191. The “Merak” [1964] 2 Lloyds’ Rep. 283; [1964] 2 Lloyds’ Rep. 527

Incorporation – widely drawn clause referring to terms, conditions, clauses and exceptions effectively incorporating an arbitration clause

The facts

Timber was shipped from Walkom, Finland to Newport under bills of lading with the following clause:

“All the terms, conditions, clauses and exceptions including clause 30, contained in the said charterparty apply to this bill of lading and are deemed to be incorporated herein.”

Clause 32 of the charterparty reads as follows:

“Any dispute arising out of this charter or any bill of lading issued hereunder shall be referred to arbitration in accordance with the provisions of the Arbitration Act, 1950.”

The reference to clause 30 was an error, the terms of such clause having no relevance to the bills of lading.

The parties intended reference to clause 32 in the charterparty being the arbitration clause.

The indorsees on the bills who were also the charterers in the charterparty in question instituted action against the shipowners for various forms of relief including a claim for damages.

With regard to the claim for damages, the owners applied for a stay of the action on the basis that the parties were bound by an arbitration clause.

The indorsees were no longer able to institute arbitration within the time limits and an order of stay would effectively end their action.

The sum claimed in damages was a nominal £406.

Findings

Scarman J, sitting in Admiralty, found that the incorporation clause was sufficiently wide to include the arbitration clause. Scarman J held that Hamilton & Co v Mackie & Sons and T W Thomas & Co v Portsea Steamship Ship Company were distinguishable on the much narrower wording contained in those cases.

Scarman J held further that the maxim falsa demonstratio non nocet cum de corpore constat, though not effective to bring about the incorporation, did point to the conclusion that a mistaken reference to a particular clause did not exclude the incorporation of another.

The Court of Appeal (Sellers, Davies and Russell LJJ) held that the incorporation clause was sufficiently wide to incorporate the arbitration clause without the necessity of manipulating the clause to correct the description of the arbitration clause in the bill of lading.

Commentary

Scarman J’s judgment contains an interesting analysis of the test propounded by Lord Esher M R in Mackie and Loreburn LC in Portsea. The former test was to read all the provisions of the charterparty into the bill of lading in extenso and then to eliminate all provisions inconsistent with the bill of lading. The other test was to incorporate only those terms of the bill of lading which were consistent with its terms. The observation of Scarman J was that both tests were the same but simply approached the problem from opposite directions.

The true bridge to incorporation was provided by the wording of the arbitration clause itself and not the wide terminology used.

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