2020/2

Ulgener LC/LO was founded in 2000 with the aim to serve the maritime industry and still continuing on the same track, not only with the same excitement but also with daily enhanced knowledge and experience.
Our main fields  of expertise:
P&I matters, such as cargo claims / disputes arising from bills of lading, crew claims, pollution; as well as accidents, such as collisions, salvage, wreck removal and general average matters, etc.
FD&D matters, such as disputes arising from voyage and time charter-parties, including but not limited to forced freight & demurrage collection, liening on cargo, etc.
H&M matters, such as salvage, general average, etc., Assisting Turkish Chamber of Shipping and Turkish Ship Owners Association also representing Turkish shipping at the Bimco Documentary Committee.

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In this issue:
1. Enforceability of the Charter Party Arbitration Clauses Against 3rd Parties
2. Crew change – A nightmare within the nightmare!

Dr. Metin Uğur Aytekin
Senior Associate Lawyer

Charterparty evidences the terms and conditions of the contract of the carriage of goods by sea. Charterparty is effective between the charterer and the shipowner and there is no question about the conditions are binding in-between them.

However, in sea trade, there are 3rd parties who hold the bills of lading (endorsees of the bill of lading; consignee or receiver) and as the bill of lading is a document of title such 3rd parties are entitled to claim the ownership and demand the delivery of the cargo. In some cases, such 3rd parties are parties to the charterparties and the terms and conditions under the charterparties are binding for them too as charterers at the same time. In some other cases, it is the opposite and they are just 3rd parties to the charterparties. In the latter case, one important question arises that whether the 3rd party consignee is contingent to the terms and conditions of the charterparty, or not.

Under many jurisdictions if there is an “incorporation” between the bill of lading and the charterparty, then the 3rd party consignee is also subject to the terms and conditions of the charterparty. On the other hand, there are some concerns as to whether a 3rd party consignee is aware of the terms and conditions of the charterparty to which they are not a party and would it be equitable to accept that all terms and conditions of a charterparty binding for the 3rd party consignee that are negotiated between and agreed by the shipowner and the charterer beyond the knowledge of the 3rd party consignee. This is especially important in case of a charterparty arbitration clause where there is no such clause as to the arbitration in the bill of lading but only a reference to the charterparty, saying that other terms and conditions shall be subject to the charterparty. Does such a reference suffice to create incorporation between the bill of lading and the charterparty in terms of the enforceability of the charterparty arbitration clause?

Under Turkish commercial law the answer had been positive to this question, despite some long-lasting unclarity in cases where a ship arrest order involved, until when the Turkish Commercial Act of 1956 was superseded by the new Commercial Act of 2012 in which a new provision has been introduced. In this article the new requirements of the Turkish Commercial Act of 2012 shall be outlined with a view to give insights as to when and how an arbitration clause in a charterparty could be effective against a 3rd party holder of bill of lading in Turkey.

Cooperation between the Charterparty and Bill Of Lading
Under the Turkish Commercial Act of 2012, it is envisaged that there is a cooperation between the charterparty and bill of lading to prove the legal relationship between the parties who take part in the carriage of goods by sea. The relevant article to define this relationship is number 1237.

The 1st paragraph of the Article 1237 states that the bill of lading is the main document as an evidence to determine the relationship between the shipowner and the consignee. The 2nd paragraph states that the relationship between the shipowner and the charterer keeps being subject to the charterparty. This means that the relationship between the shipowner and the charterer shall continue to be subject to the charterparty even though a bill of lading is issued and endorsed to a 3rd party.

The Newly Introduced Presentation Condition
Having established the general scheme on the relationship between the parties, the conditions under the 1st and 2nd paragraphs are added by the 3rd paragraph of the Article 1237. According to the said 3rd paragraph the charterparty must be presented to the 3rd party endorsee of the bill of lading during the endorsement of the bill of lading for the effectiveness of the charterparty clauses against them. Therefore, in order to get the 3rd party consignee to be subject to, inter alia, an arbitration clause under the charterparty, a simple incorporation of the terms and conditions of the charterparty shall not be sufficient unless the charterparty is presented to them when taking delivery of the bill of lading. Only then, the 3rd party consignee could be expected and deemed obligated to follow the conditions under the charterparty, including an arbitration clause.

This “presentation” requirement is clearly introduced by the new Turkish Commercial Act of 2012 to protect especially the Turkish importers who purchased goods under the CIF terms and therefore the charterparties have been negotiated and agreed by the foreign shipowners and charterers without the knowledge of the local importer.

With the enactment of the new Turkish Commercial Act of 2012, in case of a dispute between a Turkish 3rd party bill of lading holder and a shipowner that is especially related with a cargo damage, loss or late delivery, the former could start a court proceeding against the shipowner albeit a notification for arbitration has been made or arbitration proceedings has been started by the shipowner based on an arbitration clause under the charterparty which has been incorporated to the bill of lading but no charterparty has been presented to the endorsee of the bill of lading during the endorsement.

Arbitration is one of the most common dispute resolution methods to resolve shipping law disputes and there are arbitration clauses in most of the charterparties. However, these clauses are effective only between the parties of the charterparty. In order to rely upon the terms and conditions under the charterparty against the 3rd party holder of the bill of lading, an incorporation could be established by a reference from the bill of lading to the charterparty which has an arbitration clause, but pursuant to the 3rd paragraph of the Article 1237 of the Turkish Commercial Act of 2012, in order to rely on the charterparty arbitration clause against the 3rd party holder of a bill of lading an incorporation of that kind is deemed insufficient and it is expected that the charterparty to also be presented to such 3rd party. Otherwise the consignee could start Turkish court proceedings against the shipowners. The Turkish Appeal Court also accepts this application of the 3rd paragraph of the Article 1237 with their recent precedents.

Prof. Dr. Fehmi Ülgener

As you are surely monitoring as well, the Pandemic is causing a big difficulty in shipping … crew changes; in an environment loaded with fear, paranoia and hysteria, nobody wants to move, nobody dares to risk almost anything; travel is almost impossible. But on the other hand those sailors presently at sea are at the brink of collapse because their change and repatriation is long overdue. Fatique and other mental problems are on their way, which certainly will cause more and more problems. Under this grim and grizzly atmosphere everybody waits a miracle from the industry. But is there such a miraculous formula ? We doubt it ….

Especially within the area where the owners interests are inevitably colliding with the charterers interests, we think that the industry should not pursue an impossible formula, which will solve all problems in an instant, because there is none or even it exists, it would be too much time consuming, but we do not have time. The mayhem needs to be taken under control and we think it can only be solved by a balanced formula protecting as much as the charterers as the owners, since we need to get the charterers cooperation, so those solutions (charter party clauses) can be put in action as soon as possible.

We think that such a betterment can only be achieved by taking the charterers to the same side, which means the Bimco subcommittee needs to find a compromised – superbalanced solution, we are wishing them luck, because the riddle they are tasked to solve is a very complicated one.