China Railway No.4 Engineering Group Co. Ltd v. Ocean Clementine Limited

China Railway No.4 Engineering Group Co. Ltd v. Ocean Clementine Limited

Cite as: China Railway No.4 Engineering Group Co. Ltd v. Ocean Clementine Limited, The Supreme People’s Court (29 November 2012), in Fan Yang, Foreign-related Arbitration in China: Commentary and Cases, Part IV

Case identification

Date of Decision: 29 November 2012
Court:

The Supreme People’s Court
The Higher People's Court of Tianjin

Arbitral Tribunal:

Case number / Docket number:

No. 56 of the Fourth Civil Tribunal of the Supreme People’s Court [2012]
No. 2 of the Fourth Tribunal of the Higher People’s Court of Tianjin [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>.

Descriptors: Arbitration agreement; Incorporation of arbitration clauses; Bill of Lading; Reference to arbitration clause on the back of the Bill of Lading; No description of the parties to the Charterparty or the arbitration clause on the front of the Bill of Lading; Charterparty; Time Charterparty

China Railway No.4 Engineering Group Co. Ltd v. Ocean Clementine Limited

A reference to the arbitration clause contained in the Charterparty on the back of the Bill of Lading (B/L) was found not sufficient to incorporate the arbitration clause to bind the holder of the B/L. In its Report to the Supreme People’s Court, the Higher People's Court of Tianjin found that China Railway was not a party to the Charterparty. It was found that although on the back of the B/L it was stipulated that “All terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, including the Law and Arbitration Clauses, are herewith incorporated”, Clementine failed to prove that it had negotiated and reached a consensus with China Railway concerning the arbitration clause contained in the Charterparty. Given that there was no description of the parties to the Charterparties or the relevant contents of the arbitration clause on the front of the B/L, the arbitration clause in question was not effectively incorporated into the B/L in question, and so the arbitration clause was not binding on China Railway. In its Reply, the Supreme People's Court agreed that there was no arbitration agreement between China Railway and Clementine.

Case text (English translation)

(29 November 2012 No. 56 of the Fourth Civil Tribunal of the Supreme People’s Court [2012])

The Higher People's Court of Tianjin:

Your court’s <Request on Instructions concerning the validity of an arbitration clause contained in the contract of carriage of goods by sea agreed between China Railway No.4 Engineering Group Co. Ltd (China Railway) and Ocean Clementine Limited (Clementine)> No. 2 of the Fourth Tribunal of the Higher People’s Court of Tianjin [2012] submission has been received. Upon deliberation, our reply is as follows:

According to the facts contained in the Request on Instructions submitted by your court, on 24 November 2011 the captain of “Clementine” issued the Bill of Lading (B/L) in question, with China Railway being the consignor. The front page of the B/L stipulated clauses including “to be used with Charterparties” and, “Freight payable as per Charterparty dated 2011.11.10” and “for conditions of carriage see overleaf”. Clause 1 of the back page of the B/L stipulated that “All terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, including the Law and Arbitration Clauses, are herewith incorporated”. The carrying vessel in question was chartered by Clementine to British Marine Asia Pte. Ltd (British Marine) on 31 July 2008, under a time charter in NYPE format. The Charterparty contained a clause stipulating that arbitration shall be conducted in London. On 10 November 2011, British Marine sublet the chartered vessel to Topsheen Shipping Group Limited (Topsheen) under the same terms and conditions as the abovementioned Charterparty.

It is in our court’s opinion that regarding the disputes over the contract of carriage of goods by sea between China Railway and Clementine, no provisions regarding arbitration clauses had been made on the front page of the B/L. Clementine submitted that the B/L contained incorporated clauses and so China Railway shall be bound by the arbitration clauses contained in the Charterparty. Yet the front page of the B/L only contained clauses stipulating that the B/L is to be used with the Charterparty and freight costs are payable as per the Charterparty dated 10 November 2011. The front page of the B/L did not clearly provide that the arbitration clause contained in the Charterparty had been incorporated into the B/L, and shall be binding on the consignor as stipulated in the B/L. Furthermore, the parties relevant to the Charterparty should be British Marine and Topsheen, therefore Clementine’s submission that an arbitration clause exist between China Railway and Clementine lacked factual support.

Our court agrees with your court’s opinion. The arbitration clause contained in the Charterparty shall not be binding on China Railway. Considering that this case is related to a dispute over a contract of carriage of goods by sea and that the port of loading the goods in question being the Port of Tianjin, which is under the jurisdiction of the Tianjin Maritime Court, the Tianjin Maritime Court shall have jurisdiction over this case.

It is so replied.

Enclosed:

Request on instructions concerning the validity of an arbitration clause contained in the contract of carriage of goods by sea agreed between China Railway No.4 Engineering Group Co. Ltd (China Railway) and Ocean Clementine Limited (Clementine)

(7 September 2012 No. 2 of the Fourth Tribunal of the Higher People’s Court of Tianjin [2012])

The Supreme People’s Court:

Due to disputes over a contract of carriage of goods by sea with Ocean Clementine Limited (Clementine), China Railway No.4 Engineering Group Co. Ltd (China Railway) filed a claim in the Tianjin Maritime Court. After the Tianjin Maritime Court accepted and docked the case on 31 January 2012, Clementine submitted a jurisdiction objection during the defence submissions, arguing that a valid arbitration agreement existed with China Railway, and so the case should be submitted for arbitration in London and should not be governed by the Tianjin Maritime Court. Upon review, the Tianjin Maritime Court held that the arbitration clause in question had not been effectively incorporated into the Bill of Lading (B/L) and therefore is not binding on China Railway. Our court proposes to rule in favour of Tianjin Maritime Court’s opinion. Pursuant to relevant regulations from 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>, we hereby report the following for your court’s consideration:

I. Parties

Plaintiff: China Railway No.4 Engineering Group Co. Ltd. Domicile: 96 Wangjiang Lu, Hefei, Anhui.

Legal Representative: Zhang Hechuan, director of the company.

Defendant: Ocean Clementine Limited. Domicile: 11 Manchester Square, London WIU 3 PW, United Kingdom.

Legal Representative: Alan Bekhor, Director.

II. Facts

On 31 July 2008, Clementine and British Marine Asia Pte Ltd (British Marine) signed a charter in NYPE form, chartering a vessel named “Clementine” to British Marine. Clause 17 of the Charterparty stipulating that any disputes arising from the Charterparty shall be submitted to arbitration in London with three arbitrators. Each party shall appoint an arbitrator. The third arbitrator shall be appointed by the two arbitrators already appointed. The decisions of the arbitrators or their successors shall be final. Clause 74 of the agreement stipulated that the contract shall be governed and interpreted pursuant to the English substantive and procedural law. Any disputes arising or related to the contract shall be submitted to arbitration in London pursuant to the Arbitration Act 1996. On 10 November 2011, British Marine sublet the chartered vessel to Topsheen Shipping Group Limited under the same terms and conditions as the abovementioned Charterparty.

On 24 November 2011, Atchuta Sreenivasulu, the captain of “Clementine” issued a B/L numbered CL1126LKLUA001 on behalf of the owner of the vessel, recording that the consignor being China Railway, the port of loading being Longkou Port, China, the port of discharge being Luanda, Angola. The front page of the B/L stipulated clauses including “BILL OF LADING TO BE USED WITH CHARTER-PARTIES”, “Freight payable as per CHARTER-PARTY dated 2011.11.10” and “FOR CONDITIONS OF CARRIAGE SEE OVERLEAF”. Clause 1 on the back page of the B/L stipulated that “All terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, including the Law and Arbitration Clauses, are herewith incorporated”.

On 29 November 2011, after loading in Longkou Port, “Clementine” sailed to the Port of Tianjin. Not long after loading and departing the Port of Tianjin some containers on board fell over, causing several containers to fall into the sea. Some containers were also then damaged. China Railway filed a claim requesting the court order Clementine to compensate China Railway losses amounting to RMB¥ 5,554,390.90, relying on the grounds that the damage of the relevant goods occurred at the time which the carrier assumed responsibility.

Clementine objected the jurisdiction of the Tianjin Maritime Court, arguing that the arbitration clauses contained in the Charterparty in question had been effectively incorporated into the B/L, and therefore the arbitration clause shall be binding to the consignor, China Railway. Therefore this case shall be submitted to arbitration in London. The Tianjin Maritime Court should have no jurisdiction over this case.

Clementine filed an application to the Commercial Court, the Queen's Bench Division of the High Court of the United Kingdom restraining China Railway from making litigation applications. On 20 March 2012, the Commercial Court, the Queen's Bench Division of the High Court of the United Kingdom made a decision restraining China Railway from proceeding or taking further actions to litigate in the Tianjin Maritime Court. Clementine had initiated arbitration proceedings in London, and notice regarding appointment of arbitrators to China Railway had been sent.

III. Opinions of the Tianjin Maritime Court

Upon review, it is in the opinion of the Tianjin Maritime Court that although the B/L in question stipulated that freight costs are to be incorporated into the B/L with the Charterparty, it did not clearly stipulate that the arbitration clause contained in the Charterparty to be incorporated into the B/L. The back page of the B/L merely stipulated that all terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, including the Law and Arbitration Clauses, are incorporated, but no clear stipulations as to the content of the arbitration clauses had been made. China Railway being the consignor would be unable to receive information about the arbitration clause, and so the arbitration clause shall not be seen as effectively incorporated into the B/L in question. Therefore, the arbitration clause contained in the Charterparty is not binding to China Railway. Clementine’s arbitration proceedings in London and the Commercial Court, the Queen's Bench Division of the High Court of the United Kingdom’s decision restraining China Railway from litigating in the Tianjin Maritime Court are irrelevant. Considering that this case concerns disputes over a contract of carriage of goods by sea and that the port of loading of the goods in question being the Port of Tianjin, which is under the jurisdiction of the Tianjin Maritime Court, the Tianjin Maritime Court shall have jurisdiction over this case.

IV. Opinions of our court

Upon review, it is in our court’s opinion that China Railway is not a party to the Charterparty. Although the back page of the B/L stipulated that “All terms and conditions, liberties and exceptions of the Charterparty, dated as overleaf, including the Law and Arbitration Clauses, are herewith incorporated”, the contents were merely contained on the back page of the B/L but not on the front page of the B/L. Clementine failed to prove that it had negotiated and reached a consensus with China Railway concerning the arbitration clause contained in the Charterparty. China Railway should not be deemed to have accepted clauses incorporated into the Charterparty from its mere acceptance of the B/L. In addition, Charterparties which effectively incorporate B/Ls should be specific. Here, on the front page of the B/L in question, no clear description of the Charterparty, including the relevant contents of the arbitration clause had been made. Therefore, the arbitration clause in question is not effectively incorporated into the B/L in question, and so the arbitration clause is not binding on China Railway. As this case concerns disputes over a contract of carriage of goods by sea, pursuant to Article 4 of the <Special Maritime Procedure Law>, it shall be governed by a maritime court. Considering that the Port of Tianjin was the port of loading of the goods in question, which is under the jurisdiction of the Tianjin Maritime Court, the Tianjin Maritime Court shall have jurisdiction over this case.

Please reply whether the above opinions are correct.