Article

Note: To pay for the sale of bulk metal filings FOB Venezuela, Primetrade (Broker/Applicant) caused UBS Geneva (Issuer) to open an LC in favor of Orinoco Iron CA (Seller/Beneficiary). Broker's underlying sales contract with Seller also provided that, in the event of a total loss, settlement would be made on the basis of bill of lading weights. Broker subcontracted the vessel, Ythan, from Phoenix Bulk Carriers Ltd (Freight Forwarder), chartered from Ythan Limited (Owner) for transport of the cargo to Jingtang. Bills of Lading were issued listing Seller as "shipper" and were consigned "to order." The bills of lading included an arbitration clause.

Soon after the vessel sailed, there was a complete loss due to the explosion of the cargo.

Following the loss, Broker/Applicant notified its insurer, Marsh & McLennan (Insurer). Also immediately after the loss, Seller/Beneficiary's bank forwarded the original bills of lading and other documents related to the LC to Issuer. Although Issuer found the other documents discrepant, Broker/ Applicant instructed Issuer to waive the discrepancies and pay Seller/Beneficiary, which it did. Broker/ Applicant also requested that Issuer send the bills of lading to Insurers for finalization of the insurance claim under the sales contract. One day after Insurer received the bills of lading, Insurer and Applicant/ Broker agreed to a settlement and Applicant/Broker instructed Insurer to reimburse Issuer.

Subsequently, Owner initiated an arbitration proceeding against Broker/Applicant for approximately US$15,000,000, damages resulting from the loss of the vessel, on the ground that Owner's loss was due to dangerous cargo shipped by Broker. They claimed that Broker/Applicant was a lawful holder of the bill of lading under section 2(1)(a) of the Carriage of Goods by Sea Act 1992 (COGSA), rendering it subject to the arbitration clause in the bill of lading. Owners further contended that Broker had made a "claim under the contract of carriage" against the Owners under section 3(1)(b) of COGSA. Broker/Applicant objected to arbitration jurisdiction on the ground that "it was not bound by the arbitration clause, nor could it be sued for damages for shipment of a dangerous cargo, because it was neither the 'lawful holder' of the bills of lading, nor had it 'made a claim' within the terms of sections 2 and 3 of the COGSA. Therefore it had not become subject to the same liabilities under the bill of lading contracts 'as if it had been a party to that contract.'"

The arbitrators ruled that Broker was subject to arbitral jurisdiction under both of Owner's claims.

Broker appealed the arbitral decision. The Queen's Bench Division (Commercial Court), Aikens, J., ruled that the arbiters had no jurisdiction to hear Owner's claims against Broker/Beneficiary. The judge stated "The phrase in [COGSA] 5(2)(c) 'at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates' do apply to a situation where the goods had been lost forever, as in this case. That does not stop the Act operating to transfer rights of suit or liabilities. Whether that occurrs depends on whether the conditions set out in the Act are fulfilled. "Thus, Broker did not become the holder of the bills of lading.

The transfer of the bills from Issuer to Insurer was made to enable [it] to collect the insurance proceeds from the underwriters, and that was not one by virtue of which [Broker] would have become a holder had the transaction been effected at a time when possession of the bills would have given a right to possession of the goods. . . . Alternatively, if that "transaction" did make Primetrade a "lawful holder" of the bills of lading, then it did not transfer rights of suit to [Broker], because the conditions in section 2(2) are not fulfilled. This is because [Broker] would have become the lawful holder by virtue of a transaction (passing the bills to [Insurer]) affected in pursuance of a contractual or other arrangement made after the time when a contractual right to possession of the goods to which the bills relate (as against the carrier) ceased to exist.

[JEB/ees]

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