Binding Third Parties to Maritime Arbitration, Incorporation of Charterparty Arbitration Clause into Bill of Lading by Reference

Abstract

Arbitration is consensual by nature. Therefore, arbitration agreement is usually binding on the parties privy to the contract containing the arbitration clause. Nevertheless, general principles of contract law allow for extension of an arbitration clause to third parties only if free, knowing and complete consent of such party to arbitrate is established. It is difficult to tailor this rule to the situation when a bill of lading issued under a charterparty contains a reference clause, which brings all terms, conditions and exceptions of the charterparty into the bill of lading. The problem arises when it is contended that the charterparty arbitration clause also becomes a part of the bill of lading contract, without being repeated verbatim therein. Bill of lading is a commercial instrument that may come into the hands of a party with no knowledge of the arbitration clause in the original charterparty. The practical significance of the problem manifests itself when it must be decided whether the third party transferee of the bill of lading is bound to arbitrate or has to pursue the carrier in the ordinary courts of law. The core of the arbitration is consent of a party to arbitrate. Such consent can hardly be established when the holder of the bill of lading had no knowledge of an arbitration clause when taking up the bill of lading. The aim of the research was to examine under what conditions can a charterparty arbitration clause brought into the bill of lading by reference bind a third party holder of the bill of lading. The study compares the position of the English law and that of the Norwegian law on the subject and analyzes to what extent these rules accord with the consensual nature of arbitration. The research concludes that in principle, these two legal systems approach the issue of incorporation differently. While Norwegian law is more concerned with establishing actual or constructive notice of an arbitration clause by the holder, English law takes more formalistic approach and focuses on formulation of the reference and arbitration clauses in question. To preserve a consensual nature of arbitration, the study recommends not to apply the rules of incorporation mechanically. Rather, the individual context and commercial background of each particular case must be analyzed. The ultimate aim is to establish actual or constructive notice of an arbitration clause by the holder when taking up the bill of lading, hence its consent to arbitrate.