Court Refuses Stay Where Arbitration Clause Not Incorporated From Charterparty

In OCBC Wing Hang Bank Ltd v Kai Sen Shipping Co Ltd [2020] HKCFI 375, the Hong Kong Court of First Instance (Court) dismissed a summons for a stay of proceedings in favour of arbitration due to the impermissibility of incorporating arbitration agreements from a charterparty. The Court declined to stay its proceedings despite the Respondent having filed a Notice of Arbitration in respect of the same dispute, because the Notice included a clear reservation of rights to litigate.

Background

The Applicant, Kai Sen is the owner of the vessel "YUE YOU 903" and carrier of cargoes described in four tanker bills of lading dated 12 April 2018. The cargoes were to be shipped from Dumai, Indonesia to Huangpo, China and the bills of lading were negotiable bills marked "to order".

The Respondent, OCBC, claimed it granted facilities to Twin Wealth Oils and Fats (Hong Kong) Ltd and indicated Twin Wealth Commercial Offshore de Macau Limitada as the guarantor (Borrowers). OCBC claimed it received the original bills of lading and commercial invoices from the Borrowers in late April 2018 and is therefore the lawful holder of the bills of lading and entitled to immediate possession of the cargoes.

Kai Sen neglected to present the original bills of lading and released the cargoes. OCBC claimed damages against Kai Sen for breaching the contracts of carriage that were contained or evidenced in the bills of lading, and for Kai Sen's breach of duty as carrier. OCBC issued the writ of summons in January 2019 and filed a statement of claim in March 2019.

In April 2019, Kai Sen applied under Section 20 of the Arbitration Ordinance to stay the proceedings in favour of arbitration. Kai Sen alleged that that OCBC's claim was subject to an arbitration agreement incorporated by reference from the charterparty into the bills of lading. OCBC denied being party to an arbitration agreement. In support of its claim, Kai Sen pointed out that OCBC had issued of a notice of arbitration on 28 March 2019.

OCBC argued that because the arbitration agreement is governed by English law, specific words of incorporation are required for an arbitration agreement to be validly incorporated into a bill of lading. This is also the position under Hong Kong law. OCBC therefore claimed that the dispute should not be resolved by arbitration because no specific words of incorporation existed in the bills of lading and OCBC had had no knowledge of the terms of the charterparty until this dispute...