Federal Bulk Carriers Inc. v C. Itoh & Company Ltd (Federal Bulker)

JurisdictionEngland & Wales
Judgment Date07 October 1988
Judgment citation (vLex)[1988] EWCA Civ J1007-6
Docket Number88/0789
CourtCourt of Appeal (Civil Division)
Date07 October 1988
Federal Bulk Carriers INC.
Plaintiffs Respondents
(1) C. Itoh & CO. LTD
(2) Sumitomo Corporation
(3) Taiyo Bussan Kaisha Limited
(4) Nissho-Iwai Corporation
(5) Nichimen Corporation
(6) Yuasa Trading CO. Limited
(7) Kato Oil Mill Co. Limited
(8) Kondo Tokuji Shotoen
(9) Toshoku Limited
Defendants Appellants

[1988] EWCA Civ J1007-6


Lord Justice Dillon

Lord Justice Bingham


Lord Justice Butler-Sloss


1987 F. No. 310







Royal Courts of Justice,

MR. J. W. HIRST (instructed by Messrs. Clyde & Co.) appeared on behalf of the Defendants/Appellants.

MR. T. YOUNG (instructed by Messrs. More Fisher Brown) appeared on behalf of the Plaintiffs/Respondents.


( )


I will ask Lord Justice Bingham to give the first judgment.


On 18th December 1987 Mr. Justice Evans sitting in the Commercial Court granted the plaintiffs "An Order and Declaration that there is no arbitration agreement or other submission to arbitration subsisting between the plaintiffs and the defendants and each of them, relating to the cargo, or any part thereof, carried on MV "FEDERAL BULKER" under bills of lading dated 25th February 1986."


The issue before the judge was whether an arbitration clause, the text of which was set out in a charter-party, had been effectively incorporated by reference into bills of lading issued under the charter-party. The learned judge held in favour of the plaintiffs that it had not. The defendants challenge that conclusion on appeal.


The plaintiffs in the action are Federal Bulk Carriers Incorporated of Liberia, the owners of the vessel "FEDERAL BULKER". By a charter-party made in London on 20th January 1986 the owners chartered the vessel to Tradax Ocean Transportation SA of Panama for one voyage from the United States to Japan to carry a cargo of cereals. The charter-party was on the Baltimore Berth Grain Charter-party Form C.


The charter-party provided in lines 102 to 103 as follows: "It is also mutually agreed that this contract shall be completed and superseded by the signing of Bills of Lading in the form customary for such voyages for grain cargoes, which Bills of Lading shall contain the following clauses." There follow a series of numbered clauses and I omit from consideration those which have been deleted on the form. Clause 1 is an "Exceptions" clause. Clause 2 deals with "General Average" which is to be payable in London. Clause 3 deals with "Notice of Readiness". Clause 5 deals with the time for loading and discharge. Clause 6 is a "Lien" clause. Clause 8 is the "United States Clause Paramount" opening with the words "This Bill of Lading". Clause 9 is a "P & I Oil Bunker" clause. Clause 10 is the "'Centrocon'" amended "Strike" clause.


Clause 11 is the amended 'Centrocon' Arbitration Clause" which I should read since, familiar though it is, the clause lies at the heart of this appeal. Clause 11 reads: "All disputes from time to time arising out of this contract shall, unless the parties agree forthwith to a single Arbitrator, be referred to the final arbitrament of two Arbitrators carrying on business in London who shall be members of the Baltic and engaged in the Shipping and/or Grain Trades, one to be appointed by each of the parties, with power to such Arbitrators to appoint an Umpire. Any claim must be made in writing and Claimant's Arbitrator appointed within nine months of final discharge and where this provision is not complied with the claim shall be deemed to be waived and absolutely barred. No award shall be questioned or invalidated on the grounds that any of the arbitrators is not qualified as above unless objection to his acting is taken before the award is made."


Clause 12 is a "'Centrocon' Lighterage Clause". Clause 13 is a "War Risks Clause". Clause 14 is a "Both to Blame Collision Clause". Clause 15 is a "General Average and New Jason Clause". Clause 16 is a "Saturday Clause". Clause 19 deals with "Hatches" and Clause 21 deals with "Certificates".


At that point in the charter-party there is a provision: "It is understood that Clauses Numbers 1 to 3, 5 and 6, 8 to 16, 19 and 21 above, also clause 22 to 44 attached are incorporated in this Charter-party as far as applicable." As that provision envisages, there then follows another series of typed clauses numbered 22 to 44 and covering a very wide range of matters. I pause at that point to observe that Clause 11 is, without doubt, an effective arbitration clause as between owners and charterers and the contrary has not been suggested.


Bills of lading were duly issued on behalf of the vessel on the Bill of Lading Form envisaged by the charter-party form, that is, Baltimore Form C Berth Grain Bill of Lading Form. The documents before the court contain various copies of the bills of lading which are, for present purposes, indistinguishable. The bill of lading is on the form that I have described. It records the shipment in good order and condition of quantities of soyabeans. It records the freight as "prepaid" and it then contains the important term for the purposes of this appeal: "All terms, conditions and exceptions as per charter-party dated January 20, 1986, and any addenda thereto to be considered as fully incorporated herein as if fully written." The charter-party is of course that to which I have already made reference.


The bill of lading form contains at its foot five printed conditions. Clause 1 as printed is the United States Clause Paramount as set out at number 8 of the charter-party numbered clauses. Clause 2 deals with shortages. Clause 3 provides that the shipper's weight, quantity and quality are unknown. Clause 4 contains the exceptions clause as printed in the charter-party clauses at number 1. Clause 5 deals with general average in terms very close to, although not quite identical with, those in Clause 2 of the charter-party clauses.


The vessel sailed to Japan. The bills of lading were negotiated to nine cargo receivers who are the defendants in this action. The cargo receivers took delivery of the goods consigned to them, but they complained that the goods had been delivered in a damaged condition and, as a result, arbitration proceedings were begun in London by the charterers and the nine cargo receivers against the ship owners. The shipowners do not, as I understand, challenge the arbitrators' jurisdiction to resolve the charterers' claim against them. But they do challenge the arbitrators' jurisdiction to entertain the cargo receivers' claim, contending that there has been no arbitration agreement. Hence these proceedings are brought to establish the arbitrators' lack of jurisdiction.


It is common ground that the court is concerned with the construction of the contract contained in or evidenced by the bills of lading, that is, the contract of carriage between the shipowners and the cargo owners. The court's task is to ascertain the intention of those parties as expressed in the written document and the court is not in any way concerned to construe the charter-party or ascertain the intentions of the parties to that contract save in so far as the terms of the charter-party have been effectively incorporated in the bill of lading contract. That, I think, is clearly stated in " THE VARENNA" [1983] 2 Lloyd's Rep. 592 by Sir John Donaldson, MR at page 59 4 column 1.


Generally speaking, the English law of contract has taken a benevolent view of the use of general words to incorporate by reference standard terms to be found elsewhere. But in the present field a different, and stricter, rule has developed, especially where the incorporation of arbitration clauses is concerned. The reason no doubt is that a bill of lading is a negotiable commercial instrument and may come into the hands of a foreign party with no knowledge and no ready means of knowledge of the terms of the charter-party. The cases show that a strict test of incorporation having, for better or worse, been laid down, the courts have in general defended this rule with some tenacity in the interests of commercial certainty. If commercial parties do not like the Engish rule, they can meet the difficulty by spelling out the arbitration provision in the bill of lading and not relying on general words to achieve incorporation.


The importance of certainty in this field was emphasised by Lord Denning MR in " THE ANNEFIELD" [1971] P 168 at page 183G, by Sir John Donaldson MR in " THE VARENNA" at page 594 column 2, and by Lord Justice Oliver in the same case at page 597 column 2. This is indeed a field in which it is perhaps preferable that the law should be clear, certain and well understood than that it should be perfect. Like others, I doubt whether the line drawn by the authorities is drawn where a modern commercial lawyer would be inclined to draw it. But it would, I think, be a source of mischief if we were to do anything other than try to give effect to settled authority as best we can.


The first question for decision is whether the language used in this bill of lading is effective to incorporate the arbitration clause set out in Clause 11 of the charter-party. I deal at the outset with a point strongly made by Mr. Hirst for the cargo owners in reliance on the words in the bill of lading "as if fully written". Those are words not found, I think, in any of the decided cases and it was submitted by Mr. Hirst that their presence strengthened the case for incorporation.


For my part I cannot agree. It is clear beyond argument, whether expressly stated...

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