China: Arbitration clauses in Bills of Lading under Chinese legal practice


Published: 1 April 2014

The Association is grateful to Philip Peng of Hai Tong & Partners in Beijing for contributing this update.

Time C/P arbitration clause held not effectively incorporated into the B/L by Chinese Maritime Court

Successful incorporation of a charterparty arbitration clause into the bills of lading is not a straight forward matter under China jurisprudence and recently a Chinese maritime court dismissed the owners' motion to refer the case to arbitration, because it was held that the C/P arbitration clause incorporated into the B/L was not effective. Details of the matter are as follows.

Key points following the legal decision are:

  1. Although the said B/L recorded on the front page that it was: "to be used with charterparty", there was no express statement in the bill terms for incorporating the arbitration clause from the C/P.
  2. The standard incorporation clause in the back page of the B/L could not constitute a valid incorporation of the arbitration clause under Chinese law and practice.
  3. If any C/P terms are to be recognised as incorporated then they would be those of the voyage charter to which the cargo receiver was a party - not the head time C/P. This is because the time C/P is in the nature of being primarily a leasing contract .

Facts of this case
The vessel owners concluded a time C/P as with a charterer. One of the rider clauses provided that English law shall be applicable, and a further clause provided that any dispute arising from the C/P shall be submitted to arbitration at the LMAA.

As part of her charter employment, the vessel carried a cargo of iron ore fines from South America to China. According to the B/L, the shipper South American and the receiver was a Chinese Steel Mill.

While on route the vessel was involved in collision with another vessel. The owners appointed salvors to conduct salvage, and concluded a LOF contract. General average was declared. The salvage was successful, and the Chinese Steel Mill (through its insurers) had to provide general average security to the vessel.

The general average apportionment of salvage costs to cargo was significant, and the Chinese Steel Mill commenced proceedings in China for an indemnity against the ship-owner. The owners raised objection to jurisdiction on the basis that the provisions of the time C/P, including the arbitration clause had been incorporated into the B/L, and thus was binding upon the Steel Mill. The expert opinion of English lawyers was put forward to confirm that the terms of the C/P were successfully incorporated in to the bills of lading, including the arbitration clause.

First instance trial before the Chinese Maritime Court
The Maritime Court dismissed the objection to jurisdiction for the following reasons:

  1. The case was about compensation of ship collision / general average salvage rewards. Hence, the case fell into the scope of the contract of the carriage of goods by sea.
  2. Although the said B/L recorded on the front page that: "to be used with charterparty", there was no express statement in the bill terms for incorporating the arbitration clause in the C/P. The standard incorporation clause in the back page of the B/L cannot constitute valid incorporation.
  3. Meanwhile, the C/P which the owner claimed was to be incorporated into the B/L was a time C/P between the owner and the charterer only. The C/P arbitration clause was only there for resolving the disputes arising from the leasing of the vessel. It was not an arbitration clause for purpose of carriage of goods by sea under the voyage C/P.
  4. The local Maritime Court, as the nearest court at the port of the destination of the said carriage contract, should have jurisdiction over this case.

Appeal judgment High People's Court
The owners then appealed to the High People's Court and the appeal court dismissed the objection to jurisdiction for reason that:

  1. Although it is stated on the face of the involved B/L that the said B/L should be used with the C/P, the said C/P to be used with B/L shall be the voyage C/P and not the time C/P to which the owner was a party.
  2. However, the C/P provided by the owners was a time C/P and there was also no record on the face of the B/L regarding the specific C/P concerned and no express acceptance to have the C/P arbitration clause incorporated.

Observation on this case and comment
Chinese courts hold a stringent view concerning the issue of incorporating the C/P arbitration clause into the B/L. In this case, a key issued appeared to be that the C/P terms sought to be incorporated came from the time C/P, instead of a voyage C/P.

It should also be noted that in 2004 the Qingdao Maritime Court also held that a time C/P is primarily a vessel leasing contract, and although it also has some clauses regarding transportation of cargo it is still primary a leasing contract which is very different from voyage C/P.

The Qingdao Maritime Court continued to say that the B/L relationship is different to the time C/P legal relationship, and because of the rooted difference in this respect, the time C/P arbitration clause cannot be incorporated into the B/L.

Although China is not a case law country, the reasoning of Chinese courts in this regard should be paid attention to for handling of other similar cases.

By Philip Peng
Hai Tong & Partners, Beijing

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