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Issue 213   December 2008
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Holder of Copy of Bill of Lading by Endorsement must comply with Arbitration Clause
Abu Dhabi Court of Cassation - Judgment No. 634/26

In an action filed before the Courts of Sharjah, the Federal Court of Cassation held that, the holder of a bill of lading by endorsement is considered to have an interest in the bill of lading by virtue of having an interest and seeking to enforce the contract of carriage. The holder therefore stands in a position similar to the shipper, and is bound by the bill of lading as if he was the shipper from the date when the shipper becomes so bound. The relationship between the holder of the bill of lading with the carrier is governed solely by the bill of lading. This mean that the holder of the bill of lading – by endorsement – has to comply with any arbitration clause contained in the charter party referred to it in the copy of the bill of lading as an original party to the contract.

Claim

A marine commercial company (the “Claimant”) filed a case against the owners of a vessel (the “Defendant”), requesting the court to order the Defendant to pay Dhs. 2,704,952.47 plus interest, being the total value of the damaged cargo (Garlic) carried by the Defendant. The Claimant commenced the proceeding based on the endorsement of two bills of lading in its favour.

Court of First Instance and Court of Appeal

At their first hearing appearance, Respondents pleaded that the action should be dismissed due to the arbitration clause in the charterparty referred to it in the bill of lading. The Court of First Instance upheld this argument and dismissed the case against the Defendants due to the arbitration clause. The Claimant appealed against the judgment to the Court of Appeal, who upheld the judgment delivered by the Court of First Instance and dismissed the appeal. The Claimant appealed to the Court of Cassation.

Court of Cassation

Before the Court of Cassation, the Claimant argued that the Court of First Instance and the Court of Appeal were wrong in dismissing the case against the Defendant because Sub-Article 203-4 of the Federal Code of Civil Procedure provides that, “Arbitration may not be agreed except by persons authorised to dispose of the right which is subject of the dispute”. The Claimant argued this as the action revolved around the Claimant’s right to recover for the damaged cargo, the arbitration clause should have been agreed by Claimant in the charterparty and not via an endorsement in the bill of lading. Further as arbitration clause in the charterparty of the vessel related to the disputes between owners and the shipper, the arbitration clause was not applicable to the Claimant because the arbitration clause will only be binding to the parties who agreed and signed it. The Claimant also argued that the clause related to the charterparty of the vessel, whereas the Claimant’s right involves a recovery of cargo damage based on the bill of lading and the fact that the claimant was not party in the charterparty. Therefore the lower courts where wrong to consider the Claimant to be a party to the charter party and to enforce the arbitration clause. The Court of Cassation held that, the holder of a bill of lading is considered to have interest in the bill of lading and, seeking to enforce the contract of carriage, stands in a position similar to the shipper, and is bound to all clause in the bill of lading including the charterparty as referred to it in the bill of lading. It is further a matter of settled practice that as long as the Claimant (Consignee) is deemed to have an interest in the bill of lading, his relationship with the Carrier (Defendant) is governed solely by the bill of lading, and the Claimant (Consignee) has to comply with the arbitration clause in the charterparty referred to it in his copy of bill of lading.

Therefore, the Court of Cassation rejected the appeal, and ordered the Claimant to pay costs.

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