Rules For Incorporation Of Charterparty Terms Into The Bills Of Lading
The Rules Adopted In US Jurisprudence For Incorporation Into The Bill Of Lading Of Charter Party Terms
The Charter Party Bills of Lading transferred to CFR/CIF buyers become contracts of carriage. The question whether such contracts of carriage incorporate the charter party terms depends on the shipowners` ability to prove that the holder of Charter Party Bill of Lading had either actual or constructive notice of the incorporation of charter party terms. A holder of a Charter Party Bill of Lading cannot be bound by the terms of charter party of which he had no notice1.
When a third party holder of Charter Party Bills of Lading commences a legal action in US Courts against the shipowner, the shipowner`s application to stay the legal action and to compel arbitration may succeed only if it can prove that the holder of Charter Party Bill of Lading had either actual or constructive notice of the incorporation of charter party terms.
If the letter of credit or collection instructions require the presentation of charter party along with the Bills of Lading and the CFR buyers obtain the charter party along with the Bills of Lading following the payment of the price, they shall be deemed to have actual notice of the incorporation of charter party terms. Article 22 of UCP600 which stipulates the requirements with regard to the Charter Party Bills of Lading does not require the presentation of charter party along with the Charter Party Bills of Lading but it does not prohibit the presentation of charter party when the letter of credit has such requirement.
If the letter of credit or collection instructions did not require the presentation of charter party along with the Bill of Lading and the CFR buyer obtained solely the Charter Party Bill of Lading, the question is whether the CFR buyer had constructive notice of the incorporation of charter party terms into the contract of carriage contained in the Charter Party Bill of Lading.
In the US case law the rule is that a third party holder of Charter Party Bill of Lading had constructive notice of the incorporation of charter party terms when the Bill of Lading clause incorporating the charter party terms identifies the charter party by date and/or place where the charter party was signed and/or parties to the charter party. The actual information required to identify the charter party intended to be incorporated depends on the Charter Party Bill of Lading form used and whether the vessel is under one charter party or in a chain of charter parties.
If the vessel is in a chain of charter parties agreed on the same date and the Bills of Lading fail to provide information about the signatory parties, none of the charter parties is deemed incorporated into the Bills of Lading on the grounds that the Bills of Lading did not identify sufficiently the charter party intended to be incorporated. In Volgotanker Joint Stock Co. v. Vinmar International Ltd.2, there were two voyage charter parties for one voyage, a head voyage charter party and a sub-voyage charter party both dated January 12, 1998. The head voyage charter party had a London arbitration clause, while the sub-voyage charter party had a New York arbitration clause. The Bill of Lading showed the charter party date only. The Court for the Southern District of New York held that the charter party date alone in the Bill of Lading was not enough to identify adequately which of the two existing charter parties was intended to be incorporated.
If, however, the vessel is in a chain of charter parties agreed at different dates, the identification of Charter Party by date alone is deemed sufficient for the identification of charter party sought to be incorporated. The relevant cases in the US case law are Thyssen Inc. v. Calypso Shipping Corp S.A.3 and Barna Conshipping, S.L. v. M/V Saturnus4.
In Thyssen Inc. v. Calypso Shipping Corp S.A.5 the vessel was under two charter parties, a head time charter party between the shipowner, Calypso Shipping Corp S.A. and Western Bulk Carriers, and a sub-voyage charter party between Western Bulk Carriers and the CFR seller, Metalsrussia Corp Ltd.. Because the Charter Party incorporation clause of Bills of Lading indicated the date of the sub-voyage charter party, the US District Court held that the Bills of Lading incorporated the terms of sub-voyage charter party and the identification of Charter Party by date alone was sufficient for the identification of charter party intended to be incorporated. The Court held that:
"[T]he existence of a specific charter party of a particular date, combined with the repeated references to the charter party on both sides of the Bills of Lading, are sufficient to incorporate all the charter party terms."
In appeal, the US Court of Appeals for the Second Circuit upheld the decision of the District Court saying that the charter party terms were properly incorporated into the Bills of Lading and that the charter party terms bound both the shipowner and the third party holder of the Charter Party Bills of Lading.
In Barna Conshipping, S.L. v. M/V Saturnus6 the vessel was in a chain of three charter parties: a head time charter party between the shipowner, S-Bulk and Grand China Shipping (Hong Kong) Co. Ltd., a voyage charter party between Grand China Shipping (Hong Kong) Co. Ltd. and Oldendorff, and a sub-voyage charter party between Oldendorff and Barna Conshipping. Because the Charter Party incorporation clause of Bills of Lading indicated the date of the sub-voyage charter party, the US Court held that the Bills of Lading incorporated the terms of sub-voyage charter party and the identification of Charter Party by date alone was sufficient for the identification of charter party intended to be incorporated.
Except for the situation when there were two or more charter parties concluded at the same date, for Charter Party Bills of Lading issued in CONGENBILL form the US Courts accept the incorporation of charter party terms provided the Charter Party incorporation clause stipulate the Charter Party date7. Given that the CONGENBILL form has a blank space for insertion of Charter Party date only, the identification of the parties is not a condition for incorporation of Charter Party.
In Continental Insurance Company v. Polish Steamship Company8 the US Court of Appeals for the Second Circuit held that when the Charter Party Bill of Lading is in a CONGENBILL form the date of the charter party alone is sufficient to identify the charter party sought to be incorporated. The relevant passage of the Court decision is quoted below:
"While it would have been preferable to identify the charter party in more detail, i.e. by mentioning the location and parties involved, we find that the specification of the date of the charter party, along with the references to charter parties made on the bill`s face and overleaf, suffice to identify the relevant charter party with the specificity needed to give effect to the intended incorporation."
Unlike the Charter Party Bills of Lading issued in the CONGENBILL form, the Bills of Lading issued in the form prescribed by ASBATANKVOY and VEGOILVOY charterparties allow the identification of Charter Party not just by date, but also by naming the charterer and shipowner/disponent owner. For the proper incorporation of Charter Party terms in such Bills of Lading it would be necessary to indicate in the Bill of Lading both the Charter Party date and the parties thereto, not just the Charter Party date or the parties, unless the shipowner proves that it could not comply with this rule due to charterer`s fault.
In Amoco Overseas Company v. S.T. Avenger9, the shipowner issued the Bill of Lading with the following Charter Party incorporation clause:
"This shipment is carried under and pursuant to the terms of the charter dated ........... between MESSRS. OCEAN COURIER, INC. and MESSRS. MONTEDISON MILANO AMOCO as charterer, and all the terms whatsoever of the contract/charter except the rate and payment of freight specified therein apply to and govern the rights of the parties concerned in this shipment."
The shipowner could not mention the Charter Party date in the Bill of Lading because the charterer forwarded the formal Charter Party for signature two days after shipment. Furthermore, the shipowner did not know at the time of shipment the exact name of charterer because the vessel`s fixture was negotiated through brokers which had instructions not to reveal the name of charterer until the agreement was reached. The only information the shipowner had about the charterer at the time of Bill of Lading issuance was from the charterer`s broker letter confirming the terms of vessel`s fixture (fixture recap). This named the charterer as "Amoco (London)". Only when the formal charter party was forwarded to the shipowners for signature was the charterer specifically named as Amoco Trading International Limited.
The cargo was lost during the carriage and Amoco Overseas Oil Company (i.e. Bill of Lading holder) sued the shipowner to recover the value of the cargo. The shipowner asked the Court for the Southern District of New York to stay the legal proceedings to allow the settlement of claim by arbitration pursuant to the charter party arbitration clause incorporated into the Bill of Lading.
In the legal proceedings the Bill of Lading holder contended that the Bill of Lading`s clause incorporating the charter party terms did not identify the charter party with sufficient specificity to incorporate it into the Bill of Lading, because the space in the Charter Party incorporation clause for the insertion of the Charter Party date was left blank and the charterer was improperly named.
The shipowner argued that the space in the Charter Party incorporation clause for the insertion of the Charter Party date was left blank and the charterer was improperly named, because the charterer had sent the formal charter party to shipowner for signature after the shipment of cargo and the issuance of Bill of Lading.
The Court for the Southern District of New York accepted the shipowner`s arguments on the ground that although the charterer`s name inserted in the Charter Party incorporation clause was improper, this showed the Master`s attempt to identify the charterer and the shipowner`s intention to incorporate the Charter Party terms into the Bill of Lading based on the information they had at the time of shipment.
Except for such obvious circumstances, the Bills of Lading issued for oil cargoes in the form prescribed by Asbatankvoy charter party have to mention both Charter Party date and parties thereto. In Ibeto Petrochemical Industries Limited v. M/T Beffen10, the Bill of Lading clause incorporating the charter party terms had the following provisions:
"This shipment is carried under and pursuant to the terms of the Charter Party dated 31 December 2003 between Chemlube International, Inc. as Charterer and Bryggen Shipping and Trading A/S as Owner and all conditions and exceptions whatsoever thereto."
After delivery, the CFR buyer, Ibeto Petrochemical Industries Ltd. claimed that the oil cargo was contaminated with sea water and started legal proceedings in Nigeria and New York against the shipowner. The shipowner asked the Court for the Southern District of New York to stay the legal proceedings in US, to enjoin the legal action pending in Nigeria and to compel arbitration in London in accordance with the charter party arbitration clause. The US Court of Appeals for the Second Circuit held that the identification of charter party by date (December 31, 2003) and by the parties thereto (Chemlube as Charterer and Bryggen Shipping and Trading as Owner) was sufficient to identify the relevant charter party and therefore to give effect to the incorporation of the arbitration clause under the provision incorporating "all conditions and exceptions whatsoever".
As it can be seen from the case studies afore-mentioned, the US Courts do not distinguish between the arbitration clause and the other clauses of charter party. The arbitration clauses are to be treated like any other contract provisions11. There is no requirement for an express reference to the arbitration clause in the Bill of Lading clause incorporating the charter party terms. The US Courts held that the general words of incorporation are sufficient to incorporate a charterparty arbitration clause into the Bill of Lading contract of carriage.
This rule is different from that adopted in English jurisprudence which does not require the identification of Charter Party by date or parties thereto, but that the Charter Party arbitration clause to be expressly incorporated into the Bill of Lading. For Charter Party Bills of Lading issued in CONGENBILL form that expressly incorporates the Charter Party arbitration clause or dispute resolution clause, the English Courts would accept the incorporation irrespective of whether the Charter Party date is indicated or not. The US Courts would not accept incorporation where the Charter Party date is not indicated or where the parties are not identified in the charter party incorporation clause on the ground that it is not possible to incorporate a charter party which is not identified in any way12.
The Rules Adopted In English Jurisprudence For Incorporation Into The Bill Of Lading Of Charter Party Terms
When a Charter Party Bill of Lading is transferred to a third party under a CFR or CIF sale contract, the legal relationship between the transferee and the shipowner is governed by the terms of Bill of Lading contract of carriage. The incorporation of charter party terms into the Bill of Lading contract of carriage depends on the wording of Bill of Lading clause which incorporates the charter party terms and the wording of charter party clause sought to be incorporated.
The English rule of incorporation makes a distinction between the charter party clauses which are directly germane to the subject-matter of the Bill of Lading, i.e. the charter party clauses referring to the shipment, carriage and discharge of the goods, and the charter party clauses which are ancillary to the subject-matter of the Bill of Lading, i.e. safe port warranty, war risks clause, arbitration clause, jurisdiction clause.
The charter party clauses referring to the shipment, carriage and delivery of goods, such FIOS terms, demurrage provisions, lien clause, can be incorporated by general words into the Bill of Lading contract of carriage, provided that such clauses can be read as part of the Bill of Lading contract of carriage. If these clauses impose obligations on the charterers, it cannot be incorporated into the Bill of Lading contract of carriage13.
The charterparty governing law clause can also be incorporated by general words into the Bill of Lading contract of carriage14. But the incorporation of arbitration and jurisdiction clauses can be achieved only by express reference in the Bill of Lading clause incorporating the charter party terms and/or by express words in the charter party clause itself15.
In The "Annefield"16 the English Court of Appeal made the following comments:
"[A] clause which is directly germane to the subject-matter of the bill of lading (that is, to the shipment, carriage and delivery of goods) can and should be incorporated into the bill of lading contract, even though it may involve a degree of manipulation of the words in order to fit exactly the bill of lading. But if the clause is one which is not thus directly germane, it should not be incorporated into the bill of lading contract unless it is done explicitly in clear words either in the bill of lading or in the charter party.
Applying this test, it is clear that an arbitration clause is not directly germane to the shipment, carriage and delivery of goods ... It is, therefore, not incorporated by general words in the bill of lading. If it is to be incorporated, it must be either by express words in the bill of lading itself (for example, if there were added in this case: "including the arbitration clause as well as the negligence clause") or by express words in the charter party itself (as indeed happened in The "Merak" when the words were: "Any dispute arising out of the charter or any bill of lading issued hereunder"). If it is desired to bring in an arbitration clause, it must be done explicitly in one document or the other ..."
In The "Merak"17, the Charter Party Bills of Lading incorporated by general words the terms of NUBALTWOOD Charter Party. It was argued that although the Bills of Lading did not expressly incorporate the arbitration clause, this was specifically incorporated by its own provisions which stipulated that:
"Any dispute arising out of the charter or any bill of lading issued hereunder shall be referred to arbitration."
The English Courts will look to the wording of charter party clause sought to be incorporated to see if the charter party clause can be read as part of the Bill of Lading contract of carriage18.
In Hamilton & Co. v. Mackie & Sons19, Lord Esher M.R. said that:
"[T]he conditions of the charterparty must be read verbatim into the bill of lading as though they were there printed in extenso. Then if it was found that any of the conditions of the charterparty on being so read were inconsistent with the bill of lading they were insensible and must be disregarded. The bill of lading referred to the charterparty, and therefore when the condition was read in, "All disputes under this charter shall be referred to arbitration", it was clear that the condition did not refer to disputes arising under the bill of lading, but to disputes arising under the charterparty. The condition therefore was insensible, and had no application to the present disputes, which arose under the bill of lading."
Therefore, the shipowners should stipulate in their charterparties that the disputes arising under the Charter Party Bills of Lading would also have to be settled by arbitration. Examples of such charter party clauses are: Clause 26 of GAFTA Charter Party No.1, Clause 33 of Australian Wheat Charter "AUSTWHEAT 1990" form, Clause 33 of Polish Coal Charter Party "POLCOALVOY" form and Clause 54 of BHP Billiton Voyage Charter Party form.
The Clause 26 (Law and Arbitration Clause) of GAFTA Charter Party No.1 has the following provisions:
"That the Charter Party shall be deemed to have been made in England and to be performed in England and shall be construed and take effect in accordance with the laws of England. Any dispute arising out of or under this Charterparty or any bill of lading issued thereunder shall be referred to Arbitration in accordance with the Arbitration Rules Form No: 127 of the Grain and Feed Trade Association ..."
The Clause 33 paragraph (b) of Australian Wheat Charter Charter "AUSTWHEAT 1990" form has the following provisions:
"Any dispute arising under this Charterparty or any Bill of Lading issued hereunder ... shall be referred to arbitration in London ..."
The Clause 33 (Arbitration Clause) of Polish Coal Charter Party "POLCOALVOY" form has the following provisions:
"(a) Settlement of claims. Any claim under this Charter Party or any Bill of Lading issued thereunder shall be notified in writing. Claims under the Charter Party shall be referred to arbitration within two years and claims under any Bill of Lading within one year of completion of discharge, otherwise the claim shall be deemed waived and absolutely barred.
(b) Place and procedure of arbitration.
…..........
(2) If arbitration in London is agreed, this Charter Party and any Bill of Lading issued thereunder shall be governed by and construed in accordance with English law and any dispute arising out of this Charter Party or any Bill of Lading issued thereunder shall be referred to arbitration in London in accordance with the Arbitration Act 1996 or any statutory modification or re-enactment thereof for the time being in force."
The Clause 54 of BHP Billiton Voyage Charter Party form has the following provisions:
"Any dispute arising out of this Charter Party or any Bill of Lading issued hereunder shall be referred to arbitration in London in accordance with the Arbitration Act 1996 and any statutory modification or re-enactment in force. English law shall apply."
by Vlad Cioarec, International Trade Consultant
This article has been published in Commoditylaw`s Coal Trade Review Edition No. 1.
Endnotes:
1. See the US law case Steel Warehouse Company Incorporated v. Abalone Shipping Limited of Nicosai, 141 F.3d 234 (5th Cir. 1998).
2. No. 01 CV 5064, 2003 WL 23018798 (S.D.N.Y. 2003)
3. 310 F.3d 102 (2nd Cir. 2002)
4. (S.D. Tex. 2010)
5. 310 F.3d 102 (2nd Cir. 2002)
6. (S.D. Tex. 2010)
7. See Steel Warehouse Company Incorporated v. Abalone Shipping Limited of Nicosai, 141 F.3d 234 (5th Cir. 1998).
8. 346 F.3d 281 (2nd Cir. 2003)
9. 387 F. Supp. 589 (S.D.N.Y. 1975).
10. 475 F.3d 56 (2nd Cir. 2007).
11. See Son Shipping Co. v. De Fosse & Tanghe, 199 F.2d 687 (2nd Cir. 1952).
12. See United States Barite Corp. v. M/V Harris, 534 F. Supp. 328 (S.D.N.Y. 1982); MacSteel International USA v. M/V Jag Rani (S.D.N.Y. 2003).
13. See Miramar Maritime Corp. v. Holborn Oil Trading (The "Miramar"), [1984] A.C. 676; [1984] 2 Lloyd`s Rep. 129; Tradigrain S.A. and Others v. King Diamond Shipping S.A. (The "Spiros C"), [2000] 2 Lloyd`s Rep. 319
14. See The "Njegos" [1936] P.90; (1935) 53 L1.L. Rep.286; Caresse Navigation Ltd. v. Office National de l`Electricite and Others, [2013] EWHC 3081 (Comm).
15. See Siboti K/S v. BP France S.A. [2003] EWHC 1278 (Comm); [2003] 2 Lloyd`s Rep. 364.
16. [1971] 1 Lloyd`s Rep. 1
17. [1964] 2 Lloyd`s Rep. 527
18. See Tradigrain S.A. and Others v. King Diamond Shipping S.A. (The "Spiros C"), [2000] 2 Lloyd`s Rep. 319
19. (1889) 5 T.L.R. 667