the bill of lading holder was not a stranger to the charterparty. The relationship itself was not
found to be persuasive, particularly since the incorporation clause was left unqualified 87, and
there was no further evidence showing that the holder was actually aware of the intention to
incorporate88. Therefore, the argument that the holder should be assumed to have known the
charterparty terms due to being connected with the charterer was not found to be convincing.
However, in Amoco Overseas Co. v. S.T. Avenger 89 , “the close connection” 90 between the
holder and the relevant charterer led the charterparty arbitration clause to be incorporated,
although the charterparty was not correctly identified in the bills of lading 91 . One of the
reasons was that, unlike the position in Amoco Oil, there was an attempt to specify the
charterparty which resulted in an ambiguous reference under the bill of lading, and this was
viewed as a clear indication of the parties’ intention to incorporate.
Most importantly,
incorporation of the charterparty was justified on the grounds that “there was no confusion
85
1982 A.M.C. 1758 (S.D.N.Y. 1981)
Here the court resorted to the decision in the Coastal States Trading Inc. v. Zenith S.A, above, which identified the facts
that could lead an alter-ego claim to succeed. See Fisher v. International Bank, 282 F.2d 231 (2d Cir. 1960), where
application of the alter ego theory is extensively discussed.
86
As has been previously stated, in such cases courts usually infer that the parties did not intend to incorporate, see supra
note 78.
87
88
529 F.Supp 227, 229 (S.D.N.Y. 1981)
89
1975 A.M.C. 782 (S.D.N.Y. 1975)
90
Astra Oil Co. Inc. v. Rover Navigation Ltd, 2003 A.M.C. 2415 (2d Cir. 2003)
91
387 F.Supp. 589 (S.D.N.Y. 1975)
49
whatsoever concerning who in fact was the charterer on this voyage, or which charterparty
governed the rights of the charterer vis-à-vis the shipowner”92.
The justification made in this case now constitutes the main basis in deciding whether the
holder is actually a stranger to the charterparty, and a fortiori in whether a charterparty can be
incorporated in the absence of an adequate charterparty reference 93 . Therefore, when it is
established that the holders are the charterers, or they can be regarded as such due to being
close to these parties, the U.S. courts also examine whether there is certainty as to what
charterparty is sought to be incorporated into the bills of lading94. This approach surely has its
roots in the long line of American cases where the courts made a two-step inquiry concerning
two critical questions95: is the charterparty clearly identified under the bills of lading and does
the holder of the cargo have actual or constructive notice of incorporation?96
It is striking that the second leg of this inquiry, which requires a fact-driven analysis97, led
some authorities to suggest that “notice” is at the heart of the U.S. rules of incorporation98.
Notwithstanding that this proposition may be true to some extent, it can scarcely be argued
that “notice” is the sole decisive factor for incorporation99. Rather, this inquiry is largely based
on interpretation of the incorporation clause mainly because “unmistakable reference” to a
92
Ibid, 591.
State Trading Corp. of India, Ltd. v. Grunstad Shipping Corp. (Belgium) N/V, 582 F.Supp. 1523, 1524 (S.D.N.Y 1984);
Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 894 (5th Cir. 2005); Cargill Ferrous International v. Sea Phoenix,
325 F.3d 695, 698 (5th Cir 2003); Cementos Andinos Dominicanos, S.A. v. East Bulk Shipping S.A, 2006 A.M.C. 1121,
(S.D.N.Y. 2006); Volgotanker Joint Stock Company v. Vinmar International Ltd, F.Supp. 2d, 2003 WL 23018798, *6
(S.D.N.Y. 2003); Thyssen, Inc. v. M/V Markos N, 1999 A.M.C. 2515 (S.D.N.Y. 1999); Kaystone Chemical Inc. v. Bow-Sun,
F.Supp, 1989 WL 39498, *2 (S.D.N.Y. 1989); Continental UK Ltd. v. Anagel Confidence Compania Naviera, S.A, 658
F.Supp. 809, 812-813 (S.D.N.Y 1987); The Rice Company (Suisse), S.A. v. M/V Nalinee Naree, 2008 A.M.C. 1152, 1162 (5th
Cir, 2008)
93
See Cargill Ferrous Int. v. Sea Phoenix and Keytrade USA Inc. v. Ain Temouchent M/V, above. This issue has significance
in finding the answer to the question of which charterparty is sought to be incorporated, see Chapter 2(2).
94
95
Midland Tar Distillers Inc. v. M/T Lotos, 362 F.Supp. 1311, 1313 (S.D.N.Y. 1972)
Ibid. See also, Continental Insurance Company v. M/V Nikos N, 2002 A.M.C. 1287, 1290 (S.D.N.Y 2002), Continental
Florida Materials Inc. v. M/V Lamazon, 334 F.Supp 2d 1294, 1297 (S.D.Fla 2004); Salim Oleochemicals, Inc. v. M/V
Shropshire, 169 F.Supp.2d 194, 198 (S.D.N.Y. 2001); Energy Transport, Ltd. v. M.V. San Sebastian, 348 F.Supp.2d 186, 204
(S.D.N.Y. 2004). See also, Schoenbaum T.J., “Admiralty and Maritime Law”, (3rd edn, 2001), Vol: 2, § 11-6, page 210-211.
96
Energy Transport, Ltd. v. M.V. San Sebastian, 348 F.Supp.2d 186, 204 (S.D.N.Y. 2004); Fairmont Shipping Ltd. v.
Primary Industries, F.Supp, 1987 WL 10389, *1 (S.D.N.Y. 1987)
97
98
Davies M., “Jurisdiction Clauses and Forum Selection in International Maritime Law”, (2005), pg. 27.
See A/B Olson & Wright v. Foresta Trading Corporation, Arbitration at New York, 1928 WL 58500 (arbit), 1929 A.M.C.
19 and Amoco Oil Company v. M.T. Mary Ellen, 529 F.Supp. 227, 1982 A.M.C. 1758, 1761 (S.D.N.Y. 1981).
99
50
charterparty yields constructive notice100. In other words, the element of actual or constructive
notice does not come as an additional condition to satisfy where there is a proper reference to
a charterparty, since the holder in those cases is deemed to have known the referred
charterparty101. This proposition is also supported by the fact that actual knowledge of the
holders cannot of itself be sufficient to trigger incorporation where the bill of lading is devoid
of an incorporation clause102.
It naturally follows from these observations that the carriers who are seeking to achieve
incorporation need to rely on any of two grounds: one of the options available to such carriers
is to establish that there is an “unmistakable reference” to a charterparty in light of the rules
outlined above; another is to prove that, despite the lack of charterparty details in the
incorporation clause, there is no confusion as to the incorporation of a particular charterparty
and the holder is not a “stranger” to the charterparty 103 . In assessing whether the “no
confusion” argument is based on a firm foundation, the U.S courts inevitably consider both
the incorporation clause and the element of notice104.
While U.S law establishes the rule of specifying the charterparty with the highlighted
exception, English law treats the incorporation issue within the realms of contract
construction105 and takes a straightforward view on this point by not requiring the charterparty
to be specified in the bill of lading 106 . In particular, under English law, a pre-printed
incorporation clause itself leads to the inference that an “identifiable” charterparty is sought to
be incorporated 107 . Evidently, this receptive approach towards incorporation is helpful for
100
Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 1998 A.M.C. 2054, 2057 (5th Cir. 1998)
101
Ibid.
102
See supra note 99
Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 894, (5th Cir. 2005); Cargill Ferrous International v. Sea
Phoenix, 325 F.3d 695, 698 (5th Cir 2003)
103
104
Ibid.
105
The Annefield, [1971] P. 168, 179
Garbis Maritime Corp. v. Phillipine National Oil Co., The Garbis, [1982] 2 Lloyd’s Rep. 283, 287; The Ikariada, [1999]
2 Lloyd’s Rep. 365, 372; The San Nicholas [1976] 1 Lloyd’s Rep. 8, 12; The SLS Everest, [1981] 2 Lloyd’s Rep. 398, 391392; Boyd S.C., Burrows A.S., et al, “Scrutton on Charterparties”, (21st edn, 2008), para A38
106
107
Ibid.
51
carriers in achieving incorporation where there is no guidance under the incorporation clause
as to which charterparty it purports to incorporate108.
Whilst balancing the competing interests between the parties, the answers given under U.S.
law on this particular issue are more favourable to the cargo interests than their counterparts.
This is mainly because the intention of carriers to incorporate is brought to the attention of
cargo interests more readily, where the relevant details of the charterparty are provided under
the bills of lading. In this respect, not only do these details lead the cargo interests to be
certain that there is an existing charterparty by the time the bill of lading is issued, but they
also offer guidance to the holders, whilst they are seeking a copy of the referred charterparty.
From the carriers’ perspective though, having to identify the charterparty can be a difficult
task, especially where their respective charterparties stipulate that the master will sign the
bills of lading “as presented” by the charterers 109 . Likewise, this requirement puts a high
burden on carriers where the master or other persons who may be in charge of issuing the bills
of lading are not aware of the necessary charterparty details. These factors usually give rise to
an unqualified incorporation language. Consequently, carriers seldom have the chance to
bypass the condition of “unmistakable reference”, for it is likely that their cargo interests will
be “strangers” to the charterparty.
Leaving aside the identified practical difficulties, the requirement of specifying the
charterparty actually provides better solutions for both sides, particularly in cases where there
is more than one charterparty in the picture. Evidently, this rule also reduces the number of
disputes as to which charterparty is incorporated110. It is probably because of this effect, and
The Sevonia Team, [1983] 2 Lloyd’s Rep. 640, 644. See also Cooke, J., Young, T., et al, “Voyage Charters”, (3rd edn,
2007), para: 18.47.
108
For English law see, The Ikariada above, at 372, for U.S. law, see Ariate Compania Naviera S.A. v. Commonwealth
Tankship Owners, 310 F.Supp. 416, 422 (S.D.N.Y. 1970). By way of contrast, it is true to say that when a charterparty
contemplates that the bill of lading to be issued thereunder will have a particular content, such as the details of the
charterparty for incorporation purposes, the master will have the right to refuse to sign the bill of lading which is devoid of
these details. If the master signs such a bill of lading under protest, the shipowner will surely have the right to recover the
damages arising therefrom, For English law, see The Garbis, [1982] 2 Lloyd’s Rep. 283, 288. See also, Wilson, J.F.
“Carriage of Goods by Sea” (7th edn, 2010), 252. For U.S. law, see Field Line (Cardiff) v. South Atlantic S.S. Line, 201 F.
301, 306-307 (5th Cir. 1912)
109
110
See Gaskell, N., “Bills of Lading: Law and Contracts”, (2000), para 21.23
52
due to the benefits that it brings to the cargo interests, that the condition to specify the
charterparty is also recognised under the Rotterdam Rules111.
This internationally accepted rule of incorporation has nevertheless its fair share of criticism
on the grounds that the rule can even be applied against the cargo interests who favour
incorporation. Given that the purpose of this rule is to afford protection to the cargo interests,
a more sensible approach would be to recognise a departure from the rule of specifying the
charterparty for the benefit of such cargo interests where there is only one charter party.
Another point of criticism arises from the fact that the rule does not find application in cases
where the cargo interest is not a “stranger” to the relevant charterparty: this mere exception
creates a variable contractual position under the bills of lading, which depends on the status of
every subsequent holder112. Given that bills of lading, in most cases, pass through the hands of
numerous traders, determining the carriage provisions by reference to the actual status of
every bill of lading holder presents the unattractive prospect of uncertainty in relying on these
transferable instruments.
Having seen that the U.S. rules of incorporation require the charterparty to be specified, it is
vital for both parties to know the conditions of making an “unmistakable reference” to a
charterparty within the meaning of the rules. For this reason, the next subsection will focus on
the question of how carriers need to identify their favourable charterparties under the bills of
lading for incorporation.
(b) How is the charterparty to be identified in the bill of lading?
It is common ground that many charterers are required by the terms of the charterparty to
present a bill of lading which is apt to incorporate the charterparty113. In assessing whether the
charterers fulfil this obligation, shipowners undoubtedly need to know whether the bill of
lading, thus presented, can actually incorporate. To achieve this, their considerations should
vary depending on the incorporation rules adopted under the laws which govern the bill of
111
It is important to note that this rule is one of the conditions to incorporate arbitration clauses in non-liner transportation,
where some certain circumstances arise, see Article 76/2 of the Rotterdam Rules. For further discussions on this issue, see
Chapter 5(4) hereof.
112
Todd P., “Incorporation of Arbitration Clauses into the Bills of Lading”, (1997) JBL 331, 340-341
113
See, for instance, clause 20(b) of the Asbatankvoy Charterparty
53
lading. Where the issue of incorporation is governed by U.S law, it is in the best interests of
these parties to pay particular attention to the charterparty details provided under the bill of
lading. In this respect, they need to investigate whether these specifications amount to an
“unmistakable reference” within the meaning of the rules of incorporation.
From the cargo interests’ perspective, holding a bill of lading with some identification of the
charterparty may cause them to think that the requirement of specifying the charterparty is
satisfied. Yet, these parties will be mistaken if they simply regard all details provided as a
proper reference to the charterparty without examining whether they adequately identify the
charterparty in accordance with the rules of incorporation adopted under U.S. law.
With regard to the position under U.S. law, it is clear that for an apt reference to be made,
certain criteria need to be satisfied. The stated particulars of the charterparty should (1)
unambiguously differentiate the charterparty 114 , (2) give a clear notice as to the carrier’s
intention to incorporate115 and, finally, (3) attest the existence of the charterparty at the time of
issuing the bill of lading116.
To this end, the “unmistakable reference to a charterparty”117 is deemed to have been made
when the names of the parties to the charterparty, and the place and date of its making, are
stipulated under the bills of lading118. Nonetheless, it is also accepted that the specified criteria
can be satisfied, even though all these charterparty details are not fully provided. Hence, in a
great number of judicial decisions and arbitration awards, the date of charterparty is treated as
satisfying the identified criteria on its own, thereby rendering the charterparty reference
unmistakable119.
In this respect, the specification is expected to make the charterparty identifiable and specific, see Volgotanker Joint Stock
Company v. Vinmar International Limited, F.Supp. 2d, 2003 WL 23018798, *6 (S.D.N.Y 2003). See also Martin P.V. and
Balick S.E., “A Trader’s Concern: what is the complete contract?” (1996) 4 I.J.O.S.L., pg. 220.
114
115
United States v. Cia Naviera Continental, S.A., 1962 A.M.C. 2403, 2407 (S.D.N.Y. 1962)
116
Thyssen, Inc. v. M/V Markos N, 1999 A.M.C. 2515 (S.D.N.Y. 1999)
117
Son Shipping Co. Inc. v. De Fosse & Tanghe, 1952 A.M.C. 1931, 1932 (2d Cir. 1952)
118
Ibid. See also Associated Metals and Minerals Corp. v. M/V Venture, 554 F.Supp. 281, 282 (E.D.La 1983)
Continental Insurance Company v. M/V Nikos N., F.Supp.2d, WL 530987, *3 (S.D.N.Y 2002); Thyssen, Inc. v. M/V
Markos N, 1999 A.M.C. 2515, (S.D.N.Y. 1999); Ibeto Petrochemical Industries Limited v. M/T Beffen, 2007 A.M.C. 213 (2d
Cir. 2007); Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 1998 A.M.C. 2054, 2058 (5th Cir. 1998); Hawkspere
Shipping Company Limited v. Intamex, S.A., 2003 A.M.C. 1374 (4th Cir 2003); United States Barite Corp. v. M/V Haris,
1982 A.M.C. 925 (S.D.N.Y. 1982); United States v. Cia Naviera Continental, S.A., 1962 A.M.C. 2403, 2407 (S.D.N.Y.
119
54
However, given that there can be more than one charterparty concluded on the same date,
merely stating the date of the charterparty under the bills of lading does not always give rise
to proper reference120. Evidently, stating the date of the charterparty, in these cases, may not of
itself be sufficient to decide which charterparty is to be incorporated, and therefore providing
other particulars of the charterparty can be essential for this purpose. In stark contrast to this,
the charterparty date could, nevertheless, amount to an “unmistakable reference”, though
there are two charterparties executed on the same date, if the holder happens to know which
one of the charterparties is actually referred to121.
While the date of a charterparty is surely a strong tool to satisfy the requirement, it does not,
however, follow that stating the place of making the charterparty and the name of the parties
in the bill of lading is insufficient. Rather, it has been accepted that providing any of the latter
charterparty details can itself create “unmistakable” reference, as long as it meets the criteria
in the surrounding circumstances 122 . Consequently, the answer to the question of what
constitutes an apt reference to the charterparty revolves around the particulars of each case123.
The identified overall picture suggests that the carriers who wish to overcome this hurdle need
to make sure that the bills of lading contain at least one of the specified identifications of the
charterparty, and the stated charterparty details are apt to fulfil the criteria. They also need to
bear in mind that, apart from the identified particulars of the charterparty, no other statement
under the bill of lading could help them in discharging this prerequisite. In this context,
statements, such as “to be used with charterparties”, “as per relevant/applicable charterparty”,
1962). See also, Force, R. and Davies, M., “United States Maritime Law 2003”, (2004) LMCLQ, 196-197. Nevertheless, it is
preferable to have all the stated particulars of the charterparty in bills of lading, see Continental Insurance Company v. Polish
Steamship Company, 346 F.3d 281, 281-282 (2nd Cir. 2003). For arbitration awards that are in line with this approach see In
re Arbitration Between The Office of Supply, Government of the Republic of Korea and New York Navigation Company Inc.,
SMA No: 654 (August 1971); In re Arbitration Between Alimentos Precocidos Guayana C.A., and Her An Shipping S.A.,
SMA No: 3468 (August 14, 1998) and In re Arbitration Between Cementos Andinos Dominicanos S.A. and East Bulk
Shipping S.A., SMA No: 3993, (February 11, 2008).
Volgotanker Joint Stock Company v. Vinmar International Limited, F.Supp. 2d, 2003 WL 23018798, (S.D.N.Y 2003); Joo
Seng Hong Kong Co. V. S/S Unibulkfir, 493 F.Supp. 35, 40 (S.D.N.Y. 1980)
120
121
National Material Trading v. M/V Kaptan Cebi, 1998 A.M.C. 201 (D.S.C. 1997)
122
Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 1998 A.M.C. 2054, 2058 (5th Cir. 1998)
123
Energy Transport, Ltd. v. M.V. San Sebastian, 348 F.Supp.2d 186, 204 (S.D.N.Y. 2004)
55
“freight prepaid”, or an explicit references to a charterparty form, do not qualify for the
purposes of making an adequate reference124.
It is apparent that U.S courts do not call for a meticulous degree of precision in identifying the
charterparty on the grounds that carriers will usually be deemed to have satisfied this
requirement when the bill of lading contains solely the date of the charterparty. Equally
apparent is that there is no straightforward formula of “unmistakable reference”. However, a
level of certainty is provided under these rules in many respects: the U.S. rules of
incorporation do not, in any case, require exhaustive charterparty details to be stated under the
bills of lading, and the recognised way of specifying the charterparty is restricted to indicating
the names of parties to the charterparty and the date and place of its making. This approach,
therefore, enables the parties to anticipate whether the bill of lading is actually apt to
incorporate any charterparty, while giving flexibility to carriers in making an “unmistakable
reference”.
Having stated the standards for identifying the charterparty, a further question is whether the
bill of lading can incorporate when the charterparty details provided therein are inaccurate or
ambiguous. This will be discussed in the next subsection.
(c) Can the bill of lading incorporate when the charterparty is specified inaccurately or
ambiguously?
Commercial life involves numerous contracts with a myriad of mistakes and ambiguities125. It
is also not uncommon to see inaccurate and intricate provisions in many bills of lading. Nor
does it come as a surprise that cargo interests can actually draw benefit from the flaws found
in the bills of lading, for these defects can be used to challenge the application of some
unfavourable provisions, including the incorporation clause. A closer look must therefore be
taken at the U.S and English rules of incorporation in order to find the answer to one key
question: can the flaws in the bills of lading debar incorporation of charterparty provisions?
See MISR Ins. Co. v. M/V Har Sinai, 1978 A.M.C. 1223, (S.D.N.Y. 1977). In this context, the argument that a particular
bill of lading form is a sufficient reference to a charterparty was rejected despite the fact that such a bill of lading form was
designed to be issued under a specific charterparty form. Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, above;
Macsteel International USA Corp. v. M/V Jag Rani, F.Supp.2d, 2003 WL 22241785 (S.D.N.Y. 2004); Continental Insurance.
Company v. Polish Steamship Company, 2003 A.M.C. 2718, 2721 (2d Cir 2003)
124
125
See In re The Tragenna, 1941 A.M.C. 1282, 1290 (2d Cir. 1941)
56
For the cargo interests to avoid incorporation on this basis, the ambiguity or inaccuracy
should either be in the language of the incorporation clause or be in the stated charterparty
details126. In order to give the reader a clear view of the position under U.S. and English law,
the analysis will be divided into two main sections, namely the ambiguities and inaccuracies
in the identification of the charterparty, and the intricate incorporation language.
aa. Ambiguities and inaccuracies in the stated particulars of the charterparty
Given that U.S. law calls for an unmistakable reference to a charterparty, cargo interests
usually succeed in their attempts to frustrate incorporation in cases where the charterparty is
inaccurately or ambiguously defined in the bill of lading127. They will be able to do so, except
in cases where there are some unambiguous and accurate charterparty details which can
unmistakably identify the charterparty on their own128. It follows that U.S. courts will be more
inclined to favour incorporation, if the charterparty date, the strongest tool to identify and
differentiate the charterparty129, is correctly stipulated therein130.
Since the requirement to make “unmistakable reference” disappears when the bill of lading
holder is not a “stranger” to the charterparty, the inaccuracies and ambiguities in the
charterparty are not necessarily fatal to incorporation 131. As can be gleaned from the U.S.
judicial decisions, the courts in these circumstances decide in favour of incorporation insofar
as the holders do not have any confusion as to the identity of the charterparty to be
incorporated132. Even though the holder is a “stranger” to the charterparty, they could also
reject treating these errors as a barrier to incorporation if the holders happen to know what is
actually meant under the inaccurate or ambiguous charterparty details. This is best supported
by the ruling in The Kaptan Cebi 133 , where the court held that the stated date of the
charterparty under the bills of lading created no ambiguity, despite the existence of two
126
Hereinafter referred to as the “incorporation language”.
127
Coastal States Trading, Inc. v. Zenith Navigation S.A., 446 F.Supp. 330 (S.D.N.Y. 1977)
128
Continental UK Ltd. v. Anagel Confidence Compania Naviera, S.A, 1987 A.M.C. 2012 (S.D.N.Y. 1987)
129
See sub-section (b) above
130
See Continental UK, above, at 2017.
131
Amoco Overseas Co. v. S.T. Avenger, 1975 A.M.C. 782, 789 (S.D.N.Y. 1975)
132
Ibid.
133
1998 A.M.C. 201 (D.S.C. 1997)
57
charterparties executed on the same date. Considering the factual circumstances of the case,
they expected the holder to know which charterparty was meant in the incorporation clause,
despite the fact that merely the date of the charterparty was provided therein.
There is a sharp contrast between U.S. and English law with respect to this issue. Unlike the
position under U.S law, English courts do not call for any precise description of the
charterparty in their bills of lading, nor are carriers punished for their ambiguous statements
regarding the particulars of the charterparty provided therein. Instead, the inaccurate
charterparty details do not debar incorporation in this jurisdiction precisely because English
courts will be more inclined to treat them merely as surplus, unless they point to another
charterparty in the chain of charterparty contracts134.
To see the overall picture, it is important to raise one further question: what are the practical
impacts of these rules on the position of carriers and cargo interests? For those cargo interests
who wish to avoid incorporation, it is well worth raising the ambiguities and inaccuracies in
the stated charterparty details where U.S. law governs the incorporation issue. From the
standpoint of carriers though, the U.S. rules of incorporation pose more challenges in
achieving incorporation in case of erroneous or ambiguous charterparty details under the bills
of lading. This is simply because the chances of proving that the holder is in a position to
know the actual identity of the charterparty, or that the holder is not a “stranger” to the
charterparty, are rather low.
By way of contrast, no such difficulties arise for carriers when the governing law is English
law on the grounds that ambiguities and mistakes in the charterparty details are not fatal to
incorporation. It follows that the English rules of incorporation, with respect to this issue, do
not stand out as favourable to cargo interests, as they are under U.S law. This approach surely
has the probable effect of making the well-advised cargo interests less inclined to bring
forward these matters to thwart incorporation.
Having spelled out U.S. and English law governing this issue, the focus will now be on the
question of whether the bill of lading is apt to incorporate, if the incorporation language is
unclear.
See The Merak [1965] P. 223, where the parties mistakenly referred to “clause 32” of the relevant charterparty instead of
“clause 30”, which was the arbitration clause. The court refused to correct the mistake and treated the reference merely as
surplus.
134
58
bb. Ambiguous incorporation language
Unlike the false descriptions or ambiguities in the particulars of the charterparty, the flaws in
the incorporation language may not, at first sight, appear to stand against the objectives of
carriers to incorporate. However, when meaning of the incorporation clause is dubious, this
may constitute a cogent argument which may be advanced to frustrate incorporation. The
further question is, therefore, in what circumstances such an argument can succeed.
In both jurisdictions, the ambiguities in the incorporation language do not, in most cases,
stand as a barrier to incorporation. For a bill of lading to incorporate, the incorporation
language merely needs to manifest the intention to make the charterparty a part of the bills of
lading135. In this respect, carriers are forgiven for their unclear and ambiguous language so
long as the intention to incorporate is objectively ascertainable 136. Consequently, when the
“plain language”137 in the incorporation clause makes such an intention evident, both U.S. and
English courts give effect to this intention, despite the ambiguities thereunder138. When the
intention is less evident, the courts usually opt to ascribe a “commercially sensible” 139 and
“reasonable”140 meaning to the incorporation clause. In so doing, they take into account inter
135
For U.S. law, Klos v. Lotnicze, 133 F.3d 164, 168 (2d Cir. 1997) quoting Swamiathan v. Swiss Air Transport Co., Ltd.,
962 F.2d 387 (5th Cir. 1992); Cabot Corporation v. S.S. Mormacscan, 441 F.2d 476, 478-479 (S.D.N.Y. 1971), cert. denied,
404 U.S. 855, 1987 A.M.C. 565, where the court emphasised the importance of the “clarity of language” in finding the
intention of the parties. See also, Restatement (Second) On Contracts, § 200; For English law, The Starsin, [2004] A.C. 715,
722, 737; The Eurymedon, [1975] A.C. 154, 169; The Nema (No:2), [1982] A.C. 724, 736
For English law, ibid. See also, Reardon Smith Line Ltd. v. Hansen-Tangen, [1976] 2 Lloyd’s Rep. 621, 625; Saville J.
Vitol BV v. Compagnie Europene des Petroles, [1988] 1 Lloyd’s Rep. 574, 576; BBCI v. Ali, [2002] 1 A.C. 251, 259. For U.S.
law, ibid. See also, Energy Transport, Ltd. v. M.V. San Sebastian, 348 F.Supp.2d 186, 203 (S.D.N.Y. 2004)
136
137
United States v. Donovan, 348 F.3d 509, 512, (6th Cir. 2003)
For English law, see The SLS Everest, [1981] 2 Lloyd’s Rep. 389, 391; Modern Building Wales Ltd. v. Limmer & Trinidad
Co. Ltd., [1975] 1 W.L.R. 1281, 1289. For U.S. law, see Restatement (Second) On Contracts, § 202(1). See also Royal
Insurance Company of America v. Orient Overseas Container Line Ltd., 525 F.3d 409, 421, (6th Cir. 2008)
138
For English law, Pagnan SPA v. Tradax Ocean Transportation, [1987] 2 Lloyd’s Rep. 342, 351; Mannai Investment Co.
Ltd. v. Eagle Star Life Assurance Co. Ltd., [1997] A.C. 749, 771; Miramar Maritime Corp. v. Holborn Oil Trading Ltd.,
[1984] A.C. 676, 682; The Antaios, [1985] A.C. 191, 201. For U.S. law, see Fishman v. LaSalle National Bank, 247 F.3d 300,
302; Fleet National Bank v. H&D Entertaintment Inc., 96 F.3d 532, 538 (1st Cir. 1996), cert. denied, 117 S.Ct. 1335 (U.S.
1997); National Tax Institute, Inc. v. Topnotch at Stowe Resort and Spa, 388 F.3d. 15, 19 (1st Cir. 2004)
139
140
Under English law, the reasonableness is to be assessed by considering the practical effect of the provision or the contract,
President of India v. Jebsens (UK) Ltd, [1991] 1 Lloyd’s Rep. 1, 9, per Lord Goff of Chieveley. In this context, in choosing
meaning to be ascribed to the term, English courts may prefer the one which leads to reasonable consequences, if the parties’
intention is not clear enough to proceed upon the unreasonable meaning, L. Schuler A.G. v. Wickman Machine Tool Sales
Ltd., [1974] A.C. 235, 251. However, the courts cannot refuse to enforce a provision merely because they believe
unreasonable, The Irbenskiy Proliv, [2005] 1 Lloyd’s Rep. 383, 387. In U.S. law, there is a strong preference over the
reasonable meaning, see Restatement (Second) On Contracts, § 203(a), Restatement (First) On Contracts § 236. See also,
North American Construction Corp. v. The United States, 56 Fed. Cl 73, 82; Ludwig Honold Mfg. Co. v. Fletcher, 405 F.2d
1123, 1131, (3rd Cir. 1969); Bruce v. Lumbermens Mutual Casualty Company, 222 F.2d 642, 645, (4th Cir. 1955)
59
alia the overall context of the contract 141 and the understanding of a “sophisticated”
businessman engaged in the shipping business142.
In The SLS Everest, the bill of lading holder unsuccessfully argued that the incorporation
clause created ambiguity when the clause read “freight and other condition [there was a
blank] including the exoneration clause” 143 . Despite the lack of words, the intention to
incorporate was obvious, and the court did not hesitate to give effect to the clause as if it
contained the full wording144. In a similar vein, the U.S. court in Lowry & Co. v. S.S. Le
Moyne D’Iberville did not treat the incorporation clause as superfluous and gave effect to it
completely, though it did not contain the words “incorporated by reference” or any similar
wording145.
The identified U.S and English approaches need to be viewed in light of the fact that it is not
uncommon for persons in the shipping market to extract the meanings of shorthand writings
and unclear expressions146. This being so, the contra proferentem rule has little or no weight in
interpreting the incorporation clauses, though application of the rule under the bills of lading
For English law, Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co, [1959] A.C. 133, 158; Sirius International
Insurance Co. v. FAI General Insurance Ltd., [2004] 1 W.L.R. 325. For U.S. law, McAdams v. Massachusetts Mutual Life
Insurance Co., 391 F.3d 287, 299, (1th Cir. 2004); Gomez v. Rivera Rodriguez, 344 F.3d 103, 121, (1st Cir. 2003)
Restatement (Second) On Contracts, § 202, comments (b) and (d).
141
For U.S. law Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 1998 A.M.C. 2054, 2056 (5th Cir. 1998); Energy
Transport, above at 203; For English law, The Annefield, [1971] P. 168, 177; The Starsin, [2004] A.C. 715, 737; Modern
Building Wales Ltd. v. Limmer & Trinidad Co. Ltd., [1975] 1 W.L.R. 1281
142
143
[1981] 2 Lloyd’s Rep. 389, 391
Ibid. See also, Adamastos Shipping, above, at 161; The Irbenskiy Proliv, [2005] 1 Lloyd’s Rep. 383, 388; Treitel, G. and
Reynolds F.M.B., “Carver on the Bills of Lading”, (2nd edn, 2005), para 3-026
144
253 F.Supp. 396, 398 (S.D.N.Y. 1966). See also Son Shipping Co. v. De Fosse, 199 F.2d 687, 688-689, (2d Cir. 1952);
Gronstadt v. Withoff, 21 F.253 (S.D.N.Y. 1884). But see Production Steel of Illinois v. S.S. Francios LD, 294 F.Supp. 200
(S.D.N.Y 1968).
145
It is striking that resorting to the “custom or past practices of parties” is a long-established approach particularly adopted
by arbitrators in order to extract the meaning of unclear expressions. See In re Arbitration Between The Office of Supply,
Government of The Republic of Korea and New York Navigation Company, Inc, SMA No: 654, (August 1971). Nor is it
unexpected for arbitrators to view an incorporation clause as sufficient to incorporate a charterparty, though it is devoid of
the word “incorporate”. See In Re Arbitration between Alpine Shipping of Monrovia and Palm Shipping Co., SMA No: 1485,
(October 22, 1980). U.S courts may also take into account the “course of dealings”, “usage of trade” and “course
performance” to attribute a meaning to the words, Restatement (Second) On Contracts §203(b). U.S. courts do not accept
such evidence if there is not more than one different meaning that could reasonably be given to the provision, Metric
Constructors, Inc. v. National Aeronautics and Space Administration, 169 F.3d 747, 752, (Fed. Cir. 1999), Teg-Paradigm
Environmental Inc. v. United States, 465 F.3d 1329, 1338 (Fed. Cir. 2006). Similarly, under English law, the custom and
usage are only admissible when the meaning is unclear, Thor Navigation Inc. v. Ingosstrakh Insurance Co. Ltd. & Anor.,
[2005] 1 C.L.C. 12, 26.
146
60
is generally accepted147. Since the courts in both jurisdictions do not call for any meticulous
clarity in meaning of these provisions, it is only in the rarest cases that bills of lading are
treated as inapt for incorporation due to the flawed incorporation language.
It therefore follows that where the charterparty is appropriately specified, the courts are
inclined to find the bills of lading as competent for incorporation with a view to giving effect
to the “main purpose” of the original parties to the bill of lading148. In such cases, chances of
success for the holders to defeat incorporation by raising incomplete incorporation wording,
or the ambiguous meaning therein, seem rather low. These observations make it evident that
carriers are better positioned, in both jurisdictions, when their errors are limited to the
language used in the incorporation clause.
A further question is whether the courts will still have a receptive approach towards
incorporation, though the omission goes so far as to leave the reverse side of the bill of lading
unprinted. Given that such bills of lading would be devoid of the carriage provisions,
including the incorporation clause, it poses a challenge for carriers to support the argument
that incorporation should be allowed even in the absence of a printed incorporation clause.
Whether or not incorporation can be achieved in these cases will be discussed in the next
section.
(d) Is the omission to print the incorporation clause on the bill of lading fatal to
incorporation?
The explanations made thus far strengthen the expectation that a bill of lading, which does not
contain an incorporation clause, will in no case incorporate any charterparty. In this respect,
the argument that the carrier has inadvertently failed to print the conditions of carriage,
including the incorporation clause, on the reverse side of the bill of lading, may not stand out
as a forcible excuse to favour incorporation. However, it is doubtful whether the absence of
the incorporation clause, which the carrier has not mistakenly inserted along with the other
For U.S. law, see Royal Insurance Company of America v. Orient Overseas Container Line Ltd., 525 F.3d 409, 424-425,
(6th Cir. 2008) cert. denied, 129 S.Ct. 299 (U.S. 2008). However, it must be borne in mind that when there is already a
meaning given to a particular provision under bills of lading pursuant to case law or legislation, this rule may not have any
application, Restatement (Second) On Contracts §206, comment (b). Similarly, English courts are also vigilant in applying
this rule in the context of bills of lading, The Irbenskiy Proliv, [2005] 1 Lloyd’s Rep. 383.
147
For English law, see Glynn v. Margetson, [1893] A.C. 351, 357 per Lord Halsbury. This perspective is also taken in U.S.
law, Williams v. Metzler, 132 F.3d 937, 947, (3d Cir. 1997). See also, Capitol Bus Co. v. Blue Bird Coach Lines Inc, 478
F.2d 556, 560 (3d Cir. 1973) quoted in Lord, R.A, “ Williston on Contracts” (4th edn, database updated May 2009), §32:9
148
61
carriage provisions, always leads to this result. In particular, the arguments opposing
incorporation may lose their force where the bill of lading is in one of the well-known forms
and where there is a flagrant omission to print the terms of carriage thereunder.
These conflicting perspectives raise two key questions: could such a bill of lading satisfy the
U.S. rule of making unmistakable reference to a charterparty? Is the bill of lading apt to
satisfy the English law requirement that an express incorporation clause be provided under the
bills of lading? In order to find the answers to these questions, the analysis will be conducted
on the assumption that the bill of lading in question is in the Congenbill 1994 form, which is
widely in use149.
Since the omission to print the reverse side of the Congenbill form leaves the bill of lading
with no written conditions of carriage, it becomes necessary to ask how the U.S. and English
courts fill this contractual lacuna. The case law in both jurisdictions suggests that the courts
will prefer to imply a contract150 whose provisions will be determined pursuant to the answer
to one question: which carriage provisions would have been stipulated on the reverse side of
the bill of lading had the carrier not left it unprinted151? In so doing, they will only imply the
carrier’s usual terms152.
In light of these observations, it is clear that the provisions on the reverse side of the
Congenbill 1994 form, including its incorporation clause, will fill this vacuum by
This issue is raised in Gaskell N., “Bills of Lading: Law and Contracts”, (2000), para. 21.27; Cooke, J., Young, T., et al,
“Voyage Charters”, (3rd edn, 2007), para: 18.58, and in Merkin R., “Arbitration Law”, (2004), para 5.20.
149
In English law, the courts imply a term in order to give “commercial efficacy” to the contract, The Arctic Trader, [1996] 2
Lloyd’s Rep. 449, 452; Under U.S. law, it is accepted that a contract or term may be implied, when there is “course of
dealing”, “usage of trade” and “course of performance” manifesting such an intention, Restatement (Second) On Contracts,
§4, comment (a), Uniform Commercial Code § 1-201(b)3, § 1-303. Ventura Maritime Co. Ltd. v. A.D.M. Export Co, 44
F.Supp. 2d. 804, 806 (E.D.La 1999) quoting Luckenbach S.S. Co. v. American Mills Co. 24 F.2d 704, 705 (5th Cir. 1928)
150
For U.S. law, see ibid. See also, Interline v. Zim Israel Navigation Ltd, F.Supp. 2d, 2000 WL 1060445, *2 (N.D.Cal.
2000); New Hampshire Insurance Co. v. Seaboard Marine Ltd, F.Supp. 1992 WL 33861, *2, (S.D.Fla. 1992); Royal
Insurance Co. v. Sea-Land Services Inc, 50 F.3d 723, 728 (9th Cir. 1995). For English law, see Pyrene Company, Ltd. v.
Scindia Steam Navigation Company Ltd., [1954] 1 Lloyd’s Rep. 321, 333
151
See ibid. For U.S law, see also Encyclopaedia Britannica Inc. v. Hong Kong Producer, 422 F.2d 7 (2d Cir. 1969). Under
English law, the constructive notice generally has no application in commercial contracts, Machester Trust v. Furness, [1895]
2 Q.B. 539, 545. Yet, this proposition is held to be not applicable where the referred terms are usual, The Njegos, [1935] 53
Ll. L. Rep. 286, 296.
152
62
implication153. This is best supported by the fact that the intention of the carrier to provide the
terms of this form in the bill of lading is made evident with the heading on the face of the bill
of lading form, that is to say “Congenbill 1994”. For the purposes of giving the holders
sufficient notice in order to bind them with these provisions154, this heading can be regarded as
appropriate, for it directs these parties to a set of usual and readily accessible bill of lading
provisions 155 . Another underpinning reason is that carriers’ omission to print the carriage
terms on the reverse side cannot be seen as deliberate by the bill of lading holders, since they
are treated as prudent businessmen in both jurisdictions156.
Filling the contractual lacuna with the provisions of the Congenbill 1994 form by implication
is a sound solution, as these terms fall under the remit of the “carrier’s usual terms”, as
described under U.S and English law. To support this proposition, it is necessary to consider
the Court of Appeal decision in Interfoto Picture Library v. Stiletto Visual Programmes Ltd157
and the ruling of the U.S Court of Appeal in Luckenbach S.S. Co. v. American Mills Co158.
There, the courts took the view that the contract terms can only be treated as “usual” insofar
as they are in line with “common business practice”, the “course of dealings between the
parties” or the nature of the contract159. In this context, U.S and English authorities further
suggest that the holders engaged in shipping trade are reasonably to be expected to know the
For a similar view under English law, see Gaskell N., “Bills of Lading: Law and Contracts”, (2000), para. 21.27, quoting
The Hai Hing [2000] 1 Lloyd’s Rep. 300, and Merkin R., “Arbitration Law”, (2004), para 5.20 quoting Stensted Shipping v.
Shenzen Nantian Oil Mills, [2000] All E.R. (D.) 1175.
153
154
Under U.S. and English law, in order to bind the parties with a contract, a reasonable notice as to its terms needs to be
provided. For U.S. law, Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 1998 A.M.C. 2054, 2057 (5th Cir. 1998)
and Amoco Overseas Co. v. S.T. Avenger, 1975 A.M.C. 782, 789 (S.D.N.Y. 1975). For English law, Interfoto Picture Library
Ltd. v. Stiletto Visual Programmes Ltd., [1989] Q.B. 433, 437; The Heidberg, [1994] 2 Lloyd’s Rep. 287, 313. For a similar
line of argument, see also Bagot M.H and Henderson D.A., “Not party, not bound? Not necessarily: Binding Parties to
Maritime Arbitration”, (2002) TMLJ, Vol:26, No: 2, pg. 451
155
See supra note 151.
For U.S law, see Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 1998 A.M.C. 2054, 2056 (5th Cir. 1998). For
English law, The Starsin, [2004] A.C. 715, 737
156
[1989] Q.B. 433, 445, see also, Macdonald E, “The duty to give notice of unusual contract terms”, (1988) JBL 375, 380381
157
158
24 F.2d 704, 705 (5th Cir. 1928)
For English law, see supra note 154. See also, Macdonald E, “The duty to give notice of unusual contract terms”, (1988)
JBL 375, 380-381. For the U.S law, see ibid. See also, American Home Assurance Co. v. TGL Container Lines, Ltd., 347
F.Supp.2d 749, 761 (N.D.Cal. 2004), where the fact that there was no “previous course of dealings between the parties” was
not taken into account, Interline v. Zim Israel Navigation, above. On the contrary, see Royal Insurance Co. v. Sea-Land
Services Inc, above and Russul Corp. v. Zim American Integrated Shipping Services Co., 2009 WL 3247141, (S.D.N.Y. 2009)
where the courts heavily relied on parties’ past practices.
159
63
bill of lading terms when any of the identified circumstances arise 160 . When the present
question is analysed in light of these explanations, the provisions in the Congenbill 1994 form
can clearly be treated as usual, and the holders are expected to be aware of them since this bill
of lading form is widely in use.
Could it then be concluded that such a bill of lading is adequate for incorporation? It is clear
in U.S. law that having the standard Congenbill provisions on the reverse side of the bill of
lading will not, of itself, be sufficient to satisfy the “unmistakable reference” requirement,
when the holder is a “stranger” to the relevant charterparty161. This being so, such a bill of
lading is apt to incorporate only if there is a charterparty adequately identified on its face.
Quite the contrary result is seen, however, where the holder is not a “stranger” or where
English law governs the bill of lading, given that the absence of charterparty specification is
in those cases not fatal to incorporation162. One further conclusion can be drawn from these
observations: even though there is merely a reference to charterparty freight on the face of a
bill of lading in the Congenbill 1994 form, and the full incorporation wording is not printed
on its reverse side, such a bill of lading must be apt to introduce more than the charterparty
provisions on freight.
Since these arguments are predicated on the fact that the Congenbill 1994 form is commonly
known in shipping and trade, different considerations arise when the bill of lading form does
not have such a wide acceptance and use throughout the world. Accordingly, supposing that a
bill of lading form is neither common nor readily accessible by the cargo interests, it is
unlikely that the courts will go so far as to imply the provisions of this form, or its
incorporation clause, if any are stipulated therein.
Ibid. In this context, it should be noted that the concept of usualness is narrower than reasonableness, as the test for the
latter also includes examination of the effect of the provision, and purpose of the contract, Lorenzon F, “When is a CIF
seller’s carriage contract unreasonable? ― section 32(2) of the Sale of Goods Act, 1979”, (2007) 13 JIML 241, 244 quoting
Tsakiroglou & Co Ltd. v. Noblee Thorl Gmbh [1962] AC 93, 121-122. The U.S. law position is also similar, Stamm v.
Barclays Bank of New York, 960 F.Supp. 724, 729, (S.D.N.Y. 1997) where it is stated that “evaluating the reasonableness
of ... clauses, a court must analyze the contract in which they are found, including the benefits to both offeree and offeror
flowing from those clauses”. Nonetheless, it can scarcely be argued that this difference has any effect on the current analysis,
since the courts do not generally imply unreasonable terms; for U.S. law, see Uniform Commercial Code § 1-303(e), for
English law, The Reborn, [2009] 1 C.L.C. 909, 916
160
161
Son Shipping Co. Inc. v. De Fosse & Tanghe, 1952 A.M.C. 1931, 199 F.2d. 687 (2d Cir. 1952)
162
See sub-section (a) above
64
As a consequence, these observations suggest that the failure of carriers to print the carriage
conditions, including the incorporation clause, on the reverse side of the bill of lading, is not
necessarily fatal to incorporation. It naturally flows from the arguments above that the
solution to this problem is bound up with the factual circumstances of the case.
When the bill of lading at hand contains no charterparty details provided therein, would it be
for carriers to decide which charterparty is taken to be incorporated? Or alternatively, do the
rules of incorporation tell which charterparty is deemed to be referred to under bills of lading?
The next section will analyse and discuss the legal position, under U.S. and English law, with
respect to this issue.
2. Which charterparty is deemed to be referred to in the bills of lading?
Evidently, the question of which charterparty is purported to be incorporated is one of the
simplest questions for cargo interests, if they hold a bill of lading with the clear identification
of one charterparty. Despite the absence of this information under the bills of lading, it may
still be easy for the cargo interests to find which charterparty is referred to thereunder where
there is only one charterparty. However, holding a bill of lading with no charterparty details
can be problematic for both carriers and cargo interests where there is more than one
charterparty. To resolve which charterparty is to be incorporated in these cases, resorting to
the rules of incorporation becomes inevitable.
It is necessary to recall that U.S. law disallows incorporation of the charterparties which are
not sufficiently identified under the bills of lading. This being so, many cargo interests do not
have to predict which one of the charterparties is to be incorporated where the bill of lading is
devoid of the charterparty details. In this jurisdiction, the question of which charterparty is
deemed to be referred to becomes relevant only where the cargo interests are not “strangers”
to the charterparty that is sought to be incorporated into the bill of lading. The reason for this
is that such cargo interests cannot shield themselves under the general requirement to specify
the charterparty, nor is it possible for them to challenge incorporation on the basis of the
unqualified incorporation clause. With this in mind, it is important for carriers to find the
answers to two key questions: is the cargo interest a “stranger” to any of the relevant
charterparties and, if so, is this the charterparty that is deemed to be incorporated into the bill
of lading?
65
For a carrier who encounters an affirmative answer to the first question, the second question
becomes vital, as it gives them the chance to circumvent the strict requirement of specifying
the charterparty. In particular, having identified to which charterparty the cargo interest is not
a “stranger”, the carriers will need to prove that this particular charterparty is the one referred
to under the bills of lading. Undoubtedly, they may achieve this only by relying on the rules
of incorporation.
Under English law, the answer to the question of which charterparty is incorporated has a
different practical significance, for there is no general rule of specifying the charterparty to
achieve incorporation. Unlike U.S law, here this question has significance to all carriers who
wish to know whether the rules point to the charterparty that they seek to incorporate. In this
context, carriers are more inclined to have their own charterparties incorporated into bills of
lading since they may not know whether the terms of other charterparties in the chain secure
their rights, as their own charterparties would. Irrespective of the fact that these parties may
wish to achieve incorporation of another charterparty, the rules of incorporation will, in any
case, be of assistance in persuading the court or the tribunal for the incorporation of the
charterparty that they favour. From the cargo interests’ perspective, they also have a stake in
knowing the rules which determine the charterparty that is deemed to be referred to when
incorporation is inevitable. This is mainly because, in such cases, they will need to resort to
the rules in order to support incorporation of the charterparty, which is likely to create a more
desirable contractual position under bills of lading.
Consequently, it is true to say that the preferences of both carriers and cargo interests over the
charterparty to be incorporated inevitably vary depending upon the peculiarities of each case
and on the provisions of the relevant charterparties. In order to achieve their purposes, both
parties nevertheless need to rely on the particular rules of incorporation which will be
analysed herein below. Owing to their striking differences, U.S. and English rules of
incorporation regarding this issue will be dealt with separately.
(a) The position under U.S. law
It here proves invaluable to remember that the U.S. rules of incorporation do not create a
presumption as to the intention of parties to incorporate a particular charterparty when there is
no charterparty “unmistakably” identified in the bills of lading. Rather, they require a factoriented analysis in deciding whether such an intention actually exists. In this context, where
66
both the carrier and cargo interest know, or should have known, the charterparty sought to be
incorporated, the incorporation clause is taken to have referred to this particular charterparty163.
The approach raises two practical questions which are of vital importance in order to find the
relevant charterparty: firstly, in what circumstances is it possible for parties to know which
charterparty is meant in the incorporation clause, and secondly, how could this be proved?
With respect to the former question, it is clear under U.S law that these circumstances may
arise in cases where the cargo interest is not a “stranger” to the charterparty. It follows that a
cargo interest could know the charterparty to be incorporated if he or she is the charterer of
that particular charterparty164, or if he or she has a “close relationship” with such a charterer165.
For the purposes of this analysis, U.S courts further recognise that the presence of a holder to
whom the bill of lading is endorsed usually removes this possibility since they are usually not
in a position to know this matter166.
As for the latter question, cargo interests are usually deemed to be certain about incorporation
of a particular charterparty if the charterparty to which he or she is not a “stranger” contains
provisions as to its incorporation into the bills of lading 167 . In establishing certainty, U.S.
courts have, however, refused to take the view that there should necessarily be an express
statement to that effect in the charterparty168. Rather, they have found that there is certainty
where an intention to incorporate this charterparty can be inferred from its provisions169. To
this end, the charterparty terms on the form and content of the bill of lading to be issued
State Trading Corp. of India, Ltd. v. Grunstad Shipping Corp. (Belgium) N/V, 582 F.Supp. 1523, 1524 (S.D.N.Y 1984);
Cargill Ferrous International v. Sea Phoenix M/V, 2003 A.M.C. 1027, 1030 (5th Cir 2003); Volgotanker Joint Stock
Company v. Vinmar International Limited, F.Supp.2d, 2003 WL 23018798 (S.D.N.Y. 2003); Keytrade USA, Inc. v. Ain
Temouchent M/V, 2005 A.M.C. 948, (5th Cir. 2005).
163
164
Cargill Ferrous International v. Sea Phoenix M/V, above, at 1029
This also comprises cases where the holder is the alter ego or the agent of such a charterer, Keytrade USA, Inc. v. Ain
Temouchent M/V and State Trading Corp. of India, Ltd. v. Grunstad Shipping Corp. (Belgium) N/V, above; Coastal States
Trading, Inc. v. Zenith Navigation S.A., 446 F.Supp.330 (S.D.N.Y. 1977); Amoco Overseas Co. v. S.T. Avenger, 1975 A.M.C.
782, 785 (S.D.N.Y. 1975); Cargill B.V. v. S/S Ocean Traveller, 726 F.Supp. 56, 59 (S.D.N.Y. 1989)
165
General Authority for Supply Commodities v. S.S. Capetan Costis I, 631 F.Supp. 1488 (S.D.N.Y 1986); Macsteel
International USA Corporation v. M/V Jag Rani, F.Supp. 2d, 2002 WL 22241785 (S.D.N.Y. 2003); Continental Florida
Materials, Inc. v. M/V. Lamazon, 334 F.Supp.2d 1294 (S.D.Fla.2004), aff’d (11th Cir. 2005).
166
167
Cargill Ferrous International v. Sea Phoenix M/V, 2003 A.M.C. 1027, 1030 (5th Cir 2003)
Keytrade USA, Inc. v. Ain Temouchent M/V, above, and State Trading Corp. of India, Ltd. v. Grunstad Shipping Corp.
(Belgium) N/V, 582 F.Supp. 1523, (S.D.N.Y 1984); both of which partly relied on a charterparty provision which stated that
“any Bill of Lading signed by the master of agent shall be without prejudice to the charterparty”.
168
169
Ibid.
67
thereunder, or those clauses delegating the authority to issue the bill of lading, are deemed to
be sufficient to prove that the cargo interest has no doubt over which charterparty is sought to
be incorporated170.
Consequently, in Cargill Ferrous International v. Sea Phoenix M/V, a number of facts
supported the finding that the holder had no confusion about the incorporation of the voyage
sub-charterparty171. In particular, the decision was predicated on three mains facts. Firstly, the
holder was a party to the charterparty. Secondly, the agent who signed the bill of lading
obtained agency authority from this particular contract. Finally, unlike the head time
charterparty, the voyage sub-charterparty contained a provision which stipulated that it would
be incorporated into any bill of lading issued thereunder.
U.S. law further suggests that extrinsic evidence can in some cases be admissible to establish
certainty. Hence, in Coastal States Trading Inc. v. Zenith Navigation, the sub-charterparty
was held to be referred to under the bill of lading on the grounds that the intention of the
parties to the sub-charterparty to accomplish this result was established with the testimonies
of their employees172. A similar approach was also adopted in Amoco Overseas Co. v. S.T.
Avenger, which involved a charterparty entered into between the owner of S.T. Avenger and
Amoco Trading International (“ATI”), and a contract of affreightment made between ATI and
Amoco Overseas Co. In deciding which one of those contracts are sought to be made a part of
the bill of lading, the court relied heavily on the pre-contractual negotiations of the charterer
and the shipowner173. Accordingly, they held that the incorporation clause should be taken to
refer to the charterparty174.
Ibid. See also, Cargill Ferrous International, above. However, for the purposes of this assessment, the bill of lading is not
expected to be strictly in compliance with the description under the relevant charterparty, Keytrade USA, Inc. v. Ain
Temouchent M/V, above.
170
171
Ibid.
172
See 446 F.Supp. 330 (S.D.N.Y. 1977). In stark contrast to this, evidence on the pre-contractual negotiations between the
parties is not admissible under English law, in resolving which charterparty is presumed to be incorporated, see The Heidberg,
[1994] 2 Lloyd’s Rep. 287, 309
173
Amoco Overseas Co. v. S.T. Avenger, 1975 A.M.C. 782, 785 (S.D.N.Y. 1975)
174
Ibid.
68
Obviously, the rule provides a complicated solution to the question of which charterparty is
deemed to be incorporated175. More importantly, even though the rule can be justified on the
basis that it makes cargo interests subject to the charterparty clauses which they have
negotiated, this justification is problematic. This is simply because such a perspective
undermines the fact that those provisions are negotiated for the formation of a charterparty
contract, which is distinct from the bills of lading. It is, therefore, hard to accept why
negotiating the charterparty should necessarily make cargo interests also bound by the
charterparty provisions in the bill of lading context. This approach also loses sight of the fact
that, even though parties to the charterparty may have intended to incorporate their contracts
into the bills of lading, the bill of lading may simply not achieve incorporation176. In other
words, this approach weakens the logical difference between purporting to incorporate a
contract and being able to do so, and therefore ignores the possibility that the provisions in
these two distinct contracts may not overlap.
A further criticism arises especially with respect to the ruling in The Sea Phoenix: the
decision does not sit comfortably with the well-recognised rule that, in order to find in favour
of a particular charterparty, there should not be any chance for the holder to remain in doubt
as to the incorporation of that charterparty177. While holding in favour of the charterparty to
which the holder was not a “stranger”, the court in The Sea Phoenix case heavily relied on the
fact that this was the only charterparty which contained provisions regarding the content of
the bill of lading to be issued. Evidently, this fell short of establishing whether incorporation
would be a certainty for the holder for one major reason: a holder who is not a stranger to one
charterparty is usually not in a position to know which other charterparties, if any, contain
provisions on incorporation, and therefore they cannot be treated as having no doubts with
regard to this issue. This reasoning also raises one further question, which has not yet been
answered by the U.S. courts: what happens when there is more than one charterparty which
stipulates that it should be incorporated into the bill of lading? It is likely that the U.S. courts,
in such cases, will find against incorporation as there will apparently be weightier reasons to
cast doubt on the charterparty that is deemed to have been referred to in the incorporation
clause.
For a similar view, see Justice Garza E.M., in his dissenting judgement in Cargill Ferrous International v. Sea Phoenix
M/V, 2003 A.M.C. 1027, 1042 (5th Cir 2003)
175
176
Ibid.
177
The Rice Company S.A. v. M/V Nalinee Naree, 2008 A.M.C. 1152, 1161 (5th Cir. 2008)
69
The explanations above underline the fact that it is difficult for the holders to foresee whether
the unqualified incorporation clause will be treated as apt for importing one of the
charterparties when they are not “strangers” to any one of the relevant charterparties.
Evidently, similar problems also await these parties in deciding what charterparty could be
incorporated. Having analysed the U.S. law position, the focus will now be on the
incorporation rules of England governing this issue.
(b) The position under English law
Given that English law does not require the charterparty to be identified for incorporation178,
the answer to the question of which charterparty has a direct impact on all the holders whose
bills of lading do not stipulate the particulars of any charterparty. Perhaps due to this reason,
the solutions envisaged under English law are more straightforward, as English courts do not
engage in an inquiry to find which charterparty is actually intended to be incorporated 179 .
Above all, their decisions rest on the presumed intention of the original parties to the bill of
lading, and therefore the question of whether the shipper is actually aware of the relevant
charterparty does not have any impact on this assessment180.
With the leading judgment in The San Nicholas, a general presumption in favour of the head
charterparty is recognised where there is more than one charterparty in the picture 181. The
justification for this is made on the grounds that “it is the ship-owner who issues the bill of
lading” 182 . However, pursuant to the ruling in The SLS Everest 183 , English law shifts the
178
The Sevonia Team, [1983] 2 Lloyd’s Rep. 640, 644; The Garbis [1982] 2 Lloyd’s Rep. 283, 288
The Heidberg, [1994] 2 Lloyd’s Rep. 287, 309, 311. But see, Quark Ltd. v. Chiquita Unifrutti Japan Ltd. and Ors, QBD
(Com Ct.) (Andrew Smith J), 25 April 2005, (2005) (The Vinson) 677 LMLN 1
179
The San Nicholas, [1976] 1 Lloyd’s Rep. 8. But see, Smidt v. Tiden, [1973-74] L.R. 9 QB 446 where the conflict with
regard to the intention of the shipper and the carrier, as to the charterparty sought to be incorporated was found fatal to
incorporation. This approach was abandoned with The San Nicholas, see Boyd S.C., Burrows A.S., et al, “Scrutton on
Charterparties”, (21st edn, 2008), para A38.
180
See The San Nicholas, above. The presumption surely attests that the incorporation clause is of itself sufficient to reflect
the intention to incorporate a charterparty, The Sevonia Team, above. See also Gaskell N., et al, “Bills of Lading: Law and
Contracts”, (2000), para. 21.23; Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.59 and 18.62;
Treitel, G. and Reynolds F.M.B., “Carver on the Bills of Lading”, (2nd edn, 2005), para: 3-026. Due to this reason, even
though the factual circumstances of the case leave English courts in doubt as to which charterparty is actually sought to be
incorporated, they will, in any case, assume that one of the charterparties concerned is intended to be incorporated. This
position was previously to the contrary, see The Nai Matteini, [1988]1 Lloyd’s Rep. 452; Smidt v. Tiden, above.
181
See The San Nicholas, above, at 11. Despite the fact that the decision is justified on the grounds that “it is the shipowners
who issue the bill of Lading”, this statement should be deemed as relevant where shipowners are the contractual carriers
under the bills of lading. See Wilson, J.F. “Carriage of Goods by Sea” (7th edn, 2010), 250-251 and Gaskell, N., “Bills of
Lading: Law and Contracts”, (2000), para 21.25
182
70
presumption to the voyage sub-charterparty, where the head charter is a time charterparty184.
At the heart of this shift lies the reasoning that voyage charterparties are more akin to bill of
lading contracts, as opposed to time charterparties185, which contain inapposite provisions such
as hire186.
These explanations raise one further question: must these rules, which are based on the
presumed intention of the parties, always be applied regardless of the factual circumstances of
the case? The answer to this question is not as straightforward as it seems. The overall
position of English law on this issue became uncertain with the decision in The Heidberg,
where the court took the view that neither The San Nicholas nor The SLS Everest may be
followed, when this commercially made more sense187. Such a possibility was later illustrated
in The Vinson, which involved a carrier who unsuccessfully objected to incorporation of the
sub time charterparty providing for London arbitration188. Apart from this charterparty, there
were two others, namely the head time charterparty and the contract of affreightment
(“COA”). In order to compel the holder to arbitrate in New York, the carrier sought to justify
incorporation of any of these two agreements, inasmuch as both the pool agreement and head
time charterparty contained a New York arbitration agreement.
The carrier did not meet with success in this case, for the court held that the sub-time
charterparty was incorporated, despite the rule in The San Nicholas. In support of this
decision, the court took the view that the sub time charterparty had the “most appropriate
terms” for incorporation. While arriving at this conclusion, they also treated a number of
factors as indicating the intention of the parties to accomplish incorporation to that effect.
These include the fact that the bill of lading was in Congenbill form, instead of the Reefer Bill
of Lading which COA called for. The other compelling indication was held to be the express
reference to law and arbitration in the incorporation clause. The reason was that it was only
183
[1981] 2 Lloyd’s Rep. 389, 392
184
Ibid. But see The Heidberg, [1994] 2 Lloyd’s Rep. 287, 312
185
The SLS Everest above.
186
Ibid. See also, The Nanfri, [1978] 1 Lloyd’s Rep. 581, 591.
See The Heidberg, [1994] 2 Lloyd’s Rep. 287, 312. This is also supported by the fact that while interpreting commercial
contracts, the courts presume that the parties could not have intended to create a result which is extremely unfair,
commercially unsound or of no effect, see The Miramar, [1984] A.C. 676. See also, supra notes 1391-40
187
Quark Ltd. v. Chiquita Unifrutti Japan Ltd. and Ors, QBD (Com Ct.) (Andrew Smith J), 25 April 2005, (2005) (The
Vinson) 677 LMLN 1.
188
71
the sub time charterparty which contained provisions both on choice of law and arbitration.
Finally, an express reference to “charterparty” made under the bill of lading was taken to
indicate the intention not to incorporate the COA.
While not following The San Nicholas approach, the court in The Vinson sought to ascertain
the intention of the original parties towards the bill of lading. In so doing, they heavily relied
on the provisions of the bill of lading and those of the three charterparties189. Evidently, this
method was alien to the predominant English approach, which is largely based on the
presumed intention of the parties190. Equally uncommon in The Vinson case was that the court
favoured incorporation of the “most appropriate charterparty”, while viewing the others also
as suitable for incorporation. This reasoning went even further than The SLS Everest, where
the presumption was shifted to the sub-voyage charterparty on the grounds that the head
charterparty was a time charterparty and it was completely inapposite for incorporation.
Probably due to these serious departures from the recognised rules of incorporation, the court
in The Vinson sought to justify their finding by treating the surrounding facts as “unusual”191.
This stance makes it evident that the decision in The Vinson can neither be taken as a rule, nor
be treated as restricting the application of the presumptions established under The SLS Everest
and The San Nicholas. When assessing to what extent The Vinson should find application,
regard must be given to the fact that there is a pressing need for straightforward formulations
under English law since the incorporation clauses which do not contain any charterparty
details are considered as apt for incorporation in this jurisdiction. For this reason, the decision
needs to be treated with caution.
It therefore follows that a departure from the presumptions should only become possible in
the presence of unusual and distinct facts, making it commercially “sensible” not to resort to
those presumptions192. Those cases may surely arise where the rules under The SLS Everest
and The San Nicholas point to a charterparty whose incorporation cannot have any
meaningful effect within the context of the bill of lading. This solution is not inconsistent with
189
For a similar view, see The Heidberg [1994] 2 Lloyd’s Rep. 287, 312
190
See supra notes 180 and 181, above.
191
This was said to be derived from the fact that the head time-charterparty was a part of the COA between the shipowner
and head charterer, see supra note 187
192
Ibid.
72
the rules since the parties cannot be presumed to have intended to incorporate such a
charterparty.
Putting aside such exceptional circumstances, the famous San Nicholas and SLS Everest cases
can also afford guidance in determining the charterparty when there is a string of
charterparties. In particular, these rulings also support one further suggestion: where the
picture involves one voyage sub-charterparty and one voyage sub-sub charterparty, is it a
sounder approach to hold that the bill of lading is deemed to refer to the sub-charterparty?193
While it is true to say that there are conflicting opinions on this matter194, favouring the former
charterparty is preferable. The reason is that, leaving aside its commercial impact195, this view
is aligned both with the rule in The San Nicholas, which points to the charterparty which is
the highest in the hierarchy, and the presumption in The SLS Everest, which favours
incorporation of voyage charterparties. The opposing views supporting the incorporation of
sub-sub charterparty, on the grounds that this charterparty contains the most appropriate
provisions, is evidently vulnerable to the arguments made for the approach adopted in The
Vinson. In this respect, suffice it to say that here the court’s aim should not be to determine
the “most suitable charterparty”, but to find the presumed intention of the parties196.
These presumptions will not, however, be helpful in finding the charterparty where there is no
hierarchy between charterparties, and where all of them are equally apposite. Such
circumstances may arise in cases where there are slot charterparty agreements, under which
the shipowner lets not the entire vessel but the spaces thereof to a number of parties. As a
solution to this conundrum, the decision in National Navigation Co. v. Endesa Generacion
S.A. suggests that the bill of lading in these cases be matched with the charterparty “which
governed the contractual relations between the original parties to the bill of lading and in
pursuance of which the bill was issued”197. The first leg of this suggestion is problematic,
Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.61. But see, Treitel, G. and Reynolds F.M.B.,
“Carver on the Bills of Lading”, (2nd edn, 2005), para 3-026.
193
194
Ibid.
195
This is discussed in the next sub-section.
196
But see, Treitel, G. and Reynolds F.M.B., “Carver on the Bills of Lading”, (2 nd edn, 2005), para 3-026.
[2009] EWHC 196 (Comm) para: 110 quoting Treitel, G. and Reynolds F.M.B., “Carver on the Bills of Lading”, (2 nd edn,
2005), para: 3-026. It is important to note that the decision of the Commercial Court on incorporation was overturned by the
Court of Appeal on the grounds that the judgment of the Spanish Court on incorporation was binding by reason of the EC
Regulation 44/2001, see [2009] EWCA Civ 1397, see also supra note 35.
197
73
since there may not always be a charterparty between the original parties to the bill of lading.
Nonetheless, the charterparty can be determined pursuant to the second part of the proposition
whereby the charterparty that contains provisions as to the issuance of the bill of lading will
be deemed to have been referred to under the bill of lading198.
aa. What is the commercial impact of The San Nicholas and The SLS Everest?
The major practical significance of the general presumption, which favours the head
charterparty, is that it will be the cargo interests who bear the consequences, if the headcharterers fail to pay the freight. It follows that the presumption makes it possible for carriers
to exercise a lien over the cargo of bill of lading holders to secure the payment of unpaid
charges due under the head charterparty. Evidently, this result has adverse effects on the cargo
interests who are the sub-charterers of the vessel, or who entered into a contract of
affreightment with the sub-charterers and made payment to such parties.
From the standpoint of the cargo interests, this approach may appear unsupportable since it
can be argued that it should be the duty of the carrier shipowners to specify their
charterparties if they wish to recover the unpaid charges from cargo interests 199. Moreover, the
cargo interests may find this rule biased, since it favours carriers’ choices over those of
shippers who may wish to incorporate their sub charterparties 200 . Favouring the head
charterparty can also be regarded as unjustified on the grounds that contra proferentem rule
should debar resolving the ambiguity arising from the failure of carriers to identify the
charterparty for the benefit of these parties201.
Another suggestion was made in The Ikariada, [1999] 2 Lloyd’s Rep. 365, 372, where it was stated that bills of lading
should incorporate the charterparty under which the goods are carried. This approach is not persuasive on the basis that
where the bill of lading is the contract of carriage, the goods are not carried under any of the relevant charterparties.
Evidently, in such circumstances, the bill of lading is the contract of carriage covering the carriage of goods. See also, Boyd
S.C., Burrows A.S., et al, “Scrutton on Charterparties”, (21 st edn, 2008), para A38.
198
The Heidberg (No.2), [1994] 2 Lloyd’s Rep. 287, 312; Justice Garza E.M., in his dissenting judgement in Cargill Ferrous
International v. Sea Phoenix M/V, 2003 A.M.C. 1027, 1046 (5th Cir 2003)
199
Ibid. Treitel, G. and Reynolds F.M.B., “Carver on the Bills of Lading”, (2 nd edn, 2005), para: 3-026. The intention of the
shipper could also be to incorporate the sub-sub-charterparty, as the case may be. Yet, for ease of reference the analysis will
be made upon the assumption that the picture involves a head charterparty and a sub-charterparty.
200
The operation of the contra proferentem rule in the context of the bills of lading is clearly recognised. For English law,
see The Irbenskiy Proliv, [2005] 1 Lloyd’s Rep. 383, 386 and The Starsin, [2004] A.C. 715, 779. For U.S. law, see Royal
Insurance Co. of America v. Orient Overseas Container Line Ltd, (6th Cir. 2008), cert. denied, 129 S.Ct. 299 (U.S. 2008);
Encyclopaedia Britannica, Inc. v. Hong Kong Producer, 1969 A.M.C. 1741, 1752 (2d Cir. 1969)
201
74
Nonetheless, it is true to say that the rule established in The San Nicholas is sound and
impartial. This is mainly because, even though English courts recognise application of contra
proferentem rule in the context of bills of lading, they usually do not bring this rule into play
if this could run the risk of damaging the commercial purpose of a particular bill of lading
provision202. When the overall picture is viewed in that light, it is clearly sensible to establish a
presumption which favours the head charterparty and leave no room for contra proferentem
rule. The reason for this is that the commercial purpose of incorporation clauses is to give
shipowners the opportunity to use the rights vested in their charterparties against bill of lading
holders.
It is erroneous to say that this rule is biased since shippers usually have no interest in the
incorporation of any charterparty. In this respect, it is likely that they will not have such
intentions, especially where they purport to transfer the bill of lading to a third party who does
not require the bill of lading to incorporate a particular charterparty. Furthermore, given that
shippers are the parties to draft and present the bill of lading for signature, they may, in some
cases, have the opportunity to identify the charterparty they wish to incorporate203.
These observations, which largely justify the rule in The San Nicholas, prompt one question:
is English law actually in need of the exception established in the SLS Everest, which shifts
the presumption from the head time-charterparty to the voyage sub charterparty? The views
against the SLS Everest decision can be supported on two grounds. Firstly, having two
different presumptions can complicate the issue, and it may not be helpful in providing
certainty under the bills of lading. Secondly, as the objective of the SLS Everest is to protect
202
The Irbenskiy Proliv, [2005] 1 Lloyd’s Rep. 383, 388
Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.61. It here proves valuable to note that shippers
have no right to present a bill of lading which contains the date of their respective charterparties, where the head charterparty
provides the form of bill of lading to be presented with the requirement that charterparty details be stipulated therein, The
Garbis, [1982] 2 Lloyd’s Rep. 283, 287-288; The Ikariada, [1999] 2 Lloyd’s Rep. 365, 372. However, when the relevant
charterparty requires the master to sign the bill of lading “as presented”, the shipper will be in a relatively better position,
inasmuch as in such cases they are merely obliged to present a bill of lading which does not contain “extraordinarily and
manifestly” inconsistent provisions, The Berkshire [1974] 1 Lloyd’s Rep. 185, 188; The Anwar Al Sabar, [1980] 2 Lloyd’s
Rep. 261, 265. Whether the shippers are actually entitled to insert their respective charterparties into the bill of lading
depends on the “proper construction” of the charterparty, see The Garbis, above. See also Boyd S.C., Burrows A.S., et al,
“Scrutton on Charterparties”, (21st edn, 2008), para A43. Nonetheless, when the vessel is time chartered under a charterparty
which requires the master to sign the bill of lading “as presented”, the vessel owner cannot insist on insertion of their
charterparty details into the bill of lading, The Nanfri, [1979] 1 Lloyd’s Rep. 201, 206. See also, Wilson J.F. “Carriage of
Goods by Sea”, (7th edn, 2010), 252.
203
75
the cargo interests from inapposite provisions, it can be argued that they can equally be
safeguarded from such terms under the rules of inconsistency204 and manipulation205.
Despite the force of these arguments, there are weightier reasons to justify the view that
English law is in need of the ruling in The SLS Everest. Time charterparties have more
inapposite terms than voyage charterparties, and many of their provisions make little sense in
the context of the bills of lading. Above all, The SLS Everest is more helpful in maintaining
the commercial efficacy of incorporation clauses when compared to the rules of inconsistency
and manipulation, which may not prove as satisfactory as the rule established in The SLS
Everest. This is simply because after importing all inapposite terms into the bills of lading and
striking them out pursuant to the rules of inconsistency and manipulation, it is likely that there
will be no applicable charterparty provision under the bills of lading, despite the incorporation
clause. In stark contrast to this, The SLS Everest prevents incorporation of an inapposite
charterparty in the first place. This being so, a more workable charterparty is incorporated
pursuant to The SLS Everest with the effect that there are more chances for the imported
provisions to survive under this contract.
There are also other practical reasons for justifying the exception recognised under The SLS
Everest. Shifting the presumption to voyage sub-charterparty produces results which are in
harmony with the recognised contractual position of time charterers vis-à-vis their respective
shipowners. In this respect, the exception is in accordance with the theory of delegation
established under The Spiros C206, which states that shipowners are deemed to have delegated
to their time charterers to collect the freight from cargo interests207. This theory is founded on
the premise that shipowners need to look only to their time charterers to recover the hire,
since the time charterers are deemed to collect the freight on behalf of the owners 208. Placing
the risk on the shipowner, where the time charterer fails to pay the charges due under the time
204
Debattista, C., “Sale of Goods Carried by Sea”, (2nd edn, 1998), para: 8-17 quoting The Nanfri [1979] A.C. 757
205
Ibid. See also Chapter 3(2) hereof.
See [2000] 2 Lloyd’s Rep. 319. According to this theory, the shipowner delegates to the time charterer for the collection
of the freight. In this context, time charterers have the right to agree with the shipper about the mode of payment which is
different from that envisaged under the time charterparty.
206
207
Ibid, 329, 331-332
208
Cooke, J., Young T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.61
76
charterparty, is consistent with the decision under The SLS Everest, and this lends support to
the view that the ruling in the SLS Everest case was well-justified.
A further point is the commercial impact of leaning towards incorporation of the sub voyage
charterparty where there is also a sub-sub voyage charterparty. It is true to say that neither the
shipowner nor the shipper may have any interest in incorporating the sub voyage charterparty,
since they are not parties to it. Nevertheless, accepting that the unqualified incorporation
clause is taken to refer to the sub-voyage charterparty is also in accordance with the identified
“delegation theory”. To put it another way, this line of thinking commercially makes more
sense when it is viewed against the background of this theory, whereby time charterers are
treated as responsible towards their respective shipowners for collection of the freight 209 .
Adopting this view also promotes certainty, for it reflects the presumptions introduced under
The San Nicholas and The SLS Everest.
The suggestion above is evidently in accordance with the dominant English law position,
where the general presumption towards the head charterparty is envisaged with similar
objectives210. For this reason, even though the adoption of this approach leads the holders to
become liable for the unpaid freight arising from the sub voyage charterparty, this adverse
effect has already been created and is prevalent due to the general presumption established in
The San Nicholas. In a similar vein, it is hard to suggest that this approach strips the holders
of any protection since they can call for a freight pre-paid bill of lading in their sale contracts,
and can therefore, to some extent, prevent the risks of having to pay the unpaid freight211.
Against this outset, there is one further issue which remains unresolved: given that the court
in The San Nicholas leaned towards the head charterparty mostly because the contractual
carrier was the shipowner212, can a bill of lading be matched with a head-voyage charterparty,
even though the contractual carrier is party to the sub-charterparty? Apart from following The
San Nicholas approach, two different methods are suggested to find which charterparty is
209
The Spiros C. [2000] 2 Lloyd’s Rep. 319, 329
See The San Nicholas [1976] 1 Lloyd’s Rep. 8, 12, where the justification for the presumption in favour of the head
charterparty is made on the grounds that it is “the shipowner who issues the bill of lading”.
210
See Cooke, above. However, it is clear that the holders will not be able to shield themselves under the freight prepaid
stamp on the bill of lading in cases where they actually know that the freight has not yet been paid, The Indian Reliance,
[1997] 1 Lloyd’s Rep. 52, 55
211
212
See supra note 210
77
deemed to be incorporated in such circumstances. To tackle this problem, one suggestion is to
match the bills of lading with the sub-charterparty to which the contractual carrier is party213.
Alternatively, some scholars suggest that the charterparty, under which the bill of lading is
issued, should always be linked to this particular bill of lading214.
The former route is surely in line with the commercial purpose of incorporation clauses,
which is to protect carriers from being subject to further liability towards cargo interests than
they envisaged under their charterparties215. On the contrary, it is likely that the most apposite
charterparty will be the one under which the bill of lading is issued, and this fact itself may
render the second suggestion a sounder approach. However, the foremost weakness in these
two approaches is that they complicate the matter and run the risk of causing uncertainty,
since the presumptions enshrined in The San Nicholas and The SLS Everest already afford
guidance. As this is the case, it is a better approach to resolve the question of which
charterparty is deemed to be incorporated on the basis of these identified presumptions.
Having identified the charterparty which is purported to be incorporated, further inquiry is
necessary to see whether the selected charterparty is actually capable of being incorporated
into the bills of lading. The next section will focus on the question of what peculiarities the
charterparty needs to possess for its incorporation into the bills of lading.
3. Is there a charterparty to incorporate?
Through the eyes of a bill of lading holder who is not familiar with the customary ways of
concluding charterparties in shipping practice, it may well be expected that the charterparty to
which the bill of lading refers is a formal written agreement. Similarly, the same cargo
interest may fairly presume that the relevant charterparty is concluded by the time the bill of
lading is made out and surrendered to the shipper. In stark contrast to these views, the
practices in the shipping market reveal that a great number of charterparties are executed
Gaskell N., et al, “Bills of Lading: Law and Contracts”, (2000), para. 21.25. See also Cooke, J., Young, T., et al, “Voyage
Charters”, (3rd edn, 2007), para: 18.60 quoting Lignell v. Samuelson, [1921] 9 Ll. L. Rep. 415. It is arguable whether the
decision could reinforce this proposition, inasmuch as it is unclear whether the court actually predicated on this fact while
favouring incorporation of the sub-charterparty. For a similar view see, Aikens, et al, “Bills of Lading”, (2006), para 7.104.
213
214
See Merkin R., “Arbitration Law”, (2004), para 5.23.
215
See supra note 206
78
through telephone conversations or under voluminous telex messages, and they are concluded
after the relevant bill of lading is issued216.
Evidently, incorporation of charterparties which are concluded in any of those ways, poses
difficulties for bill of lading holders. One of the most striking problems is that when the
incorporation clause is treated as apt to import such charterparties, this makes it easier for
carriers to avoid the unfavourable charterparty provisions, and to rely on the more beneficial
ones against their respective cargo interests. This issue has another dimension for the holder
who does not favour the charterparty which is deemed to have been referred to in the bill of
lading. In this sense, a further question awaits these parties when seeking to frustrate
incorporation of this charterparty: do charterparties need to possess some formal peculiarities
in order to be qualified for incorporation?
Just as with many other contracts in commerce, it is also possible that the charterparties to
which the incorporation clause refers may not be in effect as a result of their being repudiated,
rescinded or invalidated. Given that such a charterparty is not in force even between its
original parties, it can seem unmeritorious to allow this contract to become part of the bill of
lading. On the other hand, it is a compelling argument that determining incorporation on the
basis of the contractual status of the incorporated contract makes the inquiry overly technical.
No matter which view needs to be given greater weight, it is important to have in mind that
the answer to this issue reveals what the carriers and cargo interests should understand from
incorporation: is it merely incorporation of some provisions, or is it importing an effective
contract into another contract?
This section will centre on four critical issues. At the outset, the issue of whether
charterparties need to be in formal written form in order to be incorporated will be analysed.
Thereafter, whether there is a need for an existing charterparty, by the time the bills of lading
are issued, will be examined. Given that in practice charterparties are frequently altered or
rectified, the issue of to what extent such charterparties can be incorporated will be
investigated. Finally, the focus will be on the possibility of incorporating charterparties which
are rescinded, terminated or which have become null and void.
216
See Miller M.A., “Cesser Clauses”, (2001) 26 TMLJ 71, 82-83.
79
(a) Can a charterparty which is concluded orally, or which is evidenced merely by fax or
telex messages, be incorporated?
It needs to be recalled that cargo interests have a stake in finding the answer to this question
while seeking to frustrate incorporation of an unfavourable charterparty. Similarly, the rules
pertaining to this issue are significant to these parties because the chances of being shown the
referred charterparty terms increase when the rules of incorporation require a formal written
charterparty, and stricter rules of incorporation make the incorporated charterparty terms more
ascertainable.
From the perspective of carriers though, strict rules of incorporation would bring more
difficulties in achieving incorporation, given that, in many cases charterparties are concluded
in telephone conversations217 or via fax or telex messages218 which are then usually confirmed
under recap telexes219. As a part of this practice, the provisions under recap telexes are carried
to a formal charterparty long after the contract is actually concluded220. Above all, the eventual
stage of having a formal charter party is usually reached after the relevant bill of lading has
been issued221 and endorsed to a third party. The other possibility is that these contracts may
not even be executed by the time the bill of lading is issued or endorsed to the cargo interest 222,
and they may remain solely in the form of electronic communications.
This common practice of concluding charterparties surely brings challenges to cargo interests
who reasonably expect to have a firm contractual position under their contracts of carriage as
from the time when the bill of lading is endorsed to them. In order to see to what extent their
expectations are met under U.S and English law, the legal effect of oral charterparties in the
context of their incorporation will initially be analysed. A further inquiry will then be made
into those charterparties concluded through telex and fax exchanges.
217
The Heidberg (No.2), [1994] 2 Lloyd’s Rep. 287
218
See Gaskell N., et al, “Bills of Lading: Law and Contracts”, (2000), para. 21.28
219
The Petr Schmidt, [1995] 1 Lloyd’s Rep. 202
220
See, for instance, The Heidberg (No.2), [1994] 2 Lloyd’s Rep. 287
221
See The Spiros C., [2000] 2 Lloyd’s Rep. 319; The Heidberg (No.2), above, at 310
222
See Gaskell N., et al, “Bills of Lading: Law and Contracts”, (2000), para. 21.28
80
aa. Oral charterparties
It is clear in both jurisdictions that oral charterparties cannot be incorporated into the bills of
lading223. This rule has its roots in the general contract law principles of U.S and English law,
under which incorporation of an oral contract into a written document is not allowed 224 .
Moreover, it can largely be supported by the fact that charterparty is required to be
identifiable in order for it to be incorporated225.
There is also another solid legal underpinning against incorporation of oral charterparties:
parol evidence is not admissible to alter bill of lading terms. This is best understood and
supported by the English Court of Appeal decision in Leduc v. Ward226, and the U.S. Supreme
Court judgment in The Delaware227. In the former case, the court refused to hold that verbal
agreements made between the carriers and shippers were binding upon the respective
indorsees of the bill of lading228. In so doing, they sought to afford some level of protection to
the indorsees who take up the bill of lading by merely considering its face value229. Under U.S.
law, inadmissibility of oral agreements was recognised even more extensively in The
Delaware, where the rule found application for the benefit of the shipper230. It naturally flows
from these approaches that bills of lading cannot be deemed competent to import an oral
charterparty, given that its provisions are not capable of being varied by the verbal
agreements.
For U.S law see, In re prudential insurance co of America, 148 S.W. 3d. 124, 135 (Tex. 2004); See also Lord R.A.,
“Williston on Contracts”, (4th edn, Database updated May 2010), § 30:25; Dietz L., et al, “American Jurisprudence”, (2 nd edn,
Database updated April 2010) § 391. For English law see, The Heidberg (No.2), above, at 310
223
See Sorkin S., “Goods in Transit”, (1990) Vol: 1, section 2.05(2), pg. 2-38.4. For English law, see Beale H.G, et al,
“Chitty on Contract”, (Vol: 1), (30th edn, 2008), para 12-096.
224
For U.S. law, see Macsteel International USA Corp. v. M/V Jag Rani, 2004 A.M.C. 220, 222 (S.D.N.Y. 2003). For
English law, The Garbis, [1982] 2 Lloyd’s Rep. 283, 287
225
226
Leduc v. Ward, (1888) L.R. 20 Q.B.D. 475
The Delaware, 81 U.S. 579, 1871 WL 14785 (U.S.Cal.), 20 L.Ed. 779. For a similar view see Western Lumber
Manufacturing v. U.S., 1926 A.M.C. 91, 93 (N.D.Cal. 1925)
227
Ibid. There, the courts further held that contract of carriage between the indorsee and carrier merely rests in the bill of
lading. Quite the contrary is, however, the case where the bill of lading remains in the hands of the shipper, for English law,
see The Ardennes, [1951] 1 K.B. 55, for the U.S law see The Delaware, above.
228
229
For a similar view see, The Heidberg, [1994] 2 Lloyd’s Rep. 287
So far as the shippers are concerned, the position is quite the contrary under English law, see The Antares, [1951] 1 K.B.
55, where parol evidence was held to be admissible precisely because the bill of lading was in the hands of the shipper. In
support of this, it was further held that bills of lading merely function as evidence of contract of carriage when it remains
with the shipper. Nevertheless, the rigidity introduced with The Delaware was called into question, as obiter, see Hellenic
Lines Ltd. v. U.S. 1975 A.M.C. 697, 712 (2d Cir. 1975)
230
81
Since the incorporation issue is usually tied up with disputes on incorporation and
enforcement of charterparty forum selection clauses, formal requirements surrounding these
agreements must be considered. In both jurisdictions, the formalities on arbitration
agreements are aligned with the “writing requirement” in the rules of incorporation. Hence,
section 5 of the Arbitration Act, 1996, dictates that only written arbitration agreements come
within the scope of the Act. In a similar vein, the requirement of writing is envisaged for the
choice of court agreements by virtue of Article 23 of (EC) Regulation No. 44/2001
(“Judgments Regulation”), which is operative in cases where any of the parties are domiciled
in a member state and where they designate the court or courts of a member state in their
agreements. Likewise, for the purposes of the application of U.S. Federal Arbitration Act,
arbitration agreements need to be in writing 231 . Despite the observable tendency on
formalities in both jurisdictions, oral arbitration and jurisdiction agreements are nevertheless
treated as valid at English common law and under U.S. law232.
In light of these explanations, it is striking that the writing requirement strengthens the rule of
incorporation of written charterparties. This is simply because it would make little sense to
allow importation of verbal arbitration agreements which do not fall within the scope of the
highlighted statutes. Overall, the hostility towards verbal charterparties and arbitration
agreements has salutary effects on the holders, for it saves them from being bound by
unascertainable provisions. Even though these parties are in a position to be aware of such
verbal agreements, the pressing necessity of promoting certainty in international trade would
be a weightier reason to stand against their incorporation.
The explanations made thus far reveal that much turns on the form of the referred charterparty
while underlining the requirement that charterparties be in writing for the purposes of
incorporation. This deceptively simple answer is not of much assistance to practitioners since
it prompts practical questions: what are the requisite elements for creating a “written”
231
See 9 U.S.C. § 2
For English law, see Baghlaf Al Zafer Factory Co. BR for Industry Ltd. v. Pakistan National Shipping Co. (No.1), [1998]
C.L.C. 716 quoted in Joseph D. “Jurisdiction and Arbitration Agreements and their Enforcement”, (2005), para 3.44. With
respect to the validity of oral arbitration agreements at English common law, see DAC Report para 32. See also, section
81(2)(a) of Arbitration Act, 1996. For U.S. law, see Chateu des Charmes Wines Ltd. v. Sabate U.S.A. Inc., 328 F.3d 528, 531,
(9th Cir. 2003) quoted in Sparka F., “Jurisdiction and Arbitration Clauses in Maritime Transport Documents” (2009), pg. 100.
As for the enforceability of oral arbitration agreements under U.S. law, see Tuca v. Ocean Freighters Ltd. 2006 A.M.C. 1455,
(E.D.La 2006)
232
82
charterparty, and is there a need for signatures of the parties, or would an agreement
evidenced in telex or fax exchanges be qualified for this purpose? The next sub-section will
focus on U.S. and English law governing this issue.
bb. Charterparties contained or evidenced by fax or telex exchanges
A charterparty which is evidenced by telex or fax messages does not come as a surprise to
anyone who is engaged in the shipping business. The reason is that most charterparties are
either concluded in this fashion or embodied in other written communications. This practice
adds layers of complexity in defining “written” charterparties for the purposes of
incorporation. Treating these charterparties as having satisfied the written requirement surely
has welcome consequences for carriers, on the grounds that this could leave no reason for
drafting formal charterparty agreements for their incorporation. On the other side of the coin,
this relaxed approach could bring some difficulties for cargo interests, given that the chances
of being shown a copy of the charterparty are drastically reduced where the referred
charterparty is not a formal agreement233.
In light of these considerations, both English and U.S. courts to date have firmly taken the
view that the charterparties made by or evidenced under fax or telex exchanges may come
within the category of “written” contracts in the context of incorporation234. The courts have
further required that, in order for these communication means to be treated as such, they
either clearly stipulate terms of the charterparty or contain a clear reference to a written
charterparty235. In this respect, the requisite element of clarity is deemed to have been satisfied
in cases where the reference, or the provisions therein, are sufficient to form a charter party
whose terms are readily ascertainable236.
See The Epsilon Rosa, [2003] 2 Lloyd’s Rep. 509, 515; Gaskell N., et al, “Bills of Lading: Law and Contracts”, (2000),
para. 21.28
233
For English Law, see The Epsilon Rosa, above. See also, Treitel G. and Reynolds F.M.B., “Carver on the Bills of Lading”,
(2nd edn, 2005), para: 3-027; Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.63; Merkin R.,
“Arbitration Law”, (2004), para 5.20. For U.S law, see Thyssen, Inc. M/V/Markos N., 1999 A.M.C. 2515 (S.D.N.Y. 1999),
quoting Great Circle Lines, Ltd. v. Matheson & Company, Ltd, 1982 A.M.C. 2321, 2328 (2d. Cir. 1982). For opposing views
see The Heidberg, [1994] 2 Lloyd’s Rep. 287; Gaskell N, above, para. 21.30
234
235
Ibid.
For English law, see ibid. For the U.S law see J.S. & H. Construction Company v. Richmond County Hospital Authority,
473 F.2d. 212, 215 (5th Cir. 1973) quoted in Lord R.A., “Williston on Contracts”, § 30:25 (4th edn, Database updated May
2010)
236
83
On the question of what references could make the charterparty terms observable, the position
under U.S and English law is far from unclear: the predominant view in both jurisdictions has
been that there is an adequate reference to a charterparty, where the reference directs cargo
interests to a standard charterparty form or to a written contract which has previously been
concluded237. It is, therefore, beyond any doubt that even though fax or telex messages do not
stipulate the very terms of a charterparty, references to a charter party could be taken to have
satisfied the written requirement, so long as they direct the reader to a document with the
specified content238.
As it naturally flows from the observations above, U.S and English courts do not call for a
signed charterparty agreement for the purposes of incorporation, and there is room for
incorporating recap fixtures as “written” charterparties239. Having concluded that there are no
rigid rules of incorporation as to the form of the charterparty to be incorporated, a closer look
must, however, be taken to the formality rules designed for the forum selection agreements. In
particular, it is valuable to highlight the position in both jurisdictions in order to throw light
on one key question: To what extent are the incorporated choice of forum agreements, which
are evidenced under these written communications, actually binding upon the parties to the
bill of lading?
cc. Formal requirements of forum selection clauses: the English view
Under English law, the formal requirements on choice of forum agreements are no more
tightened than those envisaged under the rules of incorporation. Hence, pursuant to section 5
of the Arbitration Act, 1996, the forum selection agreements, made by or evidenced under the
237
For English law, see The Petr Schmidt, [1995] 1 Lloyd’s Rep. 202. For U.S. law, see Thyssen, above.
For English law and U.S. law see ibid. For the U.S law, Continental Insurance Company v. M/V Nikos N., 2002 A.M.C.
1287 (S.D.N.Y. 2002)
238
For U.S law, see Carnival Cruise Lines Inc. v. Shute, 499 U.S. 585, (U.S. 1991); For the position at Common law, see The
Petr Schmidt, above. See Polskie Ratownictwo Okretowe v. Rallo Vito & C.SNC, The Posejdon [2009] EWHC 2249 (Comm)
for the cases where EC Regulation No. 44/2001 apply. On the question of to what extent agreements could be contained or
evidenced by fax and telex exchanges, English and U.S courts are divided. Where the telex demonstrates a “meeting of
minds” on the “essential part” of the charter, the U.S courts find that there is a binding charterparty, regardless of the fact that
the fixture is made “subject to details”, Great Circle Lines Ltd. v. Matheson & Company, Ltd., 1982 A.M.C. 2321, 2328 (2d
Cir. 1982); U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 2001 A.M.C. 2080 (2d Cir. 2001). The English law
position is, however, diametrically opposite to this. While a recap telex could itself form a contract, the recap fixture which is
“subject to details” does not amount to a binding contract, see The Junior K, [1988] 2 Lloyd’s Rep. 583; The CPC Galia,
[1994] 1 Lloyd’s Rep. 68.
239
84
written exchange of communications, are deemed to have met the condition of writing so long
as the communications are recorded240.
Along the same lines, Art. 23 of the Judgments Regulation states that the electronic
communications providing “a durable record of the agreement” are also qualified as written
agreements within the meaning of the regulation. Thus, the court in The Posejdon viewed an
English jurisdiction clause in the Towhire form as “written” under Article 23, on the grounds
that there was a general reference to the Towhire form in the recap telex241. In so doing, they
went on to uphold that the recap telex reflected the deal between the parties since no objection
was made to its terms within a reasonable time242.
With these considerations in mind, can it be said that a charterparty forum selection clause,
which is incorporated into the bill of lading, is deemed to have satisfied the written
requirement? Both section 5 of the Arbitration Act, 1996 and Article 23 of the Judgments
Regulation raise the suggestion that the exchange of electronic communications and other
forms of agreements be taken as evidenced in writing between the very parties to the forum
selection agreement. Where such agreements are thus incorporated into the bill of lading,
could they be treated as written too, against the holders?
On this question, the European Court of Justice decision in The Tilly Russ provides
guidance243. There, the court held that the jurisdiction clause printed on the reverse side of the
bill of lading was to be considered as written between the shipper and carrier, provided that
both parties had consented to be bound by the clause244. In this sense, they suggested that the
consent would be present in cases where (1) the bill of lading was signed by both parties, (2)
the printed jurisdiction clause in the bill of lading was the result of a prior oral jurisdiction
240
See also, Departmental Advisory Committee on Arbitration Law Report on the Arbitration Bill, (“DAC Report”) paras 31-
40
241
See The Posejdon, above.
242
Ibid, para 60-61
243
[1985] Q.B. 931
See ibid. See also, Estasis Salotti Colzani Aimo E Gianmario Colzani v. RUWA Polstereimaschinen Gmbh, [1976] E.C.R.
1831
244
85
agreement, or (3) the clause fell within the framework of the course of dealings between the
parties245.
The opinion of the court in The Tilly Russ needs to be viewed against the background of the
ongoing practice where shippers hardly ever sign the bills of lading 246 . In assessing the
enforceability of the incorporated or express jurisdiction agreements in such bills of lading,
regard must therefore be had to Article 23(1)(c) of the Judgments Regulation, which provides
a less stringent formulation for those parties engaged in international trade247: the choice of
court agreements in the forms which are widely in use and recognised in international trade
are taken as “written”248. The suggestion therefore follows that shippers be presumed to have
consented to the jurisdiction clause in the bills of lading which do not contain their respective
signatures, for the bills of lading in that form are regular in trade.
In support of the proposition above, more persuasive is the European Court of Justice decision
in Transporti Castelletti Spedizioni Internazionali SpA v. Hugo Trumpy SpA 249. There, the
court opined that original parties to the bill of lading would be deemed to have consented to
the jurisdiction clause in the bill of lading which was in a form that accorded to the usage of
trade and commerce250. They further suggested that it was for the national courts to determine
the usages for the purposes of this assessment 251 . This preference over the “relaxation of
formal requirements”252 is a justification for upholding that even though the bill of lading is
not signed by the shipper, the incorporated or expressly stipulated jurisdiction agreement is to
be taken as written under Judgments Regulation.
245
See The Tilly Russ, above, at 953
246
Baatz Y., “Southampton on Shipping Law”, (2008), pg. 7
It is timely to note that The Tilly Russ was decided on the basis of Article 17 of the Convention on Jurisdiction and
Enforcement of Judgments, 1968, which contained no reference to “usages of international trade and commerce” at the time
this dispute was litigated. With the adoption of the Accession Convention of 1978, the referred phrase was added into the
article, and it was later clarified in the Convention of San Sebastian of 26 of May 1989.
247
248
See Article 23(1)(c) of the EC Regulation No. 44/2001, which has been the successor to Article 17 of the Convention on
Jurisdiction and Enforcement of Judgments. There is no complete succession in that respect precisely because the Convention
is applicable to the legal proceedings ensued before 1 March 2002 and to the cases falling within the jurisdiction of Denmark,
which has not acceded to the Judgments Regulation, see Briggs A., “Civil Jurisdiction and Judgments”, (5 th edn, 2009), para
1.04.
249
[1999] I.L.Pr. 492
250
Ibid, at 510-511
251
Ibid, at 518
252
Ibid, at 507
86
Difficulties arise in deciding whether the proposition above could also be relevant to a
consignee who has taken up the bill of lading from the shipper. The main guidance is again
the European Court of Justice decision in The Tilly Russ253. The ruling suggests that where the
jurisdiction agreement is deemed to have satisfied the formalities between the original parties
to the bill of lading, the same agreement be equally treated as such between the relevant
carrier and consignee254. This conclusion is, however, made subject to the satisfaction of one
condition: upon receiving the bill of lading, the consignees in those cases need to have
succeeded the rights and obligations of the respective shippers pursuant to the relevant
national law255. Hence, in The Tilly Russ, it was stated that:
“… acquisition of the bill of lading could not confer upon the third party more
rights than those attaching to the shipper under it. The third party holding the bill
of lading thus becomes vested with all the rights, and at the same time becomes
subject to all the obligations, mentioned in the bill, including those relating to the
agreement on jurisdiction.256”
So far as English law is concerned, the identified succession to a consignee is possible in
cases where this party is the lawful bill of lading holder within the meaning of the Carriage of
Goods by Sea Act 1992257. This rule will not, however, be applicable to the consignees who
have not succeeded those rights and obligations under the bill of lading. Nor are the
incorporated or printed jurisdiction agreements in these instruments therefore deemed as
“written” against these parties, unless their consent to those agreements is established by
virtue of Articles 23(1)(a) and 23(1)(b) of the Judgments Regulation258.
253
[1985] Q.B. 931
254
Ibid., at 954
255
Ibid. See also, Siboti K/S v. BP France SA, [2003] 3 Lloyd’s Rep. 364, para. 41
256
Ibid. See also, Transporti Castelletti Spedizioni, above, at 510; Siboti K/S v. BP France, [2003] 2 Lloyd’s Rep. 364, para
41
257
See, in particular, sections 2(1),3(1) and 5(2) of the Carriage of Goods by Sea Act 1992.
See Transporti Castelletti Spedizioni, above, at paras 81-82, and The Tilly Russ, at 953. It is important to note that to the
same effect was another landmark European Court of Justice decision in Coreck Maritime GmBH v. Handelsveem, [2001]
C.L.C. 550. See also Baatz Y., “Southampton on Shipping Law”, (2008), pg. 8.
258
87
None of the complexities above arise in the case of arbitration agreements, inasmuch as they
are excluded from the scope of the Judgments Regulation 259. This being so, English law with
respect to this issue still remains more straightforward: the consistent line of English judicial
decisions suggest that arbitration agreements incorporated into the bill of lading be binding
upon the parties to the bill of lading, even though these parties are not the actual signatories to
such agreements 260. A further point emerging from U.S. and English law is that when an
arbitration agreement is duly incorporated, the parties to the bill of lading are deemed to have
intended to arbitrate their disputes just as if they were the actual signatories to the relevant
arbitration agreement261.
This approach is best illustrated in The Nerano, where the cargo interests unsuccessfully
argued that the incorporated arbitration agreement referring to the disputes between the owner
and charterer was not an agreement “in writing”262. In particular, they contended that when
this agreement was adapted to the bill of lading context263, it could no longer be deemed as
written. In dismissing these arguments, the court therein held that the incorporated arbitration
agreements with such wording would still be treated as written and binding upon the parties to
the bill of lading264.
dd. Formal requirements of forum selection clauses: the U.S. view
In sharp contrast to the observations above, U.S. courts to date have adopted a more
restrictive approach: the incorporated arbitration clauses which refer to the disputes between
the parties to the charterparty are not deemed enforceable against third parties 265 . This
reasoning was endorsed in The Rice Company S.A. v. M/V Nalinee Naree, where the court
259
See Article 1(1)(d) of Judgments Regulation.
260
The Nerano, [1996] 1 Lloyd’s Rep. 1, 3; The Rena K, [1979] Q.B. 377, 391
261
See The Delos, 2001 WL 15080, para 12
262
There, the cargo interests relied on the Arbitration Act, 1975, which was in effect during the litigation. Evidently, this
statute was later succeeded by the Arbitration Act, 1996. Equally evident is that the points raised in The Nerano are still
relevant, for there is no substantial difference between these statutes regarding this issue.
263
For the rule of manipulation, see Chapter 3(2) hereof.
264
This would surely comprise third party bill of lading holders, to whom the bill of lading is endorsed, where they succeed
the rights and obligations thereunder pursuant to COGSA 1992, see supra note 256, above.
265
The exception to this has been recognised only for those cases where the third party holders can be deemed as the
charterers of the referred charterparties, see supra note 165. For further discussions, see Chapter 3(2) below.
88
refused to uphold that the vessel owner was bound by the arbitration clause in the sub-voyage
charterparty which was incorporated into the bill of lading266. In so doing, they heavily relied
on the wording of the arbitration clause, as it was pointing to the disputes arising between the
very parties to the sub-voyage charterparty. Consequently, where the arbitration clause is not
restricted to the actual parties to the referred charterparty, U.S. courts have reached a
diametrically opposed result.
Hence, in Thyssen v. M/V Markos267, the court firmly held that third party bill of lading holder
was bound by the incorporated arbitration clause which did not contain a restrictive language
similar to that in The Rice Company. In assessing the force of the ruling in Thyssen, regard
must be had to the fact that U.S. courts do not principally compel parties to arbitrate the
disputes which they have not agreed to refer to arbitration268. Rather, their persistent view has
been that arbitration agreements could only bind third parties in rare circumstances 269, which
may arise in incorporation cases.
The explanations above raise a further point: even in the presence of a third party holder, must
the incorporated arbitration clauses therefore be treated as “written” within the meaning
Chapter I of the Federal Arbitration Act, 1925 (“FAA”), the New York Convention, 1958270 or
the Panama Convention, 1976? To address this issue, it is first necessary to decide first which
rules find application. It is true that arbitration agreements between the citizens of the United
States fall outside the scope of the New York Convention by virtue of 9 U.S.C. § 203.
Accordingly, the FAA, which is enshrined in chapter 1 of 9 U.S.C., is applicable to these
parties. However, where the majority of the parties to the arbitration agreement are the
citizens of the Panama Convention states, this convention comes into play and governs the
issues of formality271.
266
523 F.3d 528, 2008 A.M.C. 1152 (5th Cir. 2008)
267
1999 A.M.C. 2515 (S.D.N.Y. 1999)
Painewebber Incorporated v. Bybyk, 81 F.3d 1193, 1198 (2d Cir. 1996); United Steelworkers of America v. Warrior &
Gulf Navigation Co., 363 U.S. 574, 582 (U.S. 1960)
268
269
Bridas S.A.P.I.C. v. Government of Turkmenistan, 345 F.3d 347, 355-356 (5th Cir. 2003)
270
See Chapter II of the Federal Arbitration Act, which contains the New York Convention and its implementing legislation.
271
See part B-35 of the Inter-American Convention on International Commercial Arbitration (the Panama Convention), and 9
U.S.C. § 305.
89
In examining the relevant provisions of the rules, it becomes apparent that the writing
requirement envisaged in the FAA could be given the widest possible meaning. This is
precisely because the Act does no more than state the formality of writing, and it therefore
leaves the issue of what actually constitutes a written arbitration agreement to the courts272. A
relatively more tightened provision is Article 2.2 of the New York Convention, which states
that:
“The term ‘agreement in writing’ shall include an arbitral clause in a contract
or an arbitration agreement, signed by the parties or contained in an exchange
of letters or telegrams.”
A similar formality is also stipulated under Article 1 of the Panama Convention, which
requires arbitration agreements either to be signed by the parties or to be evidenced under
exchange of letter, telegrams, or telex communications. Just as with Article 2.2 of the New
York Convention, this article too raises the question of whether arbitration agreements should
be treated as “written” against the third parties. It is worth giving serious consideration to the
question, for in most bill of lading cases the incorporated arbitration clauses are routinely
invoked against third party bill of lading holders.
Given that U.S. courts do not principally enforce the arbitration agreement to which the
parties have not given their consent, restrictive interpretation of the identified provisions may
be preferable. In the same spirit, it may be argued that arbitration agreements must either be
referred to in the exchange of communications between the holder and carrier, or be signed by
those parties273. While acknowledging that this line of thinking has the effect of rendering
almost all the incorporated arbitration clauses ineffective towards third party holders,
particular attention needs to be given to the U.S. cases wherein a similarly restrictive
approach was endorsed. In Instituto Cubano De Establizacion Del Azucar v. T/V Golden
West274 and Federal Insurance Company and Turbana Corp. v. M.V. Audacia275, it was upheld
that neither the bill of lading holders nor carriers could be compelled to arbitrate their disputes
See, for instance, Valero Refining Inc. v. M/T Lauberhorn, 1987 A.M.C. 2100, 2105 (5th Cir. 1987), where the arbitration
clause in an unsigned charterparty was held to be written within the meaning of FAA and enforceable between its parties.
272
See Davies M., “Litigation Fights Back: Avoiding the Effect of Arbitration Clauses in Charterparty Bills of Lading”,
(2004) JMLC 618
273
274
1957 A.M.C. 1481 (S.D.N.Y. 1957)
275
1987 A.M.C. 566 (S.D.N.Y. 1986)
90
by reason of an incorporated arbitration clause to which they were not parties. Most
importantly, this stance was taken in Audacia regardless of the fact that the scope of the
arbitration clauses was not confined to the disputes between the actual signatories.
The restrictive approach, outlined above, attracts criticism largely because deemed consent is
necessary in order to give business efficacy to the arbitration clauses in the bills of lading.
Since bills of lading can pass through the hands of numerous traders, having to establish the
actual consent of every subsequent holder to the arbitration clause is not only impractical but
also inconsistent with the workings of shipping and trade practice276.
Perhaps due to these weaknesses, the more recent and compelling authorities, such as Thyssen,
do not follow the anachronistic wave277. Rather, they treat the incorporated arbitration clauses
as having satisfied the written requirement, even in the presence of third party holders,
provided that the scope of these clauses is apt to encompass the disputes arising between the
parties towards the bill of lading278. In so doing, they recognise, albeit silently, that the concept
of deemed consent could come into play in the case of arbitration clauses incorporated into
the bills of lading. Another major underpinning for this proposition is the U.S Supreme Court
decision in Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer. There, the arbitration
agreement printed on the reverse side of the bill of lading was held to be binding upon the
indorsee, who neither signed the bill of lading, nor individually negotiated the terms therein.
The legal position is more straightforward, so far as the formal requirements surrounding the
jurisdiction agreements are concerned. It is clear that the agreements which are deemed
“written” under the rules of incorporation are not subject to any further formalities. On
evaluating the enforceability of the incorporated choice of court agreements, the courts are
therefore not concerned with whether the agreement is actually signed by the holder or
whether it is contained an in exchange of communication between the parties 279. This draws
276
It is necessary to recall that bills of lading are not even usually signed by the respective shippers, see supra note 246.
Citrus Marketing Board of Israel v. M/V Ecuadorian Reefer, 754 F.Supp. 229 (D.Mass. 1990); Union Carbide
Corporation v. M/T Monte Carmelo, F.Supp. 2d, 2002 WL 31812676 (S.D.N.Y. 2002); Cementos Andinos Dominicanos, S.A.
v. East Bulk Shipping S.A, 2006 WL 846551 (S.D.N.Y. 2006); Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer, et al,
1994 A.M.C. 2513 (1st Cir. 1994), aff’d 515 U.S. 528, (U.S. 1995)
277
278
For further discussions see Chapters 3(2) and 3(3) below.
Force R. and Davies M., “Forum Selection Clauses in International Maritime Contracts”, Jurisdiction and Forum
Selection in International Maritime Law, (2005), 7
279
91
support from the Supreme Court judgment in Carnival Cruise Lines v. Shute 280 , where a
jurisdiction clause printed on the reverse side of a passenger ticket was taken as effective
against the passenger, regardless of the fact that the clause was not negotiated.
ee. Rules of formality: where do they take us?
The observations above reveal that the written requirement is loosely described not only
under the rules of incorporation but also in the context of enforcement of forum selection
clauses. Evidently, from the perspective of carriers who are seeking to incorporate and
enforce forum selection clauses, the legal position in both jurisdictions is actually less
complex than it seems. The reason is that when a charterparty overcomes the hurdle of written
requirement and is incorporated into the bill of lading, the forum selection agreement will, in
most cases, be taken as written, and therefore, enforceable against the holders. Through the
eyes of the holders though lack of strict formalities is a missed opportunity to defeat
incorporation and those unfavourable forum selection agreements. Nevertheless, their position
is still relatively protected, inasmuch as the rules do not go so far as to allow carriers to
incorporate unascertainable charterparty terms, let alone ambiguous choice of forum clauses.
Overall, this so called “relaxation of formalities” sits comfortably with the busy trade and
shipping practice in many respects. These include the fact that a great number of parties arrive
at their terms through various means of communication, and there is usually not enough time
to draft a formal written charterparty. Viewed in that light, the flexibility created under
English and U.S. law is therefore persuasive. While this rule relieves carriers of drafting a
formal charterparty, they need to pay particular attention to the time of its making. The next
section will examine when charterparties in the required form need to be concluded for the
purposes of their incorporation into bills of lading.
(b) Do we need an existing charterparty by the time the bill of lading is issued?
Having identified the formalities, a further question arises: when do the charterparties in the
required form need to come into existence? The practical importance of this issue is that
allowing carriers to incorporate charterparties which have not yet sprung into existence before
the bill of lading is issued would be similar to giving these parties a blank cheque. The reason
for this is that they would, in those cases, be given the unfettered right to bind the holders to
280
499 U.S. 585, (U.S. 1991)
92
the terms of charterparties, regardless of when they come into existence. Evidently, this would
greatly undermine the sanctity of incorporation clauses, for the bill of lading is expected to
provide ascertainable and specific provisions from the time it is issued. From this perspective,
there are compelling reasons to argue that incorporation of future charterparties is inconsistent
with the necessity of forming contractual certainty under the bills of lading281.
Before taking any stance on this issue, it is worth remembering that the bill of lading does not
always start life as a contract of carriage in cases where it is issued to a shipper who is a
charterer of the vessel. On this basis, it can be argued that commercial certainty is not
prejudiced by incorporating a charterparty, which is concluded by the time the bill of lading is
endorsed to a third party282, or prior to cargo interests’ first demand to see a copy283. Could it
then be said that regard must be given to the time when the bill of lading starts to function as a
contract of carriage? The following section explains how English and U.S. courts resolved
this matter is explained below.
aa. English Law
From a general contract law perspective, incorporation of a future contract is not an unlikely
eventuality. Yet, this can only be achieved under English law with an incorporation clause
which manifests the intention of the parties to incorporate as such284. Accordingly, unless there
is an express provision to the contrary, general words of incorporation are not competent to
import a contract that has yet to be concluded285. Despite the general incorporation wording, a
door is, however, left open to incorporate these contracts under certain circumstances. In this
respect, it is accepted that such exceptional cases arise where the logical sequence of
transactions makes it impossible to conclude any contract before the incorporating agreement
is executed286, and the terms therein are usual and reasonable287.
281
For a similar view, see The Northern Progress (No.2) [1996] 2 Lloyd’s Rep. 319, 326
282
See Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2 nd edn, 2005), para: 3-028.
283
Ibid.
See Excess Insurance Co. Ltd. v. Mander, [1997] 2 Lloyd’s Rep. 119, 127, where the court refused to uphold that the
treaty was incorporated into the main agreement on the grounds that the agreement was executed four months before the
treaty.
284
Ibid.
See The Northern Progress, [1996] 2 Lloyd’s Rep. 319, 326; O.K Petroleum A.B. v. Vitol Energy S.A, [1995] 2 Lloyd’s
Rep. 160. See Beale H.G., et al, “Chitty on Contracts”, (Vol: 1), (30th edn, 2008), para 12-012
285
286
93
English courts have taken a similar line in bill of lading cases. Their approach to date has
been to allow incorporation of only those charterparties which are concluded and reduced to a
written form by the time the respective bills of lading are made out 288. This rule mainly has its
roots in The Heidberg, where the court stood against incorporation of an oral charterparty
which was not accurately reduced to a written form before the bill of lading was issued 289. On
the question of what qualifies as a “written” charterparty, it must be recalled that a more
persuasive and well-recognised authority is The Epsilon Rosa290. There, the court upheld that
the charterparty was incorporated, even though it was merely evidenced under the recap
fixture made before the issue date of the bill of lading291.
The explanations made thus far do not, however, throw light on the question of whether a
future charterparty can be incorporated on the grounds that the incorporation clause contains
an express provision to that effect292. Since the key rule of construction is to give effect to the
intention which can objectively be ascertained from the contract wording293, could it then be
said that this incorporation clause must be read as incorporating a non-existing charterparty?
It is likely that English courts will be reluctant to read the clause as such, in order not to create
a burdensome result for the third party bill of lading holders, who would not naturally wish to
be bound by an unascertainable contract of carriage294. From an overall perspective, such an
extensive reading of the clause would also bring another undesirable consequence: the
reliability of the bills of lading would be greatly undermined in international trade.
See O.K Petroleum, above, at 163. It is worth stressing that the reasonableness test will be made on the basis of the nature
of the main agreement, see The Northern Progress, above.
287
See The Heidberg, [1994] 2 Lloyd’s Rep. 287, 310; Fidelitas Shipping Co. v. V/O Exportchleb, [1963] 2 Lloyd’s Rep. 113,
117; The Spiros C., [2000] 2 Lloyd’s Rep. 319, 327; The Epsilon Rosa, [2003] 2 Lloyd’s Rep. 509, 516. See also, Cooke, J.,
Young, T., et al, “Voyage Charters”, (3rd edn, 2007), para: 18.63 and Boyd S.C., Burrows A.S., et al, “Scrutton on
Charterparties”, (21st edn, 2008), para A38 and Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2 nd edn, 2005),
para: 3-028.
288
289
See The Heidberg, above.
This is simply because the court in The Heidberg opined that charterparties evidenced under fixture recap could not be
taken as written, see ibid, at 311.
290
291
See The Epsilon Rosa, above.
292
See Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2nd edn, 2005), para: 3-028.
See The Northern Progress, above, at 329, See also Credit Lyonnais Bank Nederland NV v. Export Credits Guarantee
Department [1998] 1 Lloyd’s Rep. 19, 38
294 See The Miramar, [1984] A.C. 676, where the court refused to interpret the incorporated demurrage clause as binding the
bill of lading holder, considering the destructive and unreasonable results of taking a contrary view.
293
94
Consequently, there are compelling reasons to argue that incorporation clauses can rarely be
said to be adequate for importing a contract which will come into existence in the future.
Nonetheless, premising on the fact that bills of lading may first start life as a mere receipt, it
can be argued that the rules should be flexible enough to incorporate the charterparties which
are concluded before the bills of lading start to operate as a contract of carriage 295. While this
view can seem sound and convincing from a general contract law perspective, it actually
brings a rather problematic solution, which does not accord with the nature of bills of lading.
The problem derives from the fact that, unlike many other commercial contracts, it is difficult
to determine exactly when the bill of lading turns into a contract of carriage. Accordingly, the
issue date of the bill of lading needs to be taken as a basis, for it is readily ascertainable for all
persons involved in the chain of trade, shipping and banking transactions. It is therefore a
sounder rule to require a pre-existing charterparty at the time the bill of lading is issued and to
rely on its issue date, even though the bill of lading may have been surrendered to a shipper
who would merely hold the same as a receipt.
However, it is true that there may, in the future, be an exception to this rule. This largely
draws support from the obiter dicta under The Heidberg 296 and The Northern Progress 297 ,
where the courts opined that bills of lading could be taken as referring to a future charterparty.
In particular, The Heidberg suggests that the door is left open to do so, especially in cases
where the charterparty is concluded and reduced to a written form prior to the cargo interests’
request to see a copy, and where such a copy is promptly surrendered to them at their first
request298. Most importantly, application of this exception is further narrowed in light of The
Northern Progress. In this case, the court raised the point that such an exception could be
applied, insofar as the logical sequence of the transactions justifies entering into a charterparty
contract after the bill of lading is issued, and the terms of the charterparty are usual and
reasonable299.
295
Ibid.
296
[1994] 2 Lloyd’s Rep. 287, 310
297
[1996] 2 Lloyd’s Rep. 319, 328
See The Northern Progress, above. The decision also suggests that concluding the contract and reducing it to a written
form should, in any case, be done within a reasonable time.
299
Ibid.
298
95
The Northern Progress prompts the question of in what circumstances it could be deemed
logical and justifiable to conclude a charterparty after the bill of lading is issued. A good
example of this is the position of an FOB seller, where his or her buyer rejects the bill of
lading, alleging that it is not in compliance with the requirements under the sale contract 300.
Due to the rejection of the bill of lading, the sellers, in such cases, become obliged to enter
into a charterparty agreement after the bill of lading is issued if their alternative buyers under
a new sale contract require them to enter into a contract of carriage 301 . In light of these
observations, should the unique but unfortunate position of these sellers justify incorporation
of a charterparty which was not concluded at the time the bill of lading was issued? The
Northern Progress is a compelling authority to conclude that it should, so long as the referred
charterparty contains the usual and reasonable provisions.
Since the exception has not yet found application in a bill of lading case, the general rule that
there must be a pre-existing charterparty by the time the bill of lading comes into existence
remains intact. Accordingly, the holders are well protected as a result of this firm stance,
creating invariable carriage terms in bills of lading as from the time they are made out.
Having seen where English law stands on this issue, the next section will focus on the same
under U.S. law.
bb. U.S. Law
From a general contract law perspective, there are two main hurdles preventing incorporation
of a contract which will be concluded in the future, either by one of the parties to the
incorporating agreement or between any third parties. The main barrier is one of the U.S.
rules of incorporation, which requires that the incorporation clause specify the contract to be
incorporated without leaving any doubt as to its identity302. It can, therefore, seem unlikely
that a contract which is yet to be concluded, can be incorporated. Nonetheless, in Lamb v.
Emhart such a contract was held to be incorporated inter alia because the incorporation clause
expressly provided that contractual rights of the parties be contingent upon the contracts to be
300
See Ventura Maritime Co. Ltd. v. A.D.M. Export Co, 1998 A.M.C. 1676 (E.D.La 1999), where a similar situation arose.
301
Ibid.
See Chiacchia v. National Westminster Bank USA, 124 A.D.2d 626, 628 (2d Dep’t 1986). See also Painewebber
Incorporated v. Bybyk, 81 F.3d 1193 (2d. Cir. 1996), quoted in Lord, R.A., “Williston on Contracts”, (4th edn, Database
updated May 2010) §30:25
302
96
concluded in the future303. Another compelling reason for finding in favour of incorporation
was that both parties had the opportunity to examine the formation of these future agreements
and they assented to provisions therein 304 . Hence, the court in Lamb v. Emhart Corp.
distinguished the case from those where one party to the incorporating agreement concludes a
number of contracts in the future with third parties, and seeks to introduce them into the main
agreement305.
On the applicability of Lamb v. Emhart Corp. to the bills of lading cases, it is clear that the
ruling hardly ever finds room for application precisely because many cargo interests have no
means of knowing the charterparty provisions sought to be incorporated. Most importantly,
for those cargo interests who can be taken as “strangers” within the U.S rules of
incorporation, there is no room for application of Lamb v. Emhart case. Thus, the decision
does not act as an exception to the well-known rule: incorporation can be achieved against
such cargo interests only insofar as the bill of lading makes an “unmistakable” reference to an
existing charterparty306.
Conversely, the conclusion above must not be followed where the holder is not a “stranger”307.
The principle reason is that the requirement of unmistakably specifying the charterparty
disappears in these cases, as do the time constraints to execute the same 308 . When these
circumstances arise, it is therefore likely that U.S. courts will be more inclined to incorporate
a future charterparty. This result also draws support from the decision in Lamb v. Emhart
simply because these holders have the chance of examining the formation of the referred
charterparty and to see its terms 309 . It here proves valuable to recall that, for a future
charterparty to be incorporated, Lamb v. Emhart also calls for the assent of parties to the
subsequent agreement. Nonetheless, this requirement must not be given any weight in bill of
303
47 F.3d 551 (2d. Cir. 1995).
Ibid., at 558. In addition to their knowledge on these provisions, the court also found the existence of their assent in this
respect on the basis of their subsequent conduct, mainly evidenced in the correspondence between the parties.
304
305
Ibid.
306
See Thyssen, Inc. v. M/V Markos 1999 A.M.C. 2515, 2518 (S.D.N.Y. 1999). See also Chapter 2(1) above.
307 Cargill
Ferrous International v. Sea Phoenix M/V, 2003 A.M.C. 1027 (5th Cir 2003); Keytrade USA, Inc. v. Ain
Temouchent M/V, 2005 A.M.C. 948 (5th Cir. 2005)
308
309
See Ventura Maritime Co. Ltd. v. A.D.M. Export Co, 1998 A.M.C. 1676 (E.D.La 1999)
47 F.3d 551 (2d Cir. 1995)
97
lading cases, for there is a well recognised rule that the holders are deemed to have consented
to the bill of lading terms310.
Evidently, the rule that incorporation clauses are competent to import only a pre-existing
charterparty in the required form is benignant to the holders. The rule saves them from being
a party to a contract of carriage which falls short of providing a concrete contractual position.
Equally obvious is that while increasing the reliance of the holders on their bills of lading, this
rule is conducive to the attainment of certainty in international trade. From the perspective of
carriers though, these time constraints may not work well with the way they conduct business,
despite the fact that an extensive meaning is assigned to the written requirement in both
jurisdictions. In considering these limits, carriers also need to know whether any similar time
restrictions could arise when they seek to incorporate some amendments or rectifications to
the charterparty. The next section will discuss to what extent these changes could become a
part of the bill of lading by way of incorporation.
(c) Are the bill of lading holders bound by the charterparty terms which are amended or
rectified before and after the bill of lading is made out?
Having analysed the rules of incorporation with respect to the required form of charterparties
and the time of their making, it is timely to examine the formalities and time restrictions
envisaged for the amended or rectified charterparties. The practical impact of this issue is
evident: incorporation of charterparty provisions which are altered or rectified after the bill of
lading is issued creates formidable obstacles to a firm contractual position under bill of lading
terms. Similar practical difficulties also arise from the incorporation of those charterparty
amendments which are made orally or by means of numerous telex or fax messages. These
practical dimensions make it necessary to find the answers to two key questions: for an
altered or rectified charterparty provision to be incorporated, under which form should it be
evidenced? For the same purposes, when does the amendment or rectification need to be
effected? In order to examine and discuss the legal position under U.S and English law, the
focus will first be on the formal requirements of making a charterparty variation for its
incorporation. Thereafter, the conditions with respect to its time of making will be analysed.
In the final step, to what extent the rectifications of a charterparty can be incorporated will be
analysed.
310
See Ventura Maritime, above.
98
aa. Form of amendments
On the question of formality, the line of the authorities in both jurisdictions shows weightier
reasons for suggesting that only the amendments which are deemed “written” within the
meaning of the incorporation rules are suitable for incorporation311. Under English law, the
major underpinning is the ruling in The Heidberg, where the key rule that oral charterparties
cannot be incorporated was founded312. In support of this stance, the court therein heavily
relied on the decision in Leduc v. Ward, where it was held that verbal arrangements between
the shippers and carriers did not vary the bill of lading terms 313. In acknowledging that oral
agreements cannot therefore be binding upon the transferees of the bill of lading, the court in
The Heidberg sought to give a certain level of protection to the transferees who put their faith
in their bills of lading. Viewed in that light, it is evident that The Heidberg also acts as a
barrier to incorporation of oral charterparty variations, for their incorporation has similar
destructive effects on third party holders.
It can be recalled that oral charterparties are also not taken as competent for incorporation in
U.S. law314. In the context of bills of lading, this stance was perhaps strengthened with the
ruling in The Pelotas 315 , where a similar reasoning to that used in Leduc v. Ward was
endorsed. While holding the carrier liable for deviation, the court therein refused to admit the
evidence showing that some of the shippers had actual knowledge of the proposed deviation.
They further took the view that neither the knowledge of shippers nor their verbal
arrangements with the carrier could vary the bill of lading clause requiring a direct voyage.
Most importantly, The Pelotas signalled the strenuous efforts of the U.S. courts to protect the
endorsees, who take up the bill of lading on their face value. This being so, the ruling is a
persuasive authority for the suggestion that verbal charterparty amendments should not be
treated as part of bills of lading by way of incorporation.
311
A thorough examination of this requirement is made in sub-section (B), above.
312
[1994] 2 Lloyd’s Rep. 287.
313
(1888) L.R. 20 Q.B.D. 475
314
It is striking that, under U.S. law, incorporation is defined as making reference to a document which could be an unsigned
paper, In re Prudential Insurance Co. of America, 148 S.W. 3d 124, 135, (Tex. 2004). For further discussion see sub-section
(A) below.
315
1933 A.M.C. 1188 (5th Cir. 1933)
99
While seeking to afford protection to the holders, both U.S. and English courts have,
however, refrained from taking excessively rigid approaches. Thus, the courts have refused to
confine the meaning of written amendments to formal addenda, which contain the signature of
the relevant parties 316 . Consequently, just as they have with those charterparties made or
evidenced under telex or fax exchanges317, they have taken the amendments contained in these
communications as “written” for the purposes of incorporation 318 . Nonetheless, it must be
noted that this receptive view has its own limits in that the charterparty amendments
contained or evidenced under written communications can pass the hurdles of writing
formality only insofar as the terms are ascertainable319.
For a complete evaluation, one further question must also be answered: since the rule that oral
charterparty amendments cannot be incorporated is largely justified on the basis of the fragile
position of the third party holders, is there room for an exception when the bill of lading
remains in the hands of shippers? On the applicability of those amendments to the shipper,
there is a more appropriate question under English law: where is the contract of carriage
between the shipper and carrier? It is clear, under English law, that bills of lading in these
cases merely function as evidence of the contract of carriage 320 , and oral arrangements
between the parties could constitute the whole or part of the contract 321 . This does not,
however, challenge the rule that a bill of lading cannot be subject to alteration through oral
agreements.
Albeit implicitly, this line of reasoning was followed in The Spiros C. where the shipowner
argued that the holder failed to pay the freight under the bills of lading, which incorporated
For English law, see Fidelitas Shipping Co. v. V/O Exportchleb [1963] 2 Lloyd’s Rep. 113. For U.S. law, see Japan Sun
Oil Co. Ltd. v. The M/V Maasdijk, 1995 A.M.C. 726 (E.D.La 1994)
316
For English law see, The Epsilon Rosa, [2003] 2 Lloyd’s Rep. 509. For U.S. law, see Thyssen, Inc. v. M/V Markos, 1999
A.M.C. 2515, 2518 (S.D.N.Y. 1999)
317
318
See supra note 316
See supra note 234. Another prerequisite is envisaged in Fidelitas, above, for the court therein took the view that, for the
variations to be incorporated, they must be submitted to the holders, when these parties are provided with a copy of the
relevant charterparty, see at 120. This conclusion is also acceptable under U.S. law, inasmuch as the element of “notice”
plays a vital role in addresing the incorporation issue, see Davies M., “Jurisdiction Clauses and Forum Selection in
International Maritime Law”, (2005), pg. 27. See also Chapter 2(2) hereof. For a contrary view under English law, see The
Heidberg, where the court stated that “incorporation should not be dependent on whether terms have fairly and reasonably
been brought to the notice of the shipper”, [1994] 2 Lloyd’s Rep. 287, 313.
319
320
321
See The Ardennes, [1951] K.B. 55
Ibid.
100
the sub-charterparty 322 . There, the shipper effected the payment of freight pursuant to the
verbal amendment to the sub-charterparty, which was made between himself as the subcharterer and the time charterer. Claiming the bill of lading freight as the contractual carrier,
the shipowner thus sought to establish that the bill of lading merely incorporated the subcharterparty without the verbal alteration.
Despite the force of these arguments, the Court of Appeal in The Spiros C upheld that the
amendment concerned was binding upon the carrier and shipper. This finding was supported
on two main grounds: firstly, the bill of lading was merely treated as evidence of the contract
of carriage between the parties 323. Secondly, the time charterer was held to have acted on
behalf of the shipowner in making the verbal alterations on the mode of payment of subcharter freight324. In upholding this, the court did not need to make a further inquiry into the
question of whether the amendment was incorporated into the bill of lading along with the
sub-charterparty.
So far as U.S. law is concerned, there are even weightier reasons for the suggestion that
verbal charterparty amendments cannot be incorporated, regardless of the fact that the bill of
lading remains in the hands of the shipper. One of the most persuasive arguments is that U.S.
courts have predominantly been hostile towards variation of the bill of lading terms through
verbal agreements325. There is also another reason: viewing the bills of lading as conclusive
evidence of the contract of carriage between shippers and carriers, the courts refuse to give
effect to oral agreements even between these parties326. It naturally flows from this position
that had the facts identical to those in The Spiros C been put before a U.S. court, they would
have taken a rather different view.
bb. Time of making the amendments
Having stipulated the formal requirements of making charterparty amendments binding upon
the bill of lading holder, it is timely to ask when these alterations need to be made for
322
See The Spiros C. [2000] 2 Lloyd’s Rep. 319, 329
323
Ibid., at 328 quoting The Ardennes, above.
324
Ibid., at 329
325
See The Delaware, 81 U.S. 579, (U.S. 1872). See also supra notes 227 and 230.
Ibid.
326
101
incorporation. Under English law, no special incorporation language is required under bills of
lading in order to import the charterparty clauses which have been altered prior to their
issue327. For the alterations made posterior to the issue date, it is clear that carriers cannot
achieve incorporation by simply establishing that the holder has actual knowledge of these
variations, since the rules of incorporation are not founded on the notice of these terms328.
However, English law is unclear on the issue of whether these parties could meet with success
when they introduce an incorporation clause, particularly in the case of future amendments to
the referred charterparty329. Considering the underlying purpose of The Heidberg, which was
to prevent holders from being bound by unascertainable contract terms, English courts will be
more inclined to attribute a restrictive meaning to the identified incorporation clause. There
are also other forceful reasons for construing the clause as capable of importing merely the
pre-existing charterparty alterations: this reading not only creates a firm contractual position
under bills of lading for the benefit of cargo interests, but also increases transferability of
these instruments. English courts will surely consider these salutary effects of the restrictive
reading, given that they have been reluctant to read contract terms in a way which produces
unreasonable or irrational results 330 . Consequently, it is difficult to argue that a special
incorporation language could easily succeed the incorporation of future alterations.
Under U.S. law, the view taken towards this issue is the same as that of English law, as long
as cargo interests are not “strangers” to the charterparty 331 . Accordingly, in the case of a
“stranger” cargo interest, only charterparty provisions which have been altered before the bill
of lading is issued can be incorporated332, and importation of these provisions into the bills of
lading does not entail any special wording333. However, the future charterparty amendments
are unlikely to be apt for incorporation against such holders, regardless of a special language
327
See Fidelitas Shipping Co. v. V/O Exportchleb [1963] 2 Lloyd’s Rep. 113.
Siboti v. K/S v. BP France S.A., [2003] 2 Lloyd’s Rep. 364, 368; The Heidberg, [1994] 2 Lloyd’s Rep. 287, 313. For a
similar view, see Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.63 and Gaskell N., et al, “Bills of
Lading: Law and Contracts”, (2000), para. 21.32.
328
329
See Gaskell N., et al, “Bills of Lading: Law and Contracts”, (2000), para. 21.32
For bills of lading context, see The Miramar, [1984] 2 Lloyd’s Rep. 129. From a general contract law perspective, see
Schuler v. Wickman Machine Tool Sales Ltd., [1974] A.C. 235. See also, supra notes 159-160.
331 Lamb v. Emhart Corp., 47 F.3d 551 (2d Cir. 1995)
330
332
For U.S. law, see Japan Sun Oil Co. Ltd. v. The M/V Maasdijk, 1995 A.M.C. 726 (E.D.La 1994)
333
Ibid.
102
to that effect. This is best explained by the embedded U.S. rule of incorporation which
dictates making “unmistakable reference” to an existing charterparty under bill of lading
terms. Evidently, these barriers will disappear in the presence of a holder who is not a
“stranger” to the referred charterparty. As the famous Lamb v. Emhart so suggests, carriers
will be able to introduce future alterations into the bill of lading against these holders insofar
as there is an incorporation language to that effect334.
cc. Incorporation of rectified charterparties
Having concluded that amended charterparties may well be introduced into the bills of lading,
a further question, of even more difficulty, arises: could a charterparty be qualified for
incorporation, even though it has been reformed by the courts under the remedy of
rectification? As can be gleaned from U.S. and English case law, the courts have been
extremely cautious while exercising the discretion to grant rectification so as not to damage
certainty in commercial contracts 335 . Perhaps with a view to preventing parties from
sidestepping their contractual obligations, the courts rectify a written contract only where the
actual intention of the parties is not reflected accurately in the contract by reason of a mutual
mistake336. Where there is a unilateral mistake caused by fraud or misrepresentation, or unfair
dealing, the courts could also grant rectification 337 . Regardless of its limited scope of
application, rectification is a “drastic”338 remedy, for the inquiry on mutual mistake or fraud is
334
For further explanations, see sub-section (b) above.
For English law, see The Olympic Pride, [1980] 2 Lloyd’s Rep. 67, 73. For U.S. law, see Snell v. Insurance Company, 98
U.S. 85, 89-90 (U.S. 1878); Backer Management Corp. v. Acme Quilting Co., 385 N.E.2d 1062, 1066 (N.Y. 1978); Chimart
Associates v. David Paul, 66 N.Y. 2d 570 (N.Y. 1986). Under U.S. law this equitable remedy is widely known as
“reformation” instead of rectification, Restatement (Second) On Contracts, § 155
335
For U.S. law, see Backer Management Corp., above; Winmar Co. Inc. v. Teachers Insurance and Annuity Association of
America, 870 F.Supp. 524, 535 (S.D.N.Y. 1994); Manufacturers’ Finance Co. v. McKey, 294 U.S. 442 (U.S. 1935);
American President Lines Ltd. v. United States, 821 F.2d 1571, 1582 (Fed. Cir. 1987); Mutual of Omaha Insurance Co. v.
Russell, 402 F.2d 339, 344 (10th Cir. 1968), cert. denied, 394 U.S. 973 (U.S. 1969). See also, Lord R.A., “Williston on
Contracts”, (Database updated May 2010), § 70:25. For English law, Murray v. Parker (1854) 19 Beav 305 and Burroughs v.
Abbott [1922] 1 Ch. 86 quoted in Beale H.G., et al, “Chitty on Contracts”, (Vol: 1), (30th edn, 2008), para 5-108 fn. 442 and
443. See also, Chartbrook Ltd. v. Persimmon Homes Ltd., [2009] UKHL 38, para 48; Hoblyn v. Hoblyn (1889) 41 Ch. D 200,
quoted in Hudson A., “Equity & Trusts”, (4th edn, 2005), para 28.3.3.
336
For English law, see Wood v. Scarth (1855) 2 K & J 33; May v. Platt [1900] 1 Ch. 616; McCausland v. Young [1949] N.I.
49 quoted in Chitty on Contracts, above, at para 5-115 fn. 471 and 472. For U.S law, see Restatement (Second) On Contracts,
§ 155 para (b).
337
338
McLauchlan D., “The ‘drastic’ remedy of rectification for unilateral mistake”, (2008) L.Q.R. 608
103
not confined to the contract wording, and extrinsic evidence is, therefore, admissible for this
purpose339.
Limited availability of this equitable relief clearly signals the hostility of the courts towards
making or rewriting the contracts for parties 340. As the English and U.S. authorities attest,
imperfect contracts have frequently been cured by way of their construction as a whole 341. In
this respect, construction of the document is made pursuant to intention of parties which can
be reasonably ascertained both from the words used therein342 and from the objective purpose
of the contract343.
Given that, unlike contract construction, rectification entails reframing the contract pursuant
to the actual intention of the parties, could it be said that a rectified charterparty can be
incorporated and be binding upon a third party holder? It is a well-recognised proposition of
general contract law in both jurisdictions that a contract cannot be rectified to the detriment of
a third party, where the third party has relied on the contract provisions in good faith and
without notice of the mistake344. Having endorsed this reasoning in bill of lading cases, both
English and U.S. courts have taken the view that bill of lading terms can only be afforded to
For English law, see Investors Compensation Scheme Ltd. v. West Bromwich Building Society (No.1), [1998] 1 W.L.R.
896, 912. See also, Lewison K., “The Interpretation of Contracts”, (2007), 347. For U.S. law, see Snell v. Insurance Company,
above.
339
For English law, The Starsin, [2004] 1 A.C. 715, 740, per Lord Bingham. For U.S. law, see Cruden v. Bank of New York,
957 F.2d 961, 976 (2d Cir. 1992)
340
341
For U.S. law, see Restatement (Second) On Contracts, § 202(d). For English law, see The Nerano, [1996] 1 Lloyd’s Rep.
1
For U.S. law, see RJE Corp. v. Northville Industries Corp., 329 F.3d 310, 314 (2d Cir. 2003); Law Debenture Trust Co. of
New York v. Maverick Tube Corp., 595 F.3d 458 (2d Cir. 2010). For English law, see Adamastos Shipping Co. Ltd. v. AngloSaxon Petroleum Co. Ltd., [1959] A.C. 133, 176.
342
For English law, see Prenn v. Simmonds, [1971] 1 W.L.R. 1381, 1385, per Lord Wilberforce, where reference was made
to “genesis and aim of the transaction”. See also, Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen, [1976] 1 W.L.R. 989;
Investors Compensation Scheme Ltd. v. West Bromwich Building Society (No.1), [1998] 1 W.L.R. 896; L. Schuler A.G. v.
Wickman Machine Tool Sales Ltd., [1974] A.C. 235, 251. For U.S. law, see Restatement (Second) On Contracts, § 155
343
For English law, see Bell v. Cundall (1750) Amb. 101; Smith v. Jones [1954] 1 W.L.R. 1089; Lyme Valley Squash Club
Ltd. v. Newcastle-under-Lyme BC. [1985] 2 All E.R. 405, 413, quoted in Beale H.G., et al, “Chitty on Contracts”, (Vol: 1),
(30th edn, 2008), para 5-130 fn. 534. See also the obiter dicta of Steyn J. in The Cebu [1993] Q.B. 1, 15. For U.S. law, see
Bolduc v. Beal Bank, SSB, 167 F.3d 667, 669, 674 (1st Cir. 1999); Fidelity Bank v. Lutheran Mutual Life Insurance Co., 465
F.2d 211, 214 (10th Cir. 1972); Great Atlantic Insurance Co. v. Liberty Mutual Insurance Co., 773 F.2d 976, 980-981 (8th
Cir. 1985). See also, Restatement (Second) On Contracts, § 155 para (f)
344
104
the original parties to the bill of lading 345 . Consequently, they have refused to grant
rectification, where the bill of lading has been negotiated to a third party346.
On the question of incorporation, it is difficult to argue that rectified charterparties be taken as
inapt for incorporation merely because their terms have been reformed by the courts.
Nonetheless, as the above explanations clearly indicate, rectifications made thereunder will
not be binding upon third party bill of lading holders particularly since they do not even have
any means of knowing the referred charterparty provisions. Along the same lines, those
modifications will equally be inapplicable to the carriers who are not parties to the relevant
charterparty.
dd. Concluding remarks
This subsection has highlighted the prerequisites for importing charterparty variations in
terms of their form and time of making. The rule that incorporation clauses cannot be taken as
apt to introduce future and oral charterparties surely has salutary effects on bill of lading
holders, who would naturally wish to be bound by an invariable and ascertainable contract of
carriage. It is worth noting that carriers too could draw benefit from these restrictions. This
could happen in cases where, for instance, the bill of lading incorporates a charterparty to
which the carrier is not party, and the holder pays the freight pursuant to the charterparty
terms which have been amended verbally or after the issue date of the bills of lading347.
So far as the extended meaning of the “writing requirement” is concerned, it is clear that both
charterparties and their amendments made or evidenced under telex or fax exchanges qualify
for incorporation. It is, however, much less clear whether the variations under e-mails could
also be deemed written as well. Given that arbitration agreements concluded via e-mails are
considered to be in writing, it is tempting to think that charterparties made or evidenced
thereunder should also be apt for incorporation. When the writing formality is applied in that
sense, this could create practical difficulties in identifying the referred charterparty content.
For U.S. law, see Baxter v. Leland, 1 Abb. Adm. 348, 2 F.Cas. 1048, No. 1124 (D.C.N.Y. 1848), For English law, see The
Merak, [1965] P. 223
345
For English law, see The Merak, above. For U.S. law, see Bradstreet v. Heran, 2 Blatchf. 116, 3 F.Cas. 1183, No. 1792A,
(C.C.N.Y. 1849); Restatement (Second) On Contracts, § 155.
346
347
The carriers will not, however, be entitled to claim freight by relying on these incorporation rules in cases where the
freight is deemed to have been collected previously on behalf of the carrier, for English law, see The Spiros C. [2000] 2
Lloyd’s Rep. 319. For U.S. law, see Strachan Shipping Co. v. Dresser, Industries, 1984 A.M.C. 237, 241-242 (5th Cir. 1983);
Brothers v. Commodity Futures Trading Association, 33 F.3d 405 (4th Cir. 2002).
105
Nonetheless, the relaxed formalities for arbitration agreements clearly signal that the same
relaxation is likely to be recognised for the writing requirement in this context. Having
examined the requirements pertaining to the incorporation of modified charterparties, the
remainder of this chapter will evaluate the possibilities of incorporating a charterparty which
has been rescinded, terminated or invalidated.
(d) Can a charterparty be incorporated even though it has been rescinded, terminated
or invalidated?
When a charterparty, which is sought to be incorporated is repudiated, rescinded or
terminated, cargo interests may take the view that this fact is of itself sufficient to defeat
incorporation, since such a charterparty is not even in force between its original parties.
Through the eyes of a carrier who is a party to the referred charterparty, and who no longer
wishes to be bound by the terms of this contract due to a material mistake or illegality,
incorporation may also not be in their best interests.
However, where the referred charterparty has been terminated or rescinded, it is likely that
carriers will favour incorporation in order to recover the charges arising under the
charterparty from respective cargo interests. It is common ground that the issue of whether the
contractual status of charterparties has any effect on their incorporation into bills of lading is
inherent in the answer to one critical question: is incorporation of a charterparty treated as
importation of provisions alone, or does it entail incorporating the provisions of a contract
which is effective between its original parties?
Under U.S. law, the predominant view has been to treat incorporation as no more than
importing a set of terms which do not necessarily have to form a contract 348 . This lends
support to the proposition that a charterparty can be incorporated into a bill of lading,
irrespective of the fact that it is no longer binding between its original parties due to its being
rescinded, repudiated or invalidated. Similarly, under English law, the mere fact that the
relevant charterparty is repudiated will not itself debar incorporation349. Moreover, the weight
of English authorities further suggests that the existence of a mistake, misrepresentation, non-
Shaw v. Regents of University of California, 58 Cal. App. 4th 44, 67 Cal. Rptr. 2d 850, 121 Ed. Law Rep. 261 (3d Dist.
1997), quoted in Coltoff P.M., et al, “Corpus Juris Secundum”, (Database updated May 2010), 17A C.J.S. Contracts § 316.
349 Akt. Ocean v. Harding [1928] 2 K.D. 371 quoted in Debattista C., “Halsbury’s Laws of England” (5th edn, 2008), Vol: 7,
Section 360
348
106
disclosure, fraud or ultra vires on the part of the agent350, whilst concluding the charterparty
on behalf of the principal should not be fatal to incorporation351.
Nonetheless, it is clear in both jurisdictions that the court will not endorse such a receptive
approach towards incorporation in cases where the incorporation clause expressly
contemplates the charterparties which are effective between its original parties352. Conversely,
the contractual status of the referred charterparty has no bearing on the question of
incorporation in the absence of a special incorporation language to that effect.
Treating incorporation of charterparties merely as an importation of its provisions is sound
and persuasive. If the contrary were assumed, deciding on incorporation would involve a
more complicated assessment, on the grounds that courts would need to examine whether the
referred charterparty is valid and enforceable between its original parties. Such an inquiry
would put a strain on the resolution of this issue, especially in cases where the referred
charterparty and bills of lading are governed by different applicable laws. Even though the
applicable laws of both contracts are the same, examining the existence of a material mistake,
illegality or incapacity under the charter party would pose a challenge, since this may entail
sweeping investigations. Most importantly, the view adopted in both jurisdictions is also
conducive to making an unvarying representation under these transferable instruments. Had
these contracts been made vulnerable to the status of a charterparty, this would have created
serious uncertainties due to the possibility that charterparties may become inoperative
between their original parties after the bill of lading is issued.
4. Conclusion
The cardinal rules of contract law, which suggest that parties can only be bound by the terms
which they have seen and agreed to, have no application to incorporation of charterparty
clauses into bills of lading. Accordingly, what cargo interests need to be concerned about is
an unseen charterparty which may be a part of their contract of carriage if it overcomes the
hurdles under the rules of incorporation. This chapter identified the first-step rules of
For a view which supports incorporation of the charterparties, in case of ultra vires on the part of charterers see, Treitel G.
and Reynolds F.M.B., “Carver on Bills of Lading”, (2nd edn, 2005), para: 3-029, Also see Akt. Ocean v. Harding, [1928] 2
K.B. 371, 383-384, where it was stated that such a charterparty would bind shipowners, only if they gave consent to the
charterparty.
350
351
Akt. Ocean v. Harding, above at 393-394.
For English law, see ibid., at 383-384. For U.S. law, see The Michael Thanasis, 311 F.Supp. 170, 175, (D.C. Cal 1970)
quoted in Coltoff P.M., above.
352
107
incorporation, to which cargo interests should pay particular attention before seeking a copy
of the referred charterparty, as these rules may render either the bills of lading or the
charterparty inapt for incorporation.
The analysis and discussion made thus far lead to the conclusion that both carriers and cargo
interests should be mindful of the striking differences between U.S. and English law
regarding this issue. In particular, they need to bear in mind that English law sets the rules
without considering the position or the knowledge of bill of lading holders, while U.S. law
adopts variable rules of incorporation which are mainly founded on the position of the bill of
lading holder. A key point under U.S. law is that this approach makes it possible for a bill of
lading to provide a different contract for each subsequent bill of lading holder. While this
unstable contractual position, thus created under these transferable instruments, is open to
criticism, the U.S. approach causes the incorporation issue to be more than a mere technical
inquiry. On that basis, the U.S. formulation could be taken to provide fairness to the parties.
While paying particular attention to these differences, both carriers and bill of lading holders
must consider one key point: the rules outlined thus far are only decisive in determining
whether the referred charterparty or the bills of lading are appropriate for incorporation.
Consequently, they are not decisive with respect to which charterparty terms may be included
in the bills of lading by virtue of the incorporation language. The next chapter will examine
and discuss which charterparty provisions can be introduced through the language of
incorporation.
CHAPTER III: WHAT INCORPORATION WORDING BRINGS
WHICH CHARTERPARTY TERMS INTO THE BILLS OF LADING?
In international trade where cif sellers enter into a voyage charterparty as required under their
sale contracts, naturally they would wish to no longer be bound by charterparty obligations
108
after the shipment of the cargo. The reason for this is that the cif sellers viz. the charterers lose
their interest in the goods, and hence in the charterparty under which the goods are carried,
from the moment of selling them to the respective buyers 353. To meet the expectations of these
parties some voyage charterparty forms introduce cesser clauses, which purport to end the
charterer’s liability when the cargo is shipped on board and payment of freight and other
charges, if any, incurred under the charterparty, are fully paid 354 . In consideration of the
cessation of liability, cesser clauses also provide a right of lien for the benefit of the
shipowners to secure the payment of the sums due under the charterparty355.
With regard to the application of cesser clauses, the prevailing approach of English and U.S.
courts has been to proceed upon one key premise: shipowners could not reasonably be
expected to release charterers of liability without obtaining an effective remedy in exchange 356.
Hence, unless the cesser clause does not clearly state otherwise 357 , these provisions are
construed as being applicable only when the cessation of liability is conditional upon, and coextensive with, an effective right of lien on the cargo358. The rationale behind this approach
being to provide a safety net for shipowners, the courts have allowed charterers to rely on
cesser clauses in-so-far as shipowners have a commensurate remedy to retrieve their losses
and payments due under the charterparty359.
Despite these precautionary measures to balance the interests of parties, the position of
shipowners towards charterers is, nevertheless, weakened when the bill of lading that relates
353
Miller M.A., 26 Tul. Mar. L.J. 71, Winter 2001, Charterparty Symposium- Part II, ’71. Cesser Clauses’, pg. 72
354
Ibid., at 71. See Article 8 of “Gencon” Charter, as revised 1922 and 1976.
Such as freight, dead-freight, and demurrage, for English law see The Aegis Britannic, [1987] 1 Lloyd’s Rep. 119. For U.S.
law, see Yone Suzuki v. Central Argentine Railway Limited, 1928 A.M.C. 1521, (2d Cir. 1928), Cert. Denied, 278 U.S. 652
(U.S. 1929)
355
For U.S. law, see Crossman v. Burril, 179 U.S. 100 (U.S. 1900), for English law, see Clink v. Radford & Co. [1891] 1
Q.B. 625, 627-628; The Sinoe, [1972] 1 Lloyd’s Rep. 201
356
For English law, see The Aegis Brittanic Shipping, above, and for U.S. law, see Crossman v. Burril, 179 U.S. 100, (U.S.
1900)
357
For English law see, Fidelitas Shipping Co. v. V/O Exportchleb, [1963] 2 Lloyd’s Rep. 113, 120-121; Hansen v. Harrold
Brothers, [1894] 1 Q.B. 612, 618. For U.S. law, see Crossman v. Burril, above, at 1809-1810.
359 Ibid. It must be noted that, some judicial decisions clearly convey the impression that the existence of an in personam
liability of the consignee for the payment of relevant charges could be relevant in resolving the charterer’s cessation of
liability. For U.S. law, see Crossman v. Burril, above and for English law see, The Aegis Britannic, above quoted in Cooke, J.,
Young, T., et al, “Voyage Charters”, (3rd edn, 2007), para: 17.3.
358
109
to the cargo is negotiated to a third party360. The concerned fragility derives from the rule of
privity of contract361, which hinders the shipowners in their attempts to invoke lien and other
rights arising under the charterparty against a third party holder. The practical impact of this
barrier is evident: Upon the endorsement of the bill of lading, shipowners would naturally
wish to lien the cargo of the third-party bill of lading holders in case of unpaid charges due
under the charterparty. Exercising a lien on the cargo stands out as the most effective option
for these parties, inasmuch as the holders have the ultimate interest in the cargo and will thus
claim the delivery of cargo at the port of discharge. Nonetheless, due to the identified rule,
shipowners are debarred from relying on the various favourable charterparty provisions,
including those relating to lien, against the holders, unless the bill of lading effectively
incorporates the charterparty.
On the question of how the privity rule operates as a barrier to the enforcement of charterparty
lien provisions against the third party holders, a closer look must be taken at the legal position
held in both jurisdictions. Under U.S. law, the general rule is that no lien can be asserted on
the holder’s cargo for the charges arising from the charterparty unless there is an appropriate
lien clause, either expressly stipulated under bills of lading or incorporated thereinto 362. The
exception to this rule is that where the respective charterparties of the shipowners give them
the right to lien for the sub-freights363, they are entitled, as a “subrogee”, to claim these sums
which become due at the time of their demand364. In those cases, shipowners can also lien the
cargo of the third party holders up to the amount of the bill of lading freight365. Nonetheless,
the courts have refused to extend the scope of this exception and disallowed shipowners to
claim the sub-freights if the holders have made payment in good faith to the charterer before
receiving notice of the lien366.
360
Todd P., “Incorporation of Arbitration Clauses into the Bills of Lading”, (1997) JBL 331, 340-341
For U.S. law, see Trans-Asiatic Oil Ltd., S.A. v. Apex Oil Company, 1987 A.M.C. 1115, (1st Cir. 1986). For English law,
see Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [1915] A.C. 847
361
362
Goodpasture Inc. v. The Pollux, 602 F.2d 84 (5th Cir. 1979)
Right to lien could also extend to other expenses by virtue of the charterparty lien clause, see Davis v. Smokeless Fuel Co.,
196 F. 753, 755 (2d Cir. 1912), Cert. denied 229 U.S. 617 (U.S. 1912), quoted in Cooke J., et al, “Voyage Charters”, (2007),
17-65, 17-66.
364 See Bieghl & Co Inc. v. Apollonia Holding Inc., 1993 A.M.C. 2408 (E.D.La., 1988); American Steel Barge Co. v.
Chesapeake & Ohio Coal Agency Co., 115 F. 669, 672-674 (1st Cir. 1902); Finora Co. Inc. v. Amitie Shipping Ltd., 1995
A.M.C. 2014 (4th Cir. 1995).
363
365
See American Steel Barge, above. See also, Cooke, above at 17-59.
366
See Cornish Shipping Ltd. v. International Nederlanden Bank N.V., 53 F.3d 499, 504 (2d Cir. 1995).
110
The privity rule also constitutes the basis of the English approach towards liens. Hence,
English courts have repeatedly held that shipowners are entitled to lien the cargo of thirdparty holders for the charges under the charterparty367 where there is a lien clause expressly
stipulated under bills of lading or incorporated thereinto368. This reasoning was endorsed in
The Miramar, where the shipowner was justified for exercising a lien against the holder’s
cargo for the unpaid demurrage arising from the charterparty369. There, the shipowners were
allowed to avail themselves of the charterparty lien clause which was incorporated into the
bill of lading, regardless of the fact that the holders were held to be not personally liable for
the demurrage under the charterparty370.
Where there is no express or incorporated lien provision under bills of lading, could it be said
that shipowners are completely prevented from relying on their charterparty lien provisions
against the holders? Similar to U.S. law, here shipowners have the right to intercept the
holder’s payment of their sub-freights where the charterer fails to pay the charter hire or
freight. In order for these parties to do so, there must be an appropriate lien clause in their
respective charterparties conferring the right to assert lien on these charges371.
As is clear, interception of the payment of sub-freight does not, however, create the same
practical advantages as retaining the possession of the cargo to secure the unpaid charterparty
367
It must be noted that even in the absence of a provision to that effect, shipowners are entitled, by law, to lien cargo for
certain types of expenses, such as storage charges of the goods. For U.S. law, see Wells Fargo & Co., Express, S.A. v.
Tribolet, 46 Ariz. 311, 50 P.2d 878 (Ariz. 1935), quoted in Blum G., et al, “American Jurisprudence” (2 nd edn, database
updated April, 2010). For English law, see Hingston v. Wendt, (1876) 1 Q.B.D. 367, 372-373; Crooks v. Allan, (1979) 5
Q.B.D. 38 (“for general average”) quoted in Boyd S.C., et al, “Scrutton on Charterparties and Bills of Lading”, (21 st edn,
2008), paras. A184, A143. See also, Baatz Y., “Southampton on Shipping Law”, (2008), pg: 88. In both jurisdictions this
includes freight payable on delivery. For U.S. law, see The Bird Paradise, 72 U.S. 545, (U.S. 1866), for English law, see
Dakin v. Oxley, (1864) 15 C.B. 646, 664 quoted in Scrutton, above, at para. A161. Under U.S. law, lien could also arise by
force of law for all demurrage charges, Atlantic Richfield Co. v. Good Hope Refineries, 604 F.2d 865, 872 (5th Cir. 1979)
For English law, see The Spiros C., [2000] 2 Lloyd’s Rep. 319; The Agios Giorgis, [1976] 2 Lloyd’s Rep. 192. See also
Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 17.16.
368
For English law, see The Miramar, [1983] 2 Lloyd’s Rep. 319. The decision stands as the authority for the proposition
that personal liability is not a quid pro quo for the exercise of lien. See Baatz Y., “Southampton on Shipping Law”, (2008),
pg: 89.
369
370
It must be noted that different considerations arise where the bill of lading contains a freight or demurrage rate different
from that under the referred charterparty. In such circumstances, the right to lien the cargo is limited to the amount provided
under the bills of lading, see Gardner & Sons v. Trechmann (1884) 15 Q.B.D. 154; Fry v. Merchantile Bank of India (1866)
L.R. 1 C.P. 689
371
See The Spiros C., [2000] 2 Lloyd’s Rep. 319; Samsun Logix Corp v. Oceantrade Corp. [2008] 1 Lloyd’s Rep. 450
111
charges372. For this reason, it is in the best interests of shipowners to make sure that their
respective charterparty lien clauses are incorporated into the bills of lading, with the effect
that they could lien the cargo of the holders for the sums due under the charterparty. So far as
U.S. law is concerned, similar practical benefits arise from the use of incorporation clauses.
This is precisely because, on the incorporation of the charterparty lien clause, these parties
retain the right to lien the cargo beyond the amount of unpaid sub-freights373.
Incorporation of charterparties also has practical significance for charterers when they seek to
relieve themselves of liability pursuant to the cesser clause. This is best understood in light of
the fact that if these parties do not shift their liabilities to the holders by way of incorporation
of the charterparty, they will not be able to resort to the cesser clause and therefore remain
liable vis-à-vis the shipowners. To put it another way, the cesser clause will not be available
to the charterer who fails to incorporate, since the shipowners, in such cases, have no effective
remedy against the holders in order to recover the charges due under the charterparty374, nor
do they have a right to lien to retrieve the unpaid sums375.
Turning to the position of shipowners, being deprived of the right to invoke the charterparty
provisions against the holders has adverse effects on these parties, who have time or voyage
chartered their vessels376. In support of this, it must be considered that the only security for
shipowners to enforce their contractual rights under the charterparty lies with the goods that
they carry. Hence, it becomes of vital importance to shipowners to ensure that the goods
remain their responsibility for the charges and rights arising under the charterparty, though the
bill of lading covering the goods is negotiated to a third party.
372
See Baatz, above at 88
373
Unless, of course, there is an express bill of lading provision which is inconsistent with the charterparty lien clause for the
rule of inconsistency, see Chapter 5(1). See American Steel Barge Co. v. Chesapeake & Ohio Coal Agency Co., 115 F. 669
quoted in McKearn J.W., “Shipowner Denied Lien Against Third Party’s Cargo for Charterer’s Unpaid Charter Hire”, (1980)
26 Loy. L. Rev. 416, 417-418.
374
See supra note 357.
For U.S. law, see Crossman v. Burril, 179 U.S. 100, (U.S. 1900); Crossman v. Burril; The Arizpa, 1933 A.M.C. 224 (4th
Cir. 1933). For English Law, see The Aegis Britannic, [1987] 1 Lloyd’s Rep. 119, 121-122 and Todd P., “Incorporation of
Arbitration Clauses into the Bills of Lading”, (1997) JBL 331, at 341.
376 It should be noted that where charterers are the contractual carriers, it is not the shipowners but the charterers who wish to
retain their rights under the charterparty against the bill of lading holders.
375
112
The observations above underline the fact that incorporation of charterparty terms into the
bills of lading becomes desirable both for shipowners and charterers. For these parties, who
would obviously wish to overcome the barriers of incorporation, this chapter provides the
second-step guidelines. The parties have a stake in knowing these rules on the grounds that,
even after having complied with the prerequisites for incorporation as spelled out in the first
chapter, they need to consider one further issue: to what extent will the incorporation clause
carry the charterparty clauses into the bills of lading? When the different nature of the various
charterparty clauses is taken into account, it is far too unrealistic to assume that all
charterparty terms could be introduced into the bills of lading, irrespective of the wording of
the incorporation clause. Given that the parties need to ensure incorporation of some specific
charterparty clauses, such as those relating to lien, demurrage, forum selection and freight,
they must find the answer to one critical question: what words of incorporation should be
used in order to incorporate particular charterparty provisions?
Despite a clearly drafted incorporation clause with sufficient breadth to introduce the desired
charterparty provisions, a further problem usually arises due to the wording of the
charterparty clauses which, for instance, simply refer to the charterer. If one instinctively
reads these terms in haec verba under bill of lading terms, these provisions will surely be
viewed as neither relevant nor applicable to the cargo interest 377 . Yet, a pro-shipowner
approach could suggest transforming the word “the charterers” to “the receivers”, for instance,
in order to adapt this wording into the bills of lading and make the cargo interests bound by
these terms.
With a view to striking a balance between these conflicting interests, both U.S. and English
courts exercise great caution in employing the method of so-called “verbal manipulation”378.
The reason for their vigilance is to provide a certain level of protection to cargo interests, who
have no means of knowing the terms of the charterparty, including its various provisions
drafted for the benefit of carriers379. Nevertheless, in order to give effect to the incorporation
clause to some extent, the courts resort to this method and therefore adapt the imported
charterparty provisions into the bill of lading. When the issue of “manipulation” is viewed in
377
378
379
See Hamilton & Co. v. Mackie Sons, (1889) 5 TLR 677
See The Merak, [1965] P. 223, 260
See Chapter 3(2) hereunder.
113
that light, it becomes necessary to ask to what extent it is permissible to “manipulate” 380 these
words in order to bind the cargo interests, who run the risk of being subject to unforeseeable
liabilities towards the carriers.
Since these unfavourable construction methods could substantially change the content of the
contract of carriage, the holders are likely to use the “non-contractual claim” shield by stating
that the claim is based not on contract of carriage but on tort. Likewise, they may contend that
the narrowness of the incorporated clause debars its application to their case. Obviously, the
pivotal point in the resolution of all these matters, is how the incorporated charterparty
provisions are construed and what their scope of application is in the context of bills of lading.
In this chapter, the focus will firstly be on the issue of what words of incorporation are apt to
describe and refer to which charterparty terms. Moving on from the legal impact of the
incorporation wording, the paper will then go on to consider to what extent the courts could
allow verbal manipulation. Finally, the extent to which the incorporated provisions could be
applied to the bill of lading holder, especially in case of non-contractual claims, will be
considered.
1. What words of incorporation are apt to introduce which charterparty terms into the
bills of lading?
Anyone examining the widely used Congenbill 1994 form cannot fail to see the incorporation
clause on its reverse side, which reads “all terms, conditions and exceptions as per
charterparty including law and arbitration clause”. Evidently, this or a similar language is
employed so as to import all the relevant charterparty provisions into the bills of lading. Yet,
one may wonder at the reason for this long wording under the incorporation clause, since the
words “all terms as per charterparty” would appear to be perfectly sufficient to attain this
objective.
The reason for this language can simply be explained by the drastic change in the
incorporation clause over these years. In the early days it simply read, “paying for the said
380
Lord Justice Russell in The Merak [1965] P. 223, 260.
114
goods as per charterparty”381 or “paying freight and all conditions as per charterparty”382. In
other words, it can easily be inferred from the change over the years that the recognised
construction method for incorporation clauses is very different from giving the words their
sole literal meaning. This being so, shipowners must analyse what incorporation words could
aptly describe the particular charterparty clauses that they wish to bring into the bills of lading.
In a fluctuating freight market, shipowners who seek to compel their respective holders to pay
the freight as per the charterparty rate may find it safer to expressly identify the charterparty
freight in the incorporation clause. However, coupled with the freight provisions of the
charterparty, these parties can also be anxious about incorporation of other terms such as
those relating to demurrage, lien and forum selection. In these circumstances, it will be in
their best interests to find the answers to a number of key questions: is it possible to achieve
incorporation of all charterparty provisions if the express reference to “freight” is juxtaposed
with the words “and all other conditions”? In case of such an incorporation clause, does a
specific reference to “freight” lead to incorporation of only the terms that are ejusdem generis
with the provisions as to freight, or will they be effective to carry all other charter provisions?
To defeat the application of the ejusdem generis rule, would a general reference to “all terms
and conditions whatsoever” of the charterparty be apt to import various charterparty
provisions? Does an incorporation language, which points to “all terms and conditions” of the
charterparty, have a restrictive meaning in the absence of the word “whatsoever”? Would use
of the words “conditions”, “terms”, “clauses”, “provisions” or similar phrases directly affect
the breadth of the incorporating language?
Under both English and U.S. law, there are a long series of well-established judicial decisions
where the costs of finding the solutions to all these issues were borne either by carriers or by
bills of lading holders. In accordance with the guidelines provided under the cases, carriers
took further steps to effect incorporation of their desired charterparty terms by introducing
new types of incorporation clauses which led to new discussions as to their construction.
Nevertheless, all relevant U.S. and English judicial decisions are aids to construction of which
all concerned parties should be mindful, and which shall be analysed under this section.
381
Smith v. Sieveking, (1855) E. & B. 589, 119 E.R. 600
Russell and Others v. Niemann, (1864) 17 C.B. (N.S.) 163; Gray v. Carr and Another, (1870-1871) L.R. 6 Q.B. 522;
Serraino v. Campbell, [1891] 1 Q.B. 298; Wegener v. Smith, (1854) 15 C.B.R. 285; Diederichsen v. Farquharson Brothers,
[1989] 1 Q.B. 150
382
115
To begin with, consideration will be given to what words of incorporation can aptly describe
various charterparty provisions, excluding the forum selection clauses. Due to the heated
discussions over the incorporation of forum selection clauses, this issue will be treated
separately thereafter. At that point, an evaluation of the incorporating words which could
facilitate incorporation of the arbitration clauses will be conducted.
(a) How are the charterparty terms to be described under bill of lading?
In identifying the competent incorporation words to introduce the desired charterparty
provisions, it is suggested that the rules of construction are not constant, and the manner of
construing these words may vary according to the terms of the bills of lading383. Given that the
main concern of carriers is to ensure incorporation of the charterparty provisions which are of
vital importance to them, the rules established under the landmark cases appear to have
considerable influence on practice, and especially on the widely known charterparty forms 384.
As a response to this, both English and U.S. courts have been inclined to follow the
established construction methods based on these bill of lading forms so as to not undermine
their negotiability385.
In the early years, the carriers’ first attempts to bring all charterparty terms into the bills of
lading were not successful where the clause simply read ‘paying freight as per charterparty’ or
similar. Due to the reference being made to the charterparty freight, this language was held to
be sufficient to bring into the bill of lading merely those charterparty provisions relating to
freight386. Hence, in Fry v. Chartered Mercantile Bank of India, London and China, the bill of
lading provision stipulating that freight be payable as per charterparty was taken as competent
For English law, see O.K Petroleum A.B. v. Vitol Energy S.A., [1995] 2 Lloyd’s Rep. 160; Siboti K/S v. BP France S.A.,
[2003] 2 Lloyd’s Rep. 364; A/G Europa (UK) Ltd. v. The Ethniki, [2000] C.L.C. 446. For U.S. law, Gilmore G. and Black C.,
“Law of Admiralty”, (2nd edn, 1975), pg 220.
383
384
An example of this is the addition of the express reference to law and arbitration clause under the Congenbill 1994 form,
while no such reference was made in the previous Congenbill 1978 form. The reason for this change will be explained later
in this section.
For English law, see The Annefield, [1971] P. 168. For U.S. law, see Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer,
515 U.S. 528, 551-552 (U.S. 1995)
386 For U.S law, see Crossman v. Burril, 2006 A.M.C. 1803, 1809-1810 (U.S 1900). See also, Poor W. “American Law of
Charterparties and Bills of Lading”, (5th edn, 1968), pg.72. For English law, see Smith v. Sieveking, (1855) 5 E. & B. 589,
119 E.R. 600. See also Keogh G.D., “The Shipowner’s Lien for Freight”, (1898) 14 L.Q.R., 153
385
116
to import the charterparty lien clause relating to freight387. In line with this reasoning, English
courts consistently refused to import charterparty demurrage clauses when the incorporation
wording did no more than mention the charter freight 388 . Having been influenced by the
English approach, the courts across the Atlantic took a similar view on this matter. The
authority for this proposition was the U.S. Supreme Court decision in Crossman v. Burrill,
which involved a mere reference to the charterparty freight and average under bill of lading
terms 389 . Acknowledging that such restrictive wording cannot import any of those other
charterparty clauses, the court relieved the holder of liability for the demurrage incurred under
the charterparty390.
Having seen that broader language must be employed in order to impose further charterparty
obligations onto holders, carriers started to insert incorporation clauses containing general
words with a considerable breadth. However, contrary to their expectations, wording of these
clauses was treated as too general and ambiguous to import all charterparty provisions into the
bills of lading. As the explanations below will show, the restrictive interpretation of the
incorporation language was preferred for three key reasons. Firstly, construction of the loose
descriptions narrowly and against carriers was desirable391 on the grounds that application of
the contra proferentem rule under bills of lading has long been recognised392. Secondly, giving
the general words their literal meaning, and therefore incorporating all charterparty terms,
would be detrimental to the third party holders who have no reasonable means of seeing the
387
See (1965-66) L.R. 1 C.P. 689. It must be noted that the court therein refused to hold that the charterparty lien clause
entitled the carrier to assert lien for the whole freight. Consequently, the right to lien was confined to the amount of the bill of
lading freight.
388
Smith v. Sieveking, (1855) E. & B. 589; Chappel v. Comfort, (1861) 10 C.B. (N.S.) 802
389
Crossman v. Burrill, 179 U.S. 100, 109 (U.S. 1900); Dayton v. Parke, 97 Sickels 391, 37 N.E. 642 (N.Y. 1894)
Ibid. Nonetheless, it must be borne in mind that the courts could imply a term that the goods are to be discharged within a
reasonable time. Such an obligation is likely to be imposed on the person who has presented the bill of lading for delivery of
the goods, for English law, see The Spiros C. [2000] C.L.C. 1503, para 74. For U.S. law, see Dayton v. Parke, above, at 399.
390
391
Consequently, unless the courts adopt a contrary approach for that particular clause, ambiguities in the contract provisions
are resolved against the carrier, for U.S. law, see Centrosoyus-America v. U.S., 30 F.2d 302 (D.C.N.Y. 1928). A recent case
supporting this proposition is Royal Insurance Co. v. Orient Overseas Container Line Ltd., 2008 A.M.C. 337, 341 (6th Cir.
2008). For English Law, see Serraino v. Campbell, [1891] 1 Q.B. 283, 297; For a more recent case, see The KH Enterprise
[1994] 2 A.C. 324, 329. See also, Debattista C., “Halsbury’s Laws of England” (5th edn, 2008), Vol: 7, Section 361.
For English law, see The Irbenskiy Proliv, [2005] 1 Lloyd’s Rep. 383, 386; The Starsin, [2004] A.C. 715, 779. For U.S.
law, see Royal Insurance, above.
392
117
charterparty terms. Thirdly, this limitation was necessary for the purposes of saving the bills
of lading from inconsistent charterparty provisions393.
Of the most significant construction methods to limit the scope of incorporation, was the
ejusdem generis rule, in cases where the incorporation clause read “freight and all other
conditions as per charterparty” 394 . Due to the effect of the preceding word “freight”, the
courts upheld the argument that reference to “all other conditions” was apt to incorporate
only the conditions to be performed by the bill of lading holders395. To put it another way, both
U.S. and English courts refused to construe the word “conditions” in isolation on the grounds
that payment of freight in this incorporation language was immediately followed by the other
conditions of the charter. They further opined that the conditions in that sense merely point to
the other payment obligations borne by the consignees for delivery of the cargo 396 .
Consequently, while accepting that express reference to freight is capable of importing all
charterparty clauses relating to freight 397 , the courts repeatedly viewed the generic word
“condition” as capable of describing the charterparty demurrage provisions398. Both U.S. and
English authorities further suggest that the wording at issue would be construed as embracing
the charterparty lien clauses with respect to freight399, demurrage400 and dead-freight401.
393
For the rule of inconsistency see Chapter 5(1).
For English law, Serraino & Sons v. Campbell and Others, [1891] 1 Q.B. 283, 289; Diederichsen v. Farquharson
Brothers, [1898] 1 Q.B. 150. See also, Raul C., “Carver’s Carriage by Sea”, (13th edn, 1982), Vol: 1, para 720. For U.S. law,
see Centrosoyus-America, Inc. v. United States, 31 F.2d 610, 611 (S.D.N.Y. 1929) quoting Serraino & Sons v. Campbell,
above. See also Poor W. “American Law of Charterparties and Bills of Lading”, (5 th edn, 1968), pg.72.
394
395
Ibid.
396
Ibid.
This was held to include the lien for freight and mode of its payment. For U.S. law, see Crossman v. Burrill, 179 U.S. 100
(U.S. 1900) For English law, see Serraino v. Campbell, above, at 295; Kern v. Deslandes, (1861) 10 C.B. (N.S.) 205
397
For U.S. law, see Yone Suzuki v. Central Argentine Railways, 27 F.2d 795, 801-802 (2d Cir. 1928); The Hans Maersk,
266 F. 806 (2d Cir. 1920). For English law, see Porteus v. Watney, (1877-78) L.R. 3 Q.B.D. 534; Wegener v. Smith, (1854)
15 C.B. 285. Where the charterparty demurrage clause is not confined to discharge port demurrage, it is not clear whether the
court would construe the word “condition” as embracing both loading and discharging demurrage. Even though consignees
are not involved in the loading of the cargo, demurrage needs to be taken as another payment obligation to be performed by
the consignee for delivery of the cargo. Consequently, the word must therefore be construed as such.
398
For English law, see Gardner & Sons v. Trechmann, (1884-85) L.R. 15 Q.B.D. 154, where it was stated that the right to
lien would nevertheless be limited to the bill of lading freight expressly provided thereunder. For U.S. law, see O’Connel v.
One Thousand & Two Bales of Sisal Hemp., 75 F. 408-410 (S.D. Ala 1896), quoting Gardner v. Trechmann.
399
400
This right could be relevant both for loading and discharge port demurrage provided that the charterparty was not confined
to discharge port demurrage, for English law, see Gray v. Carr and Another, (1870-71) L.R. 6 Q.B. 522. For U.S. law, see
O’Connel, above.
For English law, see Kish v. Taylor, [1912] A.C. 604. See also, Keogh G.D., “The Shipowner’s Lien For Freight”, (1898)
14 L.Q.R. 143, 144. For U.S. law, see O’Connel, above.
401
118
In early English cases, this incorporation wording was made subject to one further restriction:
the word “condition” was held to be insufficient to describe the charterparty provisions which
seek to remove the carrier’s liability for damage to cargo arising from the negligence of their
servants or from those listed perils402. As the underlying purpose of this or similar provisions
is to exempt carriers of liability against the consignees, it was suggested that such provisions
could only aptly be described with an express reference to “exception” or “negligence
clause” 403 under bills of lading 404 . Hence, in Diederichsen v. Farquharson Brothers, the
charterparty clause providing for deck carriage at merchant’s risk was not incorporated
through the incorporation clause, which does not mention exceptions405. To the same effect
was the famous ruling in Serraino v. Campbell, where the court ruled against incorporation of
the charterparty clause which would, if incorporated, strip the carrier of liability for the cargo
loss occasioned by the negligence of the master406.
The further consequence of these semantic considerations was clear: an incorporation clause
which points to “conditions” and “exceptions” of the charterparty was deemed incompetent to
import the charterparty provisions that did not strictly fall within the highlighted definitions of
condition and exception407. As to what meaning was ascribed to the word “exception” in the
incorporation clause, the main guidance is Hogarth Shipping Company v. Blyth, Greene,
Jourdain & Co408. There, exceptions were said to embrace “excepted perils”, in pursuant of
which shipowners could exempt themselves of liability for safe delivery and carriage of the
cargo409. On this basis, the incorporation clause merely stating the conditions and exceptions
was held to exclude the charterparty clause providing that the bill of lading would be
402
See Russell v. Niemann, (1864) 17 C.B. (N.S.) 163
403
See The Northumbria, [1906] P. 292
Ibid. See also, Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2 nd edn, 2005), para: 3-018 and C.,
“Carver’s Carriage by Sea”, (13th edn, 1982), Vol:1, para: 721.
404
405
See [1898] 1 Q.B. 150
406
[1891] 1 Q.B. 283, 289-290
See Hogarth Shipping Company, Ltd. v. Blyth, Greene, Jourdain & Co. Ltd., [1917] 2 K.B. 534. See also, C., “Carver’s
Carriage by Sea”, (13th edn, 1982), Vol: 1, para: 724.
407
408
Ibid.
409
Ibid, at 554
119
conclusive evidence of the goods shipped on board the vessel 410. On the question of what
particular incorporation wording could incorporate this or a similar conclusive evidence
clause, the ruling in Fort Shipping Co. v. Pederson established the solution: directing the bill
of lading holder to the “terms” of the charterparty would create such an effect411.
Across the Atlantic, the identified construction method was largely recognised to the effect
that conditions were not characterised as apt to describe exceptions412. More importantly, the
“excepted peril” rule laid out in the Hogarth Shipping decision was also adopted under U.S.
law for the purposes of determining what force must be given to the word “exceptions”. This
became clear with the decision in Centrosoyus-America v. U.S., which was concerned with
the question of whether a “liberty-to-deviate” clause would be imported with reference to
exceptions in the incorporation clause413. Holding in favour of incorporation, the court relied
on the rule introduced in Hogarth Shipping, and took the view that the clause had something
to do with safe delivery and carriage of the cargo 414. Proceeding from the assumption that this
reasoning was misplaced, they relied on an alternative premise: that the use of the words
“condition” and “exception” would create the same effect as that arising from the reference to
“terms”. Put another way, they construed the identified language as synonymous with all
terms of the charterparty relating to carriage of the cargo. Somewhat dubiously, the latter
justification fell into an inconsistency with Hogarth Shipping, which required use of the word
“term” to describe the charterparty provisions that do not strictly come within the scope of
conditions and exceptions415. It further signalled the tendency of U.S. courts to depart from
rigid semantic considerations, on the grounds that commercial men may not know the breadth
of incorporating words assigned by the courts416.
Having learnt the lessons from early cases, the new form of incorporation clauses does not
usually contain the word “condition” preceded with the payment of freight. In addition, more
410
Ibid.
411
[1924] 19 Ll. L. Rep. 26
412
See Yone Suzuki, above. See also, Poor W., “American Law of Charterparties and Bills of Lading”, (5th edn, 1968), pg. 72
413
31 F.2d 610 (S.D.N.Y. 1929)
414
Ibid, at 611
415
[1917] 2 K.B. 534, 556
416
31 F.2d 610, 611 (S.D.N.Y. 1929)
120
descriptive and comprehensive words such as ‘all terms, conditions and exceptions’ are
provided therein with a view to including a wide range of charterparty provisions 417 . In
preserving some views adopted in early cases, U.S. and English courts have, nevertheless,
adopted diametrically opposing solutions towards the construction of this new wording.
Nevertheless, as a result of the changes in the incorporating language, the courts in both
jurisdictions ascribe a wider meaning to the word “condition”, for it is no longer juxtaposed
with the word “freight”. Under English law, the word “condition” has been re-defined and
treated as embracing the conditions which are germane to shipment, carriage and discharge of
the cargo418. Put another way, the general incorporation wording, which does not bear any
specific reference to a charterparty provision, is taken to describe the charterparty provisions
relating to the subject matter of the incorporating contract viz. the bills of lading419.
With this new interpretation, the definition of the word “conditions” was extended to
comprise the obligations to be performed not only by the receivers of the cargo but also by the
carriers420. Hence, in The Fjord Wind, the new incorporation language was held competent to
import the charterparty provisions which pertain to the responsibility of the shipowner for
making the vessel seaworthy421. Likewise, while in The Sormovskiy this wording incorporated
a clause permitting discharge of the cargo against production of a bank guarantee 422, the ruling
in The Jordan II revealed that carriers’ discharge and loading provisions, such as FIOST and
similar clauses, could be aptly described thereunder423.
A similar incorporation wording came before the court in The Annefield, [1971] P. 168; The Njegos, [1936] 53 Ll. L. Rep.
286
417
See T.W. Thomas & Portsea Shipping Co. Ltd., [1912] A.C. 1, 6; The Annefield, above, at 175; The Nerano, [1996] 1
Lloyd’s Rep. 1, 4; The Delos, [2001] 1 Lloyd’s Rep. 703, 706, The Njegos, above, at 295, The Phonizien, [1966] 1 Lloyd’s
Rep. 150, 155; The Spiros C., [2000] 2 Lloyd’s Rep. 319, at 335. See also, Debattista, C., “Bills of Lading in Export Trade”,
(2008), para: 8-17 and Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.50.
418
See O.K. Petroleum A.B. v. Vitol Energy S.A., [1995] 2 Lloyd’s Rep. 160, 165; The Ethniki, [2000] C.L.C. 446, 452; The
KH Enterpise, [1994] 2 A.C. 324, 346
419
420
See Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2 nd edn, 2005), para: 3-018.
421
See [2000] 2 Lloyd’s Rep. 191.
422
See [1994] 2 Lloyd’s Rep. 266. See also, Treitel G. and Reynolds F.M.B., above
423
The Jordan II, [2005] 1 Lloyd’s Rep. 57
121
Regardless of their extensive scope, general words of incorporation are, however, treated as
inoperative to cover the charterparty provisions, which are collateral to the subject matter of
the bills of lading, such as time bar, law, arbitration and exclusive jurisdiction clauses 424. As a
long line of English judicial decisions attests, for such charterparty clauses to be incorporated
it is necessary to make specific reference to these provisions under the incorporation clause425.
Above all, even though the word “term” or “clause” has a wider meaning than the word
“condition”, and the word “whatsoever” has much more width than the aforesaid
incorporating words 426 , these differences are not regarded as decisive in determining
incorporation of such provisions. These findings receive support largely from Siboti K/S v. BP
France S.A., where inclusion of the word “whatsoever” was held to fall short of describing the
exclusive jurisdiction clause427, and from The Delos, where the same phrase was treated as
inapt to import the charterparty arbitration clause 428 . Another underpinning case is The
Varenna, for the court therein stood against giving the word “term” the effect of incorporating
the arbitration clause429.
Overall, it is clear that English courts are now reluctant to rely on the ejusdem generis rule
whilst construing incorporation clauses 430 . This lends support to the argument that the
incorporation clauses which read “freight and all other terms and conditions as per
charterparty” are no longer taken to be different to an incorporation clause that points to “all
terms and conditions” of the charterparty 431 . The most compelling authority for this
proposition is yet again The Varenna, where it was nevertheless argued that the slight
variations between the words “condition”, “term” and “clause” have not completely
424
For the decisions which recognise the ancillary nature of the time-bar clauses and jurisdiction clauses see, respectively,
O.K. Petroleum A.B. v. Vitol Energy S.A., [1995] 2 Lloyd’s Rep. 160, 165-168; Siboti K/S v. BP France S.A., [2003] Lloyd’s
Rep. 364. The same conclusion is also followed where the incorporation clause merely reads “according to charter party” or
“this shipment is carried under and in pursuant to charterparty”. See The Soemba, [1956] 1 Lloyd’s Rep. 552.
425
See ibid., and Thomas v. Portsea Shipping Co. Ltd., [1912] A.C. 1 , 6.
426
Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2nd edn, 2005), para: 3-014
427
[2003] Lloyd’s Rep. 364
428
[2001] 1 Lloyd’s Rep. 703, 706
See [1984] Q.B. 592, 594. But see, The Merak, [1965] P. 223, which treated the word ‘clause’ as apt to describe a charter
party arbitration clause.
429
430
See The Varenna, [1984] Q.B. 599, 617
431
Ibid.
122
disappeared 432 . In particular, this ruling suggests that English courts preserve their early
approach as to how the charterparty negligence clauses can aptly be described. Consequently,
for these clauses to be incorporated, specific reference to exceptions in the incorporation
clause is still necessary433, unless the word “term” 434 or a word with the broadest possible
meaning such as “whatsoever” is inserted therein 435 . These semantic differences do not,
however, have any bearing on incorporation of demurrage, lien and freight clauses, given that
even the early narrower forms of incorporation clause were deemed adequate to achieve this
purpose436. With respect to demurrage clauses, one further point must be underlined: since the
ejusdem generis rule no longer comes into play in determining incorporation, it is beyond any
doubt that general words of incorporation are competent to import loading port demurrage
precisely because it is germane to shipment of cargo437.
Despite the views to the contrary438, it is true that differences in the literal meanings of these
words are, however, no longer decisive for incorporation of ancillary charterparty
provisions 439 . This is because the issue of incorporating collateral charterparty clauses is
exclusively dependent on whether there are general or special words of incorporation. In light
of the consistent line of English authorities led by the famous decision in Thomas v. Portsea,
these terms can only aptly be described through special words of incorporation, that is to say,
with an express reference to such provisions in the incorporation clause440. The incorporation
clauses with a general reference to the charterparty thus fall short of describing the ancillary
charterparty terms, regardless of the scope of the incorporating words.
432
Ibid.
433
For a similar view, see Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.52.
434
See Fort Shipping v. Pederson [1924] 19 Ll. L. Rep. 26. See also, ibid.
The Garbis, [1982] 2 Lloyd’s Rep. 283, 288, where it was held that the term “whatsoever” was apt to import even those
unusual charterparty provisions.
435
436
However, it must be borne in mind that the narrowest form of incorporation language, which merely refers to the
charterparty freight, does not have such force. See the explanations above.
437
Provided, of course, the charterparty demurrage clause does not merely contemplate discharge port demurrage. See also,
The Jordan II, where a similar pattern of reasoning was adopted, and the FIOST clause was held to be incorporated through
general words of incorporation. See [2005] 1 Lloyd’s Rep. 57.
438
See The Merak, [1965] P. 223
439
For further explanations see the next subsection.
440
See supra note 424
123
Evidently, cargo interests can draw a number of benefits from this legal position. Firstly, the
requirement for making a specific reference to collateral charterparty terms for incorporation
stands out as a barrier to incorporate these provisions. This naturally leads to the favourable
result that only the ancillary charterparty provisions, which have been brought to the holders’
attention under bills of lading, could bind these parties. Secondly, the rule enables these
parties to defeat the risk of being subject to charterparty arbitration clauses or any other
ancillary charter provisions, if they prohibit in their sale contracts the submission of a bill of
lading with express reference to such terms.
However, this position raises the question of whether it is actually necessary to alert cargo
interests about incorporation of these provisions, some of which can be standard and
customary. Despite the fact that their existence under the charterparty is unlikely to be
surprising to many, the requirement of making a specific reference to collateral charterparty
terms must nevertheless be maintained under English law. The principal reason is that there
has been heavy reliance on this rule throughout the years, and it now lies at the heart of the
English rules of incorporation. This legal position is particularly underpinned by the ruling in
The Annefield, which clearly reflects the reluctance of the English courts to disturb a rooted
construction of a standard clause441. In a similar vein, the rule can also be justified because it
provides an additional hurdle to the incorporation of the provisions whose very nature is not
consonant with contract of carriage evidenced under bills of lading442.
On the one hand, the English approach narrows the scope of the charterparty clauses that
could aptly be described through general words of incorporation. On the other hand, a more
receptive approach has been taken under U.S. law443. In particular, U.S. courts have repeatedly
ruled that general words of incorporation import all charterparty provisions, insofar as there is
an incorporation clause clearly demonstrating the intention to achieve this result444. However,
the courts have refused to take the view that those charterparty terms whose nature is
See The Annefield [1971] P. 168. See also, The Jordan II, where this line of reasoning was adopted [2005] 1 Lloyd’s Rep.
57.
441
442
However, the major filter for this is the rule of inconsistency, which is stipulated under Chapter 5(1).
See Bagot, M.H. and Henderson, D.A., “Not Party, Not Bound? Not Necessarily: Binding Third Parties to Maritime
Arbitration”, (2002) TMLJ, Vol: 26, No: 2, pg. 453
443
See Son Shipping Co. Inc. v. De Fosse & Tanghe, 1952 A.M.C. 1931, 1933 (2d Cir. 1952). Also see Gilmore G. and
Black C., “Law of Admiralty”, (2nd edn, 1975), pg 220, Bagot, M.H., Henderson, D.A., “Not Party, Not Bound? Not
Necessarily: Binding Third Parties to Maritime Arbitration”, (2002) TMLJ, Vol: 26, No: 2, pg. 450; Sorkin S., “Goods in
Transit”, (1990) Vol:1, section 2.05(2), pg. 2-38.4; Mc. Kearn J.W., ‘Shipowner Denied Lien Against Third Party’s Cargo
For Charterer’s Unpaid Charter Hire’, (1980) 26 Loy. L. Rev. 416, pg. 418.
444
124
repugnant to the bills of lading can be incorporated, regardless of the intention that can
objectively be ascertained thereunder445. Consequently, for the purposes of manifesting the
intention to incorporate to the widest possible extent, and thereby giving sufficient notice to
the respective bill of lading holders, carriers are encouraged to use an expansive language in
the incorporation clause446.
On the question of what particular form of incorporation wording is deemed to demonstrate
the required intention, the main guidance is the decision in Continental UK Ltd. v. Anagel
Confidence Compania Naviera, which contained the incorporation clause that read “all terms,
conditions and exceptions of the charterparty” 447 . There, the highlighted phraseology was
treated as a “catch-all” clause, and it was taken to incorporate the arbitration clause. However,
this does not mean that the semantic considerations have no relevance. With respect to
incorporation of “negligence” and “liberty-to-deviate” clauses, it is evident that the position is
similar to that under English law. For these provisions to be introduced into the bills of lading,
the courts required that incorporation clauses contain either an express reference to exceptions
or an expansive language with the widest possible scope, such as “all terms whatsoever” of
the charterparty448.
Having canvassed the U.S. law position with regard to this issue, one of its striking features
must be underlined: unlike English law, no categorisation is made among charterparty terms
for the purposes of their incorporation. Rather, all those clauses are taken as “any other
contract” provisions 449 , which can be appropriately described with general words of
incorporation450. It naturally flows from this approach that carriers are merely expected to use
445
O’Connel v. One Thousand and Two Bales of Sisal Hemp., 75 F. 410. (D.C. Ala., 1896)
See Energy of Transport Ltd. v. M/V San Sebastian, 348 F.Supp.2d 186, (S.D.N.Y 2004). This liberal perspective of the
courts is also adopted by New York Arbitrators, see In Re Arbitration Between Alpine Shipping Company of Monrovia and
Palm Shipping Co, SMA No: 1485, (October 22, 1980) where the general words of incorporation were treated as apt for
importing the charterparty choice of law clause.
446
447
1987 A.M.C. 2012, 2017 (S.D.N.Y 1987)
As a result of this line of thinking, the word “exception” was also held sufficient to describe also the liberty to deviate
clauses, Centrosoyus-America, Inc. v. United States, 1929 A.M.C. 289, (S.D.N.Y. 1929); Son Shipping Co. Inc. v. De Fosse
& Tanghe, 1952 A.M.C. 1931, 1933, (2d Cir. 1952); Southwestern Sugar & Molases Co. v. Eliza Jane Nicholson, 1955
A.M.C. 746, (S.D.N.Y 1954). It proves valuable to remember that such wording was held to be operative to incorporate all
charterparty provisions apart from the ones repugnant to subject matter of the bills of lading, see supra note 444. See also,
Poor W. “American Law of Charterparties and Bills of Lading”, (5th edn, 1968), pg.72.
448
449
See Son Shipping, above.
450
Ibid.
125
comprehensive words of incorporation manifesting the intention to import all charterparty
provisions. Leaving aside this key difference between the U.S. and English approach, it is
common in both jurisdictions that little effort is expected from carriers to incorporate the
provisions which are germane to shipment, carriage and the discharge of goods451.
This expedient method for incorporation may draw criticisms from the holders, inasmuch as
the rules could facilitate importation of loading demurrage clauses 452, carriers’ loading and
discharge provisions453 and many other unfavourable charterparty terms into the bills of lading.
Nonetheless, the holders’ position is not actually as hopeless as it seems. The reason is clear:
even if these charterparty terms are introduced into the bills of lading, this does not
necessarily mean that they will be applied to the bill of lading holders 454. Rather, it is evident
in both jurisdictions that the decision on incorporation is made prior to determining
applicability of the charterparty clauses to the cargo interests. Consequently, following the
further rules of incorporation, many of the imported provisions, including those identified,
may turn out to be inapplicable in the context of the bills of lading.
Among the ancillary charterparty provisions, incorporation of forum selection clauses has
attracted a great amount of litigation throughout the years. The reason is probably that
jurisdiction and arbitration agreements directly affect the right to bring the dispute before the
desired court or tribunal. Due to its unquestionable significance, this issue deserves separate
treatment. Having examined what words of incorporation can bring in which particular
charterparty clauses, the remainder of this section will thus be devoted to the question of how
charterparty forum selection clauses can appropriately be described for the purposes of their
incorporation.
For U.S. law, see ibid. See also Mc. Kearn J.W., ‘Shipowner Denied Lien Against Third Party’s Cargo For Charterer’s
Unpaid Charter Hire’, (1980) 26 Loy. L. Rev. 416, 418. For English law, see The Miramar, [1984] A.C. 617 quoted in Treitel
G. and Reynolds F.M.B., “Carver on the Bills of Lading”, (2 nd edn, 2005), para: 3-020.
451
452
For the views highlighting the unfairness of holding the endorsees liable for loading port demurrage, see Miller M.A., 26
Tul. Mar. L.J. 71, Winter 2001, Charterparty Symposium-Part II, Cesser Clauses, pg. 82, at 86-87.
For U.S. law, see Associated Metals & Minerals Corp. v. M/V Arktis Sky, 1993 A.M.C. 509, (2d Cir. 1992). For English
law, see The Jordan II, [2005] 1 Lloyd’s Rep. 57; The Coral, [1993] 1 Lloyd’s Rep. 1, 5. For discussions as to whether they
are applicable to bill of lading holders and whether they are in line with the Hague and the Hague-Visby Rules, see Chapter
5(2) hereof.
453
See for instance, Andreas Vergottis v. Robinson David & Co. Ltd., [1928] 31 Ll. L. Rep. 23, 27. In order to decide
whether an incorporated charterparty provision is applicable to a holder, see the incorporation rules explained in the
following section.
454
126
(b) What words of incorporation can aptly describe the charterparty forum selection
clauses?
aa. An overall image
From a purely practical perspective, parties to the bill of lading would naturally seek to bring
their dispute before the forum they believed most convenient and that which would be
conducive to a favourable outcome. With these considerations in mind, parties tend to favour
the forum with which they are familiar455. Alternatively, they have been inclined to make their
choice by way of an evaluation of the respective mandatory and procedural rules of the
available fora456.
In broad terms, the rationale behind weighing up the matters of procedure is twofold: Firstly,
these issues have a direct impact on efficiency of the dispute settlement procedures, especially
in terms of cost and duration 457 . Secondly, the rules of procedure potentially impair the
substantive rights of the parties 458 . The identified effects of this procedure can best be
illustrated through an analysis of the challenges made against arbitration awards under
English and U.S. law. It is plain that the Arbitration Act, 1996, governs this issue where the
seat of arbitration is in England, Wales or Northern Ireland459, and the U.S. Federal Arbitration
Act, 1925 (“FAA”) comes into play where the designated place for arbitration is in the United
States460. On this basis, both statutes envisage limited grounds for judicial review of arbitration
awards in order for the awards to be finalised in a timely and cost efficient manner461.
This objective seems to have been further prioritised under U.S. law on the grounds that,
unlike English law, the awards are not principally subject to judicial review “for error of
See Bell A.S., “Forum Shopping and Venue in Transnational Litigation”, (2003), para. 2.03 quoting Collins L.A.,
“Contractual Obligations—The EEC Preliminary Draft Convention on Private International Law”, (1976) 25 ICLQ 35, 36.
455
456
Ibid., at para. 2.09
457
Ibid., at para 2.04
458
Ibid. at para 2.09.
459
See Article 2 of the Arbitration Agreement, 1996.
460
See 9 U.S.C. § 9, § 10(a). The provisions with regard to challenge of arbitration awards are equally applicable to those
cases where the arbitration agreement is governed by the New York convention and its implementing legislation under
Chapter II of the FAA or by the Inter-American Convention in International Commercial Arbitration, which is enshrined
under Chapter III of the FAA.
461
For U.S. law, see 9 U.S.C. §10 and §11, English law, see Articles 68 and 69 of the Arbitration Act, 1996.
127
law”462. Rather, vacatur or modification of arbitration awards can only be made pursuant to the
premises enshrined under 9 U.S.C. §10 and §11, wherein there is no stipulation to correction
of such errors. With the recent U.S. Supreme Court decision in Hall Associates v. Mattel, it is
now also clear that the enumerated bases are exclusive463, and parties are not thus permitted to
extend or restrict them in their arbitration agreements464. The practical effect of this is evident:
where the chosen seat of arbitration is in the United States, parties may not ask the court to reconsider the award on a point of law, regardless of the fact that there is an express provision
in their arbitration agreements to that effect465. The only possible exception to this rigidity
arises in cases where the arbitrator intentionally refuses to apply the law and reaches an
erroneous result466. There is a persuasive argument suggesting that parties in those cases are
entitled to move for vacatur of the award on the grounds that such an arbitrator can either be
taken to have exceeded his or her powers467, or be deemed guilty of wilful misconduct468.
On the one hand, the FAA does not permit reconsideration of the awards on the merits. On the
other hand the Arbitration Act, 1996 expressly provides for appeal of the awards for error of
law. English courts may thus judicially review the award on the point of English law 469 ,
provided that parties have not, in their arbitration agreements, contracted out the right to
appeal470. Perhaps with a view to avoiding unnecessary judicial intervention and delays, the
act permits appeal of the decisions only if they contain obviously erroneous findings on the
See Bowen v. Amoco Pipeline Co., 254 F.3d 925, 931 (10th Cir. 2001). On certain grounds, it can be argued this objective
is equally of the highest importance under the Arbitration Act 1996, see Article 70(2)(b) thereof, which provides that before
taking any judiciary action, parties must exhaust any available arbitral process available. Moreover, see Article 70(3) of the
same, where a 28-day time-bar is envisaged for challenge or appeal of arbitration awards, whereas, the time limitation in the
U.S. is three months, see 9 U.S.C. § 12. For more provisions envisaged for this purpose, see Articles 67(2) and 73 of the
Arbitration Act, 1996.
462
463
Hall Street Associates v. Mattel Inc., 128 S.Ct. 1396 (U.S. 2008)
464
Ibid.
465
Ibid.
Under U.S. law, this position gave rise to the recognition of “manifest disregard of law” as a non-statutory round for
vacatur of the awards. It is important to note that mere error of law on the part of the arbitrator is not taken as “manifest
disregard of law”, see Duferco Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 389 (2d Cir. 2003); Bowen v.
Amoco Pipeline Co., 254 F.3d 925 (10th Cir. 1995).
466
467
See 9 U.S.C. § 10(a)(4).
468
9 U.S.C. §10(a)(3)
Consequently, there is no right to appeal where the governing law of the dispute is not English law, see Reliance
Industries Ltd. v. Enron Oil & Gas India Ltd., [2002] 1 All ER (Comm) 59 quoted in Moses M.L., “International Commercial
Arbitration”, (2008), 197
469
470
See Article 69(1) of Arbitration Act, 1996.
128
point of law471. Even when there is little doubt as to the legal accuracy of the award, English
courts may nevertheless grant leave to appeal if it would serve the public interest to clarify a
particular legal point472.
As these explanations so suggest, there is much that hinges on the choice of seat of arbitration.
Assuming that the seat of arbitration is in London and the governing law of the dispute is
English law, it is possible for the losing party to ask the courts to overturn the award which is
clearly erroneous in point of law. The prospects for success for such parties would rapidly
decrease and their substantive rights would be greatly undermined, were the designated place
of arbitration to be New York. Consequently, it must be concluded that procedural rules
considerably affect the efficiency of the settlement of disputes, as well as the substantive
rights of parties.
It here proves valuable to note that the observations above illustrate only some of the bases
for long and fierce jurisdictional battles, for there are evidently a number of other factors
leading to such battles. One of the prime reasons for these conflicts is that in international
carriage of goods by sea, there is usually more than one forum before which the parties could
bring their claims473, and it is not uncommon for parties to be familiar with two different fora.
Another key reason is that, as has been elucidated above, the procedural rules of various
jurisdictions show striking dissimilarities between each other 474 , and so do the rules of
institutional arbitration475.
From the carriers’ perspective, the likelihood of battles over jurisdiction may give cause for
concern on the basis that they enter into contracts of carriage with many cargo interests in
various jurisdictions. That being so, it is common practice that carriers either insert or seek to
471
See Article 69(3) of Arbitration Act, 1996.
472
Ibid.
473
Per Lord Chieveley in, Airbus Insdustrie G.I.E. Respondents v. Patel, [1999] 1 A.C. 119, 132
An example of this is the use of anti-suit injunctions in common law jurisdictions. For English law, see Societe Nationale
Industrielle Aerospatiale (SNIA) v. Lee Kui Jak, [1987] A.C. 871, for U.S. law, see Paramedics Electromedicina Comercial
Ltda. v. GE Medical Systems Information Technologies, Inc., 369 F.3d 645 (2d Cir. 2004).
474
See, for instance, Small Claims Procedure and the FALCA (“Fast and Low Cost Arbitration”) Rules under the London
Maritime Arbitrators Association terms, wherein quicker methods of dispute resolution are introduced for claims not
exceeding the amounts envisaged thereunder. A similar procedure is also recognised under the rules of the Society of
Maritime Arbitrators. However, unlike the LMAA, here parties determine their own thresholds for application of the “Rules
for Shortened Arbitration Procedure”.
475
129
incorporate forum selection clauses into the bills of lading in order to minimise the risk of
being sued in undesirable jurisdictions. Viewing the chosen forum as unfavourable, the cargo
interests could, nonetheless, seek cogent legal ground to thwart the obligation to arbitrate or
litigate the dispute in the place designated by the carriers.
Having underlined the necessity of balancing the competing interests of the parties and the
practical importance of forum selection clauses, it is important to raise one further question:
must a different path be followed in determining incorporation of forum selection clauses into
the bills of lading? The long line of U.S. and English authorities show that the courts have
repeatedly considered three key facts in establishing their positions: the cargo interests’
possible mistrust of foreign arbitration and litigation476, the nature of forum selection clauses477,
and the unlikelihood that cargo interests will see the identified charterparty provisions478.
Before becoming immersed in the current legal position, some of the prime reasons for hostile
approaches towards foreign forum selection clauses must be highlighted. First of all, for cargo
interests foreign litigation or arbitration can seem expensive to carry out in comparison to
bringing an action before their own jurisdiction. Moreover, it can also be a time-wasting
practice in terms of obtaining representation and following proceedings in a distant place.
Under U.S. law, the main authority for these propositions is Indussa Corporation v. S.S.
Ranborg479. Refusing to enforce the forum selection clause in the bill of lading which provided
for litigation in Norway, the court therein took the view that:
“From a practical standpoint, to require an American plaintiff to assert his claim
only in a distant court lessens the liability of the carrier quite substantially when
the claim is small. Such a clause puts ‘a high hurdle’ in the way of enforcing
liability”480
For English law, see Thomas v. Portsea, [1912] A.C. 1, 8-9. For U.S. law, see Siderius Inc. v. M/V Ida Prima, 613 F.Supp.
916, 921 (S.D.N.Y. 1985)
476
477
More specifically the question has been whether forum selection clauses must be treated as ancillary or just as any other
contract provisions, for English law, see Thomas v. Portsea, above. For U.S. law, see Son Shipping Co. Inc. v. De Fosse &
Tanghe, 1952 A.M.C. 1931, (2d Cir. 1952)
For U.S. law, see Thyssen, Inc. M/V/Markos N., 1999 A.M.C. 2515 (S.D.N.Y 1999), for English law, see The Federal
Bulker, [1989] 1 Lloyd’s Rep. 103
479 See 1967 A.M.C. 589, 597 (2d Cir. 1967).
478
Ibid. A similar view was taken in State Establishment for Agricultural Product Trading v. M/V Wesermunde, which
involved a forum selection clause providing for London Arbitration, see 988 A.M.C. 1988, (11th Cir. 1988). This ruling was
then overruled in Vimar Seguros v. Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (U.S. 1995). Due to the reasoning of
480
130
English courts, too, have acknowledged similar ramifications of forum selection clauses.
Hence, the House of Lords in Thomas v. Portsea underlined similar practical problems arising
from foreign forum selection clauses while deciding incorporation of a charterparty clause
calling for arbitration in the port where the dispute occurred481. In particular, they underlined
the practical difficulty facing the cargo interests in the case of a binding forum selection
clause which obliges these parties to arbitrate the dispute in a place with which they have no
connection482.
Above all, early U.S. cases reveal scepticism over the ability of foreign fora to afford
adequate protection to cargo interests. This antiquated reason for the mistrust of foreign courts
was well reflected in the famous Indussa decision. There, the court doubted whether foreign
courts would safeguard cargo interests in the same way as a U.S. court would 483. On this basis,
they refused to strip the cargo interests of the right to resort to U.S. courts, regardless of the
fact that the foreign courts would also apply the Hague Rules, or those other uniform rules 484.
At the root of this approach there was another archaic understanding: the right of a U.S.
citizen to receive justice from the courts was understood to comprise part of their substantial
rights485. As a result of this line of thinking, parties were not deemed entitled to contract out
the power of the courts of competent jurisdiction to adjudicate the disputes486.
So far as the probable grounds for mistrust of arbitration are concerned, the decision in
Organes Enterprises Inc. v. M/J Khalij Frost is illustrative487. There, the court expressed their
mistrust of arbitration on two main points, all the while refusing to enforce the arbitration
clause under the bills of lading. Firstly, there are strictly limited grounds for any challenge of
the court in Sky Reefer, the decision in Indussa must be considered as tacitly overruled, see the Court of Appeal ruling in Sky
Reefer, 1994 A.M.C. 2513, 2518 (1st Cir. 1994)
481
See [1912] A.C. 1, 8-9.
482
Ibid.
483
See 1967 A.M.C. 589, 597 (2d Cir. 1967).
484
Ibid.
485
See Home Insurance Co. of New York v. Morse, 87 U.S. 445 (U.S. 1874)
486
Nashua River Paper Co. v. Hammermill Paper Co., 223 Mass 8, 111 N.E. 678, 680 (Mass. 1916)
487
See 1989 A.M.C. 1460 (S.D.N.Y. 1989)
131
an arbitration award488, and secondly, arbitrators rarely provide an explanation of the reasons
for their decision489. Nonetheless, from a wider perspective, the advantages come down more
heavily in favour of arbitration. The restrictions on the grounds for challenge of arbitration
awards are usually taken as beneficial, precisely because they may reduce litigation costs and
unnecessary delays490. Arbitration is also a flexible procedure, given that if the parties wish to
ensure the legal accuracy of the award, they are entitled by the Arbitration Act, 1996 to agree
to a judicial review “for error of law”491.
Moreover, unlike the view of the U.S. court in Organes Enterprises, almost all the
institutional arbitration rules provide that parties may require the arbitrators to give reasons
for the award492. In this respect, the same flexibility in the form of arbitration awards is also
envisaged under the Arbitration Act, 1996493. The other obvious advantages include the ability
to bring the dispute before a neutral forum494 and to choose arbitrators who are experts in the
subject matter495. Arbitration could also be viewed as a better alternative because it can be
kept confidential for the benefit of the parties seeking to avoid publicity496.
Probably due these advantages, judicial hostility towards arbitration clauses no longer
survives under U.S. law497. It also seems that both the change in the approach and the strong
federal policy in favour of arbitration, which is enshrined under FAA, have been recognised
in order to facilitate the competition of American businesses in global markets 498 . This
488
See the discussions above.
489
See Organes, above, at 1462-1463
490
See Moses, above, 4
491
See Article 69(1) of the Arbitration Act, 1996. However, as has been discussed above, FAA does not allow parties to
extend or reduce the grounds for challenge, see Hall Street Associates v. Mattel Inc., 128 S.Ct. 1396 (U.S. 2008).
492 See Article 23 of the LMAA Terms. See also, Section 29 of the SMA Rules, where it is expressly required that an award
be given with reasons. This provision must be read together with Section 1 of the same, which provides that the parties could
alter the terms. Similarly, see Article 32 of the UNCITRAL Arbitration Rules, and Article 25 of the ICC Rules of Arbitration.
493 See Article 52 of the Arbitration Act, 1996. See also, Paragraph 247 of the DAC Report quoted in Ambrose C., and
Maxwell K., “London Maritime Arbitration”, (2002), 253
494
See Moses, above, 3
See Merkin, above, at para 1.2. See also Mitsubishi Motors Corp. v. Soler Chyrsler-Plymouth Inc., 473 U.S. 614, 633 (U.S.
1985). See also, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12 (U.S. 1972)
495
496
See Baatz Y., “Southampton on Shipping Law”, (2008), 3.
497
See Vimar Seguros v. Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (U.S. 1995)
498
See Mitsubishi Motors Corp. v. Soler Chyrsler-Plymouth Inc., 473 U.S. 614, (U.S. 1985)
132
objective can equally be considered as the rationale for U.S. courts to hold parties to their
bargain in the case of choice of court agreements. This proposition receives support from the
leading U.S. Supreme Court decision in Bremen v. Zapata Off-Shore Co., where the court
stated that499:
“The expansion of American business and industry will hardly be encouraged if,
notwithstanding solemn contracts, we insist on a parochial concept that all
disputes must be resolved under our laws and in our courts.”
With regard to the perspective of English courts, it is clear that they have always been
inclined to enforce forum selection clauses unless there is a good reason for not doing so 500. In
particular, the courts have exhibited a receptive approach towards arbitration501. Nevertheless,
as the explanations below will show, their stance must not convey the impression to the reader
that incorporation of forum selection clauses can be treated just as any other provision under
English law. With all this relevant background, the next section will examine how both
English and U.S. courts interpret the incorporating words with a view to deciding on the
importation of forum selection clauses.
bb. What words are operative for incorporation of forum selection clauses?
Considering the nature of arbitration clauses and the position of cargo interests who have no
means of knowing the charterparty provisions, English courts take a vigilant approach
towards incorporation of forum selection clauses. In so doing, they require an express
reference to the choice of forum clause in bills of lading for the purposes of their
incorporation. The courts thus call for clear notice to be given to the bill of lading holders in
order to alert these parties regarding the incorporation of a charterparty arbitration clause. The
leading authority for these propositions is Thomas v. Portsea, where the incorporation clause
was held to be inapt to describe and incorporate the charterparty arbitration clause in the
absence of an express reference to such a clause502. Following this rationale, the court in Siboti
See 407 U.S. 1, 9 (U.S. 1972). To the same effect is another U.S. Supreme Court ruling in Carnival Cruise Lines v. Shute,
499 U.S. 585, (U.S. 1991)
499
See Donohue v. Armco, [2002] C.L.C. 440, 449, per Lord Bingham. See also, The Eleftheria [1969] 1 Lloyd’s Rep. 237.
See also, Denning S.M., “Choice of Forum Clauses in Bills of Lading”, (1970-1971) 2 J.Mar. L. & Comm. 17, 38
500
501
502
The Varenna [1984] Q.B. 599, 604
See [1912] A.C. 1. Similarly, The Nerano, [1996] 1 Lloyd’s Rep. 1
133
K/S v. BP France S.A. took the view that a charterparty exclusive jurisdiction clause should
also not be incorporated without any specific reference503.
Justification for the rule that general words of incorporation are not apt to describe forum
selection clauses is made in two ways. With the commonly used incorporation language
pointing to the conditions and exceptions of the charterparty, the first argument is a semantic
one, according to which the courts refuse to hold such provisions as either a condition or an
exception504. Accordingly, in The Varenna, where the incorporation clause read “all conditions
and exceptions of which charterparty, including the negligence clause, are deemed to be
incorporated in bill of lading”505, the court largely relied on this argument in holding against
incorporation of the arbitration clause. The second reason is that the bill of lading, as a
contract of carriage, should contain no choice of forum clause, not directly related to shipment,
carriage and discharge of the cargo 506 . This reasoning underpins the suggestion that even
broader words of incorporation such as provisions, clauses, and terms 507 are inapt for
incorporation of charterparty forum selection clauses, despite the fact that their sole literal
meaning may suggest the contrary. As a result of this line of thinking, the famous Siboti
decision further clarified that general words of incorporation are not competent to import such
provisions, even though the word with the broadest scope of meaning, “whatsoever”, is
inserted into the incorporation clause508.
Nonetheless, there remains one English case, The Merak509, which can hardly be reconciled
with the specified legal position510. Contrary to the rule that general words of incorporation are
not apt to describe choice of forum provisions, in The Merak, the words “all terms, conditions,
clauses and exceptions” were found to be apt to describe the arbitration clause in two respects.
Firstly, comprehensiveness of the word “clause” in the incorporation clause led the court to
hold that the incorporating language was sufficient to import, inter alia, the charterparty
503
[2003] 2 Lloyd’s Rep. 364
504
See The Varenna, [1984] Q.B. 592
505
Ibid.
506
T.W. Thomas & Portsea Shipping Co. Ltd., [1912] A.C. 1, 10
507
Ibid.,at 8
[2003] 2 Lloyd’s Rep. 364
508
509
See [1965] P. 223
510
For a similar view, see Habas Sinai ve Tibbi Gazlar Isthisal Endustri A.S. v. Sometal S.A.L., [2010] EWHC 29
134
arbitration clause 511 . This particular reasoning can seem consistent with the decision in
Thomas v. Portsea, where the “conditions” of the charterparty were expressly stipulated in the
incorporation clause512. Also, it may equally appear in line with the ruling in The Varenna, for
the incorporation language therein had merely the additional word “terms” 513. Even though the
reference to the “clauses” of the charterparty is broader than those highlighted, and both The
Varenna and Thomas v. Portsea can be distinguished on that basis, this underpinning is not,
however, persuasive by reason of the well-recognised decision in Siboti 514 . The reason is
simply that the incorporation clause in The Merak was narrower in scope than that in Siboti,
where a wider form of general incorporation wording, which contained the all-encompassing
word “whatsoever”, was not held to qualify for this purpose.
Secondly, the court heavily relied on the charterparty arbitration clause providing for the
disputes arising under bills of lading 515 . This justification, which is that the charterparty
wording may be relevant in resolving this matter, was initially heard in Thomas v. Portsea516.
Whilst standing against incorporation of the arbitration clause, as an alternative argument, the
court hinged on the wording of the arbitration provision, which merely pointed to the disputes
arising out of the conditions of the charterparty517. In so doing, it suggested as obiter that
charterparty arbitration clauses contemplating disputes under bills of lading be incorporated,
despite general words of incorporation already being stated therein 518. Thereafter, this view
was favoured in the landmark cases such as The Annefield 519 and The Rena K520. Additionally,
See The Merak, above, at 253. See also, The Federal Bulker, [1989] 1 Lloyd’s Rep. 103, where The Merak was
distinguished, for the incorporation clause was devoid of the word “clause”.
511
512
See Thomas v. Portsea, above.
513
[1984] Q.B. 592
514
See Siboti, above.
See [1965] P.223, 259. See also, The Varenna, where The Merak was not applied on the basis that the arbitration clause
solely provided for arbitration of disputes arising “under this charter”, instead of referring to the disputes “under bills of
lading”.
515
516
See [1912] A.C. 1.
Ibid., at 5-6 and 9. Controversially, there it was also stated the bill of lading was the primary document to be considered,
see page 8 thereof.
517
See The Annefield [1971] P. 168, 184; The Rena K [1979] Q.B. 377, 389-390. For arguments giving weight to the
charterparty wording before the incorporation of the charterparty terms into the bills of lading, see The Delos, [2001] 1
Lloyd’s Rep. 703, 706; The Phonizien, [1966] 1 Lloyd’s Rep. 150
518
519
See [1971] P. 168
520
See [1979] Q.B. 377.
135
even the court in The Varenna 521 , which strongly asserted that the bill of lading was the
primary document to be considered 522 , appeared to confirm the possibility of introducing
arbitration clauses with such wording in the absence of a specific reference to arbitration in
the bills of lading523.
This approach contains serious flaws when the chain of English incorporation rules is
evaluated in its entirety. Having accepted that bill of lading is the primary document to be
taken into account, there are no logical reasons for giving the charterparty wording the effect
of determining what words of incorporation are apt to describe the charterparty provisions.
The result of accepting the aforesaid is that charterparty provisions should only be taken into
consideration after their incorporation is operated by the incorporation clause under the bills
of lading524.
Moreover, allowing incorporation of arbitration clauses, just because of the charterparty
wording, is inconsistent with the recognised view that incorporation of ancillary provisions
entails a specific reference to be made under the incorporating contract 525. Finally, pursuant to
the rule established in Interfoto Picture Library Ltd. v. Stiletto Visual Programmes Ltd.526,
reasonable notice to alert the cargo interests regarding the carriers’ intention to incorporate
the arbitration clause, which is deemed ancillary to the bills of lading, can only effectively be
given with a specific reference under the incorporation clause527. This line of reasoning cannot
521
[1984] Q.B. 592
522
Ibid., at 596
Ibid., at 598-599. See also, Todd P., “Incorporation of Arbitration Clauses into the Bills of Lading”, (1997) JBL 331, 347.
In addition to the highlighted decisions, English authorities suggest that the wording of the charterparty arbitration clause,
which refers to the disputes “under bills of lading”, is sufficient to incorporate the arbitration clause despite the general words
of incorporation under bills of lading. See, Mankabady S. ‘References to Charter-parties in bills of lading’, (1974) LMCLQ
pg. 57-58, Davies M., “Jurisdiction Clauses and Forum Selection in International Maritime Law”, (2005), pg. 30 and Cooke,
J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.51. For opinions disfavouring this perspective see Todd P.,
supra at 333 and 347, Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2 nd edn, 2005), para: 3-032 and Boyd
S.C., Burrows A.S., et al, “Scrutton on Charterparties”, (21 st, edn, 2008), para A40.
523
See Siboti K/S v. BP France S.A. [2003] 2 Lloyd’s Rep. 364, 369; The Coral, [1993] 1 Lloyd’s Rep. 1, 6. For further
discussions see Chapter 4.
524
O.K Petroleum A.B. v. Vitol Energy S.A., [1995] 2 Lloyd’s Rep. 160, 168; The Federal Bulker, [1989] 1 Lloyd’s Rep. 103,
105.
525
526
See [1989] Q.B. 433
527
Gaskell N., et al, “Bills of Lading: Law and Contracts”, (2000), para. 21.47
136
justify any interference of the charterparty wording whilst determining the incorporation of
charterparty clauses528.
In accordance with the above criticisms, the requirement of making explicit reference to
arbitration under the incorporation clause is likely to be predominantly applicable under
English law for the benefit of cargo interests529. This is precisely because, even if The Merak
is not overruled, the English courts and authorities regard the facts of The Merak as unique
and unusual, thereby restricting the application of the decision to limited cases 530. On this
basis, it can be inferred that, no matter how broad the general words of incorporation are,
under English law, carriers’ chances to incorporate the charterparty arbitration clause pointing
to the dispute arising under bills of lading remain rather low531.
When compared with the identified rules of incorporation under English law, it is clear that
U.S courts take a diametrically opposed view on incorporation of forum selection clauses.
This contrast derives from the fact that, under U.S. law, arbitration and jurisdiction clauses are
taken just as any other charterparty provisions 532 . As a result of this formulation, all
charterparty provisions, including the arbitration, exclusive jurisdiction and time bar clauses,
are deemed to be aptly described through the general words of incorporation, provided that
the wording of the incorporation clause has sufficient breadth to manifest the intention to
incorporate to that extent533. Consequently, general words of incorporation are given the force
528
See The Varenna, [1983] 2 Lloyd’s Rep. 592
Gaskell N., et al, “Bills of Lading: Law and Contracts”, (2000), para. 21.47 and Boyd S.C., Burrows A.S., et al, “Scrutton
on Charterparties”, (21st, edn, 2008), para A40.
529
See The Federal Bulker, [1989] 1 Lloyd’s Rep. 103, 108. See also, Treitel G. and Reynolds F.M.B., “Carver on Bills of
Lading”, (2nd edn, 2005), para: 3-032. It seems that the court in The Merak was keen to find in favour of incorporation inter
alia because the cargo interest was also charterer of the charterparty which was sought to be incorporated into the bills of
lading, see [1965] P. 223, 256. For those cases which are not in favour of the approach adopted in The Merak, see Siboti K/S
v. BP France S.A., above; Habas Sinai ve Tibbi Gazlar Isthisal Endustri A.S. v. Sometal S.A.L., [2010] EWHC 29
530
See Todd P., “Incorporation of Arbitration Clauses into the Bills of Lading”, (1997) JBL 331, 347. Some authorities
suggest that the word ‘clause’ is probably apt to refer charter party arbitration clause, see Gaskell N., et al, “Bills of Lading:
Law and Contracts”, (2000), para. 21.34
531
Son Shipping Co. Inc. v. De Fosse & Tanghe, 1952 A.M.C. 1931, 1933 (2d Cir. 1952); Fairmont Shipping and Botelho
Shipping Corp. v. Primary Industries Corp., F.Supp., 1988 WL 7805 (S.D.N.Y 1988); Lowry & Co., Inc. v. S.S Le Moyne
D’iberville, 1966 A.M.C. 2195 (S.D.N.Y 1966). But see Siderius, Inc. v. M/V Ida Prima, 613 F.Supp. 916 (S.D.N.Y 1985)
533 Ibid. See also Energy of Transport Ltd. v. M/V San Sebastian, 348 F.Supp.2d 186, (S.D.N.Y 2004), and Davies M.,
“Jurisdiction Clauses and Forum Selection in International Maritime Law”, (2005), pg. 30. On the contrary see, State
Establishment for Agricultural Product Trading v. M/V Wesermunde, 1988 A.M.C. 2328, 2337 (11th Cir 1988), where the
court declined to incorporate the arbitration clause, inasmuch as there was no express reference to the clause under bills of
lading which would have alerted the holder.
532
137
to describe arbitration, exclusive jurisdiction and time bar clauses534, thereby dismissing the
need for any specific reference535.
So far as the incorporation of arbitration clauses is concerned, there are mainly two reasons
for the fact that they are not to be treated as different from those other charterparty provisions.
Firstly, with the enactment of the FAA, which asserts a policy favouring arbitration, U.S.
courts no longer preserve the old judicial hostility towards arbitration 536. Rather, this liberal
policy, which is enshrined under FAA, requires that the courts construe and resolve the
ambiguity in favour of arbitration537. Having taken this line, U.S. courts find no difficulty in
affording general incorporation wording a considerable breadth of meaning as operative to
introduce charterparty arbitration clauses. Secondly, due to the frequent use of arbitration
clauses under charterparties, U.S. courts have been inclined to view these provisions as
standard terms, whose existence under the charterparty should be anticipated by the cargo
interests, who in turn are regarded as sophisticated parties538. Evidently, the latter basis also
justifies incorporation of exclusive jurisdiction clauses through general incorporation wording,
given that these clauses are also commonly in use.
The image thus created under U.S. law suggests that carriers are able to import arbitration
clauses into bills of lading if the language under the incorporation clause is expansive enough
to manifest the intention to do so. In this context, they do not need to use extra care in the
very wording of the incorporation clauses, as even those provisions simply directing the
534
See Duferco Steel Inc. v. M/V Kalisti, 1998 A.M.C. 171, (7th Cir. 1997)
See Son Shipping Co. Inc. v. De Fosse & Tanghe, 1952 A.M.C. 1931, 1933, (2d Cir. 1952); Ibeto Petrochemical
Industries Limited v. M/T Beffen, 2007 A.M.C. 213, (2d Cir. 2007); Continental Insurance Company v. Polish Steamship
Company, 2003 A.M.C. 2718, (2d Cir. 2003), Continental Insurance Company v. M/V Nikos N., 2002 A.M.C. 1287
(S.D.N.Y. 2002); Chilean Nitrate Sales Corp. v. Steamship Nortuna, 1955 A.M.C. 1576, (S.D.N.Y. 1955); Cia. Platamon v.
Empresa Colombiana, 1980 A.M.C. 538, 540 (S.D.N.Y 1979); Henkel K.G. v. M/T Stolt Hipo, 1980 A.M.C. 2618, (S.D.N.Y
1980); Midland Tar Distillers, Inc. v. M/L Lotos, 362 F.Supp.1311, 1312 (S.D.N.Y. 1973); State Trading Corp. of India, Ltd.
v. Grunstad Shipping Corp. (Belgium) N/V, 582 F.Supp. 1523, (S.D.N.Y 1984). See also, Sturley M.F., “Benedict on
Admiralty”, (2007), Vol: 2A, Section 184, at 17-61. However, it should be noted that if the language in the incorporation
clause is not expansive and if it brings ejusdem generis considerations to the fore, the arbitration clause will not be carried
into the bill of lading, see Poor W. “American Law of Charterparties and Bills of Lading”, (5 th edn, 1968), pg.72.
535
See Chevron USA, Inc. v. Consol Edison Co. of New York Inc., 872 F.2d 534, 537 (2d Cir. 1989); Paramedics
Electromedicina Comercial, Ltd. v. GE Med. Sys. Info. Tech., Inc., 369 F.3d 645, 654 (2d Cir. 2004); Moses H. Cone
Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (U.S. 1983); F.D. Import & Export Corp. v. M/V Reefer
Sun, 2003 A.M.C. 60, 63 (S.D.N.Y. 2002); Japan Sun Oil Co., Ltd. v. The M/V Maasdijk, 1995 A.M.C. 726, (E.D.La 1995);
Michael v. S.S. Thanasis, 311 F.Supp. 170, 178 (N.D. Cal. 1970).
536
See Usinor Steel Corporation v. M/V Koningsborg, 2004 A.M.C. 438 (S.D.N.Y. 2004); Citrus Marketing Board of Israel
and Agrexco Ltd. v. M/V Ecuadorian Reefer, 1991 A.M.C. 1042, (D.Mass. 1990); Continental Insurance Company v. M/V
Nikos N., 2002 A.M.C. 1287, 1290 (S.D.N.Y. 2002); Japan Sun Oil Co. v. M/V Maasdijk, 1995 A.M.C. 726 (E.D.La 1994)
538
Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 1998 A.M.C. 2054 (5th Cir. 1998)
537
138
holders to all conditions and exceptions of the charterparty achieve this purpose539. In New
York arbitration this well-established rule of incorporation has also been recognised. Hence,
the arbitration panel of In Re Alpine Shipping Company of Monrovia and Fuel Oil Trading Co
Geneva held that the incorporation clause providing for the terms and conditions of the
charterparty was competent to embrace the charterparty arbitration clause540.
In light of these observations it is possible to give a straightforward answer to the question of
incorporation of forum selection clauses under U.S. law: the general incorporation wording is
capable of carrying with it all ancillary charterparty provisions, including the law and forum
selection clauses. In sharp contrast to this, the long line of English authorities highlighted thus
far exhibit opposition to such an extensive reading of the incorporation clause. Restricting the
reach of these clauses mainly finds support from the traditional English view: Provisions of an
ancillary nature can only be incorporated as long as they are expressly referred to in the
incorporating contract541.
Despite being deeply rooted in the judicial decisions pertaining to incorporation of
charterparties into the bills of lading, this traditional view has also been applied to
incorporation cases in general. A good example is the ruling in OK Petroleum AB v. Vitol
Energy SA, where the general incorporation language in the contract of sale was found to be
insufficient to describe the time bar in the charterparty demurrage clause 542. Likewise, the
Privy Council in The Mahkutai adopted this approach for the construction of the Himalaya
clause in the bill of lading543. There, the key question was whether the shipowner who was not
a party to the bill of lading could benefit from the exclusive jurisdiction clause stipulated
therein by reason of the Himalaya clause. Having found against the shipowner, the Privy
539
See SMA No: 1485 (October 22, 1980)
Ibid. See also, In Re Arbitration Between Alimentos Precocidos Guayana C.A., and Her An Shipping S.A., SMA No: 3468
(August 14, 1998)
540
541
The provisions with respect to the applicable law of the contract are usually stipulated under the arbitration clauses. When
this is the case, these provisions are not deemed freestanding. Consequently, specific reference to arbitration in the bills of
lading is regarded as sufficient to incorporate these terms as part of the arbitration clause. See The Oinoussion Pride, [1991]
1 Lloyd’s Rep. 126, 130. This result is likely to be followed for time bar clauses regarding arbitration proceedings, see
Denny, Mott & Dickson, Ltd., and others v. Lynn Shipping Company Ltd., [1963] 1 Lloyd’s Rep. 339. Clearly, the position
for the time bar clauses linked to the demurrage clauses is to the contrary, see O.K Petroleum A.B. v. Vitol Energy S.A.,
[1995] 2 Lloyd’s Rep. 160.
542
[1995] C.L.C. 850
543
[1996] A.C. 650
139
Council preferred to read the Himalaya clause as not embracing the exclusive jurisdiction
clause precisely because the clause was merely pointing to “all exceptions, limitations,
provisions, conditions and liberties” in the bill of lading.
Nonetheless, it can scarcely be argued that this well-rooted approach is equally applicable to
all incorporation cases. Rather, as the judicial decisions so suggest, different factual
circumstances could lead the courts to take different courses of action. This is best illustrated
with the ruling in The Pioneer Container, where the court was concerned with the
construction of a bill of lading clause entitling the carrier to sub-contract the whole or part of
the carriage of goods “on any terms”544. The quoted phrase was taken to refer to the exclusive
jurisdiction agreement in the feeder bills of lading, which was issued by the subcontractor,
and the cargo owner was thus held to be bound by this provision. In the face of the identified
traditional view, the court sought to justify these findings on the basis that forum selection
clauses are not uncommon in bills of lading, especially when shipowners are engaged in the
container trade.
A similar line was also taken in Modern Building (Wales) Ltd. v. Limmer & Trinidad Co. Ltd.,
which contained a sub-contract agreement made for the construction of a building545. At the
heart of the dispute was the question of whether the phrase “… in full accordance with the
appropriate form for nominated Sub-Contracts (RIBA 1965 Edition)” could bring with it the
arbitration clause in the identified standard terms. With a view to resolving this issue, the
court preferred to put arbitration clauses on equal footing with other contract terms, regardless
of the ancillary nature of these provisions. In so doing, they gave the general incorporation
wording in the sub-contract agreement the effect of incorporating the arbitration clause.
These conflicting judicial opinions obviously add layers of complexity in determining what
incorporation words are competent to describe the forum selection clauses in general
incorporation cases. More specifically, the difficulty is in identifying the circumstances in
which the traditional view must be abandoned, since the highlighted cases do not suggest any
formula for solving this problem. Somewhat unexpectedly, the answer is now clear-cut in
light of the recent commercial court judgment in Habaş Sinai ve Tıbbi Gazlar İsthisal
544
[1994] 2 A.C. 324
545
[1975] 2 Lloyd’s Rep. 318
140
Endüstri A.Ş. v. Sometal S.A.L546. The case hinged on whether the sale contract incorporated
the arbitration clause stipulated in those other sale contracts previously made between the
same parties. In this connection, Clarke J. engaged in construction of the incorporation clause
which provided that “all the rest will be the same as our previous contracts”. Regardless of
these general words, he held in favour of incorporation. In support of this finding, he took the
view that the position was different from those bill of lading cases viz. “two-contract cases”,
where incorporation is concerned with the contracts made between different parties 547. On this
basis, Clarke J., set the rule which has become of valuable guidance in incorporation cases:
unlike the “two-contract-cases”, general words of incorporation are capable of importing
choice of forum clauses in “one-contract-cases” viz. where the contract highlights a set of
standard terms or where the relevant agreements were made between the same parties548.
Even though this formulation may not be competent to explain all judicial decisions on
incorporation, such as the ruling in The Pioneer Container, it provides a sound basis to
determine incorporation of not only the forum selection clauses but also those other ancillary
contract provisions, such as time bars. The reason is simply that the Habas formula places
emphasis on the different contexts of incorporation cases, and this saves the rules of
incorporation from being overly rigid and technical. It now remains to be seen whether the
courts will further recognise the distinctions drawn in Habas.
Having observed at length the key rules of construing incorporation wording, the remainder of
this section will go on to consider the practical consequences of the legal position under
English and U.S. law.
(c) What should the carriers anticipate in seeking to incorporate their charterparties?
As the strict semantic considerations, with respect to the wording of the incorporation clause,
are no longer inherent in U.S. and English rules of incorporation, it seems that carriers are no
longer at pains to introduce the charterparty clauses which are germane to shipment, carriage
546
[2010] EWHC 29 (Comm.)
547
It here proves valuable to note that in exceptional cases parties to the charterparty may be the same as those of the bill of
lading. Such circumstances may arise where the charterer happens to receive the bill of lading as the buyer of the goods and
where this bill of lading was relating to goods on board the vessel which he or she runs as a “general ship”, see Steamship
Calcutta Company, Limited v. Andrew Weir & Co, [1910] 1 K.B. 759, and Debattista C., “Bills of Lading in Export Trade”,
(2008), paras 8.7-8.12
548
[2010] EWHC 29, para 52. See also The Athena, [2006] 2 C.L.C. 710
141
and discharge of the cargo549. Rather, they will succeed in incorporating these clauses without
having to concern themselves with the technicalities of forming the ideal wording.
However, regarding the ancillary charterparty provisions, the carriers, under English law, run
the risk of not being able to achieve incorporation of these terms into the bills of lading, if the
incorporating language is devoid of any specific reference to such provisions. To this end,
having to make an express reference puts a strain on the carriers’ intentions to incorporate,
and their failure to do so usually turns out to be costly. Due to the practical significance of
forum selection clauses explained below, it is clear that this rule has a profound effect on
these parties when they wish to bring the dispute before a court or tribunal different from that
provided in the identified charterparty.
From the perspective of cargo interests though, it is equally clear that the rule of making a
specific reference to a particular charterparty clause has considerable benefits. These include
the fact that the express reference to a particular charterparty clause alerts these parties to the
carriers’ intentions to incorporate this specific term. Moreover, this rule reduces the risk of
holding a bill of lading with an incorporated forum selection clause, if they require in their
sale contracts submission of bills of lading with an incorporation clause which contains no
reference to such provisions.
Clearly, these striking differences between the U.S. and English approaches have great
significance for both carriers and cargo interests, for the rules have a direct impact on their
considerations as to where the dispute should be brought. In particular, the rules elucidated
above further reveal what practical strategies can be employed by the cargo interests who are
seeking to thwart incorporation of a forum selection clause: challenging incorporation of a
charterparty forum selection clause before an English court could be fruitful for these parties
provided that (1) the bill of lading contains an unqualified incorporation language, which
makes no express reference to the forum selection clause, and (2) the English conflict of law
points to English law as the governing law of the incorporation issue550. Whereas, unwelcome
results may arise, if they refer the dispute to a U.S. court which is expected to hold that U.S.
law is applicable to the question of incorporation. This is simply because it is likely that
See for instance The Garbis, [1982] 2 Lloyd’s Rep. 283, where the court allowed incorporation of even unusual
charterparty provisions. For a similar view see, The Northern Progress, (No: 2), [1996] 2 Lloyd’s Rep. 319.
550
For the conflict of law rules, see Introduction.
549
142
choice of forum clause will, in those circumstances, be carried into the bills of lading merely
through the general incorporation wording.
From a practical perspective, the parties may thus try to take advantage of these differences
by pursuing litigation in a more favourable jurisdiction. Nonetheless, these tactical
manoeuvres do not usually prove successful, since U.S. and English courts have the right to
grant anti-suit injunctions in order to secure adherence of the parties to the incorporated
charterparty forum selection clause551. However, it must be borne in mind that the right of
English courts to grant anti-suit injunctions is considerably curbed when the Judgments
Regulation applies552. The leading authority for this proposition is Turner v. Grovit553. There,
the European Court of Justice refused to permit English courts to issue an anti-suit injunction
against a party who chose, in bad faith, to bring court proceedings in another member state. In
support of this stance, the court opined that grant of anti-suit injunctions in order to restrain a
party from starting or continuing an action before the courts of another member state was
detrimental to the “mutual trust” between courts of the contracting states554.
While the decision can seem in line with judicial comity, it raises one critical question: the
courts of which member state have the right to rule on jurisdiction, especially where the
contract expressly provides or purports to incorporate an exclusive jurisdiction clause
providing for litigation in a different member state? In other words, assuming that a cargo
interest pursues litigation in Spain despite an exclusive jurisdiction clause designating the
English courts, the courts of which contracting state decide whether they have the jurisdiction
to adjudicate the cargo dispute? In this example, the Spanish courts would be entitled to do so
under Article 27 of the Judgments Regulation, which dictates that the court first seised has the
right to rule on jurisdiction. This solution draws support from the European Court of Justice
decision in Erich Gasser Gmbh v. MISAT Srl555, which clarified that the rule in Article 27 of
See for instance, The Kallang [2009] 1 Lloyd’s Rep. 124; The Duden [2009] 1 Lloyd’s Rep. 145. For U.S. law, see Ibeto
Petrochemical Industries Limited v. M/T Beffen et al, 2007 A.M.C. 213, (2d Cir. 2007).
551
See article 1(1) of the Judgments Regulation, which states that the regulation shall apply in civil and commercial matters
whatever the nature of the court or tribunal. For exceptions, see article 1(2) thereof.
552
553
(Case C-159/02) [2005] 1 A.C. 101
554
Ibid., at 113
555
[2005] Q.B. 1
143
the Judgments Regulation is applicable even in the case of a choice of court agreement
conferring jurisdiction on the courts of another member state.
These observations raise another key question: is it permissible for the courts of a member
state to grant anti-suit injunctions against the parties who brought proceedings in the courts of
another member state in breach of an arbitration agreement? Regardless of the fact that these
agreements find themselves outside the scope of the Judgments Regulation556, it is now clear
on authority that the right to grant anti-suit injunctions by reason of the breach of an
arbitration agreement does not arise in certain circumstances557. In this respect, the leading
European Court of Justice decision in The Front Comor558 reveals that such cases arise where
(1) the subject-matter of the dispute, which is tied up with the preliminary ruling on
arbitration, falls within the scope of the Judgments Regulation 559, and (2) the first seised court
has jurisdiction to adjudicate the dispute.
At this point, it is imperative to highlight one further suggestion arising from the famous
Front Comor decision, for it could considerably shape the tactical strategies to be employed
by the parties with regard to the bill of lading. The preliminary ruling of the court of a
member state pertaining to incorporation and/or enforceability of an arbitration agreement
must be recognised by the courts of other member states, if the actual dispute falls within the
scope of the Judgments Regulation560. Recently, the Court of Appeal in National Navigation v.
Endesa has read The Front Comor in that light 561 , when holding that English courts are
estopped by the Spanish court’s judgment, whereby the charterparty arbitration clause was not
incorporated into the bill of lading.
556
See Article 1(2)d of the Judgments Regulation.
See Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v. West Tankers (C-185/07), [2009] 1 Lloyd’s Rep. 413,
which has recently been followed by the Court of Appeal in National Navigation Co. v. Endesa Generacion S.A., [2009]
EWCA Civ. 1397. It must be noted that the courts are not entitled to grant anti-suit injunctions where the actual dispute
relates to the appointment of arbitrators or arbitration proceedings.
557
558
See Allianz, above.
559
In this context, the disputes as to the appointment of arbitrators or about any other arbitration proceedings are not taken as
falling within the scope of the Judgments Regulation, see Marc Rich & Co. A.G. Societa Italiana Impianti P.S., The Atlantic
Emperor, [1992] 1 Lloyd’s Rep. 342, 350-351.
560
See Allianz, above, at paras. 53, 54.
561
See National Navigation Co. v. Endesa Generacion S.A., [2009] EWCA Civ. 1397.
144
These judicial decisions reveal, perhaps, the most powerful weapons to deploy in order to
thwart incorporation and enforcement of a charterparty forum selection clause providing for
litigation or arbitration in England. This is simply because, where the Judgments Regulation
is operative, cargo interests can frustrate incorporation by initiating the proceedings in the
courts of another member state which is likely to hold against incorporation. Nonetheless, for
the carriers who wish to rely on such forum selection clauses, there is a counter strategy to
employ: instead of waiting to be sued in undesirable jurisdictions, it is in the best interests of
carriers to obtain a declaration from English courts to the effect that there is a binding choice
of forum clause incorporated into the bill of lading562.
So far as the legal position under U.S. law is concerned, it is clear that no such hurdles appear
in the way of U.S. courts to enforce forum selection clauses which designate the United States
as the place of arbitration or litigation. Nevertheless, the courts are divided as to the standards
of issuing anti-suit injunctions 563 . Consequently, the judicial uncertainty surrounding this
matter also poses challenges to carriers as they seek to make use of such forum selection
clauses.
On considering the different approaches adopted under these jurisdictions, the English rule of
making an express reference to forum selection clauses could be taken as the result of a
hostile approach towards such provisions. As has been highlighted above, English courts
expressed some doubts about the reliability of the arbitration procedure when first introducing
this rule. However, it is true that these conservative views no longer exist nor do they shape
the law 564 . Nonetheless, this requirement still lies at the heart of the English rules of
incorporation, for a great number of cases which developed the rules of incorporation placed a
heavy reliance on those early decisions565. Therefore, it is unlikely that English courts will
562
For a similar view see Seriki H., “Anti-suit injunctions, arbitration and the ECJ: an approach too far”, (2010) JBL, 24, 31
For the “liberal view”, whereby grant of anti-suit injunction is considered to be appropriate in the case of parallel
proceedings in different jurisdictions, see Seattle Totems Hockey Club Inc. v. National League, 652 F.3d 852, 855-856 (9th
Cir. 1981). For the “conservative view”, whereby an anti-suit injunction is granted due to public policy considerations, see
Stonington Partners Inc v. Lernout & Hauspie Speech Products, 310 F.3d 118, 126 (3d Cir. 2002). For an overall analysis,
see “Quaak v. Klynved Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11, (1st Cir. 2004) quoted in Meeson N.,
“Comparative Issues in Anti-Suit Injunctions”, Jurisdiction and Forum Selection in International Maritime Law, (2005), 7981. See also, Moses M.L., “The Principles and Practice of International Commercial Arbitration”, (2008), 93
563
564
The Varenna [1984] Q.B. 599, 604.
565
See Debattista C., “Bills of Lading in Export Trade”, (2008), at para: 8.15
145
depart from this approach, and cases such as The Merak will thus remain unique since this
strict requirement is one of the landmark rules of incorporation in the context of bills of lading.
The overall picture under U.S. and English law is that, whether or not the choice of forum
clause can be introduced into the bills of lading, the cargo interests should nevertheless be
prepared to accept one key fact: incorporation clauses operate importation of many
charterparty provisions whose application may cause various unexpected and onerous
liabilities566 such as demurrage, fiost and similar clauses. Even though, in both jurisdictions,
these clauses are incorporated into the bill of lading through general words of incorporation,
this does not lead to the mechanical application of all such clauses to the holders. The further
rules of incorporation, which shall be canvassed in the following chapters, provide the
effective grounds for these parties to challenge the application of these provisions.
2. To what extent are the incorporated charterparty provisions applicable to bill of
lading holders?
In the charterparty drafting process, it can seem a wise approach to insert provisions that
expressly refer to the respective parties to which the obligations or the rights therein relate.
Along the same lines, in order to set out clearly which issues are to be arbitrated or litigated,
the parties may find it more beneficial to stipulate a charterparty choice of forum clause
referring to the disputes arising either “under the charterparty contract” or between “the
charterer and the owner”. The natural rationale for this practice is the intention of parties to
ensure the proper and clear allocation of the rights and responsibilities under the charterparty,
without leaving any ambiguities. It is equally understandable that these parties may also seek
to bind third party bill of lading holders to these charterparty clauses by way of incorporating
them into the bill of lading.
While the intention of clearly specifying the rights and obligations of parties can be achieved
through the wording referred to previously, there is much to consider in whether charterparty
terms drafted in this fashion will survive after being incorporated. It goes without saying that
unless such provisions are manipulated, they will be deemed irrelevant and will therefore not
be applicable to the holder. Consequently, in order to bind the holders to these provisions, the
charterparty drafters should find the answer to one key question: are we to read the
See, for instance, the position of the cargo interest in The Jordan II, [2005] 1 Lloyd’s Rep. 57. See Chapter 3(2) below
and Chapter 5.
566
146
incorporated words referring to charterer, owner and charterparty as though they are referring
to bill of lading holders/receivers, carriers567 and to the bill of lading, respectively?
Adapting the charterparty terms to this new context may appear justifiable on the grounds that
disallowing manipulation of the charterparty terms might lead the incorporation clause to be
ineffective. At the root of this proposition lies the view that the intention of the parties, which
is apparent under the incorporation clause must be given effect to 568 . Even though it also
seems understandable to have a charterparty wording that involves many references to the
charterers, shipowners and charterparty, manipulation of some charterparty terms can be hard
to justify. Serious hesitations to manipulate the charterparty provisions are likely to arise
where, for instance, an incorporated charterparty provision places the responsibility for the
discharge operations on the charterer or the charterer’s agent. When a charterparty term is
couched in such a restrictive language, will the courts stretch the words to make them
applicable to the holder, or will these clauses simply be jettisoned from the bill of lading?
The well-established English legal position suggests that incorporated charterparty provisions
which are germane to the subject matter of the bill of lading can be modified so as to bind the
parties to same569. This position has its roots in The Merak, where Russell L.J. stated, as obiter,
that570:
“… clauses which are directly germane to shipment, carriage and delivery may
be incorporated by general words though the fact that they are found in a
charterparty may involve a degree of verbal manipulation to fit exactly a bill of
lading.”
Moreover, Russell L.J. further opined, as obiter, that neither the arbitration clauses, nor other
ancillary terms could be manipulated in the case of general words of incorporation 571. In his
dictum, Lord Denning in The Annefield further regarded these opinions as representing the
567
As has been highlighted in previous sections, shipowners are not, in all circumstances, the carriers.
568
See Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co., [1959] A.C. 133
569
See The Merak [1965] P. 223, 259-260
570
Ibid.
571
Ibid.
147
law when holding against incorporation of a charterparty arbitration clause in the absence of
an express reference to arbitration in the bills of lading572.
Having observed these dicta, Lord Diplock in The Miramar considered to what extent the
holder would be subject to the charterparty demurrage clause in the Exxonvoy 1969 form,
which was stated in the bill of lading. Nonetheless, his Lordship refused to manipulate the
words “charterer is to pay demurrage” in this well-known standard form, and thereby
disallowed the imposition of personal liability upon the cargo receiver for the accrued
demurrage573. The reason for this was to prevent one undesirable result which is frequently
confronted by the cargo interests in international trade: imposition of demurrage charges upon
the cargo receivers which have already accrued before the bill of lading is endorsed to them,
or which have arisen without any act or failure on their part 574. While it is expected that The
Miramar would provide a widespread solution to remove, or at least to lessen, this unfair
consequence, the ruling relieved the cargo interest of the demurrage charges merely by
hinging on the restrictive wording of the charterparty demurrage clause which placed the
liability squarely upon the charterer575.
While drafting the charterparty to be incorporated, The Miramar case raises some questions
which are of vital importance for all parties concerned: could the ruling in The Miramar be
extended for all germane charterparty provisions which impose the liability exclusively upon
the charterers? More specifically, after The Miramar, will a freight provision containing the
words “charterer is to pay” or a fiost clause which reads “charterer is to be responsible for the
shipping, trimming and discharge of the cargo without the expense of the vessel” also be open
to manipulation? Or are we now to spell out charterparty obligations, either by also pointing
to the receivers or by not making reference to any party? 576 Should manipulation of such a
demurrage clause or other germane charterparty provision, which exclusively refers to the
572
The Annefield, [1971] P. 168, 184
See The Miramar, [1984] A.C. 676. See also The Spiros C., [2000] 2 Lloyd’s Rep. 319, where the The Miramar was
followed and the holder was held to be not personally liable for the accrued demurrage by virtue of the incorporated
charterparty demurrage clause.
573
574
It was emphasised that the issue of whether or not the bill of lading covered the whole cargo or whether there was more
than one loading and discharge port was not a factor that shaped the decision, see The Miramar, above, at 682.
575
Ibid.
In practice this is usually done by using passive voice. See for instance the demurrage clause in Gray v. Carr, [1871] L.R.
6 Q.B. 522, which is drafted in that fashion.
576
148
charterers and/or the owners, nevertheless be allowed if there is express reference to such
charterparty provisions under the incorporation clause? As the decisions following The
Miramar have attested, it cannot be argued that the case is a barrier to incorporation of all
other germane charterparty provisions which exclusively point to the charterers but not to the
receivers577. This is precisely because none of the English judicial decisions have endorsed the
reasoning in The Miramar case in the case of other charterparty clauses which are drafted in
that fashion.
Nevertheless, this judicial decision highlights the possibility that a charterparty provision with
restrictive language may not be manipulated in cases where its application would give rise to
onerous liabilities to be borne by cargo interests 578 . The latter proposition can best be
supported through further analysis of the English approach with regard to contract
construction. English authorities have allowed for manipulation of contracts in-so far as it is
in line with the intention of the parties and that this can be objectively ascertained by the
incorporation wording579. In this context, unless there are clear words in the contract to that
effect, English courts have been reluctant to allow manipulation of exclusion clauses, which
would, if permitted, impose onerous liabilities upon the holders 580 . The reason for this
reluctance was that, in the absence of an express provision to the contrary, the courts
presumed that parties had not intended to agree to unreasonable or commercially insensible
terms581. In light of these observations, it is clear that The Miramar could therefore be used to
prevent the imposition of obligations, originally assumed by the charerters, on the bill of
lading holders. Following this ruling, the courts may thus reject manipulating the charterparty
fiost clauses, which place the responsibility of loading and discharge operations squarely on
See, in particular, The Constanza M, [1981] 2 Lloyd’s Rep. 147, 154. There, the court accepted the difficulty in
manipulating the words ‘charterer is to pay freight’, while also emphasising that such manipulation was possible.
577
Siboti K/S v. BP France S.A. [2003] 2 Lloyd’s Rep. 364 and The Rena K [1978] 1 Lloyd’s Rep. 377, where both decisions
raised the argument that undue manipulation would not be permissible. See Treitel G. and Reynolds F.M.B, “Carver on the
Bills of Lading”, (2nd edn, 2005), para: 3-034. See also The Nerano, [1996] 1 Lloyd’s Rep. 1, where the justification for
manipulation of the arbitration clause was based upon the argument that the arbitration clause does not impose unusual
burdens on the cargo receivers.
578
579
See for instance, The Rena K., [1978] 3 W.L.R. 431; The Nerano, [1996] 1 Lloyd’s Rep. 1, 3-4
580
See The Starsin, [2004] 1 A.C. 715, paras 144, 171
See Schuler v. Wickman Machine Tool Sales Ltd., [1974] A.C. 235. See also, supra note 160.
581
149
charterers582 on the grounds that these provisions indisputably cause serious inconvenience to
cargo interests583.
As the explanations above suggest, the courts are inclined to avoid manipulation of a
charterparty provision if it clearly manifests the intention to limit the application of the clause
to the original parties584. However, such a charterparty clause can be adapted to the bill of
lading, where all the charterparty terms are drafted in the same restrictive manner 585. Similarly,
when an express reference to a charterparty provision is made in the incorporation clause, this
will also trigger manipulation, irrespective of the language used thereunder, on the grounds
that the intention of the original parties to the bills of lading is “paramount”586.
With respect to the charterparty arbitration clauses and other ancillary provisions, different
considerations arise precisely because, under English Law, they can only be imported into
bills of lading through special incorporation wording. As this is the main hurdle, no
difficulties in manipulating these provisions are likely to appear on the grounds that the
express reference to such charterparty terms in the incorporation clause will trigger both
incorporation and manipulation587. The Court of Appeal judgment in The Nerano is perhaps
the main authority for the rule that ancillary charterparty terms can be manipulated when they
are expressly identified in the incorporation clause 588. There, the scope of the charterparty
arbitration clause was limited to the disputes between original parties to the charterparty.
Nonetheless, Saville L.J. took the view that this provision must be extended to cover the
disagreements arising from the bills of lading. In support of this, he distinguished the case
See Treitel G. and Reynolds F.M.B, “Carver on the Bills of Lading”, (2nd edn, 2005), para: 9-128. But see, The Coral,
[1993] 1 Lloyd’s Rep. 1, where the Court of Appeal preferred not to raise the question of manipulation, despite the fact that
the fiost clause imposed the relevant risks and duties exclusively on the charterers.
582
See Chapter 5 hereof. Perhaps due to these possibilities, the fiost clause in The Jordan II contained reference to shippers,
charterers and receivers, see [2004] UKHL 49
583
584
See supra note 573 See also Treitel G. and Reynolds F.M.B, “Carver on the Bills of Lading”, (2 nd edn, 2005), para: 3-034
See The Happy Ranger, [2002] 2 Lloyd’s Rep. 357, 366. See also, Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd
edn, 2007), para: 18.55. It needs to be borne in mind that such an intention cannot always be attributable to the parties,
despite the existence of a restrictive language. See also, The Amstelmolen, [1961] 2 Lloyd’s Rep. 1
585
See The Rena K, [1978] 1 Lloyd’s Rep. 377; Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co., [1958] 2
W.L.R. 688. See also Todd, P., “Incorporation of arbitration clauses into bills of lading”, (1997) JBL, pg.331, at 334 and
Baughen, S., “Shipping Law”, (3rd edn, 2004), pg.88. For a contrary view see Cooke, J., Young, T., et al, “Voyage Charters”,
(3rd edn, 2007), para: 18.55.
586
587
See ibid., and The Federal Bulker, [1989]1 Lloyd’s Rep. 103, 109.
588
[1996] 1 Lloyd’s Rep. 1
150
from The Miramar in two respects589. Firstly, considering the wide use of arbitration clauses,
Saville L.J. emphasised that these provisions do not impose onerous obligations on the
holders. Secondly, he highlighted the fact that, unlike with The Miramar, the arbitration
clause was expressly identified in the incorporation wording, and this was held to demonstrate
that the parties to the bill of lading intended to arbitrate, just as if they were parties to the
charterparty.
Consequently, no matter whether the arbitration clause refers to the disputes between the
shipowners and the charterers590 or the words therein read “disputes under the charter party” 591,
these provisions will be manipulated in order to be applicable under the bill of lading, where
the arbitration clause is expressly identified in the incorporation clause. It naturally flows
from these findings that the arbitration clauses pointing to disputes arising “under this
contract” must also be read as though they refer to disputes “under bills of lading”. In light of
these explanations, it is imperative to apply these rules equally to the exclusive jurisdiction
clauses, which are also commonly used ancillary contract terms.
While determining whether to manipulate or to read the clauses verbatim into the bills of
lading, the explanations made thus far show that there is no invariable recipe to be followed
for all incorporated charterparty provisions. In terms of making the holders bound by germane
charterparty terms, the real barriers emerge under the rules of manipulation, though little
effort is sufficient to incorporate these provisions. It is therefore beneficial for carriers to use
extra care, inter alia, in the wording of such charterparty clauses, which may impose onerous
liabilities when applied to the bill of lading holders. Furthermore, the reasoning used in The
Miramar and The Nerano also suggests that these parties could achieve application of such
provisions to the holders by expressly identifying them in the incorporation clause.
So far as the position under U.S. law is concerned, it is striking that the drafters need to pay
much more attention, particularly to the language of charterparty arbitration clauses. This
necessity derives from the well-rooted U.S. approach that resolves the issue of manipulation
by relying on the very words of these clauses592, categorising them as either narrow or broad593.
589
Ibid., at 3-4
The Oinoussin Pride, [1991] 1 Lloyd’s Rep. 126. But see The Nai Matteini, [1988] 1 Lloyd’s Rep. 452, which is overruled
by decision in The Nerano, [1996] 1 Lloyd’s Rep. 1
590
591
592
See The Delos, [2001] 1 All E.R. (Comm) 763 and The Rena K, [1978] 1 Lloyd’s Rep. 545
See Alucentro Div.Dell’alusuisse Italia S.P.A. et al v. M/V Hafnia etc. et al, 1992 A.M.C. 267, 268 (M.D. Fla. 1991)
151
Accordingly, U.S. courts do not manipulate the arbitration clauses nor adapt them to the
wording of the bills of lading where the relevant arbitration provision refers to disputes
arising between shipowner and charterer 594 . While this clause is regarded as narrow, the
charterparty clauses pointing to disputes arising out of “the charter party” 595 or “this
contract”596 are deemed to be broad597. Therefore, the provisions drafted in this manner are
construed, in the context of bills of lading, as though they refer to the disputes under “this bill
of lading” or “this bill of lading contract”. As for the arbitration clauses which do not fall into
either category, the courts tend to treat such provisions as broad598 due to the strong policy
favouring arbitration599.
Since the wording which describes the disputes to be arbitrated is decisive in categorising the
arbitration clauses, the carriers are forgiven for referring to “shipowners and charterers”
therein when spelling out the process with respect to selection of the arbitrators 600 .
Consequently, if the language used in the arbitration clause is broad, they are bound by this
provision ‘just as they would be if the dispute were between the parties to the charterparty’601.
F.D. Import & Export Corp. v. M/V Reefer Sun, 2003 A.M.C. 60, 65 (S.D.N.Y. 2002); Midland Tar Distillers, Inc. v. M/T
Lotos, 362 F.Supp 1311, 1314 (S.D.N.Y. 1973); Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela,
1993 A.M.C. 2916, 2923 (2d Cir 1993 ); Trade Arbed v. M/V Kandalaksha, 2003 A.M.C. 1732, 1735, (S.D.N.Y. 2003);
Limonium Maritime S.A. v. Mizushima Marinera S.A., F.Supp.2d, 1999 WL 46721 (S.D.N.Y. 1999); Lucky Metals Corp. v.
M/V Ave., 1996 A.M.C. 265 (S.D.N.Y. 1995)
593
Continental U.K. Ltd. v. Anagel Confidence Compania Naviera, S.A., 1987 A.M.C. 2012 (S.D.N.Y. 1987); Joo Seng Hong
Kong Co. v. S.S. Unibulkfir, 493 F.Supp. 35 (S.D.N.Y. 1980); Production Steel Co. of Illinois v. S.S. Francios L.D., 1968
A.M.C. 2529 (S.D.N.Y. 1968); Nissho Iwai Corporation v. The M/V Thalia, F.Supp., 1996 A.M.C. 723 (E.D.La. 1996). See
also, Sturley M.F., “Benedict on Admiralty”, (2007), pages 17-61,17-62.
594
595
See Alucentro Div.Dell’alusuisse Italia S.P.A. v. M/V Hafnia, 1992 A.M.C. 267, 268 (M.D. Fla. 1991); Midland Tar
Distillers, Inc. v. M/T Lotos, 1973 A.M.C 1924 (S.D.N.Y. 1973); Son Shipping Co, Inc. v. De Fosse & Tanghe, 1952 A.M.C.
1931 (2d Cir. 1952)
Associated Metals & Minerals Corp. v. M/V Venture, 554 F.Supp 281 (D.C.La 1983); Lowry & Co., Inc. v. S.S. Le Moyne
D’Iberville, 1966 A.M.C. 2195 (S.D.N.Y. 1966); Lowry & Co. v. S.S. Nadir, 1965 A.M.C. 1340 (S.D.N.Y 1963); In Re
Southwind Shipping Co., 709 F.Supp. 79,82 (S.D.N.Y. 1989)
596
597
Alucentro Div.Dell’alusuisse Italia S.P.A. v. M/V Hafnia 1992 A.M.C. 267, 268 (M.D. Fla. 1991)
Continental Insurance Company v. M/V Nikos N. 2002 A.M.C. 1287 (S.D.N.Y. 2002); Salim Oleochemicals, Inc. v. M/V
Shropshire, 169 F. Supp.2d. 194, (S.D.N.Y 2001)
598
599
See Asoma Corp. v. M/V. Seadaniel, 971 F.Supp. 140, (S.D.N.Y 1997)
See Alucentro Div.Dell’alusuisse Italia S.P.A. v. M/V Hafnia, 1992 A.M.C. 267 (M.D. Fla.1992); Midland Tar Distillers,
Inc. v. M/T Lotos, 1973 A.M.C. 1924 (S.D.N.Y. 1973); In the matter of Arbitration between Benship Int. v. Bangladesh
Agricultural Development Corp., in F.Supp., 1991 WL 710 (S.D.N.Y. 1991); Lucky Metals Corp. v. M/V Ave., 1996 A.M.C.
265 (S.D.N.Y. 1995); Continental Insurance Company v. M/V Nikos N. 2002 A.M.C. 1287 (S.D.N.Y. 2002)
600
Citrus Marketing Board of Israel v. M/V Ecuadorian Reefer, 1991 A.M.C. 1042, (D.Mass 1990); Coastal States Trading,
Inc. v. Zenith Navigation S.A., 446 F.Supp.330 (S.D.N.Y. 1977); Son Shipping Co, Inc. v. De Fosse & Tanghe, 1952 A.M.C.
1931 (2d Cir 1952)
601
152
It therefore follows that, in the case of a narrow arbitration clause, the carriers are not entitled
to arbitrate disputes with subsequent bill of lading holders, despite the explicit reference to
arbitration in the incorporation clause602. At the root of this rule lies the view that, when the
language used in the arbitration clause is narrow, its application should be restricted to the
immediate parties named in the charter party. The U.S. approach thus refuses to extend
application of these arbitration clauses to non-signatories of the charterparty603, even when
parties to the bill of lading expressly identify the clause in the incorporation clause604.
Yet, a charterparty arbitration clause referring to the disputes arising between the “owner” and
“charterer” is applicable to the parties to bills of lading where both the carrier and cargo
interest can be construed as either the “charterer” or the “owner” of the incorporated
charterparty605. For the purposes of being treated as such, the courts looked at whether each
party (1) is a signatory to the incorporated charterparty or (2) has assumed all obligations or
privileges of either party to the charterparty or (3) is a principal or alter ego of the charterer or
the owner who entered into the relevant charter 606 . Hence, in Limonium Maritime S.A. v.
Mizushima Marinera, the holder was held to be subject to the incorporated charterparty clause,
even though the terms impose liability exclusively upon the charterers on the basis that these
parties were regarded as “the charterer” of the incorporated charterparty607.
However, similar to the view adopted for arbitration clauses, manipulation is also not allowed
for other incorporated charterparty clauses, such as exclusive jurisdiction clauses, which
manifest an intention to limit the scope of application to the immediate parties608. Nonetheless,
save in the cases of arbitration and jurisdiction clauses, this deadlock is likely to be overcome
Alucentro Div.Dell’alusuisse Italia S.P.A. v. M/V Hafnia, 1992 A.M.C. 267 (M.D. Fla. 1991), where existence of an
express reference to arbitration in the incorporation clause played no role in determining the application of a charterparty
arbitration clause to the bill of lading holder.
602
Midland Tar Distillers, Inc. v. M/T Lotos, 1973 A.M.C. 1924 (S.D.N.Y. 1924). There, the aim was to protect the parties
from having to arbitrate their disputes with the carrier which they had not agreed to submit. See F.D. Import & Export Corp.
v. M/V Reefer Sun, 2003 A.M.C. 60, 63-64 (S.D.N.Y. 2002).
603
604
See Salim Oleochemicals, Inc. v. M/V Shropshire, 169 F. Supp.2d. 194, 198 (S.D.N.Y 2001)
605
See, Continental U.K. Ltd. v. Anagel Confidence Compania Naviera, S.A., 1987 A.M.C. 2012, (S.D.N.Y. 1987).
Ventura Maritime Co. Ltd. v. ADM Export Co., 1999 A.M.C. 1676 (E.D.La 1999). Unlike U. S law, English law is
reluctant to base its the decisions on this issue, see The Phonizien, [1966] 1 Lloyd’s Rep. 150, where the carriers invoked that
the bill of lading holder is also the ‘charterer’ as per the definition of the incorporated charterparty contract. Yet, this was not
regarded a sufficient reason for binding the bill of lading holder to the charterparty arbitration clause, which was not
expressly referred to in the incorporation clause. Given that the arbitration clause was not incorporated, the question of
manipulation did not therefore arise.
607 Limonium Maritime S.A. v. Mizushima Marinera, F.Supp.2d, 1999 WL 46721 (S.D.N.Y. 1999)
606
608
Martin P.V. and Balick S.E., “A Trader’s Concern: what is the complete contract?” (1996) 4 I.J.O.S.L., pg 220-221
153
by introducing into the incorporation clause the words that read ‘charterparty terms will be
applicable to the holder as if he were the party to the charterparty’ or by inserting similar
provisions, since such expressions are treated as persuasive grounds for justifying
manipulation609. Moreover, manipulation is also permissible for other charterparty provisions,
in cases where the bill of lading contains an express provision making the holder liable in
respect of the matters stipulated under these terms610. Similarly, an incorporation clause, which
expressly identifies these charterparty provisions, equally triggers manipulation611.
(a) Are the rules of manipulation justifiable?
As an overall perspective, both English and U.S. rules of manipulation can seem more
favourable to carriers. This is mainly because the barriers to manipulation only arise in
limited circumstances, and they may nevertheless disappear with the adoption of some simple
contract drafting techniques for the charterparty.
While it is true to say that the ruling in The Miramar affords some protection to the cargo
interests against the unexpected demurrage liabilities, the piecemeal solution, thus offered,
falls short of resolving the actual problems associated with demurrage 612 . Above all, even
though English courts are cautious about extending the application of The Miramar to other
charterparty terms, it remains to be seen whether The Miramar will prevent manipulation of
all onerous charterparty provisions.
Since the incorporation clauses purport to render the referred charterparty applicable in the
context of bills of lading, the tendency of the courts towards manipulation is understandable.
In particular, when an express reference to a charterparty provision is made in the
incorporation clause, the intention to make the relevant term a part of the bill of lading is
obviously more apparent, and manipulation becomes even more justifiable in those
circumstances. It is for this reason that English law has a more sensible approach, with respect
to manipulation of arbitration clauses, on the grounds that specific reference to arbitration in
See Limonium, above, quoting Bagot, M.H. and Henderson, D.A., “Not Party, Not Bound? Not Necessarily: Binding
Third Parties to Maritime Arbitration”, (2002) TMLJ, Vol: 26, No: 2, pg. 455.
609
610
See United States of America v. Lamborn & Co., and William A. Jamison, 1932 A.M.C. 1228, (2d Cir. 1932)
611
Ibid.
612
See Chapter 5(1).
154
the incorporation clauses is enough to trigger manipulation, irrespective of the charterparty
wording.
Conversely, the U.S. approach regards the very words of the charterparty forum selection
clause as the only decisive factor in resolving the issue of manipulation, and therefore it
prevents manipulation despite the specific reference in the incorporation language. Giving
priority to the charterparty wording, in such cases, surely overrides the intention of the
original parties to the bills of lading. On this basis, the U.S. law attracts criticisms. It makes
little sense to interpret the incorporated charterparty wording against the intention manifested
under the bills of lading, since the bill of lading is the incorporating contract. Nevertheless,
not only judicial decisions, but also arbitration awards reveal that the rule of categorising
forum selection clauses and determining the application of these terms exclusively on the
basis of their category is strictly followed613.
Whether manipulation is effected or not, the parties will be left with an incorporated
charterparty clause whose scope is either too narrow or too wide. This position raises one
question: To what extent are the manipulated charterparty terms applicable under bills of
lading?
3. Do the incorporated charterparty terms have sufficient breadth for application?
Considering the likely consequence of being bound by the carriers’ favourable charterparty
terms due to the aforementioned rules of incorporation, cargo interests may find it safer to
assert their claims in tort, instead of relying on the contract of carriage. As an alternative, they
may also seek to prove that the scope of the incorporated charterparty clause does not have
sufficient breadth to comprise the dispute at hand. Notwithstanding that carriers may be
hopeful of binding cargo interests to their charterparty clauses, to which the rules of
manipulation are generously applied, they need to take the attempts of cargo interests to avoid
incorporation seriously. This is because even though the charterparty clauses are likely to be
applicable to the cargo interests after they are manipulated, under the cardinal rules of
contract law their scope of application is nevertheless limited to what they actually envisage.
Therefore, it becomes of vital importance to the draftsmen to make sure that the charterparty
For judicial decisions see supra note 593 and for arbitration awards see In Re Arbitration between Alimentos Precocidos
Guayana C.A. and Her An Shipping S.A., SMA No: 3468, (August 14, 1998); In Re Arbitration Between Cementos Andinos
Dominicanos S.A., and East Bulk Shipping S.A., SMA No: 3993, (February 11, 2008).
613
155
provisions are sufficiently broad to cover issues which might also become relevant for the
contractual relationship between the carrier and the cargo interest.
Undoubtedly, resolution of these key matters entails ascertaining the scope of the
incorporated charterparty by using the canons of construction. In this section, the construction
methods employed by U.S. and English courts will be examined with a view to finding the
extent to which the incorporated charterparty clauses are applicable to the disputes and issues
arising under bills of lading.
It is clear that the tendency of both English and U.S. courts has been to construe the
incorporated charterparty clauses restrictively if those terms are sought to be applied against
the holders, who seldom have the chance to see the charterparty614. Nonetheless, the cargo
interests are eager to avoid application of these imported provisions, which are of most use to
carriers, such as with negligence and arbitration clauses615. To attain this objective, they prefer
to frame their respective claims in tort.
Yet, these strenuous efforts usually have no impact on their position, inasmuch as both
English and U.S. courts do not look at the “legal labels” of the asserted claim616. Rather, they
examine the nature of the dispute 617 . On this basis, the courts take the view that disputes
concerned with goods carried under the terms of bills of lading or those relating to the issues
covered under those particular terms, are governed by the contract of carriage 618. Given the
unlikelihood of circumventing the contract terms by raising a claim in tort, cargo interests
need to give much thought to the scope of the incorporated charterparty terms and their
applicability to the dispute in hand.
For English law, see The Starsin, [2004] A.C. 715, 779. For U.S. law, see Royal Insurance Co. of America v. Orient
Overseas Container Line Ltd, (6th Cir. 2008), cert. denied, 129 S.Ct. 299 (U.S. 2008)
614
See for instance the fob seller, in Pyrene Company Ltd. v. Scindia Steam Navigation Company, Ltd., who claimed against
the shipowner in tort in order to not circumvent the unfavourable carriage terms under the bills of lading, [1954] 1 Lloyd’s
Rep. 321.
615
For U.S. law, see Salim Oleochemicals, Inc. v. M/V Shropshire, 169 F. Supp.2d. 194, 200-201 (S.D.N.Y. 2001); Energy of
Transport Ltd. v. M/V San Sebastian, 348 F.Supp.2d. 186, (S.D.N.Y. 2004). For English Law, see The KH Enterpise, [1994]
2 A.C. 324.
616
Ibid.
For English law, see The KH Enterprise, above. For U.S. law, see F.D. Import & Export Corp. v. M/V Reefer Sun, 2003
A.M.C. 60, (S.D.N.Y 2002)
617
618
156
In practice, discussions as to the scope of the incorporated charterparty clauses usually arise
in respect of arbitration clauses619. To solve the problem of which disputes can be arbitrated, it
is first necessary to identify the applicable law that determines the purview of the clause.
Given that the arbitration clause is distinct and separate from the main contract under which it
is referred to620, different applicable laws could govern these agreements 621. On this basis, U.S.
courts have repeatedly held that; where the Federal Arbitration Act, 1925 comes into
operation 622 “the federal substantive law of arbitrability” decides what form of arbitration
wording obliges the parties to arbitrate their disputes623. Hence, U.S. courts, in most cases
directly, apply the rules developed under case law, while English courts resort to the English
conflict of law rules in order to ascertain what system of law must be applied here 624. For the
purposes of determining the applicable law, English courts initially examine whether the
parties have expressly or implicitly chosen a particular legal system for their respective
arbitration agreements625. Where there is no such choice, the courts construe the arbitration
language pursuant to the laws of the country with which it is most closely connected626. In
light of these observations, the remainder of this chapter will examine the construction
methods of the arbitration language, both under English law and under “U.S. federal
substantive law of arbitrability”.
619
See Chapter 3(2) hereof.
For U.S. law, see Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, (U.S. 1967). For English law, see Premium
Nafta Products Ltd & Ors v. Fili Shipping Ltd. & Ors., [2007] 2 C.L.C. 553
620
See, for instance, Chloe Z. Fishing Co. v. Odyssey Re Ltd., 2000 A.M.C. 2409 (N.D. Cal. 2000), where the court did not
apply English law to this question, even though the main agreement was indisputably governed by English law.
621
Ibid. In this respect, the arbitration agreements which have international connections can also fall within the purview of
FAA, where a number of criteria stipulated under 9 U.S.C. § 208 (whereby New York Convention and its implementing
legislation applies) or under 9 U.S.C. §307 (whereby Inter-American Convention on International Commercial Arbitration
applies) are satisfied.
622
Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 626 (U.S. 1985); Moses H. Cone
Memorial Hospital v. Mercury Construction Corporation, 460 U.S. 1, 24 (U.S. 1983)
623
624
Rome I Regulation does not come into play, precisely because Article 1(2)(e) thereof expressly excludes arbitration
agreements from its scope. For a similar view, see Ambrose C., and Maxwell K., “London Maritime Arbitration”, (2002), 4243
See Vita Food Products Inc. v. Unus Shipping Co. Ltd. [1939] A.C. 277, 289-290. The seat of arbitration, or use of a
standard form, is usually decisive in finding the applicable law, see Compagnie d’Armement Maritime S.A. v. Compagnie
Tunisiennne de Navigation S.A. [1970] 2 Lloyd’s Rep. 99, 117; Amin Rasheed Shipping Corporation v. Kuwait Insurance Co.
[1983] 2 Lloyd’s Rep. 365, 369. In this context, use of a standard form or seat of arbitration could be decisive. See, also,
Ambrose C. and Maxwell K., above.
626
See Bonython v. Commonwealth of Australia, [1951] A.C. 201, 219.
625
157
So far as U.S. courts are concerned, arbitration clauses tend to be categorised as either narrow
or broad 627. As has previously been highlighted, the arbitration clauses which contemplate
those disputes between parties to the charterparty are treated as restrictive, while those
provisions referring to disputes “under” or “in connection to” the contract are deemed to be
broad628. It here proves valuable to recall that where the arbitration clause does not “neatly”
fall into either category, the tendency of U.S. courts has been to treat the clause as broad, by
reason of the strong federal policy favouring arbitration629.
As a result of this classification, not only is it impermissible to manipulate narrow arbitration
clauses 630 , but also those disputes which can be arbitrated in the existence of a narrow
arbitration clause are limited631. The underlying reason for this is clear: when the bill of lading
contains a broad arbitration clause, this raises the strong presumption that parties have agreed
to arbitrate all their claims that “touch matters” thereunder 632 , unless there is an express
statement to the contrary633. Accordingly, unlike those broad provisions, narrow arbitration
clauses only bind the original parties634, and they fall short of embracing collateral matters,
such as letters of indemnity, which are connected to the bill of lading635.
Despite the strong presumption in favour of broad arbitration clauses, early cases
demonstrated a preference for restricting the scope of the arbitration language, pointing to
See Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading, Inc., 2001 A.M.C. 1939, 1945 (2d Cir. 2001). Society of
Maritime Arbitrators also follow this categorisation, see In Re Arbitration between Esquire Marine Corporation and
Sumande Shipping Corporation, SMA No: 1082, (December 30, 1976); In Re Arbitration between World Carrier Corp. and
United States District Court Southern District of New York, SMA No: 1397, (December 20, 1979)
627
628
See Louis Dreyfus, above.
629
Salim Oleochemicals, Inc. v. M/V Shropshire, 169 F. Supp.2d. 194, (S.D.N.Y 2001)
630
See Chapter 3(2) hereof.
Energy of Transport Ltd. v. M/V San Sebastian, 348 F.Supp.2d. 186, (S.D.N.Y. 2004); Louis Dreyfus Negoce S.A. v.
Blystad Shipping & Trading Inc., 2001 A.M.C. 1939, 1945 (2d Cir. 2001); Continental Insurance Company v. Polish
Steamship Company, 2003 A.M.C. 2718, (2d Cir. 2003).
631
Genesco Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987); F.D. Import & Export Corp. v. M/V Reefer Sun,
2003 A.M.C. 60, 69 (S.D.N.Y. 2002)
632
AT & T Technologies Inc. v Communications Workers of America, 475 U.S. 643, 650 (U.S. 1986); Painewebber Inc. v.
Elahi, 87 F.3d 589, 599 (1st Cir. 1996) quoted in Thyssen Inc. v. M/V Markos N., 1999 A.M.C. 2515, 2527 (S.D.N.Y. 1999);
Asoma Corporation v. M/V Seadaniel, 971 F.Supp. 140, (S.D.N.Y. 1997)
633
See Energy of Transport Ltd. v. M/V San Sebastian, 348 F.Supp.2d. 186, 206 (S.D.N.Y. 2004). For a similar view, see
Ventura Maritime Co., v. ADM Export Co., 44 F.Supp. 2d804, (E.D. la 1999).
634
See Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 2001 A.M.C. 1939, 1945 (2d Cir. 2001); Continental
Ins. Company v. Polish Steamship Company, 2003 A.M.C. 2718, 2722 (2d Cir. 2003)
635
158
disputes “under” the contract 636 . Hence in Kinoshita the court ruled that the identified
arbitration wording was inapt to embrace the claim pertaining to fraudulent inducement of the
contract637. To a similar effect was the ruling in Mediterranean Enterprises Inc. v. Ssangyong
Corp., where the same wording was treated as incompetent to encompass the collateral
matters638. Likewise, in Tracer Research Corporation v. National Environmental Services Co.,
the same limited effect was also given to the arbitration wording which read “all disputes
arising out of the contract”, and therefore the claim in tort was held to fall outside the scope of
the arbitration clause639. Consequently, while the courts viewed this wording as competent for
merely referring to disputes over the interpretation and performance of the contract 640, they
required a more expansive language for the arbitration of the non-contractual and collateral
claims 641. In so doing, the early cases further recognised that those provisions pointing to
disputes “in connection with” or “regarding” the contract had sufficient scope to describe
those claims642.
Nonetheless, the standards of construction have changed with the recent developments which
emanate from the ruling in Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth 643 .
Recognising the federal policy, the court therein opined that the intention of the parties was
decisive in resolving the issue of arbitrability, while further supporting the “generous”
construction of those intentions644. U.S. courts have followed this trend, with the result that
more expansive meaning is given to the language of “arising under” or “arising out of”645.
636
Kinoshita & Co.,1961 A.M.C. 1974 (2d Cir. 1961)
637
Ibid.
638
708 F.2d 1458 (9th Cir. 1983)
See 42 F.3d 1292 (9th Cir. 1994). But see, Prima Paint Corporation v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S.
1967), where this wording was held to encompass the claim of fraud in the inducement of contract.
639
640
Ibid.
641
Simula Inc. v. Autoliv Inc., 175 F.3d 716 (9th Cir. 1999)
642
Ibid.
643
473 U.S. 614 (U.S. 1985)
Ibid., at 627
644
See Energy of Transport Ltd. v. M/V San Sebastian, 348 F.Supp.2d. 186, 207-208 (S.D.N.Y. 2004); Lowry & Co. v. S.S.
LeMoyne D’Iberville, 372 F.2d 123 (2d Cir. 1967)
645
159
Hence, in Continental Insurance Company v. Polish Steamship, the U.S. Court of Appeal for
the Second Circuit ruled that the wording “arising under” is capable of making the noncontractual claim arbitrable646. Perhaps a more compelling authority favouring the extensive
reading of the arbitration clauses is the ruling in Louis Dreyfus Negoce S.A. v. Blystad
Shipping & Trading Inc. 647 . There, it was recognised that broad arbitration clauses could
encompass the collateral claims, regardless of the linguistic nuances between them, where the
claims entail construction of the contract or examination of the parties’ rights and obligations
thereunder648. As a result of these developments, legal significance of the linguistic nuances
between broad arbitration clauses has largely disappeared under U.S. law. Nonetheless, U.S.
courts still maintain the categorisation of arbitration clauses, and they thus make the narrow
arbitration clauses significantly less effective649.
Unlike U.S. law, the intention of parties is not examined with such categorisation under
English law650. In this jurisdiction, the ambit of arbitration clauses is exclusively determined
pursuant to the arbitration wording and the nature of the dispute at hand 651. Most importantly,
where the meaning is found to be ambiguous, the “underlying purpose of the contract” is
given priority652 and it is presumed that the parties have intended to arbitrate all their disputes
are related to the contract653.
Following this reasoning, the court in The Pioneer Container construed the wording which
provided for arbitration of the disputes “arising under this bill of lading”, as embracing the
claims in contract, tort and bailment 654 . Along the same lines, in The Angelic Grace, this
arbitration wording was held to cover the claim in tort which was “sufficiently connected” to
See 2003 A.M.C. 2718 (2d Cir. 2003). Similarly, see F.D. Import & Export Corp. v. M/V Reefer Sun, 2003 A.M.C. 60
(S.D.N.Y. 2002)
646
647
2001 A.M.C. 1939 (2d. Cir. 2001)
648
Ibid., at 1946 quoting Collins & Aikman Products Co. v. Building Systems Inc. 58 F.3d 16, 23 (2d Cir. 1995)
649
See supra note 627
650
See Ashville Investments Ltd. v. Elmer Contractors Ltd., Elmer Contractors v. Ashville Investments, [1989] Q.B. 488, 494.
651
Ibid.
652
Ibid.
653
Premium Nafta Products Ltd. & Ors. v. Fili Shipping Co., Ltd. & Ors, [2007] 2 C.L.C. 553, 559.
654
[1994] 2 A.C. 324
160
the charterparty655. The judicial decisions in Premium Nafta Products Ltd. v. Fili Shipping656
and in Harbour Assurance Co. v. Kansa General International Insurance657 further clarified
that fine distinctions between the arbitration provisions, such as those referring to the disputes
“arising under”, “arising out of” or “arising in connection to” the contract, are no longer
decisive, and they encompass practically the same issues.
Having analysed the standards of construction adopted under English and U.S. law, two key
common features of these jurisdictions must be highlighted. Firstly, as can be gleaned from
the observations above, minor semantic differences are not taken into account when
ascertaining the scope of arbitration clauses. Secondly, the arbitration wording could
encompass those disagreements pertaining to nullity or illegality of the contract ab initio,
provided that the formation of the arbitration agreement is not, of itself, tainted bysuch
allegations 658 . Nonetheless, English law adopts a more liberal approach than U.S. law,
inasmuch as there is no categorisation between the arbitration clauses, which are usually
given the effect of encompassing all disputes, including those arising from collateral matters659.
The English approach, which is opposed to the construction of the arbitration clauses under
any classification is convincing, for it determines the ambit of these clauses on the basis of
their wording, the nature of the dispute at hand and the circumstances of the case. The inquiry
under English law is thus not restricted to the very words of the arbitration clause, and this
fact itself carries the English construction method to a commercially sounder and pragmatic
platform. On the other hand, the U.S. formulation seems commercially impractical, since in
practice most parties insert arbitration clauses into their contracts or seek to incorporate the
same, with a view to referring all their disputes to arbitration. Hence, in this jurisdiction, the
parties run the risk of not being able to arbitrate their disputes if their arbitration clause is
narrow, irrespective of their intentions to the contrary.
655
[1995] 1 Lloyd’s Rep. 87
656
See supra note 653, at 558-559
657
[1993] Q.B. 701
For English law, see Premium Nafta, above. For U.S. law, see Prima Paint Corporation v. Flood & Conklin Mfg. Co. 388
U.S. 395, (U.S. 1967)
658
For English law, see Premium Nafta, above, where the decision in Fillite (Runcorn) Ltd. v. Aqua Lift, 45 B.L.R 27,26 Con.
L.R. 66, (1989) was held questionable. The latter case stipulated that the collateral issues could not be arbitrated on the
grounds that the arbitration language of “arising under” did not have sufficient width to embrace such claims.
659
161
Nonetheless, it is true that the U.S. method may be beneficial for the cargo interests who do
not wish to be bound by the incorporated arbitration clause. In this respect, the standards of
construction under U.S. law suggest a number of ways to avoid these clauses: in the case of a
narrow arbitration language, cargo interests could easily avoid the clause where they are not
“charterers” or “owners” within the meaning of the incorporated charterparty. More
importantly, even though these parties can be deemed as such, they can be compelled to
arbitrate only those disputes pertaining to performance or construction of the bills of lading.
For this reason, where the arbitration language is narrow, the identified cargo interests will
not be obliged to arbitrate the collateral matters. Notwithstanding that this approach seems to
provide protection to these parties, it nevertheless aims to afford such protection under
semantic nuances which can easily be overcome by the draftsmen of the charterparty.
4. Conclusion
The justifiability of the rules of incorporation revolves around one critical question: are they a
set of rules which are based merely upon technical considerations, or do they provide sound
solutions to balance the interests of parties to the bill of lading and to help the efficient flow
of international trade?
After an evaluation of the rules of incorporation which have been analysed thus far in their
entirety, it is clear that the rule which determines the weight of the incorporation wording is
more essential than others. This is simply because the incorporation clause is the only tool for
the cargo interests to anticipate the charterparty terms that might be incorporated. As this is
the case, certainty under this particular rule is paramount for the good flow of international
trade, and for the reliability of bills of lading as transferable instruments. Overall, it is true
that the U.S. and English rules of incorporation, pertaining to the effect of the incorporation
wording issue are well-developed and they make it possible for the holders to foresee what
type of charterparty clauses can be a part of their contracts of carriage. Most importantly, the
practice also appears to have adapted itself to these rules, for many standard bill of lading
forms are drafted in an appropriate fashion to import a wide range of charterparty clauses660.
It is also striking that the sharp differences between the approaches of English and U.S. law,
with respect to this issue, have commercial significance for both carriers and cargo interests.
660
See, for instance, Clause 1 on the reverse side of the Congenbill 1994 form.
162
Unlike U.S. law, English law provides an effective solution for avoiding the incorporation of
ancillary charterparty provisions, including forum selection clauses, when the incorporation
clause has no express reference to that effect. Equally striking is that this specific English rule
of incorporation is also partially recognised in the Rotterdam Rules for the incorporation of
arbitration clauses, in cases where the vessel is engaged in non-liner transportation661.
With regard to the rules of manipulation, it follows that incorporation clauses will have no
meaning, nor have any effect on the positions of the parties, if the imported charterparty terms
are not manipulated. Consequently, it becomes difficult to justify the reason for disallowing
the process of manipulation in some cases, by resting solely upon the verbiage of the
charterparty clause, despite the express reference to the relevant clause under the bills of
lading.
Having applied these rules of incorporation, it is not uncommon to see that some charterparty
provisions are not imported into the bill of lading, even though the relevant charterparty has a
provision which expressly contemplates their incorporation. Such contradictions especially
arise in cases where a charterparty lists the clauses to be incorporated into the bills of lading,
while the incorporation clause, is of itself, not apt to describe them. In the next chapter, the
issue of whether the terms of the bill of lading, or those of the charterparty, are the decisive
factors for incorporation, will be analysed.
661
See Article 76/2(b) of the Rotterdam Rules.
163
CHAPTER IV: DO THE TERMS OF THE CHARTERPARTY OR
THOSE OF THE BILL OF LADING PROVE DECISIVE FOR
INCORPORATION?
Considering the observations made in the previous section, it is natural for the holders to take
the wording of incorporation clauses as one of the main tools for anticipating the type of
charterparty clauses that will be imported into the bills of lading. They could, therefore, try to
envisage the possible contractual picture under the bill of lading by taking into account the
wording of the incorporation clause at hand. With a view to achieving this objective, the
holders would need to examine the rules of incorporation, whereby the words of incorporation
are given the effect of importing some particular charterparty provisions into the bill of
lading. Behind this approach lies the assumption that charterparty clauses do not play any role
in the formation of the terms of the bill of lading before they are incorporated pursuant to the
incorporation clause.
However, when a charterparty comes into play with a stipulation that some particular
charterparty clauses are to be incorporated into the bill of lading662, it gives rise to the question
of whether this provision must be ignored in the ongoing incorporation process. A similar
question also becomes relevant where the bill of lading provides for incorporation of “all
terms of the charterparty” and the charterparty lists the clauses that are regarded as the
“terms” for the purposes of their incorporation into the bills of lading663.
In the event that a charterparty stipulates a narrower or a wider scope of incorporation than
the bill of lading, the practical consequences of inclining towards the charterparty as opposed
to the latter are numerous: allowing charterparty clauses to operate as incorporation clauses
protects shipowners from the adverse results arising from a bill of lading whose incorporation
clause is not apt to bring in the charterparty provisions as requested under the charterparty.
More precisely, this would eliminate the shipowners’ concerns of further responsibility
towards the bill of lading holders than they already anticipated under the charterparty.
Assigning control to the charterparty would also be beneficial for the charterers, since this
662
See for instance, clause 20 of Asbatankvoy Charterparty drafted by Association of Ship Brokers & Agents Inc., in 1977.
663
See The Varenna, [1984] Q.B. 592, where this question was raised by Mr. Justice Hobhouse.
164
position would alleviate their obligation to issue and present a bill of lading whose terms are
“without prejudice” to the charterparty.
Nevertheless, accepting that the charterparty provisions can determine which charterparty
clauses will be imported into the bill of lading has a profound effect on bill of lading holders.
This is simply because, when the bill of lading is no longer the decisive factor for the
incorporation of the respective charterparty clauses, the holders are deprived of their major
guidance to foresee their contractual position under the bill of lading.
From a wider perspective, it can be argued that it is improper to give a contract the effect of
dominating the formation of another contract where at least one party to the latter seldom has
the chance to see the former. However, it is also true that there are established approaches
under English and U.S. law which may cast doubt on this argument. There is a presumption
recognised under English law that bill of lading holders are provided with copies of the
charterparty664. Under U.S. law, some of the bill of lading holders are treated differently on the
basis that they are the respective charterers of the referred charterparties, or because of their
close contractual relationship with the charterers665.
In this chapter, the issue of whether the charterparty, or the bill of lading, controls
incorporation of the respective charterparty clauses will be considered. Thereafter, how
workable the rules are in practice will be analysed. In the meantime, the compatibility of these
rules with the approaches of U.S. and English law towards incorporation will be investigated.
1. Is the charterparty or the bill of lading the driving force for incorporation?
Under English law, it was first suggested in The Emmanuel Colocotronis 666 that the
charterparty provisions which contemplate the incorporation of certain charterparty clauses
should be decisive. Despite the incorporation wording in the bill of lading, the court in The
Emmanuel Colocotronis favoured incorporation of the charterparty arbitration clause by
reason of the charterparty provision, which sought to achieve incorporation to that effect. In
order to justify his findings, Mr. Justice Straughton relied heavily on the decision in The
See OK Petroleum A.B. v. Vitol Energy S.A., [1995] 2 Lloyd’s Rep. 160, 163, quoting The Merak [1965] P. 223, 250; The
Annefield, [1971] P. 168, 177
664
See Chilean Nitrate Sales Corp. v. Steamship Nortuna, 1955, A.M.C. 1576, (S.D.N.Y. 1955). See also, Davies M.,
“Jurisdiction Clauses and Forum Selection in International Maritime Law”, (2005), pg. 27
665
666
See [1982] 1 Lloyd’s Rep. 286
165
Merak667 and The Rena K668, both of which put forward the view that an arbitration clause that
refers to the disputes “under bill of lading” can be incorporated, though the incorporation
clause is devoid of any specific reference to arbitration.
It was yet apparent that the specified wording of the arbitration clause underpinned the
argument raised in both cases, and that the charterparty clause in The Emmanuel
Colocotronis, which purported to introduce some particular charterparty clauses into the bills
of lading, was therefore different in that respect. Nevertheless, Straughton J. resorted to the
findings of The Merak and The Rena K, and therefore concluded that it was legitimate to look
at charterparty terms, so as to determine incorporation of the respective charterparty
provisions once the bill of lading directs the holder to the relevant charterparty.
Undoubtedly, the suggestion that the charterparty wording might be relevant in deciding on
incorporation of the charterparty clauses was made many years ago in the obiter dictum of
Thomas v. Portsea669. This was then recognised in many cases such as The Rena K and The
Annefield670. Likewise, The Merak adopted this view as its ratio decidendi when allowing the
incorporation of an arbitration clause referring to disputes under bills of lading. Nevertheless,
in these cases, the permission to turn to the charterparty wording was exclusively proposed
for charterparty arbitration clauses. In particular, the suggestion was confined to only
incorporation of these charterparty provisions where they expressly refer to disputes arising
under bills of lading. The decision in The Emmanuel Colocotronis was, therefore, well
beyond this scope.
For this reason, The Varenna671 overruled The Emmanuel Colocotronis and disregarded the
intention of the parties to the charterparty, whilst deciding which of the charterparty
provisions should be included in the bill of lading672. Accordingly, The Varenna distinguished
The Merak, since the decision in the latter case was not premised on the charterparty clause,
667
[1965] P 223
668
[1979] Q.B. 377
669
See T.W. Thomas & Co., Limited v. Portsea Steamship Company, Limited, [1912] A.C. 1
670
See [1971] P. 168
671
[1984] Q.B. 592
For opinions in favour of The Emmanuel Colocotronis, see Marshall E.A., “Incorporation of Arbitration Clauses into
Charterparty Bills of Lading”, (1982) JBL, pg 478-484
672
166
which lists the provisions to be included in the bills of lading. Rather, the court in The Merak
relied on the charterparty arbitration clause, which requires arbitration of the disputes arising
out of “any bills of lading issued hereunder”.
In arriving at this conclusion, Mr. Justice Oliver, in the Court of Appeal judgment of The
Varenna, gave weight to the argument that the charterparty clause which mandates
incorporation of some particular charterparty provisions cannot be incorporated 673 . This
finding was underpinned by the rule that general incorporation wording is only apt for
describing those charterparty clauses that are directly germane to shipment, carriage and
discharge of cargo, but not for any other provisions whatsoever674.
On the other hand, Mr. Justice Hobhouse at Queen’s Bench Division rested his judgment in
The Varenna on different legal grounds675. The assumption in English law that bill of lading
holders have access to the relevant charterparties led Hobhouse J. to raise the following
arguments: When the charterparty and bill of lading do not stipulate incorporation of the same
particular charterparty provisions, and a discrepancy arises between these two distinct
documents, it should be inferred that the bill of lading purports to import different clauses
from those sought to be incorporated by the charterparty676. On this basis, even though bill of
lading holders are presumed to know what is contemplated under the charterparty, they are
nevertheless expected to discern that the difference between the bill of lading and the
charterparty is intentional677.
Regardless of the different paths taken to reach the same conclusion, an agreement was
reached that whatever the parties to the charterparty intend to incorporate into the bills of
lading should not have any effect on the incorporation of charterparty clauses 678. In particular,
this led to the conclusion that at the stage of introducing the respective charterparty clauses
into the bills of lading, the primary document to ascertain the intention of the parties in
673
[1984] Q.B. 592, 619
674
Ibid.
See [1983] 1 Lloyd’s Rep. 416. See also Siboti K/S v. BP France S.A. [2003] 2 Lloyd’s Rep. 364, 374, where the decision
was premised on both the previous and the present view.
675
676
See [1983] 1 Lloyd’s Rep. 416, 423.
677
Ibid.
678
See The Varenna, [1984] Q.B. 592, 597 and Siboti K/S v. BP France S.A. [2003] 2 Lloyd’s Rep. 364
167
respect of incorporation was to be the bills of lading, rather than the charterparty 679 . The
reason for not giving effect to the terms of the charterparty clauses is that incorporation
should be regarded solely as the importation of the charterparty provisions, and not as the
intentions of those parties to the charterparty680.
Consequently, the results of adopting the aforementioned English approach are twofold.
Firstly, the incorporation clause under the bills of lading is saved from being merely a stock
phrase which only demonstrates the intention to incorporate, without any capacity to shape
the contractual context681. Secondly, it becomes clear that where the scope of incorporation
envisaged under the charterparty and the bills of lading does not coincide, the latter contract
shall be taken as the basis for determining the charterparty terms to be incorporated 682 .
Moreover, the picture emerging under English law suggests that there is no departure from
this approach, even in cases where the bill of lading holder has actual or constructive
knowledge of the charterparty which is purported to be incorporated 683 . Nor does the
assumption under English law, which treats the bill of lading holders as though they have
access to the terms of the charterparty, change this pattern.
However, the law is unclear with respect to those charterparty provisions describing any of
the incorporation wording used in the bills of lading for the purposes of incorporating some
particular charterparty clauses which fall into that description. The decision in The Varenna
leaves the door open to the construction of these charterparty clauses, together with the
incorporation clauses under the bills of lading 684 . A number of cases, on the other hand,
suggest that the charterparty provisions which are not incorporated into the bills of lading are
not to be taken into account when construing the terms of the bills of lading, including the
incorporation clause685.
679
See The Federal Bulker, [1989] 1 Lloyd’s Rep. 103, 105.
680
See The Varenna, above, at 597. See also Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 18.49
The Delos, [2001] 1 Lloyd’s Rep. 703; The Federal Bulker, [1989] 1 Lloyd’s Rep. 103
681
682
Hence, the incorporation wording will be decisive on incorporation as opposed to the charterparty provisions, even though
the charterparty contemplates incorporation of less or more charterparty terms than the relevant bill of lading. See Debattista
C., “Bills of Lading in Export Trade”, (3rd edn, 2008), pg: 188. See Siboti K/S v. BP France S.A. [2003] 2 Lloyd’s Rep. 364
683 See The Varenna, above, at 619
See Ibid. Also see The Spiros C, [2000] 2 Lloyd’s Rep. 319 quoted in Debattista C., “Bills of Lading in Export Trade”,
(3rd edn, 2008), pg: 188
684
See The Federal Bulker, [1989] 1 Lloyd’s Rep. 103, 105; Siboti K/S v. BP France S.A. [2003] 2 Lloyd’s Rep. 364, 369374.
685
168
Above all, the charterparty clauses of this type should not be relied on when determining the
charterparty terms to be incorporated686. This is because it can scarcely be argued that the
possible effects of such clauses are different from those which stipulate the particular
charterparty clauses to be included into the bill of lading. Rather, both types of charterparty
clauses purport to achieve incorporation, as contemplated by the parties to the charterparty,
and therefore they should be treated as inconsequential to the process of incorporation. This
should a fortiori lead to the conclusion that the charterparty clauses which are not imported
into the bill of lading cannot be construed along with the terms of the bills of lading, for the
intention of parties to the latter should be taken as the sole basis687.
While the English approach is centred on the terms of the bills of lading 688, the solutions
provided under U.S. law with respect to this matter, are bound up with the facts of each
individual case689. To this end, U.S. law suggests examination of the actual position of the
individual bill of lading holder in order to determine whether the charterparty or the bill of
lading has control over incorporation of charterparty terms. In particular, U.S. courts permit
the concerned parties to incline towards the charterparty that the bills of lading seek to
incorporate in certain circumstances. Such cases arise where the holder is not a stranger to the
charterparty viz. where the subsequent bill of lading holder is the actual charterer of the
incorporated charterparty690, or where he or she is not at arm’s length from the charterer in
question 691 . In those cases, if the charterparty is devoid of an express provision which
manifests the parties’ intention to incorporate, it is legitimate to examine whether an implied
686
See Girvin S, ‘Carriage of Goods by Sea’, (2007), pg. 149
See The Federal Bulker, [1989] 1 Lloyd’s Rep. 103, 105; The Rena K., [1979] Q.B. 377, 381; Siboti K/S v. BP France
S.A. [2003] 2 Lloyd’s Rep. 364, 368, and The Oinoussin Pride, [1991] 1 Lloyd’s Rep. 126
687
See Siboti K/S v. BP France S.A. [2003] 2 Lloyd’s Rep. 364, 370, where it was stated that the inquiry should start and end
with the terms of the bill of lading.
688
689
See Cargill B.V. v. S/S Ocean Traveller, 1989 A.M.C. 953, 959 (S.D.N.Y 1989)
See Energy of Transport Ltd. v. M/V San Sebastian, 348 F.Supp.2d. 186, 206 (S.D.N.Y. 2004); Continental Insurance
Company v. M/V Nikos N. 2002 A.M.C. 1287, 1292 (S.D.N.Y. 2002); Cargill B.V. v. S/S Ocean Traveller, 1989 A.M.C. 953,
959 (S.D.N.Y. 1989).
690
691
This becomes relevant where either the charterer or the bill of lading holder is the subsidiary or alter ego of the other, or
where there is an agency relationship between these parties with respect to the relevant shipping transactions carried out. See
Amoco Overseas Co. v. S.T. Avenger, 1975 A.M.C. 782, 785 (S.D.N.Y. 1975); Keytrade USA, Inc. v. Ain Temouchent M/V,
2005 A.M.C. 948, 951-952 (5th Cir. 2005); Steel Coils Inc. v. Captain Nicholas I M/V, 197 F.Supp. 2d. 560, 567 (E.D.La
2002)
169
intention to that effect can be discerned from the charterparty692. In the presence of a holder
who is not a “stranger” to the charterparty, it is also permissible to turn to the charterparty
with a view to clearing up any ambiguities concerning the bills of lading693.
The reason for giving the charterparty the effect of dominating incorporation in those
instances is straightforward: the bill of lading holder who falls into any of the specified
categories is different from the others who usually have no knowledge about the charterparty
provisions referred to under the bills of lading. Rather, the holders of the former type are
expected to be aware of the charterparty provisions which mandate incorporation of some
particular charterparty clauses into the bills of lading694. Attributing actual knowledge of the
charterparty provisions to these parties can readily be justified 695 on the grounds that such
holders either have the chance to negotiate the charterparty or have a close relationship with
the charterer696.
For bill of lading holders who are not strangers to the relevant charterparties, U.S. law may
have an entirely charterparty-oriented perspective. However, the U.S. approach is, in fact,
closer to being bills of lading-oriented, even though charterparty provisions may dominate
incorporation in certain circumstances. This is because, in the process of resolving the
question of incorporation, the starting point is always the incorporation clause under the bills
of lading697. Consequently, without a bill of lading that contains an incorporation clause698, the
See Keytrade USA, Inc. v. Ain Temouchent M/V, 2005 A.M.C. 948 (5th Cir. 2005); Energy of Transport Ltd. v. M/V San
Sebastian, 348 F.Supp.2d. 186, (S.D.N.Y. 2004). See also, Sturley M.F., “Benedict on Admiralty”, (2007) sec. 184, pg: 1760 and 17-61
692
In this context, even the documented contract negotiations which demonstrate the parties’ intention to incorporate some
specific charterparty provisions may be a determining factor. See Amoco Overseas Co. v. S.T. Avenger, 1975 A.M.C. 782,
785 (S.D.N.Y. 1975). Conversely, under English law, where the intention to incorporate under the bill of lading remains in
doubt, the charterparty provisions cannot lead the court to find in favour of incorporation, see Mankabady S., “References to
Charter-parties in Bills of Lading”, (1974) LMCLQ, pg. 56, 57 quoting Thomas v. Portsea, [1912] A.C. 1. See The Annefield,
[1971] P., 168, 181. For a contrary view see The Merak [1965] P 223; The Spiros C., [2000] C.L.C. 1503
693
694
For this reason, the requirement of making unmistakable reference to the charterparty disappears in the case of a bills of
lading holder who is a signatory to the incorporated charterparty. See Federal Insurance Co. v. M/V Audacia, 1987 AMC 566
(S.D.N.Y 1986); State Trading Corp. of India v. Grunstad Shipping, 582 F.Supp. 1523 (S.D.N.Y. 1989).
695
Steel Coils Inc. v. Captain Nicholas I M/V, 197 F.Supp. 2d. 560, 567 (E.D.La 2002)
696
Ibid.
697
See Keytrade USA, Inc. v. Ain Temouchent M/V, 2005 A.M.C. 948, (5th Cir. 2005)
698
In certain circumstances, the necessity of making an unmistakable reference to a charterparty loses its force when the bill
of lading holder is not a stranger to the charterparty, see Chapter 2.
170
latter could be completely ineffective in importing the charterparty clauses into the bills of
lading699.
It is for this reason that U.S. courts tend to find in favour of incorporation in cases where the
bill of lading is devoid of necessary contractual details 700 . Accordingly, when the bills of
lading contain exhaustive provisions that regulate the contractual relation between the carrier
and the cargo interest, the courts are reluctant to incorporate the referred charterparty
provisions. Since this matter is a contributing factor in the decision making process, it must be
concluded that what the original parties to the bills of lading have decided over incorporation
have a large-scale impact on incorporation.
To sum up, the dominant U.S. approach suggests that the inquiry always starts with the bills
of lading, which is expected to manifest, in one way or another, the intention to incorporate a
charterparty. Consequently, depending on the position of the bill of lading holder, the
charterparty provisions may, at a later stage, determine incorporation of specific charterparty
clauses. When the bill of lading holder can be included in one of the identified categories, the
inquiry will then entail construction of both documents701. This unhesitatingly underpins the
statement that the charterparty which spells out the provisions to be incorporated into the bill
of lading cannot be solely dominating, for the provisions of the bill of lading have, in any
case, the potential to be decisive on the matter of incorporation702.
These fine distinctions between U.S. and English law disappear when a bill of lading holder is
neither the charterer of the referred charterparty nor has one of the specified relationships with
the charterer. In such circumstances, the analysis revolves around the bill of lading provisions,
and the charterparty is no longer effective in the process of deciding on the charterparty terms
699
Lykes Lines Ltd. V. M/V BBC Sealand, 2005 A.M.C. 865, (5th Cir. 2005)
See Midland Tar Distillers, Inc. v. M/T Lotos, 1973 A.M.C. 1924, (S.D.N.Y. 1973); Production Steel Co. of Illinois v. S.S.
Francios L.D. 1968 A.M.C. 2529 (S.D.N.Y. 1968). Yet, depending on the surrounding circumstances of the case, this matter
could be deemed insignificant and groundless whilst deciding on incorporation, see Amoco Oil Company v. M.T. Mary Ellen,
1982 A.M.C. 1758 (S.D.N.Y. 1982) where it was stated that there cannot be any contractual lacuna for the cargo moving to
the United States, even though the bill of lading has no detailed provision to regulate the contractual relations between the
parties. This is merely because the bill of lading will incorporate, by law, the terms of the United States Carriage of Goods by
Sea Act, 1936.
700
See Midland Tar Distillers, Inc. v. M/T Lotos, 1973 A.M.C. 1924 (S.D.N.Y. 1973); Cia. Platamon v. Empresa
Colombiana, 1980 A.M.C. 538, 539 (S.D.N.Y 1979).
701
702
Keytrade USA, Inc. v. Ain Temouchent M/V, 2005 A.M.C. 948, (5th Cir. 2005)
171
to be incorporated 703 . This ‘bill-centric’ 704 approach also sets barriers to any charterparty
interference, even though the bill of lading holder, who can be subsumed into one of the
aforementioned categories, has actual knowledge of the charterparty705.
Consequently, all the previously mentioned rules of incorporation adopted under U.S. and
English law can be condensed as follows. Under English law, the “operative words of
incorporation”706 should be spelled out in the bill of lading. Under U.S. law, this approach is,
however, maintained only in cases where the bill of lading holder has no connection with the
referred charterparty in the prescribed manner. Having arrived at these conclusions, the issue
of whether these rules are well-founded and workable in practice will now be analysed.
2. Are these rules well-founded and workable?
Even though the intervention of the charterparty is limited under U.S. law, it is still difficult to
justify allowing the charterparty to become the determining factor in the matter of the
decision over incorporation. This is simply because the rule prevents formation of a bill of
lading in full compliance with the intentions of the original parties to the bills of lading. In
other words, this approach does not recognise the possibility that a bill of lading holder,
despite being a party to the referred charterparty, may prefer the bill of lading to incorporate,
or not to incorporate, some specific charterparty clauses, irrespective of the contrary
charterparty requirements which are already known by the holder.
Consequently, taking the position of the subcharterers as an example, the chances of having a
contract of carriage with the shipowners, under bill of lading terms different from those under
their respective charterparties, disappear with an incorporation clause 707 . The overall
commercial impact is that these parties become bound by the charterparty provisions, even in
703
Bernuth, Lembcke Co., Inc. v. Steamship Acasta 1952 A.M.C. 1789, (E.N.D.C. 1951)
See Keytrade USA, Inc. v. Ain Temouchent M/V, 2005 A.M.C. 948, (5th Cir. 2005) which regards the U.S approach with
respect to this issue as ‘bill-centric’. However, it seems to be the case that the charterparty interference, which becomes
relevant in the identified circumstances, prevents the legal position from being wholly ‘bill-centric’.
704
705
See Amoco Oil Company v. M.T. Mary Ellen, 1982 A.M.C. 1758 (S.D.N.Y. 1982)
See The Varenna [1983] 2 Lloyd’s Rep. 592, 594 quoted in Debattista C., “Halsbury’s Laws of England” (5th edn, 2008),
Vol: 7, Section 361
706
See Debattista C., “Bills of Lading in Export Trade”, (3rd edn, 2008), pg: 186, where it is highlighted that the contract of
carriage between the sub-charterer and the shipowner lies under the bills of lading. The same approach is also accepted under
U.S. Law, see Cargill Ferrous International v. Sea Phoenix M/V, 2003 A.M.C. 1027, 1045 (5th Cir. 2003).
707
172
a different contractual context, despite their relations with the shipowner being different from
those with the charterer.
Whether or not the discrepancy is intentional, it is still disingenuous to allow a charterparty to
operate incorporation. Before its provisions are duly imported into the bill of lading, the
charterparty should be deemed as a separate and distinct contract from the bill of lading. This
proposition can be justified on the grounds that resorting to the charterparty to decide
incorporation causes a vicious circle which neglects the major difference between the
following issues: what the bills of lading seek to incorporate, and what they should
incorporate when the intention of the parties to the charterparty is taken into account708.
The suggestion above is in accordance with the fact that, in practice, the possibility that the
bill of lading may fail to effect incorporation as required under the charterparty, has long been
anticipated. For this very reason, the shipowners introduce charterparty provisions, which
place the responsibility on the charterer for any losses or damages that they may suffer, in
cases where the charterer issues bills of lading contrary to the charterparty requirements709.
The shipowners who wish their contracts of carriage with the bill of lading holders to be no
less advantageous than their charterparties, therefore, safeguard their contractual positions
with these provisions 710 . Consequently, the shipowners already have the tools to protect
themselves from the adverse effects of a bill of lading which falls short of meeting the
charterparty requirements.
This practice undoubtedly reinforces the conclusion that, with the charterparty provisions
contemplating incorporation of some specific charterparty clauses into the bills of lading,
parties to the charterparty aim to create a contractual effect solely within the charterparty
framework711. Therefore, it becomes more persuasive to allow the intention of the original
708
See Justice Garza in his judgment concurring in part and dissenting in the Cargill Ferrous International, above.
709
See, for instance, clause 10 of Gencon Charterparty of 1994, clause 31 of the time charterparty in the New York Produce
Exchange form 1993 (NYPE 1993), clause 17 of the general time charterparty of The Baltic and International Maritime
Council (Bimco Gen-Time General Time Charterparty) and clause 13 of Shelltime 4 charterparty.
710
See, The Federal Bulker, [1989] 1 Lloyd’s Rep. 103, 109-111.
711
Ibid.
173
parties to the bill of lading to have control over incorporation712, for this conclusion is already
within the contemplation of the parties to the charterparty, and they introduced their own
protective tools for such circumstances. For this reason, even though the charterer may breach
his or her duty to issue a bill of lading that incorporates the charterparty provisions as
manifested under the charterparty, this matter should not be influential in the incorporation
process713.
From a practical point of view, the result of having the “operative words of incorporation”
under bills of lading is that third party bill of lading holders have the chance to influence
formation of the contract of carriage. This is simply because, where these parties ask their
respective sellers to submit a bill of lading in the desired form and content, the sellers will
then need to procure a bill of lading that conforms with these requirements in order to receive
payment. As this is the case, when this desired form and content exclusively affects
incorporation, not only will the bill of lading holders be able to anticipate the possible
contractual picture under the bills of lading, but they will also have the possibility of
interfering with the formation of this contract of carriage. For this reason, adoption of a
“purely bill of lading-oriented approach”714 without having regard to the position of the bill of
lading holder provides better solutions and it helps the bill of lading, a transferable instrument,
to be a more freestanding contractual document.
Despite the appearance to the contrary, English courts may also depart from the “pure bill of
lading-oriented” approach in certain circumstances. There are a number of English cases
which suggest that incorporation of the charterparty arbitration clauses that refer to disputes
arising “under bills of lading” should be allowed, despite the general incorporation wording715.
Moreover, under English law, there is a possibility that ambiguities under the bills of lading
712
When the bill of lading is endorsed to a third party, this intention no longer becomes the common intention between the
parties, see Todd, P., “Incorporation of arbitration clauses into bills of lading”, (1997) JBL, pg. 331, 339. Due to this reason,
third party bill of lading holders are bound by the actual intention of the original parties to the bills of lading which is
reasonably ascertainable, see Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co., [1959] A.C. 133
See Treitel G. and Reynolds F.M.B, “Carver on the Bills of Lading”, (2 nd edn, 2005), para: 3-032. See also, The Federal
Bulker, [1989] 1 Lloyd’s Rep. 103, 109.
713
714
This can be defined as giving the words of incorporation the exclusive effect of importing charterparty clauses. Even
though the court in The Varenna, [1984] Q.B.592 appeared to have adopted this view, they nevertheless recognised that The
Merak [1965] P. 223 represented the law.
715
See Chapter 3(1) hereof.
174
may be resolved pursuant to the intention of the parties to the charterparty716. Surely these
approaches are not compatible with the specified rules of incorporation, and they deviate from
the notion that contemplation of parties to the bills of lading should prevail over those of the
charterparty717.
These somewhat irreconcilable perspectives were recognised with the judgment in The Merak,
which involved a bill of lading holder who was a party to the charterparty referred to under
the bills of lading718. There, the relevant incorporation clause, which was intended to refer to
the arbitration clause, was pointing, by mistake, to another provision of the charterparty.
Nevertheless, this ambiguity was clarified on the basis of the charterparty provision which
expressly provided for incorporation of the charterparty arbitration clause719. In reaching the
conclusion that the charterparty arbitration clause was incorporated into the bill of lading, the
court in The Merak did not give weight to the fact that the holder was a party to the
charterparty720. The reason for disregarding the actual position of the bill of lading holder was
given to be the established English approach, which does not permit consideration of actual or
constructive knowledge of bill of lading holders721.
Unlike in English law, the picture emerging under U.S. law suggests that the rules of
incorporation have their roots in notice, and this significant feature explains why, in certain
circumstances, the words of incorporation are held to be under the charterparty.
3. Conclusion
The question of whether it is the charterparty or the bill of lading that determines
incorporation was discussed in a great number of cases, most of which are related to
incorporation of the charterparty arbitration clauses. The key question in those cases was, in
fact, whether the requirement of making an explicit reference to arbitration in the
716
See The Merak [1965] P.223.
717
For a similar view see Todd, P., “Incorporation of arbitration clauses into bills of lading”, (1997) JBL, pg. 331-349
718
See The Merak, above.
719
Ibid. See also, Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2nd edn, 2005), para: 3-032
See The Merak, at 259. Yet Lord Justice Davies found this matter to be an important factor to consider, see at page 254255 thereof.
720
721
See Siboti K/S v. BP France S.A. [2003] 2 Lloyd’s Rep. 364
175
incorporation clause could be, by any means, bypassed with a charterparty term which
dictates incorporation of the arbitration clause.
After numerous judicial decisions with respect to this matter, the self-explanatory answer was
finally given under English law: inasmuch as both documents are distinct from each other, the
controlling effect should nevertheless remain with the incorporating contract. In this context,
no matter what knowledge the bill of lading holders may have with respect to the referred
charterparty, it was agreed that the terms of the charterparty should have no effect on the bills
of lading before its terms were duly incorporated pursuant to the provisions of the latter.
It is evident that, under U.S. law, arbitration clauses are viewed just as any other contract
provision722. For this reason, the question of whether it is legitimate to look at charterparty
provisions becomes relevant in order to clear up any ambiguities arising from the bills of
lading, especially with respect to the issues of (1) which charterparty is sought to be
incorporated and (2) whether the charterparty provisions could be incorporated in the absence
of an unmistakable reference under the bills of lading.
The rules of incorporation, as they presently stand under U.S. and English law, also lead to
the suggestion that, saving the exceptional circumstances under U.S. law723, the incorporated
charterparty clauses are construed without having regard to the actual intention of the parties
to the charterparty 724 .
Therefore, in this new contractual context, the viability of these
provisions depends on a number of considerations other than the intention of parties to the
charterparty. No matter whether the charterparty or the bill of lading has ultimate control over
incorporation, the construction of the incorporated charterparty provisions brings forward one
further inquiry which shall be analysed in the next chapter.
722
See Chapter 3 hereof.
See Continental Insurance Company v. M/V Nikos N., 2002 A.M.C. 1287, 1292 (S.D.N.Y. 2002). These cases are where
the bill of lading holder either is the charterer to the referred charterparty or has a close relationship with the charterer, such
as being his or her agency, subsidiary or alter ego.
723
For English law see, The Heidberg, [1994] 2 Lloyd’s Rep. 287, where it was stated that even where the terms of the
charterparty are incorporated into the bills of lading, they should nevertheless be interpreted without having regard to the
actual intention of the parties to the charterparty. See also, Federal Bulker, [1989] 1 Lloyd’s Rep. 103, 105 and The
Oinoussin Pride, [1991] 1 Lloyd’s Rep. 126, 130. Similarly, where the incorporating contract is the charterparty then the
intention of the charterparty should prevail over the intention of the incorporated document, see Adamastos Shipping Co. Ltd.
v. Anglo-Saxon Petroleum Co., [1959] A.C. 133. For U.S. law see, Amoco Oil Company v. M.T. Mary Ellen, 1982 A.M.C.
1758, (S.D.N.Y. 1981); Cargill v. Golden Chariot M/V, 1995 A.M.C. 1077 (5th Cir. 1994) and Keytrade USA, Inc. v. Ain
Temouchent M/V, 2005 A.M.C. 948, 954 (5th Cir. 2005). See also, Gilmore G. and Black C., “Law of Admiralty”, (2nd edn,
1975), para:4-10, pg: 220.
724
176
CHAPTER V: DO THE INCONSISTENT CHARTERPARTY TERMS
SURVIVE IN THE BILL OF LADING?
Does the inquiry end with the incorporation of charterparty terms into the bill of lading? Do
the integrated charterparty terms survive under the bill of lading, and do they unconditionally
bind the holders? For those who view the incorporated charterparty provisions as directly
applicable to the holders, these questions can seem of little importance. As is clear under U.S.
and English law, incorporation does not, however, lead to mechanical application of the
charterparty terms under the bills of lading, despite the fact that such terms may have
sufficient scope to bind the parties. Further consideration is, therefore, essential where the
integrated charterparty provisions are inconsistent with the express bill of lading terms, or
where they cannot be reconciled with the Hague, the Hague-Visby or the Hamburg rules,
either of which may be operative under bills of lading by force of law. As this is the case, it is
vital to raise one question: do such inconsistencies constitute a barrier to the application of the
incorporated charterparty clauses under the bills of lading?
It is common ground that one of the purposes of the identified uniform rules governing bills
of lading is to protect the holders against the carriers’ exclusion of liability clauses 725. When
the incorporated exclusion clause goes beyond the limits allowed in the uniform rules, it will
be in the interests of the holders to know whether the clause could be ousted from the bill of
lading context as a result of this inconsistency. The difficulties may also arise where the
imported charterparty provision contains a longer time-bar than was envisaged in the uniform
rules which govern the bill of lading. In such cases, carriers need to examine whether they can
avoid the longer time-bar, by invoking the repugnancy between the relevant provisions.
Both parties also have a stake in knowing the rules of inconsistency, where the integrated
forum selection clause cannot be reconciled with the bill of lading terms, or with any of the
highlighted uniform rules which are operative under the relevant bill of lading. The
importance of this issue becomes apparent, particularly in cases where the parties view the
forum suggested in the integrated forum selection clause as less favourable than those
available to them. To defeat the undesirable forum, the parties usually invoke the rules of
inconsistency.
See Reynolds F., “The Hague Rules, the Hague-Visby Rules, and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg.
16, at 16-18. See also, Cargill B.V. v. S/S Ocean Traveller, 1989 A.M.C. 953, 958 (S.D.N.Y. 1989).
725
177
Against this background, this chapter will be devoted to the question of to what extent the
inconsistent charterparty clauses will find room for application under the bills of lading. After
examining the issue of inconsistency in general, the chapter will focus on the applicability of
the incorporated charterparty clauses when they contradict with the uniform rules governing
bills of lading, such as the Hague, the Hague-Visby or the Hamburg rules. In that spirit, it will
also shed light on the question of whether the incorporated charterparty terms could be
reconciled with the Rotterdam Rules, which have recently been signed by a number of
countries, including the United States.
1. Applicability of the charterparty clauses which are repugnant to bill of lading
When an integrated charterparty term cannot be reconciled with an express bill of lading
provision, the question of which one of them is applicable must be addressed. The practical
significance of this question is twofold. Firstly, application of one provision as opposed to
another can be beneficial for one party, while being disadvantageous to the other. Secondly,
the answer to this question radically affects the rights and liabilities of the parties to the bill of
lading. Assuming that a general paramount clause in the bill of lading provides for the HagueVisby Rules, while the incorporated charterparty term refers to the Hague Rules, leaning
towards either the former or the latter provision has a great impact on the parties. Inasmuch as
the Hague-Visby Rules provide a less favourable package or unit limitation for carriers, they
would wish to avail themselves of the incorporated charterparty clause, while the bill of
lading holders would seek to strike out the same for repugnancy.
Despite the vitality of this issue, it is also hard to draw the line between consistency and
inconsistency. Of the most striking difficulty is that two seemingly conflicting provisions can,
in certain circumstances, be construed as a whole, and it is impossible to create a formula to
solve the problem in each case. Another impediment arises whilst determining the scope of
the rules of inconsistency: should the rules have the effect of defeating the incorporated
charterparty terms which are surplus or insensible, or should their application be extended to
oust the incorporated charterparty clauses which do not characteristically belong to the bills of
lading? Alternatively, should inconsistency be deemed to have arisen only where there is
more than one provision which contains diametrically opposed stipulations with respect to the
same issue?
178
As an example, if the bill of lading provides for a lien on the cargo for the unpaid freight, and
if an integrated charterparty clause gives the carrier the right to lien for the unpaid demurrage,
could it be said that there is inconsistency between these provisions? In these circumstances,
the question is should we marry these two terms and allow the carrier to assert a lien for
demurrage against the holder by virtue of the integrated charterparty lien clause, or should the
clause be struck down by the rule of inconsistency?
Initially, the question of which terms are inconsistent with each other will be analysed. After
this examination, the issue of which one of the conflicting provisions prevails over the other
will be analysed. In addressing these issues, the alternative solutions to the problems involved
will also be highlighted in this chapter.
(a) When is there any inconsistency between the provisions and which one prevails?
aa. General
It is clear under English and U.S. law that the incorporated charterparty clauses are not
permitted to alter the express provisions under bills of lading726. To this end, the charterparty
provisions which stipulate the issues that are already covered in the bill of lading are deemed
ineffective727. Consequently, where, for instance, the discharge port is stated as Rotterdam
under the bill of lading, the incorporated charterparty clause providing for Hamburg as the
discharge port is given no effect.
Nonetheless, the answer to the question of which one yields to the other is not so
straightforward when the incorporated charterparty clause introduces an issue which is not
covered under bills of lading, or when the clause qualifies a general term stipulated therein.
To solve this problem, U.S. and English courts raise three main questions: can such a
charterparty clause be applied together with the express bill of lading terms? 728 Does it make
For U.S. law, see, Goodpasture Inc. v. M/V Pollux, 602 F.2d 84, 86 (5th Cir. 1979); O’Connel v. One Thousand and Two
Bales of Sisal Hemp., 75 F. 408 (D.C. Ala., 1896); Energy of Transport Ltd. v. M/V San Sebastian, 348 F.Supp.2d 186, 203
(S.D.N.Y. 2004). For English law, see Gardner v. Trechmann [1884] 15 Q.B.D. 154. See also, Boyd S.C. et al, “Scrutton on
Charterparties”, (21st edn, 2008), para A37 and Girvin S, ‘Carriage of Goods by Sea’, (2008), para. 12.24
726
For U.S. law, see The Robin Gray, 1933 A.M.C. 766, (2d Cir. 1933) cert. denied 290 U.S. 653 (U.S.1933). See also,
Kearn J., “Shipowner Denied Lien Against Third Party’s Cargo For Charterer’s Unpaid Charter Hire”, (1980) 26 Loy. L.
Rev. 416, at 418. For English law see, Gardner v. Trechmann, above. See also, Tiberg, H., “The Law of Demurrage”, (4 th
edn, 1995), pg: 590 and Raul C., “Carver’s Carriage by Sea”, (13th edn, 1982), Vol: 1, para: 725.
727
For U.S. law, see Yone Suzuki, et al v. Central Argentine Railway Limited, Gano Moore Coal Mining Company, Inc. 1928
A.M.C. 1521, (2d Cir. 1928). For English law, see Gullischen v. Stewart Brothers, (1883) L.R., 13 Q.B.D. 317. For the
728
179
any sense in the bill of lading context? Are they in accordance with the main purpose and
character of the bill of lading?729 In order to address these issues, both U.S. and English courts
initially seek to construe all the integrated and express terms as a whole 730 . Where the
incorporated charterparty provisions cannot, nevertheless, be reconciled with the express bill
of lading terms due to being surplus, inapplicable or insensible, they are treated as
inconsistent and ineffective731. Even though the incorporation clause permits importation of
inconsistent charterparty provisions, this rule must also be followed in-so-far as the
application of such clauses defeats “the main object and intent” of the bill of lading732.
Evidently, preventing incorporation of the repugnant charterparty terms increases reliance on
the bills of lading in international trade, and helps provide a less risky environment for traders.
Notably, with the rule of inconsistency, the holders are also considerably protected from the
unforeseeable charterparty provisions, whose character and nature is inconsistent with the bill
of lading. From the perspective of the holders, the rule, therefore, has welcome effects on the
basis that it facilitates the prediction of legal consequences arising from the incorporation
clauses.
It is important to note that these general views are not always helpful in resolving the
inconsistency issue, since construction of the incorporated charterparty terms in most cases
varies depending on the nature and the function of the particular clause. For this reason, the
remainder of this sub-section will examine the specific charterparty clauses, whose
consistency with the bill of lading terms has mostly been challenged. In this context, the
possible application of the qualifying charterparty provisions, see Treitel G. and Reynolds F.M.B., “Carver on Bills of
Lading”, (2nd edn, 2005), para: 3-023.
For English law, see Gullischen v. Stewart, above. See also, The Varenna, [1984] Q.B. 599; Hogarth Shipping Company,
Limited v. Greene, Jourdain & Co. Limited, [1917] 2 K.B. 534; Mata K., [1998] Lloyd’s Rep. 614; G.H. Renton & Co. Ltd. v.
Palmyra Trading Co. of Panama, [1957] A.C. 149, 152. See also, Davies D.A., “Incorporation of Charterparty Terms into a
Bill of Lading”, (1966), JBL, pg 327, 330, and Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2 nd edn, 2005),
para: 3-040. For U.S. law see, Yone Suzuki, et al v. Central Argentine Railway Limited, Gano Moore Coal Mining Company,
Inc., 1928 A.M.C. 1521, (2d Cir. 1928); O’Connel v. One Thousand and Two Bales of Sisal Hemp., 75 F. 408. (D.C. Ala.,
1896). See also, Lord R.A., “Williston on Contracts”, (Database updated in May 2009), 11 Williston on Contracts § 30:25
(4th ed.)
729
For English law, see The Leonidas, [2001] C.L.C. 1800. For U.S. law, see Restatement (Second) On Contracts, § 202(d), §
203(a)
730
For English law, see ibid., see also Andreas Vergottis v. Robinson David & Co. Ltd, (1928) 31 Ll. L. Rep. 23; Hamilton
& Co. Mackie Sons (1889)5 T.L.R. 677, Porteus v. Watney, (1877-78) L.R. 3 Q.B.D. 534, 542. For U.S. law, see ibid., and
see also Americas Ins. Co. v. Stolt Nielsen, Inc., 2004 A.M.C. 2542, (S.D.N.Y. 2004).
731
For a similar view, see Glynn v. Margetson & Co., [1892] 1 Q.B. 337, 355, per Fry L.J. See also, Renton v. Palmyra,
[1956] 1 Q.B. 462. For a similar view under U.S. law, see Restatement (Second) On Contracts, § 202 para. (c), where
reference is made to “principal purpose of the contract”.
732
180
construction of the integrated freight, demurrage, cesser and arbitration clauses will be
analysed in turn. Given that lien is asserted as a security to recover the sums that may arise
from the application of various incorporated charterparty terms, the question of how the lien
clauses are construed will be addressed together with the relevant particular charterparty
clauses.
bb. Freight Clauses
Could a freight-prepaid stamp make the incorporated charterparty freight terms inconsistent?
Under English and U.S. law, these stamps are not taken into account when considering the
question of repugnancy, since it is accepted that they do not themselves make the
incorporated charterparty freight clauses inconsistent, inapplicable or insensible 733 . Under
English law, this proposition draws support from the House of Lords decision in The Nanfri734.
There, the dispute arose under a time charterparty with respect to the charterer’s payment of
the charter hire by repeatedly deducting the sums that were alleged to be due under the
charterparty. Upon the charterer’s refusal to pay the full charter hire as requested, the
shipowner instructed the master not to sign any bills of lading which contained a freight
prepaid stamp or which do not incorporate the charterparty lien clause pertaining to the bill of
lading freight. The identified instruction of the shipowners was held to be anticipatory breach
of the charterparty.
As the underpinning reason for the above finding, the court in The Nanfri took the position
that “freight-prepaid” bills of lading do not necessarily prevent the shipowners from
collecting the bill of lading freight and to assert a lien on the basis of the charterparty lien
clause. In light of these observations, it therefore became clear under English law that freight
prepaid stamps do not always run counter to the integrated or express freight and lien
provisions in bills of lading. A similar effect was produced by the ruling of the U.S. Court of
Appeals for the Ninth Circuit in Logistics Management Inc. v. One Pyramid Tent Arena735. In
that case the court found no inconsistency between the lien provision and the freight-prepaid
For English law, see The Nanfri, [1979] 1 Lloyd’s Rep. 201, 210; The Indian Reliance, [1997] 1 Lloyd’s Rep. 52, 55-58.
For U.S. law, see The Robin Gray, 65 F.2d 376, 378, (2d Cir. 1933). See also, Kearn J., “Shipowner Denied Lien Against
Third Party’s Cargo For Charterer’s Unpaid Charter Hire”, (1980) 26 Loy. L. Rev. 416, 420; Lynch M., “Pay the Man …
Again! The Fourth Circuit Requires Shippers to Pay Freight Twice When Cargo Consolidators Default in Hawkspere
Shipping Co. v. Intamex, S.A.”, (2003-2004) 28 Tul. Mar. L.J., 602, 608.
733
734
[1979] 1 Lloyd’s Rep. 201
735
1996 A.M.C. 1826 (9th Cir. 1996)
181
stamp in bills of lading, to the effect that the shipowner was held to be entitled to assert a lien
against the holder by virtue of the lien clause. In light of these judicial decisions, could it be
said that these stamps are always considered to be consistent with the integrated and express
freight or lien provisions in bills of lading?
It is clear in both jurisdictions that these stamps may contradict with the identified types of
contract provisions. In this respect, both U.S. and English courts have adopted the view that
cargo interests are permitted to avoid payment of the freight to the carrier provided that they
take up the shipping documents in reliance on the “freight prepaid” stamp in the bill of
lading736. In such circumstances, the vessel owners, therefore, have no right to assert a lien on
the cargo for the unpaid freight against such holders, irrespective of the statement under the
bill of lading that freight be payable as per charterparty737. Nonetheless, it is accepted that the
holders are liable for the unpaid freight if they are not misled by the freight prepaid stamp and
are on notice that the freight has not yet been paid738.
Inasmuch as this rule promotes certainty under bills of lading, by giving priority to the cargo
interests’ reliance on the terms provided therein, it is not surprising to see that the Rotterdam
Rules contain similar provisions with respect to the effects of the freight-prepaid stamps in
bills of lading739 . The rules dictate that while the carriers are estopped from claiming the
unpaid freight from the consignees where the bill of lading bears a freight-prepaid stamp,
these parties are allowed to raise such claims against the shippers 740 . It is striking that
application of this particular provision in the Rotterdam Rules may lead to different results
from those reached in the highlighted U.S. and English judicial decisions. This is because the
Rotterdam Rules rest on the question of whether the bill of lading holder is a shipper or a
consignee, whereas the courts in both jurisdictions see the knowledge of the relevant holder as
the decisive factor in addressing the issue. Due to this difference, the Rotterdam Rules run the
For English law, see The Nanfri and The Indian Reliance, above. For U.S. law, see The Robin Gray, above. See also, The
Albert F.Paul, F.2d 16, 1924 A.M.C. 967 (2d Cir. 1924); Berdex International v. M/V Kapitan Grishin, 1992 A.M.C. 1559,
1565-1566 (N.D. Cal. 1992)
736
For U.S. law, see Hawkspere Shipping Co. Ltd. v. Intamex S.A., 330 F.3d 225, 237, (4th Cir. 2003). For English law, see
The Nanfri and The Indian Reliance, above. See also, Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para:
17.80.
737
738
Ibid.
739
See Article 42 of the Rotterdam Rules.
740
Ibid.
182
risk of giving unjustifiable protection to the consignee, who is aware that the freight has not
been paid to the carrier. The Rotterdam Rules also attract criticisms because they
unreasonably prevent the shippers from relying on the freight-prepaid stamps in cases where
they are not the charterers of the respective charterparties referred to in the bill of lading, and
where they are not on notice about the non-payment of the freight.
Saving the peculiar case of “freight pre-paid” stamps, if an incorporated charterparty clause is
repugnant to an express bill of lading clause which stipulates the rate of freight, the latter term
will prevail over the former741. The holders are thus bound by the amount of freight and the
payment method, which is expressly stated in the bill of lading, irrespective of the contrary
terms in the integrated charterparty provisions
742
. However, where the incorporated
charterparty clause envisages the payment method, while the bill of lading terms only
stipulate the amount of freight, the courts may not find any inconsistency between these two
provisions and may, therefore, treat both of them as equally applicable743.
Since the integrated charterparty term yields to the express bill of lading clauses in the case of
inconsistency, English and U.S. courts restrict the carriers’ right to lien on the cargo to the
amount stated under the bills of lading744. The leading authority for this proposition is the
Court of Appeal judgment in Gardner v. Trechmann, where the shipowner was not allowed to
assert a lien for the difference between the amount of freight under the charterparty and that
under the bill of lading745. A similar effect was achieved with the U.S. judicial decision in The
Albert Dumois746. There, the court also held that the right to lien does not exist for the excess
For English law, see Gardner v. Trechmann (1884) 15 Q.B.D.154; Ocean v. Harding, [1928] 2 K.B. 371, 384. For U.S.
law, see The Albert Dumois, 54 F. 529 (D.C.N.Y. 1893); O’Connel v. One Thousand and Two Bales of Sisal Hemp., 75 F.
408. (D.C. Ala., 1896); The Albert F.Paul, 1924 A.M.C. 967 (2d Cir. 1924)
741
742
Ibid.
For English law, see The Indian Reliance, [1997] 1 Lloyd’s Rep. 52 quoted in Treitel G. and Reynolds F.M.B., “Carver on
the Bills of Lading”, (2nd edn, 2005), para: 3-023. The same result must also be relevant under U.S. law, given that U.S.
courts are inclined to presume that all integrated and express contract provisions are consistent with each other, and they tend
to construe all the terms as a whole, see For U.S. law, see Restatement (Second) On Contracts, § 202(d), § 203(a)
743
For U.S. law, see American Steel Barge Co. v. Chesapeake & Ohio Coal Agency Co., 115 F. 669, 672 (1st Cir. 1902). For
English law, see Gardner v. Trechmann (1884) 15 Q.B.D.154, 157. In order to assert lien, the incorporated charterparty term
should give the shipowner the right to lien upon all cargoes and all freights for the sums due under charter. See also, The
Spiros C., [2000] 2 Lloyd’s Rep. 319. For U.S. law, see Chembulk Trading LLC. v. Chemex Ltd., 393 F.3d 550, 555, (5th Cir.
2005); Hornbeck Offshore Operators, Inc. v. Ocean Line of Bermuda Inc., 849 F.Supp. 434, 439, (5th Cir. 1993). For English
law, see Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 17.16.
744
745
See Gardner v. Trechmann, above, at 157.
746
See The Albert Dumois, above.
183
of amount provided under the charterparty. It naturally follows from these findings that, in the
absence of an express freight clause in bills of lading, the integrated freight provisions must
regulate this issue. Consequently, the carriers in such cases must be entitled to claim payment
of the sum provided in the integrated charterparty freight clause against the holder747, and the
right to lien must also exist for the amount of the unpaid charterparty freight.
The explanations made thus far raise two interrelated questions: could shipowners claim the
lump-sum freight provided in the integrated charterparty clause against a holder whose bill of
lading only covers part of the cargo shipped on board the vessel? If so, could they also
exercise a lien on such holder’s cargo for the lump-sum freight? The English and U.S. judicial
decisions do not suggest any barriers to imposition of such a disproportionate liability towards
bill of lading holders 748 . Rather, they uphold the view that the integrated charterparty
provisions may regulate the amount of freight in the absence of an express bill of lading
provision relating to freight, even though the relevant charterparty provides lump-sum freight
as opposed to a freight rate. Conversely, where the integrated charterparty clause contains a
freight rate, it is clear in both jurisdictions that the holders are deemed liable only for the
amount of freight which is in proportion to the goods covered under their respective bills of
lading749.
From an overall perspective, imposing the payment of lump-sum freight on a holder whose
bill of lading covers only part of this cargo is an excessive hardship, as is asserting a lien on
the same holders’ cargo on this basis. In order to remove this burden from the shoulders of
these parties, could the rules of inconsistency be used in order to strike out that lump-sum
charterparty freight which is not proportionate to the amount of cargo covered under the bill
of lading?750 There are compelling reasons for saying that the rule of inconsistency must find
room for application here. One of the most important is the fact that when the bill of lading
For a similar view, see Gardner v. Trechmann, above, at 158, per Cotton L.J. See also, Cooke, J., Young, T., et al,
“Voyage Charters”, (3rd edn, 2007), para: 17.21. For U.S. law, see Kearn J., “Shipowner Denied Lien Against Third Party’s
Cargo For Charterer’s Unpaid Charter Hire”, (1980) 26 Loy. L. Rev. 416, at 417-418.
747
For a similar opinion, see Cooke, above. See also, Poor, W., “Poor on Charter parties and Ocean Bills of Lading”, (5 th edn,
1968), pg. 72
748
For English law, see Fry v. Chartered Mercantile Bank of India, (1866) L.R. 1 C.P. 689. For U.S. law, see The Lake
Galera, 1932 A.M.C. 1228 (2d Cir. 1932), which can be used by way of analogy. There, the bill of lading holder was held to
be liable for demurrage in proportion to the goods covered under his bill of lading pursuant to the incorporated demurrage
clause, which contained a rate for passage of time and weight of the goods shipped on vessel.
749
750
See, Keogh G.D., “Shipowner’s Lien for Freight”, (1898)14 LQR 143, 144, where a similar view was taken.
184
merely covers part of the cargo carried on board the vessel, the lump-sum freight could
readily be taken as running counter to the main “object and intent” of the bill of lading751. This
reasoning could further be supported on the grounds that, while construing contract provisions,
English and U.S. courts assume that parties could not have intended to create onerous
liabilities752. On this basis, unless there is an express provision in the bill of lading to the
contrary, parties must not be deemed to have agreed the payment of lump-sum freight
envisaged in the incorporated charterparty where the bill of lading does not cover the entire
cargo on board the vessel.
cc. Demurrage Clauses
What happens to the incurred demurrage at the loading port when the vessel starts off her
voyage immediately after loading, without the shipowner having received the demurrage?
Bearing in mind the financial consequences of a vessel lying unused at the port of loading,
shipowners tend to allow their vessels to leave the loading port. This is usually done so,
regardless of the unpaid demurrage, or any other charges, which become due under the
charterparty. Nevertheless, in order to ensure the payment of these sums at a later stage, these
parties, in most cases, go on to instruct the masters to insert into the bill of lading an
incorporation clause that refers to their respective charterparties753.
It goes without saying that the incorporation clause is essential for the shipowners, to ensure
the recovery of charges due under the charterparty. However, it is hard to justify imposition of
the demurrage, incurred at the port of loading, on subsequent holders who have no act or
omission that somehow contributes to the delay in the loading process. Equally, it is hard to
accept the holder’s liability for demurrage where he or she is not the consignee of the entire
cargo, or where demurrage is incurred by the delay in loading or discharging of someone
else’s cargo. Nonetheless, as will be explained below, a holder in any of the highlighted
circumstances may be liable for demurrage, if his or her bill of lading incorporates the
relevant charterparty demurrage provision, and if there is no express bill of lading to the
contrary. In order to throw light on this issue, the consignees’ liability for the loading port
demurrage will first be examined. Thereafter, the focus will be on the question of the extent to
751
See supra note 732
752
See supra notes 159-160. A similar line was also taken in The Miramar, [1984] A.C. 676
See, for instance, The Nanfri, where the shipowner took such a measure in order to compel the charterer to pay the full
charter hire, see [1979] A.C. 757, 776.
753
185
which the holders could avoid demurrage incurred during the loading or discharge of the
entire cargo.
i. Liabilities of the cargo interests for demurrage incurred at the loading port
As can be gleaned from the U.S. and English judicial decisions, transferees of bills of lading
could be liable for loading port demurrage pursuant to an integrated charterparty demurrage
clause, which does not place such liability exclusively upon the charterer 754. This result can
seem harsh for those transferees who cannot, in most cases, interfere with the loading
operations, and who seldom have the chance to see the referred charterparty provisions. In
order to remove this burden, it has been suggested that the incorporated charterparty clauses,
providing for loading port demurrage, be rendered ineffective on the grounds that they are
inconsistent with the nature of the bills of lading 755 . Despite the force of this argument,
demurrage provisions appear to be one of the most apposite terms in the context of the bills of
lading 756 , as they are related to loading and discharging operations of the cargo covered
thereunder. Even though the delay may occur because of the loading or discharge of the
cargoes covered by other bills of lading, it can scarcely be argued that this fact is, of itself,
sufficient to render demurrage clauses inapposite.
Nonetheless, the integrated charterparty provisions regarding the loading port demurrage must
be deemed inconsistent with bills of lading. This is not because demurrage is different in
nature, but because the liability arising from such charterparty terms cannot reasonably be
anticipated by the transferees of bills of lading, who pay for these transferable instruments at
their face value757. On this basis, the transferees must not be taken to have intended to assume
such an onerous and unforeseeable liability when the bill of lading is devoid of an express
reference to the charterparty demurrage clause 758 . In light of these considerations, the
charterparty provisions providing for loading port demurrage must be treated as both
For English law, see Gray v. Carr, (1870-1871) L.R. 6 Q.B. 522. See also, Schofield J., “Laytime and Demurrage”,
(2005), para 6.184. For U.S. law, see The Lake Galera, 1932 A.M.C. 1228, (2d Cir. 1932); The Hans Maersk, 266 F. 806,
808 (2d Cir. 1920). Some U.S. judicial decisions further suggest that despite the incorporation of demurrage, which embraces
both loading and discharge demurrage, liability of the consignee for the loading demurrage is nevertheless secondary, see
Yone Suzuki, et al v. Central Argentine Railway Limited, 1928 A.M.C. 1521, 1543 (2d Cir. 1928).
754
755
See Davies D.A., “Incorporation of Charterparty Terms into a Bill of Lading”, (1966), JBL, pg 327, 330
756
For a similar view, see Fidelitas Shipping Co. v. V/O Exportchleb, [1963] 2 Lloyd’s Rep. 113, 125
757
A similar line was also taken by Lord Diplock in The Miramar, [1984] A.C. 676.
For English law, see ibid. For U.S. law, see Restatement (Second) On Contracts, § 203(a), where it is dictated that
contracts be given reasonable meaning.
758
186
“insensible” 759 and ineffective under bills of lading. It naturally follows from these
observations that application of those charterparty provisions to the transferees evidently finds
justification where the bill of lading bears a notation giving the amount of demurrage incurred
at the loading port.
Undoubtedly, if the above view is adopted, the shipowners, in most cases, will have no right
to resort to the bill of lading holders for the demurrage incurred at the port of loading.
Consequently, this suggestion is disadvantageous to them, since it may be easier to have
recourse against the bill of lading holders who have a direct interest in the cargo carried on
board the vessel. However, this argument is not persuasive precisely because the
commercially expedient way to recovery depends on the factual circumstances of each case.
Hence, instead of seeking recovery from the holders, shipowners may find it much easier to
resort to the charterers for these sums, and may wish to give up their rights against the
consignees760.
Whether it is commercially expedient or not, shipowners will, nevertheless, have their
charterers for recovery of these charges, which are incurred before the bill of lading is
issued761. Charterers’ liability, with respect to these charges, could be ruled out by reason of
the charterparty cesser clause, provided that the shipowner has a right to lien on the cargo
which is commensature with these liabilities762. However, since application of the specified
suggestion leaves the shipowners without any sufficient remedy against the cargo recipients,
For English law, see The Varenna, [1984] Q.B. 599. For U.S. law, see Encyclopaedia Britannica Inc. v. S.S. Hong Kong
Producer, 422 F.2d. 7, 14 (2d Cir. 1969)
759
See Wilson J.F. “Carriage of Goods by Sea” (7th edn, 2010), 309 and Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd
edn, 2007), para: 17.10
760
761
Under U.S. law, the courts do not interpret cesser clauses as they have a retrospective effect which releases the charterers
of liabilities arising before the issue of the bill of lading, such as demurrage at the loading port and dead-freight. Even though
a commensurate lien with those liabilities is provided to the shipowner, the charterer remains primarily liable for these
charges. See Yone Suzuki v. Central Argentine Railway Ltd., 1928 A.M.C. 1521, (2d Cir. 1928); The Marpesia, 292 F. 957,
973 (2d Cir. 1923). Under English law, the courts tend to give the cesser clause a retrospective effect save that the shipowner
has the right to assert lien which is co-extensive with these liabilities and the wording of the cesser clause allows such an
interpretation. See Fidelitas Shipping Co. v. V/O Exportchleb, [1963] 2 Lloyd’s Rep. 113, 122. See Wilson J.F. “Carriage of
Goods by Sea” (7th edn, 2010), 309. But see clause 8 of Gencon Charterparty of 1976, which holds the charterer liable for
“dead freight and demurrage or damages for detention at the loading port”. Also see, Cooke, J., Young, T., et al, “Voyage
Charters”, (3rd edn, 2007), para: 17.4.
762
For U.S. law, see Crossman v. Burril, 179 U.S. 100, (U.S. 1900). For English law, see Fidelitas Shipping, above.
187
the courts in both jurisdictions will in any case be reluctant to hold the charterer immune to
liability on the basis of the cesser clause763.
ii. Liabilities of the cargo interests for the total amount of demurrage
Could demurrage for loading or discharge of the entire cargo be imposed on a holder, where
his or her bill of lading only covers part of the goods carried on board the vessel, or where the
delay is not attributable to loading or discharging of his or her cargo? As a solution to these
problems, it can be argued that every bill of lading holder should be liable for demurrage in
proportion to the amount of the cargo covered under his or her respective bills of lading. An
equally convincing suggestion is making these parties liable on the basis of their contribution
to any delay in the loading or discharge operations.
Consequently, the demurrage clause which provides a fixed rate for the delay in loading and
discharge operations of the entire cargo is evidently repugnant to the bills of lading that cover
only part of the cargo. Nonetheless, in Porteus v. Watney, the Court of Appeal took the view
that the individual holder was liable for demurrage incurred throughout the discharge of the
entire cargo, even though the relevant bill of lading comprises only part of the goods carried
on board, and the delay was caused during the discharge of another holder’s cargo 764. Perhaps
the most compelling reason leading to this result was that the integrated charterparty
demurrage clause merely provided a daily rate. As this is the case, the court refused to divide
the total amount of the incurred demurrage between the individual holders, either in
proportion to the part of cargo covered under their respective bills of lading or on the basis of
the rate of their contribution to the delay.
However, it is unlikely that English courts will follow the solution above in determining the
demurrage liability of an individual holder, where the incorporated charterparty provision
contains a fixed rate based on the weight of the cargo 765. Under U.S. law, this method was
763
Many authorities convincingly suggest that in determining the cessation of liabilities of the charterers, the assessment
should not only be on the availability of the commensurate lien, but also on the effectiveness of other remedies. Under U.S.
law, see Crossman v. Burril, above, where the court rejected to cease the charterer’s liability where the demurrage clause was
not properly incorporated into the cargo recipient’s bill of lading. For English law, see The Aegis Britannic, [1987] 1 Lloyd’s
Rep. 119, 121-123.
764
See (1877-78) L.R. 3 Q.B.D. 534.
See Fry v. Chartered Mercantile Bank of India (1866) L.R. 1 C.P. 689, where a similar approach was taken in the
presence of an incorporated freight provision, which provided a freight rate per ton.
765
188
adopted in United States of America v. Lamborn & Co766. There, the holder was held liable for
the amount of demurrage, which was in proportion to the weight of the cargo covered under
his or her bill of lading, on the grounds that the incorporated demurrage clause provided a rate
to that effect767.
Even though the demurrage clauses that contain a fixed rate per ton could ease the hardship to
some extent, they fall short of protecting the transferees of bills of lading against the
demurrage charges arising from a delay which is not attributable to them. Nevertheless, unlike
the lump-sum demurrage, such demurrage provisions do not seem to run counter to the bills
of lading which cover only some part of the cargo carried on board the vessel. However,
where neither the express bill of lading terms nor the incorporated charterparty clauses
provide a rate for proportional liability, it is likely that both U.S. and English courts will take
a similar approach to that adopted in Porteus v. Watney, for there is no alternative practical
solution to the problem in such cases.
iii. Lien for Demurrage
With respect to the carriers’ right to lien for the incurred demurrage at the loading and
discharge port, the legal position under U.S and English law is similar 768. Hence, in both
jurisdictions, the shipowners are entitled to lien the cargo for these charges, when a lien
clause to that effect is incorporated into the respective consignee’s bills of lading 769 .
Conversely, a shipowner’s right to lien is not determined pursuant to the incorporated
charterparty lien clause, where there is an express lien provision in the bills of lading to the
contrary770.
In evaluating consistency between the incorporated and express lien clauses in bills of lading,
the courts in both jurisdictions usually take the view that repugnancy exists only where there
is an apparent contradiction between these two provisions. Therefore, where the bill of lading
766
See 1932 A.M.C. 1228, (2d Cir. 1932
767
For U.S. law, see United States of America v. Lamborn & Co., 1932 A.M.C. 1228, (2d Cir. 1932)
Regarding lien for demurrage, see Fidelitas Shipping Co. v. V/O Exportchleb, [1963] 2 Lloyd’s Rep. 113 for English law.
For U.S. law, see O’Connel v. One Thousand and Two Bales of Sisal Hemp., 75 F. 408, 410 (D.C. Ala., 1896).
768
769
Ibid.
770
The judicial decisions which were highlighted in examining the consistency of lien provisions pertaining to unpaid freight
can be applied to these cases by way of analogy see supra note 741. For a similar view, see Cooke, J., Young, T., et al,
“Voyage Charters”, (3rd edn, 2007), para: 17.18
189
lien clause is restrictive, as compared to the incorporated charterparty lien clause, the courts
will be inclined to construe these provisions as a whole771. Hence, if a charterparty lien clause
refers to lien for freight, demurrage and dead-freight, and a bill of lading provision merely
envisages the lien for freight, it is recognised that the shipowners are entitled to assert a lien
for demurrage772.
However, unlike imposing an in personam demurrage liability on the cargo interests, either
for the incurred loading port demurrage or for the total amount of demurrage, it is more
justifiable to give carriers the right to lien for those charges. This is simply because lien
provisions merely function as a security, and they do not have any effect on the substantive
rights of the parties773. For this reason, incorporation of lien clauses, whose application may
give carriers the right to lien the cargo for such extensive charges, can nevertheless be viewed
as consistent with bills of lading.
As an overall perspective, the observations above support the suggestion that for the
consignees to relieve themselves of the payment of freight and demurrage, they need to take
precautionary measures in their respective sale contracts. In particular, it will be in their best
interests to require presentation of a bill of lading which contains a freight-prepaid stamp and
a notation that all loading charges have been paid774.
dd. Cesser Clauses
Cesser clauses emanate from charterers’ desires to exempt themselves from the charges due
under the charterparty in return for providing shipowners the right to lien the cargo which is
“commensurate” with these liabilities 775 . In particular, it seems that cesser clauses are
introduced into the charterparties mainly because charterers do not wish the costs arising at
For English law, see Fidelitas Shipping above. For U.S. law, see The Robin Gray, 1933 A.M.C. 766, (2d Cir. 1933),
where it was stated that bills of lading would incorporate only part of the charterparty clauses which were not expressly
stipulated under the bills of lading.
771
772
Ibid.
See Miramar Maritime Corporation v. Holborn Oil Trading Ltd., [1984] A.C. 676, quoted in Cooke, J., Young, T., et al,
“Voyage Charters”, (3rd edn, 2007), para: 17.18. See also, The Spiros C., [2000] 2 Lloyd’s Rep. 319, 333. The position is the
same under U.S. law; see Crossman v. Burril, 179 U.S. 100, (U.S. 1900). See also, Miller M.A., 26 Tul. Mar. L.J. 71, Winter
2001, Charterparty Symposium- Part II, ‘Cesser Clauses’, pg. 77.
773
774
For a similar view, see Miller, above, at 85.
For English law, see Fidelitas Shipping Co. v. V/O Exportchleb, [1963] 2 Lloyd’s Rep. 113. For U.S. law, see Crossman v.
Burril, above.
775
190
the discharge port to diminish their profits776. Since these parties seldom retain the title of
goods throughout the carriage of goods, they usually cannot control the charges incurred at
the discharge port777. So as not to bear such costs, they seek to rest on the cesser clauses,
which provide a less risky environment and which enables them to anticipate any risks.
Despite the clear logic behind the use of cesser clauses, it has proved difficult to construe
these provisions. Difficulties arise especially when this clause is sought to be made applicable
mutatis mutandis to the cargo interests under bills of lading on the basis of the incorporation
clause. Evidently, such an extensive reading of the cesser clauses would relieve the cargo
recipients of all charges due under bills of lading, such as those relating to freight, loading and
discharge port demurrage. Nonetheless, given that adoption of this view would defeat the
main purpose of the incorporation clauses, and the parties to the charterparty could not have
intended to make the cesser clause available to the consignees, the courts in both jurisdictions
have repeatedly rendered these clauses ineffective under the bills of lading.
Hence, in Gullischen v. Stewart Brothers778, the English court refused to allow the consignee
to rely on this clause, when the same party was also the charterer and shipper of the goods.
While accepting that this clause releases the charterer of liabilities, the court nevertheless held
this party responsible for the charges under the bills of lading, given that he was also the
cargo recipient. Since cesser clauses are not designed to release the holders of liabilities, and
they are not “sensible” in a bill of lading context, U.S. courts have also endorsed this
reasoning. Following Gullischen v. Stewart Brothers, the U.S. Court of Appeal for the Second
Circuit in Yone Suzuki v. Central Argentine Railway Ltd.779 thus did not allow the consignees
to avail themselves of the cesser clause. In so doing, they held the consignees liable for the
incurred demurrage.
It is evident that the Gullischen approach is necessary in order to prevent reliance of the
holders on cesser clauses. For this reason, the courts in Gullischen and Yone Suzuki did not err
in arriving at such a conclusion. Nevertheless, the pattern of reasoning adopted in Gullischen
776
See Miller, above at 72.
777
For a similar view see Cooke, J., Young, T., et al, “Voyage Charters”, (3rd edn, 2007), para: 17.43.
778
See (1883-84) L.R. 13 Q.B.D. 317.
779
See 1928 A.M.C. 1521, (2d Cir. 1928)
191
is no longer recognised under English and U.S. law. Accordingly, if the facts, identical to
those in Gullischen, were brought before U.S. and English courts, the courts would decide on
the issue differently780. This is simply because it is now accepted that the contract of carriage
which governs the relations between the charterer and the shipowner is the charterparty781. For
this reason, the bill of lading held by the cargo recipient in Gullischen would be treated as a
mere receipt782. Therefore, the dispute between the litigants would be resolved on the basis of
the charterparty terms.
In light of all these explanations, could it be said that charterers are relieved of liability in the
case of a cesser clause under the charterparty, even though they are also cargo recipients? 783 It
is clear that the courts in both jurisdictions do not allow charterers to escape liability in those
cases784. In so doing, they take the view that shipowners could not have intended to forego
their rights without being provided with sufficient and effective remedy in return785. For those
cargo recipients who hold the bill of lading as their contract of carriage, the position is also
clear: given that the rulings in Yone Suzuki and Gullischen remain unchallenged, these parties
cannot rely on the cesser clause in the referred charterparty786. This approach is best supported
by the fact that giving effect to cesser clauses under bills of lading would demolish all
liabilities of the holders therein, as well as defeating one key objective of shipowners in
introducing incorporation clauses: to safeguard the recovery of losses, charges and damages
780
See Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2 nd edn, 2005), para: 3-037
See President of India v. Metcalfe Shipping Co. Ltd., [1970] 1 Q.B. 289. However, had the charterer used the vessel as a
general ship, the position would have been different under English law, see Calcutta S.S. Ltd. v. Andrew Weir & Co. [1910] 1
K.B. 759 quoted in Debattista C., “Bills of Lading in Export Trade”, (2008), paras 8.7-8.12. For U.S. law see, Ministry of
Commerce v. Marine Tankers Corp., 1961 A.M.C. 320, (S.D.N.Y. 1960); Associated Metals & Minerals v. S/S Jasmine,
1993 A.M.C. 957, (2d Cir. 1993)
781
782
Ibid.
783
However, the cases where the charterparty is superseded by bills of lading in pursuant to the charterparty supersession
clause must be treated differently. See Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 17.44. See also,
Oriental Maritime Pte. Ltd. v. Ministry of Food Government of People’s Republic of Bangladesh, [1982] 2 Lloyd’s Rep. 371.
784 For U.S. law, see Yone Suzuki, et al v. Central Argentine Railway Limited, Gano Moore Coal Mining Company, Inc.,1928
A.M.C. 1521, (2d Cir. 1928), and Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 17.104. For English
law, see. The Aegis Britannic, [1987] 1 Lloyd’s Rep. 119
See Clink v. Radford & Co. [1891] 1 Q.B. 625, 627, which was also referred to in Crossman v. Burril, 179 U.S. 100 (U.S.
1900). Some scholars, however, argue that cesser clause can work well with the express bill of lading terms. See, Gilmore G.
and Black C., “Law of Admiralty”, (2nd edn, 1975), para: 4-11, pg: 221 and Treitel G. and Reynolds F.M.B., “Carver on Bills
of Lading”, (2nd edn, 2005), para: 3-041.
785
786
This proposition can also be supported when the wording of the traditional and modern cesser clauses is taken into
account. The traditional cesser clauses usually read “charterer’s liability under this charterparty to cease on the cargo being
loaded, the owners having a lien on the cargo for the freight and demurrage”. See Clink v. Radford & Co. [1891] 1 Q.B. 625
quoted in Miller M.A., 26 Tul. Mar. L.J. 71, Winter 2001, Charterparty Symposium- Part II, ‘Cesser Clauses’, pg. 102. For
modern cesser provisions, see clause 8 of Gencon Charterparty of 1976.
192
arising from the carriage of goods. Accordingly, it makes perfect sense to regard these clauses
as inconsistent and inapplicable, since giving effect to the cesser clause would nullify
incorporation787.
ee. Arbitration clauses
Where the integrated arbitration clause refers to disputes arising under the “charterparty” or
under the “contract”, the issue of whether it is consistent with the “bill of lading” must be
addressed before taking the step to decide applicability of such provisions to the holders. The
question of inconsistency also arises in the case of incorporated charterparty clauses providing
for arbitration of the disputes between the “shipowners” and “charterers”. All these familiar
cases prompt one key question: does the identified arbitration wording make any sense under
bills of lading, to which the consignees and the carriers are parties?
In order to tackle these issues, U.S. and English courts have introduced the rules of
manipulation788, which decide to what extent these clauses can be adapted to the bills of lading
and be applied, mutatis mutandis, to the holders. Accordingly, when the rules do not permit
verbal manipulation of particular arbitration wording, the arbitration clause in that form is
deemed inconsistent and ineffective789.
It here proves valuable to note that English courts tend to give effect to arbitration clauses,
unless there is a clear contradiction between the incorporated arbitration clause and bill of
lading provisions. Hence, in The Nerano 790 , the court readily reconciled an integrated
charterparty clause providing for London Arbitration and a bill of lading clause referring to
English law and jurisdiction 791 . The foremost reason for not treating these provisions as
inconsistent with each other was the supervisory nature of the English courts with regard to
arbitration. Accordingly, the carrier was held to have the right to arbitrate the dispute by
For a similar view, Gaskell N. et al, “Bills of Lading: Law and Contracts”, (2000), pg. 21.36 quoting Adamastos Shipping
Co. Ltd. v. Anglo-Saxon Petroleum Ltd. [1959] A.C. 133.
787
788
See Chapter 3(2).
789
Such circumstances only arise under U.S. law. Under English law, the rules of manipulation do not have such significance
in the case of arbitration clauses. This is because, for the arbitration clauses to be incorporated, English law requires specific
reference to arbitration in the incorporation clauses, and this specific reference to arbitration automatically triggers
manipulation. See Chapter 3(2).
790
See [1996] 1 Lloyd’s Rep. 1
791
Ibid. See also Gaskell N., “Bills of Lading: Law and Contracts”, (2000), pg. 21.43.
193
virtue of the integrated arbitration clause, regardless of the express jurisdiction clause in the
bill of lading.
If the facts, identical to those in The Nerano, were brought before U.S. courts, the result
would probably be the same. This is because, when the courts have to choose between
jurisdiction and arbitration clauses, they give effect to the arbitration clause due to the federal
policy favouring arbitration792. The rule of inconsistency, which gives effect to the express bill
of lading terms as opposed to the inconsistent charterparty provisions, does not, therefore,
find any room for application in such cases. Nonetheless, when the bill of lading contains
both express and integrated arbitration clauses which conflict with each other, the rule of
inconsistency will perhaps come into play, to the effect that the express bill of lading term
will prevail over that of the integrated charterparty793.
In light of these observations, it must be concluded that consistency of the incorporated
arbitration clauses does not merely depend on those highlighted issues. The next section will
examine whether these provisions are consistent with the Hague, Hague-Visby and Hamburg
rules, one of which governs a large number of bills of lading in shipping and trade.
(b) Where do these rules take us?
Against this background, it is clear that the rules of inconsistency comes into play where the
conflict derives from an incorporated charterparty, and where the bill of lading does not
explicitly stipulate whether the integrated charterparty provisions or those express bill of
lading terms will prevail. It is equally clear that the rules are concerned with the question of
whether the incorporated charterparty terms make any sense under the bills of lading.
It will be recalled that, with a view to importing consistent provisions into the bill of lading,
U.S. and English courts also take the view that the incorporation clause is only apt to
incorporate the provisions relating to the loading, carriage and discharge of the cargo 794. For
the same purpose, the courts have devised the rules of manipulation in order to decide
See Paramedics Electromedicina Comercial, Ltd. v. GE Med. Sys. Info. Tech., Inc., 369 F.3d 645, 654 (2d Cir. 2004);
Moses H.Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (U.S. 1983); F.D. Import & Export Corp. v.
M/V Reefer Sun, 2003 A.M.C. 60, 63 (S.D.N.Y. 2002).
792
See O’Connel v. One Thousand and Two Bales of Sisal Hemp., 75 F. 408 (D.C. Ala., 1896). For English law, see
Debattista C., “Halsbury’s Laws of England” (5th edn, 2008), Vol: 7, Section 363.
793
794
See Chapter 3.
194
whether the incorporated charterparty clause should be adapted into the bill of lading. As a
last remaining hurdle, the courts have also introduced the inconsistency rules in order to rule
out the repugnant charterparty clauses, which have somehow been incorporated through the
words of incorporation. Nonetheless, unlike the other identified rules of incorporation, the
inconsistency rules comprise less technical and semantic considerations, for they allow the
courts to assess the overall workability of the incorporated charterparty clauses under the bills
of lading. Also, it gives the courts the opportunity to once again consider the effects of
applying a particular charterparty clause to a third party bill of lading holder, and to decide
whether to do this.
In construing the integrated charterparty terms in bills of lading, consideration must also be
given to the Hague, the Hague-Visby and the Hamburg rules. Given that almost all bills of
lading are now governed by any of these rules by force of law, it is essential to look at
whether the incorporated charterparty terms can survive together with these rules. Due to its
importance, the next section will be devoted to the issue of inconsistency, which may arise
between the identified uniform rules governing bills of lading and those incorporated
charterparty provisions.
2. Consistency of the incorporated charterparty clauses with the Hague and the HagueVisby Rules
Before addressing the issue of the inconsistency which may arise between the identified
uniform rules and those integrated charterparty terms, it is first necessary to identify the
historic reasons for adopting the uniform rules. In the meantime, it is equally necessary to
underline the critical steps that have been taken in the international arena for the purposes of
bringing unity to the rules governing bills of lading.
It is commonly held that charterparties are usually concluded between parties who have equal
or similar bargaining power795, while the terms of the contract of carriage evidenced under
bills of lading are usually not negotiated between the holders and the carriers 796. Even though
there is a chance to negotiate, it is in the rarest of cases that there is a balance between the
795
See Wilson J.F. “Carriage of Goods by Sea” (7th edn, 2010), 6
796
Ibid.
195
positions of the parties to the bills of lading797. During the eighteenth and nineteenth century, it
was due to this inequality that contractual positions of the holders were adversely affected by
the carriers’ exclusion clauses, which were designed to relieve carriers of all liabilities
whatsoever798.
Throughout this period, English shipowners were dominant in international transport, and
English courts were upholding the carriers’ exclusion clauses 799 . Across the Atlantic, the
international trade activities of U.S. merchants were mainly carried out with vessels furnished
by English shipowners 800 . Evidently, exclusion clauses were detrimental to U.S. cargo
interests, who constituted the majority of the U.S. shipping market 801, and to the development
of this particular sector802. On the one hand, in the late nineteenth century, U.S. courts thus
started to invalidate exclusion clauses803. On the other hand, shipowners introduced exclusive
jurisdiction clauses into the bills of lading, in order to designate the courts that were
considered to be more receptive to the exclusion clauses 804. These tactical manoeuvres, taken
by shipowners, led U.S. courts not only to take a consistently hostile approach towards forum
selection clauses 805 , but also to regard the forum selection clauses as a means to evade
American public policy806. This hostility remained predominant until the twentieth century807.
797
For the imbalanced bargaining power between the shipper and the carrier in the formation of the bill of lading terms, see
The Ardennes, [1951] K.B. 55, 59-60
See Force R., et al, “Admiralty and Maritime Law”, (2005), Vol: 1, pg. 1 and Reynolds F. “The Hague, the Hague-Visby
and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16
798
799
See O’Hare C.W., “Cargo Dispute Resolution and The Hamburg Rules”, (1980) L.Q.R. 219-220.
Ibid. Also, see Reynolds F. “The Hague, the Hague-Visby and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16,
at 18
800
801
Force R., et al, “Admiralty and Maritime Law”, (2005), Vol: 1, pg. 1
802
Ibid.
803
See Sorkin S., “Goods in Transit”, (1990) Vol:1, section 5.13[1][c], pg. 5-141. See also Denning S.M., “Choice of Forum
Selection Clauses in Bills of Lading”, (1970-1971) JMLC pg.17, at 26. See also, C.A. Seguros Orinoco v. Naviera
Transpapel C.A. 1988 A.M.C. 1757, 1765 (D.Puerto Rico 1988).
804
O’Hare C.W., “Cargo Dispute Resolution and The Hamburg Rules”, (1980) L.Q.R. 119, at 220
805
See Denning S.M., “Choice of Forum Selection Clauses in Bills of Lading”, (1970-1971) JMLC pg.17
See Sweeney J. C., “Uncitral Draft Convention on Carriage of Goods by Sea” (Part: 1), (1975-1976) JMLC pg. 69, at 71
and O’Hare C.W., “Cargo Dispute Resolution and The Hamburg Rules”, (1980) L.Q.R. 119, 220.
806
807
See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (U.S. 1972).
196
With a view to protecting the American cargo interests and balancing the competing interests
of the carriers and cargo interests 808 , the United States initially enacted the Harter Act in
1893809, whereby carriers were prohibited from contracting out their liabilities when the loss
or damage was caused by their failure to exercise due diligence in making the vessel
seaworthy, or in taking care of the cargo810. Following the Harter Act, similar enactments for
the protection of cargo interests were also made in many countries such as Australia, Canada
and New Zealand, where the international trade activities were mainly dependent upon the
vessels furnished by English shipowners811.
Due to the sharp differences in the legal approaches adopted by various countries, it became
necessary to form unified rules governing the bills of lading812. For this purpose, the Comite
Maritime International813 adopted the International Convention for the Unification of the Rules
Relating to Bills of Lading, 1924, commonly referred to as the Hague Rules 814. While the
United Kingdom implemented these rules within its Carriage of Goods by Sea act in 1924815,
the United States enacted its own Carriage of Goods by Sea Act in 1936, which embodies the
Hague Rules with some alterations816.
Having observed the impact of the Hague Rules on shipping and international trade for nearly
half a century, some countries took the view that they fell short of satisfying the needs of
808
See Sorkin S. “Goods in Transit”, (1990) Vol:1, section 5.13[1][c], pg. 5-141.
809
See 46 U.S.C. § 190, 46 U.S.C. § 191, and 46 U.S.C. § 192
See Force R., et al, “Admiralty and Maritime Law”, (2005), Vol: 1, pg. 1. See also 46 U.S.C. 190, et seq. See also,
Reynolds F. “The Hague, the Hague-Visby and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16, at 18. Notably,
with the enactment of the US COGSA 1936, the Harter Act remains effective in cases where US COGSA does not operate
under bills of lading, such as in the cases of inland transport, see Mannesman Demag Corp. v. M/V Concert Express, 2000
A.M.C. 2935 (5th Cir. 2000) quoted in Force R., et al, “Admiralty and Maritime Law”, (2005), Vol: 1, pg. 22. In addition,
this Act still finds room for application before loading and after the delivery of goods. See Wemhoener Pressen v. Ceres
Marine Terminals Inc., 5 F.3d 734, 739 (4th Cir. 1993). See also, 46 U.S.C. § 30701(12).
810
See Reynolds F. “The Hague, the Hague-Visby and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16, at 22, See
O’Hare C.W., “Cargo Dispute Resolution and The Hamburg Rules”, (1980) L.Q.R. 119, 221 and Sweeney J. C., “Uncitral
Draft Convention on Carriage of Goods by Sea” (Part: 1), (1975-1976) JMLC pg. 69, 70.
811
812
See Sorkin S. “Goods in Transit”, (1990) Vol:1, section 5.13[1][c], pg. 5-141.
813
Hereinafter referred to as “CMI”.
See supra note 811 See also, Tetley W., “Reform of Carriage of Goods – The UNCITRAL Draft and & Senate
COGSA ’99, “Let’s Have a Two-Track Approach”, (2003) TMLJ 1-144”, pg. 1, at 3.
814
815
See Reynolds F. “The Hague, the Hague-Visby and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16, at 18
816
See Force R., et al, “Admiralty and Maritime Law”, (2005), Vol: 1, pg. 2-3.
197
commerce 817 . Following these criticisms, a number of countries, including the United
Kingdom, adopted the Visby Amendments in 1968. With this revised version, the rules were
then called the Hague-Visby Rules818, and the United Kingdom included these rules as part of
its Carriage of Goods by Sea Act, 1971819.
Despite these changes, in some countries, which are mainly pro-cargo owner or developing
countries820, the amended rules were also believed to fall short of balancing the interests of the
parties 821 . In a similar vein, the rules were also criticised for being unsatisfactory in
accommodating the needs of modern trade822. As a response to these criticisms, the United
Nations Conference on Trade and Development 823 and the United Nations Commission on
International Trade Law824 adopted a new set of rules in 1978, known as the Hamburg Rules825.
It is striking that the Hamburg Rules stand out as being more favourable to the cargo interests
as opposed to the carriers. The eye-catching pro-cargo owner provisions are inter alia, those
relating to time bar826, carriers’ basis of liability827, arbitration828 and jurisdiction829.
Reynolds F. “The Hague, the Hague-Visby and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16, at 19-22. In
particular, the rules were believed to be insufficient to cater for the needs of the shipping practice mainly because of the
problems encountered regarding the issues of: (1) jurisdiction, (2) package or unit limitation, (3) applicability of the carriers’
exclusion to the carriers’ agents, stevedores or contractors, (4) the carriers’ obligations towards the cargo interests with
respect to the works carried out by their agents, stevedores and contractors, and (5) the evidentiary function of the bill of
lading for the quantity and quality of the cargo covered thereunder. See ibid., at 22-27. See also, Sweeney J. C., “Uncitral
Draft Convention on Carriage of Goods by Sea” (Part: 1), (1975-1976) JMLC pg. 69, at 72-74.
817
818
Ibid.
819
With the protocol signed in Brussels on 21st December 1979, the package or unit limitation began to be defined on the
basis of Special Drawing Rights, determined by the International Monetary Fund. Therefore, the limit rose to 666.67 units of
account per package or unit, which was merely 100 pounds sterling before. As per Article IX of the Hague Rules, the gold
value of £100 sterling was taken as a basis. This led to sharp differences in the limitation values between the countries. See
Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 72.25, Reynolds F. “The Hague, the Hague-Visby and
the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16, at 26 and O’Hare C.W., “Cargo Dispute Resolution and The
Hamburg Rules”, (1980) L.Q.R. 119, at 222
820
Reynolds F. “The Hague, the Hague-Visby and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16, at 27-29
821
Sweeney J. C., “Uncitral Draft Convention on Carriage of Goods by Sea” (Part: 1), (1975-1976) JMLC pg. 69, 74.
822
Ibid., at 72.
823
Hereinafter referred to as “UNCTAD”.
824
Hereinafter referred to as “UNCITRAL”.
See Tetley W., “Reform of Carriage of Goods – The UNCITRAL Draft and & Senate COGSA ’99, “Let’s Have a TwoTrack Approach”, (2003) TMLJ 1-144”, pg. 1, 3.
825
826
See the Hamburg Rules, Article 20, whereby the cargo interests are given two years to bring a suit against the carrier. In
the Hague and the Hague-Visby Rules, the cargo interests have the right to bring a suit within “one year of the delivery of the
cargo, or of the date when it should have been delivered”. See Article III/6 of the Hague and Hague-Visby Rules.
See the Hamburg Rules, Article 5, and Reynolds F. “The Hague, the Hague-Visby and the Hamburg Rules”, (1990) 7
MLAANZ Journal, pg. 16, at 29-30.
827
198
As can be gleaned from the provisions therein, the Hamburg Rules aim at minimising the
inequalities between the parties’ bargaining powers. Given that the Hamburg Rules depart
from the Hague and the Hague Visby Rules in many key aspects, they have not been
attractive to those jurisdictions whose case law has largely been developed under the Hague
and the Hague-Visby Rules830. Furthermore, the Hamburg Rules’ perspective, with regard to
forum selection clauses, also runs counter to the rooted traditions of some countries, including
the United Kingdom, on freedom of contract831. It is mainly because of these reasons that a
great number of countries did not adopt the Hamburg Rules, preferring to keep their own rules
in effect832.
Inasmuch as the Hamburg Rules did not completely replace the Hague and Hague-Visby
Rules, preparations for another convention on the carriage of goods by sea were initiated
within CMI after a short period of time833. At a later stage, the preparations continued within
UNCITRAL from the beginning of the twenty-first century834. The draft convention, which
became known as the Rotterdam Rules, was approved on the 8th of July 2008, and it was
signed by a number of countries including the United States. The rules would enter into force
one year after their ratification by the twentieth country835.
As a response to the criticisms made against the previous uniform rules 836, the Rotterdam
Rules take bold steps and bring strikingly different regulations to those envisaged under
828
See The Hamburg Rules, Article 21
829
See Ibid., Article 22.
Reynolds F. “The Hague, the Hague-Visby and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16, at 32-33.
See Sturley M.F., “Overruling Sky Reefer in the International Arena: A Preliminary Assessment of Forum Selection and
Arbitration Clauses in New UNCITRAL Transport Law Convention”, (2006) JMLC pg. 1, at 19, and see the proposal of the
United Kingdom of Great Britain and of Northern Ireland on arbitration in Travaux Préparatoires of Rotterdam Rules
discussed within the Working Group III in its Fifteenth session, which can be found at A/CN.9/WG.III/WP.59 on
http://daccessdds.un.org/doc/UNDOC/LTD/V05/901/31/PDF/V0590131.pdf?OpenElement. In this context, English law,
which has a liberal policy towards the enforcement of forum selection clauses, is also in conflict with articles 21 and 22 of
the Hamburg Rules, which are related to jurisdiction and arbitration.
830
831
832
See supra note 830.
See Tetley W., “Reform of Carriage of Goods – The UNCITRAL Draft and & Senate COGSA ’99, “Let’s Have a TwoTrack Approach”, (2003) TMLJ 1-144”, pg. 1, at 4.
833
834
Ibid.
835
See Art. 94 of the Rotterdam Rules
836
See the preamble of the Rotterdam Rules.
199
Hague and the Hague-Visby Rules837, especially in terms of carriers’ liability838. However, the
rules appear to take similar approaches to those adopted under the Hamburg Rules,
particularly with respect to time bar 839 , jurisdiction 840 , arbitration 841 , package or unit
limitation842, and demolishing carriers’ exclusion of liability for negligence in navigation and
management of the ship 843 . Nevertheless, unlike the Hamburg Rules, wherein the liability
regime for carriers is close to strict liability844, the Rotterdam Rules shift the burden to the
cargo interest to prove that the loss, damage or delay is caused “during the period of carriers’
responsibility”845.
From an overall perspective, it is true that the Rotterdam Rules are vulnerable to the same
criticism as that which could also be made against the Hamburg Rules. Given that various
jurisdictions developed their case law under the Hague and Hague-Visby Rules, ratification of
the Rotterdam Rules, which envisage drastic changes, especially in terms of the carriers’
837
Unlike the Hague and Hague-Visby Rules, the Rotterdam Rules contain an extensive definition of the terminology used
thereunder, along with the provisions regarding inter alia electronic transport records, goods carried in containers, arbitration,
and jurisdiction.
838
Given that application of the Rotterdam Rules is also envisaged for multi-modal transport, Article 12 of the Rotterdam
Rules departs from the tackle-to-tackle rule, which is recognised both under English and U.S. law. For English law, see
Pyrene Co. Ltd. v. Scindia Navigation Co. Ltd., [1954] 2 Q.B. 402. Article 1/(e) of COGSA 1971. For U.S. law, see 46 U.S.C.
§ 30701(1)/e, and The Firestone Tire & Rubber Co. v. Almacenes Miramar, Inc., 1980 A.M.C. 1590, (D. Puerto Rico 1978).
Also, along with the establishment of a joint liability for the contracting carriers and “maritime performing parties”, the
Rotterdam rules disallow carriers to relieve themselves of liability, where the loss or damage to goods arises from carriers’
negligence in navigation and management of the ship. See Article IV/2 of the Hague and the Hague-Visby Rules, and Article
17 of the Rotterdam Rules.
839
For the envisaged time bars, see Article 62 of the Rotterdam Rules and Article 20/1 of the Hamburg Rules, both of which
give a two-year period.
840
See Chapter 14 of the Rotterdam Rules and Article 21 of the Hamburg Rules.
841
See Chapter 15 of the Rotterdam Rules and Article 22 of the Hamburg Rules.
842
While the package or unit limitation in the Hamburg Rules is 835 units of account per package or other shipping unit, or
2.5 unit account per kilogram of gross weight of the goods lost or damaged, whichever is higher, the package or unit
limitation under the Rotterdam Rules is 875 units of account per package or other shipping unit, or 3 units of account per
kilogram of the gross weight of the goods that are the subject of the claim or dispute, whichever amount is higher. See Article
6/1(a) for the former and Article 59/1 for the latter.
843
See Article 17/3(a)-(o) of the Rotterdam Rules and Article 5 of Hamburg Rules.
844
Reynolds F. “The Hague, the Hague-Visby and the Hamburg Rules”, (1990) 7 MLAANZ Journal, pg. 16, at 31.
See Article 5(1) of the Hamburg Rules, which establish a presumption of carriers’ liability towards the cargo interests, see
Article 17 of the Rotterdam Rules. Similar to the Rotterdam Rules, in the US COGSA 1936 and UK COGSA 1971, there is
an initial burden of proof on the cargo interests, and they need to prove that the goods have been shipped in good condition
and discharged in bad condition. For U.S. law, see Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para:
72.25, for English law, see The Mata K., [1998] C.L.C. 1300. However, in pursuant to Article III/4 of the Hague-Visby Rules
and UK COGSA 1971, while the description of the goods under bill of lading is prima facie evidence of the receipt of goods
as described therein, such a description becomes conclusive evidence when the bill of lading is in the hands of third party
holders who are relying on the statement in good faith. Under U.S. law, the receipt function of the bill of lading is similar to
English law, see 46 U.S.C. § 30701(3)/4 and Force R., et al, “Admiralty and Maritime Law”, (2005), Vol: 1, pg. 146.
845
200
liability regime, may not seem attractive to many. Perhaps the most controversial provisions
of the Rotterdam Rules are those relating to jurisdiction and arbitration, simply because they
considerably hinder enforcement of forum selection clauses against cargo interests. Since this
particular aspect of the Rotterdam Rules falls into conflict with the rooted liberal approaches
of various jurisdictions towards choice of forum clauses, adoption of these provisions is
rendered optional846.
Furthermore, the uniform rules governing the bill of lading show their importance to both
parties, when any of those rules become operative thereunder, and they run counter to the
express or integrated bill of lading provisions. In the case of such inconsistencies, the question
of which one will prevail and become applicable to these parties inevitably arises. When
addressing this issue, it is misleading to take the view that the rules of convention only serve
for the purpose of cargo interests. This is because some provisions, such as the time-bars
envisaged under the uniform rules, may well be more favourable to the carriers when the bill
of lading contains a time-bar clause with a longer period. While the parties may thus have
varying preferences between the uniform rules and the provisions in the bill of lading, it is in
their best interests to know the prevailing provision in the case of inconsistency.
In this section, how the identified inconsistencies are resolved under U.S. and English law
will be explained in three main headings. Firstly, the general U.S. and English approach
towards the resolution of the inconsistencies between the bill of lading terms and the uniform
rules will be analysed. In this context, the legal position under U.S. law will be observed by
virtue of the US Carriage of Goods by Sea Act, 1936 (“US COGSA”), while the English view
will be investigated in light of the UK Carriage of Goods by Sea Act, 1971 (“UK COGSA”).
Secondly, the issue of whether forum selection clauses are in conflict with these conventions
will be addressed. A final question will be posed as to whether these conventions could
override the express or incorporated bill of lading provisions which relieve the shipowner of
the duty to load, stow, trim and discharge the cargo.
(a) Which one prevails?
Before raising the issue of inconsistency, it should be noted that all assessments made under
this subsection are relevant to all bill of lading provisions, which are expressly stipulated
therein, and which are brought into the bill of lading by way of incorporation. For the
846
See Article 91 of the Rotterdam Rules.
201
purposes of this analysis, it is important to start off by establishing when and to what extent
US COGSA 1936, and UK COGSA 1971, govern the bills of lading. By virtue of UK
COGSA, whereby the Hague-Visby Rules were implemented, the Hague-Visby rules are
operative under the bills of lading by force of law when (a) the port of shipment of the goods
covered under the bills of lading is in one of the ports of the Contracting States847, (b) the bill
of lading expressly incorporates the Rules848 or (c) the bill of lading is issued in a contracting
state849. Moreover, under Article 1(3) of the Carriage of Goods by Sea Act, 1971, these rules
are made applicable to all bills of lading, with a statutory force, when they cover the goods
that are shipped from any ports in the United Kingdom850. The rules apply even in domestic
carriage851. Furthermore, application of the Rules, which is restricted to the period between
loading and discharge of the goods852, can also be extended to cover the stage when the goods
are in the custody of the carrier853. Yet, unless the wording of the clause paramount explicitly
provides otherwise, the rules which have been incorporated into the bill of lading, in order to
cover these periods, will only have a contractual effect thereunder854.
In a similar vein, while the rules are not compulsorily applicable to the goods carried on deck
or to the carriage of live animals, they can be made effective for these identified carriages. As
is clear under section 1(6)/a and 1(7) of the Carriage of Goods by Sea Act, in case of deck
The phrase “Contracting State” is used both under the Hague Rules and under the Hague-Visby Rules in order to refer to
the States which are parties to the relevant convention. With respect to the highlighted rule, see Article X/b of the Rules. See
Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2 nd edn 2005), para: 9-078.
847
848
See Article X/c of the Hague-Visby Rules and section 1(6) of the Carriage of Goods by Sea Act 1971. It should be
recalled that the wording of the “clause-paramount” determines whether application of the Hague-Visby Rules will be
compulsory, see Trafigura Beheer BV and Another v. Mediterranean Shipping Company SA, [2007] 2 Lloyd’s Rep. 594, 618;
Finagra (UK) Ltd. v. OT Africa Line Ltd., [1998] 2 Lloyd’s Rep. 622. See also, Treitel G. and Reynolds F.M.B., “Carver on
Bills of Lading”, (2nd edn 2005), para: 9-083-084. Where the Rules do not apply compulsorily under bills of lading, the
conflict between the Rules and the incorporated charterparty terms will be resolved under general contract law principles.
See, Merkin R., “Arbitration Law”, (2004), para: 13.16.
849
See Article X/a of the Hague-Visby Rules
850
See Cooke, J., Young, T., et al, “Voyage Charters”, (3rd edn, 2007), para: 85.37.
851
Ibid.
852
See supra note 838
See Trafigura Beheer BV and Another v. Mediterranean Shipping Company SA, [2007] 2 Lloyd’s Rep. 594, 618 and 620621.
853
854
See ibid. and Cooke, J., Young, T., et al, “Voyage Charters”, (3rd edn, 2007), para: 85.242.
202
cargo and live animals, the rules incorporated into the bills of lading will have force of law
“as if Article I (c) did not exclude deck cargo and live animals”855.
Where the US Carriage of Goods by Sea Act, 1936, is concerned, it contains the amended
version of the Hague Rules, and it applies to every bill of lading which covers the goods
shipped from or to the ports of the United States in international trade856. US COGSA is not,
however, compulsorily applicable for the period before loading and after discharge 857, nor is it
effective by force of law in the case of deck carriage 858, live animals859, domestic carriage860
and carriage between foreign ports861.
Nevertheless, the parties are free to make the rules applicable throughout that period and for
those highlighted carriages by way of incorporation862. For the purposes of deciding whether
or not the rules have a prevailing effect over bill of lading terms, the wording of the clause
paramount is the decisive factor863. Saving cases where the rules are incorporated into the bill
See Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 85.45. Inasmuch as Section 1(7) of COGSA
1971 gives a mandatory effect to the rules when they are incorporated into such a bill of lading, it is unlikely that any
provision seeking to remove this effect will be applicable. This also applies to similar clauses which seek to attain the same
objective when the bills of lading can be brought within one of the circumstances defined under Article X of the HagueVisby Rules or under Section 1(3) of COGSA 1971.
855
See U.S.C. § 30701(13) and Steel Coils, Inc. v. M/V Lake Marion, 2001 A.M.C. 115, (E.D.La.2001). Therefore, the parties
cannot by agreement change US COGSA, which is applicable by force of law under bills of lading. See Sturley M.F.
“Benedict on Admiralty”, (2007), Vol: 2A, section 46, page 5-22 and section 41 page: 5-2
856
See 46 U.S.C. § 30701(1)/e and supra note 838. See also, Royal Insurance Company of America v. Orient Overseas
Container Line Ltd., 2008 A.M.C. 337, (6th Cir. 2008) and Sorkin S. “Goods in Transit”, (1990) Vol:1, section 5.13[1][c], pg.
5-142
857
858
See 46 U.S.C. § 30701(1)(c), where it is provided that the rules will not be applicable to the goods actually carried on
deck, provided that the cargo is stated to be carried on deck. See Royal Insurance Co. v. Sea-Land Service, 50 F.3d 723, 727
(9th Cir. 1995), at 727. Under the Hamburg and Rotterdam Rules, deck carriage is not excluded from application. See Article
9 of the Hamburg Rules and Article 25 of the Rotterdam Rules.
See ibid. The live animals exception is not adopted under the Rotterdam Rules. Instead, the parties are given the option to
exclude application of the rules in the case of carrying live animals.
859
See Commonwealth Petrochemicals Inc. v. S/S Puerto Rico, 1979 A.M.C. 2772, 2779 (4th Cir. 1979). Sturley M.F.
“Benedict on Admiralty”, (2007), Vol: 2A, section 41, page 5-4 and section 44 page: 5-15.
860
See Royal Insurance Company of America v. Orient Overseas Container Line Ltd., 2008 A.M.C. 337. 340 (6th Cir.2008).
See also, Sorkin S. “Goods in Transit”, (1990) Vol:1, section 5.13[1][c], pg. 5-142 quoting F.D. Import & Export Corp. v.
M/V/ Reefer Sun, 248 F.Supp. 2d 240 (S.D.N.Y 2002)
861
862
Where the rules are not applied by force of law, the parties are also free to incorporate only some or part of the rules. See
Sorkin S., “Goods in Transit”, (1990) Vol:1, section 4.02, pg. 4-21 and section 4.02 pg. 4-20.2. See also The Firestone Tire
& Rubber Co. v. Almaneces Miramar, Inc. 1980 A.M.C. 1590, 1593 (D. Puerto Rico 1978).
See St. Paul Fire & Marine Insurance Company v. Sea-Land Service Inc., 1991 A.M.C. 523, 526 (S.D.N.Y. 1990), where
the rules prevailed over the express bill of lading terms with respect to the definition of “package”, as the clause paramount
provided that any bill of lading term conflicting with US COGSA would be null and void. See also, Sturley M.F. “Benedict
on Admiralty”, (2007), Vol: 2A, section 43 page: 5-10
863
203
of lading, issued for domestic carriage, it is a matter of contract construction whether the rules
will prevail over the bill of lading terms864. This is simply because, apart from in cases of
domestic carriage, it is clear on authority that the rules are merely treated as contract
provisions when they are incorporated into the bill of lading, in order to cover the extended
period865 or those identified carriages866.
With respect to incorporation of the rules into bills of lading which cover the carriage of
goods between domestic ports, U.S. law is unclear as to whether the incorporated rules, in
such cases, should be given statutory or contractual force867. Even though the literal meaning
of the provision enunciated under section 13 of U.S. COGSA suggests that statutory force be
given to the rules which have been incorporated into the bills of lading868, it seems that the
uncertainty can hardly be removed without making any alterations to the U.S. COGSA.
Despite the differences between U.S. and English law as to when the rules have force of law,
it is common ground that this issue must be addressed before taking steps to resolve
inconsistencies869. This is simply because when the rules do have the force of law, the parties
may not agree to terms which run counter to the provisions therein. Conversely, parties are
entitled to do so where the rules do not have a statutory force870. For the purposes of this
assessment, article III/8 of the UK COGSA 1971, and section 3(8) of US COGSA 1936, play
a vital role, as they prohibit carriers from derogating from or contracting out of their liabilities
864
Ibid. See also, Foster Wheeler Energy Corp. v. An Ning Jiang MV, 2004 A.M.C. 2409, (5th Cir. 2004).
See, The Firestone Tire & Rubber Co. v. Almaneces Miramar, 1980 A.M.C. 1590, 1593 (D. Puerto Rico 1978); Hartford
Fire Insurance Company v. Orient Overseas Containers Lines (UK) Ltd, 2001 A.M.C. 25, 33-34 (2d Cir. 2000). Therefore, if
the Harter Act governs that period and if it conflicts with the US COGSA provisions, the latter rules yield to the Harter Act,
see Ralston Purina Co. v. Barge Juneau, 1981 A.M.C. 2829, (5th Cir. 1980) and Sorkin S. “Goods in Transit”, (1990) Vol:1,
section 4.02, pg. 4-21.
865
For deck carriage see Institute of London Underwriters v. Sea-Land Service Inc., 881 F.2d. 761, (9th Cir. 1989), where it
was held that US COGSA will not apply compulsorily, despite the fact that the clause also contemplated application of these
rules to deck cargo. For carriage between foreign ports, see Sturley M.F. “Benedict on Admiralty”, (2007), Vol: 2A, section
44 page: 5-15 quoting, inter alia, Foster Wheeler Energy Corp. v. An Ning Jiang MV, 2004 A.M.C. 2409, (5th Cir. 2004).
867 See Sorkin S. “Goods in Transit”, (1990) Vol: 1, section 5.13[1][c], pg. 5-142.4 and Sturley M.F. “Benedict on
Admiralty”, (2007), Vol: 2A, section 42, page 5-6.
866
868
See Benedict, infra.
For English law, see Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 85.237 and for U.S. law, see
Sturley M.F. “Benedict on Admiralty”, (2007), Vol: 2A, section 42, page 5-7
869
For English law see ibid., at para 85.24, for U.S. law, see Sorkin S. “Goods in Transit”, (1990) Vol: 1, section 5.13[1][c],
pg. 5-142.6
870
204
any more than is allowed under the rules871. Consequently, where the rules are operative under
bills of lading by force of law, these articles can strike out the incorporated or express bill of
lading terms, which purport to exclude carriers of liabilities beyond the envisaged limits872. On
the contrary, where the rules do not compulsorily apply, it is clear on authority that the
inconsistency issue will be treated within the realms of contract construction, and the question
of which one prevails will not hinge on the specified articles873.
It needs to be recalled that carriers are allowed to assume further obligations and liabilities
than those outlined in the rules874. As this is the case, provisions to that effect will not be
struck down due to inconsistency, nor do article III/8 and section 3(8) debar their application.
Therefore, not every conflicting bill of lading clause will be considered null and void, and
those provisions which do not lessen or remove carriers’ liability, as provided under these
articles, will survive, even when the rules are operative under the bills of lading by force of
law.
In order to see the further effects of the identified articles on bills of lading, the issues
pertaining to package or unit limitation of carriers’ liability must be analysed. Evidently,
under both U.S and UK COGSA, the carriers’ liability for, and in relation to, goods lost or
damaged during sea carriage is limited875. When UK COGSA comes into operation by force of
law, the carriers’ exclusion clauses, which contain a lower amount of limitation than that
provided under the act, is invalidated pursuant to article III/8. Under U.S. COGSA, such
clauses are also overridden by virtue of section 3(8)876. Conversely, where the integrated or
871
But see Article VI of the Hague-Visby Rules and 46. U.S.C. §30701(6), which allows parties to bypass the rules where
there is a carriage of “particular goods”. Therefore, this act has no effect in “ordinary commercial shipments made in the
ordinary course of trade”. A similar provision is also adopted under Article 81 of the Rotterdam Rules. Notably, in the case
of “volume contracts”, Article 81 allows parties to lessen or increase carriers’ liabilities, if certain requirements are satisfied.
For U.S. law, see Uniwire Trading LLC v. M/V Wladyslaw Orkan, 2008 A.M.C. 2152 (S.D.N.Y. 2008) where generally
the applicability of the rule enunciated under 46 U.S.C. sec. 30701(3)/8 is discussed. For English law, see Dairy Containers
Ltd. v. Tasman Orient Line CV, [2004] 2 C.L.C. 794, 800; The Hollandia [1983] 1 A.C. 565 .See also, Debattista, C. “Bills of
Lading in Export Trade”, (3rd edn, 2009), para: 8.15.
872
For U.S. law, see Sturley M.F. “Benedict on Admiralty”, (2007), Vol: 2A, section 42, page 5-7. For English law, see
Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 85.237
873
874
See Article V of the Hague-Visby Rules and 46 U.S.C. sec. 30701(5).
875
See U.S.C. sec. 30701(4)(5) and Hague-Visby Rules Article IV/5. In order for the carrier to rely on this limitation, U.S.
law established a “fair opportunity rule” whereby carriers need to give shippers an opportunity to declare a higher value for
the goods shipped. See Sturley M.F. “Benedict on Admiralty”, (2007), Vol: 2A, section: 166 page: 16-34.
876
For U.S. law, see Hanover Insurance Co. v. Shulman Transport Enterprises Inc., 1979 A.M.C. 520, (1st Cir. 1978). See
also, Sorkin S., “Goods in Transit”, (1990) Vol: 1, section 4.02, pg. 4-20.1 and Sturley M.F. “Benedict on Admiralty”,
205
express bill of lading terms contain a higher amount of limitation, it goes without saying that
they will not be invalidated by the identified articles877.
It is clear under English law, that article III/8 may also have the effect of striking out the timebar clauses, which contain a period within which the parties are required to commence
litigation or arbitration. Where such provisions contain a shorter period than one year, which
is envisaged under article III/6 thereof 878, the predominant approach of English courts has
been to invalidate only the conflicting time-bar and to enforce the remaining provisions on
jurisdiction or arbitration879. Consequently, the courts have been opposed to overriding the
clause in its entirety, regardless of the fact that the bill of lading does not expressly
contemplate partial invalidation880. Most importantly, English courts have repeatedly taken the
view that the reference to “suit” under article III/6 must be taken to comprise both litigation
and arbitration procedures, to the effect that the time-bars contained in arbitration clauses are
also considered to be subject to a one-year threshold 881 . The leading authority for this
interpretation is The Merak, wherein the court held that the cargo interests’ claim was time
barred by reason of article III/6, given that they had failed to commence arbitration within
twelve months of the date of discharge882.
The overall position under U.S. law suggests that the time-bar provisions, which run counter
to the one-year threshold under section 3(6) of US COGSA, are struck down by section 3(8)
of the same act, while the non-offending parts of the clause relating to forum selection remain
(2007), Vol: 2A, section: 166 page: 16-31. For English law, see Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn,
2007), para: 85.235. It is important to note that both the Hamburg Rules and the Rotterdam Rules have their own different
package or unit limitations. See Article 59 of the Rotterdam Rules and Article VI/1 of the Hamburg Rules. Consequently,
when any of them are operative under bills of lading, the carriers will be hindered in their attempts to reduce the limitations
provided under the rules with the incorporated charterparty provisions or express bills of lading, as both rules contain
provisions similar to Article III/8. See Article 23 of the Hamburg Rules and Article 79 of the Rotterdam Rules.
877
Therefore, if the carriers introduce into the bills of lading a clause paramount incorporating the Hamburg Rules, the higher
package or unit limitations will be valid and enforceable. For U.S. law, see Daval Steel Products v. M/V Acadia Forest, 1988
A.M.C. 1669, (S.D.N.Y. 1988) and Sturley M.F. “Benedict on Admiralty”, (2007), Vol: 2A section: 166 page: 16-31. See
also, 46.U.S.C. §30701(4)(5). For English law, see IV/5 of the Carriage of Goods by Sea Act, 1971. See also Cooke, J.,
Young, T., et al, “Voyage Charters”, (3rd edn, 2007), para: 85.412.
878
See Article III/6 of the Hague-Visby Rules for English law. See also, The Ion, [1971] 1 Lloyd’s Rep. 541.
879
For English law see The Ion, above.
For English law see ibid. See also, Cooke, J., Young, T., et al, “Voyage Charters”, (3rd edn, 2007), para: 85.240. See
Article 75/5 of the Rotterdam Rules and Article 22/5 of the Hamburg Rules both of which nullify the parts of the arbitration
clauses which are contrary to the provisions provided under the identified articles.
880
881
The Merak [1965] P. 223, 253
882
Ibid.
206
intact 883. However, U.S. courts have established an exception to this rule in favour of the
arbitration clauses, which impose a shorter period for the commencement of arbitration
proceedings. The underpinning of this exception is the well-established view that the
reference to “suit” in section 3(6) of US COGSA is not taken to embrace arbitration 884. Hence,
in Son Shipping Co. v. De Fosse & Tanghe, the U.S. Court of Appeal for the Second Circuit
endorsed this reasoning when holding that the cargo interest was entitled to institute
arbitration proceedings, even more than one year after the delivery of cargo 885. Following the
Son Shipping, the New York State Courts have repeatedly upheld the clauses which give less
than a one-year period for ensuing arbitration886. In so doing, they have consistently taken the
view that the question of whether the claim is time-barred is for the arbitrators to decide when
the parties agree to resolve their disputes through the arbitration process887.
As a result of these judicial opinions, it is imperative to examine to what extent the New York
arbitrators give effect to the arbitration clauses which provide less than a one-year time-bar.
In light of the leading decision in The Eastern Saga, it is true to say that the arbitrators are
inclined to consider such clauses as inconsistent with section 3(8) of US COGSA, especially
in the context of bills of lading888. Hence, the arbitrators in The Eastern Saga overrode the
three-month time-bar in the Centrocon arbitration clause, which was held to be incorporated
into the bill of lading. In so doing, they clarified that application of the Son Shipping decision,
wherein a narrow meaning was ascribed to the word “suit” in section 3(6), could not be
extended to prevent cargo interests from seeking remedy against carriers within the statutory
period.
See 46.U.S.C. §30701(3)(6). See also, Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer, 1995 A.M.C. 1817, 1822 (U.S.
1995) and Ansell Healthcare, Inc. v. Maersk Line, 545 F.Supp.2d 339, 345 (S.D.N.Y. 2008), quoted in Sturley M.F.
“Benedict on Admiralty”, (2007), Vol: 2A section 163, pg. 16-9.
883
884
See Son Shipping Co. v. De Fosse & Tanghe, 1952 A.M.C. 1931 (2d Cir. 1952)
885
Ibid
See Kurt Orban Co. v. S/S Clymenia, 1971 A.M.C. 778 (S.D.N.Y. 1970); Empreza Publica v. SS Yukon Mart, 1976
A.M.C. 2235, (S.D.N.Y. 1976); Lowry & Co. Inc. v. SS Le Moyne D’Iberville, 1966 A.M.C. 2195 (S.D.N.Y. 1966). On the
contrary, see Steel Warehouse Company v. Abalone Shipping 1998 A.M.C. 2054, 2059 (5th Cir. 1998). See also, Sturley M.F.
“Benedict on Admiralty”, (2007), Vol: 2A section 163, pg. 16-9.
886
887
Ibid.
See The Eastern Saga, SMA no: 1742 (September 16, 1982) quoting The Osrock, SMA no: 654 and The Silverhawk,
SMA no: 1041.
888
207
A long line of arbitration awards further reveal that Son Shipping is also not applicable to
those cases where the cargo interests have failed to institute arbitration proceedings within
one year of the discharge of cargo. Thus, in The John Weyerhaeuser, the arbitrators held that
the holder’s cargo claim, under bills of lading, was time barred by virtue of section 3(6) of US
COGSA, since the arbitration proceedings were brought after the statutory period 889 .
Following the award, the holder in The John Weyerhaeuser moved for vacatur before the U.S.
Court, alleging that the arbitrators were not entitled to decide whether the claim was timebarred. On appeal, the Second Circuit affirmed the denial of the motion by the District
Court890. In so doing, the court established how the Son Shipping decision operates: restrictive
reading of the word “suit” in section 3(6), which was suggested in Son Shipping, must only be
adopted in order to give parties access to arbitration, even though they have not commenced
proceedings within the statutory period891. Consequently, while the Second Circuit took the
view that parties must not be debarred from utilising the arbitration proceedings, they also
opined that it is for the arbitrators to decide whether the claim is time-barred892.
From a wider perspective, it should be noted that, on their true construction, article III/8 of
UK COGSA and section 3(8) of US COGSA do not only pose a threat to time-bars and
package or unit limitations. Rather, they are barriers to application of the integrated and
express bill of lading terms, whose application may result in reducing or diminishing carriers’
liabilities envisaged under the uniform rules. For this reason, the identified articles must have
the effect of overriding not only the provisions relating to the obligations of carriers, but also
those clauses which define such obligations893. It also proves invaluable to bear in mind that
the articles do not permit the courts to invalidate a provision merely because it appears to be
offensive. Instead, the courts are required to assess whether application of the rules leads to
lessening carriers’ liability more than that allowed under the rules894. It naturally follows from
these arguments that both article III/8 of UK COGSA and section 3(8) of US COGSA could
889
See SMA no: 654 (August 1971)
890
Office of Supply, Government of the Republic of Korea v. New York Navigation Co., 1973 A.M.C. 1238 (2d Cir. 1972)
891
1973 A.M.C. 1238, 1242 (2d Cir. 1972)
892
Ibid.
For a similar view, see Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2001), para: 9-237 and Cooke, J.,
Young, T., et al, “Voyage Charters”, (3rd edn, 2007), para: 85.233.
893
See The Hollandia, [1982] 1 A.C. 565, 575 where the court took the view that, for the choice of forum clauses to be
invalidated, the carriers’ reliance on the relevant provision should be proved.
894
208
invalidate various provisions provided that their application has the identified effect on the
carriers’ liability.
For these reasons, the identified provisions of the uniform rules are one of the most effective
tools in the hands of those cargo interests who seek to avoid both express and integrated bill
of lading terms. From a practical standpoint, if application of the incorporated charterparty
provisions has the effect of lessening liability of carriers to the detriment of the holders, the
rules thus facilitate invalidation of such terms, which these parties have neither negotiated nor
seen. Consequently, this overriding effect helps to promote certainty under the bills of lading,
and it enables the holders to anticipate their contractual position towards carriers, as well as
increasing their reliance on bills of lading.
It should be noted that neither the Rotterdam rules, nor the Hamburg Rules provide the
traditional wording of the derogation clause, which was adopted in the Hague and HagueVisby Rules. Rather, they explicitly prohibit both direct and indirect derogation from
provisions of the same895. Unlike previous uniform rules, the Rotterdam Rules further extend
the scope of the clause by also making the shippers and consignees subject to this prohibition
on derogation 896 . In so doing, the Rotterdam Rules deviate from the traditional approach,
which seeks to afford protection exclusively to the cargo interests against the exculpatory
clauses of carriers. While the Rotterdam Rules could, on this basis, be treated as a step
towards balancing the interests of the parties, they lose sight of the fact that it is usually not
the carriers, but the shippers and the cargo interests, who have less bargaining power in the
formation of the contract of carriage897.
895
See Article 23 of the Hamburg Rules and Article 79 of the Rotterdam Rules. It can be argued that by introducing the word
“indirect”, the Rotterdam Rules leave the door open to the courts to invalidate a foreign forum selection clause whose
application may indirectly lessen carriers’ liability.
Along with these highlighted parties, “maritime performing parties”, “controlling parties”, “holders” and “documentary
shippers”, as described under the Rotterdam Rules, are also included thereunder, see article 79 of the Rotterdam Rules.
Moreover, the rules envisage similar provisions regarding the carriers’ period of responsibility, see article 12 thereof.
Furthermore, the Rotterdam Rules bring an exception to the prohibition on derogation in the case of “volume contracts”, see
Article 80 of the Rotterdam Rules.
896
897
The exception to the rule under Article 80 is open to discussion, given that it is easy for carriers to make use of this
exception due to the loose definition of “volume contracts”. Even though this exception has no effect on third party bill of
lading holders, this provision will have a great impact on the contractual position of shippers. See the comments of New
Zealand regarding the Rotterdam Rules, approved at the 21st Session of the Working Group, on
https://maritimejournal.murdoch.edu.au/index.php/maritimejournal/article/view/62/82.
209
Turning back to the assessment of article III/8 of the Hague and Hague-Visby Rules, it is
important to highlight the effect of the article on the validity of carriage terms. It is striking
that, by reason of Article III/8, carriers cannot succeed in their attempts to exclude themselves
of liability for not exercising due diligence in making the vessel seaworthy898. Nor are they
entitled to rely on derogation provisions, which purport to relieve carriers of liability for
damages arising from reckless acts or omissions or from wilful misconducts 899 . It is also
possible that application of seemingly non-offending clauses could lead to similar results.
This poses the question of whether in practice, such clauses, which could indirectly lessen the
carriers’ liability, can be invalidated by article III/8. In this respect, there has been fierce
discussion about the validity of forum selection clauses, given that it has become common
practice for cargo interests to object to these provisions by arguing that their application
results in reduced liability for the carriers. Likewise, a similar argument has also been raised
with respect to the clauses which purport to delegate shipowners’ duties to load, stow, trim
and discharge the cargo to the shippers/charterers/consignees. In the following subsections,
the question of whether the identified provisions run counter to article III/8 will be analysed.
(b) Validity of incorporated forum selection clauses under the rules
It has always been the intention of parties to be able to refer their disputes to the court or
tribunal which they consider to be the most beneficial and convenient. Since the eighteenth
century, carriers have thus been introducing forum selection clauses into bills of lading either
expressly or by way of incorporation900. Inasmuch as third party bill of lading holders play no
role in the formation of bills of lading, the forum selection clauses therein are usually treated
as exclusively beneficial to carriers. Unsurprisingly, application of these provisions against
the holders has provoked criticism, especially on the part of the pro-cargo owner countries.
Notably, such countries have treated these clauses as a tool to circumvent their mandatory
rules and policies 901 . On the other hand, in pro-shipowner countries, the forum selection
clauses are regarded as merely the exigencies of freedom of contract902.
898
Regarding the obligations of carriers as to seaworthiness, see Article IV/1 for English law, and see 46 U.S.C. § 30701(4)1
for U.S. law.
899
See Article IV/5(e) of the Hague-Visby Rules and 46 U.S.C. § 30701(4)/2(q).
900
See page 179-180 hereof.
901
See Indussa Corporation v. S.S. Ranborg, 377 F.2d 200 (2d Cir. 1967).
902
See O’Hare C.W., “Cargo Dispute Resolution and The Hamburg Rules”, (1980) L.Q.R. 219-220
210
Regardless of these conflicting views, it is indisputable that the place of arbitration or
litigation designated in forum selection clauses may come as a surprise to the holders,
especially when these provisions are incorporated into the bills of lading. In particular, it
becomes a rather unwelcome surprise for these parties where the chosen forum seems to give
them less protection than other available jurisdictions. With a view to avoiding the
charterparty forum selection clauses sought to be incorporated, bill of lading holders may
view it as beneficial to rely on the incorporation rules 903. However, where forum selection
clauses overcome all the hurdles of incorporation, or where they are expressly stipulated in
bills of lading, could article III/8 provide a legal basis to override these provisions?
In a great number of cases, cargo interests sought to invalidate forum selection clauses in bills
of lading, raising the argument that these clauses lessen carriers’ liability, thereby
contradicting the traditional article III/8904. Alternatively, they have attempted to render such
clauses ineffective by invoking the rules of forum non-conveniens, applicable in the
jurisdiction where the proceedings have been brought. With this in mind, this section will
examine to what extent these, or similar, grounds are sufficient to defeat the choice of forum
agreements in bills of lading. In the meantime, it will also analyse the enforceability of forum
selection clauses under the Hamburg Rules, the Rotterdam Rules, and the US COGSA Draft
Instrument. Upon a thorough consideration of these issues, this section will discuss the future
of forum selection clauses in the context of bills of lading.
aa. Could article III/8 invalidate forum selection clauses?
Due to the previously outlined historical reasons, the early U.S. judicial decisions
demonstrated a persistent hostility towards forum selection clauses 905 , which remained
dominant under U.S. law for a long time906. On the other hand, with its roots in the specified
historical background, the English approach towards forum selection clauses has always been
more liberal and receptive. Given that the Hague Rules and the Hague-Visby Rules do not
touch upon this controversial issue, it is left for those contracting states to decide whether to
903
See especially chapters 2, 3, 4 and 5(1).
904
See Organes Enterprises Inc. v. M/V Khalij Frost, F.Supp. 1989 A.M.C. 1460 (S.D.N.Y. 1989).
See Denning S.M., “Choice of Forum Clauses in Bills of Lading”, (1970-1971) 2 JMLC, pg. 17 and Delaume G. R.,
“Shorter Articles and Comment: Choice of Forum Clauses and the American Forum Patriae: Something Happened on the
Way to the Forum: Zapata and Silver”, (1972-1973) 4 JMLC page: 295.
905
906
See Bremen v. Zapata Off-Shore Co., 1972 A.M.C. 1407 (U.S. 1972).
211
enforce, or to invalidate, foreign arbitration and jurisdiction clauses in bills of lading 907 .
Nevertheless, the courts of England and the United States, in a great number of cases, have
encountered the argument from the holders that forum selection clauses lessen the liability of
carriers within the meaning of Article III/8 and 46 U.S.C. §30701(8)/3.
With the leading decision in William H. Muller & Co. v. Swedish American Line Ltd908, U.S
courts took a firm stand in favour of enforcing forum selection clauses in bills of lading.
There, the court refused to hold that enforcement of foreign forum selection clauses should
directly result in exonerating carriers from liability909. Hence, considering that the dispute was
closely connected to Sweden, and the Swedish courts would afford the same protection to
cargo interests as U.S courts, the court gave effect to the jurisdiction clause which designated
the courts of Sweden 910. However, this moderate view was later changed to an intensified
territorial approach with the ruling in Indussa Corporation v. S.S. Ranborg911, overruling the
decision in Muller case. The court upheld the argument that foreign jurisdiction clauses must
be struck down by section 3(8)912. The main reasoning of the court was that the dispute should
be litigated in the United States, since US COGSA applied to the bill of lading by force of
law 913 . Moreover, the court opined that forum selection clauses lessen carriers’ liability,
See Sturley, M., “Proposed Amendments to the Carriage of Goods by Sea Act”, (1996) 18 HOUJIL 609, 657 and the
proposal of the United Kingdom of Great Britain and Northern Ireland on arbitration in Travaux Préparatoires of Rotterdam
Rules discussed within the Working Group III in its Fifteenth session, which can be found at A/CN.9/WG.III/WP.59 on
http://daccessdds.un.org/doc/UNDOC/LTD/V05/901/31/PDF/V0590131.pdf?OpenElement.
907
See 1955 A.M.C. 1687, (2d Cir. 1955). In this context, Bremen v. Zapata Off-Shore Co., 1972 A.M.C. 1407 (U.S. 1972) is
illustrative, since the court therein upheld the foreign jurisdiction clause designating the courts of England under a towing
contract made between an American drilling rig owner and a German towing company. On this basis, the court found no
reason to obstruct the parties’ intention to refer the dispute before the courts of England in pursuant to a “freely negotiated”
contract.
908
909
See Muller above.
Relying on the principles of forum non-conveniens, the court founded its decision on two headings. Firstly, all evidence
was available in Sweden, given that the cargo was shipped in Sweden, the vessel and its owner were Swedish, and the crew
was residing in Sweden. Secondly, by anticipating the possible outcome of the dispute brought before the Swedish courts,
Muller found that the substantial rights of the cargo interests would not be adversely affected. On this basis, the court found
that the jurisdiction agreement was “reasonable” and should be given effect. See ibid., at 1690. See, Denning S.M., “Choice
of Forum Clauses in Bills of Lading”, (1970-1971) 2 JMLC p.17, 28.
910
See 377 F.2d 200, (2d Cir. 1967). Before the ruling in Indussa, there were other bill of lading cases which ousted
application of foreign forum selection clauses, despite the decision in Muller. See, for instance, Carbon Black Export Inc. v.
The S.S Monrosa, 1958 A.M.C. 1335, (5th Cir. 1958).
911
912
See 377 F.2d 200, 203-204.
Ibid., at 203. In this context, giving effect to a foreign forum selection clause was stated to enable carriers to enforce
provisions contrary to US COGSA.
913
212
regardless of the fact that the chosen country was a Hague state, on the grounds that the courts
therein might not apply the Rules in the same way as a U.S. court would914.
In light of the ruling in the Indussa case and its progeny915, U.S. courts thus restored the old
traditional policy towards forum selection clauses. However, given that there is a federal
policy favouring arbitration under the Federal Arbitration Act 1925 916, which also governs
arbitration agreements in bills of lading, the ruling was, nevertheless, restricted to foreign
jurisdiction clauses917. Despite this restriction, the Indussa approach was also adopted in those
cases which were concerned with enforcement of foreign arbitration clauses. Consequently, in
a great number of U.S. judicial decisions, foreign arbitration clauses too were held to run
counter to article III/8 of the Hague Rules918.
However, the courts in some U.S. judicial decisions exhibited a receptive approach towards
foreign arbitration clauses with a view to following the federal policy favouring arbitration 919,
and these polarised decisions left the issue shrouded in uncertainty. Nevertheless, the battle
against the territorial and non-territorial approach finally ended with the decision in Vimar
Seguros y Reaseguros v. M/V Sky Reefer920, wherein a foreign arbitration clause incorporated
into the bills of lading was upheld. In particular, the court took the view that section 3(8) of
Ibid., at 203-204. See also, Nakazawa A. and Moghaddam B.A., “Cogsa and Choice of Foreign Law Clauses in Bills of
Lading, (1992-1993) 17 TMLJ, pg: 1
914
See Hughes Drilling Fluids v. M/V Luo Fu Shan, 1988 A.M.C. 2848, (5th Cir. 1988); Northern Assurance v. M/V Caspian
Career, 1977 A.M.C. 421, (N.D. Cal. 1977); Conklin & Garrett Ltd. v. M/V Finnrose, 1988 A.M.C. 318, (5th Cir. 1987);
State Establishment for Agricultural Product Training v. M/V Wesermunde, 1988 A.M.C. 2328, (11th Cir. 1988); Siderius
Inc. v. M/V Ida Prima, 613 F.Supp 916, (S.D.N.Y. 1985); Organes Enterprises, Inc. v. M/V Khalij Frost, 1989 A.M.C. 1460
(S.D.N.Y. 1989)
915
See 9 U.S.C. § 1. For federal policy favouring arbitration, see Japan Sun Oil v. M/V Maasdijk, 1995 A.M.C. 726, 727
(E.D.La. 1994)
916
917
See 1967 A.M.C. 589, (2d Cir. 1967).
See Conklin & Garret v. M/V Finnrose, 1988 A.M.C. 318, (5th Cir. 1987); Organes Enterprises Inc. v. M/V Khalij Frost,
1989 A.M.C. 1460 (S.D.N.Y. 1989); Pacific Lumber & Shipping Company Inc. v. Star Shipping, 1980 A.M.C. 2101, (9th Cir.
1979), cert. denied in 444 U.S. 1017, (U.S. 1980); Siderius Inc. v. M/V Ida Prima, 613 F.Supp. 916, (S.D.N.Y. 1985). See
also, State Establishment for Agricultural Product Trading v. M/V Wesermunde, 1988 A.M.C. 2328, (11th Cir. 1988), cert.
denied in 488 U.S. 916, (U.S. 1989), where the court disfavoured foreign arbitration clause on the basis of section 3(8) of U.S.
COGSA. Despite the reference to COGSA, the court’s reasoning, however, appears to be mainly founded on the principles of
forum non-conveniens.
918
See Japan Sun Oil Co. Ltd. v. M/V Maasdijk, 1995 A.M.C. 726, (E.D.La. 1994); Citrus Marketing Board of Israel and
Agrexco v. M/V Ecuadorian Reefer, 1991 A.M.C. 1042 (D.Mass. 1990); Kurt Orban Co. v. S/S Clymenia, 1971 A.M.C. 778,
(S.D.N.Y. 1970); Midland Tar Distillers, Inc. v. M/T Lotos, 1973 A.M.C. 1924, (S.D.N.Y. 1973); Travelers Indemnity Co. v.
M/V Mediterranean Star, F.Supp., 1988 A.M.C. 2483, (S.D.N.Y. 1988); Kaystone Chemical v. Bow-Sun, 1989 A.M.C. 2976
(S.D.N.Y. 1989)
919
920
See 1995 A.M.C. 1817 (U.S. 1995)
213
the COGSA did not itself invalidate the foreign arbitration clause921, and the costs of litigation
in the chosen foreign forum did not lessen the carriers’ liability within the meaning of this
section 922 . In so doing, they endorsed the reasoning that section 3(8) of COGSA only
invalidates carriage terms if they lessen any of those carriers’ liabilities, which are
enumerated under section 3 thereof923. On this basis, they argued that section 3(8) was not a
barrier to the enforcement of forum selection clauses, which are not stipulated under U.S.
COGSA 924 . Therefore, the possible effects of a prospective decision given by the chosen
forum were found to be not sufficient to trigger the highlighted section, which would, if
applied, nullify the foreign arbitration clause925. In the wake of The Sky Reefer, it has become
clear, on authority, that section 3(8) of COGSA does not mechanically invalidate forum
selection clauses. Moreover, even though The Sky Reefer was concerned with enforcement of
a foreign arbitration clause, the ruling has been treated as equally applicable in the case of
foreign jurisdiction clauses926.
Nonetheless, it will be fallacious to say that section 3(8) no longer affects foreign forum
selection clauses after The Sky Reefer. This is simply because the courts in New York are still
relying on the overriding section to oust these provisions, albeit in a different context. It is
clear that the ruling in The Sky Reefer does not support the use of section 3(8) to invalidate
foreign forum clauses by reason of a speculation that the law applicable under the chosen
forum might lessen carriers’ liability927. Nevertheless, the courts in New York have repeatedly
taken the view that, if the substantive law to be applied by the chosen forum might lessen any
of those carriers’ liabilities, which are identified under section 3 of the COGSA, the foreign
921
See ibid., at 1826-1827.
922
See ibid., at 1822.
923
See ibid., at 1826-1827
See ibid., at 1822. This view was then recognized in numerous cases. See, for instance, Steel Warehouse Co. v. Abalone
Shipping Ltd.,1998 A.M.C. 2054, (5th Cir. 1998); Lucky Metals Corp. v. M/V. Ave, F.Supp., 1996 A.M.C. 265, (S.D.N.Y.
1996); Kanematsu Corp. v. M/V Gretchen W, 1995 A.M.C. 2957, (D.Oregon 1995); Thyssen Inc. v. Calypso Shipping Corp.
S.A., 2002 A.M.C. 2332, (2d Cir. 2002).
924
925
See 1995 A.M.C. 1817, 1827 (U.S. 1995).
See ibid., at 1821. See also, Mitsui & Co. v. M/V Mira, 1997 A.M.C. 2126, (5th Cir. 1997); Hyundai Corp. U.S.A. Inc. v.
M/V An Long Jiang, 1998 A.M.C. 854 (S.D.N.Y. 1998), where the courts upheld the foreign jurisdiction clauses by reason of
the ruling in The Sky Reefer. See also, Davies, M. “Forum Selection Clauses in Maritime Cases”, (2003) 2 TMLJ Vol: 27, pg.
367, 377.
926
927
See 1995 A.M.C. 1817,1827 (U.S. 1995)
214
selection clause must be null and void as per section 3(8) 928 . Consequently, while these
judicial decisions demonstrate an intention to narrow the application of The Sky Reefer, they
nevertheless fall into conflict with the findings of Sky Reefer for the highlighted reason.
Unlike U.S. courts, the English courts’ interpretation of Article III/8 of the Hague and HagueVisby Rules, in connection with the foreign forum selection clauses, mirrors the historical
English approach towards these provisions. Consequently, English courts refuse to invalidate
these provisions as a direct result of having Article III/8 effective by force of law under bills
of lading929. The reason for this is clear: forum selection clauses are believed to make only
procedural differences in resolving the dispute, and they are thought to have no effect on the
substantive rights of the parties to the contract of carriage930. This view could be misleading
for those who are unaware of the decision in The Hollandia931. In that particular case, article
III/8 was applied to invalidate a clause which required that disputes be resolved under Dutch
law, and exclusively before the courts of Amsterdam. The reasoning of the court was that
upholding the forum selection clause would result in carriers being subject to a lower amount
of limitation than that was provided under the Hague-Visby Rules. On this basis, the court
refused to stay the action on the grounds that the courts of the Netherlands, which would
apply the Hague Rules, would give the cargo interests a significantly lower amount for
damages than the English courts932.
In the wake of The Hollandia, could it be said that article III/8 necessarily overrides all
foreign forum selection clauses, merely because they designate foreign courts or tribunals? As
has been made clear in the decision itself, The Hollandia does not support mechanical
See American Home Assurance Co. v. M/V Jaami, 2007 A.M.C. 1461, 1466 (S.D.N.Y. 2007); Asoma Corp. v. M/V
Southgate, 2000 A.M.C. 399, 401 (S.D.N.Y. 2000); Chiyoda Fire & Marine Insurance Co. of America v. M/V Hundai
Freedom, 1999 A.M.C. 1603, 1605 (S.D.N.Y. 1999); New York Marine & General Ins. Co. v. M/V Admiralengrancht, 1999
A.M.C. 1647 (S.D.N.Y. 1999); Silgan Plastics Corp. v. M/V Nedlloyd Holland, 1998 A.M.C. 2163 (S.D.N.Y. 1998);
Glyphics Media Inc. v. M.V. Conti Singapore, 2003 A.M.C. 667, 675 (S.D.N.Y. 2003); Central National-Gottesman Inc. v.
M.V. Gertrude Oldendorff, 204 F.Supp. 2d 675, 682 (S.D.N.Y. 2002). See also, Fireman’s Fund v. Cho Yang, 1998 A.M.C.
583, 586 (9th Cir. 1997).
928
See O’Hare C.W., “Cargo Dispute Resolution and The Hamburg Rules”, (1980) L.Q.R. 219, 226. See also, The Merak
[1965] P. 223, 259.
929
930
See ibid.
931
See [1982] 1 A.C. 565
See ibid., at 571. In this context, while under the Hague-Visby Rules the cargo interests would be entitled to about £250,
the amount under the Hague Rules was around £11,000.
932
215
invalidation of foreign forum selection clauses933. Rather, it suggests that the courts should
forecast the possible outcome of the dispute when resolved in the selected forum 934. Hence,
the effect of The Hollandia is limited to those cases where the probable resolution of the
dispute in the chosen forum lessens or removes carriers’ liability within the meaning of the
Hague-Visby Rules935. Another restriction to the application of The Hollandia was made in
The Benarty 936 where the carriers were allowed to bring the dispute before the courts of
Djakarta, where the Hague-Visby rules would not be applied. The decision was predicated on
two main bases. Firstly, the court therein was convinced that the carriers relinquished all of
their rights under the laws of Indonesia, which might offend against article III/8. Secondly,
instead of resorting to the package or unit limitation, the carriers sought to limit their liability
on the basis of the registered tonnage of the vessel under the Commercial Code of Indonesia,
which was permissible pursuant to article VIII of the Hague-Visby Rules. The decision in The
Benarty further suggested that The Hollandia was not a barrier towards enforcement of
foreign forum selection clauses, where carriers relinquished their rights in the chosen fora
which were offending against Article III/8937.
bb. The effects of The Sky Reefer and The Hollandia
What are the effects of these U.S. and English judicial cases in the battle of jurisdiction
between carriers and cargo interests? Both jurisdictions support the proposition that express
and integrated forum selection clauses in bills of lading do not themselves offend against
article III/8. Nonetheless, U.S. and English courts are divided as to whether there are any
exceptions to this proposition. As has been discussed above, unlike U.S courts, English courts
take the view that, by reason of the decision in The Hollandia, article III/8 could, in certain
circumstances, render these clauses null and void.
The Hollandia, which creates an exception to the cardinal rule that forum selection clauses are
only procedural, gives rise to a series of questions: with respect to invalidation of the law and
933
Ibid, at 574.
934
Ibid., at 575
935
Ibid.
936
See [1984] 2 Lloyd’s Rep. 244.
See also, Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 85.238 and See Baatz Y., “Southampton on
Shipping Law”, (2008), pg: 28.
937
216
forum selection clause, is this decision in line with Article 3/1 of Rome I and with the
Judgments Regulation (EC) No 44/2001 938 ? If the ruling in The Hollandia is applied to
invalidate a foreign arbitration clause, could this be consistent with the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards939? Above all, since the Hague and
Hague-Visby Rules do not touch on the issues of arbitration and jurisdiction, should Article
III/8 be used to nullify the foreign forum selection clauses, or should this matter be decided
under the rules of forum non-conveniens?
The decision in The Hollandia is consistent with Rome I, given that the court therein
premised the decision on the statutory force of the COGSA 1971. On this basis, it must be
concluded that the ruling neatly falls into the exception of “Mandatory Rules” under Article 9
thereof, and therefore no inconsistency arises between Rome I and The Hollandia. Similarly,
neither does The Hollandia contravene with New York Convention, given that article V/2(b)
of the same allows the courts to invalidate arbitration clauses if the enforcement of such
provisions is against the public policy of the relevant contracting state.
However, it is not yet clear whether The Hollandia could prevail over Article 23 of Judgments
Regulation, which renders choice of court agreements exclusive where at least one of the
parties is domiciled in a member state and the jurisdiction of a member state is chosen. The
reason for this uncertainty is that there has not been any English or European Court of Justice
decision on whether the Judgments Regulation gives way to the Hague-Visby Rules by reason
of Article 71 of the Judgments Regulation. The article provides that the regulation does not
detract from application of the conventions “which in relation to particular matters, govern
jurisdiction or the recognition or enforcement of judgments”. On its restrictive interpretation,
Article 71 comes into play only in case of a convention containing express provisions on
jurisdiction. However, when the extensive reading of the article is adopted, those conventions
which have jurisdictional effects are also covered. Such an extensive reading surely brings the
Hague-Visby Rules within the scope of the article particularly since the ruling in The
Hollandia recognises application of Article III/8 to choice of court agreements. On the
question of whether a restrictive or extensive meaning must be given to Article 71 of
938
It is important to note that under Article 1/2 (d) of the Convention, arbitration clauses are excluded yet this causes some
disharmony in the way the members states recognize the arbitration clauses. See National Navigation Co. v. Endesa
Generacion S.A., [2009] EWHC 196 (Comm)
939
Hereinafter referred to as the “New York Convention”.
217
Judgments Regulation, for present purposes, suffice it to say that English scholars are
divided940.
Even if it is assumed that The Hollandia case overrides all the highlighted conventions, the
decision unjustifiably extends the application of article III/8 to cases pertaining to
enforcement of forum selection clauses. It is common ground that the Hague and HagueVisby Rules do not contain any provisions on jurisdiction, for the contracting states sought to
keep their own national rules to tackle the jurisdictional issues941. On that basis, article III/8
was introduced merely for the purposes of invalidating those provisions, which exonerate
carriers from those liabilities that are defined under Article III of the rules942. Even if we
assume that the scope of “carriers’ liability” is more extensive than that which was envisaged
under the rules943, the wording of article III/8 does not justify invalidation of those clauses
which are solely concerned with procedural rights of the parties to bills of lading944.
Along the same lines, it is also hard to suggest that interpretation of this article should go so
far as to invalidate the bill of lading terms on the basis of the speculation that their application
may in the future indirectly lessen carriers’ liability945. This suggestion must be considered in
light of the fact that forum selection clauses do not directly touch upon the substantive rights
and obligations of the parties. Rather, these provisions envisage before which forum the
parties wish to resolve their disputes arising under bills of lading. Therefore, no forum
designated in forum selection clauses can be treated as exclusively beneficial to carriers or to
See Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para: 85.15, where the author supports the extensive
reading of Article 71. For a contrary view, see Baatz Y., “The Role of the Forum in the EU Regulations on Conflict of Laws
in Maritime Disputes”, Maritime Conflict of Laws Colloquium, Southampton, 1 & 2 October 2010, quoting G. Treitel and F.
Reynolds, “Carver on Bills of Lading”, (2nd edn, 2005), para 9-077 fn. 92 and Aikens, et al, “Bills of Lading”, (2006), para
10.50 fn. 73
940
See Sturley, M.F. “Proposed Amendments to Carriage of Goods by Sea Act”, (1996) HOUJIL pg. 609, 657. See also
Cooke, J., Young, T., et al, “Voyage Charters”, (3rd edn, 2007), para: 85.9.
941
See Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer, 1995 A.M.C. 1817, 1822 (U.S. 1995). But see The Jordan II,
[2005]1 Lloyd’s Rep. 57 where the court refused to rely on the travaux preparatoires of the Hague-Visby Rules in resolving
the dispute.
942
See The Hollandia [1983] 1 A.C. 565, 573 where it was stated that construction of the Rules should be purposive rather
than literalistic.
943
See Sturley, M.F., “Bill of lading choice of forum clauses: Comparisons between United States and English law”, (1992)
LMCLQ pg: 248, 258
944
945
See Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer, 1995 A.M.C. 1817, 1827 (U.S. 1995).
218
cargo interests946, even though application of some of those rules applicable in that forum may
have the effect of lessening or removing carriers’ liability towards the cargo interests. For this
reason, the court in The Hollandia was at pains to restrict invalidation of forum selection
clauses by reason of article III/8. Nonetheless, this does not prevent the ruling from being
vulnerable to the highlighted criticisms947. Under U.S. law, the effect of section 3(8) on the
question of enforcement of forum selection clauses has been considerably diminished after the
departure from The Indussa approach. The courts of New York, on the other hand, follow a
similar approach to that adopted in The Hollandia. They still, therefore, retain the power to
invalidate foreign forum selection clauses where the substantive law to be applied by the
foreign forum might relieve carriers of liability948.
When the identified rules do not find any room for application, it is clear in both jurisdictions
that cargo interests need to rely on the rule of forum non-conveniens in order to avoid the
forum designated in the forum selection clause949. Undoubtedly, this gives rise to the question
of whether a cargo interest who is in the same situation as that in The Hollandia could do so
when seeking to circumvent the foreign jurisdiction clause. Under U.S. law, it is unlikely that
they will be able to avail themselves of the rule of forum non-conveniens, since the change in
the substantive law is not of itself sufficient to trigger the rule 950 . Given the absence of
uniformity between the jurisdictions with respect to the rules governing bills of lading, this
position may seem detrimental to the cargo interests. Yet, this appearance is misleading in
many respects. Since a great number of countries are now either a Hague, Hague-Visby or a
Hamburg state, it is clear that cargo interests are afforded a certain degree of protection in
various jurisdictions. Another important point to be made is that the rights of cargo interests
are protected, even though English and U.S. courts may stay the proceedings in favour of the
forum selection clause951. This is simply because those cargo interests who believe that the
946
See The Makefjell [1976] 2 Lloyd’s Rep. 29, 32.
947
See Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2nd edn, 2005), para: 9-07
948
It should be noted that the scope of application of section 3(8) adopted by the New York courts are still narrower than
those under English law, for time-bar is in most cases decided in New York stated to be not offending against Article 3(8)
See Sturley, M.F., “Bill of lading choice of forum clauses: Comparisons between United States and English law”, (1992)
LMCLQ pg: 248, 258.
949
See Piper Aircraft Co. v. Reyno 454 U.S. 235, (U.S. 1981) quoted in ibid. See also, Travelers Indemnity Co. v. S/S Alca,
1989 A.M.C. 1843, 1846-1847 (S.D.N.Y 1989); Maria Arlete az Borralho v. Keydril Co., 1984 A.M.C. 728, (5th Cir. 1983).
950
951
It needs to be recalled that where English courts usually stay action, U.S. courts, in such circumstances, dismiss the action.
See Sturley, M.F., “Bill of lading choice of forum clauses: Comparisons between United States and English law”, (1992)
219
dispute has been unfairly resolved, in the foreign forum designated in the forum selection
clause, have the chance to seek relief from these courts952. Hence, this approach was followed
by the U.S. court in The Sky Reefer, inasmuch as they stayed proceedings and retained the
supervisory power for the benefit of the cargo interest, while upholding the foreign arbitration
clause953.
Under English law, those cargo interests who are in a similar position to that in The Hollandia
could rely on the rule of forum non-conveniens with a view to avoiding the forum selection
clauses, except in cases where the Judgments Regulation is applicable954. The reason for this is
that, pursuant to the rule of forum non-conveniens under English law, English courts may not
uphold a foreign forum selection clause where the legal system in the chosen forum is
different in material respects955. Therefore, it is possible for cargo interests to oust the forum
selection clause on the basis of this rule, since the dissimilarities between the limitations of
carriers’ liability in The Hollandia can be regarded as a difference in material respects956. This
also supports the argument that, had The Hollandia not been decided, English courts would
have provided the same protections to the cargo interests with this rule.
As a final remark, these explanations give rise to the argument that foreign forum selection
clauses should not be treated as lessening carriers’ liability within the meaning of article III/8.
This solution contributes to attainment of certainty in international trade, since such an
extensive reading of article III/8, as suggested in The Hollandia, does not have a worldwide
recognition957, and undoubtedly exacerbates the battles of jurisdiction. Given that the literal
interpretation of the article does not also support such reading, article III/8 must not, in any
LMCLQ pg: 248, 256-257. But see Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer, 1995 A.M.C. 1817, 1826 (U.S. 1995)
where the court stayed action, and enforced the forum selection clause. See also, Davies, M. “Forum Selection Clauses in
Maritime Cases”, (2003)2 TMLJ Vol: 27, pg. 367, 377.
For English and U.S. law, see ibid. For English law see also, The Sibi, [1998] 2 Lloyd’s Rep. 229, and Davies in supra at
page 375.
952
953
See 1995 A.M.C. 1817, 1826 (U.S. 1995).
954
See Owusu v. Jackson (C-281/02) [2005] Q.B. 801. See also, Baatz Y., “Southampton on Shipping Law”, (2008), pg: 23.
955
See The Eleftheria, [1970] P. 94, 99.
See Sturley, M.F., “Bill of lading choice of forum clauses: Comparisons between United States and English law”, (1992)
LMCLQ pg: 248, 259-260.
956
See Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2nd edn, 2005), para: 9-097 where it was held that
international conventions should be interpreted in a way to promote unity.
957
220
case, invalidate the forum selection clauses in bills of lading. Nonetheless, this argument must
be viewed against the fact that the holders could, in some circumstances, rely on the rule of
forum non-conveniens, which will be dealt with below.
cc. Enforcement of forum selection clauses and the doctrine of forum non-conveniens
Given that article III/8 of the Hague and the Hague-Visby Rules does not, in both jurisdictions,
automatically render the forum selection clauses invalid, the holders need to know when the
rule of forum non-conveniens can be used in order to bypass these clauses. In practice, the bill
of lading holders usually become aware of the contractually designated forum, when the
dispute arises. This is simply because many forum selection clauses become part of bills of
lading by way of incorporation. Against this background, could it be said that this fact is, of
itself, sufficient to trigger the rule of forum non-conveniens?
It is important to note that the tendency of both English and U.S. courts has been to give
effect to what the original parties to the bill of lading have promised in their choice of forum
clauses 958 . Under U.S. law, the exception to this proposition is the rule of forum nonconveniens, whereby the courts may refrain from the enforcement of forum selection clauses
which are considered to be “unreasonable”959. Similarly, the parties under English law are
forgiven for breaking their promises under this rule, when there is a “strong cause” for not
enforcing the choice of forum clause 960 . Despite the fact that these jurisdictions suggest
different legal bases for the rule of forum non-conveniens, both English and U.S. courts use a
wide discretion in determining the appropriateness of the chosen forum961.
In particular, while not being limited, it is recognised in both jurisdictions that (1) ease of
accessing evidence962, (2) expense and expedition of the litigation in the chosen forum 963, (3)
For U.S. law, see Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 20 (U.S. 1972). For English law, see The Angelic Grace,
[1995] 1 Lloyd’s Rep. 87; Akai Pty Ltd. v. People’s Insurance Co. Ltd. [1998] 1 Lloyd’s Rep. 90
958
959
For U.S. law, see ibid., at 18. See generally 28 U.S.C. § 1404, which governs the rules pertaining to forum non conveniens.
960
See Donohue v. Armco, [2002] C.L.C. 440, 449, per Lord Bingham. See also, The Eleftheria, [1970] P. 94, 99.
For U.S. law, see Sturley, M.F., “Bill of lading choice of forum clauses: Comparisons between United States and English
law”, (1992) LMCLQ pg: 248, 256. See also, Travelers Indemnity Co. v. S/S Alca, 1989 A.M.C. 1843, 1848 (S.D.N.Y. 1989).
For English law see, The Fehmarn, [1958] 1 W.L.R. 159, 163-164.
961
For U.S. law see, ibid. at 1848, for English law, see Amin Rasheed Shipping Corporation v. Kuwait Insurance Co. [1984]
A.C. 50, 68, 72. See also ibid., at page 104, where it was emphasized that despite the difficulties in bringing all evidence to
the selected forum, it may nevertheless be the intention of the parties to have the disputes resolved in that forum.
962
963
For U.S. law, Piper Aircraft Co. v. Reyno 1982 A.M.C. 214, 241 (U.S. 1981). For English law, see ibid.
221
strength of the connection between the dispute and the chosen country964, (4) parties’ actual
willingness to bring the dispute to the chosen forum965 (5) enforcement of the judgment of the
selected forum966, (5) fair trial967 and (6) availability of remedies968, are the contributing factors
to the evaluation of the courts969. Even though there is no invariable test for the assessment of
the adequacy of the selected forum, it must be borne in mind that the presence of one or more
of those highlighted factors does not necessarily lead the courts to hold that the forum so
chosen is not “appropriate”970. Hence, while in The Eleftheria971 the time-bar in the chosen
forum was treated as a “strong cause” for disturbance of the choice, the court in The Adolf
Warksi regarded this as a “neutral factor”972.
In light of these explanations, two important conclusions can be drawn for those cargo
interests who are willing to set aside an incorporated forum selection clause in bills of lading
pursuant to the rule of forum non-conveniens. Firstly, the argument that they have neither
negotiated nor seen the charterparty choice of forum clause is not, of itself, sufficient to
For English law see, The Abidin Daver, [1984] A.C. 398, 415; The Fehmarn, [1958] 1 W.L.R. 159, 162. For U.S. law, see
Travelers Indemnity Co. v. S/S Alca, 1989 A.M.C. 1843, 1848 (S.D.N.Y. 1989).
964
For English law see, The Eleftheria, [1970] P. 94, 99, and for U.S. law, see Bremen v. Zapata Off-Shore Co., 407 U.S. 1,
12 (U.S. 1972).
965
For U.S. law, see Sturley, M.F., “Bill of lading choice of forum clauses: Comparisons between United States and English
law”, (1992) LMCLQ pg: 248, at 256 and for English law, see ibid.
966
967
For U.S. law see C.A. Seguros Orinoco v. Naviera Transpapel 1988 A.M.C. 1757, 1771 (1988 D.Puerto Rico). For
English law, see ibid.
For U.S. law, see A.P. Moller-Maersk v. Ocean Express Miami, 2008 A.M.C. 1236, 1251 (S.D.N.Y. 2008). For English
law see, The El Amria, [1981] 2 Lloyd’s Rep. 119, 127. However, it must be noted that mere existence of “a legitimate
personal or juridical advantage” is not given any weight when deciding over the appropriateness of the available fora, see The
Abidin Daver [1984] A.C. 398, 410.
968
Under U.S law, the evaluation factors are divided into two headings, namely, “private interests factors” and “public
interest factors”, see, Monsanto International Sales Co. v. Hanjin Container Lines Ltd., 1991 A.M.C. 2741, 2744 (S.D.N.Y.
1991); Gulf Oil Corporation v. Gilbert, 330 U.S. 501,507-508 (U.S. 1947). Also, see generally, Sturley, M.F., “Bill of lading
choice of forum clauses: Comparisons between United States and English law”, (1992) LMCLQ pg: 248, 257-260.
969
For U.S. law, see ibid. at 255. See also, Piper Aircraft Co. v. Reyno, 1982 A.M.C. 214, 241 and 256 (U.S. 1981), which
supports the argument that a chosen forum which is unnecessarily burdensome and which has “administrative and legal
problems” will not be regarded as “appropriate” for that purpose. For English law, see Baatz Y., “Southampton on Shipping
Law”, (2008), pg: 24.
970
971
See [1970] P. 94, 99
See [1976] 1 Lloyd’s Rep. 107, 112-113. It is clear under English law that time bars could lead English courts to refuse to
stay proceedings, where it is proved that reasonable steps have been taken by the relevant party to suspend the running of
time, see The Blue Wave, [1982] 1 Lloyd’s Rep. 151. Under U.S. law, time-bar is also not considered as a contributing factor
in the assessment made under the rule of forum non-conveniens, see Nippon Express U.S.A. Inc. v. M/V Chang Jiang Bridge,
2008 A.M.C. 1735 (S.D.N.Y. 2007); Travelers Indemnity Co. v. M/V Mediterranean Star, 1988 A.M.C. 2483, (S.D.N.Y.
1988).
972
222
render the chosen forum “inappropriate”973. Secondly, the cargo interests under English law
have the opportunity to persuade the court to set aside the forum selection clause, if they
prove that the law applicable in the chosen forum materially differs from English law in that
they will not obtain justice in the designated foreign jurisdiction974.
For the purposes of the assessment of “unreasonable forum”, U.S. courts have consistently
refused to take into account whether or not the chosen forum is less advantageous to the cargo
interests than U.S. jurisdiction 975 . While not generally paying regard to the differences
between the legal systems, U.S. courts have nevertheless found the chosen fora inconvenient
in cases where such fora deprive the cargo interests of those remedies which are available in
U.S. jurisdiction 976 . These approaches raise one key question: could the chosen forum be
deemed “unreasonable” merely because it imposes on carriers a considerably smaller amount
of package or unit limitation than that provided under U.S. law? Undoubtedly, the cargo
interests, in such circumstances, may feel that they have not been provided with any remedy
at all. On this basis, U.S. courts may, exceptionally, not uphold the relevant foreign forum
selection clause in such conditions, particularly since U.S. courts are given a considerable
discretion to assess the factors before them.
Having considered carriers’ chances to enforce foreign forum selection clauses in bills of
lading, it must be concluded that U.S. law is surprisingly more favourable to them than their
counterparts for two reasons977. Firstly, under U.S. law, the cargo interests cannot bypass the
forum selection clauses by invoking section 3(8) of the US COGSA. Secondly, it is
principally impermissible to rely on the rule of forum non-conveniens in the case of a mere
difference between U.S. law and those applicable in the chosen forum. In light of these
findings, it is imperative to find the answers to two key questions: firstly, is the United States,
which has a long history of adopting a territorial approach towards the forum selection clauses,
For U.S. law see, Mitsui & Co. v. M/V Mira, 1997 A.M.C. 2126, (5th Cir. 1997); Carnival Cruise Lines v. Shute, 111 S.Ct.
1522, 1523 (U.S. 1990). For English law see, generally, The KH Enterprise, [1994] 2 A.C. 324.
973
974
See Donohue v. Armco, [2002] C.L.C. 440, 449, per Lord Bingham. See also, The Eleftheria, [1970] P. 94, 99.
Sturley, M.F., “Bill of lading choice of forum clauses: Comparisons between United States and English law”, (1992)
LMCLQ pg: 248, at 260.
975
See Indemnity Insurance Company of North America v. M/V Eastline Tianjin, 2008 A.M.C. 716 (S.D.N.Y. 2008); A.P.
Moller-Maersk v. Ocean Express Miami, 2008 A.M.C. 1236, 1251 (S.D.N.Y. 2008).
976
See Sturley, M.F., “Bill of lading choice of forum clauses: Comparisons between United States and English law”, (1992)
LMCLQ pg: 248, 260.
977
223
now satisfied with the current view, or is there a preparation for a change in the direction?
Secondly, will English courts continue to follow The Hollandia approach?
dd. The future of forum selection clauses
Undoubtedly, for the American shipping industry, the solution reached in The Sky Reefer
proved unsatisfactory978. The U.S. Supreme Court in The Sky Reefer went against the grain in
adopting a more internationalist view than the one adopted under English law, which has a
long tradition of giving effect to foreign forum selection clauses. The reason for this is that
U.S. law currently stands out as more liberal than English law. This is best understood in light
of the fact that the ruling in The Sky Reefer has been considered as equally applicable to
choice of court agreements 979 , while there is room for English courts to invalidate such
agreements by reason of The Hollandia980.
It is evident that the objective of the court in The Sky Reefer was to facilitate efficient flow
and improvement of American business in the international arena981. On that basis, they took
the view that the mistrust of foreign forums should give way982. Nonetheless, introducing such
a non-territorial approach in the context of bills of lading contracts has aroused criticisms.
The criticisms largely emanate from the intention to provide additional layers of protection to
the cargo interests who seldom have any means of negotiating the terms of a bill of lading983.
To remove the undesirable effects of The Sky Reefer, The Maritime Law Association of the
United States thus prepared the “Draft COGSA”, whereby the cargo interests are given a wide
range of optional fora to bring they may bring their claims984. Moreover, the Draft COGSA
provides that bill of lading holders can alternatively commence arbitration or litigation in the
United States, where any of the specified places are in the United States, regardless of the
See Tetley W., “Reform of Carriage of Goods – The UNCITRAL Draft & Senate COGSA ’99, “Lets Have a Two-Track
Approach”, (2003) 28 TMLJ pg. 1, 5.
978
979
See supra note 924.
980
On the question of whether The Hollandia overrides Judgments Regulation see page 195.
981
See 1995 A.M.C. 1817, 1824 (U.S. 1995)
982
Ibid.
983
See Sturley M. F., “Proposed Amendments to the Carriage of Goods by Sea Act”, (1996) HOUJIL, pg: 609, at 657-658.
984
See section 7(i) of the Draft US COGSA
224
foreign forum selection clause985. With similar concerns, the courts of New York brought an
exception to the application of The Sky Reefer for those cases, where the substantive laws to
be applied by the chosen forum lessen carrier’s liability986.
Given that article 3(8) of UK COGSA is given the force of invalidating forum selection
clauses in certain circumstances, it is unlikely that the United Kingdom will change its present
legal position. This is best supported by the fact that, apart from those cases where The
Hollandia case finds application, English courts are more inclined to enforce forum selection
clauses where the bill of lading either stipulates or effectively incorporates a provision to that
effect. At the root of this view lies the fact that the United Kingdom has its traditional liberal
approach towards forum selection clauses, and it hosts a great number of foreign parties who
seek to arbitrate their maritime disputes in London.
Nevertheless, the recent international movements demonstrate a rather conservative approach
towards forum selection clauses. First the Hamburg Rules and now the Rotterdam Rules, both
of which are prepared within UNCITRAL, set high hurdles to the enforcement of these
clauses987. Pursuant to the Hamburg Rules, it is at the option of the claimant to refer the cargo
dispute before the forum which is designated in the choice of forum clause. In this respect, the
cargo claimants, who are traditionally the cargo interests, are permitted to choose any of those
fora listed under articles 21 and 22 thereof. Perhaps with a view to recognising freedom of
contract to some extent, the Rotterdam Rules favour the middle ground. Hence, the rules
provide a number of available fora to which the parties may bring their claims, while giving
carriers the right to enforce forum selection clauses only in restrictive circumstances.
Nonetheless, in identifying the limits the rules fail to provide a straightforward solution for
the reasons explained below.
Before examining the Rotterdam rules on jurisdiction and arbitration, it is important to keep
in mind that the chapters pertaining to the identified issues only bind those contracting states
which have made a declaration to that effect 988 . When the chapters are operative, cargo
985
Ibid.
986
See supra note 928
987
See chapters 14 and 15 of the Rotterdam Rules, and articles 21 and 22 of the Hamburg Rules.
988
See articles 74 and 78 of the Rotterdam Rules.
225
interests are entitled to institute court proceedings against carriers in any of the jurisdictions
listed in article 66. These include the competent courts situated in the domicile of the carrier
and those designated in the exclusive jurisdiction agreements made between the respective
shippers and carriers 989 . Under article 75, these parties also have the right to commence
arbitration proceedings in the places identical to those provided in article 66. The main
exception to the cargo interest’s right to choose the forum arises in the case of a volume
contract made between the shipper and carrier990. Accordingly, the Rotterdam Rules stipulate
that the forum selection agreement contained in a volume contract be binding upon its original
parties provided, inter alia, that the agreement is individually negotiated or the contract
concluded between the parties contains a “prominent statement” as to the existence of the
agreement by specifying the relevant sections of the volume contract991.
It is striking that application of these forum selection agreements to third parties is also
recognised in limited cases where (1) the designated court or tribunal is situated in one of
those listed places under the rules, (2) the agreement is expressly provided in the bills of
lading, and (3) the cargo interest is “timely” and “adequately” informed regarding the
exclusivity of the clause and the place of the designated forum. In the case of arbitration
agreements, the rules further require that enforcement of such agreements against third parties
be permitted under the applicable law992. Similarly, where the volume contract contains an
exclusive choice of court agreement, the rules also dictate that the court seised recognise
application of the agreement to the third party993.
Notwithstanding the above, the rules considerably relieve carriers of having to satisfy the
identified chain of conditions, when they seek to enforce arbitration agreements in the case of
non-liner transportation. According to article 76(2), carriers may thus avoid the requirements
stated above for such transportation, and also enforce the charterparty arbitration clauses
against the third party holders, if (1) the parties to the charterparty and the date of its making
989
Baatz Y., et al, “The Rotterdam Rules: A Practical Annotation”, (2009), para 66-02
990
See article 75(3) for arbitration agreements, and article 67(1)(a) for choice of court agreements
991
See article 67(1)(a)-(b) for choice of court agreements, and article 75(3) for arbitration agreements
992
See article 75(4)(d)
993
See article 67(2)(d)
226
is stated under the bill of lading and (2) the charterparty arbitration clause is expressly
specified in the bill of lading994.
Adopting an exceptional solution for non-liner transportation is best understood by the fact
that exclusive jurisdiction clauses are popular in the liner trade, while arbitration clauses are
frequently used in the non-liner trade 995 . In non-liner transportation, the contractual
relationships between the carriers and cargo interests are usually governed by charterparties or
similar contracts 996 . In liner trade, on the other hand, the contract of carriage is usually
contained in bills of lading or a similar transport document, and parties in such cases do not
usually have equal negotiating power997. Perhaps by reason of these differences, the Rotterdam
Rules envisage stricter requirements in the case of liner transportation and adopt a liberal
approach where there is non-liner transportation.
Despite the underlying logic, this distinction is not immune to criticism. This is resultant of
the fact that third party bill of lading holders seldom have any means of negotiating or
knowing the terms of the referred charterparty both in liner or non-liner transportation.
Furthermore, since the exception under article 76(2) provides an expedient method for the
enforcement of arbitration agreements in non-liner transportation, this may also lead to a
change in shipping practice: arbitration agreements may become more prevalent than choice
of court agreements in non-liner transportation998. For those parties who expect the Rotterdam
Rules to set high hurdles to the application of forum selection clauses in bills of lading, such a
shift in practice would be undesirable.
The conditions for the exclusivity of the forum selection clauses in volume contracts are
equally open to criticism. In particular, the requirement that original parties to the volume
contract must either negotiate the exclusive forum selection agreement contained in a volume
contract or make a “prominent” reference to such an agreement raises one practical difficulty:
994
See article 76
See Sturley M.F., “Overruling Sky Reefer in the International Arena: A Preliminary Assessment of Forum Selection and
Arbitration Clauses in New UNCITRAL Transport Law Convention”, (2006) JMLC pg. 1, at 15.
995
996
Ibid. It here proves valuable to note that these agreements are also outside the scope of the Rotterdam Rules, see article 6
997
Ibid.
See generally Sturley M.F., “Overruling Sky Reefer in the International Arena: A Preliminary Assessment of Forum
Selection and Arbitration Clauses in New UNCITRAL Transport Law Convention”, (2006) JMLC pg. 1
998
227
the decision on this matter will be bound up with the factual circumstances of the case, and
this will surely reduce the predictability as to the application of the forum selection clause999.
A similar difficulty derives from the prerequisites for binding the third parties with the forum
selection clauses in volume contracts. In both articles 67(1)(c) and 75(4)(c), an “adequate”
and “timely” notice is required to be given to the third parties against which the forum
selection clause is invoked. Hence, the issue of in what circumstances these parties will be
deemed to have given such notice is again not clear, and the courts in various jurisdictions
may have diametrically opposed views on this matter1000. While stipulating a number of rigid
formalities for the choice of court agreements in volume contracts, article 67 further states
that these clauses are binding upon the third parties only if the court seized recognises the
binding effect. Evidently, the latter requirement fails to give a straightforward answer to one
key question: which courts have the right to rule on the jurisdiction issue and determine the
applicability of the choice of court agreements to third parties 1001 ? In the absence of a
provision which regulates this critical issue, operation of the Rotterdam Rules, with the
specified article, would clearly trigger long battles over jurisdiction. Similarly, article 75(4)(d)
poses another problem, precisely because it requires the applicable law to decide as to
whether third party cargo interests are bound by the arbitration agreements in volume
contracts. Given that every forum may take different views on applicable law, it can scarcely
be argued that this rule is helpful in minimising the jurisdictional disputes1002.
Above all, from the perspective of the countries which have a long tradition of enforcing
forum selection clauses, the Rotterdam Rules could be criticised principally for restricting the
applicability of these clauses to exceptional cases. From the standpoint of the cargo interest,
however, this particular feature may well constitute a compelling reason to support the rules.
This supportive approach is also taken by the countries, including the United States, which are
purporting to curb the carrier’s right to enforce the forum selection clauses for the benefit of
cargo interests. It has thus been clearly revealed by the U.S. scholars that United States is
999
For a similar view see, Baatz Y., et al, “The Rotterdam Rules: A practical Annotation”, (2009), para 67-12
1000
Ibid.
1001
Ibid., at para 67-15
1002
For a similar view, see ibid at para 75-08
228
willing to adopt the Rotterdam Rules which would, if adopted, remove the effects of the Sky
Reefer1003.
Despite these conflicting views, the heated discussions during the preparations of the
Rotterdam Rules 1004 have demonstrated, yet again, that the jurisdictional issues will in the
future remain to attract many debates in the international arena. The solutions suggested under
the rules attest that there is an enduring historical scepticism surrounding the forum selection
clauses, and there remains also a belief that these clauses can be used to circumvent the rules
favouring cargo interests. In assessing the justifiability of forum selection clauses, it must be
borne in mind that these provisions are vital for carriers, who run the risk of being sued in
various jurisdictions. It also proves valuable to consider that giving the cargo interests the
option of choosing from a number of fora, the Rotterdam Rules may lead to concurrent
proceedings brought against the same carrier by several claimants. This could, evidently,
result in conflicting judicial decisions over the same matter1005. Consequently, could it be said
that the Rotterdam Rules on jurisdiction and arbitration are conducive to the harmonisation of
legal systems and certainty? As the explanations above have shown, the current legal position
under English and U.S. law appears to provide better solutions for the attainment of the
specified objectives. Hence, in order to avoid parallel proceedings and uncertainty, a strong
presumption favouring choice of forum agreements is more desirable than the restrictions
under the Rotterdam Rules.
Only time will tell to what extent forum selection clauses remain viable in this new era. It will
also reveal whether the Rotterdam rules will enter into force and be efficient in balancing the
competing interests of the parties and in contributing to the efficient conduct of international
shipping and trade. Having examined the forum selections clauses, the validity of fio, fios or
similar clauses in the uniform rules will be analysed and discussed in the next section.
Hooper C.D., “Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, or The
Definition of Fora Conveniens Set Forth in the Rotterdam Rules, (2009) TILJ 44: 417, 422
1003
See generally Sturley M.F., “Overruling Sky Reefer in the International Arena: A Preliminary Assessment of Forum
Selection and Arbitration Clauses in New UNCITRAL Transport Law Convention”, (2006) JMLC pg. 1
1004
1005
For a similar view see Carnival Cruise Lines Inc. v. Shute, 499 U.S. 585, 594-595, (U.S. 1991)
229
3. Validity of carrier’s terms on loading and discharge of the cargo under the rules
It is not uncommon to see those charterparty clauses whereby shipowners transfer the
responsibility for loading and discharge of the cargo, including the expenses arising therefrom,
to their respective charterers. Equally common is that these “liability and expense sharing
agreements” are introduced into charterparties with the use of some acronyms such as fio, fios,
fiost and filo 1006 . When shipowners shift their duties in carrying out these operations to
charterers, they also seek to relieve themselves of the liabilities for these operations against
the bill of lading holders 1007 . To achieve this purpose, carriers purport to make these
charterparty clauses part of bills of lading by way of incorporation. It can seem justifiable to
allow carriers to relieve themselves of the responsibilities arising from the operations that
they have not carried out. Nevertheless, discharge of shipowners’ liabilities in this respect is
eminently problematic, particularly since third party bill of lading holders usually have no
contractual relationship with the charterers.
This position raises the question of whether these parties have any chance to avoid application
of these provisions under bills of lading. Undoubtedly, the holders can resort to the rules of
incorporation, where fiost or similar charterparty provisions are sought to be incorporated into
the bill of lading through the incorporation clause. In this context, if these charterparty clauses
have a restrictive language, which purport to shift the liability for discharge and loading
operations of the cargo exclusively to the charterer, it is likely that such clauses will not, in
both jurisdictions, be applied mutatis mutandis to the bill of lading holders1008. Nor will they
be applicable also where the bill of lading contains an express provision stipulating that
shipowners assume responsibility for the performance of these operations1009.
FIO clauses, which are also referred to as “FIFO”, represent the shorthand form of “free in and (free) out”. In introducing
these clauses into the charterparty, shipowners purport to transfer the duty to load and discharge of the cargo and the costs
arising therefrom to the charterers, see Atlas Assurance Ltd. v. Sterling International, 1975 A.M.C. 2358, (9th Cir. 1975). In
the case of FIOS clauses, shipowners seek to relieve themselves of the duties and costs with respect to, inter alia, stowage of
the cargo. Whereas, FIOST clauses purport to relieve shipowners, inter alia, of the operations and expenses of trimming of
the cargo. See Jindal Iron and Steel Co. Ltd. v. Islamic Solidarity Shipping Co., The Jordan II, [2002] EWHC 1268 (Comm),
para: 16; Sigri Carbon Corp. v. Lykes Brothers Steamship Co. Inc. 1988 A.M.C. 1787, (W.D.Ky. 1987). Pursuant to “FILO”
clauses, which stands for free in liner out, shipowners assume only the costs and responsibility for discharge of the cargo but
not for loading the same. See Sumitomo Corporation of America v. M/V Sie Kim, 1987 A.M.C. 160, 170 (S.D.N.Y. 1985). It
must be borne in mind that the terms of loading, stowage, trimming, and discharge of the cargo depend exclusively on the
wording of the provision. On this basis, it can be concluded that fiost and similar clauses relieve shipowners at least of the
costs of such operations, and it depends on the language of the clause as to whether shipowners could also transfer the
responsibility to the charterers. See The Jordan II, para: 15 and para 16.
1006
1007
For the purposes of the current analysis, the shipowner is deemed to be the carrier of the goods under bills of lading.
See The Coral [1993] 1 Lloyd’s Rep. 1, 6. See also, Cooke, J., Young, T., et al, “Voyage Charters”, (3 rd edn, 2007), para:
14.38-14.39 and para: 85.110.
1008
1009
See Cooke, para: 14.38.
230
Where these charterparty clauses overcome the identified hurdles of incorporation, could it be
said that they are applicable under those bills of lading which are governed either by the
Hague or by the Hague-Visby Rules? One of the compelling ways to avoid these integrated
charterparty provisions in such circumstances is perhaps to argue that these clauses run
counter to article III/21010 of the Hague and the Hague-Visby Rules, which provides that the
carrier shall properly and carefully load, handle, carry, keep, care for, and discharge the
goods carried. Hence, it can seem a forceful argument to invoke that the fiost or similar
clauses exonerate carriers of those liabilities identified under article III/2, and such derogation
is prohibited under article III/81011. This reasoning draws support from the view that, carriers’
specified duties are “non-delegable”, and any clause seeking to transfer these obligations must
be struck down by article III/8.
Nevertheless, in order to arrive at such a conclusion, it is important to find the answers to
some pivotal questions: Do the fiost or similar clauses transfer only the costs and the duties
with respect to these operations, or do they also transfer the responsibility for the same? Can
the shipowners narrow down the scope of their service towards the bill of lading holders? In
other words, can the “tackle-to-tackle rule”, which is adopted in both jurisdictions, be
changed by agreement? Given that the bill of lading holders usually have no contractual
relationship with the charterers, must shipowners be responsible to the holders while releasing
themselves of the liabilities towards their respective charterers? Where the shipowners do not
arrange loading and discharge operations of the cargo, should they, nevertheless, be treated as
liable for damages resulting from the acts or omissions of the stevedores with whom they
have no contract?
Under English law, the answer to these questions is centred on the House of Lords decision in
The Jordan II1012. The case was concerned with the responsibility of the shipowner vis-à-vis
the bill of lading holders for damage to the cargo. The damage was occurred during loading
operations which was assumed by the charterer pursuant to the fiost clause. It was not
1010
Under U.S. law, the article is shown as 46 U.S.C. s. 30701(3)/2.
These or similar arguments have been raised in both jurisdiction in numerous cases. As an example, see Associated
Metals & Minerals Corp. v. M/V Arktis Sky, 1993 A.M.C. 509, (2d Cir. 1992).
1011
1012
See Jindal Iron & Steel Co. Ltd. v. Islamic Solidarity Shipping Co., [2005] 1 W.L.R. 1363.
231
disputed that the charterparty fiost clause was incorporated into the bills of lading. As the
provision contained an extensive language, which also embraced the cargo receiver 1013, the
question of manipulation did not, therefore, arise. That being so, the bill of lading holders
sought to invalidate the clause by reason of article III/8, highlighting the duties of the carriers
enshrined under article III/2.
For the purposes of resolving the dispute, the decisive question was whether article III/8 could
override a fiost clause which purported to transfer the liability of the shipowner under article
III/2. Holding against the cargo interests, the court therein took the view that fiost and similar
clauses are not invalid under the Hague and the Hague-Visby Rules. In so doing, they took the
view that article III/2 did not oblige carriers to perform those duties 1014. Rather, the article was
said to make it compulsory for carriers to pursue these duties when they contractually assume
the performance of these operations.
This finding was premised on two landmark decisions one of which is Pyrene Co. v. Scindia
Navigation Co.1015. There, the court heavily relied on the obiter dictum of the Pyrene case,
where it was stated that “…Their (the Hague Rules’) object … is to define not the scope of the
contract service but the terms on which that service is to be performed. … On this view the
whole contract of carriage is the carrier’s obligation is left to the parties themselves to
decide…”1016. The other underpinning basis was a House of Lords decision in G.H. Renton &
Co. Ltd. v. Palmyra Trading Co.1017, which recognised, as obiter, the highlighted view adopted
in the Pyrene case. Having clarified why English law has developed this way, it is necessary
to ask whether these underpinning judicial decisions should actually lend themselves to
reaching such a conclusion. The overall position under English law suggests that the decisions
should not necessarily lead to these results, and the court in The Jordan II had, in fact, the
opportunity to take a contrary approach. This is simply because, material differences between
The clause provided that “Shippers/Charterers/Receivers to put the cargo on board, trim and discharge cargo free of
expense of the vessel”. See ibid., at 1336.
1013
1014
See ibid., at 1370-1371
1015
See [1954] 2 Q.B. 402.
1016
See ibid., at 418.
1017
[1957] A.C. 149, 170
232
the facts of each case support the proposition that the House of Lords in The Jordan II could
have distinguished the Pyrene and Renton cases.
In the Pyrene case, the court was asked to decide whether or not the Hague Rules should be
extended to cover the period commencing at the time when the ship’s tackle is hooked on to
the cargo1018. On this basis, the court raised the highlighted finding in order to extend the scope
of carriers’ service1019. Taking this into account, the court in The Jordan II could have refused
to rely on the findings of Pyrene case, inasmuch as fiost clauses are different in that they
purport to narrow carriers’ services and exonerate these parties of the operations taken place
during the tackle-to-tackle period.
Along the same lines, G.H. Renton & Co. Ltd. v. Palmyra Trading Co1020 equally does not also
support the ruling in The Jordan II simply because the decisive question in the former case
was again different in nature. There, the question was whether change of the discharge port
pursuant to a strike clause in bills of lading was in accordance with the “proper carriage of the
goods” within the meaning of article III/2. As this is the case, the finding of the court in G.H.
Renton & Co. Ltd. v. Palmyra Trading Co that no “geographical meaning” could be
imported to the carrier’s obligation regarding the “proper carriage” would still have been
effective1021, even if The Jordan II had been decided in the suggested way.
In light of these findings, the court in The Jordan II could have observed that these obiter
dicta are still relevant when the arrangements made under these risk and cost sharing
agreements are in the direction of extending the carrier’s service under the contract of
carriage 1022. Having concluded that fiost and similar clauses under must be invalidated by
article III/8 of the Hague-Visby Rules, a further question arises as to whether the holder’s
position under U.S. law is any different. With regards to this issue, the holders are better
positioned under U.S. law, for it is acknowledged that the carrier’s responsibilities under
1018
[1954] 2 Q.B. 402
1019
See Treitel G. and Reynolds F.M.B., “Carver on Bills of Lading”, (2 nd edn, 2005), para: 9-125.
1020
See [1957] A.C. 149.
1021
See ibid., at 166
See Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer, 1995 A.M.C. 1817, 1832, (U.S. 1995), where a similar
approach was suggested.
1022
233
article III/2 are “non-delegable”1023. This is irrespective of the fact that these operations are
neither carried out by the carrier’s employees nor handled by those stevedores engaged and/or
controlled by carriers1024.
Consequently, where the carrier’s loading and discharge terms envisage transfer of the duties
to charterers, shippers or cargo recipients, such provisions will be caught by article III/8 and
will have no effect on the responsibility of carriers towards third party bill of lading holders 1025.
This position raises the question of whether carriers can ever shield themselves against the
liability for damage to cargo sustained during loading, stowing and discharge of the cargo.
While article III/2 can be interpreted in a way to hold carriers prima facie liable for those
specified damages 1026 , carriers are able to discharge from this liability, if they can bring
themselves within one of the exceptions stated under article IV/21027. If carriers can do so, they
will have a good chance to rebut the claims of cargo interests, where the cargo loss or damage
was caused due to any act or omission on the part of the shipper, cargo owner or their agents
or representatives1028. Likewise, they will no longer be liable for loss or damage to the cargo
which occurred during these operations without the carrier’s actual fault or privity, if there is
no negligence or fault on the part of the carrier’s agents or servants which contributed to such
loss or damage1029.
See Associated Metals & Minerals v. M/V Arktis Sky, 1993 A.M.C. 509, 513 (2d Cir. 1992). See also, Continental Grain
Company v. Puerto Rico Maritime Shipping Authority, 972 F.2d 426, 430 (1st Cir. 1993); Great American Insurance v. M/V
Handy Laker, 2003 A.M.C. 116, 137 (S.D.N.Y. 2002); Demsey & Associates Inc. v. S/S Sea Star, 1972 A.M.C. 1440 (2d Cir.
1972). However, it should be noted that there are also some district court decisions which decline to follow The Arktis Sky,,
see Sigri Carbon Corp. v. Lykes Brothers S.S. Co., 1988 A.M.C. 1787 (W.D.Ky. 1987); Sumitomo Corporations of America v.
M/V Sie Kim, 1987 A.M.C. 160, (S.D.N.Y. 1985). Similar to the decision in The Jordan II, the court in the latter case allowed
carriers to limit the service they provide under the contract of carriage.
1023
See Arktis Sky, supra. Consequently, if the operations are handled by shippers, cargo interests, charterers or by their
agents, shipowners will still retain the liability under section 3(2) of the COGSA. Nichimen Company Inc. v. M/V Farland
and A/S Vigra, 1972 A.M.C. 1573, 1587-1588 (2d Cir. 1972); Tubacex Incorporation v. M7V Risan, 1995 A.M.C. 1305, 1309
(5th Cir. 1995). Likewise, the position will be not different where the stevedores are arranged and controlled by any of these
specified parties. See also, Stemcor U.S.A. Inc. v. M/V Archimedes, 2004 A.M.C. 1651, (S.N.D.Y. 2004)
1024
1025
See The Arktis Sky supra
1026
See ibid, at 514.
1027
ibid.
In The Arktis Sky, the carrier could not rely on the exemption clause under section 4(2)(q) and 4 (2)(i) inter alia because
the lashing statement signed by the vessel’s chief mate contained a notation that the goods are stowed satisfactorily, and the
operations were carried out under the control of the master.
1028
See section 4(2)(q). For the assessments made under section 4(2)i and 4(2)q, see also, Yasuda Fire & Marine Insurance
Co. v. M/V Tribels, 2000 A.M.C. 2606 (E.D.La. 2000); Thyssen Inc. v. Nobility M/V, 2005 A.M.C. 2067, (5th Cir. 2005)
1029
234
From the standpoint of carriers, fiost and similar clauses may be useful where charterers seek
to load a special cargo on the vessel 1030. In this respect, it seems justifiable for carriers to
transfer the duty to load, stow and discharge of the cargo to the charterer in such
circumstances. More importantly, the decision in The Jordan II and those U.S. judicial
decisions which are contrary to The Arktis Sky case can be supported on the grounds that such
a perspective does not absolve carriers of the liabilities arising from their own act or
omissions. Likewise, these cases may appear convincing, since they do not amount to a
barrier to holding carriers responsible for those operations which they have assumed.
Moreover, it can be argued that not giving effect to these clauses would in any case be
problematic for carriers. This can be justified on the grounds that the carriers may not obtain
any recovery from those stevedores with whom they have no contract, when they are held to
be responsible vis-à-vis third party bill of lading holders.
However, these arguments are not persuasive in many respects. Fiost and similar clauses
should be invalidated by article III/8, given that the carrier’s duties, which are listed under
article III, also include the duty to load, stow, care and discharge of the goods. This
proposition draws support from the fact that article III/8 prohibits carriers to lessen or contract
out their liabilities with respect to those specified duties1031. For practical reasons, it can seem
reasonable for carriers to shift the identified duties to shippers. From the perspectives of the
holders though, application of the fiost and similar clauses, regardless of article III/8, is
detrimental to these parties since, in such cases, they lose the chance to be indemnified by
carriers, and they are thus left to seek remedy from those with whom they may not have any
contract.
If these clauses are invalidated by article III/8, the practical consequences of this will be
satisfactory for both the cargo interests and carriers. From the standpoint of carriers, the
absence of fiost and similar clauses in contracts of carriage is not as disadvantageous as it
may at first seem. The reasons for this are clear: carriers in such circumstances are not treated
as liable for those losses and damages caused on the part of shippers or their stevedores
simply on the basis that the exceptions enshrined under article IV/2 will be available to them.
See Keedy C.D., “Maritime Law And Practice”, (2004), A [§ 6.17]
The statement under article III/8 which reads “unless otherwise provided under this convention” should not be treated as
an allowance for carriers to contract out or lessen their duties under article III/2 in the absence of an explicit provision to that
effect. See Vimar Seguros y Reaseguros S.A. v. M/V Sky Reefer, 1995 A.M.C. 1817, 1822 (U.S. 1995)
1030
1031
235
Similarly, where the cargo loss or damage is not attributable to carriers’ agents or
representatives or to own fault or negligence, these parties are also not regarded as liable.
Owing to this reason, invalidation of a fiost or a similar clause will practically have no effect
on the position of a carrier where they can bring themselves into one of those exceptions.
Adopting this rule will greatly improve the position of the cargo interests, for they will be
able to establish a prima facie case against carriers for loss or damage to the cargo caused
during those operations. In this respect, carriers must not be immune to liability merely
because of an incorporated fiost clause when they retain and supervise the operations carried
out by the shipper’s stevedores. For these reasons, the rule established under The Arktis Sky is
convincing, and it provides a better solution for the holders whose reliance on the bills of
lading should be protected. Nonetheless, the recent international movements for unification of
laws under bills of lading are in the direction of exempting carriers of liabilities for loading
and discharge operations under fiost and similar clauses. It is striking that this approach is
adopted under article 13(2) of the Rotterdam Rules, which leaves the door open to the
national courts to take a view different from that followed in The Arktis Sky case.
4. Final remarks: Do the rules of inconsistency pose a challenge to the carriers in seeking
to bind the holders with the incorporated charterparty clauses?
Considering the rule of inconsistency as a whole, the clear view is that the rule places a
serious strain on the carrier’s ability to compel the incorporated charterparty provisions
against the bill of lading holders. More specifically, it protects the holder’s rights arising from
the express bill of lading terms and from the Hague, the Hague-Visby, and the Hamburg
Rules, any of which could be operative under bills of lading. Accordingly, this specific rule of
incorporation is one of the most effective tools in the hands of the holders to override the
unwelcome charterparty provisions.
Consequently, from the standpoint of the holders, this rule is an effective weapon to deploy
whilst seeking to jettison the incorporated charterparty terms from bills of lading. From an
overall perspective, this rule must be viewed as promoting certainty under bills of lading. It is
also important to note that, in light of the international movements which substantially
diminish the effects of exclusive forum selection clauses, the holders may in the future have
more chances to circumvent the incorporated charterparty forum selection clauses in bills of
lading. This being the case, the future will show whether this position will reduce the number
236
of bills of lading which purports to incorporate the charterparty forum selection clauses.
Despite this seemingly pro-cargo owner position, it is clear that the holders are not adequately
protected under English law against those fiost and similar clauses which are incorporated
into the bills of lading through the words of incorporation. Nor do the draft uniform rules,
namely the Rotterdam Rules, provide any relief to the holders with respect to this issue.
From an overall perspective, could it be said that the rules of incorporation redress a balance
between the competing interests of the bill of lading holders and the carriers? Or do they
simply fail to do so by overcharging the issue with an excess of technical considerations? An
examination of English and U.S. judicial decisions with respect to this issue reveals plausible
grounds for defeating an undesirable charterparty provision which has been integrated into the
bill of lading through the words of incorporation. The arguments made thus far support the
view that the rule of inconsistency entails not mechanical but intelligible considerations.
Perhaps more importantly, the rule introduces a clear example of how the incorporating
contracts are dominant in determining the applicability of the integrated agreements, and it
must be applauded for maintaining the integrity of bills of lading.
237
CONCLUSION
The incorporation clauses in bills of lading have a long history in international carriage of
goods by sea, and they remain prevalent without being strictly peculiar to a particular trade.
The wide use of these clauses is best understood against the background of ongoing practice:
when the vessel is under charter, shipowners seek to be well-positioned both against the
charterers and the third party cargo interests, who hold the bills of lading as their contracts of
carriage. This objective is of great importance to the shipowners for two main reasons. Firstly,
charterers naturally lose their interest in the cargo upon the submission of the bills of lading to
third parties by virtue of their respective contracts of sale. Secondly, the shipowners’ most
effective means of ensuring recovery of the charges under the charterparty is the goods that
they carry. In chartering the vessel to a seller or buyer who has undertaken to arrange carriage
of the goods under the contract of sale, these parties understandably require that the bills of
lading, issued under the charterparty, incorporate the provisions of the latter contract.
In light of the foregoing reasons, it is unsurprising to see that incorporation clauses are
commonplace in bills of lading. However, through the eyes of bill of lading holders, this
practice has been a cause for concern, inasmuch as they seldom have any means of knowing
anything about the referred charterparty. Perhaps with a view to mitigating the harsh
consequences of incorporation, both U.S. and English courts have been sensitive in their
construction of these clauses and have determined the extent to which the referred
charterparty is applicable under bills of lading. As a result of this judicial sensitivity, the
courts have developed a series of interlinked methods of construction, referred to, in this
thesis, as the rules of incorporation.
The thesis revealed that both English and U.S. rules of incorporation are rooted in early
judicial decisions, and there has been a persistent reluctance on the part of courts to depart
from the rules in addressing the incorporation issue. The reason for this was crudely explained
by the fact that definitive incorporation rules facilitate anticipation of carriage terms under
bills of lading by the commercial men, and this has the effect of increasing reliance on bills of
lading, as well as promoting certainty in international trade. Despite this seemingly
straightforward position, the thesis underlined a number of complex areas, which require
clarification on account of their importance in shipping practice.
238
From the outset, the reader’s attention was drawn to the fact that the English rules of
incorporation are diametrically opposed to those recognised under U.S. law in many respects.
Due to the conflicting approaches taken on each side of the Atlantic, it was then emphasised
that the carriers and bill of lading holders first need to know what legal system is applied to
the question of incorporation. Having set forth the general rule in both jurisdictions, that this
issue is decided under the applicable law of the bill of lading, the thesis underlines the initial
complexity: where the referred charterparty contains an express or implied choice of law
provision, the applicable law of the bill of lading cannot be determined with any degree of
certainty before deciding whether the referred charterparty is incorporated into the bills of
lading. In order to ascertain under what law the incorporation issue must be addressed, U.S.
courts proceed upon the assumption that the charterparty is not incorporated, whereas English
courts make a reverse assumption and ascertain the governing law as if the referred
charterparty were a part of the bills of lading. The logical shortcomings and the practical
disadvantages of the two different modes of presumptive thinking were thoroughly analysed
in the first chapter, and they will not be re-examined. For present purposes, suffice it to say
that the identified conflict of law rules add an important practical dimension to the
incorporation issue, which the parties must consider when choosing between the fora to bring
their claims.
Leaving aside the question of conflicts of law, the actual hurdles to incorporation emerge with
the formalities that both the bill of lading and the referred charterparty must satisfy for
incorporation. In this respect, it is natural to think that the original parties to the bill of lading
could only incorporate a pre-existing charterparty, which is specified in the incorporation
clause, inasmuch as the holders are usually not in any way related to the referred charterparty.
It was seen in Chapter 2 that a similar line is taken under U.S. law, and the incorporation
clause which does not identify the charterparty in “unmistakable” language is considered to
have no force to incorporate where the holder is deemed to be a “stranger” to the charterparty.
This line of thinking was criticised for creating variable carriage terms under bills of lading,
which depend on the actual position of every holder. Given that the U.S. rules of formality
surrounding the referred charterparties were also based on the status of the individual holders,
these rules were also criticised on similar grounds. In light of these findings, Chapter 2
established one of the central premises of the thesis: to promote certainty in international
239
trade, the holders’ closeness to the referred charterparty must not be taken into account in
resolving the question of incorporation. On this basis, the well-rooted English rule, that the
unqualified incorporation clause is not of itself fatal to incorporation, and those recognised
presumptions for finding which charterparty is deemed to be incorporated, were applauded for
providing straightforward and practical solutions to the problems involved in incorporation.
Even though both the bill of lading and the referred charterparty may overcome the
technicalities above, it is evident that the parties cannot be taken to have agreed any of the
terms which are not clearly referred to in the bills of lading. Hence, in Chapter 3, the main
focus was, essentially, on the construction of the incorporation wording in bills of lading. The
detailed examination of the English and U.S. judicial decisions particularly demonstrated that
the courts are divided on whether the ancillary charterparty terms, such as the forum selection
clauses, can be incorporated through general incorporation wording. There, it was stated that
U.S. courts do not require a specific reference to such charterparty provisions in bills of
lading for the purposes of their incorporation, while the position is to the contrary under
English law. Considering the practical impacts of these differences, Chapter 3 suggested that
the strict English requirement must be maintained on the grounds that the rule has been
heavily relied on in practice. This proposition was also supported by the fact that making
express reference to the ancillary contract terms gives the holders clear notice as to the
intention of carriers to incorporate such provisions.
Having identified the charterparty terms which can aptly be described through the words of
incorporation, Chapter 3 went on to examine to what extent the aptly described charterparty
terms could be adapted to the bill of lading. In this respect, U.S and English rules of
incorporation demonstrated how the courts, not “mechanically” but rather “ingeniously”,
decide in what circumstances the charterparty wording must be modified. Moreover, in this
chapter it was highlighted that the integrated charterparty clauses could, nevertheless, fall
short of being applicable under bills of lading, given that the scope of every provision is
limited to what they actually envisage.
In practice, parties to the charterparty frequently contemplate the form and content of the bill
of lading to be issued thereunder, and, more often than not, they also stipulate what
240
charterparty terms must be integrated into such bills of lading. Regardless of the intention to
incorporate, which can readily be discerned from the charterparty, these parties may simply
not achieve this in the absence of appropriate incorporation wording in the bills of lading. In
order to clear doubts as to whether their intention could prevail over that of the original
parties to the bill of lading, Chapter 4 explored the answer to one key question: are the
charterparty terms, or the respective incorporation clauses, in bills of lading, decisive in
resolving the incorporation issue? The detailed examinations on this matter showed
conflicting approaches between English and U.S. courts: under English law, the incorporation
clauses are conclusive in determining the scope of incorporation, while this “bill-centric”
approach is recognised under U.S. law only in the case of a holder who is a “stranger” to the
referred charterparty.
Through this analysis, Chapter 4 illustrated another key premise of the thesis: the
incorporation clause must be the only driving force for incorporation, regardless of the actual
position of the individual holder. From a practical perspective, this suggestion was justified
on the basis of the fragile position of those holders who pay for the bills of lading at their face
value. At a conceptual level, it received support from the fact that the charterparty and bills of
lading are distinct contracts made between different parties. On that basis, it was emphasised
that the bill of lading may not achieve incorporation simply, as intended by the parties to the
charterparty.
For those cargo interests who seek to thwart application of the integrated charterparty terms,
the final strategy to be employed is enunciated in Chapter 5. There, the principal focus was on
the question of inconsistency, which may arise between the express and integrated bill of
lading provisions. The judicial responses to such inconsistencies have repeatedly been to
override any conflicting charterparty term imported into the bill of lading through the
incorporation clause. This answer was deceptively simple on the grounds that the elements
that constitute an inconsistency are not so straightforward. For this reason, Chapter 5
addressed the incorporation issue by analysing the consistency of various charterparty clauses,
such as those relating to freight, lien, demurrage and forum selection. In particular, a detailed
examination was made as to whether the incorporated charterparty terms could survive under
bills of lading which are governed by the Hague, Hague-Visby or the Hamburg Rules.
241
Since the early years, the incorporation issue has usually revealed itself as closely connected
to the disputes over jurisdiction. Hence, in many cases, the carriers have sought to incorporate
and enforce the charterparty forum selection clauses against the holders. As can be gleaned
from the long history of U.S. and English judicial decisions on this matter, the holders have
frequently attempted to circumvent the chosen forum by alleging that the forum selection
clauses run counter to the identified uniform rules governing the bills of lading. Chapter 5
illustrated that such arguments are not convincing under U.S. law on account of the leading
Sky Reefer decision, whereas English courts were able to acknowledge the inconsistency of
the forum selection clauses in very limited circumstances.
Perhaps due to the practical importance of the forum selection clauses and their undeniable
judicial significance, bold steps have recently been taken to create uniform rules regulating
the incorporation and enforcement of forum selection clauses. Hence, the Rotterdam Rules
have recently introduced a number of comprehensive provisions for this purpose. Nonetheless,
it seems that these attempts will not receive the desired support, given that the Rotterdam
Rules substantially curb carriers’ rights to invoke express and integrated forum selection
clauses in bills of lading against the holders. Extensive limitation on the freedom of choosing
the forum is surely not acceptable for many jurisdictions, including England, who have
traditionally been receptive to forum selection clauses. However, this restriction is favourable
to the United States, for they have been seeking to remove the liberal approach established by
the Sky Reefer. Recently, similar discussions on incorporation and application of the choice of
forum clauses have also taken place within the European Union. In this respect, the recent
European Court of Justice decision in The Front Comor and the Court of Appeal judgment in
National Navigation v. Endesa have also illustrated the importance of the incorporation
clauses, especially in jurisdictional battles, and have shown that it is likely to remain
predominant in the future. Considering that the international movements have, therefore,
exhibited sensitivity to the incorporation of forum selection clauses, this thesis has upheld the
argument that the holders must, rather, be protected from those charterparty provisions which
impose unexpected monetary liabilities upon these parties. It now remains to be seen whether
these tendencies will also be relevant in the future.
242
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247