Hong Kong – Shipping & International Trade Law: Contracts Of Carriage.
Legal News & Analysis – Asia Pacific - International Trade - Shipping
13 August, 2015
1. In the absence of express provisions in a bill of lading (or charterparty), by what means will the proper law of the contract be determined?
Unlike current English law, which gives effect to the EEC Convention on the Law Applicable to Contractual Obligations (the ‘Rome Convention’) through domestic legislation, the Hong Kong courts continue to apply the traditional common law principles for determining the proper law of a contract. This is a distinction of some significance because there are certain presumptions contained in the Rome Convention that are not available under common law, such as the presumption of characteristic performance and the presumption that the contract is most closely connected with the principal place of business of the party who is to effect the characteristic performance. Thus in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd, both the Hong Kong Court of Appeal and the Court of Final Appeal found that the first instance judge had been influenced by the presumptions in the Rome Convention, which led to insufficient weight being given to the subject matter of the agreement and its place of performance ( 2 HKLRD 45; and (2012) 15 HKCFAR 569). The Court of Final Appeal observed ‘The Rome Convention rule does not reflect the common law, because it emphasises the place where the party is based, rather than the place where performance is to be effected’ (First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569 at ).
Under traditional common law principles, in the absence of an express choice of law clause, the Hong Kong courts will examine two matters to determine the proper law of the contract:
whether the facts of the case justify inferring an implied choice of law clause into the contract of carriage; and failing that
which system of law has the closest and most real connection to the contract.
As to the first matter, the courts will consider whether the parties intended by implication that their contract should be governed by Hong Kong law. This is assessed by what ordinary reasonable businessmen would be likely to have agreed to if they had directed their minds to the question (Century Yachts Ltd v Xiamen Celestial Yacht Ltd  1 HKLR 385, at 393).
Regarding the second matter, it is useful to refer to Bokhary JA’s judgment in S Megga Telecommunications Ltd v Etowaru Co Ltd  2 HKC 761, at 767 (Court of Appeal):
‘In the present case, there was no express choice of the proper law. Nor can one reliably draw any inference as to the intention of either side in that regard. It seems very likely that … the parties deliberately refrained from making an express choice as to the proper [sic] because they could not agree upon one.
In those circumstances, our task is to decide which system of law is the one with which the contract has the closest and most real connection, and to hold that the contract is governed by that system and its laws.’
In the context of a contract of carriage, the following factors have been cited as relevant to the question of which system of law has the closest and most real connection to the contract (The Dong Do  2 HKLR 563, at 566; and Trane Co v Hanjin Shipping Co Ltd (Unreported, 31 July 2001, Court of First Instance, Stone J, HCCL 215/1999) at ):
where the bill of lading is issued;
the place(s) of incorporation/residence of the relevant parties;
the place of shipment;
the place of delivery (ie, where the consignees are located); and
the applicable carriage of goods by sea regime or legislation.
2. Will a foreign jurisdiction or arbitration clause necessarily be recognised?
Lord Wright in the Privy Council’s decision of Vita Food Products v Unus Shipping Co stated that the (English) courts will allow contracting parties a free choice of their governing proper law subject only to three qualifications ( AC 277, at 290). These three exceptions have been adopted by the Hong Kong courts (The Cavalry  HKLR 287, at 294), and they are that the clause must be:
not contrary to public policy.
These exceptions seldom arise in practice. Therefore the Hong Kong courts will almost invariably recognise and give effect to foreign jurisdiction clauses.
A plaintiff who brings court proceedings in Hong Kong in breach of a foreign jurisdiction clause bears the burden to show that there is ‘strong cause’ for not granting a stay (The Thorscan  1 HKLRD 881, at 886, following The El Amria  2 Lloyd’s Rep 119).
In respect of foreign arbitration clauses, under Article 8(1) of the UNCITRAL Model Law, which is reproduced in section 20(1) of Hong Kong’s Arbitration Ordinance (Cap. 609), it is mandatory for the Hong Kong courts to stay proceedings brought in breach of an arbitration agreement if ‘a party so requests not later than when submitting his first statement on the substance of the dispute’ unless the arbitration agreement is ‘null and void, inoperative or incapable of being performed.’
3. In the event that an injunction or order preventing proceedings is obtained in the agreed jurisdiction (whether court or arbitration), will this be recognised in your court?
There are a number of authorities on the circumstances under which the Hong Kong courts would grant anti-suit/anti-arbitration injunctions to prevent proceedings from being commenced abroad in breach of a jurisdiction/arbitration clause in favour of Hong Kong. However there appears to be no reported case precisely on the point of whether the Hong Kong courts will recognise an anti-suit/anti-arbitration injunction obtained in a foreign agreed jurisdiction.
It is not difficult to imagine why, however. This is because under the analysis in 1.1.2 above, the very fact that a plaintiff has attempted to bring proceedings in Hong Kong in breach of a foreign jurisdiction/arbitration clause will almost, in and of itself, be sufficient ground for the defendant to obtain a stay from the Hong Kong court. If on top of breaching the said foreign jurisdiction/arbitration clause, there is also a foreign anti-suit/antiarbitration injunction given by an overseas court in the agreed jurisdiction, it becomes even more likely that the Hong Kong court will grant a stay of the Hong Kong proceedings.
4. Arbitration Clauses: Will an arbitration and/or a jurisdiction clause set out in an incorporated document (such as a charterparty referred to in a bill of lading) be recognised if its text is not set out in the contract in question?
Section 19(1) of Hong Kong’s Arbitration Ordinance (Cap. 609) incorporates, inter alia, Article 7(6) of the UNICITRAL Model Law, which provides:
‘The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.’
Furthermore, section 19(3) of the Arbitration Ordinance (Cap. 609) adds:
‘A reference in an agreement to a written form of arbitration clause constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement.’
Therefore so long as reference is made to either a document containing an arbitration clause, or a written form of arbitration clause so as to make that clause part of the agreement, then it matters not that the actual text of the arbitration agreement is not set out in the contract in question.
5. Arbitration Clauses: Will the incorporation of an unsigned arbitration agreement into a contract be recognised?
Section 19(2)(a) of the Arbitration Ordinance (Cap. 609) specifically provides that an arbitration agreement is in writing if the agreement is in a document ‘whether or not the document is signed by the parties to the agreement.’ Therefore there is no doubt that the incorporation of an unsigned arbitration agreement into a contract will be recognised.
6. In any event, will all of the provisions of a charterparty incorporated into a bill of lading contract be recognised? Specifically, if a charterparty with an arbitration clause is incorporated into a bill of lading, is it necessary for the incorporating words to make express mention of the arbitration clause of the charter?
Thomas v Portsea  AC 1 and The Federal Bulker  1 Lloyd’s Rep 103 are both English authorities for the principle that general words of incorporation in a bill of lading are not sufficient to incorporate an arbitration clause contained in a charterparty. In other words, express mention of the arbitration clause in the bill of lading’s incorporation clause is necessary to incorporate the arbitration clause into the bill of lading.
These English cases were examined by the Hong Kong High Court in Astel-Peiniger Joint Venture (A Joint Venture Partnership) v Argos Engineering & Heavy Industries Co Ltd  1 HKLR 300. In obiter, Kaplan J tentatively affirmed Thomas v Portsea and The Federal Bulker – but only in the context of dealing with negotiable instruments like bills of lading (His Lordship distinguished the case before him which was a construction dispute not involving shipping documents) (Astel-Peiniger Joint Venture (A Joint Venture Partnership) v Argos Engineering & Heavy Industries Co Ltd  1 HKLR 300, at 310).
It would therefore be prudent to make express mention of the arbitration clause contained in the charterparty if one is minded to incorporate it into a bill of lading under Hong Kong law.
7. If a bill of lading refers to the terms of a charterparty, but without identifying it (eg, by date):
In the case of a Congen bill of lading, and to avoid any issue as to which particular charterparty terms are incorporated, care should be taken to insert the date of the relevant incorporated charterparty on the face of the bill of lading. This avoids the Re Yaoki type problems – see 9. following.
8. Will incorporation be recognised without such detail?
See 6. above and 9. below
9. If so, which charterparty will be incorporated?
Practical difficulties may of course arise where the bill of lading refers to or purports to incorporate the terms of a charterparty, but it is not completely clear which charterparty in the chain of charterparties concerning the vessel the parties intended to incorporate. For instance, in Re Yaoki (Unreported, 15 May 2006, Court of First Instance, Waung J, HCAJ 134/2005) the bill of lading contained the following terms:
‘Charter Party dated AS PER CHARTER PARTY at PER CHARTER PARTY at PER CHARTER PARTY between AS PER CHARTER PARTY and AS PER CHARTER PARTY as Charterer and all the terms whatsoever of the said … Charter Party including the Arbitration clause…’; and
Any and all differences and disputes of whatsoever nature arising out of this Bill of lading shall be put to Arbitration in the City of New York or in the City of London, whichever place is specified in the Charter and in accordance with the Arbitration clause therein.’
The problem was that there were two charterparties in existence: (1) a head time charter which had a London arbitration clause; and (2) a voyage charter which had no arbitration but only an exclusive jurisdiction clause for the London High Court.
The fact that the charterparty was not specifically identified (eg, by date) was not an impediment to the incorporation of its terms into the bill of lading. Waung J held that the relevant charterparty the parties intended to incorporate was the head time charter, and His Lordship commented that this conclusion was consistent with the general rule (repeatedly stated in various editions of Scrutton) that ‘general reference will normally be construed as relating to the head charter’ (Re Yaoki (Unreported, 15 May 2006, Court of First Instance, Waung J, HCAJ 134/2005), at ).
Accordingly, the plaintiff’s argument that the voyage charter’s exclusive jurisdiction clause somehow ousted the arbitration clause in the bill of lading was rejected. The plaintiff’s Hong Kong proceedings were therefore stayed in favour of London arbitration.
Parties To The Bill Of Lading Contract
1. How is the carrier identified? In particular, what is the relationship between statements on the face of the bill and/or the signature by or on behalf of the Master and demise clauses/identity of carrier clauses?
The House of Lords’ decision in The Starsin  1 Lloyd’s Rep. 571 shifted the emphasis on the identity of the carrier problem to the face of the bill of lading, and away from the standard terms on the back. This was said to be how a reasonable person, versed in the shipping trade, would read a bill of lading.
The Starsin has been followed in Hong Kong: Esgame Co Ltd v Freight Overseas Co Ltd (Unreported, 27 July 2007, District Court, Judge Wong, DCCJ 1845/2006), at ; and Vastfame Camera Ltd v Birkart Globistics Ltd  4 HKC 117, at  – . In the latter case, Stone J held:
‘On this issue I bear in mind the observations of their Lordships in The Starsin … to the effect that when a bill of lading contains on its face an apparently clear and unambiguous statement of who is the carrier it is difficult to accept that a shipper would expect to have to resort to the detailed conditions on the reverse of the bill in an attempt to discover with whom he was contracting.’
This approach means that shippers and holders of bills of lading can literally take a bill of lading at face value so far as the identity of the carrier issue is concerned.
2. Who is entitled to sue for loss or damage arising out of the carrier’s alleged default? In particular, by what means, if at all, are rights under the contract of carriage transferred?
The original shipper who contracts with the carrier can sue for loss or damage to his/her cargo. Due to the concept of privity of contract in English and Hong Kong contract law, however, the rights of the shipper were not available to the consignee as a matter of common law. Therefore statutory provisions were enacted to allow the shipper’s rights to be transferred.
Hong Kong’s Bills of Lading and Analogous Shipping Documents Ordinance (Cap. 440), ‘BLASDO’) is in all material respects identical to the English Carriage of Goods by Sea Act (‘CGSA’) 1992. Section 4(1) of BLASDO supplements the common law position and also confers the right to sue the carrier to the lawful holder of a bill of lading, the consignee identified in a sea waybill, or the person entitled to delivery under a ship’s delivery order, regardless of whether they are the owners of the goods covered by the document.
If a bill of lading ‘no longer gives a right to possession of the goods’, or also known as a ‘spent’ or ‘stale’ bill of lading, and a person becomes the lawful holder of it, the person shall not have any rights transferred to him/ her by virtue of section 4(1) of BLASDO, subject to two exceptions. These two exceptions are the only scenarios in which a transferee can obtain contractual rights under a spent/stale bill of lading (section 4(2) of BLASDO):
he/she becomes the holder of the bill by virtue of a transaction effected pursuant to any contractual or other arrangements made before the bill became spent; or
he/she is a seller who becomes holder of the bill as a result of the goods being rejected by the buyer and the bill is returned to the seller as a result.
Once rights are transferred pursuant to BLASDO, the rights of the original shipper and any intermediate holder(s) will be extinguished (section 4(5) of BLASDO).
BLASDO mirrors the English CGSA 1992 in that it does not require the transferee of rights to have property in the goods (cf the old English CGSA 1855 which did require the transferee of rights to have obtained property by reason of indorsement or consignment).
The liability of the original shipper, eg, for unpaid freight or shipping dangerous cargo, is not extinguished by virtue of any transfer of rights and/ or liabilities to another party (section 5(3) of BLASDO).
This material was first published by Sweet & Maxwell in 2014 in “Shipping and International Trade Law – International Comparisons” (and is reproduced here by agreement with the Publishers)
Shipping & International Trade Law
3. Liability Regimes And Lien Rights
6. General Average
8. Pollution And The Environment
9. Security And Arrest
10. Contracts Of Sale Of Goods.
11. Contracts Of Sale Of Goods Part 2, General Formalities
For further information, please contact:
Damien Laracy, Partner, Laracy & Co in association with Hill Dickinson Hong Kong LLP
Mike Mallin, Partner, Hill Dickinson Hong Kong LLP in association with Laracy & Co
Michael Ng, Laracy & Co in association with Hill Dickinson Hong Kong LLP