Factual and Procedural Background
On 28 February 2004, a catastrophic explosion occurred aboard the bulk carrier "the vessel" off the coast of Colombia, resulting in the death of the Master and five crew members and the total loss of the vessel and its cargo. The cargo, described as "Metallic HBI Fines," was shipped from Palua Puerto Ordaz, Venezuela to Jingtang Port, China, under two bills of lading made out to "To Order" and issued to the shipper, Company A of Venezuela. Company A had sold the cargo on FOB terms to Company B, a Swiss company, which in turn sold it on CIF terms to Company C, an Australian company, identifying an end user in China.
The Owners of the vessel sought to claim damages from Company B for losses allegedly caused by the shipment of a dangerous cargo, asserting that Company B was the "lawful holder" of the bills of lading under the Carriage of Goods by Sea Act 1992 ("COGSA") and had "made a claim" against the Owners under the contract of carriage, thus binding Company B to the arbitration clause incorporated in the bills of lading. Company B disputed these contentions, denying it was the lawful holder or that it had made a claim within the meaning of COGSA, and argued it was not bound by the arbitration clause.
The dispute was referred to arbitration, where a majority of the arbitrators found that Company B was the lawful holder and had made a claim, thus the tribunal had jurisdiction. The dissenting arbitrator disagreed on the "made a claim" point. Company B appealed the tribunal's jurisdictional decision to the Commercial Court under section 67 of the Arbitration Act 1996, raising issues about the extent to which new objections and evidence could be introduced on appeal, and the interpretation of COGSA provisions concerning the holder of bills of lading and the making of claims under contracts of carriage.
Legal Issues Presented
- Whether Company B was the lawful holder of the bills of lading at the relevant time and if so, whether rights of suit under section 2(1) of COGSA vested in it.
- Whether Company B or its agents "made a claim under the contract of carriage against the carrier" within section 3(1)(b) of COGSA.
- Whether, on an appeal under section 67 of the Arbitration Act 1996 from an arbitration tribunal's decision on substantive jurisdiction, the appellant is entitled to introduce new objections and evidence not raised before the tribunal ("the new objection point").
Arguments of the Parties
Appellant's Arguments (Company B)
- On the "lawful holder" issue, Company B argued that section 5(2)(c) of COGSA governed whether it became the holder and submitted that it never became the holder within that provision or, if it did, the conditions of section 2(2) were not met, so no rights of suit transferred.
- Alternatively, if section 5(2)(b) applied, then either the financing bank remained holder or the cargo underwriters became lawful holders upon possession of the bills, transferring rights accordingly.
- On the "new objection issue," Company B contended that under a correct construction of section 73 of the 1996 Act, it was entitled to raise any new arguments and evidence related to jurisdiction on appeal, even if not raised before the arbitrators.
- On the "making a claim" issue, Company B supported the dissenting arbitrator’s view that the correspondence with the P&I Club did not constitute a clear, unequivocal claim under the contract of carriage and that a voluntary request for security did not amount to making a claim.
Respondent's Arguments (Owners)
- Company A submitted that under section 73 of the Arbitration Act 1996, Company B could not raise new objections or adduce new evidence on appeal if those grounds were known or discoverable at the arbitration stage.
- They argued that Company B was indeed the lawful holder of the bills of lading from 22 March 2004 when the bills were sent to the insurance brokers, and that section 5(2)(c) was not relevant.
- On the "making a claim" point, the Owners submitted that the demand for a Letter of Undertaking ("LOU"), with the implied threat of vessel arrest, constituted a formal claim under section 3(1)(b) of COGSA.
- They also relied on the internal reactions of the P&I Club and Owners’ agents as evidence that the demand for security was a formal claim, and analogized to the Court of Appeal decision in Rank Enterprise Ltd v Gerard concerning claims made against a vessel.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Borealis AB v Stargas Ltd ("the Berge Sisar") [2002] 2 AC 205 |
Interpretation of section 3(1) of COGSA regarding what constitutes "making a claim" and liabilities of bill holders. |
Used as authoritative guidance on interpreting section 3(1), particularly the requirement of a formal claim asserting legal liability under the contract of carriage. |
| Socony Mobil Oil Co Inc v West of England Ship Owners Mutual Insurance Association (London) Ltd (The Padre Island) [1984] 2 Lloyd's Rep 408 |
Principles on arbitration clauses and rights of parties under contracts of carriage. |
Referenced in relation to binding arbitration clauses incorporated in bills of lading. |
| Firma C-Trade v Newcastle P&I Association and others (the FANTI) [1991] 2 AC 1 |
Binding effect of arbitration clauses on parties exercising rights under contracts of carriage. |
Referenced to support the proposition that parties relying on contract terms are bound by arbitration clauses. |
| Schiffartsgesellschaft Detlev von Appen GmbH v Voes Alpine Intertrading GmbH [1997] 2 Lloyd's Rep 279 |
Interpretation of rights and liabilities under bills of lading. |
Used to support the understanding of contractual rights and liabilities under bills of lading. |
| Athletic Union of Constantinople v National Basketball Association [2002] 1 Lloyd's Rep 305 |
Section 73 of the Arbitration Act 1996 limits raising new jurisdictional objections on appeal. |
Applied to restrict new jurisdictional objections not raised before arbitrators. |
| JSC Zestafoni G Nikoladze Ferroalloy Plant v Ronly Holdings Ltd [2004] 2 Lloyd's Rep 335 |
Requirement to raise all grounds of jurisdictional challenge before arbitrators under section 73. |
Confirmed that new grounds of jurisdictional challenge on appeal are generally barred unless good reason shown. |
| Rank Enterprise Ltd v Gerard [2000] 1 Lloyd's Rep 403 |
Construction of "claims made against the vessel" as including demands with real and present threat of arrest. |
Used by Owners to analogize the demand for security as a formal claim under section 3(1)(b) of COGSA. |
| Aloot Kalmneft v Glencore International AG [2002] 1 Lloyd's Rep 128 |
Admissibility of new evidence on appeals under section 67 of the Arbitration Act 1996. |
Referenced in discussion of whether new evidence may be admitted on appeal. |
| Electrosteel Castings Ltd v Scan Trans Shipping & Chartering Sdn Bhd [2003] 1 Lloyd's Rep 190 |
Nature of appeals under section 67 as re-hearings permitting new evidence. |
Supported the proposition that appeals under section 67 are re-hearings allowing new evidence, subject to court control. |
| Rustal Trading v Gill & Duffus SA [2000] 1 Lloyd's Rep 14 |
Policy behind section 73 of the Arbitration Act 1996 to prevent delay by late objections. |
Discussed as background for interpreting section 73's requirement for timely jurisdictional objections. |
Court's Reasoning and Analysis
The court began by addressing the "new objection" issue, interpreting section 73 of the Arbitration Act 1996 as requiring parties to raise all grounds of objection to jurisdiction before the arbitrators, with "any objection" and "that objection" meaning any distinct ground of objection. The court found that Company B’s appeal arguments, though broader and including new evidence, fell within the two grounds of objection originally raised: whether it was the lawful holder and whether it had made a claim. Consequently, the court allowed the new evidence as no prejudice to the Owners was shown.
On the "lawful holder" issue, the court analyzed sections 5(2)(b) and 5(2)(c) of COGSA, concluding that section 5(2)(c) was the relevant provision because the cargo and vessel were lost, meaning possession of the bills could no longer confer a right to possession of the goods. The court held that the transfer of the bills from the financing bank to the insurance brokers was a transaction effected after the right to possession ceased, so Company B did not become the holder by virtue of that transaction, and rights of suit did not transfer to Company B.
The court rejected Company B’s argument that the financing bank remained holder after sending the bills to the brokers, holding that possession had passed to Company B and then to the brokers as agents. The court also noted that even if Company B had become holder, the conditions of section 2(2) were not met, precluding transfer of rights of suit.
On the "making a claim" issue under section 3(1)(b) of COGSA, the court relied on Lord Hobhouse's analysis in the Berge Sisar case, which requires a formal claim asserting legal liability under the contract of carriage. The court distinguished between a formal claim and a mere request for security, such as a Letter of Undertaking ("LOU"). Although the LOU implied a threat of arrest, it was a contractual arrangement involving multiple potential claimants and did not constitute a formal election by Company B to enforce contractual rights. The court found no express or implied communication that Company B had made a claim, and thus the demand for security did not amount to making a claim under section 3(1)(b).
The court further held that evidence of the Owners’ and P&I Club’s internal reactions was irrelevant to whether Company B made a claim, as the test is objective and based on the claimant’s words or deeds towards the carrier or its agents.
Accordingly, the court concluded that Company B was not bound by the arbitration clause as it was not the lawful holder with rights of suit and had not made a claim under the contract of carriage.
Holding and Implications
The court held that Company B did not become the lawful holder of the bills of lading with rights of suit transferred under COGSA, nor did it make a claim under the contract of carriage within section 3(1)(b) of COGSA. Consequently, Company B was not bound by the arbitration clause incorporated in the bills of lading, and the arbitration tribunal lacked substantive jurisdiction over the Owners’ claims against Company B.
DISPOSED OF
The direct effect is that the Owners’ claims against Company B cannot be pursued in arbitration under the incorporated arbitration clause. No broader precedent was established beyond the application of statutory provisions to the specific facts concerning the loss of the vessel and cargo and the status of the bills of lading holder and claim-making under COGSA.