Dubai’s supreme court, the Court of Cassation, has ruled on a case regarding the incorporation of charterparty terms into a bill of lading, specifically the incorporation of an arbitration clause. In the present case, the bill of lading contained a clause incorporating charterparty terms in general and the arbitration clause in particular. It was not, however, indicated which charterparty was incorporated. Boxes indicating the parties to, and date of the charterparty incorporated were left blank.
The claimants were the cargo insurers who had indemnified the insured cargo owners for a contaminated shipment of sulphur and were now seeking to recover from the shipowners under the bill of lading. The defendants objected to the filing of the suit before the court on the grounds that the dispute should be referred to arbitration. They argued that the incorporation clause in the bill of lading was sufficient to include the arbitration clause in the head charterparty.
English law takes a very liberal approach towards the incorporation of terms into a contract.
Where more than one charterparty is in place and the bill of lading does not specify which one shall be incorporated, the court will determine the relevant charterparty. As a general rule, the head charterparty, to which the owner is party, is incorporated. The general rule, however, does not apply where the head charterparty is a time charterparty because of the different nature of the contract.
English law further allows the courts to determine whether the arbitration clause of a charterparty, as an ancillary clause, is incorporated in the bill of lading. Although general terms of incorporation are not sufficient to include the arbitration clause into the bill of lading, it can be incorporated by specifically referring to the arbitration clause, even if the charterparty clause needs to be manipulated to take effect.
A recent judgment has expanded this position even further: Even though the charterparty dispute resolution clause provided for court jurisdiction, the court accepted as valid the bill of lading clause incorporating a “law and arbitration” clause of the charterparty. The court did, however, decide that court jurisdiction prevailed. For the judge it was a matter of construction that the parties intended to include the dispute resolution clause from the charterparty, and that a reasonable any reasonable third person would come to that conclusion.
Under the UAE Civil Procedure Code parties may agree to refer any dispute that arises in respect of a particular contract to arbitration. In order to be valid, the arbitration agreement has to be evidenced in writing. Where a valid agreement to that extent exists, no suit may be filed before the courts. However, if a suit is nevertheless filed before the courts, the suit will be considered unless the other party objects to the filing in the first hearing. Otherwise the objection to file suit before the court will be deemed waived.
When comparing the two regimes based on the aforesaid, it can be seen that the two regimes are not that far apart. Where the UAE courts would, until not too long ago, would have insisted on an express arbitration clause in the contract or a separate arbitration agreement, it is now open to arbitration clauses incorporated by reference to another document. The Dubai Court of Cassation has followed the defendants in identifying the head charterparty as the relevant one, the arbitration clause of which was to be incorporated. The court further asserted that a general incorporation of all the charterparty terms would not have been sufficient, but in the present case the arbitration clause was clearly referred to. In the opinion of the Court, this was sufficient to satisfy the requirements of the UAE Civil Procedure Code.
Because of the neutral wording of the arbitration clause in the charterparty, the Court did not have to manipulate the clause to take effect between parties under the bill of lading. However, it recognized that arbitration clauses are often incorporated by reference into the bill of lading. It is therefore not unlikely that the court will accept the incorporation if manipulation of the wording is necessary.
Because the UAE is a civil law system, the decision does not constitute binding precedent. It does, however, serve as a persuading argument. Whether the UAE courts would accept incorporation by a chain of references, e.g. the bill of lading referring to a charterparty at fixture recap stage which itself refers to a drawn out charterparty, cannot be ultimately determined at this point. It would depend on counsel to explain to the court the customs and the modus operandi of the maritime industry.