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Shipping Contracts – This Is Why English Arbitration Clauses Are So Common

One of the reasons why English arbitration clauses are such a common feature of international shipping contracts is that, by requiring dispute resolution to take place in a respected and neutral forum, they discourage litigation from proliferating worldwide. The High Court made that point in ordering that proceedings in Bangladesh arising from a shipping collision be brought to a halt.

Loading shipThe case concerned an incident in which a dry bulk cargo ship’s propeller snagged on a tanker’s anchor chain. The collision, in Bangladeshi waters, resulted in water penetrating one of the ship’s holds, damaging part of its cargo of soya bean meal. The vessel was arrested after the intended recipient of the cargo launched proceedings against her owner in Bangladesh.

In granting an anti-suit injunction requiring that those proceedings be terminated, the Court noted that the charterparty under which the ship’s voyage was arranged stated in terms that it was governed by English law and that any disputes arising over a certain value must be arbitrated in London. Those clauses were incorporated in bills of lading held by the recipient.

The recipient was thus bound to refer its cargo damage claim to London arbitration and its pursuit of the Bangladeshi proceedings amounted to a breach of contract. The charterparty was a classic example of the harmonious pattern of bilateral contracts by which international sea trade is habitually governed and the recipient had freely chosen to bind itself to the arbitration clause.

The recipient had behaved oppressively and unreasonably in seeking excessive financial security in respect of its claim. In refusing to honour its clear obligation to arbitrate in London, it had also fancifully suggested that it might have a claim for the loss of the entire cargo. The ship’s owner having provided the recipient with ample security, her arrest – which persisted for almost three months – had been entirely unnecessary. The recipient was ordered to the pay more than £80,000 in legal costs.