Incitec v. Alkimos Shipping

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Incitec Ltd v Alkimos Shipping Corporation and Hyundai Merchant Marine Co Ltd
Federal Court of Australia: Allsop J.: 3 June 2004
Dr A Bell, instructed by Middletons, for Alkimos
Mr G Nell, instructed by Sparke Helmore, for Hyundai

In this case, the court held that a party should be given leave to file and serve cross-claims in proceedings in the Federal Court, despite the parties in question having agreed that the High Court in London should have exclusive jurisdiction of disputes between them.

DMC Category Rating: Confirmed

Case note contributed by Drew James, a partner at Ebsworth & Ebsworth Lawyers, Sydney. Ebsworth & Ebsworth Lawyers are International Contributors for Australia

In March 2002, part of a cargo of fertilizer carried on board the vessel Alkimos was refused entry into Australia by Australian quarantine authorities. The vessel was owned by Alkimos Shipping Corporation ("Owners") and, at the relevant time, chartered to Hyundai Merchant Marine Co Ltd ("Charterers"). Cargo interests, Incitec Ltd ("Incitec") and Sumitomo Australia Ltd ("Sumitomo") brought separate proceedings, both in the Federal Court of Australia, in respect of, amongst other claims, loss of value of the cargo. Incitec brought proceedings against both Owners and Charterers whereas Sumitomo brought proceedings only against Owners.

The charterparty was in a standard New York Produce Exchange ("NYPE") form (1946) but included a statement that the BIMCO/LMAA 1998 arbitration clause applied. This clause provided that "all disputes arising out of or in connection with the agreement" are to be referred to arbitration in London and are to be resolved in accordance with English Law. The charter provided for cargo claims to be settled in accordance with the NYPE Interclub Agreement.

In communications after the alleged cargo loss, both Owners and Charterers, through their London solicitors, agreed that, in lieu of arbitration, any disputes were to be referred to the High Court of Justice in London. Despite this agreement, Owners sought leave to file and serve cross-claims against Charterers in the Federal Court proceedings seeking contribution on the basis that the Charterers were a joint tortfeasor, alternatively for equitable contribution. No claim was made in the proposed cross-claims to enforce the Interclub Agreement.

Shortly prior to their application to file and serve the cross-claims, the Owners had obtained leave to file and serve cross-claims against the surveyors who had undertaken, on their behalf, a survey of the vessel at the load port of Tampa, Florida, such that they would soon become parties to the proceedings.

Two issues arose for consideration. As the proposed cross-claims were not pleaded as being based on the charterparty, but on tort and equity, Allsop J of the Federal Court needed to determine whether they fell within the meaning of the arbitration clause. If so, the judge had to then determine whether he should exercise his discretion to refuse leave to file and serve the cross-claims on the basis that the parties had submitted to the exclusive jurisdiction of the High Court in London.

The Charterers submitted that leave should not be given, on the grounds of futility, that is, if leave was given, they would make an immediate application to stay the action in favour of the High Court in London. So whilst the judgment concerned an application for leave to file and serve a cross claim, the substantive argument concerned the principles applicable to an application that the cross-claims should be stayed.

Owners argued that the court should not exercise its discretion to stay proceedings where to do so might result in inconsistent court findings or the causation of unnecessary costs.

In relation to whether the arbitration clause applied, the judge considered a number of decisions on the interpretation of similar arbitration clauses. In doing so he held, consistent with the domestic and international authorities on this area of the law, that the terms of an arbitration clause were to be given an extremely wide application unless, on a plain reading, the terms are otherwise confined. Applying this principle to the arbitration clause at issue, the judge stated that the terms "any dispute arising our of or in connection with the agreement" had to be given a reading of "… width, flexibility and amplitude." Accordingly, Allsop J held that the resolution of a cargo claim between Owners and Charterers was clearly intended to be covered by such a clause, even if the claim was not based on a contravention of the charterparty.

In this regard, the judge held that by agreeing to substitute arbitration for proceedings in the High Court in London, the parties had agreed to refer all disputes to that court – that is to say, the parties had substituted an exclusive arbitration clause with an exclusive foreign jurisdiction clause.

The judge then turned to determine whether he should, in the exercise of his discretion, refuse leave to issue and serve the cross-claims. In this regard the judge referred to the The Eleftheria [1970] P 94, where Brandon J (as he then was) said:
"1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign court, and the defendants apply for a stay, the English court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. 
(2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown.
(3) The burden of proving such strong cause is on the plaintiffs.
4) In exercising the discretion the court should take into all circumstances of the case

This statement of the law had been applied in Australia in a long line of authorities. Accordingly, as Allsop J stated, the question for a court was always whether it should exercise its discretion to stay proceedings,
"…recognising that the starting point is the fact that the parties have agreed to litigate elsewhere, and should, absent strong countervailing circumstances, be held to their bargain."

Allsop J recognised that in circumstances in which a cross-claim would be litigated in a foreign jurisdiction pursuant to an exclusive jurisdiction clause, two powerful and conflicting policy considerations arose. The first was the desire to hold the parties to their bargain. The second was to avoid "disruption and multiplicity of litigation," and in particular to avoid "the risk of inconsistent findings" in parallel proceedings and the causing of "inconvenience to third parties." The judge thus decided that, in order resolve these conflicting policy considerations, a court must analyse the circumstances of each case with special regard to the relevant considerations that fall to be taken into account.

In determining what relevant considerations he should take into account, the judge reviewed a number of English authorities in point, in particular Donohue v Armco [2001] UKHL 64; [2002] 1 Lloyd’s Rep 425. In that case, Lord Bingham, determined that the "possibility of different conclusions by different tribunals, perhaps made on different evidence, would… run directly counter to the interests of justice..." Allsop J accepted that one of the fundamental concerns where litigation on similar issues is to occur in two separate jurisdictions is the possibility of courts coming to different conclusions in relation to the same factual issues.

The judge also referred to Citi-March Ld v Neptune Orient Lines Ltd [1997] Lloyd’s Rep 72, where Colman J in effect refused to enforce an exclusive Singaporean jurisdiction clause where injustice was perceived if a plaintiff was denied the ability to sue all defendants in the one place.

Allsop J further noted a number of other cases in which courts, in similar circumstances, had taken into account the interests of third parties who might be called upon to give evidence at separate proceedings and the unnecessary inconvenience that might result.

The judge considered that there was a real possibility that courts in Australia and courts in England might come to different conclusions. Further, the court could not be certain that third parties, whether as witnesses or parties, would not become involved in the foreign dispute and, as such, might be put to enormous inconvenience and cost. Consequently, the judge determined that, on balance, he should not uphold the exclusive jurisdiction clause, given that the Federal Court in Sydney could promptly dispose of the whole claim. The judge concluded:
"The balance is a fine one, but overall, in my view this Court should not promote competing and potentially conflicting litigation in circumstances where one venue can conveniently and promptly deal with the whole controversy."

The Owners’ application was accordingly granted.

It is interesting to note that if the arbitration clause had not been varied, the result would most probably have been different. Pursuant to s 7(2) of the International Arbitration Act 1974 (Cth), giving effect to the New York Convention on International Arbitration 1958, Charterers could have sought a mandatory stay of the cross-claims on the basis that the parties had agreed to submit their dispute to arbitration. Allsop J. recognised this distinction but remained of the view that he should not stay the Federal Court proceedings. It was the substitution of the High Court of Justice (for arbitration) that gave rise to the potential for inconsistent court findings and the risk of inconvenience to third parties by the use of compulsory court process, not available in arbitral proceedings.


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