Court of Appeal upholds anti-suit injunction granted against "victim" attempting to take advantage of foreign direct action laws

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

In Shipowners Mutual Protection And Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat Ve Ticaret A.S. [2016] EWCA Civ 386, the Court of Appeal dismissed an appeal by Containerships (the "Charterers") against an anti-suit injunction restraining proceedings in Turkey against the claimant P&I Club. The court confirmed that in circumstances where a third party seeks to enforce rights granted under an agreement containing an arbitration or jurisdiction clause, such enforcement should be in accordance with those contractual requirements. The court will seek to restrain proceedings brought in breach of such clauses, save in circumstances where there is good reason for the clause to be avoided.

Background

The claim arose as a result of an ocean liner being grounded in 2014. Both the owner of the liner and the Charterers were Turkish companies. The Charterers commenced arbitration proceedings against the owners in accordance with the charter agreement.

The owners of the liner were insured by the claimant. The insurance policy contained an English law clause and provided for arbitration in London. The policy provided cover for third party claims brought against the owner. That cover was on the basis that the insurer would only be liable if the owner first paid out on the claims brought against it.

The Charterers, whilst not a party to the insurance policy, initiated a claim in Turkey (pursuant to a Turkish statute which permitted "victims" a direct right of action against the insurer) directly against the insurers for their loss of cargo. This avoided the "pay to be paid" clause in the policy that required the Charterers to claim against the owner.

At first instance the Commercial Court granted an injunction to restrain the proceedings in Turkey. The Charterers appealed that decision. Olswang’s Injunctions Blog has previously reported on the Commercial Court decision: see here for further information on the background to the claim and the decision at first instance.

Decision

The Court of Appeal upheld the Commercial Court's decision that the Charterers' claim was in respect of a contractual right (arising as a result of the insurance policy and therefore governed by the English law and arbitration clauses) rather than an independent right governed by Turkish law. The Charterers were entitled to enforce the contract between the owner and the insurer for their own benefit, but this was subject to the provisions of that contract, including the choice of law and arbitration clauses. The fact that the Charterers were not party to the arbitration agreement in the contract was irrelevant.

The court considered that if the Charterers had been a party to the insurance contract they would have been restrained by way of injunction from bringing proceedings in Turkey in breach of the London arbitration clause unless there was good reason not to do so (per The Angelic Grace [1995] 1 Lloyd's Rep 87). The key question was whether the position was different in circumstances where the Charterers were not party to the contract. The Charterers argued that the test in The Angelic Grace was not appropriate and that the court should instead apply the normal test for the grant of an anti-suit injunction, namely that no such injunction should be granted unless the proceedings were vexatious and oppressive.

The court considered conflicting positions taken in The Jay Bola [1997] 2 Lloyd's Rep 279 and The Hari Bhum (No. 1) [2005] 1 Lloyd's Rep 67. In The Jay Bola, the court had found that time charterers were in effect assignees or transferees of the rights of voyage charterers under an insurance contract and those rights could only be enforced consistent with the terms of the original contract. This meant the third party time charterers were bound by the arbitration agreement in the contract. The court also found that the only way that such rights could be protected was by way of injunction. In contrast, in The Hari Bhum (No. 1), the court declined to grant an anti-suit injunction to prevent direct action proceedings in Finland in breach of an arbitration agreement in the contract, on the basis that the Finnish proceedings were not oppressive or vexatious and it would not be just and convenient to grant the injunction.

In the current proceedings, the Court of Appeal preferred the approach in The Jay Bola on the basis that it was only by way of injunction that the contractual right to arbitrate could be upheld. It held that the correct approach was to apply the principles from The Angelic Grace and consider whether there were good reasons why an injunction should not be granted. There was no need to demonstrate that the foreign proceedings were vexatious and oppressive. In the circumstances, the court found that the injunction should be maintained and the appeal dismissed.

Comment

It is now clear that in circumstances where a third party seeks to enforce rights which are subject to a jurisdiction or arbitration clause, the court will restrain any proceedings brought in breach of that clause. The decision whether to grant an injunction will be made by applying The Angelic Grace principles; it is unnecessary for a party to show that the foreign proceedings are vexatious and oppressive.

The key issue for the court to consider is whether the cause of action arises from contract or is a free standing independent claim, and it may not be relevant that the third party not party to the agreement containing the jurisdiction or arbitration provisions.