Arbitration Update - Federal Court Confirms Validity of International Abitration Agreements in Voyage Charterparties

Commercial Arbitration
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The Full Court of the Federal Court has recently held that references to international arbitration in voyage charterparties are enforceable in Australia because such charterparties are not ‘sea carriage documents’ under the Carriage of Goods by Sea Act 1991 (Cth) (COGSA). 

The Full Court ruling is particularly significant in affirming the availability of international arbitration to foreign parties entering into charterparties with Australian entities and subsequently seeking to  enforce foreign arbitral awards in Australia. 

Dampskibsselskabet Nordon A/S v Gladstone Civil Pty Ltd [2013] FCAFC 107

Abstract

The Full Court of the Federal Court has recently held that references to international arbitration in voyage charterparties are enforceable in Australia because such charterparties are not ‘sea carriage documents’ under the Carriage of Goods by Sea Act 1991 (Cth) (COGSA). The Full Court ruling is particularly significant in affirming the availability of international arbitration to foreign parties entering into charterparties with Australian entities and subsequently seeking to enforce foreign arbitral awards in Australia.

Decision of the Full Court

The principal issue on appeal in Dampskibsselskabet Nordon A/S v Gladstone Civil Pty Ltd [2013] FCAFC 107 was the effectiveness of an arbitration clause in a voyage charterparty for the carriage of coal from China to Australia. The primary judge, Foster J, held that the arbitration clause, which referred disputes to London arbitration, was of no effect because s 11(2)(b) of COGSA rendered ineffective agreements that purported to preclude or limit the jurisdiction of Australian courts with respect to ‘sea carriage documents relating to the carriage of goods’ within the ambit of s 11(1)(a) of COGSA. As a consequence, Foster J refused recognition and enforcement of an English arbitral award rendered pursuant to the arbitration agreement in the charterparty. The majority of the Full Court (Rares and Mansfield JJ) determined, however, that a voyage charter party is not a ‘sea carriage document relating to the carriage of goods’ within the meaning of s 11(1)(a) of COGSA and does not render an international arbitration clause in the charterparty void.Rares J, delivering the main judgment, examined the legislative scheme and history of COGSA and concluded that its objective is to regulate the relationship relating to the contract for the carriage of cargo by sea rather than the relationship relating to the contractual hire and use of a vessel (being the voyage charterparty). Rares J also observed that the resolution of disputes arising out of charterparties by international commercial arbitration has been a feature of shipping trade for some time. Accordingly, had Parliament intended to effect a substantial change to the operation of arbitration clauses in charterparties, it would have needed to do so in clearer terms than those contained in s 11 of COGSA.

Mansfield J agreed with Rares J and also noted that, since the term ‘sea carriage document’ is not defined in COGSA, it would be appropriate to look to the definition in the amended Hague Rules, which are contained in Schedule 1A of  COGSA. Having considered the definition of the term in the amended Hague Rules, Mansfield J concluded that it did not extend to charterparties. Mansfield J concurred with Rares J that there has traditionally been a clear line drawn  between a charterparty and a sea carriage document, as well as ‘a clear and longstanding acceptance…that international commercial disputes (including voyage charterparties) may be settled by arbitration’. On that basis, Mansfield J did not construe s 11 of COGSA to limit the effect of arbitration clauses in respect of such disputes.

Buchanan J, in dissent, concluded that the question of whether a voyage charterparty is a ‘sea carriage document’ is to be determined on the facts of each particular case. In this regard, Buchanan J disagreed with the decision of Foster J to the effect that all voyage charterparties fall within the ambit of a ‘sea carriage document’ in s 11 of COGSA. Nevertheless, Buchanan J concluded that, in this case, the terms of the charterparty concerned carriage of freight, rending it a ‘sea carriage document’. Accordingly, Buchanan J considered that the ruling of the Court below with respect to the ineffectiveness of the arbitration clause in the charterparty was correct.

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Eugenia Levine practises in commercial and public law.

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