Conflicts and Procedural Matters
14.1 This chapter considers in outline:
- (1) issues of appropriate forum and applicable law for disputes involving bills of lading; and
- (2) miscellaneous ancillary procedural matters.
14.2 Virtually every bill of lading dispute involves parties based in different countries and in the majority of them none of the parties are based in England. Thus, for an English lawyer issues of conflict of laws are of great importance. These are often numerous and complex and the reader is referred to specialists works for a detailed treatment of the general law.1
14.3 Much of the general procedural law on civil disputes is applicable to bill of lading cases, but there is an added complication by virtue of the fact that most bill of lading disputes arise in connection with a ship. The value and mobility of ships led to the development of an in rem jurisdiction in the High Court of Admiralty, now the Admiralty Court of the Queen’s Bench Division of the High Court. The institution of an action in rem, whereby an action is brought against a vessel itself, has two aims. First, it founds jurisdiction for the action and, secondly, it enables a ship to be arrested to provide security for the claim. Again the law is complex and, although this jurisdiction is discussed in outline in section (D) below, for more detailed treatment the reader is referred to specialist works.2
14.4 From an English perspective any potential claim has to be analysed by reference to one or more of the following questions, once the relevant parties to the dispute and the underlying contract(s) have been identified:
- (1) what is the applicable law;
- (2) is there is a valid arbitration or choice of jurisdiction clause;
- (3) can any claim be brought in rem or in personam3 or by both means;
- (4) is the claim subject to the European Union jurisdictional regime, within the scope of Regulation (EU) 1215/2012 Brussels I (R) and allied Conventions;
- (5) is the claim subject to the English (CPR) procedural regime; and
- (6) may ancillary relief be sought, such as a stay of court proceedings (e.g., where there is an arbitration clause in the contract), an anti-suit injunction to prevent a party from attempting to sue in another jurisdiction or a negative declaration.
14.5 Most claims involving bills of lading are brought as claims for damages for breach of the bill of lading contract. The substantive law that will be applied to such claims is the applicable law as determined by English conflict of laws principles.4 The determination of which law is applicable to a claim under a bill of lading contract is now governed by what is commonly known as the “Rome I Regulation” or simply “Rome I”.5 Rome I applies “in situations involving a conflict of laws, to contractual obligations in civil and commercial matters”: Article 1(1). Rome I is expressed to have universal application, so that any law “specified” by Rome I must be applied “whether or not it is the law of a Member State”: Article 2. Article 1(2)(d) of the Rome I Regulation stipulates that “obligations under bills of exchange, cheques and promissory notes and other negotiable instruments to the extent that the obligation under such negotiable instruments arise out of their negotiable character” are excluded from its scope. This is the same exclusory wording as used in Article 1(2)(c) of the Rome Convention. Recital (9) of Rome I comments that “obligations under bills of exchange, cheques and promissory notes and other negotiable instruments should also cover bills of lading to the extent that the obligations under the bill of lading arise out of its negotiable character.” However, in English law the obligations of parties to a bill of lading, whether they be the original parties or subsequent ones, do not “arise out of” the negotiable character of the bill of lading, so that it is submitted that Rome I must be used in an English court to determine the applicable law of a bill of lading contract, even when the contractual relations are between a carrier and a person to whom the bill of lading has been lawfully transferred pursuant to the provisions of COGSA 1992.6
14.6 The applicable law of a contract is, as a matter of English common law, only “applicable” to matters of substance rather than procedural matters that are generally subject to the law of the forum.7 The Rome I Regulation generally reflects this English common law approach. There is express provision in Articles 1 and 10 for which matters are or are not governed by the applicable law. Specifically:
- (1) The law applicable to a contract by virtue of the rules in the Rome I Regulation will govern:
- (a) interpretation, performance and the consequences of a total or partial breach of the obligations of the contract (within the limits of the powers conferred on the court by procedural law), which must include the rules of law on remoteness of damages for breach;
- (b) the assessment of damages in so far as it is governed by rules of law;
- (c) the “various ways of extinguishing obligations”, which must include repudiation and rescission of the contract; and
- (d) the consequences of nullity of the contract.8
- (a) interpretation, performance and the consequences of a total or partial breach of the obligations of the contract (within the limits of the powers conferred on the court by procedural law), which must include the rules of law on remoteness of damages for breach;
- (2) In addition, contrary to the English common law position that was that questions of limitation were procedural and so governed by the law of the forum, the rules of the Rome I Regulation will govern issues of prescription and limitation of actions.9
- (3) The rules set out in the Rome I Regulation will not govern the choice of applicable law relating to:
14.7 Disputes may arise as to whether there is a contract at all. At common law these would be resolved by application of the “putative proper law”, that is the law that would apply had the contract been concluded. To determine that “putative proper law” English courts12 would apply English conflict of laws rules. Article 10(1) of the Rome I Regulation follows the same approach, although this is qualified by Article 10(2), which permits a party to rely upon the law of the country in which he has his habitual residence to establish that he did not consent to the formation of the contract “if it appears from the circumstances that it would not be reasonable to determine the effect of his conduct in accordance with the law specified” in Article 10(1).13
14.8 The basic principle of the Rome I Regulation set out in Article 3 is that a contract shall be governed by a law chosen by the parties. This reflects the fundamental common law principle.14 However, Article 9(2) provides that “nothing in this Regulation shall restrict the application of the overriding mandatory provisions of the law of the forum” and Article 9(1) defines “overriding mandatory provisions” as “provisions the respect for which is regarded as crucial by a country for safeguarding its public interests…to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation”. As discussed in Chapter 10, COGSA 1971 is a mandatory law that, where applicable, will override any choice of law that would derogate from its effect.15
Express choice of law
14.9 Many bills of lading contain express choice of law clauses and these will in principle be upheld. Article 3(1) of the Rome I Regulation provides that “A contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or to part only of the contract.”16 Recital 11 of Rome I expressly recognises that the parties’ freedom to choose the applicable law of a contract should be one of the cornerstones of the system of conflict of law rules relating to contractual obligations.
14.10 It is also very common for charterparty terms to be incorporated into bills of lading by words of incorporation in the bill. The complex rules that govern this issue have been discussed in Chapter 7. General words of incorporation of an applicable law clause are effective.17 However, if the governing law clause is incorporated in a bill of lading,18 this will amount to an express choice of applicable law. In addition the governing law of a charter may be relevant to the applicable law of a bill of lading, even if there are no words of incorporation. This is discussed below in the context of cases where there is no express or implied choice of law.19
14.11 There is a valid choice of law where the system of law is not named but is capable of ascertainment at the time of the contract, for example, where the bill of lading provides for the governing law to be that of the carrier’s principal place of business20 or the law of the flag of a named vessel. While a “floating” choice of law dependent on the parties’ choice after formation of the contract is not generally valid (see below), an agreement that one law governs in certain specified circumstances and a different law in other circumstances is permissible.21
14.12 This principle can apparently apply even where the event determining the applicable law is unknown at the time of the contract and possibly even after the performance of it, as shown by Bhatia Shipping v Alcobex.22 In that case the clause in the multimodal transport document in question provided for the applicable law to be that of the country where the loss and damage occurred. This choice of law clause was upheld by the judge who described its purpose as “to provide for a floating proper law which is objectively ascertainable”.23
14.13 A reference to, or incorporation of, a foreign law statute (such as foreign COGSAs) does not necessarily imply a choice of that law as the applicable law.24
14.14 The difficulty in ascertaining the extent of an express choice is demonstrated by the decision under the common law of Compagnie D’armement Maritime S.A. v Compagnie Tunisienne De Navigation S.A.,25 which concerned a contract of affreightment between French shipowners and Tunisian cargo interests that provided that the contract “shall be governed by the laws of the flag of the vessel carrying the goods…” and that disputes were to be settled by arbitrators in London. The arbitrators found as a fact that the parties contemplated that the vessels owned by the shipowners would be used at least primarily for performance of the contract. The House of Lords had to determine what, in those circumstances, was the proper law of the contract, the shipowners contending that it was French law and the cargo interests contending for English law based on the arbitration clause. The House of Lords held unanimously in favour of French law, although three of their Lordships did so on the basis that there was a sufficiently clear express choice of law and two did so on the basis that there was no choice of law but that French law was the system of law with which the transaction26 was most closely connected.
“Floating” applicable law
14.15 Bills of lading sometimes provide for a choice of law at the option of one of the parties. Such a “floating” law clause is not generally regarded by English law as valid, on the basis that the governing law cannot fall to be decided retrospectively by reference to an event that was an uncertain event in the future at the time the contractual obligations were undertaken.27 In The Iran Vojdan,28 the relevant clause provided for the carrier to elect between Iranian law and its version of the Hague Rules or German law and its version of the Hague Rules or English law and its version of the Hague Rules, with jurisdiction to follow this choice of law. Bingham J., having described the clause as “extremely unattractive” and having referred to The Armar,29 said:
The proper law is something so fundamental to questions relating to the formation, validity, interpretation and performance of a contract that it must in my judgment, be built into the fabric of the contract from the start and cannot float in an indeterminate way until finally determined at the option of one party. As I say, it is, as I understand, common ground that as a matter of English law effect cannot be given to that part of this clause.
Implied choice of law
14.16 Article 3(1) of Rome I also provides for an implied choice of law provided that the choice is “clearly demonstrated by the terms of the contract or the circumstances of the case”. In a case decided under the Rome Convention, Egon Oldendorff v Libera Corporation, reliance was sought to be placed on an arbitration clause as an indicator of the choice of applicable law. Clarke J. rejected the argument that only an express choice would suffice for the purpose of Article 3(1)30 of the Rome Convention, although he accepted that the common law test was not quite the same as that under Article 3(1), saying:31
It is sufficient to say that the party relying upon art. 3 must demonstrate with reasonable certainty that the parties have chosen a particular law as the governing or applicable law. I accept the submission that, as the Giuliano-Lagarde report says, it must be a real choice which the parties had a clear intention to make. In Redfern & Hunter on International Commercial Arbitration (2nd ed. at p. 123) the authors say that in the absence of an express choice the tribunal must look for a tacit choice of law, which they say may be known as an implied, inferred or implicit choice. They add that art. 3 makes it clear that a tacit choice must only be found where it is reasonably clear that it is a genuine choice by the parties. I accept that approach…However I agree with Dr. Plender (op. cit. at par. 5.06) that it is plain from the wording of art. 3 and the Giuliano-Lagarde report that the Convention contemplates an implied choice of law provided that the choice is a real choice which appears with sufficient clarity from the terms of the contract as a whole or the circumstances of the case.32
Although the wording of Article 3(1) of Rome I is different, it is unlikely that it would produce different results. Thus an arbitration clause could amount to a “clear demonstration” of the parties as to a choice of law.
14.17 Recital 12 of Rome I states that “an agreement between the parties to confer on one or more courts or tribunals of a Member State exclusive jurisdiction to determine disputes under the contract should be one of the factors to be taken into account in determining whether a choice of law has clearly been demonstrated”. Thus existence of an arbitration or jurisdiction clause is a relevant but by no means conclusive factor for the purposes of determining what applicable law has been chosen by the parties.33 Subject to the important qualification made by Popplewell J in the Aquavita case already referred to, this reflects the English common law position as stated in the Compagnie Tunisienne case, by Lord Morris:34
An agreement to refer disputes to arbitration in a particular country may carry with it, and is capable of carrying with it, an implication or inference that the parties have further agreed that the law governing the contract (as well as the law governing the arbitration procedure) is to be the law of that country. But I cannot agree that this is a necessary or irresistible inference or implication: there is no inflexible or conclusive rule to the effect that an agreement to refer disputes to arbitration in a particular country carries with it the additional agreement or necessarily indicates a clear intention that the law governing the matters in dispute is to be the law of that country.35
14.18 Where the bill of lading incorporates the terms of a charterparty, which is itself governed by English law, this may lead to a finding under Article 3(1) of Rome I that the parties have “clearly demonstrated” a choice of English law, even where the charterparty law and jurisdiction/arbitration clauses are not themselves incorporated into the bill.36 At common law, if the bill does not incorporate the terms of the charter pursuant to which it is issued, the law of the charter may still indicate an intention as to the applicable law of the bill.37 However, given the requirement of Article 3 of Rome I that the choice must be “clearly demonstrated” it is doubtful that the express applicable law of the charter would, itself, be sufficient to show this.
14.19 A further difficulty may arise where the choice of law will depend on whether an arbitration or jurisdiction clause is incorporated, which, in some cases, will itself depend on the applicable law relating to that issue. Judge Diamond Q.C. grappled with this “chicken and egg” problem in The Heidberg,38 where the issues of applicable law and incorporation of a Centrocon arbitration clause were closely connected. Despite concluding (obiter) that the putative proper law of the bill was French law, the judge applied (also obiter) English law to the question of incorporation, as the law of the forum, on the basis that there was insufficient basis to demonstrate that some other system should apply.39 Article 10 of Rome I 40 will not assist in answering this conundrum because by Article 1(2)(e) of Rome I its provisions are inapplicable to jurisdiction or arbitration agreements, and thus recourse to the common law remains necessary.
No express or implied choice
14.20 Where there is no choice of law that has been expressly or clearly demonstrated by the terms of the contract or the circumstances of the case, the applicable law must be ascertained in accordance with Article 5 of Rome I, which replaces Article 4 of the Rome Convention. Article 5(1) provides that, in the case of contracts of carriage, “the law applicable shall be the law of the country of habitual residence of the carrier, provided that the place of receipt or the place of delivery or the habitual residence41 of the consignor is also situated in that country. If those requirements are not met, the law of the country where the place of delivery as agreed by the parties is situated shall apply”. Article 5(2) deals with contracts for the carriage of passengers. Article 5(3) stipulates that “where it is clear from all the circumstances of the case that the contract, in the absence of a choice of law, is manifestly more closely connected with a country other than that indicated in paragraphs 1 and 2, the law of that other country shall apply”. In relation to Article 4 of the Rome Convention, the Court of Justice of the European Union interpreted the phrase “contract of carriage” to include a charterparty, but only when the main purpose of the contract is the actual carriage of goods, not merely the means of transport.42 The first sentence of Article 5(1) is likely to be applicable only in very rare cases. If it is not, then the rule (in default of express or clearly demonstrated agreement of the parties) is that the applicable law of the contract of carriage of goods will be that of the place of delivery as agreed by the parties, unless Article 5(3) can be invoked. Article 5(3) cannot apply where the parties have expressly chosen an applicable law nor where it is “clearly demonstrated” from the terms of the contract or all the circumstances of the case that they have chosen an applicable law. It therefore only applies to override an applicable law that might otherwise have resulted from an application of the rule in Article 5(1).43
14.21 In the case of Intercontainer Interfrigo SC (ICF) v Balkenende Oosthuizen BV44 the Court of Justice of the European Union considered a reference from a Dutch court in relation to Article 4 of the Rome Convention. Based on its reasoning, in the case of a bill to which Rome I applies, the steps to be taken to ascertain the applicable law are as follows:
- Have the parties made an express choice of applicable law?
- If not, have the parties clearly demonstrated a choice of law by the terms of the bill or the circumstances of the case?
- If not, do either of the two situations set out in Article 5(1) of Rome I apply to this bill?
- Even if one or other does so, if it is demonstrated that the contact in the bill is manifestly more closely connected with a country other than that indicated in Article 5(1), the law of that other country is to apply.
Factors that may be relevant to the issue of whether the bill is manifestly more closely connected with a country other than that indicated by an application of the test in Article 5(1) include:45
- where the contract was made;
- the nationality or domicile of the parties;
- the location of the load and discharge ports;
- the flag of the vessel46; and
- the applicable law of incorporated or associated documents (see above).
Effect of incorporation of foreign statutes
14.22 The traditional view was that the content of a foreign statute, as incorporated into a contract governed by English law, is simply to be treated as words, divorced from their interpretation under the law of that statute. Thus, in The Freights Queen, where the bill of lading incorporated US COGSA 1936, Ackner J. said:47
…where as is common in relation to a bill of lading one finds the incorporation of Hague Rules by reference to an Act, it does not follow that all the provisions of the foreign statute are to apply, let alone that they indicate a choice of foreign law as being the proper law of the contract.
14.23 However, even where English law is the applicable law of the contract, if a foreign statute is incorporated into the contract terms, it may be argued that the statute has to be interpreted in accordance with the law of the enacting country rather that the applicable law of the contract. This argument arose in The Stolt Sydness,48 where the question was whether, in a charter governed by English law but incorporating US COGSA 1936, “suit” within the meaning of section 3(6) of that statute included arbitration (as in English law), or not (as in US law). Rix J. undertook an extensive review of the authorities and on the facts held that English law rules of construction were intended to apply, but concluded that there was no universally applicable rule in such situations, saying:49
In my judgment it may often be of the utmost relevance to the construction of an English law contract to consider what the position is under some foreign law to which the contract makes reference…Where, however, a foreign statute is incorporated as a source of an international convention such as the Hague Rules, it is perhaps less likely that an English Court would need to be informed of the foreign law decisions upon that foreign statute: for English law would have numerous decisions of its own upon identical wording. Even so, the wording of a foreign statute might incorporate such rules in slightly different terms, and then foreign law decisions of the relevant jurisdiction may again be relevant to expound the significance of such changes.
14.24 The effect of Rix J.’s analysis would appear to be that in the case of a bill that is governed by English law but that incorporates a foreign statute as a part of its terms then, as a matter of the English rules of construction, any decisions (or presumably other learning) of that foreign law may be considered in deciding the proper construction of those terms. However, as with all issues of construction, the contract has to be considered as a whole and so the effect of foreign decisions may be small or none at all. Elaborate research and citation of foreign decisions on the wording of a foreign statute is unlikely to be helpful for all but the most recondite of terms.
14.25 Where there is a contract “implied” from circumstances, such as the presentation of a bill of lading in exchange for delivery of the cargo, the applicable law of the implied contract is not necessarily the same as the underlying or original bill of lading contract.50 As with a “normal” contract, its terms and the relevant surrounding circumstances will need to be considered in order to ascertain the applicable law, in accordance with the terms of Rome I. Because the implied contract is, at least in English law, regarded as a “contract of carriage”, it would appear that Article 5 of Rome I should apply to determine the applicable law of the implied contract if the applicable law cannot be determined using Article 3.
14.26 Bill of lading disputes frequently give rise to claims in bailment as well as in tort, for example, in negligence or for conversion/wrongful interference with goods, as well as or instead of contractual claims.51 Where a bailment is contractual, the claim for breach of duty as a bailee is tantamount to a claim for breach of contract and will be treated as such, but otherwise it will be treated as a claim in tort or at least as a claim for breach of a non-contractual obligation of the bailee.52
14.27 If a claim in bailment arises out of a contract, as in a straightforward case of goods being shipped on board and the shipowner issuing an “owner’s bill”, then the question of which law is applicable to a claim for breach of duty by the shipowner as bailee of the goods is to be determined by Rome I, because a contract of carriage is a contract of bailment.53 Thus any claim made by the shipper in bailment in those circumstances will be governed by the law applicable to the contract contained in or evidenced by the bill of lading. Thus the choice of law applicable to such a claim will follow the rules set out in Article 3 and, it is submitted, Article 5 of Rome I. This would be on the basis that the parties had either “chosen” an applicable law for the purposes of Article 3 or the rule in Article 5(1) or (3) is applicable. The position is less straightforward when a claim in bailment is made by a subsequent lawful holder of the bill of lading, but it is submitted that Articles 3 and 5 of Rome I may regulate the choice of applicable law in that situation also. In Reunion europeenne SA v Spliethoff’s Bevrachtingskantoor BV54 the ECJ considered that Article 5(1) of the Brussels Convention (concerned with jurisdiction and not applicable law) had no application to claims by a consignee under a bill of lading, for cargo damage, against carriers with whom the consignee was not in contractual relations.
14.28 Where, on an English law analysis, the shipowner is the sub-bailee of goods and the owner of the goods (or at least the person entitled to their immediate possession) wishes to sue the shipowner for loss or damage to the cargo, the first question to be considered is whether the relationship between the bailor and the sub-bailee is to be characterised as a “contractual obligation” so that Rome I applies or a “non-contractual obligation” so that Rome II applies. The answer may depend on whether the sub-bailment was upon contractual terms and, if so, what those terms were.55 Ultimately the Court of Justice of the European Union will have to rule on the point but it is submitted that, at least in cases where there is a sub-bailment on contractual terms, Rome I will determine the applicable law of the relationship.56
14.29 The rules for ascertaining the applicable law in “situations involving a conflict of laws” concerning non-contractual obligations “in civil and commercial matters” are now contained in Regulation (EC) No. 864/2007 of 11 July 2007, known as “Rome II”.57 They apply to all events giving rise to damage occurring after 11 January 2009. This Regulation replaces the Private International Law (Miscellaneous Provisions) Act 1995 (“PILA”), although that Act continues to apply to any events giving rise to damage before 11 January 2009.58 PILA had, in turn, replaced the common law rule concerning “foreign torts”, which was not really a conflict of laws rule at all, but rather a further jurisdictional test, which required proof of so-called “double actionability” before a tort committed outside the jurisdiction would be considered by an English court, even assuming jurisdiction could otherwise be founded.59
14.30 The scope of Rome II depends on the meaning given to the words “non-contractual obligation”. Recital 11 recognises that the concept of a non-contractual obligation varies from one member state to another, so that for the purposes of Rome II, “non-contractual obligation should be understood as an autonomous concept” which will include those obligations that arise from “strict liability”. Logically, this concept should include every type of non-contractual obligation within all member states. Recital 12 also deals with the scope of Rome II. It states that “the law applicable should also govern the question of the capacity to incur liability in tort/delict”.60 Article 1(2)(c) stipulates that Rome II does not apply to “non-contractual obligations arising under bills of exchange, cheques and promissory notes and other negotiable instruments to the extent that the obligations under such other negotiable instruments arise out of their negotiable character”. This wording is therefore identical to that in Article 1(2)(d) of Rome I, but there is no equivalent in Rome II of recital 9 to Rome I. For the same reasons advanced in relation to Article 1(2)(d) of Rome I, it is submitted that this exclusion will not apply in relation to any non-contractual obligations arising “under” a bill of lading.
14.31 The basic rule under Article 4(1) of Rome II is that, subject to Article 4(3), the applicable law is that of the country in which the damage occurs. This represents a significant change from the provision of section 11 of PILA, which provided, as the general rule, for the law of the country where “the events constituting the tort in question” occurred.
14.32 Damage includes loss and thus most cargo claims will fall under Article 4(1) so that the applicable law will be that of the state where the loss or damage occurred. The article is silent on the position where the loss or damage occurs on the high seas, or where there is progressive deterioration in cargo whilst passing through the territory of several states.61 Dicey62 suggests that damage is to be treated as occurring in the country of registration of the ship. This approach, while somewhat artificial, would at least allow section Article 4(3) to be invoked. Given the nature of the countries in which many ships are registered and the usual lack of connection between the country of registration and the elements of the tort, one would expect the Article 4(3) proviso to be applied in some such cases, although, as discussed below, this cannot readily be invoked.
14.33 Claims for deceit or negligent misstatement arising from the issue of inaccurate bills fall under Article 4(1). The damage is unlikely to occur where the bills were issued. It is more likely to be where the misrepresentation contained within them was relied or acted upon, which might turn out to be the place where they were presented (for example, in exchange for payment) or the place where the consignee was situated.63
14.34 Claims for conversion/wrongful interference with goods will be governed by the general rules for non-contractual claims.64
14.35 Article 4(3) provides that the law of a country other than that indicated by Article 4(1) shall apply where “the tort/delict is manifestly more closely connected” with that country The courts have understandably shown reluctance to apply different systems of law to different but closely related claims arising out of the same facts, but it is on occasions necessary to analyse the law applicable to each claim or cause of action separately.65 The court may make use of the Article 4(3) proviso in cases where there are related claims in contract and tort. In some cases the tort may be said to be manifestly more closely connected with the country whose law governs the bill of lading contract than that where the damage occurred,66 a question that is of some difficulty in cargo claims.67 However the threshold necessary to establish that Article 4(3) will apply is high68 and it has been said that it is to be invoked only on an exceptional basis.69
14.36 Article 16 of Rome II preserves the effect of mandatory laws of the forum, and Article 28(1) provides that it will not prejudice the application of pre-existing international conventions. To the extent that Article IVbis of the Hague-Visby Rules applies those Rules to claims in tort,70 it will, because of the mandatory effect of COGSA 1971, override the application of Article 4 of Rome II.
14.37 Of central importance in determining the correct forum for the resolution of a bill of lading dispute is the incorporation of a jurisdiction clause or arbitration agreement, because, at least for the present, both the common law and European regimes uphold the freedom of the parties to select their own forum in a carriage of goods by sea context.
14.38 As a matter of English law the validity of and effect of an arbitration agreement is governed by the provisions of the Arbitration Act 1996.71
14.39 A discussion of arbitral procedure is beyond the scope of this work. However, particular attention needs to be paid to the provisions for commencing an arbitration.72 A failure to comply with the provisions as laid down in the 1996 Act or in the relevant contract may mean that an arbitration has not been validly started, which may have important consequences for time bar purposes.
14.40 Where a contract provides that a dispute is to be referred to arbitration, a set of rules and principles is engaged,73 which is self-contained in the sense that it operates independently of rules for establishing jurisdiction in other cases. The European regime enshrined in Brussels I (R) has no application to “arbitration”.74 The extent to which the exclusion in the same laconic wording in Regulation 44/2001 applied was the subject of much dispute and a divergence of view between the English common law and European Court jurisprudence. It is now established that this exclusion applied to arbitration proceedings themselves and court proceedings where “the principal focus” is arbitration. The wording of that exclusion in Regulation 44/2001 also included issues concerning the recognition and enforcement of awards. Whether it embraced such issues as the validity or existence of an arbitration agreement, the appointment of arbitrators, ancillary assistance to the arbitration proceedings (such as an injunction to restrain a party from starting or continuing proceedings in breach of the arbitration agreement) was more controversial.75 In particular the European Court in The Front Comor held that an issue as to the existence or otherwise of an arbitration agreement, if taken as a preliminary issue in a claim for substantive relief (as opposed, possibly, to a claim which was solely for a declaration as to the existence of an arbitration agreement) was within the old Regulation.76
14.41 The ECJ’s ruling in The Front Comor did not put an end to the litigation. Subsequently a London arbitral tribunal issued an award in favour of owners that the English court gave leave to enforce pursuant to section 66 of the Act.77 It also held, in a separate hearing, that the tribunal had jurisdiction to award damages for breach of the arbitration agreement.78
14.42 Whilst the wording of Article 1(2)(d) of Brussels I (R) is unchanged, the new recital 12 is very elaborate. The way this will be interpreted is a matter of speculation. In summary we suggest: (i) the first two paragraphs reverse the result in The Wadi Sudr79 and make clear that rulings as to the existence or otherwise of an arbitration agreement are outside the Regulation; (ii) the third paragraph confirms that a judgment on the merits, after declaring any arbitration agreement null or void etc., is within the Regulation; (iii) this will not however affect the enforceability of an arbitral award under the New York Convention (for example where a Spanish court holds in a claim between C and D that the arbitration agreement is null and void, it may go on to give a substantive judgment which may be enforced, but this will not affect the validity and enforceability of a London arbitration on the same issues where the English court regards the arbitration agreement as valid); and (iv) it is unclear how widely the term “ancillary proceedings” is to be interpreted and whether it includes a claim for a declaration that there is an arbitration agreement.
14.43 Shortly after Brussels I (R) came into force on 10 January 2015, the European Court gave judgment in Gazprom OAO v Lietuvos Respublika.80 This was a case under the old Regulation 44/2001 although the Court’s judgment and the A-G’s opinion relied significantly on the terms of Brussels I (R). The case concerned an anti-suit injunction issued by an arbitral tribunal. The CJEU held that such an injunction was not incompatible with Regulation 44/2001 as it fell within the arbitration exception in Article 1(2)(d) and that it was therefore compatible with the Regulation for a member state court to recognise and enforce it.
14.44 Where there is a dispute as to the existence of a contract said to contain an arbitration clause, or as to whether the clause is incorporated, the arbitrators may themselves have initial jurisdiction81 but, at least for an arbitration governed by English law, this is subject ultimately to the review of the court.82 Further, and subject to the precise terms of the arbitration agreement, an arbitral tribunal will generally have jurisdiction to determine disputes notwithstanding that the contract in question was terminated by repudiation83 or frustration,84 as well as having jurisdiction to determine issues said to make the contract voidable or unenforceable, such as misrepresentation, duress, non-disclosure85 or illegality.86 Even where the contract is said to be void or never to have been concluded, or to have been between parties other than those to the arbitration,87 the arbitral tribunal88 will have jurisdiction to decide such an issue.89
14.45 If one party brings proceedings other than as provided for in the arbitration agreement, it will be a breach of contract, entitling the other party, where the proceedings are English ones, to a stay under section 9(1) of the 1996 Act. Such facts may also entitle him to an anti-suit injunction90 and/or to damages.91
14.46 The parties may also by their contract confer jurisdiction on a particular court or the courts of a particular state, either on a non-exclusive basis or, as is more common in bills of lading, on an exclusive basis. Typical clauses include provisions that any dispute shall be referred to “the English Court” or “the Southern District Court of New York”. The validity and effect of these clauses needs to be considered both at common law and for the purposes of Article 25 of Brussels I (R), the successor to Article 23 of Regulation 44/2001. When the 2005 Hague Convention comes into force,92 this will alter dramatically the general law on enforcement of jurisdiction clauses in many types of case. The new Convention provides for a regime not unlike the New York Convention on arbitration awards. In particular the new Convention provides for mandatory enforcement of jurisdiction agreements, and, together with the provisions of Brussels I (R), should ameliorate some of the problems caused by ECJ decisions such as Gasser v Misat.93 However, by Article 2(2)(f) the Hague Convention does not apply to the carriage of passengers and goods and will thus have no application in the majority of bill of lading cases.
14.47 At common law the validity and effect of a jurisdiction clause is purely a matter of construction,94 which will be determined by the putative applicable law of the contract.95 Only clauses that are sufficiently certain in scope will be upheld.96 A clause will be valid if the jurisdiction in question is ascertainable even if not expressly named. An example of the latter would be: “the court of the carrier’s principal place of business”.97 A common area of dispute is whether a given jurisdiction clause is exclusive or non-exclusive: again this is a question of construction requiring it to be determined “whether the clause operates transitively in the sense of imposing on all parties a duty to refer their disputed claims to the named tribunal or intransitively in the sense of requiring all parties to consent to the jurisdiction of a given court if that jurisdiction is invoked by the claimant party”.98 The issue of whether a jurisdiction clause is exclusive or non-exclusive is potentially important, because it will determine whether suit brought elsewhere than the specified venue is a breach of contract. That in turn could well affect the right to obtain an anti-suit injunction. Slight differences in wording may make a significant difference in effect. The word “exclusive” is not necessary to conclude that a jurisdiction clause is exclusive. Moreover, the words “submit” or “submission” are ambiguous for this purpose.99 However the direct relevance of the common law on this subject is likely to decrease with the greatly increased ambit of the European regime on jurisdiction clauses, discussed below.
14.48 Whereas floating applicable law clauses are in principle invalid at common law (see above), floating jurisdiction clauses are valid, provided that they are sufficiently certain in scope and not too closely related to an invalid floating choice of law clause.100
14.49 As with choice of law clauses, jurisdiction clauses will be invalid if their effect is to derogate from the provision of a mandatory law such as COGSA 1971. The classic example is The Hollandia,101 where the House of Lords refused to enforce a Dutch jurisdiction clause because that would have had the effect of sending the case to a Dutch court, which would have applied Dutch law and a limitation figure that was less than that in the Hague-Visby Rules that were given the force of law in the English courts by COGSA 1971. While, subject to the discussion below, this approach will still apply to jurisdiction clauses in favour of non-“Regulation” states,102 it will no longer do so for jurisdiction clauses in favour of “Regulation” states. This is because the 1968 Brussels Convention that gave rise to the Hague-Visby Rules is not one of the Conventions referred to in Article 67 or 70 of the Regulation, and so Article 23 of the Regulation takes precedence over the “domestic” mandatory effect of COGSA 1971.
14.50 The position should be noted in what might be termed a “reverse Hollandia” situation. This is where there is an English law and jurisdiction clause that a foreign court, which has asserted jurisdiction, regards as invalid because it is contrary to its mandatory law. The English court will not lightly allow arguments of comity to derogate from what is in English law eyes a valid jurisdiction agreement.103 This approach is only valid in a non-“European” case.
Disputes as to the existence or validity of the jurisdiction clause
14.51 A common problem is where one of the parties disputes the existence or validity of (i) a contract term containing a jurisdiction clause, or (ii) the contract itself. Unless the court has jurisdiction apart from the disputed clause itself, this raises a preliminary question – does the court have jurisdiction to determine whether it has “substantive” jurisdiction?104 The approach of the court depends on whether the jurisdiction clause, if valid, would be within Article 25 of Brussels I (R) or not. The approach in non-Regulation cases is governed by the requirements of CPR 6.20.105 The position under Brussels I (R) is discussed in the following paragraphs.
Regulation 44/2001 and Brussels I (R)
14.52 The European regime applies essentially where the defendant is domiciled in a Regulation state (see Section E below). In such a case, as discussed below, with certain exceptions the basic rule is that the defendant must be sued in the state in which he is domiciled.
14.53 Article 25 of the Regulation sets out one of the exceptions. It states that:
If the parties, regardless of their domicile, have agreed that a court or courts of a Member state are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction…. Such jurisdiction shall be exclusive unless the parties have agreed otherwise…106
The words “regardless of their” domicile represent a significant change from the old wording of “one or more of whom is domiciled in a Member State”. Accordingly an English court will apply Article 25 to the question of the validity or exclusivity of an English (or, in theory any other member state)107 jurisdiction clause just as much for a contract between an Indian party and a Chinese party as to one between French and Dutch parties.
14.54 The first main issue that arises is the scope of the Article itself, which provides that, subject to certain exceptions, the agreement must be in writing or evidenced in writing, as determined by “autonomous” EU law principles.108 In The Tilly Russ,109 the ECJ considered the validity of a jurisdiction clause in the standard printed terms of a bill of lading, under the original text of Article 17 of the Brussels Convention. The ECJ held that consent to the clause was a question of EU law and must be “clearly and precisely demonstrated”. The substance of the ruling has been overtaken by changes in the wording of Article 25 of Brussels I (R) which followed closely that of Article 23 of Regulation 44/2001.110 This makes it clear that agreement to such a clause can be established by reference to a course of dealing between the parties, or a relevant trade usage.111 Thus, subject to the point discussed in the following paragraph, Article 25 is likely to be satisfied in all cases where English law would regard the jurisdiction clause as applicable.112
14.55 So-called “asymmetric” jurisdiction clauses are ones where exclusivity binds one party only, and the other is at liberty to sue where he wishes. Such clauses are more common in banking contracts than shipping contracts, and are to be distinguished from jurisdiction clauses where the relevant jurisdiction is not expressed directly but rather in terms of a formula such as “the carrier’s principal place of business”. This latter type of clause is valid under EU as well as English law.113 There is however at least a potential divergence on asymmetric clauses that English law recognise as valid but the EU does not or may not.114
14.56 Where Article 25 would apply to the jurisdiction clause in question, it appears that “autonomous” EU law governs not only the issue of consent in the basic sense, but also the issue of whether a jurisdiction clause in a charterparty is incorporated into the bill of lading: at common law this would be governed by the applicable law of the bill of lading. Thus, in The Siboti115 it was common ground that the issue of whether an English law and jurisdiction clause was incorporated in the bill where at least one of the relevant parties was domiciled in a Regulation state was governed by EU law. In that case Gross J. analysed both English and EU law concerning incorporation of jurisdiction clauses into bills of lading, and concluded that the objectives of each were “very similar indeed”116 and that under neither system of law was the clause in question incorporated.117
14.57 A further question, of some difficulty, is the application of Article 25 (or its predecessor, Article 23) in the context of contractual claims by or against parties other than original parties to the bill of lading contract (e.g., an indorsee or subsequent holder). This issue, too, was considered in The Tilly Russ where it was held that a statutory “successor” to the contracting party is also bound by the jurisdiction agreement, if the provisions of the applicable national law for succession or assignment are fulfilled. In that case it was held that the Belgian consignee was bound in respect of a shipment by an American shipper covered by a bill issued by a German carrier specifying German law and jurisdiction. In an English law context this means that a party acquiring rights or liabilities under a bill of lading contract by virtue of COGSA 1992 is bound by the dispute resolution provisions.118
14.58 Article 23 had no application where neither of the contracting parties was domiciled in a Regulation state, at least while they remained the only parties bound by the contract. This raised a difficult question as to the position where the carrier was not domiciled in a Regulation state and either (i) the shipper was domiciled in such a state but the indorsee was not, or, conversely (ii) the shipper was not domiciled in such a state but the indorsee was? The tentative view of the Advocate-General to the ECJ in The Tilly Russ was that in situation (i) where a holder domiciled in a Regulation state is substituted for one of two parties not so domiciled, the Convention would not apply.119 The reasoning, under the old Article 17 would apply equally to Article 23, and also would apply equally to situation (ii), so that in either case one looks at the application of Article 17/23 in relation to the original parties to the contract.
14.59 It was apparently on the basis of this approach, and because of the uncertainty over whether in that case the shipper was domiciled in a Regulation state or not, that in The Siboti Gross J. considered both English law and EU law. As there was no material difference between the two laws for the purpose of the case, it was unnecessary to decide which was applicable.120
14.60 The law in this area is still developing but it does appear that in two respects the common law approach to jurisdiction agreements requires modification where Article 25 applies or may apply. The common law will focus on (i) the position between the parties relying on the contract, whether they are original parties to the contract or subsequent holders of the bill, and (ii) the applicable law or putative applicable law of the bill of lading contract for the purposes of considering issues on the validity or existence of a jurisdiction clause. The cases discussed above indicate that under Article 25 (i) community law will govern whether a jurisdiction clause was binding on the original parties, and, if so, (ii) the applicable national law will govern whether a subsequent party obtained rights under the contract.
14.61 Article 25 contains a proviso. It applies unless the agreement is “null and void as to its substantial validity under the law of that Member State”. It is to be expected that the approach of the English courts to such an issue will be guided by their approach to similar wording, used in relation to arbitration agreements, in section 9 of the Arbitration Act as well as Article II of the New York Convention.121
14.62 Article 25(5) confirms that a jurisdiction clause is regarded as separable from the remainder of the contract, and the English approach to this is likely to follow that for arbitration agreements, also separable as provided in section 7 of the Arbitration Act.
14.63 A further issue is how an English court deals with the effect of an agreement in favour of a jurisdiction that is not, or may not be, a Regulation state. Where the jurisdiction clause is in favour of the courts in a non-Regulation state (e.g., New York) Article 25 cannot apply. Does this, however, result in a reversion to the basic Regulation regime based on the defendant’s domicile (if within the EU) or is the Regulation disengaged in the sense that it derogates to the common law? The former would impose a serious and, in the eyes of many, undesirable limitation on the principle of freedom of choice of jurisdiction as enshrined in the common law. If, for example, an English domiciled defendant is sued in England by virtue of Article 4 or 7 of the Regulation, under a bill of lading with an exclusive New York jurisdiction clause, it is unclear what approach the English court should take in an application to stay the English action.122 On the wording of Regulation 44/2001, if Article 23 did not apply then Article 2 or 5 would have done so.123
14.64 In Coreck Maritime GmbH v Handelsveem BV,124 the ECJ considered the status of bills of lading issued by a German carrier to which it was said that Article 17 of the Brussels Convention applied. The bills contained a demise clause and provided that “Any dispute arising under this Bill of Lading shall be decided in the country where the carrier has his principal place of business and the law of such country shall apply except as provided elsewhere herein.”125 The court rejected an argument that the clause was insufficiently certain to fall within Article 17 because it did not expressly identify the state concerned that might or might not turn out to be a Regulation state. It further held that whether such a clause bound a subsequent holder of the bill as well as the original party was a question for the relevant national law on the effect of the transfer of the bill (i.e., in the case of English law, COGSA 1992).126
14.65 The court also considered (albeit obiter) that: