Chaozhou Yatai Energy Co. Ltd. v. Hua Yang International Marine Transportation Co. Limited, Grand Wide Shipping Limited and PICC Property and Casualty Company Limited (Jiangsu Branch)

Cite as: Chaozhou Yatai Energy Co. Ltd. v. Hua Yang International Marine Transportation Co. Limited, Grand Wide Shipping Limited and PICC Property and Casualty Company Limited (Jiangsu Branch), The Supreme People’s Court (16 May 2012), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

Date of Decision: 16 May 2012
Court:

The Supreme People’s Court
The Higher People’s Court of Guangxi Zhuang Autonomous Region

Arbitral Tribunal:

Case number / Docket number:

No. 16 of the Fourth Civil Tribunal of the Supreme People’s Court [2012]
No. 14 of the Higher People’s Court of Guangxi Zhuang Autonomous Region [2012]

Classification of issues present

Application of the New York Convention: No
Key PRC law provision(s) at issue: Article 4 of the <Special Maritime Procedure Law of the People's Republic of China> and Article 28 of the <Civil Procedure Law of the People’s Republic of China>

Descriptors: Arbitration agreement; Incorporation of arbitration clause; Bill of Lading; CONGENBILL 1994; Charter-party; Time charter; Voyage charter

Chaozhou Yatai Energy Co. Ltd. v. Hua Yang International Marine Transportation Co. Limited, Grand Wide Shipping Limited and PICC Property and Casualty Company Limited (Jiangsu Branch)

An arbitration clause contained in a charter-party was found not effectively incorporated into the Bill of Lading (B/L) concerned. In its Report to the Supreme People’s Court, the Higher People's Court of Guangxi Zhuang Autonomous Region found that although at the front of the B/L it was stated that “bill of lading – used in combination with charter parties” and “freight payables as charter-party”, there was no clear stipulations as to whether other provisions contained in the charter-party shall be incorporated in the B/L; in particular, there was no clear and specific stipulation that the arbitration clause to be incorporated in the B/L, nor was there any particulars about the charter-party to be incorporated, such as the parties of the charter-party and the date. In its Reply, the Supreme People’s Court agreed.

Case text (English translation)

(16 May 2012 No. 16 of the Fourth Civil Tribunal of the Supreme People’s Court [2012])

The Higher People's Court of Guangxi Zhuang Autonomous Region:

Your court’s < Request on instructions on the jurisdiction objection application in the case between the plaintiff Chaozhou Yatai Energy Co. Ltd. and the defendants Hua Yang International Marine Transportation Co. Limited, Grand Wide Shipping Limited and PICC Property and Casualty Company Limited (Jiangsu Branch) regarding disputes arising from a contract of carriage of goods by sea> No. 14 of the Higher People’s Court of Guangxi Zhuang Autonomous Region [2012] submission has been received. Upon deliberation, our reply is as follows:

The bill of lading (B/L) in question was in the form of CONGENBILL 1994. Despite the clause “to be used with the charter-party” being printed on the front page of the B/L it failed to stipulate the details of the Charter-party to be used together with the B/L, also no clear provisions incorporating the arbitration clause contained in the Charter-party in the B/L. Hua Yang International Marine Transportation Co. Limited and Grand Wide Shipping Limited’s submission that the arbitration clause contained in the Charter-party had been incorporated in the B/L lacked factual and legal grounds. Our court agrees with your court’s opinions. As Fangchenggang, the destination of the voyage in question is situated within the Beihai Maritime Court’s jurisdiction, pursuant to Article 4 of the <Special Maritime Procedure Law of the People's Republic of China> and Article 28 of the <Civil Procedure Law of the People’s Republic of China>, the Beihai Maritime Court shall have jurisdiction over this case.

Additionally, concerning Hua Yang International Marine Transportation Co. Limited and Grand Wide Shipping Limited’s jurisdiction dispute application based on the time charter dated 27 May 2010, only one copy of time charter dated 9 June 2010 had been submitted by your court. Please verify the relevant facts accordingly.

It is so replied.

Enclosed:

Request on instructions on the jurisdiction objection application in the case between the plaintiff Chaozhou Yatai Energy Co. Ltd. and the defendants Hua Yang International Marine Transportation Co. Limited, Grand Wide Shipping Limited and PICC Property and Casualty Company Limited (Jiangsu Branch) regarding disputes arising from a contract of carriage of goods by sea

(27 February 2012 No. 14 of the Guangxi Zhuang Autonomous Region [2012])

The Supreme People’s Court:

Regarding the case between the plaintiff Chaozhou Yatai Energy Co. Ltd. and the defendants Hua Yang International Marine Transportation Co. Limited (Hua Yang Marine Transportation), Grand Wide Shipping Limited (Grand Wide Shipping) and PICC Property and Casualty Company Limited (Jiangsu Branch) (PICC Jiangsu) concerning a dispute arising from a contract of carriage of goods by sea, the plaintiff initiated litigation in the Beihai Maritime Court on 7 June 2011. During defence submissions the defendants Hua Yang Marine Transportation and Grand Wide Shipping disputed the court’s jurisdiction over the case. Upon review, it is the Beihai Maritime Court’s opinion that the defendants Hua Yang Marine Transportation and Grand Wide Shipping’s jurisdiction dispute shall not be established and that the court shall have jurisdiction over this case. Considering that the issue of confirmation of the validity of an arbitration clause incorporated in a bill of lading (B/L) is involved, the Beihai Maritime Court reported the case to our court. Upon review, our court agrees with the decision of the Beihai Maritime Court. Pursuant to Article 1 of the <Circular of the Supreme People's Court on the Relevant Issues Regarding the Handling of Foreign-related Arbitration and Arbitration of a Foreign Country by the People's Court>, our court hereby reports relevant matters of the case for your consideration.

I. The parties

Plaintiff: Chaozhou Yatai Energy Co. Ltd. Domicile: Ease side of Gangxi Lu, Xinjing Lu, Jingzhou Township, Raoping, Chaozhou, Guangdong

Legal representative: Lin Jiwang, Chairman.

Defendant: Hua Yang International Marine Transportation Co. Limited. Domicile: Flat / RM 1401, 14/F, World Commerce Centre Harbour City, 7-11 Canton Road Tsim Sha Tsui KL, Hong Kong.

Legal representative: Lu Sujun, Director.

Defendant: Grand Wide Shipping Limited. Domicile: Ocean Centre, Harbour City, 5 Canton Road Hong Kong.

Legal representative: Lu Sujun, Director.

Defendant: PICC Property and Casualty Company Limited (Jiangsu Branch). Domicile: Insurance Mansion, 69 Changjiang Rd, Nanjing, Jiangsu

Legal representative: Hua Shan, General Manager

II. Basic facts of the case, the outcome and reasoning of the decision of the court of first instance

On 7 June 2011, the plaintiff filed a litigation claim to the Beihai Maritime Court submitting that on 18 May 2010, the plaintiff purchased bituminous coal from South Africa to be transported by the vessel named “My Golden Huaxi” owned by the defendant Hua Yang Marine Transportation. The defendant Grand Wide Shipping issued a B/L certifying the quantity of shipping being 142,578 tons. “My Golden Huaxi” arrived Fangchenggang, Guangxi. The plaintiff discovered that some goods were missing and some were damaged. Upon examining the logbook of the vessel, the damage was caused by water entering the cargo due to leakage of the vent pipe in the front of the cabin of “My Golden Huaxi”. On 20 August 2010, the defendant PICC Jiangsu issued a letter of guarantee to the defendant Hua Yang Marine Transportation amounting to RMB¥ 2,400,000.00. Subsequently, the three defendants refused to compensate the plaintiff. To protect its legitimate interests, the plaintiff initiated litigation in the Beihai Maritime Court, requesting the court order that the three defendants should be jointly and severally liable for the plaintiff’s loss arising from shortage of goods, damaged goods, fees incurred in port operations and inspection of damages, totalling RMB¥ 3,783,702.53, and interest overdue amounting to RMB¥ 131,856.78 (calculations based on the bank lending rate at the same period between 17 August 2010 and 20 May 2011 (tentatively). Interest shall accrue until the actual date of payment) and all litigation costs arising from the dispute.

During defence submissions the defendants Hua Yang Marine Transportation and Grand Wide Shipping disputed the court’s jurisdiction over the case. The two Companies submitted that the B/L relied on by the plaintiff should be used with the Charter-party, and the arbitration clause contained in the Charter-party had been effectively incorporated in the B/L. The plaintiff should resolve the dispute arising from the damage of goods pursuant to the arbitration clause contained in the Charter-party. The plaintiff was not empowered to initiate litigation in the Beihai Maritime Court.

The reasons are as follows, firstly, the B/L in question is a time charter. The first clause provided under the words “Bill of Lading” printed on the front right corner of the B/L stipulated that “bill of lading – used in combination with charter parties”. Pursuant to Article 95 of the <Maritime Law of the People's Republic of China>, the arbitration clause contained in the relevant charter had been incorporated in the B/L and shall be binding on the plaintiff and the defendants.

Secondly, it is clearly stipulated in the front left corner of the B/L that the “<CONGENBILL 1994> shall be applicable “ Clause 19 of the charter stipulates that “this Charter-party shall be governed by and construed in accordance with the English law and any dispute arising out of this Charter-party shall be referred to arbitration in London in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification or re-enactment thereof for the time being in force.”

Finally, Clause 76 of the Charter-party dated 27 May 2010 resembles the content of the GENCON charter, requiring disputes to be arbitrated in London.

The plaintiff submitted in defence that the plaintiff’s contract of purchase is in CFR terms (Cost and Freight). The seller shall be responsible for chartering of vessels. During the transportation of the goods in question, the plaintiff merely received the B/L but not any Charterparties supplied by the ship owner. The plaintiff did not participate in the negotiation and conclusion of the Charter-party and so it had no knowledge of the contents of the Charter-party.

Secondly, the lower left corner of the B/L stipulates that “Freight payables as CHARTER-PARTY”. Even if the Charter-party were to be incorporated in the B/L, the incorporation merely concerned the issue of settlement of freight charges but not provision as to terms of jurisdiction.

Finally, the B/L only specified “Freight” but not the rate of the hire. In addition, since the charterer was the buyer of the goods in question, the legal relation between the holder of the bill and the ship owner shall be classified as a contract of carriage, but not a voyage charter. Even if an arbitration clause is contained in the Charter-party claimed by the defendants Hua Yang Marine Transportation and Grand Wide Shipping, the defendants Hua Yang Marine Transportation and Grand Wide Shipping are not empowered to rely on the clause. 4. Pursuant to Paragraph 2, Article 6 of the <Special Maritime Procedure Law of the People's Republic of China> and Article 28 of the <Civil Procedure Law of the People's Republic of China>, considering that the port of discharge for the voyage in question being Fangchenggang, China and that Fangchenggang belongs to the jurisdiction of the Beihai Maritime Court, the Beihai Maritime Court shall have jurisdiction over this case.

The defendant PICC Jiangsu submitted in defence that it agreed with the defendants Hua Yang Marine Transportation and Grand Wide Shipping’s jurisdiction dispute submission.

It is in the Beihai Maritime Court’s opinion that no clear stipulations were provided in the B/L in question concerning the names of the parties and the date of conclusion of the Charter-party incorporated in the B/L. In addition, the plaintiff did not expressly indicate its acceptance on the arbitration clause contained in the Charter-party in question. The Charter-party was not effectively incorporated in the B/L and so the arbitration clause contained in the Charter-party shall not be binding on the holder of the B/L. Therefore, the defendants Hua Yang Marine Transportation and Grand Wide Shipping’s jurisdiction dispute application is not established and the court shall dismiss the application in accordance with the law. The reasons are as follows, firstly, the B/L in question is a standard form bill of lading. Despite the stipulation in the front of the B/L that the bill of lading is to be used in combination with Charter-party, the replies from the Supreme People’s Court regarding related cases clearly express that the standard for determining whether the Charter-party has been incorporated in the B/L is that “the B/L shall not only clearly stipulate that the arbitration clause contained in the Charter-party is to be incorporated, the parties’ name and the date of the Charter-party shall be stipulated.” The B/L in question did not contain particulars as to the parties’ name and the date of the Charter-party to be incorporated, and so shall be deemed unclear. The Charter-party and the arbitration clause contained in it submitted by the defendants Hua Yang Marine Transportation and Grand Wide Shipping have not been effectively incorporated in the B/L. Thus, the stipulation that the bill of lading is to be used in combination with Charter-party is not binding to the holder of the bill and its insurers.

Secondly, the Charter-party submitted by the defendants Hua Yang Marine Transportation and Grand Wide Shipping was signed between the consigner, in this case the plaintiff, and a third party, Bunge Limited. Being the holder of the bill but not the charterer, the plaintiff is not a party to the Charter-party and did not expressly indicate its acceptance on the arbitration clause contained in the Charter-party. The relevant arbitration clause is only binding on the parties to the Charter-party but not to the plaintiff. 3. This case concerns a dispute on carriage of goods by sea. Pursuant to Article 28 of <Some Provisions of the Supreme People's Court on the Scope of Cases to be Entertained by Maritime Courts>, this case shall be governed by the maritime courts. Considering that the port of discharge for the goods in question is in Fangchenggang, China, pursuant to Article 28 of the <Civil Procedure Law of the People's Republic of China> that “a lawsuit arising from a dispute over a railway, road, water, or air transport contract or over a combined transport contract shall be under the jurisdiction of the people’s court of the place of dispatch or the place of destination or where the defendant has his domicile”, the Beihai Maritime Court shall have jurisdiction over this case.

III. Our court’s opinions and reasoning

Upon review, it is in our court’s opinion that the arbitration clause contained in the Charter-party in question has not been effectively incorporated in the B/L, and so the arbitration clause is not binding on the holder of the B/L. The Beihai Maritime Court shall have jurisdiction over this case. The reasons are as follows:

1. The contents contained in the front of the B/L in question do not clearly indicate the incorporation of the arbitration clause in the B/L. The arbitration clause contained in the Charter-party is not binding on the holder of the bill. Despite the stipulations in the front of the B/L in question that the “bill of lading – used in combination with charter parties”, “freight payables as charter-party”, the stipulations clearly provided that the payment of freight shall be made in accordance with the B/L, but not whether other provisions contained in the Charter-party shall be incorporated in the B/L. One of the fundamental principles for arbitration is the principle of voluntariness. The submission of disputes for arbitration shall reflect the parties’ intentions. Since bills of lading are transferrable, the holder of the bill is not necessarily the charterer of the vessel. When obtaining the bill of lading, the holders of the bill, not being the charterer of the vessel, may not have knowledge of the contents of the Charter-party between the ship owner and the charterer and whether arbitration clauses are contained in the Charter-party. Thus, the parties’ intentions to submit disputes for arbitration cannot be examined. If acceptance of arbitration arrangements is merely determined by the simple contents providing that the B/L is to be used in combination with the Charter-party as stipulated in the front of the B/L without clearly stipulating that the arbitration clause to be incorporated in the B/L, the intention to arbitrate is then imposed upon the holder of the bill, violating the principle of voluntariness. Here, the holder of the B/L was the buyer of the goods but not the charterer of the voyage charter. The holder did not have knowledge of the contents of the Charter-party, nor the existence of arbitration clauses in the Charter-party or whether the arbitration clause is to be used in combination with the B/L. Its passive acceptance of the B/L did not represent an intention to submit disputes arising from the B/L for arbitration. Therefore, the arbitration clause contained in the Charter-party shall not be binding.

2. The Charter-party incorporated in the B/L in question was unclearly directed. The front page of the B/L in question stipulated that the Charter-party was to be used in combination with the B/L, but no provisions were made as to the Charter-party to be incorporated, the parties of the Charter-party and the date were not stipulated. The Charter-party submitted by the defendants Hua Yang Marine Transportation and Grand Wide Shipping was a time charter between Hua Yang Marine Transportation and a third party, Bunge Limited concerning chartering of vessel to Bunge Limited. Yet Article 95 of the <Maritime Law of the People's Republic of China> stipulates that the charter to be incorporated in the B/L shall be a voyage charter. According to the relevant materials submitted by the parties, the buyer of the goods in question was a bulk trading company but not Bunge Limited. The voyage charter in question shall be the one signed between the bulk trading company or its agent company responsible for sales of coal and the ship owner, instead of the time charter submitted by the defendant. The voyage charter was not submitted by the parties.

3. The Beihai Maritime Court shall have jurisdiction over this case. This case concerns a dispute on carriage of goods by sea. Pursuant to Article 28 of <Some Provisions of the Supreme People's Court on the Scope of Cases to be Entertained by Maritime Courts>, this case shall be governed by the maritime courts. Considering that the port of discharge for the goods in question is in Fangchenggang, China, pursuant to Article 28 of the <Civil Procedure Law of the People's Republic of China> that “a lawsuit arising from a dispute over a railway, road, water, or air transport contract or over a combined transport contract shall be under the jurisdiction of the people’s court of the place of dispatch or the place of destination or where the defendant has his domicile”, the Beihai Maritime Court shall have jurisdiction over this case.

Summarizing the above, the B/L in question merely stipulated that “bill of lading – used in combination with charter parties”, yet no clear provisions as to the incorporation of the arbitration clause contained in the Charter-party had been made. Therefore, the arbitration clause contained in the Charter-party is not binding on the holder of the bill. The Beihai Maritime Court shall have jurisdiction over this case.

Please reply whether the above opinions are correct.