This case has provoked a certain amount of interest despite the
fact that the High Court's decision simply followed the general
law in China that the right of parties to agree law and
jurisdiction should be respected by the Chinese courts. In the
past, the courts in China have had a reputation for preferring to
retain jurisdiction, in contradiction to the arbitration clause
agreed between the parties.This latest decision, important because
it is from a higher court, indicates a move away from that
The facts of the case
Disputes arose in a fixture between Sinotrans Guangdong (the
"Owners") and Lu Qin (Hong Kong) Co. Ltd. (the
"Charterers") which provided "Arbitration in
Hong Kong and English Law to apply". Such a combination
of mixed law and jurisdiction is becoming increasingly
popular. Ironically the Charterers, a Hong Kong entity,
commenced a claim in the Shanghai Maritime Court (the
"SMC"), ignoring the Arbitration Clause, and the Owners
applied to contest the jurisdiction of the SMC in favour of
arbitration in Hong Kong.
The SMC ruled that PRC law was the governing law in determining
the effectiveness of the Arbitration Clause and rejected the
owner's application on the basis that the Arbitration Clause
failed to stipulate the arbitration tribunal and specify the number
of arbitrators and accordingly it was invalid under PRC Arbitration
Law. However, on appeal, the Shanghai People's High Court
concluded that the arbitration clause was valid and binding on the
parties under English Law and Hong Kong Law, and that the SMC did
not have jurisdiction over the merits of the disputes.
The High Court's reasoning was as follows. On the
interpretation of the Arbitration Clause, English law should be
applicable. Under English law, there can be more than one national
system of law bearing upon an international arbitration: the
substantive law and the procedural law. In this case, the
substantive rights and duties of the parties were governed by
English Law and the procedure of the arbitration was governed by
Hong Kong law (Hong Kong being the seat of the arbitration). Hong
Kong law requires the parties to send an application to the Hong
Kong International Arbitration Centre to determine the number of
In practical terms, parties carrying or trading goods to China
should be aware of the general principles usually applied by the
Chinese courts when deciding whether or not to recognise an
arbitration clause. In brief, the courts should generally recognise
a clause that has been expressly negotiated between the parties. In
charterparties, this is not often a problem as the law and
jurisdiction clause is often an express rider clause.
However, bills of lading can be problematic as it is common in a
short form bill of lading to incorporate the terms and conditions
of the governing charterparty. In order for the terms of that
charterparty, and therefore its arbitration clause, to be validly
incorporated into a bill of lading in the eyes of the Chinese
courts, the charterparty should be clearly identified (preferably
by date, names of parties, reference number, etc.) on the front
side of the bill of lading and the incorporation clause should have
a wide scope, for example "all terms, conditions and
exceptions contained in the charterparty, including the arbitration
clause, shall be incorporated". This is supported by
Article 98 of the Guidelines in respect of Trials of Commercial and
Maritime Disputes Involving Foreign Elements issued by the Supreme
Court of China in 2004, which provides that:
"...clauses in respect of arbitration, jurisdiction and
governing law in the charterparty shall not be binding upon a bill
of lading holder (who is not the charterer) unless the
incorporation clause expressly says that these clauses shall be
There have been cases in which it was held that wordings like
"freight payable as per charterparty dated XXX"
are merely for the purpose of freight payment and are therefore not
sufficient to incorporate, in particular, an arbitration clause
from the charterparty.
Of course, whether a charterparty arbitration clause can be
successfully incorporated into a bill of lading will depend upon
the surrounding facts of each particular case and the court will
also have some discretion in this regard.The point to note for
shipowners and their P&I Clubs is that in order to have the
best chance to successfully stay Chinese court proceedings in
favour of a foreign arbitration, the charterparty must be clearly
identified in the bill of lading and the incorporation clause must
be wide enough to expressly include the arbitration clause.
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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We discuss Robinson Helicopter Company Incorporated v McDermott  HCA 22 .
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