THE LEGAL EFFECTS OF THE JURISDICTION CLAUSE

This paper was supposed to be presented by the writer at the ICMA Congress in New York but was cancelled because of the 9/11 Tragedy

It is very common to find a jurisdiction clause in contracts of maritime nature, particularly in the Bills of Lading and charterparty. It is also common knowledge that the ability of this clause to achieve the results intended is dependent on a number of considerations such as the scope of its wording, its exclusivity, to whom it is binding, whether such a clause infringes on any mandatory statutes of the chosen forum and most critical of all, the judicial attitude of the courts in the forum which have to enforce such a clause.

Take the Gencon Bills of lading for instance, the choice of law and choice of jurisdiction are incorporated by way of reference. The clarity with which the bills of lading incorporate the choice of jurisdiction in the charterparty is very important. If the incorporation is vague and unclear, the court may not permit effective incorporation of the charterparty terms. There are several cases which have dealt with this issue. Hence the manner in which the bills of lading are worded to incorporate the provision of the charterparty is very important.

The next issue that have given rise to legal debates relates to situations where there are several sub-charterparties. The question that had risen is, which is the effective charterparty for purposes of ascertaining the correct jurisdiction clause. The problem becomes compounded when the various charterparties provide for different jurisdiction clauses. The tentative solution has been to determine which of the charterparties is available and therefore that would be the relevant choice of jurisdiction. However this area of the law remains cloudy.

The effects of a jurisdiction clause are serious enough to warrant many legal opinions being sought by marine cargo insurers and other uninsured cargo interests. In the context of international trade, most of the shippers have no direct influence over the choice of the jurisdiction clause in the bills of lading (unless of course you are a major shipper). In reality, many shippers are not even aware of the significance and the legal effects of such a clause.

The primary objective of most hard headed business people is to have the goods shipped and delivered to final destination with minimum fuss, very often with the fastest and the most cost effective means possible. It is not too presumptuous to state that the effects of the jurisdiction clause are not fully appreciated until a cargo claim has arisen or at the commencement stage of recovery action by the subrogated insurers, that is, after a claim has been paid.

The problems are even more complex and unfair when the bill of lading has been indorsed to an innocent third party like the consignee. To his dismay, he has to accept the fact that under common law, he is bound by a clause of which he is not even a party to it and of which, he has no knowledge. Take the case of a consignee who is based in India and the shipper is domiciled in Singapore but the choice of jurisdiction happens to be say, Nicaragua. Some jurists have commented that in such cases where the choice of jurisdiction have no direct connection to the transaction or the parties, the terms of the bills of lading should not be given effects.

Under the English law, a party can be bound by a term in a contract to which he is not party and of which he has no knowledge. This was established in the Court of Appeal judgement in the KH Enterprise case. Under the English law, jurisdiction clause in the bills of lading is generally held to be effective though this may not be the case in non-English law jurisdictions.

In the insurance recovery process, the jurisdiction clause in the bills of lading remains the most thorny issue confronting many marine cargo insurers. The concerns of the marine insurers is understandable and most would feel comfortable with forums which embrace established carriage of goods by sea conventions or where the rule of law is firmly established. Their biggest concern is having to fight an action in a jurisdiction where the rule of law is not firmly established and precedents do not have significant bearing in the adjudication process.

These problems are further compounded by the widespread use of multimodal transport bills of lading or intermodal bills of loading where the jurisdiction clause and governing law is very often, leveraged on to the law of the country where the multimodal operator is domiciled. In some of these countries, the body of maritime law is not fully transparent or adequately developed.

Yet attempt to transfer the jurisdiction to a more favourable forum is the natural desire of all the claimants against the carrier but this decision is fraught with danger. For the enterprising ones who try, they face the prospects of not being able to resist a stay application from the carrier in a forum of choice.. Some jurisdictions have not acceded to the Hague Visby Rules or other established convention and had unilaterally, adopted a shortened time-bar of less than a year in action against the carrier. Any delays in trying to settle for a forum of choice may cause the claimants to be time-barred in the forum as defined in the contract.

Perhaps an example in a recovery case handled by the writer will be able to spotlight the problems posed by the jurisdiction clause in the bill of lading. In this example, the jurisdiction clause provides for Taiwanese law, and for the exclusive jurisdiction of the courts in Taipei. This matter involved a misdelivered shipment of goods from Hongkong to Russia. Claims against the carrier (through negotiation) was unsuccessful and an in-rem proceedings was thus commenced in Hongkong but not served on the carrier. The concern was whether the claimants could resist a stay application from the defendants who would obviously wish to rely on an alleged jurisdiction clause in the bill of lading.

This hesitation prompted the subrogation insurers to seek an opinion from a maritime lawyer in Taipei on the judicial attitude of the courts in Taipei. It was suggested that the Supreme Court of Taiwan had ruled in a case in 1978 that the jurisdiction clause in the bill of lading is only an expression of a carrier’s own willingness and as such, should not be deemed to be an agreement between both parties. It therefore followed that shippers are not bound by the jurisdiction clause in the bill of lading and it is the right of the shipper to decide whether or not to be bound by such a provision in the bill of lading.

Attention was also drawn to the 9 month time bar clause on the reverse side of the bill of lading. It was suggested that the subrogated insurers should ignore the jurisdiction clause (to avoid this 9 month time bar provision) on the pretext that the jurisdiction clause is only an unilateral expression of willingness made by the carrier and that such provision should not be applicable to the shipper or the subrogated insurers.

We also learned through this consultation process that the ROC courts will usually use the Civil Procedure Code to determine the issue of jurisdiction. Under this Code, it would appear that the courts in ROC lack jurisdiction over the matter on the argument that the ship involved is owned by a company not domiciled in Taiwan and that the ship in question has never called at Taiwan. Finally, the said casualty had occurred outside Taiwan.

With regard to the issue of the governing law, it was further suggested that it is the practice of the ROC courts to determine such issue based on the Law Governing the Application of Laws to Civil Matters Involving Foreign Elements. It was suggested that lex loci actus shall be applied to cases where the intention of the parties are unclear and that the act was committed outside Taiwan. Hence, it is very likely that the ROC courts will probably rule that the governing law clause is an unilateral expression of the carrier’s willingness and as such, shall not bound the shipper if the shipper chose not to.

Review of the above opinion by a learned Counsel in London

Still uncertain of the above findings, the subrogated insurers decided to place the facts of the above case and the Taiwanese opinion before a learned Counsel in London for review. Interestingly enough, the learned Counsel was of the view that under English law, the jurisdiction and governing law clauses in the bill of lading would be deemed to effectively incorporated though in ROC, this may not be case.

The issue in question, as expressed by the learned counsel, is whether the courts in Hong Kong would give effect to the law and jurisdiction clause in the bill of lading, bearing in mind that if they were to refuse jurisdiction on the basis that the matter should be dealt with in Taiwan, the Taiwanese courts on the other hand, may not regard the incorporation of the clause as effective. In effect, a court which is required to consider whether or not the clause should be given effect must do so not according to the court’s own law (lex fori) but according to the putative proper law of the contract ie in our case here, the ROC law.

An Australian case was also highlighted (Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 65 CLR 197) in where the issue was whether the foreign law and jurisdiction had been incorporated into the contract. The decision was that the issue should be determined not by the system of law indicated by the clause itself, but by the lex fori (the Australian law in this case).

In UK however, the questions of incorporation of the jurisdiction and governing law clause have generally been a settled issue to be considered under the putative proper law ie the law which would be proper law of the contract if the clause was validly concluded. To support this finding, several cases were mentioned, ie The Parouth [1982] 2 LR 351; The Atlantic Emperor [1989] 1 LR 548, 552lhc –553lhc and 554 rhc; The Lake Avery [1997] 540,550lhc etc.

Our understanding of this matter was further strengthened in a decided case (Albeko Schuhmaschinen AG v Kamborian Shoe Machine Co Ltd (1961) 111 LJ 519 which relates to the formation of contracts and where Salmon J expressed the view that even if the criteria of the lex fori regarding the formation of the contract had been satisfied, nevertheless the contract would not be regarded to be effectively concluded if the criteria of the putative proper law were not satisfied.

This example focussed the typical problems posed by the jurisdiction clause and in today’s context, we have seen widespread incorporation of jurisdiction and governing law clause in multimodal bill of lading issued by multimodal operators in countries like Vietnam, Thailand, Indonesia and many others. Whilst it is not the attempt of this writer to belittle the legal framework of some of these countries, it is a fact that there exist, many unknown grounds and uncertainties in the law of incorporation of the jurisdiction clause and governing law in countries where the body of maritime law is still being developed. The Taiwanese courts to be fair, have shown a great deal of common sense in their approach to this issue.

Issuers of bills of lading would obviously prefer to hide behind the uncertainties and unfamiliarity of some of the lesser known forums. For the subrogated insurers or uninsured cargo interests, it is a costly affair to ascertain the judicial attitude of some of these forums and also in trying to resist the stay application of the defendants in a forum of choice. Finally, to overcome the problem of choice of law/jurisdiction, it is recommended that insurers should proceed with recovery action at an early stage so that the issue of time bar could be managed.

Capt Lee Fook Choon

LN52.10.01