The arbitration community is seriously concerned after an Australian Federal Court ruled on the unenforceability of a charter party arbitration clause as it limited the jurisdiction of the Australian courts. Until now, practitioners considered Australia “arbitration-friendly”; however, the current refusal to enforce a London arbitration award creates a big uncertainty.
An Australian court has established a precedent in which arbitration clauses, jurisdiction clauses and choice of law clauses in charter parties involving either shipments to or from Australia would be unenforceable if such clauses seek to limit the jurisdiction of any Australian court. Is it the end of arbitration in Australia?
The facts
Dampskibsselskabet Norden A/S v. Beach Building and Civil Group Pty Ltd (2012) FCA 696
Dampskibsselskabet Norden A/S (“DKN”) as the ship owner and Beach Building & Civil Group Pty Ltd , (“Beach”) as the charters entered into a “charter party” in order to carry a coal cargo from Australia to China. [1] Under the charter party a London seated arbitration clause governed by English law was included.
The dispute
The dispute emanated on whether or not Beach had to pay demurrage due to the vessel delays at the loading and discharging ports.
According to the respondents’ position a preliminary issue was whether or not the arbitrator had jurisdiction to the dispute arising under the charter party. At the same time, respondents claimed that section 11 of the Carriage of Goods by Sea Act was applicable. [2] Despite these allegations, the tribunal ruled that Beach was liable to DKN in the amount of US $ 824,663.18 plus interests and costs.
Following the regular arbitration course, once the award was rendered, DKN proceeded on the award recognition in Australia on the basis of the Australian Arbitration Act 1974 which recognizes and enforces foreign arbitration awards. Nevertheless, the Act includes the lack of jurisdiction of the arbitrator as exception. Based on such exception, Beach claimed that the charter party was a “see carriage document” within the meaning of section 11(1) (a) of ACOGSA and the reference to London arbitration was ineffective.
The Court analyzed the lack of definition of a sea carriage document under the ACOGSA, concluding that a charter party was a sea carriage document. Additionally, as it limited the jurisdiction of the Australian court the award was left aside.
So now what?
Until now, there is no information regarding a possible appeal. Therefore, parties to “charter parties” should carefully consider this change in the enforceability of foreign awards in Australia. There is a current risk that arbitration provisions in the carriage of goods from or to Australia may be invalidated. But let’s not panic, it seems possible that arbitration under foreign law may be enforceable in Australia if the parties to the relevant sea carriage document agree on the arbitration taking part in Australia.
Section 11(3) of ACOGSA provides that:
“ an agreement, or a provision of an agreement, that provides for the resolution of a dispute by arbitration is not made ineffective by section (2) (despite the fact that it may preclude or limit the jurisdiction of a court) if, under the agreement or provision, the arbitration must be conducted in Australia”.
Whether this is a “solution” for all those charter parties’ carriages from any place in Australia to any outside Australia or the other way round, is another story. Equally debatable is whether section 11(3) of ACOGSA is a fair provision. In other words, is it fair that arbitrations seated in Australia and not in England can analyze the scope of a Charter party? We will not enter into that debate. Time will tell us… Until all this controversy is clarified, we can only urge caution on shipping agreements and still believe in the beauty of arbitration.
[1] The parties entered into the agreement on 6 October 2009
[2] Section 11 of COGSA states:
“Section 11: Construction and Jurisdiction
(1) All parties to:
(a) a sea carriage document relating to the carriage of goods from any place in Australia to any place outside Australia; or
(b) a non-negotiable document of a kind mentioned in subparagraph 10(1)(b)(iii), relating to such a carriage of goods;
are taken to have intended to contract according to the laws in force at the place of shipment.
(2) An agreement (whether made in Australia or elsewhere) has no effect so far as it purports to:
…
(b) preclude or limit the jurisdiction of a court of the Commonwealth or of a State or Territory in respect of a bill of lading or a document mentioned in subsection (1); or
(c) preclude or limit the jurisdiction of a court of the Commonwealth or of a State or Territory in respect of:
(i) a sea carriage document relating to the carriage of goods from any place outside Australia to any place in Australia; or
(ii) a non negotiable document of a kind mentioned in subparagraph 10(1) (b) (iii) relating to such a carriage of goods.”