Judgments

[1994] 2 .F.C. 662

A-68-93

Nanisivik Mines Ltd. and Zinc Corporation of America (Plaintiffs) (Appellants)

v.

Canarctic Shipping Company Limited (Defendant) (Respondent)

and

F.C.R.S. Shipping Ltd., Finnlines O.Y. A/B, Finnlines Group O.Y. A/B, F.G. Shipping O.Y. A/B, Matti J. Pulli, Kari K.J. Lautimies, Jouni Kalvi and John Doe (Defendants)

Indexed as: Nanisivik Mines Ltd. v. F.C.R.S. Shipping Ltd. (C.A.)

Court of Appeal, Mahoney, MacGuigan and Linden JJ.A.—Toronto, January 12; Ottawa, February 10, 1994.

Maritime law — Practice — Appeal from order referring claims to arbitration and staying action for damages from loss of cargo — Canarctic, Nanisivik only parties to charterparty providing for arbitration in England — Nanisivik issuing bill of lading to Zinc Corp., incorporating all terms and conditions of charterparty — No discretion but to refer Nanisivik’s claim to arbitration — Reference to arbitration mandatory where arbitration agreement under Commercial Arbitration Code, art. 8 — Once reference to arbitration made, no residual discretion to refuse to stay all proceedings between parties — Zinc Corp. not bound by charterparty arbitration clause as its claim arising under bill of lading — Arbitration clause applies only to disputes under charterparty — Deemed knowledge of legal consequences of regular contract verbiage by those in shipping trade — As Zinc Corp.’s claim arising out of conditions of charter, no error in exercise of Federal Court Act, s. 50(1)(b) discretion to stay its claim against Canarctic pending arbitration of Nanisivik’s claim.

This was an appeal against an order referring the plaintiffs’ claims to arbitration and staying their action against Canarctic for damages arising from the loss of a cargo of ore. Canarctic and the plaintiff Nanisivik had entered into a contract of affreightment (the charterparty), which provided that any dispute of law or fact shall be referred to arbitration according to English law. Neither Zinc Corporation nor any other defendant was party to the charterparty. Nanisivik issued a bill of lading incorporating all of the terms and conditions of the charterparty to the plaintiff Zinc Corporation. In seeking the reference to arbitration, Canarctic relied on the arbitration clause in the charterparty. Commercial Arbitration Code, article 8 provides that a court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of performance. The Motions Judge concluded that he had no discretion but to refer the claim of Nanisivik and the reference either effected a stay of the court proceedings or required it. He was uncertain as to whether Zinc Corporation was bound by the arbitration clause, but referred the claim and stayed its action. The issues were: (1) whether the Motions Judge had a discretion as to the reference of the claim to arbitration and, if so, whether he erred in the exercise of that discretion; (2) if he had no discretion to refuse the reference, whether he had a discretion to stay the proceedings against Canarctic and, if so, whether he erred in the exercise thereof; (3) whether he erred in referring the Zinc Corporation claim and, if so, in staying the proceedings in the action by it.

Held, the appeal should be allowed only to the extent that Zinc Corporation’s claim should not have been referred to arbitration.

(1) The Motions Judge had no discretion but to refer Nanisivik’s claim against Canarctic to arbitration. Trial Division decisions construing article 8 as leaving no discretion as to the reference if the conditions contained therein have been met should be approved. The international community has agreed that courts are to enforce compliance with commercial arbitration agreements provided they are in writing, not null and void, inoperative or incapable of performance. That consensus has been given the force of domestic law. In both its ordinary meaning and in light of the object and purpose of the Commercial Arbitration Act, “shall” clearly means “must”, not “may”.

(2) Once a reference to arbitration has been made, there is no residual discretion in the Court to refuse to stay all proceedings between the parties to the arbitration even though there may be particular issues between them not subject of the arbitration. The Trial Division has taken two approaches to a stay of proceedings after a mandatory reference has been made, either granting a discretionary stay unless there were “strong reasons” not to, or holding that the stay followed from the mandatory reference without an exercise of judicial discretion. All of the policy considerations that militate in favour of the mandatory legislative requirement that a dispute subject of an arbitration agreement be referred to arbitration also support staying of the litigation of the same issues until the arbitration award has been made. It is likely that disposition of those issues will resolve the entire litigation, if not among all the parties, then among those party to the arbitration.

(3) Zinc Corporation was not bound by the arbitration clause of the charterparty, and the Motions Judge erred in referring its claim to arbitration. Zinc Corporation was not party to the charterparty. Its claims arose under the bill of lading to which it was a party. The arbitration clause in the charterparty made no reference to disputes under bills of lading issued pursuant to it, and the provision of the bill of lading incorporating generally the terms of the charterparty did not specifically refer to the arbitration clause. The arbitration clause did not bind the parties to the bill of lading because, on a plain construction of its verbiage, it only applied to disputes arising under the charterparty. English case law, approved by the Trial Division, which does not permit the manipulation of the words of the arbitration clause in the charterparty so as to render them effective to apply to the resolution of disputes arising under the bill of lading, should be followed. Persons engaged in shipping are deemed to know the legal consequences of the verbiage they choose to adopt in the contracts that they regularly enter into, and what verbiage is necessary to make the arbitration clause of a charterparty applicable to disputes arising under the bills of lading issued under it. The wording adopted herein incorporated in the bill of lading only those provisions of the charterparty that were directly germane to the shipment, carriage and delivery of the cargo.

The Motions Judge did not err in the exercise of his discretion under Federal Court Act, subsection 50(1) by staying Zinc Corporation’s action against Canarctic pending arbitration of Nanisivik’s claim.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Bills of Lading Act, R.S.C., 1985, c. B-5, s. 2.

Commercial Arbitration Act, R.S.C., 1985 (2nd Supp.), c. 17, ss. 2, 4(1), 5.

Commercial Arbitration Code, being Schedule to Commercial Arbitration Act, R.S.C., 1985 (2nd Supp.), c. 17, arts. 5, 7, 8, 9.

Federal Court Act, R.S.C., 1985, c. F-7, s. 50.

International Commercial Arbitration Act, S.A. 1986, c. I -6.6.

CASES JUDICIALLY CONSIDERED

APPLIED:

Kaverit Steel and Crane Ltd. et al. v. Kone Corp. et al. (1992), 120 A.R. 346; 87 D.L.R. (4th) 129; 85 Alta.L.R. (2d) 287; 4 C.P.C. (3d) 99; 40 C.P.R. (2d) 161 (C.A.); leave to appeal to S.C.C. refused, [1992] 2 S.C.R. vii; Rena K, The, [1979] 1 All E.R. 397 (Q.B.); Seapearl (The Ship M/V) v. Seven Seas Dry Cargo Shipping Corporation of Santiago, Chile, [1983] 2 F.C. 161; (1982), 139 D.L.R. (3d) 669; 43 N.R. 517 (C.A.); Thomas (T. W.) & Co., Ld. v. Portsea Steamship Company, Ld., [1912] A.C. 1 (H.L.).

CONSIDERED:

Navionics Inc. v. Flota Maritima Mexicana S.A. et al. (1989), 26 F.T.R. 148 (F.C.T.D.); BC Navigation S.A. (Bankrupt) v. Canpotex Shipping Services Ltd. (1987), 16 F.T.R. 79 (F.C.T.D.).

REFERRED TO:

Agro Company of Canada Ltd. v. The Regal Scout, [1984] 2 F.C. 851 (T.D.).

APPEAL from an order referring the plaintiffs’ claims to arbitration and staying proceedings in their action against Canarctic ((1993), 59 F.T.R. 272 (F.C.T.D.)). Appeal allowed only to the extent that Zinc Corporation’s claim should not have been referred to arbitration.

COUNSEL:

George R. Strathy for (plaintiffs) appellants.

Martin W. Mason for (defendant) respondent Canarctic Shipping Company Limited.

No one appearing for defendants F.C.R.S. Shipping Ltd., Finnlines O.Y. A/B, Finnlines Group O.Y. A/B, F.G. Shipping O.Y. A/B, Matti J. Pulli, Kari K.J. Lautimies, Jouni Kalvi and John Doe.

SOLICITORS:

Fasken, Campbell, Godfrey, Toronto, for (plaintiffs) appellants.

Gowling, Strathy & Henderson, Ottawa, for (defendant) respondent Canarctic Shipping Company Limited.

McMaster Meighen, Montréal, for defendants F.C.R.S. Shipping Ltd., Finnlines O.Y. A/B, Finnlines Group O.Y. A/B, F.G. Shipping O.Y. A/B, Matti J. Pulli, Kari K.J. Lautimies, Jouni Kalvi and John Doe.

The following are the reasons for judgment rendered in English by

Mahoney J.A.:

The Facts

This appeal is against an order of the Trial Division [Nanisivik Mines Ltd. et al. v. F.C.R.S. Shipping Ltd. et al. (1993), 59 F.T.R. 272] referring the claims of the plaintiffs against the defendant, Canarctic Shipping Company Limited, hereinafter “Canarctic”, to arbitration and staying proceedings in their action against Canarctic. The remaining defendants did not appear. The action arises out of the total loss of a cargo of ore when the vessel Finnpolaris, sailing from Nanisivik, N.W.T., Canada, to Darrow, Louisiana, U.S.A., sank on the high seas.

Canarctic was time charterer of the vessel. It entered into a contract of affreightment, hereinafter “charterparty”, with the plaintiff, Nanisivik Mines Ltd., hereinafter “Nanisivik”, which provided:

24. All Bills of Lading issued under this Contract of Affreightment shall be in the form attached hereto.

…

32. Any dispute of law or fact arising under this Charter Party shall be referred to the arbitration of three persons, one to be appointed by the Owners, one to be appointed by the Charterers, and the third by the two so chosen. They shall meet in the city of London and shall proceed in a manner determined by themselves according to English Law, and their award or that of any two of them shall be final, and a decree or judgement on the award may be entered in the Court having jurisdiction thereof. Any claim must be made in writing and the Claimants’ Arbitrator appointed within one year of the events giving rise to the claim, and where this provision is not complied with the claim shall be deemed to be waived and absolutely barred.

Nanisivik, as consignor, issued a bill of lading in the prescribed form to the plaintiff, Zinc Corporation of America, hereinafter “Zinc Corp.”, as consignee. The bill of lading provided:

All the terms, conditions, liberties, and exceptions of the Charter-Party are herewith incorporated.

Canarctic and Nanisivik are both Canadian based corporations and Zinc Corp. is American based. The remaining defendants, all Finnish aside from John Doe, were respectively owner, demise charterer, manager, captain, chief engineer and first mate of the vessel.[1]

The statement of claim alleges negligence and breach of duty against all defendants. The shipowner has filed a statement of defence and posted security in the action. In seeking the reference to arbitration, Canarctic relied on the arbitration clause in the charterparty between it and Nanisivik. Neither Zinc Corp. nor any other defendant is party to the charterparty.[2]

The Legislation

In seeking the reference and stay, Canarctic relied on article 8 of the Commercial Arbitration Code [being Schedule to Commercial Arbitration Act, R.S.C., 1985 (2nd Supp.), c. 17], hereinafter “the Code”, and on subsection 50(1) of the Federal Court Act.[3] The latter provides:

50. (1) The Court may, in its discretion, stay proceedings in any cause or matter,

(a) on the ground that the claim is being proceeded with in another court or jurisdiction; or

(b) where for any other reason it is in the interest of justice that the proceedings be stayed.

The Code has been incorporated into Canadian domestic law by competent federal and provincial legislation. This being a maritime or admiralty matter, the federal legislation, the Commercial Arbitration Act,[4] hereinafter “the Act”, applies. Its immediately relevant provisions follow.

2. In this Act,

“Code”  means the Commercial Arbitration Code, based on the model law adopted by the United Nations Commission on International Trade Law on June 21, 1985, as set out in the schedule;

…

4. (1) This Act shall be interpreted in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose.

…

5. (1) Subject to this section, the Code has the force of law in Canada.

…

(3) The Code applies to arbitral awards and arbitration agreements whether made before or after the coming into force of this Act.

The Code includes the following:

Article 5

In matters governed by this Code, no court shall intervene except where so provided in this Code.

…

Article 7

(1) “Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(2) The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.

Article 8

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

Article 9

It is not incompatible with an arbitration agreement for a party to request, before or during the arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.

The Issues

As they developed during the course of very able argument and perhaps as suggested by interventions by the bench, the issues crystallized to the following:

1. Did the learned Motions Judge have a discretion as to the reference of the claim against Canarctic to arbitration and, if so, did he err in the exercise of that discretion?

2. If he had no discretion to refuse the reference, did he nevertheless have a discretion as to staying the proceedings against Canarctic and, if he had a discretion, did he err in its exercise?

3. In any event, did he err in referring the Zinc Corp. claim and, if so, in staying the proceedings in the action by it?

As to the first and second, the learned Motions Judge appears to have concluded that he had no discretion but to refer the claim of Nanisivik and a discretion which he exercised to stay its action. As to the third, he referred to claim of Zinc Corp. and stayed its action notwithstanding his expressed and unresolved uncertainty as to whether it was bound by the arbitration clause.

Discretion as to Reference to Arbitration

This issue has not yet been dealt with by the Court of Appeal. The Trial Division decisions to which we were referred appear unanimous in construing article 8 as leaving no discretion as to the reference if the conditions contained therein are met. It is not suggested that the request to refer was not made in time or that the agreement to arbitrate is null and void, inoperative or incapable of performance. In my opinion, those decisions, to some of which I will refer in some detail in dealing with the second issue, were correctly decided on that point.

Under parallel legislation,[5] in Kaverit Steel and Crane Ltd. et al. v. Kone Corp. et al.,[6] the Alberta Court of Appeal, per Kerans J.A., dealt with a situation similar to that before the Trial Judge here. At pages 163 ff., it was said:

The learned chambers judge decided that the submission, by which I mean the clause in the contract providing for arbitration, did govern some of the issues raised in the statement of claim, but not all…. With some exceptions, with which I will later deal in detail, I agree with his analysis of what may and may not be within the scope of the clause. He then decided that, because of these other issues, nothing should go to arbitration. Faced with the prospect of inconveniently overlapping litigation and thus conflicting decisions, he decided that the prospect of this evil warranted a refusal to refer anything.

With respect, I am of the view that the applicable provisions of the International Commercial Arbitration Act under review do not permit that approach. For the reasons I shall give, I am of the view that the statute commands that what may go to arbitration shall go. No convenience test limits references.

The international community has arrived at a consensus that compliance with commercial arbitration agreements is to be enforced by the courts provided they are in writing, not null and void nor inoperative nor incapable of performance. Canada and its provinces have given that consensus the force of domestic law. If there had otherwise been any arguable question as to the mandatory character of a court’s duty when article 8 is duly invoked, subsection 4(1) of the Act removes it. In both its ordinary meaning and in light of the object and purpose of the Act, “shall” clearly means “must” not “may”. In my opinion, the Motions Judge had no discretion in the circumstances but to refer the claim of Nanisivik against Canarctic to arbitration; nor had he any discretion as to the reference of Zinc Corp.’s claim provided it was bound by the arbitration agreement.

Discretion as to Stay of Proceedings in Court

In Seapearl (The Ship M/V) v. Seven Seas Dry Cargo Shipping Corporation of Santiago, Chile,[7] a decision antedating the coming into force of the Act, Pratte J.A., for the majority of this Court, held:

Prima facie, an application to stay proceedings commenced in the Federal Court in defiance of an undertaking to submit a dispute to arbitration or to a foreign court must succeed because, as a rule, contractual undertakings must be honoured. In order to depart from that prima facie rule, “strong reasons” are needed, that is to say reasons that are sufficient to support the conclusion that it would not be reasonable or just, in the circumstances, to keep the plaintiff to his promise and enforce the contract he made with the defendant. This is the principle which is now applied in England and in the United States; that is also, in my opinion, the principle that should be applied in this Court.

Under the Act, there have been two approaches in the Trial Division to a stay of proceedings after a mandatory reference has been made. In one, that taken here, the stay has been treated as a matter of discretion to be exercised according to Seapearl. In the other, the stay follows from the mandatory reference without an exercise of discretion.

The Motions Judge here concluded:[8]

… that even an agreement to arbitrate in a Bill of Lading cannot remove all discretion from the Court to continue proceedings before it, and to decide whether or not a stay of such proceedings will be granted.

That conclusion conforms to the earlier decision in Navionics Inc. v. Flota Maritima Mexicana S.A. et al.,[9] where, in reference to article 8, it was said:

Furthermore, I should also apply a strict construction approach on the grounds that its imperative provision is an exceptional departure from the court’s inherent jurisdiction and from its traditional discretion in dealing with any application to stay proceedings.

…

I should find first of all that article 8 of the Code, which makes the stay [sic] mandatory, in no way affects or impinges upon the permissive jurisdiction of the court under s. 50.

It appears obvious that, in the last quoted sentence, the Motions Judge meant to say that article 8 makes the reference, not the stay, mandatory. If he really meant that it made the stay mandatory, he could not have found a residual “permissive” jurisdiction under section 50 of the Federal Court Act.

The other approach is exemplified in BC Navigation S.A. (Bankrupt) v. Canpotex Shipping Services Ltd.[10] The Motions Judge there stated:

In the present case, involving an admiralty matter, there exists an arbitration agreement and the defendant, on the first given occasion, requests a transfer before the arbitration tribunal. Parliament imposes an imperative duty upon the court to refer the parties to arbitration unless the agreement is found to be “null and void, inoperative or incapable of being performed”. No evidence of this sort has been shown in the present case…. This arbitration tribunal is therefore the forum where this issue will have to be debated, and the court must refer the parties to arbitration.

This finding disposes of this application, but even if I had decided otherwise, I would still, in the exercise of my discretion, have granted a stay of all proceedings according to s. 50 of the Federal Court Act ….

That Motions Judge appears to have considered that, absent the stipulated exceptions, the requirement to refer was mandatory and the reference either effected a stay of the court proceedings or required it. In other words, due application of article 8 left him no discretion but to stay.

Here, evoking Seapearl, the strong reasons urged for the exercise of discretion to refuse the stay were:

1. that the reference to arbitration against one defendant will result in a multiplicity of proceedings, possibly inconsistent results and attendant expense and inconvenience;

2. since Canarctic chose to perform its obligations under the charterparty by providing a ship it did not own thereby requiring the plaintiffs to sue other defendants, it ought not be allowed to invoke the arbitration clause so as to place procedural roadblocks in their way;

3. that the shipowner, having attorned to the Court’s jurisdiction, most of the evidence relevant to the claim against Canarctic will be produced in the court proceeding;

4. that defendants not privy to the charterparty are not subject to the arbitration clause;

5. that the plaintiffs have valid reasons to claim against both the shipowner and charterer; and

6. that there is no connection between the facts of the case and England.

None of those strike me as strong reasons not to stay proceedings in the action until arbitration has disposed of such issues as the parties to the arbitration have agreed the arbitrator is to resolve.

In dealing with mandatory character of a court’s duty to refer, Kerans J.A., in Kaverit, at page 354, said:

As Justice Potter Stewart said in Scherk v. Alberta-Culver (1974), 417 U.S. 506 (1974), at p. 516:

… uncertainty will almost inevitably exist with respect to any contract touching two or more countries, each with its own substantive laws and conflict-of-laws rules. A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction.

That purpose would not be served by adopting an interpretation that puts the entire scheme at risk. The forum conveniens test almost always would defeat arbitration because, as Justice Stewart said in Scherk, it would invite “unseemly and mutually destructive jockeying”. Indeed, one argument of the learned chambers judge relied upon the fact that, after arbitration, the parties might regurgitate some issues during enforcement proceedings in Alberta. This fear exists in every case, of course. If we yield to it, no dispute would go to arbitration….

In modern commercial disputes, it is almost inevitable that many parties will be involved and very unlikely that all parties will have an identical submission. The problem of multiple parties, which drove the decision of the chambers judge here, will exist in almost every case. There is no question that proliferation of litigation is a possibility … the Convention cannot reasonably be taken as having abandoned any attempt at arbitration when this problem arises.

The Court concluded [at page 355] by allowing the appeal and directing “that all issues between the distributor and the licensor that rest upon the existence of the contract be stayed and referred for decision as directed in the submission.”

As stated, the choice is between the stay of proceedings as between the parties to the arbitration ensuing upon the reference without an exercise of judicial discretion, or granting a discretionary stay unless there are “strong reasons” not to. All of the policy considerations that militate in favour of the mandatory legislative requirement that a dispute subject of an arbitration agreement be referred to that arbitration seem to me also to militate conclusively in favour of the staying of the litigation of the same issues until the arbitration award has been made. It seems far more likely that otherwise that disposition of those issues will resolve the entire litigation, if not among all the parties at least among those party to the arbitration.

I conclude that, once a reference to arbitration has been made, there is no residual discretion in the court to refuse to stay all proceedings between the parties to the arbitration even though there may be particular issues between them not subject of the arbitration.

The Zinc Corp. Claim

Zinc Corp. is not party to the charterparty. Its claims arise under the bill of lading to which it is party. At first blush, it would appear that the provision in the bill of lading incorporating all the terms, conditions, liberties and exceptions of the charterparty was intended to incorporate the arbitration clause and to bind Zinc Corp. to arbitration of its claim against Canarctic. That it arguably did not effectively do so is nourished by venerable English authority grounded in the literal construction of the language with which the parties to a contract have chosen to express themselves. The rationale is that an agreement to arbitrate disputes arising under a charterparty is not, on any reasonable construction, an agreement to arbitrate disputes arising under a bill of lading even when it is incorporated in the bill of lading.

In Thomas (T. W.) & Co., Ld. v. Portsea Steamship Company, Ld.,[11] the rationale for the rule was stated relatively succinctly in the speech of Lord Robson:

[The arbitration clause] expressly relates only to disputes “arising out of the conditions of this charter party” and would stand in the bill of lading with that limitation. In one sense it is perhaps difficult to imagine any dispute relating to the chartered voyage which might not be said to arise out of the conditions of the charter, but we are here dealing with obligations founded primarily on the bill of lading, which is a different contract and is made between different parties, though it relates in part to the same subject-matter as the charter. The limitation of the clause to the conditions of “this charter party” is therefore, to say the least, embarrassing and ambiguous when it comes to be written into the bill of lading. It requires, indeed, some modification to make it read even intelligibly in its new connection.

It is to be remembered that the bill of lading is a negotiable instrument, and if the obligations of those who are parties to such a contract are to be enlarged beyond the matters which ordinarily concern them, or if it is sought to deprive either party of his ordinary legal remedies, the contract cannot be too explicit and precise. It is difficult to hold that words which require modification to read as part of the bill of lading and then purport to deal only with disputes arising under a document made between different persons are quite sufficiently explicit for the appellants’ purpose.

A bill of lading remains a negotiable instrument.[12]

The distance which English law has gone to accommodate such incorporating clauses was discussed by Brandon J. in Rena K, The.[13] The relevant words of the bills of lading there were:

All terms, clauses, conditions and exceptions including the Arbitration Clause, the Negligence Clause and the Cesser Clause of the Charter Party dated London 13 April 1977 are hereby incorporated.

The discussion of the issue follows:

A long series of authorities has established that, where a charterparty contains an arbitration clause providing for arbitration of disputes arising under it, general words in a bill of lading incorporating into it all the terms and conditions, or all the terms, conditions and clauses, of such charterparty, are not sufficient to bring such arbitration clause into the bill of lading so as to make its provisions applicable to disputes arising under that document: see Hamilton v. Mackie & Sons Ltd, (1889) 5 TLR 677; T.W. Thomas& Co. Ltd. v. Portsea Steamship Co. Ltd., [1912] AC 1; The Njegos, [1935] All E.R. 863; The Phonizien, [1966] 1 Lloyd’s Rep. 150 and The Annefield, [1971] 1 All E.R. 394.

By contrast it has been held that, where an arbitration clause in a charterparty provides for arbitration of disputes arising not only under the charterparty itself but also under any bill of lading issued pursuant to it general words of incorporation in such a bill of lading of the kind referred to above are sufficient to bring in the arbitration clause so as to make it applicable to disputes arising under that bill of lading: see The Merak, [1965] 1 All E.R. 230.

Referring to this distinction Lord Denning MR said in The Annefield ([1971] All E.R. 394 at page 406):

I would say that a clause which is directly germane to the subject-matter of the bill of lading (ie to the shipment, carriage and delivery of goods) can and should be incorporated into the bill of lading contract, even though it may involve a degree of manipulation of the words in order to fit exactly the bill of lading. But, if the clause is one which is not thus directly germane, it should not be incorporated into the bill of lading contract unless it is done explicitly in clear words either in the bill of lading or in the charterparty.

Counsel for the cargo owners argued, on the basis of these authorities, that an arbitration clause in a charterparty, being a clause which is not directly germane to the shipment, carriage and delivery of the goods, could never be brought into a bill of lading and made applicable to disputes arising under that document if it was necessary to manipulate the wording of the clause in order to achieve that end. He contended that it made no difference, for this purpose, whether the words of incorporation contained in the bill of lading were general words without any specific reference to the arbitration clause in the charterparty, as in all the authorities relied on, or general words to which a specific reference to such clause was added, as in the present case.

…

The present case is, in my view, clearly distinguishable, in that there were added to the usual general words of incorporation in the two bills of lading the further specific words including the arbitration clause . The addition of these words must, as it seems to me, mean that the parties to the bills of lading intended the provisions of the arbitration clause in the charterparty to apply in principle to disputes arising under the bills of lading; and, if it is necessary, as it obviously is, to manipulate or adapt part of the wording of that clause in order to give effect to that intention, then I am clearly of the opinion that this should be done.

In summary, three different situations were considered in Rena K, The: (1) an arbitration clause in a charterparty that makes no reference to disputes under bills of lading issued pursuant to it together with a provision of the bill of lading incorporating generally the terms of the charterparty without specific reference to the arbitration clause, (2) an arbitration clause in a charterparty which expressly provides that it applies to disputes under bills of lading issued pursuant to it together with a provision of the bill of lading incorporating generally the terms of the charterparty without specific reference to the arbitration clause and (3) a provision of the bill of lading incorporating terms of the charterparty including, by specific reference, its arbitration clause.

In the first situation, the arbitration clause does not bind the parties to the bill of lading because, incorporated in it, the arbitration clause does not, on a plain construction of its verbiage, apply to disputes under the bill of lading; the clause refers only to disputes arising under the charterparty. In the other two, it does bind the parties to the bill of lading: in the second because when incorporated, on a plain construction, it says it binds them and, in the third, because the intention to apply it to disputes under the bill of lading as well as incorporate it is sufficiently clear that the words of the clause will be manipulated to give effect to that intention.

In this case we have the first situation and, it is clear, modern English jurisprudence would not permit the manipulation of the words of the arbitration clause in the charterparty so as to render them effective to apply to the resolution of disputes arising under the bill of lading. The English jurisprudence has been approved by our Trial Division[14] but, so far as I am aware, has not been subject of comment by the Court of Appeal. In my opinion, it should be followed.

This is obviously not a novel problem for carriers, shippers and consignees. Persons engaged in the shipping trade must be deemed to know what the legal consequences of verbiage they choose to adopt in the contracts they regularly enter into will be and what verbiage is necessary effectively to make the arbitration clause of a charterparty applicable to disputes arising under the bills of lading issued under it. The wording adopted here was effective to incorporate in the bill of lading only those provisions of the charterparty that were directly germane to the shipment, carriage and delivery of the cargo. Zinc Corp. was not bound by the arbitration clause of the charterparty and, it follows, the Motions Judge erred in referring its claim to arbitration.

That is not, however, an end to the matter. The Motions Judge recognized the possibility that Zinc Corp. was not bound by the arbitration agreement and, while he did not resolve that doubt and, in my opinion, erred by referring its claim to arbitration, he did stay its action in the Court in an exercise of discretion under subsection 50(1) of the Federal Court Act.

In Kaverit, at page 349, Kerans J.A. observed:

I agree with the learned Queen’s Bench judge that he cannot refer any of the claims of any of the “extra” parties to arbitration. I add only that he might nevertheless stay claims pending arbitration when it would appear just and equitable to do so.

Paragraph 50(1)(b) of the Federal Court Act encompasses that possibility.

Zinc Corp.’s cause of action based on the bill of lading appears clearly also, in the words of Lord Robson, “to arise out of the conditions of the charter”. In my opinion, the Motions Judge cannot be said to have erred in the exercise of his discretion by staying Zinc Corp.’s action against Canarctic pending arbitration of Nanisivik’s claim.

Conclusion

The order subject of this appeal reads:

Arbitration is ordered in respect of the claim against Canarctic in London, England as set out in the Contract of Affreightment, and a stay is ordered of the proceedings in this case against Canarctic only, until such arbitration has taken place and been disposed of or the parties have otherwise agreed. Without costs, none having been asked for, on the Motion.

I would allow the appeal to the extent of amending the first line to read “Arbitration is ordered in respect of the claim of Nanisivik against Canarctic in London” and would otherwise dismiss the appeal. Canarctic having been largely successful, I would award it 75% of its taxed costs.

MacGuigan J.A.: I agree.

Linden J.A.: I agree.

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