United Arab Emirates: Dubai Court Of Cassation Rules On Incorporation Of Charterparty Terms Into A Bill Of Lading

Al Buhaira National Insurance Co. v. The Shipping Corporation of India Limited (Cassation No. 363 of 2011, Civil Appeal)

Dubai's highest court, the Court of Cassation, has considered a further case on the incorporation of charterparty terms into a bill of lading under UAE law and, in particular, the incorporation of an arbitration clause from that charterparty.

The background facts

This dispute concerned a subrogated cargo claim in respect of alleged damage to cargo that was carried on board the defendant owners' vessel, the Desh Bhakt. The claimant cargo insurers paid out in full under a marine open insurance policy in respect of the damaged cargo and sought to reclaim the amount of around US$2.3m from the owners under the relevant bill of lading. The owners sought to dismiss the claim and objected to the UAE court proceedings on the grounds that the arbitration clause in the head charterparty between the owners and their charterers had been incorporated into the bill of lading.

Charterparty/bill of lading terms

The clauses of the charterparty dealing with arbitration stated, where relevant, as follows:

"78. LMAA / Arbitration Clause

All disputes or differences arising out of or under this contract, which cannot be amicably resolved, shall be referred to arbitration in London....This contract is governed by English law and there shall apply to all proceedings under this clause the terms of the London Maritime Arbitrators' Association current at the time when the arbitration proceedings were commenced.

105. General Average and Arbitration in London. English Law to apply."

The incorporation wording of the bill of lading stated as follows:

"All terms, conditions and exceptions (including but not limited to Due Diligence, Negligence, Force Majeure, War, Liberties and Arbitration clauses) contained in which charter are herewith incorporated and form part hereof."

The bill of lading did not contain the details of the particular charterparty that was to be incorporated into the bill of lading. In particular, details as to the parties to the charterparty and the date of the charterparty were left blank.

Arbitration clauses and bills of lading in the UAE

Under UAE law, an arbitration clause may be drafted in any language, form or style. There must, however, be a clear indication that the parties have agreed to submit to arbitration any dispute arising out of the applicable agreement.

The UAE court will not hear a case if the parties have agreed to refer the matter to arbitration. Under UAE law, however, a party wishing to rely on an arbitration clause in order to stay or prevent the court from hearing a case must raise an objection to the court's jurisdiction at the first hearing of the case, mentioning the relevant arbitration clause or agreement. If such objection is not raised at the first hearing, the court will proceed with the action and the parties will be taken to have waived their rights to refer the matter to arbitration. On some occasions (as happened in the present case), the UAE court will request the parties to make submissions on both jurisdiction and the merits of the case, rather than only ruling on the jurisdiction challenge at the outset of the proceedings. In practice, this means that the UAE court will instead rule on all the issues involved in the case, including any jurisdictional objection, only after the case reaches full judgment stage, which can be a lengthy process.

Under Article 257 of the UAE Maritime Code, a bill of lading will be treated as evidence of the contract of carriage on the grounds that it contains all of the conditions specifying the obligations of both parties, including the obligation and liability of the carrier. Accordingly, in the absence of evidence of a separate contract of carriage, it has previously been held by the Court of Cassation that the bill of lading contains all terms and conditions governing the carrier's obligations towards the consignor and is, therefore, the only document that governs this contractual relationship.

The Court of First Instance decision

The claimant insurers succeeded at first instance. At the first hearing in the case, the owners objected to the proceedings on the basis that the arbitration clause of the charterparty had been incorporated into the bill of lading and that, accordingly, the claim should be dismissed on the grounds that the parties had agreed to refer any disputes to arbitration in London. The claimant argued that the terms of the bill of lading did not establish the intent of the parties to refer any disputes between them to arbitration, primarily since the sections of the bill of lading dealing with the details of the charterparty were blank.

The court concluded that the wording of the bill of lading, together with clause 105 of the charterparty dealing with governing law and arbitration, was not sufficient to establish the mutual intent of the contracting parties to refer their disputes to arbitration (the court was, however, silent as to the provisions of clause 78 of the charterparty, being the more extensive clause dealing with arbitration). The court, therefore, found in favour of the claimant and ordered the owners to reimburse the insurers for the full amount of their claim plus interest and court fees.

The Court of Appeal decision

The owners appealed to the Dubai Court of Appeal. The Court of Appeal concluded that clause 78 of the charterparty was a valid arbitration clause and that the bill of lading specifically incorporated that clause by reference. The owners were, therefore, entitled to rely on the same provisions as against the claimant insurers and accordingly, the court overturned the decision at first instance, finding in favour of the owners and rejecting the insurers' claim on the grounds of the arbitration clause.

  The Court of Cassation decision

The insurers then appealed this decision to the highest court, the Dubai Court of Cassation. The Court of Cassation upheld the decision of the Court of Appeal, concluding that the arbitration clause contained in the charterparty had been validly incorporated into the bill of lading by way of specific reference. This was sufficient to demonstrate that the parties to the bill of lading intended to refer the disputes to arbitration according to the arbitration clause contained in the charterparty.

Comment

This is an important case because it determines that the UAE court will recognise and uphold the incorporation of a charterparty/foreign arbitration clause into a bill of lading even where the details of the charterparty in the bill of lading are left blank. In this case, the UAE court held that, where the words of incorporation in a bill of lading include a clear reference to the arbitration clause of a charterparty, then that arbitration clause will be deemed to be incorporated into the bill of lading. Mere reference in a bill of lading to the conditions of a charterparty, without express reference to the arbitration clause, is not sufficient to incorporate the arbitration provisions into the bill of lading, as was noted by the Dubai Court of Cassation in this case.

It should also be noted that if a party wishes to object to the jurisdiction of the UAE court on the grounds of an arbitration clause, this must be done at the very first hearing, otherwise the right to object will be lost and it will be assumed that the parties have submitted to the jurisdiction of the UAE court.

The UAE is a civil law jurisdiction and there is, therefore, no system of binding precedent. However, the decisions of the Dubai Cassation Court can be persuasive when used as the basis for legal argument in subsequent cases. Only in rare cases will the judges of lower courts contradict the findings of the Cassation Court. Cassation Court decisions are, therefore, a form of guidance as to the court's likely attitude in similar matters. This judgment will form part of such guidance and is likely to be relied upon in any cases where either party is seeking to object to court proceedings on the basis that arbitration provisions from a charterparty have been incorporated into a bill of lading.

Bob Deering, Graham Crane, Pavlo Samothrakis and Khalid Hamed of Ince & Co Middle East LLP acted for Shipping Corporation of India Limited, the successful owners in this litigation.

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.