Setyawati Fitrianggraeni, Tiyana Sigi Pertiwi, Irvena Ayunya Dewanto

Introduction

A Bill of Lading (“BL”) is a document issued by the carrier to the individual shipper of the goods, which can also be issued to charterers, if they are also the shipper of the goods or as a subsequent holder of the BL. It is a negotiable instrument, which serves several purposes, namely as a receipt for the goods loaded onboard a vessel containing statements as to the apparent condition and description of the goods, evidences the contract of carriage, as well as serving as a document of title for ownership purposes of the goods. A BL is issued after the goods are shipped, in which the occurrence of the shipment is based on the performance of a contract that already exists containing terms will already therefore be agreed; these terms are not exclusively contained in any BL which may later be issued[1].

Some forms of BLs can be transferred to a third party through endorsement. For BLs that are transferable, meaning conversely, BLs can transfer contractual rights and liabilities to subsequent rightful holders (either in possession of or the named consignee on the BL), once the BL itself is transferred to other parties.

In practice, some carriers may be incorporating terms of a charterparty or a separate contract of carriage in a BL for various purposes, such as when a claim arises due to a dispute, they may rely on the terms and conditions contained in the charterparty. Conversely speaking, in a dispute, if the claim was brought by a charterer or a direct party to a charterparty or a contract of carriage/affreightment, this may appear to have no issue. However, an issue will arise if a BL is transferred to a non-charterer, and the BL merely refers to the terms and conditions contained in a charterparty unknown to the current holder of the BL who was not party to the charterparty. Further, issues may also arise if obligations that are created under the bill of lading may be completely different to those arising out of the charter party.

Similarly, an issue also arises if the BL includes an incorporation clause by referring to an arbitration clause contained in the charterparty while the clause itself is not present in the face of BL, raising questions as to whether a third party not included as a party to the arbitration agreement may join the arbitration proceedings to settle the dispute.

This article will discuss the validity and general issues under the perspective of Indonesian law of an incorporated arbitration clause in a BL, with regard to its relevancy to its non-charterparty or third-party holders.

International Conventions

Related to use of BL in carriage of goods by sea — Indonesia has not ratified the Hague Rules (the 1924 the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading, and Protocol of Signature)/ the Hague-Visby Rules (the 1968 Protocol to Amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading)/Hamburg Rules (1978 United Nations International Convention on the Carriage of Goods by Sea). Rules and regulations related to carriage of goods by sea will be governed by Indonesian national laws.

Related to arbitration — Indonesia has ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the 1958 New York Convention (“NY Convention”) through the Presidential Decree Number 34 of 1981. However please note that the Law Number 30 of 1999 on Arbitration and Alternative Dispute Resolution (“AADR Law”) is not modeled under UNCITRAL Model Law on International Commercial Arbitration (“UNCITRAL Model Law”) and therefore the procedures and enforcement of arbitral awards in Indonesia may differ from other states who have ratified the NY Convention and adopted the text of the model law into their national law on arbitration. Until the date of this article, there are 93 states out of 126 jurisdictions that have adopted the UNCITRAL Model Law[2].

BL in Indonesian Law

Articles 504-517b of the Indonesian Commercial Code / Wetboek van Koophandel voor Indonesie (“WvK”) govern the provisions related to BL. Specifically, Article 506 of the Indonesian Commercial Code/WvK provides that a BL or Konosemen is a dated letter containing explanations from the carrier, stating that he has received some particular goods, for the purpose of carriage of said goods to a nominated destination, and shall deliver such goods at the destination to a nominated person, along with the terms and requirements of the delivery that shall take place in this matter.

In the Supreme Court Decision No. 716 K/Pdt/1984[3], the role of a BL/konosemen is further established wherein the court states that the limitation of liability of the carrier with regard to damages of the goods occurring during the carriage is limited to the amount agreed in the BL/konosemen.

To summarize, a BL is a letter issued by the carrier or possibly the master of the ship on behalf of the carrier, which is a multi-function document serving as, namely:

• a receipt for goods;
• document of title or proof of ownership of the goods; and
• an evidence of a contract of carriage  or a transportation agreement, and in some cases, serves as the contract of carriage document itself.

Validity of Incorporating Arbitration Clauses in BL

There are a number of perceived advantages of choosing arbitration as an alternative dispute resolution over court litigation, such as speed, limitation of right to appeal, the freedom of the parties to choose their own arbitrators with specialized knowledge and procedure, and for most jurisdictions, the ease of enforcement of international arbitral awards in view of the NY Convention and uniformity of the procedure for enforcing the same.

Due to those advantages, arbitration is quite the popular choice for business-related dispute resolution and as a result, it is commonplace for the carriers to have a BL issued by standard contracts by incorporating an arbitration clause in the charterparty under which the bill is issued, such as the BIMCO CONGENBILL, i.e., a standard charter party BL for shipments of general cargo under the GENCON charterparty[4]. For instance, the latest revision of the CONGENBILL 2022 includes an express reference to the exclusive Law and Arbitration on the first page, as well as the insertion of a separate, exclusive Law and Arbitration Clause at Clause 7 of the document[5].

Since a BL serves as an evidence of a contract of carriage, the courts will recognize the incorporation of an arbitration clause in a valid agreement based on the principle of freedom of contract as provided in Article 1320 of the Indonesian Civil Code (“ICC”)/Burgerlijk Wetboek (“BW”).

Further, Article 1 number 3 of AADR Law impliedly suggests that it recognizes incorporation of Arbitration Clauses if it is included in a written agreement made by both parties. However, referring to Article 511 of the Indonesian Commercial Code/WvK, note that it should be considered that there is no connection between a charterparty and a BL, unless the BL made reference to the charterparty, or, if the holder of the BL is a party to the charterparty.

Question of Arbitrators’ Competency to Decide on the Validity of an Incorporated Arbitration Clause

As indicated above, an incorporated arbitration clause in a BL may be considered as valid under the principle of freedom of contract, so long as it is based on a valid contract or charterparty under Article 1320 of the ICC/BW.

Although the AADR law does not explicitly contain provisions regarding the doctrine of kompetenz-kompetenz or the power for an arbitrator to decide themselves whether a valid arbitration clause exists and whether they are competent and have the jurisdiction to preside over the case, Articles 3 and 11 paragraph (2) of the AADR Law impliedly suggests this. According to Article 3 of the AADR Law, the district court shall not have the competence to adjudicate disputes of parties who have been bounded through and arbitration agreement. Further, Article 11 paragraph (2) of the AADR Law states that the district court must reject and not be involved in a dispute settlement which has been determined using arbitration, unless for certain conditions which have been established by the law.

Does an Arbitration Clause in a BL Bind Third Parties?

In essence, if the master issues BL on behalf of the carrier, the terms and conditions in the BL will also bind the carrier. However, noting that the nature of production of a BL document is for it to be transferable, its holder may or may not be a party to the underlying charterparty or the contract of carriage in which the BL is the evidence to. A question regarding the privity of the contract thus arises and as to whether the terms and conditions in said contract may also bind third parties who are not party to the original contract of carriage, but became the lawful holder of the BL.

Articles 1315-1317 of the ICC/BW provides that, generally, one cannot agree to bind a party in a contract unless on behalf of his own. One can undertake an action/insure/guarantee on behalf of third party and he may also promise on behalf of a third party that such third party will conduct an action (under an agreement), however this shall not relieve the third party to claim for damages against the undertaker/insurer/guarantor, in the event that said third party refuses to fulfill the agreement. It is possible for an agreement to be entered into based on the interest of a third party, if an agreement requires the same; the terms and conditions of the agreement cannot be retractable if the third party has declared that they will be utilizing said terms and conditions.

However, please note that according to Article 30 of the AADR Law, “Third parties outside the arbitration agreement may participate and join in the dispute resolution process through arbitration, provided that there are elements of interest related, and the participation is agreed upon by the parties to the dispute and approved by the arbitrator of the arbitral tribunal examining the dispute in question”.  Therefore, even if a third party has proven their sufficient interest to the case in hand, if their participation to join the arbitration proceedings is not agreed by the original parties to the arbitration agreement and was not approved by the arbitrator/arbitral tribunal, it would be difficult for a third party to join the arbitration proceedings.

Further, under Art. 70 of the AADR Law, once an international arbitral award is rendered, only the parties will have the right to apply for annulment of the award before the Indonesian district courts.

International Case Laws and References from Other Jurisdictions

As a comparison, we herein provide some references from some reported case laws from international arbitration proceedings in foreign common law countries, in relation to the issue of third parties or foreign laws due to an incorporated arbitration clause in a BL.

In COSCO Shipping Specialized Carriers Co, Ltd v. PT OKI Pulp & Paper Mills[6], this case involves a dispute arising from contracts of carriage evidenced by 9 bills of lading, which were subject to an arbitration agreement stipulating arbitration in Singapore. PT OKI as the first respondent, filed a tortious claim before the District Court in Indonesia. The appellant commenced an anti-suit injunction to restrain the first respondent from continuing with the Indonesian proceedings and therefore the claimant (later appellant) also commenced arbitration proceedings before the Singapore International Arbitration Centre (SIAC).The BLs were in the well-known CONGENBILL 94 form contained an incorporation clause on the reverse, however, there was nothing on the face of the BLs indicating if the incorporation clause referred to which contract of affreightment[7]. The court concluded that the pure tort claim for damages caused to the Trestle Bridge are in the nature of claims that the parties intended to settle by the arbitration and thus should be subject to the Arbitration Agreement. The Indonesian proceedings which were allegedly found to be in breach of this arbitration agreement, highlighting the enforcement of arbitration clauses under Indonesian law, and the anti-suit injunction was granted.

In PT Dewata Wibawa, PT Supermal Karawaci, David Salim and Others v. Madison Pacific Trust Limited, Tor Asia Credit Master Fund LP and Others[8], a jurisdiction challenge was raised in the Indonesian court, where claims were subject to an arbitration agreement. It provides insight into the enforcement and jurisdictional challenges of arbitration clauses in bills of lading under Indonesian law.

As another comparison, under English law, the rights obtained by and obligations imposed upon the holder of a bill of lading is governed under section 2(1) Carriage of Goods by Sea Act (COGSA 1992), wherein the rights of suit or the contractual rights under the contract carriage, shall be transferred to and vested in the lawful holder of a bill of lading, as if he had been a party to the contract. Whereas section 3 of COGSA 1992 provides that the holder of BL shall be subjected to liabilities contained in a bill of lading, by taking or demanding delivery or making the claim of goods under the contract of carriage. In the absence of an express clause regarding the choice of law and forum for arbitration in the BL, the UK common law will attempt to infer to the intention of the parties, referring to the law and arbitration clauses in the charterparty (see In The Elli 2[9], the bills of lading were held to be governed by English law considering that they incorporated a charterparty with an English arbitration clause).

Notwithstanding the above, it is important to note that Indonesia does not follow the doctrine of stare decisis and therefore even decisions rendered by judges in Indonesian courts will not be binding either horizontally to courts of the same status or vertically to lower courts. Jurisprudence from important Supreme Court decisions may be considered as persuasive or observed by Indonesian judges obiter dicta. Decision by foreign courts will also generally do not bind Indonesian courts (noting that the issue of enforcement of foreign decisions or foreign arbitral awards is a separate issue and shall not be delved further in this edition). Similarly, this concept also applies to arbitral awards, however considerations of the arbitrators in past awards or considerations by judges in past decisions may be referred to and may have a persuasive effect for judges presiding a present case.

 Conclusion

An arbitration clause in a BL may bind its lawful holders once it is transferred, even if they are not party to the charterparty, so long as the underlying agreement is considered as valid as per Article 1320 of the ICC/BW. Further, AADR Law impliedly suggests that it acknowledges the incorporation of Arbitration Clauses if it is included in a written agreement made by both parties. Note however that under Article 511 of the ICC/WvK, there is no connection between a charterparty and a BL, unless the BL has made reference to the charterparty, or, if the holder of the BL is a party to the charterparty. Further, it should also be noted that if a third party intends to join an arbitration proceeding, it is only allowed if agreed by the parties and allowed by the arbitrators/arbitral tribunal, and once an award is rendered, only the parties would have the right to apply for annulment before the Indonesian district courts.

References

[1] C. Debattista, \’Cargo Claims and Bills of Lading’\, in Yvonne Baatz (Ed) Maritime Law, 3rd Edition (Informa Law from Routledge, 2014), page 200.

[2] UNCITRAL, Status: UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006, < https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration/status>.

[3] Supreme Court Decision No. 716 K/Pdt/1984 dated 22 August 1985, PT. DJAKARTA LLOYD vs PT. ASURANSI AFIA INDONESIA; PT. VARUNA TIRTA PRAKASYA (E.M.K.L).

[4] GENCON is a standard voyage charter party. It is a general purpose agreement for the services of a ship in exchange for freight and can be used in a variety of trades. It is accompanied by its own bill of lading, CONGENBILL 2022. The latest edition of this contract is GENCON 2022. See BIMCO, GENCON 2022 <https://www.bimco.org/contractual-affairs/bimco-contracts/contracts/gencon-2022/>

[5] BIMCO, CONGENBILL 2022 <https://www.bimco.org/contractual-affairs/bimco-contracts/contracts/congenbill-2022/>.

[6] COSCO Shipping Specialized Carriers Co. Ltd v. PT OKI Pulp & Paper Mills, Judgment of the Court of Appeal of Singapore [2024] SGCA 50, 12 November 2024, paras. 5-7.

[7] COSCO Shipping Specialized Carriers Co, Ltd v. COSCO Shipping Specialized Carriers (Europe) BV, Grounds of Decision of the High Court of Singapore [2024] SGHC 92, 24 March 2024, paras. 35-37.

[8] PT Dewata Wibawa, PT Supermal Karawaci, David Salim and Others v. Madison Pacific Trust Limited, Tor Asia Credit Master Fund LP and Others, Grounds for Decision of the High Court of Singapore [2024] GHC 184, 16 July 2024, paras. 20-21.

[9] ILYSSIA COMPANIA NAVIERA S.A. v. AHMED ABDUL-QAWI BAMAODAH (The Elli 2) [1985] 1 Lloyd’s Rep 107.

DISCLAIMER :

This disclaimer applies to the publication of articles by Anggraeni and Partners. By accessing or reading any articles published by Anggraeni and Partners, you acknowledge and agree to the terms of this disclaimer:

No Legal Advice: The articles published by Anggraeni and Partners are for informational purposes only and do not constitute legal advice. The information provided in the articles is not intended to create an attorney-client relationship between Anggraeni and Partners and the reader. The articles should not be relied upon as a substitute for seeking professional legal advice. For specific legal advice tailored to your individual circumstances, please consult a qualified attorney.

Accuracy and Completeness: Anggraeni and Partners strives to ensure the accuracy and completeness of the information presented in the articles. However, we do not warrant or guarantee the accuracy, currency, or completeness of the information. Laws and legal interpretations may vary, and the information in the articles may not be applicable to your jurisdiction or specific situation. Therefore, Anggraeni and Partners disclaims any liability for any errors or omissions in the articles.

No Endorsement: Any references or mentions of third-party organizations, products, services, or websites in the articles are for informational purposes only and do not constitute an endorsement or recommendation by Anggraeni and Partners. We do not assume responsibility for the accuracy, quality, or reliability of any third-party information or services mentioned in the articles.

No Liability: Anggraeni and Partners, its partners, attorneys, employees, or affiliates shall not be liable for any direct, indirect, incidental, consequential, or special damages arising out of or in connection with the use of the articles or reliance on any information contained therein. This includes, but is not limited to, loss of data, loss of profits, or damages resulting from the use or inability to use the articles.

No Attorney-Client Relationship: Reading or accessing the articles does not establish an attorney-client relationship between Anggraeni and Partners and the reader. The information provided in the articles is general in nature and may not be applicable to your specific legal situation. Any communication with Anggraeni and Partners through the articles or any contact form on the website does not create an attorney-client relationship or establish confidentiality.

By accessing or reading the articles, you acknowledge that you have read, understood, and agreed to this disclaimer. If you do not agree with any part of this disclaimer, please refrain from accessing or reading the articles published by Anggraeni and Partners.

For further information, please contact:

WWW.AP-LAWSOLUTION.COM

P: 6221. 7278 7678, 72795001

H: +62 811 8800 427

S.F. Anggraeni

Managing Partner

[email protected]

Tiyana Sigi Nirmala

Knowledge Lawyer

[email protected]

Irvena Ayunya Dewanto

Junior Associate

[email protected]