High Court of Australia examines Article 3 Rule 8 of Hague Rules in relation to London arbitration

In brief: The High Court of Australia has dismissed an appeal by cargo owners who had maintained that the referral of a dispute in relation to cargo damage to London arbitration amounted to a lessening of liability such that the arbitration provision should be regarded as null and void and of no effect.

Background

The case of Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co KG & Anor [2024] HCA 4 concerned a dispute over damage to steel rails shipped from Whyalla, South Australia to Mackay, Queensland. The bill of lading provided for disputes to be referred to arbitration in London with English law to apply.

BBC, the carrier, commenced arbitration proceedings in London but Carmichael applied in the Federal Court of Australia for a stay of the arbitration proceeding, maintaining that the arbitration provision in the bill of lading was rendered inoperative by Article 3 Rule 8 of the Australian version of the Hague-Visby Rules (the Australian Hague Rules) which were incorporated by section 8 of the Carriage of Goods by Sea Act 1991 (Cth).

Article 3 Rule 8 provides that "any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to goods or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect".

Carmichael's application was dismissed by the Full Court of the Federal Court who ordered that the Federal Court proceeding be stayed in favour of the London arbitration. Relevantly, BBC also undertook "to admit in the London arbitration that the (the Australian Hague Rules) as applied under Australian law apply to the bill of lading". 

Carmichael was granted special leave to appeal to the High Court of Australia.

The Argument in the High Court

Carmichael argued that BBC's liability would be relieved or lessened as:

1. there was a risk that London arbitrators would consider themselves bound to interpret Article 3(2) of the Hague Visby Rules as imposing a delegable duty on BBC in accordance with English law, in which event Carmichael would lose the chance of having Article 3(2) interpreted as imposing a non delegable responsibility on BBC in accordance with Australian law;

2. there was a risk that London arbitrators would construe the Clause Paramount as incorporating only Articles 1 8 of the Hague Rules rather than the entire Australian Hague Rules, thereby reducing the package limitation defence;

3. there was expense and practical difficulty in requiring Carmichael to pursue its claim for cargo damage through arbitration in London.

Findings of the High Court

Following careful analysis of the case law relied upon by Carmichael, the High Court rejected these arguments. 

In a unanimous decision of the five judges, the court noted:

1. that Article 3 Rule 8 operates on the ordinary civil standard of proof - the balance of probabilities and not a lesser standard such as a possibility, a real risk or a reasonably arguable case. Carmichael's arguments assumed a lesser standard might be applied;

2. Article 3 Rule 8 was to be applied at the time the court decides the application, which would include noting and accepting BBC's undertaking regarding the application of the Australian Hague Rules;

3. Carmichael had not proved on the balance of probabilities that the arbitration provision reduced or lessened liability.

The court noted that Carmichael would have failed in the appeal even if any lesser standard of proof was applied. Mere speculation that a carrier's liability might be lessened by a bill of lading clause was impermissible.

The Court considered that none of the authorities relied upon by Carmichael in its view supported Carmichael's contentions.

The Court also observed that the conclusions reached regarding the required standard of proof were consistent with section 7(5) of the International Arbitration Act 1974 (Cth). It was also noted that Article 3 Rule 8 does not refer to a clause that might relieve the carrier from liability or might lessen such liability.

Comment

The High Court decision is strong and, in circumstances where the Federal Court had noted the undertaking by the carrier in relation to the application of the Australian Amended Hague Rules in the arbitration, it is perhaps surprising that the appeal was pursued. 

The decision examined the burden of proof in relation to Article 3 Rule 8 and seems to have put the argument to rest - although it may be that, had the undertaking not been given by the carrier regarding the application of the Australian Hague Rules to the dispute, there may have been somewhat more scope for the contentions of Carmichael.