The claimant shipowner agreed with a company, pursuant to a voyage charterparty that provided for London arbitration, to carry a cargo of soya bean meal. The cargo was covered by various bills of lading, which expressly incorporated all terms and conditions of the charterparty, including the arbitration clause. The defendant bank provided finance to the company to enable its purchase of the cargo and held the bills of lading for its security interest. When the discharge port changed, an addendum was made to the charterparty and the company also agreed with the claimant to issue new bills of lading, which was facilitated by the defendant issuing a switch bill of lading at its counters and cancelling the original bills of lading. The switch bill, which also incorporated the arbitration clause and which the defendant also held for its security interest, was eventually presented for payment under the contract for the sale of the cargo; it was accepted and payment was made. The vessel having incurred demurrage and the claimant being unable to recover against the charterers, the claimant brought arbitration proceedings for demurrage against the defendant. The tribunal determined that the defendant was not an original party to the bills of lading so as to come under liability to the claimant on the terms of the contract of carriage contained in or evidenced by the bills of lading. It also rejected an argument that the defendant had made a demand for delivery of the cargo or made a claim against the vessel under the contract of carriage so as to incur liabilities under section 3 of the Carriage of Goods by Sea Act 1992. It therefore held that it did not have jurisdiction to determine the claimant’s demurrage claim. The claimant applied under section 67 of the Arbitration Act 1996 to set aside or vary the award on the ground that the defendant was the original party to the switch bill, alternatively that the tribunal had jurisdiction because the defendant had acquired rights of suit under the contract of carriage by application of section 2(1) of the 1992 Act.
On the claimant’s application—
Held, application granted. Where a trade finance bank financed the purchase of cargo carried by sea and held the bill of lading for its security interest, as lawful holder of the bill and pursuant to section 2(1) of the Carriage of Goods by Sea Act 1992, it was vested with all rights of suit under the contract of carriage as if it had been party to that contract. Where the contract of carriage contained an arbitration clause, due to the nature of arbitration clauses and in particular the separability doctrine, the effect of section 2(1) was that the bank assumed all consequences flowing from being party to the separate arbitration agreement, including the mutual obligation to have any dispute falling within the scope of the agreement determined in arbitration, irrespective of whether it had incurred liabilities under section 3 of the 1992 Act, itself asserted any substantive rights, or itself commenced arbitration. Even if the bank had divested itself of rights under the bill of lading before any arbitration was commenced against it, it remained subject to the separate arbitration agreement and the obligation to arbitrate any disputes falling within the ambit of that agreement. Accordingly, the effect of the defendant becoming lawful holder of the switch bill by holding it as security interest had been to subject the defendant to an obligation to arbitrate disputes falling within the scope of the arbitration clause incorporated into it, even though the defendant was no longer the legal owner of the bill at the time the arbitration proceedings were commenced. The scope of the arbitration clause being wide enough to encompass whether the defendant owed substantive obligations under the switch bill, the tribunal had jurisdiction to determine that question (paras 31, 32, 36, 37, 39–40, 41, 44, 45).
Michael Collett QC (instructed by Jackson Parton Solicitors) for the claimant.
Chirag Karia QC (instructed by Holman Fenwick Willan llp) for the defendant.