William Dickinson & Co Ltd (Dickinson) chartered the MV Merak which was owned by the defendants. Dickinson sub-chartered the vessel to TB & S Batchelor & Co Ltd (the plaintiffs) for a voyage from Walkom, Finland, to Newport, UK. The former charterparty was dated 15 September 1961 (the September charter); the latter charterparty was dated 21 April 1961 (the April charter). Clause 10 of the April charter provided that:

the bills of lading shall be prepared in the form indorsed upon this charter … freight and all terms, conditions, clauses (including clause 32) and exceptions as per this charter.

Clause 32 of the April charter, the arbitration clause, was in the following terms:

Any dispute arising out of this charter or any bill of lading issued hereunder shall be referred to arbitration. … All claims must be made in writing and the claimant's arbitrator must be appointed within 12 months of the date of final discharge otherwise the claim shall be deemed waived and absolutely barred.

The September charter made express reference to the April charter, and, mutatis mutandis, was in the same terms, save that the September charter contained an additional typescript clause, cl 33, which provided:

Bills of lading for this cargo to be signed with reference to [the April charter], which is guaranteed to be the same as this charterparty except as regards rate of freight, sub-charterers undertaking to pay freight in accordance with clause 1 of this charter.

Timber belonging to the plaintiffs was shipped aboard the vessel by the shippers, Rauma-Repola Oy. Bills of lading were duly issued in Walkom. The bills referred to the April charter and contained an incorporation clause as follows:

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 30 concerned the shipowner's right to substitute another vessel for the voyage, not arbitration. The incorporation clause was followed by a general paramount clause giving paramount effect to the Hague Rules.

During the voyage the vessel developed a list. Some cargo was discharged midway in the UK and taken overland to Newport. The remaining cargo was discharged at Newport by 21 November 1961. Some cargo was damaged during the voyage.

The plaintiffs, as indorsees of the bills of lading, sued the defendants for, among other things, breach of contract. The writ was issued on 15 November 1962. The plaintiffs did not appoint an arbitrator. The defendants applied for a stay of proceedings in favour of arbitration.

The issues were: (1) whether the arbitration clause in the April charter was incorporated into the contract evidenced by the bills of lading; and (2) whether the action should be stayed because the arbitration clause was incorporated.

The plaintiffs argued that the arbitration clause was inapplicable because: (1) it was not incorporated; (2) even if it was incorporated, the dispute did not fall within the scope of the arbitration clause; and (3) the general paramount clause superseded the arbitration clause because the arbitration clause, with its own time bar, conflicted with the Hague Rules. The paramount clause provided that any term of the bill of lading which is repugnant to any extent to the Hague Rules shall to that extent be void. Article 3.6 of the Hague Rules provides:

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

The plaintiffs argued that arbitration is not a 'suit' under art 3.6 of the Hague Rules. The arbitration clause is, therefore, inconsistent with the paramount clause.

Held: The proceedings are stayed.

The Court found that: (1) the arbitration clause was incorporated; (2) the dispute falls within the scope of the arbitration clause; and (3) there was no inconsistency between the paramount and arbitration clauses.

Even if 'suit' does not include 'arbitration', the only difference between the bill of lading contract with this arbitration clause and without it is procedural. Apart from the difference between legal action and arbitration, in all other respects the position is the same, the limitation period being identical in each case: see Maharani Woollen Mills Co v Anchor Line (1927) 29 Ll LR 169 (CA). An arbitration clause making the appointment of an arbitrator within 12 months of delivery a condition precedent to claiming would be effective, and not repugnant to the Hague Rules.

Even if the difference between legal action and arbitration is not merely procedural, the word 'suit', as used in Hague Rules art 3.6, is apt to include arbitration. If the Hague Rules had to be construed to prevent merchants from agreeing to arbitration in disputes to which the Hague Rules apply, that would be a surprising result.

Separately, the Court refused to extend the time for arbitration under UK arbitration legislation enabling the court to extend time to avoid causing undue hardship. The Court found that there would be no undue hardship if time was not extended because: (1) the claim was for around GBP 400; (2) the plaintiffs and their underwriters were experienced in the trade and familiar with the Hague Rules; and (3) the plaintiffs had accepted arbitration and the art 3.6 time bar in their contract. Furthermore, the Court, without deciding the point, doubted its entitlement to extend time when the Hague Rules applied to the contract.

[For the unsuccessful appeal to the Court of Appeal, see Owners of Cargo on Board the Merak v The Merak (Owners) [1965] P 223 (CA) (CMI2133).]