By Marc de Man
Every year, we, as maritime law practitioners, are faced with a court decision in our area of work which comes like a bombshell. In years past, we were preoccupied with the extensions to the Mareva Injunction, limitations to sister ship arrests and other areas. This year, we are all concerned with anti-suit injunctions, and for good reason. Some decisions have had a shocking effect on our practice. It is this topic that I wish to delve into today, as it may affect the practice of some of us present today.
Contracts for the carriage of goods by sea (actually bills of lading!) often specify both the exclusive forum for settling disputes between the shipper and the carrier and the applicable law. The High Court, or an arbitrator, in London is often named as the exclusive forum where any disputes arising from the bill of lading are to be resolved in accordance with English law.
This, however, gives rise to very high cost and the inconvenience of having to litigate a medium size or relatively small claim for a cargo loss in a foreign forum. It can deprive a shipper of an effective remedy for a breach of contract by the carrier, and compels the acceptance of a settlement in terms favorable to the carrier.
This issue was dealt with by the Canadian Parliament in the year 2001. In August of that year, it enacted Subsection 46(1) of the Marine Liability Act, S.C.
2001, ch. 6, which states as follows:
46(1). If a contract for the carriage of goods by water to which the Hamburg Rules do not apply provides for the adjudication or arbitration of claims arising under the contract in a place other than Canada, a claimant may institute judicial or arbitral proceedings in a court or arbitration tribunal in Canada that would be competent to determine the claim if the contract has referred the claim to Canada, where
- the actual port of loading or discharge, or the intended port of loading or discharge under the contract, is in Canada;
- the person against whom the claim is made resides or has a place of business, branch or agency in Canada; or
- the contract was made in Canada.
At first sight, this section grants the Canadian Court (usually the Federal Court of Canada) jurisdiction simply to hear a claim if any of the conditions contained in subsection 46(1)(a), (b) or (c) are met despite a forum selection clause that states otherwise.
On the other side of the spectrum, you have the usual clause in the bill of lading that states as follows:
24. USA/Canada clause
If the Bill of Lading covers the transportation of the goods to or from ports of the United States of America or Canada this Bill of Lading shall be subject to United States Carriage of Goods by Sea Act 1936 and/or subject to Carriage of Goods by Water Act 1936 of Canada which shall be incorporated herein and the provisions of said act shall govern before loading and after discharge and throughout the entire time the goods are in the custody of the Carrier. If anything herein contained is invalid or unenforceable under the provisions of said act such circumstances shall not affect the validity or enforceability of any other part or term of this Bill of Lading. The carrier shall not be liable in any capacity whatsoever for loss, damage or delay of goods while the goods are not in his actual custody.
25. LAW AND JURISDICTION
- Any claim or dispute whatsoever arising in connection with the carriage under the Bill of Lading shall exclusively be governed by English law and determined by the High Court of London.
- In the event that anything herein contained is inconsistent with any applicable international convention or national law which cannot be departed from private contract, the provisions hereof shall to the extent of such inconsistency but no further be null and void.
At first blush, one would think that the statutory provision would clearly override the contractual provisions. However, let me illustrate to you what occurred in Canada and in England. I will deal with a series of decisions emanating from the same case, namely:
Magic Sportswear Corp. v. O.T. Africa Line Ltd. (Canada) Heard Dec 15, 2003; Judgment Dec. 22, 2003 2003 FC 1513, Milszynski (Prothonotary, Fed Court of Canada)
Magic Sportswear Corp. v. O.T. Africa Line Ltd. (Canada) Heard Feb 23, 2004; Judgment Aug. 23, 2004 [2005] 2 F.C.R. 236, (2004) 264 F.T.R. 1, 2005 AMC 275, 2004 FC 1165, O’Keefe J., Federal Court of Canada
O.T. Africa Line Ltd. v. Magic Sportswear Corp. (U.K.) Nov. 3, 2004 (Hearing and Judgment) in the High Court of Justice, Queen’s Bench Division, Commercial Court [2005]1 Lloyd’s Rep. 252, 2004 EWHC 2441 (QB) Langley J.
Magic Sportswear Corp. v. O.T. Africa Line Ltd. (U.K.) Hearing May 3,4; Judgment June 13, 2005
[2005] 2 Lloyd’s Rep. 170, 2005 AMC 2179 (English Ct of App, Civ. Div) Laws, Rix & Longmore L JJ.
O.T. Africa Line Ltd. vs. Magic Sportswear Corp. (Canada) Federal Court of Canada – Appeal Division 2006 FCA 284 Hearing June 21, 2006 – Judgment August 23, 2006
This was a simple marine cargo claim. At stake, damages in the rather low amount of $30,000.00. A short delivery of a shipment (170 cartons of merchandise) from New York to Monrovia, Liberia. The New York shipper, through its agent in Toronto, intentionally arranged the shipment in Toronto to a consignee in Liberia. The carrier, an English company, through its Toronto office, negotiated and issued its bill of lading in Toronto to the shipper’s agent. The cargo insurance was entered into in Toronto and the insurers had offices in Toronto. The freight was collected in Toronto.
The action was instituted in the Federal Court of Canada, which is the Admiralty Court. Based on section 46(1) you will note that the bill of lading was issued in Canada and the person against whom the claim was made had an agency in Canada. Therefore, the statutory requirement for jurisdiction was clearly met.
After the action was instituted in Canada on August 1, 2003, it was served on the carrier’s office. The carrier, O.T. Africa Line Ltd. one month later obtained ex parte an anti-suit injunction in London, England to restrain the Canadian proceedings. Immediately thereafter, the carrier filed a motion to stay the proceedings in Canada. The Plaintiffs, at the instigation of their Underwriters filed an acknowledgment of service in the UK Court indicating that they would contest the jurisdiction of the English courts. No jurisdiction application was made thereafter, however, so that the Plaintiffs were treated in England as having accepted the jurisdiction of the English Court to try O.T Africa Line Ltd.’s claims against them.
The Federal Court of Canada, in front of the Prothonotary of the Court, dismissed O.T. Africa Line Ltd.’s motion to stay the proceedings.
Essentially the Court held that section 46(1)(b) and (c) were satisfied. O.T. Africa Line Ltd. had a place of business, branch or agency in Canada. The contract of carriage for the 170 cartons was made in Canada. The Prothonotary stated that section 46 of the Marine Liability Act clearly removes the binding effect of a forum selection clause in a bill of lading.
The Prothonotary further stated that section 46 does not displace the jurisdiction of the Federal Court under section 50 of the Federal Courts Act to exercise its discretion in the appropriate circumstances to order a stay of proceedings including consideration of the doctrine of forum non conveniens.
Section 50 of the Federal Court Act reads as follows:
50(1). The Federal Court of Appeal or the Federal Court may, in its discretion, stay proceedings in any cause or matter
a. on the ground that the claim is being proceeded within another court or jurisdiction, or
b. where for any other reason it is in the interest of justice that the proceedings be stayed.
Thus, based on the value of the goods, the fact that the Underwriters were in Canada, that the Defendant O.T. Africa Line Ltd. had business interests in Canada, and the fact that the material witnesses would come from Monrovia,
Liberia or New York (factors which favored neither England nor Canada), the Prothonotary found the most convenient and appropriate forum for the determination of the Plaintiffs’ claim, including the interpretation and application of English law, to be the Canadian Federal Court.
This decision was immediately appealed and judgment rendered on August 23, 2004 by Mr. Justice O’Keefe of the Federal Court of Canada. Mr. Justice O’Keefe agreed with the Prothonotary and dismissed the carrier’s appeal.
He further considered the forum non conveniens analysis of the Prothonotary to be correct.
Pursuant to these decisions, the Plaintiffs presented themselves at the High Court of Justice, Queen’s Bench Division, Commercial Division in London, England, requesting, inter alia, that the anti-suit injunction be discharged, based on the two Canadian decisions.
After due deliberation, Mr. Justice Langley decided that exclusive jurisdiction clauses must be given effect unless there are “strong reasons” for not doing so. Exceptional justification is required from an English court to stay proceedings in England when England is the exclusive jurisdiction chosen by the parties to resolve the dispute between them. Given the facts, there was nothing in the case which would begin to justify a departure from the general approach to an exclusive jurisdiction clause. On what he called “the Overriding Issue” of the application of section 46 of the Marine Liability Act of Canada, he reached the conclusion that there was “insufficient logic” in treating section 46 as giving rise to some exceptional circumstance beyond the usual case where a party seeks to proceed in another court. He concluded that the anti-suit injunction should be maintained essentially to ensure that the parties abide by the agreement they had made. Thus, the jurisdiction clause prevailed over section 46 of the Marine Liability Act.
This decision was appealed and on June 13, 2005, the English Court of Appeal dismissed the appeal.
The English Court of Appeal, in an elaborate judgment held that a party that initiated proceedings in a court other than the court which had been agreed upon with the other party as the court for resolution of any dispute was acting in breach of contract. The normal remedy for that breach of contract was to grant an anti-suit injunction. The injunction granted by Mr. Justice Langley in the English Commercial Court was in no way an attack on this legislature or the courts of Canada or a breach of international comity. It was merely restraining a party to a contract from doing something which he had promised not to do. If the existence of section 46 of the Marine Liability Act was an insufficiently strong ground for granting a stay, so likewise it could not be a sufficiently strong reason for not exercising the jurisdiction to grant an anti-suit injunction. There was no ground for refusing the injunction to which O.T. Africa Line Ltd. were prima facie entitled and it was only by granting an injunction that it would be possible to avoid duplicity of proceedings.
At this stage, you have the two Canadian decisions in favor of the Plaintiffs, and two English decisions in favor of the carrier.
The case was then again introduced by the ocean carrier (O.T. Africa Line Ltd.) to the Federal Court of Appeal of Canada.
Mr. Justice Evans, for the Federal Court of Appeal, decided that the English judgments were relevant in the forum non conveniens analysis. They were among several factors to be taken into account in determining how the interests of justice, practicality and efficiency were best served. The English courts, according to Mr. Justice Evans, decided that section 46(1) did not represent “strong reasons” for departing from the normal rule that exclusive jurisdiction selection clauses should be given effect. In addition, the exclusive jurisdiction clause itself would form part of the forum non conveniens analysis.
The judgment rendered in Canada would have to be recognized in England, if the shippers were successful. This would require the English courts to recognize a Canadian judgment obtained in a proceeding pursued in breach of an anti-suit injunction obtained in England. Mr. Justice Evans stated that it would be very doubtful whether in these circumstances an English court would recognize the Canadian judgment, especially if the carriers obtained judgment in London on their action.
He concluded that while the factors connecting the dispute to Canada were minor, those connecting it with England were cumulatively more significant. He held that the parties’ choice of the High Court of London as the exclusive forum respected the principle of freedom of contract, promoted commercial certainty and did not frustrate the policy objectives of section 46 of the Marine Liability Act.
For the above reasons, the Federal Court of Canada in Appeal concluded that the Federal Court of Canada was a less convenient forum than the High Court in London. The shippers’ action in the Federal Court was stayed. The stay was conditional on the carrier’s pursuing without delay their proceedings in the English High Court. This is the way the case ended. It was subsequently settled out of Court.
I respectfully submit that the English courts and the Federal Court of Appeal of Canada failed to recognize some basic fundamental principles which should have been considered and which would have changed the outcome of the cases.1
The bill of lading is a standard-form contract, a printed form to which various items and details are added by one of the parties, usually the carrier. It is not a drafted agreement representing the will and negotiations of both parties in front of each other. It is not entered into freely.
As an aside, the problem just discussed does not affect the 31 countries which have implemented the Hamburg Rules into force. The last two countries that have ratified the Hamburg Rules are Paraguay and Liberia. The Nordic countries, Australia, New Zealand, South Africa and China have adopted more or less similar jurisdiction and arbitration provisions. Section 46(1) of the Canadian Marine Liability Act parallels the law as it is understood in these countries. Moreover, there have been anti-suit injunctions maintained in a situation of carriage of goods to Dakar Senegal (The M.V. KALLANG, 2006 EWHC 2825 (Comm), where the bills of lading incorporated an English law and London arbitration clause, and in another case, The FRONT COMOR [2007]1 Lloyd’s Rep. 391, which recently came before the House of Lords, where a tanker collided with a jetty owned by the vessel’s charterers in Syracuse, Sicily. The insurers of the jetty commenced proceedings in Syracuse. The shipowners commenced proceedings in England claiming that the dispute arose under the charter party and therefore subject to London arbitration. The shipowners applied for an anti-suit injunction. The House of Lords has asked the European Court to determine whether a Court in one Member State can make an Order restraining a person from proceeding in another Member State on the ground that it is in breach of an arbitration agreement. Note therefore that in the European community, one Member State cannot invoke an anti-suit injunction when dealing with a strict jurisdiction clause against another Member State.
The bill of lading is usually issued after the ship has sailed. Therefore, it is no longer possible for the shipper to modify the provisions of the bill of lading.
The bill of lading is not signed by both parties, which means that it cannot represent the will or the meeting of the minds of the parties.
The bill of lading contains arbitration and jurisdiction clauses which are hidden at the back thereof and of which the shipper is unaware. Such clauses cannot be held valid.
Arbitration and jurisdiction clauses can be a veiled evasion of the proper jurisdiction. These clauses with little connection with the parties can be seen as an effort by the carrier to defeat the shipper’s capacity to take suit by calling for an inconvenient and expensive forum. They are often primarily a defense on the carrier’s part, made to defeat any action taken by the claimant. Section 46(1) of the Marine Liability Act enables a court to exercise its jurisdiction in circumstances where the case has a connection with Canada, thus permitting the claimant to maintain its right of action despite an arbitration or jurisdiction clause calling for an expensive forum. This is what prompted the enactment of Section 46 of the Marine Liability Act.
Clause 24 invokes US COGSA and the Canadian Carriage of Goods by Water Act 1936. The shipment emanated in the United States. Thus English law is not even applicable for the carriage by sea.
To conclude, for all those jurisdictions that are not bound by the Hamburg Rules, or countries that have not enacted legislation rendering jurisdiction clause null and void, beware.
Thank you.
