'Michael S'

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DMC/S&T/37/01
Michael S Evryalos Maritime Ltd v. China Pacific Insurance Co Ltd - " The Michael S" 
English Commercial Court: Colman. J: December 2001
Mr G Geary, instructed by Jackson Parton, for the shipowners
Mr N Phillips, instructed by Shaw & Croft, for China Pacific
ANTI-SUIT INJUNCTION: DAMAGE TO CARGO: BILLS OF LADING: CHARTERPARTY: WHETHER ARBITRATION CLAUSE INCORPORATED INTO BILLS OF LADING: CONFLICT BETWEEN CONGENBILL EDITIONS 1978 AND 1994: CONSTRUCTION: RECTIFICATION: EVIDENCE OF MUTUAL INTENTION IN WORDING OF BILLS: S.5(1)(A) CARRIAGE OF GOODS BY SEA ACT 1992: BILLS OF LADING ACT 1855: CONTRACT OF CARRIAGE ‘EVIDENCED BY B/L’: WHETHER CHANGE IN LAW INTENDED: LAW COMMISSION REPORT: LEDUC V WARD: POSITION OF INDORSEE: NOTICE

Summary:
The definition of the contract of carriage in the Carriage of Goods by Sea Act 1992 had not changed the approach in Leduc v Ward that an indorsee of a bill of lading was not affected by terms agreed to or understandings reached between the shipper and the shipowner of which he had no notice. 

DMC Category Rating: Confirmed

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Facts
This case concerned an application by shipowners of the 'Michael S' for an injunction restraining China Pacific, the insurers of the indorsees of the bills of lading and receivers of the cargo, from pursuing proceedings against the owners in a Chinese court. In those proceedings, cargo insurers advanced a claim by subrogation for damage to the cargo of sulphur said to have been caused by the unseaworthiness of the vessel. The cargo was loaded in Abu Dhabi for carriage to Nanjing. The trip time charter under which
the vessel sailed contained a London arbitration clause. The grounds of the application were that the bills of lading contained an agreement to refer all disputes to London arbitration and an express choice of English law by reason of the incorporation of the arbitration clause in the charterparty.

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The Arguments
In support of their application the shipowners argued that the typescript words ‘Code Name CONGENBILL Edition 1994’ which appeared in the upper left-hand corner of the face of the bills of lading, took precedence over:
(1) the typescript words appearing lower down the front page reading:
‘All terms, conditions and exceptions of governing charter party are deemed incorporated herein’;
(2) a clause on the reverse of the bills reading:
‘All terms and conditions, liberties and exceptions of the Charter Party dated as overleaf, are herewith incorporated’;
(3) the heading on the reverse of the bills reading ‘CONGENBILL EDITION 1978 and
(4) the fact that the standard terms of that bill of lading were set out on the reverse of the bills.
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The significance of the point was that the 1994 edition of the CONGENBILL contained a clause specifically incorporating the Law and Arbitration Clause of the relevant charterparty. The 1978 edition of the CONGENBILL did not make any specific reference to the incorporation of the charterparty law and arbitration clause. Absent such specific incorporation, the bills would, under English law, not incorporate the arbitration clause of the charterparty; the cargo claim would then be determined in China.
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The shipowners argued, in the alternative, that they were entitled to have the bill of lading rectified on the basis of evidence that both they and the shippers had agreed that the 1994 form of the CONGENBILL should be used.
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Finally, the shipowners submitted that, although prior to the coming into force of the Carriage of Goods by Sea Act 1992, an indorsee of a bill of lading was not affected by terms agreed to or understandings
reached between the shipper and the shipowner of which he had no notice (Leduc v Ward (1888) 20 QBD 475), the expanded phraseology of s.5(1)(a) of the Act had changed this. Under that section, the contract of carriage to which the Act applied was defined as ‘the contract contained in or evidenced by the bill’. The question was whether by the use of those words, Parliament had intended to change the pre-existing position so as to enable the carrier, as against an indorsee, to rely on agreements or understandings reached between the carrier and the shipper, which were not recorded in the bill of lading and of which the indorsee had no prior notice.

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Judgment
(1) Since the charterparty was governed by English law, the bills of lading were also governed by English law and must be construed accordingly.
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(2) General words of incorporation such as those appearing on the lower part of the face and on the reverse of the bills of lading were incapable of incorporating into the contract of carriage an agreement to arbitrate contained in the charterparty, unless there was additional wording showing to a third party transferee of the bill of lading that it was the mutual intention of the shipper and the carrier
that the arbitration clause was to be incorporated.
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(3) Here there was no possibility that the reference to the 1994 edition of the CONGENBILL appearing on the top left corner of the face of the bills of lading could be construed as taking precedence over the CONGENBILL 1978 wording. Firstly, there was nothing on the face of the bill which expressed an intention to incorporate the wording of the charterparty incorporation clause appearing in the 1994 edition. The judge noted that there were no express words of incorporation and he held that the reference to the 1994 edition was only a means of describing the form of the document. Secondly, even if those words were to be given some incorporative effect, that could not extend to the charterparty incorporation clause, since, as a matter of construction, they could not supersede the typescript form of the incorporation clause used on the face of the bill. The general wording had to give way to the specific.


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(4) The claim for rectification failed on two grounds:
a) there was, on the facts of the case, no convincing proof that the shippers and shipowners mutually intended the contract of carriage to incorporate the charterparty arbitration clause;
b) since the Law Commission Report on which the 1992 Carriage of Goods by Sea Act had been largely based made no reference to the words "or evidenced by" – words which had not appeared in the 1855 Bills of Lading Act which the 1992 Act repealed – it was unlikely that Parliament had intended to effect the far-reaching change in the law that the shipowners had suggested. It was more probable that the words "evidenced by" were inserted to take account of those frequent cases where the contract of carriage was already concluded (through the booking note (Ed.) before the bill of lading was issued by the carrier.
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On this analysis, the definition of the contract of carriage in s.5(1) of the 1992 Act had not changed the approach exemplified by Leduc v Ward (1888) 20 QBD 475 and SS Ardennes (Cargo Owners) v. SS Ardennes (Owners) [1951] 1 KB 55. These cases established that a third-party indorsee of a bill of lading was entitled to rely on the terms set out in the bill of lading even where they were inconsistent with an agreement, not referred to in the bills, made between the carrier and the original party to the bills, of which the endorsee was unaware.

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Comment
This case upholds the position as it was previously understood to be. There are sound commercial reasons for this approach, summarised in the judgment of Judge Diamond QC in the case of The Heidberg [1994] 2 LLR 287. There he said:
"This rule facilitates the use of bills of lading in international commerce, since it enables a prospective transferee of a bill of lading to see, merely by inspecting the bill, whether it conforms to his contract… and what rights and obligations will be transferred to him if he takes up the bill. The transferee, or prospective transferee, need not enquire whether any collateral oral agreements have been made between the shipper and the shipowner….."

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