Bill of Lading & Charter Party contracts- New York Convention on Arbitration implemented in India

Topic: Bill of Lading and Charter Party

Case Law

The Owners & Parties Interested in the Vessel M.V. Baltic Confidence & anr. Vs State of Trading Corportion of India Ltd. & anr.

In Supreme Court of India, under Civil Appeal Decided On: 20.08.2001, wherein Appellants were The Owners & Parties Interested in the Vessel M.V. Baltic Confidence & anr. and Respondents were State of Trading Corportion of India Ltd. & anr. wherein the subject matter of the case is of Contract and Arbitration.

The said case referred Arbitration and Conciliation Act, 1996 – Section 45; Arbitration Act, 1950 – Section 33; Arbitration (Amendment)Act, 1979

Facts:

In the said case, the 2nd respondent was the charterer of the said ship M.V. “Baltic Confidence” under the Time Charter Party Agreement between it and the appellants. Subsequently Five Bill of Ladings were issued by the appellants wherein the 2nd responded agreed to carry onboard the said ship 11,433.510 metic tonnes of Canadian yellow Peas from the Port of Vancouver in Canada to the Port of Calcutta in good order and condition.

1st Respondent in this case is the holder and endorsee of each of the said Bills of Lading and the owner of the said stock of peas.

The 1st Respondent (plaintiff) filed an Admiralty suite in the Calcutta High Court against the appellants and 2nd respondent alleging that the defendants had negligently and in breach of the contract of carriage and/or breach of their duties as bailees, failed to deliver goods to the plaintiff in good order and condition; the defendants have delivered part of the goods weighing 4,910 metic tonnes damaged by sea water and in consequence the plaintiff had suffered loss and damage at least in the sum of US $ 1,3384,620 being the value of the said damaged quantity. The plaintiff further alleged that it has suffered further loss and damages. it was in these circumstances that the plaintiff filed the suit.

The appellants and respondent no. 2 herein as the 1st and 2nd defendants in the suit filed an application under Section 45 of the Arbitration and Conciliation Act, 1996 praying for staying of the proceedings in the suit and for referring the disputes to arbitration in terms of Clause 62 of the Charter Party Agreement which was specifically incorporated as a condition of the Bills of Lading. The said application was rejected by a Single Judge of the Court its order holding that the arbitration clause in the Charter Party Agreement was not applicable to the alleged disputes arising from the Bills of Lading and, therefore, the application filed by the defendants was not maintainable. On appeal by the defendants, subsequently the Division Bench of High Court confirmed the order passed by the Single Judge. The said judgment is under challenge in this appeal filed by the defendants.

Question

The question that arises for determination is, whether the High Court, on construction of the terms and conditions of the Charter Party Agreement and the condition in the Bills of Lading incorporating the terms and conditions of the Charter Party Agreement into it was right, in holding that the parties in the suit are not bound by the agreement contained in Clause 62 of the Charter Party Agreement for purpose of arbitration of the disputes raised in the suit.

Clause 62 of the Charter Party Agreement is as follows:

Clause 1 of the Conditions of Carriage of the Bills of Lading reads as follows: “All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated.”

The question for consideration is whether the parties agreed that Clause 62, the arbitration clause in the Charter Party Agreement, shall be applicable to disputes arising under the Bills of Lading. For determination of this question it is necessary to ascertain the intention of the parties to the Bills of Lading. This question has engaged the attention of courts in India and in England from time to time.

Judgement:

The Supreme Court directed that it is to be kept in mind that while incorporating the conditions of the Charter Party Agreement in the Bill of Lading specific reference has been made to the arbitration clause by use of the expression ‘including the law and arbitration clause’. Therefore, the parties have taken care not to couch the interpretation clause in the Bill of Lading in general terms but have made their intention clear that the disputes arising thereunder should be resolved by arbitration according to the clause in the Charter Party Agreement.
On a fair reading of the clause 62 of the Charter Party Agreement (Arbitration clause) and Condition – 1 of the Bill of Lading (incorporation clause) there is no manifest inconsistency or insensibility. Such was not the case of the parties in the suit nor any such finding recorded in the judgment of the High Court (Single Judge or by the Division Bench).
It was also not contended that if the arbitration clauses in the Charter Party Agreement is implemented in relation to disputes arising on the Bill of Lading it would give rise to an absurd/unworkable situation. It was also not urged that the condition in the Bill of Lading incorporating the arbitration clause of the Charter Party was null and void being incapable of being performed. The main ground on which it was contended that the clause is inoperative is that the expression “Charter Party” in clause 62 of the Charter Party Agreement was not changed to “Bill of Lading” while incorporating the same in the latter. This contention, constrained to observe cannot be accepted since it goes against the clear intention of the parties as evident from the incorporation clause. 21. On careful consideration of the Supreme court held that there is no good ground or acceptable reason why the intention of the parties to incorporate the arbitration clause in the Charter Party Agreement in the Bill of Lading should not be given effect to. The High Court was not right in rejecting the prayer of the appellants for stay of the suit. 22. In the result, the appeal is allowed with costs. the Judgment of the Division Bench of the High Court confirming the judgment of the Single Judge is set aside. The petition filed by the appellants for stay of the suit is allowed.
In this case almost 15 Indian as well as International cases were referred for interpretation of various conditions governing charter party and references of Arbitration in the Bill of Lading.

Legal Principles:

Incorporation of Arbitration Clause: The primary legal principle revolves around whether the arbitration clause in the Charter Party Agreement was effectively incorporated into the Bill of Lading. The court emphasized the importance of determining the intention of the parties to the Bill of Lading.
Interpretation of Incorporation Clauses: The court stressed that incorporation clauses should be interpreted in a manner that gives effect to the intention of the parties, avoiding pedantic or overly technical readings that frustrate the clause.
Consistency and Sensibility: If the arbitration clause, as incorporated, does not lead to inconsistency, insensibility, or absurdity, it should be enforced as per the parties’ agreement.
Specific Reference to Arbitration Clause: The inclusion of the phrase “including the law and arbitration clause” in the Bill of Lading demonstrated the parties’ clear intention to incorporate the arbitration clause from the Charter Party Agreement.
Binding Nature of Arbitration Clause: The court held that disputes arising under the Bill of Lading should be resolved through arbitration as agreed by the parties, provided the clause is workable and does not lead to absurdity.

Citations:

Hamilton and Co. v. Mackie and Sons (1889): Established that general incorporation clauses must be read verbatim into the Bill of Lading, but arbitration clauses must be explicitly incorporated to apply.
T.W. Thomas & Co. Ltd. v. Portsea Steamship Co. Ltd. (1912): Highlighted that arbitration clauses not germane to the Bill of Lading must be incorporated through specific and explicit language.
Astro Valiente Compania Naviera SA v. Pakistan Ministry of Food and Agriculture (1982): Held that arbitration clauses in Charter Party Agreements can be incorporated into Bills of Lading if the Bill explicitly refers to the Charter Party.
Union of India v. D.M. Revri & Co. (1977): Emphasized interpreting contracts in a manner that gives them efficacy rather than invalidating them through technical readings.
Alimenta S.A. v. NAFED (1987): Established that arbitration clauses can be incorporated by reference into subsequent contracts, provided they are not repugnant or inconsistent with the terms of the new contract.

Order:

Appeal Allowed: The Supreme Court overturned the judgment of the Division Bench of the Calcutta High Court, which had confirmed the Single Judge’s decision rejecting the arbitration clause’s applicability.
Stay of Suit Granted: The trial court was directed to stay the suit and proceed according to law, recognizing the arbitration clause’s binding nature.
Costs Awarded: The appellants were awarded costs, with hearing fees assessed at Rs. 50,000/-.
Clear Intention of Parties: The court emphasized that the incorporation clause in the Bill of Lading clearly demonstrated the parties’ intention to resolve disputes through arbitration.
Directive to Trial Court: The trial court was instructed to proceed in accordance with the arbitration clause, ensuring disputes are resolved as per the agreed terms.

Summary: The Supreme Court upheld the enforceability of the arbitration clause incorporated into the Bill of Lading, emphasizing the parties’ clear intention and the need for practical interpretation of incorporation clauses.

CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

(New York Convention Awards)

How it relates to Arbitration and Conciliation Act, 1996

Before starting this article on above convention, lets take a look at how International Commercial Arbitration relates to “The Arbitration and Conciliation Act, 1996” enacted by Government of India.

The term International Commercial Arbitration has been defined in Section (2) (1) (f) in the Arbitration and Conciliation Act, 1996. In this section mainly the definitions concerning the parties involved in the dispute are mentioned such as “Individual”, “body Corporate”, “company or an association or a body individuals, whose central management and control is exercised in foreign territory other than India”, “Government of a foreign territory”.

Under this act, when an Arbitration is an “International Commercial Arbitration”, then the award passed by it is a “Foreign Award”. Such a foreign award is described in Section 44 of the Arbitration and Conciliation Act, 1996, which deals with New York Convention Awards, 1958.

The New York Convention Awards, 1958 is incorporated as Chapter I in Part II of the Arbitration and Conciliation Act, 1996. This chapter relating to enforcement of foreign awards cannot be made applicable, if the applicant furnishes proof before the court that –

The original agreement entered before the parties is invalid.
The applicant is suffering from legal incapacity.
The applicant has not received proper notice of appointment of Arbitrator / Arbitral proceedings and hence unable to present his case before the Arbitrator.

UNCITRAL:

United Nations Commission on International Trade Law (UNCITRAL) is a subsidiary of General Assembly of United Nations. It plays an important role to improve the legal framework of International Trade, wherein it prepares International legislative text, which is used by states to modernise the International trade law and also it prepares non-legislative text which is used by parties during commercial transaction negotiations. The legislative text of UNICTRAL address areas such as: international commercial dispute resolution, including both arbitration and conciliation; electronic commerce; insolvency, including cross-border insolvency; international transport of goods; international payments; procurement and infrastructure development; and security interests.

New York Convention and UNCITRAL:

New York Convention Award means an award made in pursuance of an arbitration agreement in the territory of a state, which is a party to the New York Convention.

The New York Convention is adopted by UNCITRAL on 10^th June, 1958 and it entered into force on

Objectives

The convention on the Recognition and Enforcement of Foreign Arbitral awards seeks to provide common legislative standards for the recognition of Arbitration agreements and court recognition enforcement of foreign and non-domestic arbitral awards. This a result of growing importance of International Arbitration as a means of settling International Commercial disputes.

Key Provisions

Following are the key provisions of the convention:

The convention applies to awards made in any state other than the state in which recognition and enforcement is sought.
It also applies to awards not considered as domestic awards.
While consenting to be bound by the convention, state may declare that it will apply the convention:
1. In respect to awards made only in the territory of another Party, and
2. Only to legal relationships that are considered “commercial” under Its domestic law.
An award could be refused enforcement on the grounds that an award could be refused enforcement on the grounds that the agreement upon which it is based is not recognised (Article II (1)).
The central obligation imposed upon Parties is to recognise all arbitral awards within the scheme as binding and enforce them.
The convention defines five grounds upon which recognition and enforcement may be refused at the request of the party against whom it is invoked, which are:
1. Incapacity of the Parties,
2. Invalid Arbitration Agreement
3. Due process
4. Scope of Arbitration Agreement
5. Jurisdiction of Arbitral Tribunal

The convention defined two additional grounds upon which the court may, on it own motion, refuse recognition and enforcement of award. Those grounds relate to Arbitrability and Public Policy.

7. Article VII (I) of the convention recognises the right of an interested party to avail itself of law or treaties of the country where the award is sought to be relied upon, including where such law or treaties offer a regime more favourable than the convention.

Part 1

Part 1 of the convention describes the Excerpts from the Final Act of the United Nations Conference on International Commercial Arbitration held in New York on 20-May to 10 June 1959

Following are the brief description of Articles (I to XVI) under Part 1

Article I

Article 1 describes the application of Arbitral awards in the relevant states for disputes and awards only non-domestic awards. It also describes awards made not only by arbitrators and also by arbitral bodies. It also signifies ratification of convention by states while declaring the adoption of Convention for disputes arising out of legal relationships, whether contractual or not, which are considered as per domestic law.

Article II

Article II clarifies the commitment of contracting states under this convention to undertake to submit to arbitration all or any disputes arising and as defined in Article I

Article III

The Contracting states under this Article III shall recognize arbitral awards under this Convention as binding and enforceable as per the rules and procedure of the territory where the award is relied upon and under the conditions laid down in this convention.

Article IV

In this Article, conditions are mentioned for party applying for recognition and enforcement at the time of application which are supply of original award and original agreement referred in Article II. The award / agreement must be in translated language.

Article V

Several conditions of refusal of the award based on request of the party against whom it is invoked are mentioned in this Article.

Article VI

It lays down the condition to setting aside or suspension of the award, if an application has been made to the competent authority as per Article V

Article VII

This Article talks about the immunity of states from the present convention provisions towards any bilateral or multilateral agreements that any contracting states may have.

Article VIII

In this Article, ratification instrument for this convention is established for signing states.

Article IX

This Convention shall be open for accession to all States referred to in Article VIII.

Article X

The convention mentions in this Article about applicability of this convention to territories of international relations of the state at the time of signature or ratification

Article XI

Provisions related to federal or non-unitary states are elaborated in this Article.

Article XII

Enactment and effective date of this convention is specified clearly in this Article

Article XIII

Conditions are mentioned in this Article upon which a contracting state may denounce. And also its applicability before denunciation takes effect.

Article XIV

A Contracting State shall not be entitled to avail itself of the present Convention against other Contracting States except to the extent that it is itself bound to apply the Convention.

Article XV

It elaborates about the notification to states by the United Nations about – Signature and Ratifications, Accessions, Declarations and Notifications, effective date and Denunciations.

Article XVI

The Convention, of which the Chinese, English, French, Russian and Spanish texts shall be equally authentic, shall be deposited in the archives of the United Nations, who transmits the certified copy of the convention to contracting states.

Part 2

Part 2 talks about the recommendation regarding the interpretation of article II, paragraph 2, and article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards

To Sum Up

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted in 1958, is a cornerstone of international arbitration. It requires contracting states to recognize and enforce foreign arbitral awards and to uphold arbitration agreements when a matter is brought before their courts. The Convention has been ratified by over 160 countries, making it a key instrument in facilitating international trade and dispute resolution. Its provisions ensure that arbitration is a viable alternative to litigation, promoting efficiency and finality in resolving cross-border disputes.

At present there are 24 signatories and 173 parties to New York Convention

References:

https://uncitral.un.org

www.newyorkconvention.org

This Article has been written by Mr. Shobhit Mallik, Arbitrator. He can be reached at his email id shobhit.lca23@gmail.com or office@aadrikaalaw.com & his Mobile No is +91-9712924188.

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Source: Supreme Court

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