In a unanimous Judgment dated 12 October 20221, the Full Court of the Federal Court of Australia confirmed that parties to a contract for the inter-State carriage of goods by sea cannot be prevented from arbitrating overseas where they have agreed to do so, which ousts the jurisdiction of the Australian Court.
The decision arises out of a dispute between Carmichael Rail Network and BBC Chartering Carriers regarding a shipment of steel rails from Whyalla, South Australia, to Mackay, Queensland on board the ship BBC Nile. The consignment of steel rails was damaged during carriage.
The Bill of Lading contained an arbitration clause, which provided that any dispute arising under or in connection with the Bill of Lading shall be referred to arbitration in London.
Following notice of a claim by Carmichael, BBC Chartering commenced arbitration in London. Carmichael responded by filing substantive proceedings in Australia, along with an interlocutory application seeking to restrain BBC Chartering from proceeding with the arbitration in London. In turn, BBC Chartering filed an interlocutory application in the Australian Court seeking a stay of the Australian proceedings in favour of arbitration in London.
Finding that the Australian proceeding commenced against BBC Chartering must be stayed in favour of arbitration in London, the Full Court found that section 11(2)(b) of Carriage of Goods by Sea Act 1991 (Cth) (COGSA) does not preclude parties from agreeing a foreign choice of law clause in a contract for the inter-State carriage of goods by sea.
That finding may be compared with position in respect of shipments from Australia to a place outside Australia, where the jurisdiction of the Australian Court may not be ousted. In relation to outbound shipments, section 11(1) of COGSA would strike down a choice of law clause in a sea carriage document which did not stipulate Australian law. Section 11(2)(b) would strike down a foreign jurisdiction clause in relation to the same outbound shipment. Section 11 of COGSA protects Australian courts from having their jurisdiction “ousted” by parties to certain contracts (although it expressly preserves Australian arbitration).
The purpose of section 11 of COGSA is to protect the interests of Australian shippers and consignees from being forced contractually to litigate or arbitrate outside Australia.
We note the position is different in respect of voyage charters for the carriage of goods to and from Australia. An arbitration agreement contained in a voyage charterparty is not rendered ineffective by section 11 of COGSA as it is not a “sea carriage document” for the purposes of COGSA2.
In relation to contracts for the inter-State carriage of goods by sea, Article 3(8) of the Australian Rules (being the amended Hague Rules in COGSA) provides a possible alternative mechanism to strike down a foreign choice of law or jurisdiction clause. However, Article 3(8) of the Australian Rules will only operate where the relevant contract has the effect of relieving the carrier or the ship from liability under the Australian Rules, or lessening that liability.
In this instance, Carmichael argued that the liability of BBC Chartering may be lesser under English law. However, as BBC Chartering conceded that the relevant Bill of Lading is governed by Australian law, Carmichael was not able to prove that the conduct of the arbitration in London would lessen the potential liability of BBC Chartering. Article 3(8) of the Australian Rules did not assist Carmichael in this instance.
Having regard to the history of the legislation, as set out by the Full Court, it seems likely that the exclusion of contracts for the inter-State carriage of goods by sea from section 11 of COGSA was the result of historical oversight or inattention. It appears that oversight can now only be corrected by Parliament. In the meantime, parties to contracts for the inter-State carriage of goods by sea in Australia cannot be prevented from arbitrating overseas where they have agreed to do so.
This article was written by Kristin Hibbard, Special Counsel and reviewed by Joe Hurley, Partner.
1Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co. KG (The BBC Nile) [2022] FCAFC 171
2Dampskibsselskabet Nordon A/S v Gladstone Civil Pty Ltd [2013] FCAFC 107
