Carriers and bills of lading: an unexpected duty to arbitrate.

An important point for bill of lading holders arose a couple of days ago in the Commercial Court. Everyone knows that you have to watch your back when becoming the holder of a bill of lading, in case you end up with not only the right to sue the carrier but also the duty to foot the bill for an insolvent shipper’s liabilities.

Traditionally the teaching has been: you are safe unless you take or demand delivery of the goods or make a claim against the carrier. It follows that if you are pretty sure you never did any of those things but nevertheless receive a demand from the carrier, you can smugly respond “Nothing doing. Sue me if you dare.” So far so good. But what if you receive a demand for arbitration pursuant to an arbitration clause contained in the bill? Can you still say “See you in court”, or are you now bound to arbitrate the claim, with the risk of losing by default if you do nothing? This was the point that arose in Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm), where Popplewell J preferred the latter answer.

A bank financed A, a seller of Argentine extracted toasted soya meal, who voyage-chartered a vessel to deliver it to Moroccan buyers. The transaction was a disaster for A, with the deal and a series of replacements falling through and the vessel sailing round North Africa and the Mediterranean, rather like Captain Hendrick’s Flying Dutchman, in search of someone somewhere to love the cargo. Big demurrage liabilities built up. The bank meanwhile acquiesced in the issue of a switch bill with a LMAA arbitration clause incorporated, naming it as consignee. A being (one assumes) insolvent, the owners claimed against the bank and claimed arbitration, alleging the bank was liable either as an original party to the switch bill, or as a transferee of it.

The arbitrators declined jurisdiction, on the basis that there was no evidence the bank had become liable on the bill under s.3 of COGSA 1992 and thus that the bank was not bound by the arbitration clause. However, on a s.67 application Popplewell J disagreed. The arbitration agreement was, he said, separate from the rights and liabilities under the bill itself: as soon as the bank fell to be treated as a party to the bill under s.2 of the Act, it was bound fully by any arbitration provision in it. It followed that the case had to be remitted to the arbitrators with a direction to continue with their hearing of the claim.

A result which, one suspects, will please neither banks nor traders, since it deprives both of the advantage of inertia: but there you are. At least carriers will be happy.

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