BINDING EFFECT OF THE ARBITRATION CLAUSE ON THE RECEIVER AND CARGO INSURER WHO ARE NOT PARTY TO THE CHARTER PARTY UNDER TURKISH LAW
Attorney At Law
The question of binding effect of the arbitration and/or jurisdiction clause on the receiver and receiver’s insurer becomes an important and surprising legal issue in the international carriage of goods by sea in case the jurisdiction of Turkish courts has been agreed by the parties to the charter party wherein the receiver is not a party but only being the authorized legal holder of the bill of lading issued as per the charterparty. This has been subject to numerous judgments of first instance courts and Supreme Court decisions in Turkey. The General Board of Civil Panels of the Supreme Court of Appeals of Turkey has ruled with the judgment dated 01.02.1995, No. E. 1994/11-765, K. 1995/39, that;
a- Bill of lading is substance of the relation between the carrier and consignee
b- Arbitration clause inserted in the charterparty is binding the consignee and his/her insurer who are not party to the charterparty as a necessity of the reference made to the charterparty on the bill of lading.
The claim subject to the judgment has been filed by the insurance company who has indemnified the receiver’s damage sustained to the bulk grain cargo during the carriage by sea from Italy to Izmir and Iskenderun ports in Turkey. The shipper has signed a charterparty with the ship owner inserting an arbitration clause agreeing on that any dispute arising out of the charterparty should be settled by arbitration in London. The master of the vessel has signed the bill of lading dated 20.10.1989 wherein the bill of lading should be valid with the charterparty dated 16.10.1989 and the receiver Soil Products Office has acquired the bill of lading by way of endorsement and received the cargo. The receiver has noticed shortage and damage in cargo, which has been compensated by the cargo insurer who claimed the paid damage from the shipowner in a recourse lawsuit. Shipowner defended that Istanbul Courts had no jurisdiction for this lawsuit and the dispute should be settled by arbitration in London according to the arbitration clause in the charterparty. Plaintiff’s lawyer stated that arbitration clause inserted in the charterparty should not be binding either the holder of bill of lading or his successors as they have never been party to the charterparty wherein the arbitration clause was agreed by the shipper and carrier and should have binding effect only on the parties of the contract. Istanbul Commercial Court rendered a judgment to grant the plaintiff insurance company with the claimed amount of the indemnity paid to the receiver and refused the arbitration objection of the defendant shipowner. 11th Civil Law Panel of the Supreme Court of Turkey reversed the judgment of Istanbul Commercial Court stating that the Court should have dismissed the lawsuit as the arbitration clause between the insurer and the defendant sea carrier binds also the insurer by virtue of the legal subrogation principle governed by the Article 1301 of Turkish Commercial Code and the subject dispute between the parties should be resolved by arbitration.
Istanbul Commercial Court resisted on the previous judgment and therefore the General Board of Civil Panels of the Supreme Court of Appelate reviewed the file and decided to reverse the judgment of Istanbul Court by ratifying the decision of the 11th Civil Law Panel. The General Board of Civil Panels stated the ratio decidendi as follows; “It is written on the bill of lading that the bill of lading should be valid together with the charterparty dated 16.10.1989 and Soil Products Office who was indicated as notify address on the bill of lading, has acquired the bill of lading by way of endorsement and received the cargo. Article 1110/para.1 stipulates that the bill of lading is to be substance of the legal relations between the carrier and the consignee. The consignee becomes bound with the conditions of the bill of lading once he gets the bill of lading with endorsement and uses it to receive the cargo by presentation. (Consignee) can not claim any longer that the arbitration clause agreed by the carrier and the shipper and he is only a third person holder of the bill of lading and for this reason he would not be bound with the referred arbitration clause on the charter party. (Consignee) will be bound with all the enterings binding the shipper. Therefore the arbitration clause between the insured and the carrier also binds the insurer according to the provision of Art. 1361 of Turkish Commercial Code and as a necessity of the legal subrogation principle.” In conclusion, the arbitration and/or jurisdiction clause entered into charter party by the shipper and the ship owner could be invoked against the holder of the bill of lading who is not a party to the charter party as well as against the cargo insurer provided that the bill of lading refers to the charterparty wherein the relevant arbitration and/or jurisdiction clause is entered and agreed by the parties.