Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd, Court of Appeal - Commercial Court, July 25, 2018, [2018] EWHC 1902 (Comm)

Resolution Date:July 25, 2018
Issuing Organization:Commercial Court
Actores:Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd
 
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Neutral Citation Number: [2018] EWHC 1902 (Comm)

Case No: CL-2017-000567

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 25/07/2018

Before :

THE HON. MR JUSTICE POPPLEWELL

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Between :

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Michael Collett QC (instructed by Jackson Parton Solicitors) for the Claimant

Chirag Karia QC (instructed by Holman Fenwick Willan LLP) for the Defendant

Hearing dates: 25 and 26 June 2018

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2

Mr Justice Popplewell :

Introduction

  1. This case raises two issues of some importance arising out of a common occurrence in international trade and trade finance banking. An FOB buyer of goods, who has sold on CIF terms and chartered a vessel, loses its on sale during the course of the voyage, and finds a new buyer at a different discharge port. It therefore needs the existing bills of lading to be replaced with new ``switch'' bills providing for the new discharge port. Its bank holds the original bills as security for the money advanced to its customer for the purchase of the cargo. The owner of the goods agrees with the shipowners to issue new bills of lading and the bank facilitates the transaction by allowing the bills to be switched at its counters, so that the bank retains possession of effective bills at all times to protect its security interest. The new switch bills of lading are consigned to the order of the bank. Does the bank thereby become an original party to the bill of lading so as to come under liability to the shipowners on the terms of the contract of carriage contained in or evidenced by the bill of lading, including, for example, liability for shipment of dangerous cargo or demurrage?

  2. The second issue is whether the lawful holder of a bill of lading who has rights of suit under section 2 of the Carriage of Goods by Sea Act 1992 (``COGSA'') in respect of the contract of carriage contained in or evidenced by a bill of lading which contains an arbitration clause is bound by that arbitration clause and so bound to submit to arbitration the issue whether it has assumed liabilities under the contract.

  3. These issues arise on the Claimant's application under section 67 of the Arbitration Act 1996 to set aside or vary an arbitration award dated 18 August 2017 by which the tribunal held that the Defendant (``the Bank'') was not a party to the contract of carriage contained in or evidence by the bills of lading or the arbitration clause contained therein, and accordingly that it had no jurisdiction to determine the Claimant's claims for demurrage and/or damages for detention against the Bank.

  4. Section 67 of the Arbitration Act 1996 provides:

    ``67 Challenging the award: substantive jurisdiction.

    (1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court--

    (a) challenging any award of the arbitral tribunal as to its substantive jurisdiction;

    ...

    (3) On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order--

    (a) confirm the award,

    (b) vary the award, or

    (c) set aside the award in whole or in part.''

  5. Section 67(1)(a) applies both when a tribunal finds that it has jurisdiction and also, as in the present case, when it declines jurisdiction: LG Caltex v China National Petroleum [2001] 1 WLR 1892 at paragraph [71]. Such challenges involve a full rehearing of the question of the arbitral tribunal's jurisdiction, as opposed to a review of its decision; the Court's role is to decide whether or not the tribunal reached the correct decision and not simply to decide whether the tribunal was entitled to reach the decision it did: Azov Shipping Co v Baltic Shipping Co (No 1) [1999] 1 Lloyd's Rep 68; Peterson Farms Inc v C&M Farming Ltd [2004] 1 Lloyd's Rep 603.

  6. In this case the parties adduced evidence before me which was not before the arbitrators, in the form of documentation and witness statements. The parties agreed that the witness statements should be given such weight as the Court thought fit without the need for the witnesses to be called and cross-examined.

    The facts

  7. The cargo in question comprised 7,000 metric tonnes of Argentine extracted toasted soyabeanmeal in bulk, which was shipped on board the vessel MV SEA MASTER at San Lorenzo, Argentina, on or about 24 June 2016. The vessel was owned by Sea Master Special Maritime Enterprise, from whom the Claimant purchased it following the events giving rise to the dispute, taking an assignment of rights. Nothing turns on the distinction between the former and current shipowners for the purposes of the application, and I will refer to them simply as ``the Owners''. The cargo was one of a number shipped on the vessel by Oleaginosa Moreno Hnos. S.A.C.I.F.I.Y.A. (``Oleaginosa'') and was stowed in hold number 2. Oleaginosa had sold the cargo on FOB terms to Glencore Grain BV, who had in turn sold it on FOB terms to Agribusiness United DMCC (``Agribusiness'') by a contract of sale dated 24 February 2016. On 25 April 2016 Agribusiness concluded a voyage charterparty on an amended Norgrain 89 form with the Owners providing for carriage from one or two Argentina upriver ports to discharging ports in Morocco with options within a range between Agadir and Casablanca. The charter incorporated by reference a provision for London arbitration on the terms of the applicable LMAA clause, which covered ``any dispute arising out of or in connection with this Contract''.

  8. The cargo was covered by the issue of seven bills of lading numbered 12 to 18 on the Congenbill 2007 form, each bill being for a part quantity of the total 7,000 metric tonnes. Two of the bills provided for discharge at Agadir in Morocco; the remainder provided for discharge at Casablanca. In each case the bills named Oleaginosa as the shipper and were consigned to order, with various different notify addresses in Morocco. The bills provided that freight was payable as per the charterparty and expressly incorporated the terms, conditions, liberties and exceptions of the charterparty including the arbitration clause.

  9. The vessel sailed from San Lorenzo to Agadir where she arrived on 14 July 2016. Neither Agribusiness or the Bank had yet acquired the original bills of lading from Glencore under the purchase contract. At this stage Agribusiness had arranged a sale of the cargo to buyers, but that sale fell through. None of the soyabeanmeal cargo was discharged at Agadir.

  10. On 15 July 2016 Agribusiness entered into a new sale contract with new buyers, Sarl El Alf, for sale on terms CFR Oran, Algeria. Those terms provided for payment to be made to Agribusiness by presentation of documents, including bills of lading, under a letter of credit issued by Banque Nationale D'Algerie and confirmed by Al Masraf Bank in Dubai.

  11. The vessel sailed from Agadir to Casablanca where she arrived on 21 July 2016.

  12. The original bills of lading were presented by Glencore to the Bank and accepted under the documentary credit opened on behalf of its customer Agribusiness. The Bank paid against them on 27 July 2016 and became lawful holder of the bills. The Bank's relationship with its customer, Agribusiness, was governed by a Pledge Agreement dated 12 September 2012 under which Agribusiness pledged and assigned to the Bank all rights arising from the documents of title in relation goods financed by the Bank, including bills of lading. The Bank therefore held the bills of lading for its security interest in the usual way. In the normal course such a trade finance bank would present the bills under its customer's sale contract to receive the sale proceeds directly from the customer's buyer and so discharge its financing.

  13. The new sale to Sarl El Alf required Agribusiness to negotiate an amendment to the charterparty because Algeria was outside the charterparty discharge port range. The vessel was at this stage incurring demurrage at Casablanca. It appears that on or about 1 September 2016 Agribusiness reached agreement with the Owners for the vessel to go Algeria for discharge in return for an immediate payment in respect of demurrage, and a further payment before breaking bulk at discharge in respect of load port demurrage and a balance of freight. The vessel sailed for Algeria and arrived at Oran on 15 September 2016.

  14. Although agreement had been reached between Agribusiness and the Owners for discharge in Algeria, the original bills of lading providing for discharge in Morocco remained the only bills which had been issued at this stage. The original bills of lading had been sent by the Bank to Al Masraf Bank, but they were not valid for negotiation because they did not provide for discharge in Algeria. Agribusiness negotiated with the Owners for the issue of new bills of lading and on 21 September 2016 Omnitradia, acting for and on behalf of the Owners, signed and released a replacement bill of lading number 12 in respect of the entire cargo of 7,000 metric tons (``the first switch bill''). This occurred at the counters of Al Masraf Bank in Dubai. The first switch bill named Oleaginosa as the shipper and was consigned to the order of Banque Nationale D'Algerie with Sarl El Alf identified as the notify party. It provided for discharge at Oran, Algeria and was otherwise on the same terms as the original bills of lading (save for erroneously identifying the charterparty as being dated 13 May 2016). The original bills of lading were not cancelled when the first switch bill was issued, despite instructions to Al Masraf Bank from Agribusiness to mark the original bills of lading as null and void and to return them.

  15. Al Masraf Bank rejected the documents including the first switch bill as...

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