P & I clubs and direct actions — again

In March 2014 the laden Turkish container ship Yusuf Cepnioglu grounded on Mykonos and became a total loss, yielding — apart from the odd oil slick — the usual fun for lawyers. The time charterers (Turkish), faced with numerous suits by irate cargo owners to whom they had issued bills of lading, claimed over against the shipowners (Turkish) in London arbitration proceedings for breach of the charterparty. So far so good. Simultaneously, however, the charterers began proceedings in Turkey against the owners’ P&I club to attach directly $13.5 million of its assets in Turkey under a Turkish direct action statute. The club reacted strongly, saying that its contract with the owners, like zillions of other P&I covers, was governed by English law and stipulated for “pay to be paid” and for all claims to be arbitrated in London. It  sought an anti-suit injunction. The charterers for their part said that they had a direct action against the club governed by Turkish law, and that English courts had no business telling it how to enforce (or not enforce) its Turkish law rights  in Turkish courts. The real point of course was that the charterers wanted to ensure that any claim they had against the club was litigated in Turkey, which would not apply the terms of the P&I cover and would repel any awkward demands for arbitration.

The club won before Teare J and in the CA.

First, the Turkish law was held to give, not a direct claim against the club, but one derivative from the contract between the club and the owners (like the equivalent Spanish and Indian laws: see The Prestige [2015] 2 Lloyd’s Rep 33 and The Hari Bhum [2005] 1 Lloyds Rep 67). It followed that it was governed by English law and any enforcement was subject to the conditions in the club cover.

However, there then came the issue whether this gave the owners a right to an anti-suit injunction. True, their right to arbitration would be stymied if the charterers weren’t stopped in their tracks. On the other hand, the charterers weren’t party to the P & I cover in that they hadn’t promised not to sue in Turkey.  On this point there was a pretty clear conflict of authorities: The Hari Bhum [2005] 1 Lloyds Rep 67 said the charterers were right, while The Jay Bola [1997] 2 Lloyd’s Rep 279 was for the owners. The Court of Appeal had no doubt that The Jay Bola showed the correct way forward and should be followed. Where someone took over rights that were clearly conditional on arbitration, etc, this in itself was enough to justify the English courts preventing them having an end-run around the requirement by suing elsewhere. One suspects, with respect, that this must be correct. One suspects also that, though this case dealt with the English direct action under the Third Parties (Rights against Insurers) Act 1930 and not its 2010 replacement, there will be no change as and when the latter — finally — does come into force.

See Shipowners’ Mutual v Containerships Denizcilik Nakliyat ve Ticaret AS [2016] EWCA Civ 386.

More from our friends at HFW here.

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