In What Conditions The Chinese Buyers Of Soya Bean Cargoes Would Be Bound By The Arbitration Clause Of The Contract Of Carriage

China is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958¹. The Article II paragraph 3 of the New York Convention has the following provisions:

"The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed."

The relevant provisions of the Arbitration Law of the People`s Republic of China are quoted below:

Article 5
"If the parties have concluded an arbitration agreement and one party institutes an action in a people`s court, the people`s court shall not accept the case, unless the arbitration agreement is null and void."

Article 16
"An arbitration agreement shall include arbitration clauses stipulated in the contract and agreements of submission to arbitration that are concluded in other written forms before or after disputes arise.
An arbitration agreement shall contain the following particulars:
(1) an expression of intention to apply for arbitration;
(2) matters for arbitration; and
(3) a designated arbitration commission."

Article 18
"If an arbitration agreement contains no or unclear provisions concerning the matters for arbitration or the arbitration commission, the parties may reach a supplementary agreement. If no such supplementary agreement can be reached, the arbitration agreement shall be null and void."

The Chinese maritime courts consider that an arbitration clause of a contract can bind only the parties to it, in the case of a Bill of Lading contract of carriage, the carrier (shipowner) and the lawful holder of the Bill of Lading, notwithstanding that the Article 95 of the Maritime Code of the People`s Republic of China provides that the legal relationship between the carrier and the third party holder of a Charter Party Bill of Lading shall be governed by the clauses of the Bill of Lading contract of carriage, including the clauses of the voyage charter party that are incorporated into the Bill of Lading contract of carriage.
Even though the Bills of Lading issued for soya bean cargoes transported to the Chinese ports incorporate expressly the London arbitration clause of the voyage charter party, the Chinese maritime courts held that the acceptance of the Bills of Lading by the Chinese buyers (claimants) is not deemed an implied consent to choose the London arbitration for the settlement of disputes arising from the Bill of Lading contract of carriage.
This is the reason why the Masters of the ships loading soya bean cargoes for transport to the Chinese ports should give instructions in the Letter of Authorization to the charterer`s agents at loading ports to mention on the front page of the Bill of Lading or amongst the conditions of carriage stated on the following page(s) an explicit arbitration clause drafted in compliance with the requirements stipulated in the Article 16 of the Arbitration Law of the People`s Republic of China. The Bill of Lading clause should mention at least that the parties to the Bill of Lading contract of carriage agree to solve their contractual disputes by arbitration in London and that the arbitration shall be conducted by a Tribunal consisting of members of the London Maritime Arbitration Association.

by Vlad Cioarec, International Trade Consultant

This article has been published in Commoditylaw`s Grain Trade Review Edition No. 7.

Endnotes:

1. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted at New York, June 10, 1958.