Australia: London arbitration clauses are valid in Australia – confirmed by Australian appeal court

Last Updated: 15 April 2014
Article by Dimity Maybury


In 2012, a decision of the Federal Court of Australia caused consternation in Australia and around the world, when it was held that a London arbitration clause was unenforceable in Australia. We can now report that that decision of the single judge of the Federal Court of Australia has been overturned on appeal and it is again clear that London arbitration clauses are enforceable in Australia.

The facts and the decision at first instance

Dampskibsselskabet Norden A/S (Norden) had entered into a voyage charterparty with Beach Building & Civil Group Australia (BBCG), for the carriage of coal from Australia to China. A dispute arose under the charterparty in respect of demurrage that had been incurred.

The charterparty was governed by English law and the dispute was referred to London arbitration. Norden commenced arbitration against BBCG. At the arbitration, BBCG contended that the arbitration clause in the charterparty was invalid and unenforceable, because the charterparty was a "sea carriage document" for the purposes of s.11(2) of the Australian Carriage of Goods by Sea Act 1991 (COGSA). Therefore, the charterparty was attempting to preclude or limit the jurisdiction of Australian courts, which is prohibited by COGSA.

Norden was successful in the arbitration and sought to enforce the resulting arbitral awards against BBCG in Australia. Proceedings were commenced in Australia (Dampskibsselskabet Norden A/S v Beach Building & Civil Group Pty Ltd [2012] FCA 696) and BBCG also resisted enforcement of the arbitral awards for a number of reasons, including that the arbitration clause was unenforceable by virtue of the application of s. 11(2) of COGSA.

The key issues before Justice Foster at first instance were as follows:

  1. Was a voyage charterparty a "sea carriage document" for the purposes of COGSA?
  2. And if so, did the London arbitration clause preclude or limit the jurisdiction of Australian courts?

The issue arose because there is no express inclusion of voyage charterparties in the provisions of COGSA. There is a reference to "sea carriage document" in s. 11, but it is not defined in the body of the Act itself.

However, the term is used in Schedule 1A to COGSA, which is Australia's amended version of the Hague/Visby Rules. In Schedule 1A, the term "sea carriage document" is defined in Article 1 Rule 1(g) as follows:

"Sea carriage document" means:

  1. a bill of lading; or
  2. a negotiable document of title that is similar to a bill of lading and that contains or evidences a contract of carriage of goods by sea; or
  3. a bill of lading that, by law, is not negotiable; or
  4. a non negotiable document (including a consignment note and a document of the kind known as a sea waybill or the kind known as a ship's delivery order) that either contains or evidences a contract of carriage of goods by sea.

A voyage charterparty would, on an ordinary reading, appear to fall into sub-paragraph (iv) of the above definition. However, the controversy arises because, traditionally, the Hague/Visby Rules and other sea carriage rules which the COGSA implements into Australian law, apply only to "bills of lading or similar documents of title" and not to voyage charterparties, which are not documents of title.

At first instance, Justice Foster found that a voyage charterparty does fall into sub-paragraph (iv) of the definition above and, therefore, is a "sea carriage document" for the purposes of Schedule 1A of COGSA. He then reasoned, that the meaning of the term should be applied consistently throughout the Act. This meant, in his view, that a voyage charterparty is a "sea carriage document" for the purposes of s. 11(2) of COGSA and that the London arbitration clause was void and unenforceable.

The appeal

On appeal, in Dampskibsselskabet Norden A/S v Gladstone Civil Pty Ltd [2013] FCAFC 107, the Full Court of the Federal Court of Australia held that the voyage charterparty was not a "sea carriage document" for the purposes of COGSA and, therefore, the London arbitration clause was valid and enforceable in Australia.

The Court delivered three separate judgments. Justice Rares, with whom Justice Mansfield agreed, delivered the leading judgment, found that a voyage charterparty is not a "sea carriage document" for the purposes of s. 11(2) of COGSA and that the London arbitration clause was effective. In summary, Justice Rares gave the following reasons:

  1. Reading the Act and Schedule 1A as a whole, there is a clear distinction drawn between the functions of a contract of carriage and a charterparty. For example:
    1. Article 3 Rule 3 of Schedule 1A requires that the carrier, master or agent of the shipper must issue, at the shipper's request, a sea carriage document after the goods had been delivered. This is clearly directed to the issuing of a document similar to a bill of lading (but not necessarily negotiable). It is not practical for a voyage charterparty to be used in this way.
    2. In a number of places throughout Schedule 1A, a clear distinction is drawn between a charterparty and a document issued under a charterparty (see Article 1 Rule 1(b), Article 5 and Article 10 Rules 6 and 7).
  1. It is unlikely that the Parliament intended that agreements for international arbitration in voyage, or other, charterparties would be deprived of force or effect unless the arbitration occurred in Australia. The purpose of s. 11 of COGSA is to protect the interests of Australian shippers and consignees from being forced contractually to litigate, or arbitrate outside Australia. It does not extend to protection of charterers or shipowners from the consequences of freely negotiated charterparties.

Implications of the judgment

The Full Court of the Federal Court of Australia has provided much needed clarity in relation to the status of arbitration clauses in voyage charterparties. It is now clear that, notwithstanding s. 11(2) of COGSA, Australian courts will recognise and enforce foreign arbitration clauses and arbitral awards, consistent with Australia's obligations under the New York Convention and the UNCITRAL Model Law on International Commercial Arbitration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Dimity Maybury
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