International Shipping Contracts Update: High Court upholds an international arbitration clause after challenge under the Australian Hague Rules
Indussa Corp v S S Ranborg 377 F 2d 200 (2nd Cir, 1967), Vimar Seguros y Reaseguros, SA v M/V Sky Reefer 515 US 528 (1995), Jindal Iron & Steel Co Ltd v Islamic Solidarity Shipping Co Jordan Inc (Jordan IT) [2004] UKHL 49; [2005] 1Lloyd’s Rep 57
The High Court has recently provided clarity around international arbitration clauses in international shipping contracts, upholding the parties’ rights to agree to international arbitration despite Article 3(8) of the Australian Hague Rules.
In its judgment in Carmichael Rail Network Pty Ltd as Trustee for the Carmichael Rail Network Trust v BBC Chartering Carriers GMBH & Co KG & Anor handed down on 14 February 2024, the High Court of Australia held that a clause which stated disputes are to be resolved via London arbitration did not violate Article 3(8) of the Australian Hague Rules, which voids any clause in a contract of carriage that lessens a carrier’s liability for loss to damage or goods in a manner not provided by the Rules.
The dispute arose from a contract for the carriage of steel rails from South Australia to Queensland. Clause 4 of the bill of lading provided that “any dispute arising under or in connection with this Bill of Lading shall be referred to arbitration in London” and that “English law should apply”. When the rails arrived in Queensland damaged beyond use, Carmichael commenced proceedings in the Federal Court to restrain the London arbitration initiated by BBC. The Federal Court stayed the Australian proceedings in favour of London arbitration, given an undertaking by BBC that it would apply the Australian Hague Rules.
Carmichael appealed to the Full Federal Court, arguing that the arbitration clause was void under Article 3(8) as the carrier’s liability under the London arbitration could be less than that under the Australian Hague Rules. The Full Federal Court dismissed the appeal as it held that Carmichael was only able to point to ‘speculative risks’ that London arbitration would lessen the BBC’s liability, and what was required under Article 3(8) was proof the foreign proceeding would lessen liability.
Special leave was granted by the High Court and Carmichael contended that BBC’s liability could be lessened by the arbitration because the English tribunal may not apply the Australian Hague Rules and because Carmichael would face increased expense in pursuing its claims via London arbitration. The High Court held that in all the circumstances including BBC’s undertaking that the Australian Hague Rules would be applied, Carmichael’s contentions regarding the possibility of reducing liability “mere speculation” and did not prove on the balance of probabilities that the liability would be lessened.
The High Court’s decision resolves previous conflicting international authorities on the interpretation of choice of forum clauses in international shipping contracts and provides more certainty regarding the enforcement of international arbitration clauses in international shipping contracts in Australia.
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