Monday, August 8, 2016

Is the Arbitration clause in a Multimodal Transport Document/ Bill of lading binding ?



(V.M. Syam Kumar, Advocate, High Court of Kerala)
The High Court of Kerala has in the judgment dtd. 8th September, 2015 in Caravel Shipping Services Pvt. Ltd. v. Premier Sea Foods Exim Pvt. Ltd. [2015 (4) KLT 1035] held that the existence of an Arbitration clause in a Multimodal Transport Document/ Bill of lading by itself does not entitle the Carrier/ Multimodal Transport Operator to seek a dispute arising from the said contract of carriage to be referred to Arbitration.
The Carrier had the moved the Hon’ble High Court under Art. 227 of the Constitution of India challenging the Order of the Subordinate Judge’s Court, Kochi wherein the prayer for referring the dispute to arbitration under S.8 of the Arbitration and Conciliation Act, 1996 made by the  Multimodal Transport Operator was rejected by the Sub-Judge.
The relevant facts as stated in the judgment of the High Court are as follows:
The plaintiff company had entrusted to the defendant, a carrier, 28,000 kgs. Cargo of frozen sea food, stuffed in a container, and covered by a bill dated 25.10.2008 for delivery at Port - Bandar Abbas, Tehran, Iran. The Cargo was shipped on board from Cochin Port on the same day. On 18th November 2008, it was informed by the office of the defendant that the Cargo container got damaged and part of the Cargo perished. Consequently, the proposed buyer refused to accept the consignment. Alleging that the plaintiff sustained loss due to default of defendant, a claim for USD 53,959.80 with interest was set up, and after issuing a notice, the suit was instituted claiming `26,53,593.00 with 11.5% interest. The defendant appeared and filed I.A. 486/2009 contending that the entrustment of cargo and its transportation were governed by Ext.P3 which was a Multimodal transport document as provided under the Multimodal Transportation of Goods Act, 1993 (herein after referred as the “Multimodal Act”). Clause 25 of the document specifically contemplated settlement of disputes by arbitration and conciliation and the jurisdiction of Civil Courts stood ousted in view of S.26 of Multimodal Act. The plaintiff, in the counter affidavit disputed the above and contended that, Ext.P3 was only a unilateral receipt and was not a Multimodal transport document and there was no consensus ad-idem between the parties to enter into an agreement for arbitration. The court below negatived the contention of the defendant, holding that the Contract of Carriage was not a Multimodal Transport document and that S.26 of the Multimodal Act and the Arbitration Act have no application to the facts of the case. The said Order of the Sub-Judge was challenged before the High Court.
It was contended by the Carrier based on Clause 25 of the Contract of Carriage that the arbitration clause therein operated as a bar in instituting a Civil Suit for enforcement of rights arising there from.
Clause 25 verbatim reads as follows:
“JURISDICTION/ARBITRATION: The contract evidenced by the Bill of Lading shall be governed by the Laws of India, and subject to the exclusive jurisdiction of Court in Chennai only. Dispute/Difference arising out of this contract and/or in connection with the interpretation of any of its clauses shall be settled by arbitration in India in accordance with the Arbitration & Conciliation Act, 1996. The No. Arbitrators shall be three, the Arbitrators shall be commercial persons. The venue for arbitration shall be Chennai.”
It was contended by the carrier that he was a Multimodal Transport Operator as defined under the Multimodal Act, having under taken a Multimodal transportation with the plaintiff evidenced by Ext.P3 Multimodal transport contract.
By virtue of Clause 25 extracted above, plaintiffs are bound by the arbitration clause in the light of S.26 of the Multimodal Act. The plaintiff contented that Ext.P3 was only a receipt evidencing a bill of lading, there was no consensus ad-idem in relation to terms of Ext.P3 and that it did not evidence a Multimodal contract.
It was contended by the Consignor  that a multimodal transport contract should involve undertaking of at least two different modes of transport, which was not involved in this case. The reply of the Carrier was that the factory of the plaintiff was at Alapuzha and empty container was delivered to the consignor, who stuffed it at Alapuzha, transported by road to Cochin Port and thereafter transported by sea, to Port Bandar Abbas by vessel OEL Dubai V029. Admittedly, an empty container was delivered to the consignor, which is also seen endorsed in Ext.P3, against the column of container no. According to Consignor, they themselves stuffed the container with goods. Thereafter, it was inspected by officials of State Live Stock, Marine and Agri products, and thereafter by Lloyds Agency, Kochi and both issued necessary certificates. It was thereafter handed over to Carrier with all records. In para 12 of the plaint, the cause of action is stated to have arisen, when the Consignor entrusted the container to the Carrier for shipment at a place within the jurisdiction of the Kochi court. Court noted that evidently, the Consignor had specifically pleaded that though the container was transported from Alapuzha, only the part of transportation by sea alone was undertaken by Ext.P3. This pleading it was noted was not denied by the Carrier.
As regards the nature of the document, ie., whether it is a Multimodal Transport Document or a Bill of lading, the High Court concluded as follows: “ Ext.P3 shows that the column of Place of Receipt is blank. However, Port of loading is shown as Cochin and place of delivery as Bandar Abbas, Iran.  The entries indicate that Cargo was shipped on board the vessel on 25th October 2008. There is absolutely no reference in Ext.P3 that either the container was entrusted at Alapuzha or that the freight charges included transportation from Alapuzha. Evidently, though the cargo moved both by road and by sea, the contract with defendant was for carriage of goods by sea alone.”
Based on the Multimodal Transportation of Goods Act,1993, the learned Judge reasoned as follows:
“Under S.2(l), to be a Multimodal transport contract, the Multimodal transport operator should undertake to perform or procure the performance of Multimodal transportation. Under S.2(k) Multimodal transportation means carriage of goods, by at least two different modes of transport under a multimodal transport contract from the place of acceptance of goods in India to a place of delivery outside India. A co-joint reading of S.2(k) and 2(l) undoubtedly shows shows that to be a Multimodal contract, the operator should undertake to transport by two modes. In other words, under the contract or by virtue of the contract, the transportation should involve two modes, from a place in India to a place of delivery outside India. The terms “two different modes of transport” found in S.2(k) does not qualify “carriage of goods” but refer to multimodal transport contract. In the instant case, though the goods were transported by two modes, only one part, that is the carriage by sea, alone was covered by Ext.P3. Consequently Ext.P3 cannot be considered as a Multimodal transport contract.”
“It is true that Ext.P3 is captioned as a Multimodal Transport document/Bill of lading. From the nature of the Caption, it could either be a Multimodal transport contract or a bill of lading. However, for the reasons stated above, it could not be treated as a Multimodal transport contract.”
The Court then proceeded to consider the crucial question regarding the binding nature of the Arbitration clause in the contract of carriage.
The Consignor had contended that Ext.P3 did not evidence a binding arbitration agreement. It was argued that it was not signed by the Consignor and that there was no consensus ad-idem to enter into an agreement of arbitration.
This was countered by the carrier contending that that it is not essential that the agreement should be signed by the parties, if the terms of the transaction discloses an intention to refer for arbitration and will be satisfied if the clause of arbitration on an invoice is brought to the notice of other party. It was argued by the learned counsel for the carrier that the entrustment  of the goods subject to the terms and conditions laid in Ext.P3, and by accepting a copy of the Ext.P3, by the Consignor, statutorily constituted the creation of a valid arbitration agreement. It was further contended that under S.7 of the Multimodal Act, a statutory liability is cast on the Multimodal operator to issue the Multimodal agreement to the consignor and by complying with that statutory liability, parties have voluntarily entered into the agreement.
The learned Judge concluded that the existence of an Arbitration clause in a Multimodal Transport Document/ Bill of lading by itself does not entitle the Carrier/ Multimodal Transport Operator to seek a dispute arising from the said contract of carriage to be referred to Arbitration by the following reasoning:  
“S.7 only enables a consignor who has entered into a contract for Multimodal transportation, to issue a multimodal document, at the option of the consignor. This presupposes entering into a contract for multimodal transportation. The term contract used in the definition of “Multimodal transport contract” and “Multimodal transport document” and in other parts of the Multimodal Act has not been specifically defined. Though by S.29 of the Multimodal Act, it shall have overriding effect over all other enactments, not with standing anything contained in any other law, the term contract shall by necessary implication can only have the meaning and content of the term contract as defined under the Indian Contract Act, 1872. Hence all the essentials required for entering in a valid contract will be required for entering into a Multimodal contract. In the case at hand, apart from entering into an agreement relating to the essential terms for transportation of goods by sea and for the payment of freight charges, it does not appear that there was consensus ad-idem for entering into an arbitration agreement. There is nothing to show that Clause 25 was ever brought to the notice of plaintiff. Hence the contention of the defendant does not appear to be sustainable.”
The High Court of Kerala thus held that there was no illegality or irregularity in the application of law, or exercise of jurisdiction by the court below warranting an interference under Article 227 of the Constitution of India and hence dismissed the original petition by the carrier.
 The finding of the Learned Judge based on facts that the document issued by the carrier which evidences only a single mode of transportation will not come within the purview of the Multimodal Transportation of Goods Act,1993 is precisely correct.
However the the reasoning given in the judgment for holding that the arbitration clause in the bill of lading does not bind the parties to the carriage, viz., the Consignor & the Carrier appears to be insufficient and requires closer examination.   
The reasoning given by the learned judge is that the term contract of carriage whether a Bill of lading or a Multimodal Transport Document can by necessary implication only have the meaning and content of the term contract as defined under the Indian Contract Act, 1872. Hence all the essentials required for entering in to a valid contract will be required for entering into a Multimodal contract.
We cannot have a quarrel up till the above part of the reasoning of the learned Judge.
However, subsequent part of the reasoned statement that “In the case at hand, apart from entering into an agreement relating to the essential terms for transportation of goods by sea and for the payment of freight charges, it does not appear that there was consensus ad-idem for entering into an arbitration agreement. There is nothing to show that Clause 25 was ever brought to the notice of plaintiff.” has been made totally overlooking the nature and validity of the clauses on the reverse of the bill of lading especially the Judgment of the Hon’ble Supreme Court in British India Steam Navigation Company v. Shanmughavilas Cashew.
The above judgment throws up very crucial legal questions concerning the binding nature and validity of numerous clauses in the bill of lading vis – a- vis the consensus ad idem requirement under contract law.
If the arbitration clause in the bill of lading lacks consensus ad idem and is not binding, what would be the status of the other clauses in the bill of lading including the Himalaya Clause, New Jason Clause etc.?
Would those terms on the reverse of the bill of lading which are the result of the accumulated experience of the marine carriers though centuries of operation and which have been tested in Hague, Hague-Visby, Hamburg and Rotterdam Rules and approved in statutes like Indian Carriage of Goods by Sea and the Bill of lading Act be negated by a single stroke of purported lack of consensus ad idem?
Does  consensus ad idem requirement have any relevance at all in the case of titular documents like the Bill of lading and Multimodal Transport Document which can be endorsed to third parties conferring on them titular rights over the cargo covered?
What impact would the judgment have when in maritime law we frequently are confronted with the phenomenon of incorporation into a bill of lading the arbitration clause in a charter party  
The above are a few of the questions of legal relevance that arise for consideration in the back drop of the judgment in  Caravel Shipping Services Pvt. Ltd. v. Premier Sea Foods Exim Pvt. Ltd. [2015 (4) KLT 1035].

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