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Foreign Arbitration Agreements in Australian Voyage Charterparties Void

Nathan Cecil, Partner

In the recent decision in Dampskibsselskabet Norden A/S v Beach Building & Civil Group Pty Ltd,¹ the Federal Court of Australia held that foreign arbitration agreements in voyage charterparties for the carriage of goods from Australia are void. As a result, the Court refused to enforce two London arbitration awards issued in respect of disputes arising under the relevant voyage charterparty.

The Facts

Dampskibsselskabet Norden A/S (“Norden”), as disponent owner, entered into a voyage charterparty with Beach Building & Civil Group Pty Ltd (“Beach”) (an Australian entity) for the carriage of a cargo of coal from Hay Point, Queensland, to Ningbo and Jiangyin, China. 

A dispute arose under the charterparty in relation to demurrage. The charterparty contained an arbitration clause providing for all disputes to be resolved according to English law by London arbitration.

Norden commenced London arbitration, was awarded US$824,663.18 and sought to enforce the awards against Beach in Australia by registering them with the Federal Court.  Beach opposed the recognition and enforcement of the awards on the basis that the foreign arbitration clause and the awards issued under it were void under the Carriage of Goods by Sea Act 1991 (CTH) (“Australian COGSA”).

Foreign Arbitration/Litigation Clauses Void Under Australian COGSA

Section 11 of Australian COGSA provides that any clause which purports to limit or oust the jurisdiction of an Australian court over a:

1. “sea carriage document relating to the carriage of goods from any place in Australia to any place outside Australia”; or
2. “a non-negotiable document (other than a bill of lading or similar document of title)” which is expressed to be subject to the amended Hague Rules under Australian COGSA;

is void and of no effect.  The mandatory reference of a dispute arising under such documents to foreign arbitration or litigation purports to limit or oust the jurisdiction of Australian courts.  The only permitted exception to this is where the clause provides for the resolution of the dispute by arbitration “conducted in Australia”.

The Decision

The charterparty related to the carriage of goods from Australia to a place outside Australia.  The London arbitration clause in the charterparty therefore limited or ousted the jurisdiction of the Australian courts and would be rendered void by section 11 of Australian COGSA if the voyage charterparty was held to be a ‘sea carriage document’ or other non-negotiable document that was expressed to be subject to the amended Hague Rules under Australian COGSA.

The amended Hague Rules define a ‘sea carriage document’ to include “a non-negotiable document (including a consignment note and a document of the kind known as a sea waybill or the kind known as a ship’s delivery order) that either contains or evidences a contract of carriage of goods by sea”.

Although Australian COGSA expressly provides that it does “not apply to the carriage of goods by sea under a charterparty unless a sea carriage document  is issued for the carriage” (and no additional ‘sea carriage document’ was issued under the voyage charterparty), the Federal Court held that the voyage charterparty itself was a ‘sea carriage document’, being a non-negotiable document that provided for or evidenced a contract of carriage of goods by sea. 

This finding was based on the distinction between a voyage charterparty, which is a contract for the carriage of specific goods on a specific voyage, and a time or demise charterparty, which is a contract for the use of a ship and not a contract for the carriage of goods.  The Court therefore held that voyage charterparties are contracts of carriage of goods by sea, as compared to time or demise charterparties, which are contracts for the use of a ship.  Contracts of affreightment will likely be considered to be in the same position as voyage charterparties.

As a result, the Court refused to recognise and enforce the awards against Beach, leaving Norden to commence fresh proceedings in Australia in order to recover its claim for
US$824,663.18.

This decision is directly contrary to the recent decision of the Supreme Court of South Australia in Jebsens International (Australia) Pty Ltd & Anor v Interfert Australia Pty Ltd & Ors,²in which the Supreme Court held that a voyage charterparty was not a ‘sea carriage document’ within the meaning of Australian COGSA.  However, that decision was a preliminary ruling on certain questions and the Supreme Court does not seem to have had the benefit of the depth of submissions and reference to earlier cases that the Federal Court had in Norden v Beach.  The Federal Court decision will therefore govern any subsequent Federal Court cases and is likely to be considered more persuasive than the Supreme Court decision and followed in other courts.

Implications

Unless the decision is successfully appealed or overturned, any clause in a voyage charterparty or contract of affreightment for the carriage of goods from Australia providing for mandatory foreign arbitration or litigation is void.  Any arbitral award or judgment obtained pursuant to any such clause will not be recognised or enforced by Australian courts.

Before bringing a dispute under any such charterparty or contract of affreightment, the claimant will need to consider seriously where the award or judgment might need to be enforced and may have to bring any such dispute in Australia if it will be necessary to enforce in Australia.

Any outstanding foreign award or judgment in respect of such a charterparty or contract of affreightment is likely to be successfully challenged and any person having the benefit of the same will likely have to re-arbitrate/litigate their claim in Australia before enforcement will be possible.

However, Australian COGSA does permit one exception to this rule – that is, where the arbitration clause provides for arbitration “conducted in Australia”.  The exception does not appear to require that the arbitration be conducted according to an Australian set of arbitration rules, only that the seat of the arbitration is Australia.  Parties should still be free to specify that any Australian arbitration be conducted according to their preferred international rules (such as LMAA).  Alternatively, parties could specify one of the available and reliable sets of Australian arbitration rules (such as the Model Law, MLAANZ or ACICA rules).

If you have any queries or require further information, please contact:

Contact

Nathan Cecil

Robert Wilson

Claire Morgan

Partner

Partner

Foreign Registered Solicitor

T: +61 2 9230 9450

T: +61 2 9230 9475

T: +61 2 9230 9412

E:nathan.cecil@nortonwhite.com

E:robert.wilson@nortonwhite.com

E:claire.morgan@nortonwhite.com

¹ [2012] FCA 696 (29 June 2012). ² [2012] SASC 50 (25 August 2011)..