Australia: Foreign Arbitration Clauses in Voyage Charter Parties are void and have no legal effect


Published: 29 August 2012

[2012] FCA 696, Foster J. Federal Court of Australia 29 June 2012

A very interesting and important judgment was rendered on 29 June 2012 by Foster J. at the Federal Court of Australia.

The background of this judgment was that an owner had entered into an Amwelsh 93 charter party with a charterer (an Australian company) for the carriage of a cargo of coal from Australia to China. The voyage charter party clearly stipulated that it would be governed by and construed in accordance with English law, and that any disputes arising under the fixture was to be referred to arbitration in London.

Following the finalisation of the voyage the owners forwarded a very substantial claim for demurrage in the amount of approx. USD 825,000. This claim was denied by the charterers.

The owners then commenced arbitration in London pursuant to the voyage charter party. In this arbitration the charterers requested the arbitrator to determine whether he had jurisdiction to hear the dispute arising out of the voyage charter party, a question which was answered in the affirmative by the arbitrator, where after the charterers appeared to have accepted that the arbitrator had jurisdiction to determine the issue.

The owners were awarded the demurrage in full, but still the charterers did not honour their obligation to pay the demurrage. The charterers did not have any assets outside Australia, and thus the only way forward for the owners was to commence enforcement proceedings in Australia. At these proceedings the charterers challenged the validity of the arbitration award and argued (among other things) that the arbitration clause in the charter party was invalid, void and of no effect by reason of the operation of the Australian COGSA, Section 11, in consequence of which the arbitration award could neither be enforced nor "recognised" by the Australian Federal Court.

The Australian COGSA incorporates an amended version of the Hague/Visby Rules and Section 11 does effectively render ineffective any clause in a "sea carriage document" that purports to exclude the jurisdiction of the Australian courts to decide disputes arising out of the "sea carriage document" in relation to Australian import or export cargo.

The Australian COGSA, Sections 11 (1) (a) and 12 (2) (b) specifically relating to export cargo state:

  1. All parties to
    a) a sea carriage document relating to the carriage of goods from any place in Australia to any place outside Australia ...
    are taken to have intended to contract according to the laws in force at the place of shipment ...
  2. An agreement (whether made in Australia or elsewhere) has no effect so far as it purports to: ...
    b) preclude or limit the jurisdiction of a court of the Commonwealth or of a State or Territory in respect of a bill of lading or a document mentioned in sub-section (1).

There is no clear definition of the expression "sea carriage document" in the Australian COGSA and thus the paramount aspect to be determined by the court was whether a voyage charter is considered to be such a "sea carriage document" for the purpose of Sections 11 (1) (a) and 12 (2) (b).

Foster J. of the Federal Court of Australia decided that for the purpose of the Australia COGSA a voyage charter party was a "sea carriage document" with the effect that the arbitration clause in the charter party was rendered invalid and the owners were thus not able to enforce the London Arbitration Award in Australia.

It does thus follow from this judgment that foreign (to Australia) arbitration clauses in voyage charter parties in relation to Australian import and export cargo are not valid!

In this connection it is interesting to note that the issue of the validity of foreign arbitration clauses in voyage charter parties for the carriage of Australian export and import cargo had been subject to discussion for some time in Australia prior to 29 June 2012. Actually in a case earlier this year, which was heard in the Supreme Court of South Australia (State Court) the contrary conclusion was reached. Foster J. was naturally directed to this previous judgment but did merely in a short paragraph mention that he respectfully disagreed with the State Court judge.

It will be interesting to see whether the judgment rendered by the Federal Court of Australia will be appealed and in the affirmative the outcome of such appeal.

In the meantime, we recommend to Owners and Charterers of voyage charter parties to study their arbitration clauses. Parties already involved in international voyage charter party arbitrations concerning Australian import or export may find that ultimately they may obtain an award which is unenforceable in Australia. Parties considering entering into new voyage charter parties concerning import or export from Australia should be aware of the present position, also to the extent that they may have to accept jurisdiction in Australia in the first place.

It should be added that foreign (to Australia) arbitration awards concerning import or export to or from Australia are still enforceable in other countries outside Australia pursuant to e.g. the New York Convention.