20 Jul 2012

Dropping Anchor

The recent decision by Foster J in the Federal Court of Australia has well and truly set the COGSA cat among the arbitration pigeons.

While the facts of the case are quite straight forward, its implications for the Australian commercial community are much less so.

The Facts

Beach (an Australian company) owed Norden demurrage under a charterparty for the carriage of coal from Australia to China.

The charter contained a London arbitration clause.

Norden commenced arbitration in London. Beach declined to participate, citing (among other reasons) section 11 of the Australian Carriage of Goods by Sea Act (COGSA).

The arbitration proceeded and a substantial award was published in Norden's favour. Norden sought to enforce the award in Australia against Beach.

Beach resisted enforcement relying on (among other grounds) section 11 of COGSA.

Section 11 of COGSA provides (in summary) that a provision in a "sea carriage document" which purports to preclude or limit the jurisdiction of the Australian Courts is of no effect. This provision is regularly relied on by cargo claimants under bills of lading and waybills to avoid foreign exclusive jurisdiction clauses in those contracts.

Beach however argued, and Justice Foster agreed, that a voyage charter is also a "sea carriage document" for the purposes of COGSA, so rendering the London arbitration agreement void, and rendering attempts to enforce an award obtained under such an agreement futile.

What does this mean for London arbitration clauses in voyage charters?

Assuming the decision is not overturned on appeal, it means that successful parties to awards in arbitrations conducted under arbitration clauses in charters for the carriage of goods out of Australia will not be able to enforce those awards in Australia (so long as the unsuccessful party has not participated in the arbitration).

It will not however apply to disputes arising under charterparties for carriage of goods into Australia.

It seems unlikely that anti-suit injunctions will assist as the defending party need not commence proceedings in Australia to take advantage of section 11.

Whether those awards can be enforced in other jurisdictions will remain to be seen. It is likely that the enforcing Court in a foreign jurisdiction will focus on the contractual agreement to arbitrate, rather than the Australian COGSA. 

The effect seems to be that if a claimant wishes to be sure that they will be able to enforce an award in Australia they may need to either pursue their charterparty action through the Australian Courts (or perhaps Australian arbitration), or possibly obtain the other parties express submission to the jurisdiction of the London (or Australian?) arbitrators.

Is this an odd decision?

While the decision may seem odd at first blush, it is probably (with respect to his Honour) correct.

The judgment itself is well reasoned and persuasive.

The Australian maritime legal community is well used to the operation of section 11 to bills of lading. The policy in that regard would appear to be that Australian importers (in particular) should not be bound by onerous foreign jurisdiction clauses in what are essentially contracts of adhesion.

Charterparties are altogether different however. They are regularly subject to negotiation and the bargaining position of the parties is more equal.

From a policy perspective, the decision seems odd, particularly as it will not apply to inward-carriage.

However COGSA doesn't exclude charterparties , and section 11 applies not just to bills and waybills, but to "sea carriage documents" which are charterparty clearly is.

While not ruling out the possibility of a successful appeal, it will probably fall to the Legislature to correct the error, if it is an error. No doubt the Legislature will consult with all interested parties before deciding how to deal with this situation.

Article written by Natalie Puchalka, Lawyer and Geoff Farnsworth, Principal