Australian courts provide safe harbour to arbitration agreements in bills of lading

In Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GMBH & Co KG & Anor [2024] HCA 4, the High Court of Australia affirmed a decision of the Full Court of the Federal Court of Australia to dismiss an application to restrain arbitration proceedings conducted in London relating to a dispute arising from a carrier contract.

Background

Carmichael contracted with OneSteel for the manufacture and supply of steel rails. It was agreed that the rails would be transported from OneSteel’s facility to the Port of Whyalla and loaded onto a vessel nominated by Carmichael. The rails were then transported by BBC, a carrier booked by Carmichael, from Port Whyalla, South Australia to Port Mackay, Queensland. However, upon arrival, the rails were found to be damaged due to a collapse of the stowed goods, rendering them unusable and subsequently sold as scrap.

On the day the rails were loaded on the carrier ship, BBC issued Carmichael a bill of lading for the goods which relevantly included: (i) an exclusion clause providing that the carrier would have no liability for damage to cargo (ii) an English choice of law clause; and (iii) an arbitration agreement requiring that any dispute related to the bill of lading be referred to arbitration in London.

The Full Federal Court of Australia’s Decision

BBC initiated an arbitration against Carmichael in London regarding the rail damage, while Carmichael filed an application in the Federal Court of Australia (FCA) seeking damages and attempting to restrain any arbitration in connection with the consignment of the rails. BBC then applied for a stay of the proceedings in the FCA.

The competing interlocutory applications were referred for hearing before the Full Court of the FCA.

Carmichael (amongst other things) argued that both the choice of law clause and arbitration agreement were void as they contravened mandatory laws of Australia. In particular:

• The choice of law clause contravened section 10(1)(b)(ii) of the Carriage of Goods by Sea Amendment Act 1997 (Cth) (COGSA), which provides that the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading (known as the Hague Rules), as amended by the COGSA (Australian Hague Rules), applied to contracts for the carriage of goods by sea from a port in Australia to another port in Australia.
• Both the choice of law clause and arbitration agreement contravened Article 3(8) of the Australian Hague Rules which provides that any “clause, covenant or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to … goods … or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect.” In particular, Carmichael argued that BBC’s liability might be lessened in three ways:
  • An English tribunal might give primacy to the exclusion clause and find that only certain provisions of the Hague Rules, which provide lower limitation amounts, apply.
  • An English tribunal might apply an English interpretation of the Australian Hague Rules which was of concern as there were divergences in approach as between Australian and English courts.
  • An English arbitration would require Australian law to be proved through expert evidence, rather than as a matter of argument before an Australian court.

Significantly, in response and to ameliorate the risks identified by Carmichael, BBC made an undertaking to the FCA that in the arbitration it would admit the Australian Hague Rules as applied under Australian law applied to the bill of lading.

The Full Court dismissed Carmichael’s interlocutory application and ordered that the FCA proceeding be stayed in favour of arbitration in London. In so doing, the Full Court determined that neither the choice of law clause nor arbitration agreement contravened the COGSA as:

• Any risk of divergence between Australian and English law, was mitigated by an undertaking given by BBC and a subsequent declaration made by the Full Court that the Australian Hague Rules, as applied under Australian law, would apply to the interpretation of the bill of lading in the London arbitration.
• Additional costs that might be occurred in arbitration compared to Australian court litigation, did not have the effect of relieving or lessening a carrier’s liability.

The High Court of Australia’s Decision

Subsequently, Carmichael sought special leave to appeal the Full Court’s decision on the interpretation of Article 3(8) of the Australian Hague Rules. The High Court granted Carmichael special leave to appeal.

Before the High Court, Carmichael argued that the arbitration agreement contravened Article 3(8) of the Australian Hague Rules. In particular, Carmichael argued that BBC’s liability might be impermissibly lessened as:

• The English tribunal might consider they were bound to apply the Hague Rules in effect in England which allow for carrier’s responsibility to be delegated, whereas in Australia such responsibility was non-delegable.
• The English tribunal might give primacy to the exclusion clause and find that only certain provisions of the Hague Rules, which provide lower limitation amounts apply.
• Carmichael would face increased expense and practical difficulty in pursuing its claims in arbitration in London.

The High Court agreed with the Full Court’s decision that in the circumstances, including BBC’s undertaking and the declaration made by the Full Court, Carmichael had not established that the conduct of the arbitration would be such as to lessen the liability of BBC. In particular, the High Court held that:

• Carmichael’s concerns regarding the potential approach by an English tribunal were “mere speculation” and did not rise to the standard of proof that – on the balance of probabilities – the carrier’s liability would be impermissibly lessened.
• Carmichael’s concerns regarding the cost and inconvenience of arbitration were not directed to BBC’s liability, but rather the enforcement of that liability.

The High Court agreed with the FCA’s decision to dismiss Carmichael’s application to restrain the conduct of the London arbitration and grant BBC’s application to stay Carmichael’s proceedings.

Comment

This case again reflects Australian courts’ pro-arbitration approach in seeking to give effect to the parties’ agreement to arbitrate, including through flexibly and pragmatically dealing with a local law issue.

For further information, please contact Chad Catterwell, Partner, James Allsop, Partner, Imogen Kenny, Senior Associate, Caitlin Setter, Solicitor or your usual Herbert Smith Freehills contact.