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.

Anti-suit injunctions (or rather anti-enforcement injunctions) again

An international high-net-worth employment case decided last week, Ecobank Transnational Inc v Tanoh [2015] EWCA Civ 1309 (accessible on the excellent BAILII website), has a good deal of meat for international transaction lawyers too. The CEO of a Togolese bank had a contract of employment governed by English law and with a provision for arbitration of differences in London under the UNCITRAL Rules. In early 2014, following a textbook exercise in corporate character assassination, he was fired. He immediately sued in Togo for wrongful dismissal, and shortly afterwards in the Ivory Coast for defamation, recovering a cool $11 million-odd in the former, and in the latter about $15 million. Both courts held that under their respective laws the arbitration provision could not deprive them of jurisdiction. The employer claimed arbitration, and in April 2015 sought an anti-enforcement injunction in respect of the Togolese and Ivorian proceedings (i.e. an anti-suit injunction for the time after judgment has been obtained). The CA held an anti-enforcement injunction available on principle, but upheld its refusal on the grounds of delay.

Essentially this judgment makes clear a number of points of very general application. First, s.32 of the Civil Jurisdiction and Judgments Act 1982, dealing with the question of the recognition in England of foreign proceedings brought in breach of jurisdiction or arbitration agreements, is likely to precluded recognition of the relevant proceedings. Despite the exception to non-recognition where the jurisdiction / arbitration agreement is “illegal, void or unenforceable or was incapable of being performed”, it is irrelevant that an arbitration agreement is ineffective under the law of the place where the proceedings are brought or the law of the place where the contract was made. What matters is its enforceability under English law. Secondly, if people agree under a contract governed by English law to arbitrate disputes, the English courts will have little compunction where appropriate in granting anti-suit or anti-enforcement relief. Such relief is not as such a breach of the rules of comity: as Christopher Clarke LJ pertinently pointed out, the preservation of overseas judicial amour propre is not a particularly important aim these days. Thirdly, however, delay in seeking relief continues highly relevant, both on general equitable grounds and also because it is undesirable to render fruitless the expenditure of large amounts of curial time and litigants’ cash on ultimately unproductive proceedings abroad. In short, while anti-enforcement injunctions remain possible, in practice they are likely to be rare, as litigants will normally be expected to act earlier in the judicial process.

AT

Get your skates on for an anti-suit injunction

The English courts may be very willing on principle to give you an anti-suit injunction against someone who sues elsewhere while putting up two fingers to a binding London arbitration clause. But you must play your part and act quickly. You can’t lackadaisically ask the foreign court to decline jurisdiction and then seek to injunct the other guy in London several months later when it’s apparent that it won’t. A hapless shipowner found this out on his unlucky Friday 13. For details see Essar Shipping Ltd v Bank of China Ltd [2015] EWHC 3266 (Comm) (13 November 2015), available on BAILII.

AT