AUSTRALIAN FEDERAL COURT OF APPEAL ALLOWS PARTIES TO CONTRACT OUT OF MANDATORY JURISDICTION IMPOSED BY THE CARRIAGE OF GOODS BY SEA ACT 1991 (CTH)

In a recent decision, the Australian Federal Court of Appeal refused an anti-suit injunction which sought to prevent the commencement of arbitral proceedings in England, in relation to a dispute arising out of a bill of lading for cargo transported between South Australia and Queensland.

The Court determined that the ‘mandatory jurisdiction’ provision of the Carriage Of Goods By Sea Act 1991 (Cth) (COGSA), which requires parties to bring disputes arising from bills of lading before Australian Courts, does not apply to bills of lading where cargo is transported from one Australian state or territory to another (i.e., inter-State bills of lading).

The key takeaway is that parties to an inter-State bill of lading that contains an arbitration clause may be free to commence arbitral proceedings in accordance with that clause, instead of commencing proceedings before an Australian Court.

Background

Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co. KG (The BBC Nile) [2022] FCAFC 171 (Carmichael v BBC) concerned, amongst other issues, whether Australian Courts’ mandatory jurisdiction to hear disputes arising from bills of lading, conferred by section 11 of the COGSA, applies to all bills of lading without restriction, or whether that mandatory jurisdiction is limited only to bills of lading where cargo is transported from an Australian port to another country (ie not inter-State bills of lading).

In December 2019, Carmichael entered into an agreement with an unrelated party, whereby the unrelated party would manufacture and supply circa 21 tonnes of steel rails to Carmichael, to be used in the construction of a train line in Queensland. The steel rails were to be manufactured in South Australia.

Between June and December 2020, BBC, on behalf of Carmichael, made arrangements for the steel rails to be transported from South Australia to Queensland by sea.

On 17 December 2020, the steel rails were loaded aboard the vessel, the BBC Nile. A bill of lading (BOL) was issued by BBC, with Carmichael named as consignee, for the shipment of the steel rails. The BOL identified the port of loading as “Whyalla, Australia”, in South Australia, and the port of discharge as “Mackay, Australia”, in Queensland.

The BBC Nile arrived at the Port of Mackay, Queensland, on 24 December 2020. The next day, 25 December 2020, members of the crew of the BBC Nile observed that part of the cargo hold of the ship had collapsed. The steel rails were damaged to such an extent they were non-compliant with the specifications for their intended use in railway construction and were eventually sold as scrap.

On 2 August 2022, BBC notified Carmichael that it had commenced arbitral proceedings in London, in accordance with the arbitration clause contained in the BOL, in relation to the damage to the steel rails. The arbitration clause in the BOL stipulated:

4. Law and Jurisdiction

Except as provided elsewhere herein, any dispute arising under or in connection with this Bill of Lading shall be referred to arbitration in London. The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) terms. The arbitration Tribunal is to consist of three arbitrators, one arbitrator to be appointed by each party and the two so appointed to appoint a third arbitrator. English law is to apply.

In August 2022, Carmichael commenced proceedings in the Federal Court of Australia, seeking to prevent BBC from continuing the arbitral proceedings in London. Carmichael argued, amongst other things, that the arbitral proceedings should be stayed and determined before an Australian Court, on the basis that the BOL is captured by section 11(2)(b) of the COGSA.

The Federal Court in the first instance granted an interim injunction restraining BBC from continuing the arbitral proceedings, until both Carmichael and BBC’s applications before the Court had been determined.

Decision

The Federal Court of Appeal dismissed Carmichael’s application for an anti-suit injunction, finding that section 11(2)(b) of the COGSA did not operate to capture inter-State bills of lading. In making its decision, the Court returned to fundamental principles of legislative interpretation, and traversed in detail the legislative history of the COGSA. The Court drew a distinction between bills of lading for cargo which was transported from Australia to another country, and bills of lading for cargo which was transported within Australian states and territories. In respect of the latter, the Court found that Parliament never considered, and thus never intended, for inter-State shipments to be covered by section 11 of the COGSA, observing (at [83]):

Recourse to the legislative history set out above reveals that from the Bill that led to the 1904 Act until the last of the amendments in 1998, there was simply no consideration of making the choice of law and jurisdiction invalidating provisions applicable to inter-State shipments. There is no possibility of finding as a point of historical fact that the Parliament intended such an outcome; it was simply not considered.

The Court also considered whether this legislative ‘gap’ could be filled, but ultimately found that the additional language required to do so would be “too big, or too much at variance with the language in fact used by the legislature”, noting (at [103]):

However regrettable or absurd the apparent overlooking of inter-State contracts for carriage of goods by sea is in s 11 of COGSA, the will of the Parliament as expressed in that law does not allow the Court to stretch that legislative expression far beyond the text of the Act.

Comment

The decision in Carmichael v BBC has disrupted the traditional application of the mandatory jurisdiction conferred on Australian Courts by section 11 of the COGSA, by providing a carve out for inter-State bills of lading only. It remains to be seen whether amendments to the COGSA will be made in order to rectify the legislative ‘gap’ which has resulted in this unusual decision. In the meantime, in the wake of Carmichael v BBC, parties to inter-State bills of lading will be free to arbitrate disputes in their chosen forum, without being forced to litigate before Australian Courts.

For more information, please contact Elizabeth Macknay, Partner, Ella Wisniewski, Senior Associate, and Inigo Kwan-Parsons, Solicitor, or your usual Herbert Smith Freehills contact.