Arbitration clause. During the performance of any contract of carriage of goods by sea a dispute can arise between the parties to the contract. The document containing the contract generally contains a clause stating how and where the dispute is to be resolved, and therefore which country’s law will apply to the resolution of the dispute. For example, cl. 30 of MULTIFORM 1982/1986 states:
“Any disputes arising under this Charterparty are to be referred to arbitration in . . . and subject to the law applicable to Charterparty disputes in the city of arbitral forum. Except where it is the general practice in the selected arbitral forum for such disputes to be arbitrated by a tripartite tribunal, one arbitrator to be appointed by each of the parties, and in case the arbitrators shall not agree, the issues in contention shall be submitted by an umpire selected by the two arbitrators . . . The decision of the arbitrators or umpire … shall be binding on the parties, subject to the applicable law.”
A clause such as this can also be called a Forum Clause, to specify the place where any dispute will be resolved.
Some arbitration clauses found in charterparties also contain a time limitation on when a claim can be brought by one side against the other. For example, one standard-form grain charterparty, the CENTROCON, has a time limit of three months. This can cause a few problems for either the shipowner or the charterer/shipper. These effects are not generally known yet the clause is incorporated by name only (for example, “CENTROCON Arbitration Clause hereby incorporated”) into other charterparties, even where the loading port is not the River Plate, the region for which the original CENTROCON was designed.
In 1989, a court decision in The Stephanos demonstrated how arbitration clauses can sometimes cause problems. The standard CENTROCON arbitration clause was agreed in the charterparty. This stated:
“All disputes from time to time arising out of this contract shall, unless the parties agree forthwith on a single arbitrator, be referred to the final arbitrage of two arbitrators carrying on business in London who shall be members of the Baltic 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 three months of final discharge and where this provision is not complied with the claim shall be deemed to be waived and absolutely barred . . .”
If a claim was made and had to be decided by arbitration, an arbitrator had to be appointed within three months after final discharge. The cargo receiver complained about the cargo within the three months period and made a formal claim against the shipowner.
When sued by the receiver, the shipowner paid compensation and then brought an action against the original charterers within one year after discharge. The owner considered that another time limitation applied, that of one year contained in the Hague Rules, which applied to Bills of Lading and also, by the Clause Paramount, to the charterparty. The owner attempted to argue that the time limitation was that of the Hague Rules and not of the CENTROCON arbitration clause. However, the judge decided that the three-month time Limit applied to all claims under the charterparty irrespective when they arose. The judge declared that the Hague Rules provision applied to claims against a carrier, not by a carrier. The consequence was that the judge decided that the CENTROCON arbitration clause and its time limitation prevailed over the time limitation in the Hague Rules. In an earlier case, (The Ion, 1971), the Hague Rules time limitation did defeat the CENTROCON arbitration clause time limitation but that case was a claim against the carrier, not by the carrier. Moreover, if a clause in a contract which is subject to the Hague- Visby Rules or the Hague Rules reduces the time limit below the one year, this may be void under Article III, rule 8 of the Rules. Under this Rule, any clause in a contract of carriage which relieves a carrier from liability in connection with goods is null and void and of no effect. The imposition of a shorter time limit within which a claimant can bring an action against a earner would protect the carrier and would be void.
The arbitration clause itself is almost an agreement within an agreement (the charter). In law it can therefore be considered to be a “collateral” agreement, and if it is to be enforceable as a self standing agreement within another agreement, the language in the “parent” agreement must be explicit as to what clauses of the parent agreement art to form the collateral agreement by incorporation.
In a case before the English Court of Appeal in 1989, ‘The Federal Bulker, the issue concerned the incorporation of a charterparty arbitration clause into a bill of lading: The bills of lading which were used simply stated that all terms, conditions and exceptions were as per the charterparty, but no explicit details of the terms of the charterparty were given in the bill of lading. The charterparty contained an arbitration clause. The cargo was found to be damaged on discharge and the holder of the bill of lading attempted to start arbitration proceedings, depending on the clause in the bill of lading. The shipowner’s argument was that although the bill of lading was an agreement between the owner and the holder it did not give effect to the charterparty arbitration clause because the charterparty was a different agreement. The court decided that an arbitration clause in a charterparty is “collateral” to the main agreement. If it is to have effect in any other agreement, it must be referred to explicitly in that other agreement, not merely in a reference in that other agreement to “terms and conditions” of the charterparty.