Foreign arbitration provision in interstate carriage contract raises need for legislative intervention

In brief - Parties to a bill of lading for carriage between states in Australia that contains a provision for foreign arbitration for resolution of any dispute should consider the decision in Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co KG (The BBC Nile) [2022] FCAFC 171, which found the provision to be enforceable and refused the plaintiff's application for an anti-suit injunction 

Whilst the decision of the Full Court of the Federal Court of Australia revealed a legislative gap in relation to the enforcement of a foreign arbitration clause in a bill of lading for interstate carriage, the Court did not consider it could close it.

Carmichael Rail applies for anti-suit injunction after BBC Chartering commences arbitration in London

Interstate carriage of steel rails from Whyalla, South Australia, to Mackay, Queensland, led to damage apparently caused by a collapse in stow. BBC Chartering commenced arbitral proceedings in London in reliance upon a provision in the relevant bill of lading.

Carmichael Rail then applied for an anti-suit injunction, relying upon the provisions of the Carriage of Goods by Sea Act 1991 (Cth) (COGSA).

Section 11(2)(b) of COGSA provides that an agreement "has no effect so far as it purports to 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 subsection (i)" (being a sea carriage document for carriage of cargo from Australia to a place outside Australia, or a non negotiable document of a kind mentioned in subparagraph 10(1)(b)(iii)).

Carmichael Rail submitted that the reference to a bill of lading in section 11(2)(b) should include one relating to interstate carriage of goods, or, if necessary, additional words should be read into the section to close the apparent gap with application to such carriage.

Full Court unwilling to close the gap for interstate carriage

The Full Court, which was comprised of three very experienced admiralty judges, being Justices Rares, SC Derrington and Stewart, carefully examined the history of the carrier liability regime in Australia and the apparent intention of the legislation. 

Whilst it was noted that there was protection provided for arbitration in Australia by operation of section 11(3) of COGSA, nothing in the materials leading to the enactment of COGSA or subsequent amendments to section 11 of that Act disclosed any legislative consideration that the parties to a sea carriage document, including a bill of lading, should be unable to contract out of the jurisdiction of Australian courts in respect of interstate carriage of goods.

Amendment in 1991 of section 11(1)(a) created a problem in that, whereas previously the section had referred to "a bill of lading, or similar document of title", the amended provision now referred to a "sea carriage document" as defined in Article 1(1)(g) as covering both a bill of lading and a similar document of title. But section 11(2)(a) and (b) continued to referred to "a bill of lading or a document mentioned in subsection (1)".

The Full Court considered that it should not read words into section 11(1)(a) although the Court acknowledged that "it is likely that this is the result of historical oversight or inattention rather than an unarticulated legislative policy".

Accordingly, the provision in the relevant bill of lading providing for London arbitration for resolution of any dispute was enforceable and the application by Carmichael Rail for an anti-suit injunction against BBC Chartering failed.

Concerns expressed regarding English interpretation of an FIOST clause

In the course of the hearing, there was a submission by Carmichael Rail that there was a risk that the English tribunal might apply a different interpretation of Australian law from that which it contended led to a preferred application of the Australian Amended Hague Rules. This related largely to the FIOST ("Free In/Out, Stowed, and Trimmed") terms on which the goods were shipped by which the cargo owner shifted responsibility for loading, stowing and trimming of the cargo.

There is an interesting discussion in the Full Court decision regarding the differences in interpretation under English law and US law regarding the effect of an FIOST clause and  how such a clause might be interpreted under Australian law.

Ultimately it was not necessary for the Court to determine that issue as the parties had agreed that the Amended Hague Rules, "as applied under Australian law", would apply to the London arbitration. 

A need for legislative amendment?

The decision raises a possible need for legislative amendment to close the current gap so that foreign arbitration clauses in bills of lading relating to interstate carriage of goods will be unenforceable and will not have the effect of excluding the jurisdiction of Australian courts. 

Whether such an amendment is made must remain to be seen but would seem to be sensible to close the result of what was either "historical oversight or inattention" referred to in the judgment.