The Commercial Court in The Sea Master(1) has ruled that an intermediate holder of a bill of lading such as a bank is bound by the jurisdiction of an arbitral tribunal under the arbitration agreement contained or evidenced by the bill even though it may only hold that bill temporarily and irrespective of whether or not it has been subject to any obligations under COGSA.
Popplewell J reached the above conclusion by applying the ‘doctrine of separability’ which underlines the stand-alone aspect of an arbitration agreement. He said that it could not be assumed that COGSA intended rights and obligations under the arbitration agreement to be treated the same as substantive rights and obligations in the contract of carriage.
The ruling is contrary to the previously accepted position (albeit a result of obiter comments by Aiken J in The Ythan(2) that an intermediate holder of a bill of lading is not under any obligation to arbitrate unless it is subject to the liabilities under the bill under section 3 of COGSA or seeks to make a claim against the owner falling within the scope of the bill’s arbitration clause.
The implications of this ruling on financial institutions holding bills as security are potentially significant and they will be banking on a successful appeal to the Court of Appeal to restore the previous status quo.
- Sea Master Shipping Inc v Arab Bank (Switzerland) Limited (‘The Sea Master’)  EWHC 1902 (Comm).
- Primetrade AG v Ythan Ltd (“The Ythan”)  1 Lloyd’s Rep 457.
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