Foreign Jurisdiction and Arbitration Clauses in the New Zealand Maritime Context

• Author: Deborah Anne Laurent
• Position: BA, LLB(Hons)(Auckland)
• Pages: 121-170

(2007) 21 A & NZ Mar LJ 121

FOREIGN JURISDICTION AND ARBITRATION CLAUSES IN THE NEW

ZEALAND MARITIME CONTEXT

De b o rah A La ure nt*

1 INTRODUCTION AND SCOPE

1.1 Introduction

Parties to a contract have the freedom to choose the terms of their agreement. This is the keystone to the

doctrine of party autonomy in the law of contract. The chosen terms may include an indicated forum where

disputes under the contract are to be adjudicated. A court should enforce the parties’ terms equally,

including foreign jurisdiction and arbitration agreements. However, a court may be prevented from

upholding these terms by legislation. This is the situation in New Zealand in relation to bills of lading

evidencing the sea carriage contract. Under section 210(1) of the Maritime Transport Act 1994 (the Act)

the New Zealand courts will not recognise a clause in a bill of lading stipulating that dispute resolution

must take place in a foreign forum.

In contrast, where the contract provides for a foreign arbitration agreement in the event of a dispute

between the contracting parties, this choice will be respected by the New Zealand court and will be upheld

by virtue of section 210(2) of the Act. The difference in treatment between these two types of dispute

resolution process will be discussed in this paper. Whether the regulation of foreign jurisdiction clauses is

justifiable will be assessed. An assessment of the UNCITRAL Draft Convention on the Carriage of Goods

[Wholly or Partly] [by Sea] (the Draft Convention)1 will be made.

It is important to balance both shippers’ and carriers’ interests when seeking a solution in this area of the

law. I strongly support party autonomy and disagree with the idea of a third party, in this case the

legislature, intervening to regulate the terms of the parties’ agreement. In my opinion, this creates

commercial uncertainty as parties will not always be aware of the overriding effect of such national

legislation upon the law governing the contract. It also underestimates the commercial acumen of the

involved parties. However, I do recognise the unique transferable nature of a bill of lading and its effect of

adding terms to the carriage contract. Limitation of carrier liability has been regulated by the Hague Rules

since 1924. This adds some weight to the argument that jurisdiction and arbitration clauses should also be

regulated, but I would argue that regulation can be achieved with as little intervention to the parties’ chosen

forum as possible. In my view, the current international conventions regulating jurisdiction and arbitration

are too intrusive. As a result, I would advocate minimum regulation in this area. The extent of such

minimum regulation will become evident in this paper.

1.2 The Maritime Context

This paper examines foreign jurisdiction and arbitration clauses in the New Zealand maritime context. A

comprehensive survey of the entire area is not possible here. As a result, the scope of this paper is limited

to bills of lading issued directly by the shipowner or not subject to the terms of a charterparty. This paper

also covers bills of lading held by third parties that successfully incorporate terms of a specified

charterparty. The bill of lading has a significant impact in these circumstances upon the party in whose

hands it lies. The nature of these documents has an important effect upon jurisdiction or arbitration clauses

contained in them and is the basis for many of the concerns arising in this area.

* BA, LLB(Hons)(Auckland).

1 Working Group III (Transport Law), Draft Convention on the Carriage of Goods [Wholly or Partly] [by Sea],

A/CN.9/WF.III/WP.81, Nineteenth Session, New York, 16-21 April 2007.

Foreign jurisdiction & arbitration clauses

(2007) 21 A & NZ Mar LJ 122

1.2.1 The nature of a bill of lading

A bill of lading has three functions:

1. as evidence of the contract of carriage;

2. as a receipt for goods which have been shipped; and

3. as a document of title.

Where the carriage agreement is not subject to a charterparty, the bill of lading will provide the best

evidence of the terms of that carriage agreement. These will normally have been agreed in advance of the

issue of the bill, either orally, by letter or phone, or by presentation of the goods.2 However, terms in a

carriage agreement will override contrary statements in a bill of lading,3 unless the parties agree beforehand

that the terms in the bill of lading will supersede any earlier contractual provisions.4 When the bill of

lading has been transferred to a third party in good faith, the terms contained in the bill will constitute the

carriage contract between the carrier and the third party transferee.5

A bill of lading also acts as a receipt for the goods shipped. This is particularly important in situations

where the bill is issued to the charterer, as it will be the charterparty that governs the carriage, and not the

terms in the bill of lading.6 In its function as a receipt, the bill will also be prima facie evidence of certain

particulars concerning the goods received, such as quality and quantity.7

Lastly, the bill of lading gives the holder the right to sue for possession of the goods. This right is

transferable, so that the right continues in the event that bill of lading is acquired by another party.

However, it is incorrect to say that the bill of lading represents title in the goods. A person not owning the

shipped goods may still hold the bill and will be able to sue for possession.8

1.2.2 Bills of lading issued direc tly by the shipowner or not pursuant to a

charterparty

The bill of lading provides best evidence of the carriage agreement where it is issued directly to the shipper,

by the shipowner or charterer, and is not subject to the terms of a charterparty. This is a unique position in

the law of contract, as the bill of lading may add terms to the earlier agreement. Furthermore, the bill will

often be the only document containing written terms of the contractual relationship and will, therefore,

provide the best evidence of the terms of agreement.9 It can be difficult for a contesting party to displace

the burden of proof that other terms should override those in the bill of lading.10 Whether a jurisdiction or

arbitration clause in the bill of lading has been validly incorporated by the bill of lading into the contract of

carriage will depend on the governing law.11 Even if such a term is validly incorporated, national

legislation may render this type of term null, void or inoperative. This is the situation in New Zealand and

this paper seeks to ascertain why, and whether such results are justified.

1.2.3 Bills of la ding issued to third pa rtie s incorpo ra ting terms from a

charterparty

2 Myburgh, P, ‘Transport Law: New Zealand’ in Blanpain, R (ed), International Encyclopedia of Laws (2002), 147; Gaskell, N,

Asariotis, R, and Baatz, Y, Bills of Lading: Law and Contracts (2000), 41-42.

3 Myburgh, above n 2, 147.

4 Gaskell et al, above n 2, 69-74.

5 Myburgh, above n 2, 148.

6 Ibid.

7 The Act, Article 3(4), Schedule 5. The International Convention for the unification of certain rules of law relating to bills of lading

and protocol of signature “Hague Rules 1924” (Hague Rules); The Protocol to amend the International Convention for the unification

of certain rules of law relating to bills of lading 25 August 1924 “Visby Rules” and the Protocol to amend the International

Convention for the unification of certain rules relating to bills of lading as modified by the Amending Protocol of 23 February 1968

(SDR Protocol) (including the Hague Rules, Hague-Visby Rules); enacted into New Zealand in the Act, Article 3(4), Schedule 5.

8 Myburgh, above n 2, 149.

9 Ibid 147.

10 Wilson, J, Carriage of Goods by Sea (5th Ed, 2004), 130.

11 Hill, J, International Commercial Disputes in English Courts (3rd Ed, 2005), 301.

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(2007) 21 A & NZ Mar LJ 123

The bill of lading may include the terms of a charterparty when it is issued or transferred to a third party

consignee. The terms must have been validly incorporated, which will occur when the relevant terms are to

be deemed, or are consistent with those contained in the bill of lading.12 Jurisdiction clauses do not pose a

problem but arbitration clauses require more attention in order to be validly incorporated into the bill of

lading held by a third party.13

1.2.4 Sco pe of the paper

This survey does not cover jurisdiction or arbitration clauses in charterparties where bills of lading have

been issued to the charterer. In that case, the charterparty is the contract of carriage and the bill of lading is

merely a receipt.14 This is the position in the Hague-Visby Rules which do not apply to charterparties, but

do apply to bills of lading issued pursuant to a charterparty, which have since become the contract of

carriage.15

This confinement of the topic also relates to the scope of section 210(1) and (2) of the Act, which regulates

jurisdiction clauses in “bills of lading or a similar document of title”.16 There is no definition of what

exactly constitutes a bill of lading in either the Act or the Mercantile Law Act 1908. However, it is evident

from the description in section 210(1) of the Act that “bill of lading” in the New Zealand context does not

include charterparties.

While the Act denies the effect of foreign jurisdiction clauses in bills of lading, it does not prevent the

courts from giving effect to foreign jurisdiction clauses in charterparties. This approach is inconsistent, and

is not followed in Australia, where the relevant legislation appears to encompass charterparties. It is

arguable that the exclusion of charterparties from the New Zealand legislation is acceptable, due to the

different nature of a charter party as opposed to a bill of lading. A charterparty is normally directly agreed

between two commercial parties with equal bargaining power. Greater consideration of the contractual

documents will take place before the rights are assigned to a third party. A bill of lading, in contrast, is

transferable between future consignees. There will be less opportunity to view and agree to the terms

contained in the bill. A bill of lading is already subject to regulation, in regards to limitation of liability, as

the carrier will often be in a stronger position than the cargo interest.

1.2.5 The sui ge neris nature of bills of la ding

As demonstrated above, bills of lading are unique in that their contents have the ability to constitute terms

of a carriage contract after the agreement has been formed. This is in spite of the fact that it is the carrier

who is the sole signatory on the bill.17 The bill of lading has developed its own unique status in law and it

is important to bear this in mind when considering impingements upon the doctrine of party autonomy.

2 CONTRACTUAL FREEDOM TO MANDATE THE LOCATION FOR DISPUTE

RESOLUTION

2.1 Genera l Principle s

Freedom of contract and party autonomy are fundamental concepts of contract law. Freedom of contract

allows parties to create mutual obligations.18 A contract can be made for almost any type of obligation.

Alongside this first principle is party autonomy, where the parties can choose the terms to put into an

12 Myburgh, above n 2, 151.

13 Boyd, S, Burrows, A, and Foxton, D, Scrutton on Charterparties and Bills of Lading (20th Ed, 1996), 79-80.

14 Myburgh, above n 2, 150.

15 The Hague-Visby Rules Article 1(b), Schedule 5 of the Act; Myburgh, above n 2, 151.

16 A “similar document of title” is taken to include seaway bills and ship’s delivery orders by virtue of the Mercantile Law Act 1908

(NZ), section 13(1).

17 The Ardennes [1951] 1 KB 55, 59.

18 Garner, B (ed.), ‘Freedom of Contract’ in Black’s Law Dictionary (8th Ed, 2004).