English Commercial High Court (QBD): Whether A Third Party Can Seek An Anti-Suit Injunction Basis Quasi-Contractual Relationship?

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When it comes to granting anti-suit injunctions, there is no consistent juridical underpinning in the English judicial precedents.[1] A quasi-contractual anti-suit injunction, is described in Raphael Anti-Suit Injunctions” (2nd ed. 2019) as “injunctions which are granted where the injunction defendant may not fully be party to and bound by a contractual forum clause as a matter of contract law, but should nevertheless be required to comply with the effect of the clause “as if” the injunction was contractual.” In such cases an injunction may be granted even though the requirement of showing an arbitration clause between the parties to the requisite standard could not be met. In Times Trading Corporation v National Bank of Fujairah (Dubai Branch)[2], the question before the English Commercial High Court was whether the court can grant an anti-suit injunction in favour of arbitration basis quasi-contractual relationship when the identity of one of the parties to the arbitration clause is itself uncertain? If yes, then whether the same test of oppressive and vexatious conduct will be applicable by analogy (applied quasi-contractually by analogy) in this scenario for granting anti-suit injunction. While answering this issue, the Court inter alia held that if the case is to be regarded as not contractual, then it should, like the existing quasi-contractual cases be treated “as if” it were a contractual case, applying the Angelic Grace test by analogy. Detailed case analysis given below:-

Background

Certain bills of lading (‘B/Ls’) were issued, purportedly in favor of NBF in respect of a cargo shipped on a vessel. The cargo was misdelivered in India as against its actual port of delivery. The B/L’s contained a General Paramount Clause[3] incorporating Hague-Visby Rules (‘the Rules’) pursuant to which the 12-month time bar under Article III Rule 6 of the Rules was applicable to NBF’s misdelivery claims. The B/L’s also incorporated London seated arbitration clause found in the voyage charterparty agreement signed between Trafigura and Harmony.

As per limitation provided under Article III Rule 6, NBF was required to bring “suit” against the carrier, Rosalind (purported owner of vessel as per NBF), for misdelivery within one year from the delivery of cargo. Thereafter, NBF raised a claim against Rosalind asserting itself to be the lawful holder of B/Ls and issued an in rem Writ of Summons in the Singapore High Court against inter alia ‘Owners’ of the vessel. Anticipating the arrest of vessel, the owner and other parties entered into a cooperation agreement to settle the claims of NBF under the charterparty but this agreement was not supplied to NBF which led NBF to commence arbitration within the limitation period of 1 year from misdelivery.

The owners appointed the arbitrator post expiry of the limitation period and also intimated the NBF that the vessel belongs to Times as per a Bareboat Charter and not Rosalind to whom the arbitration notice was addressed. In the arbitration, the moot question was whether “references to the word “Owners” in the guarantee provided is reference to the legal entity being the “Carrier” which is to be determined by Tribunal/courts. Before this issue was decided, NBF served on the vessel the in rem Writ of Summons in the Singapore Proceedings. The guarantee was amended to include “Demise Charterers” within the definition of “Owners” and NBF was paid full sum under the guarantee.

In the Singapore Proceedings, the debate was related with the possibility of a stay in favour of London  arbitration. Whereas in London arbitration no substantive progress happened post appointment of arbitrator by Rosalind. However, in arbitration proceedings, NBF indicated that it will contend that its Notice of Arbitration to Rosalind was also effective to commence  arbitration  against Times which led Times to file an application seeking an interim anti-suit injunction in English Commercial High Court to injunct NBF from pursuing its claims against Rosalind in the Singapore High Court in the present proceedings.

Applicable principles for grant of Anti-Suit Injunction

In accordance with principles laid down in a number of authorities, including The Angelic Grace[4], where contracting parties agree to refer disputes to arbitration and a claim falling within the scope of the arbitration agreement is made in proceedings elsewhere, the English court will ordinarily exercise its discretion to restrain the prosecution of those proceedings in the non-contractual forum, unless the party suing in that forum (the burden being on him) can show strong reasons for proceeding there (‘The Angelic Grace test’). With this note, let us examine the authorities cited by the English High Court in the present case.

The Angelic Grace

In that case, on the charterers’ orders the Angelic Grace was required to tie up alongside another vessel which they owned. Whilst unloading the weather turned and the vessels collided. Each blamed the other and the owners claimed a salvage. The court considered the clause ‘all disputes from time to time arising out of this contract shall . . be referred to the arbitrament of two arbitrators carrying on business in London.’ In the majority judgment Rix J inter alia held that the parties had most probably wished to have one stop adjudication, so that if a part of the claim or cross claim arose out of the contract it was inherently likely that the parties intended that they should all be heard in one forum if the facts were closely knitted together.

While granting the anti-suit injunction, the court rejected the idea that the grant of an injunction to restrain foreign proceedings which were in clear breach of contract would offend against comity. It did so on the basis that it is vexatious and oppressive for a party to maintain proceedings in breach of its agreement not to do so.

The Jay Bola Case

It is also clear as a matter of English law that the insurers are similarly bound by the arbitration clause in the Bill of Lading. In The Jay Bola Case[5], the Court of Appeal applied the principles set out in The Angelic Grace  and granted an anti-suit injunction restraining foreign proceedings commenced by subrogated insurers of voyage charterers who had brought foreign proceedings against the disponent owners. The insurers were not a party to the underlying contract of carriage but, by virtue of their rights of subrogation, were entitled under the law of the insurance contract to sue the time charterers directly. The basis of the court’s decision was that such proceedings infringed rights arising under the voyage charterparty arbitration clause; whether the proceedings were vexatious or oppressive was irrelevant.

The Sea Master[6] 

A party may not claim under a bill of lading without also assuming the burden, including the mutual obligation to have any dispute falling within the scope of an arbitration clause determined in arbitration.

The Hari Bhum (No. 1)[7]

In The Hari Bhum (No. 1), however, an anti-suit injunction restraining foreign direct access proceedings was refused, notwithstanding that the right asserted was essentially contractual and therefore subject to the arbitration agreement in the underlying contract. The court held that, on the facts, the foreign proceedings could not be said to be vexatious or oppressive and, noting that the third party was not a party to the arbitration agreement, it would therefore not be just and convenient to grant the injunction.

Yusuf Cepnioglu

The vessel Yusuf Cepnioglu grounded off the Greek island of Mykonos. The vessel was carrying 207 containers pursuant to 74 bills of lading issued by the Appellant, the time charterer of the vessel. The vessel was a total loss. The law and jurisdiction of the bills is Turkish. Cargo claims have been notified to both the Appellant and Furkan Cilik Sanayi Ticaret Ltd, the owner of the vessel. The Appellant and the owner are both Turkish companies.

The owner of the vessel was a member of the Respondent protection and indemnity club (“the Club”) and had liability insurance against third party claims pursuant to the terms of its Club cover. The terms provided for English law and London arbitration, for the Club only to be liable if the owner has paid the claims against it and that an arbitration award is a condition precedent to the Club’s liability.

The Appellant commenced ‘precautionary’ proceedings in Turkey seeking to attach Club assets in Turkey as security for a claim pursuant to a Turkish statute which gives the Appellant a direct right of action against the Club. It is these proceedings, and the intended ‘substantive’ proceedings which are the subject of the anti-suit injunction obtained by the Respondent.

The Appellant argued that there was nothing “vexatious and oppressive” in simply proceeding in Turkey under a Turkish statute which gave them the right to do so. However, the Court held that allowing the Turkish proceedings would deprive the Club of its contractual right to have claims brought against it arbitrated in London. There was also a real risk that the Turkish proceedings would prevent the Club from being able to rely upon the “pay to be paid clause” in its contract with Owners. Both of those interferences with the Club’s contractual rights meant that, from the Club’s standpoint, the Turkish proceedings were in fact “vexatious and oppressive”. The Court accordingly concluded that the anti-suit injunction should be continued, preventing the Charterers from continuing the proceedings in Turkey.

Dell Emerging Markets v IB Maroc.com[8]

IB Maroc sued Dell UK, with whom it had a contract containing a jurisdiction clause in favour of these courts and Dell Maroc (with whom it had no direct contract) on the basis that there was joint liability with Dell UK under the contract. Dell Maroc denied any contractual or quasi-contractual liability and sought an anti-suit injunction. Dell Maroc maintained it had a free-standing “quasi-contractual” basis for an anti-suit injunction.

Its primary position was that it did not have any contractual or other obligations to IB Maroc, nor did it have any responsibility for delivery of the project that was the subject of IB Maroc’s claim. However, the “quasi-contractual” argument holds that where a party is facing a claim under a contract, the existence of which it denies, the claimant must respect the exclusive jurisdiction clause in that contract.  The claimant cannot have its cake and eat it by bringing a contractual claim but ignoring the jurisdiction clause in the contract in question.

The court agreed with Dell Maroc’s argument and granted Dell Maroc the protection of an anti-suit injunction restraining the Moroccan proceedings brought against it, on the basis that it would be inequitable, or oppressive and vexatious, for IB Maroc to seek to enforce a contractual claim without respecting the jurisdiction clause within that contract.

Qingdao Huiquan Shipping v SDHX[9]

A settlement agreement containing a London arbitration clause had been reached between shipowners and cargo receivers which involved the payment of sums to the owners by SDHX, the receivers’ “authorised agent”. SDHX sued the owners in China seeking repayment under the settlement agreement. Owners sought an anti-suit injunction.

The Commercial Court held that the present case was an appropriate one for an interim injunction to be granted. There were no strong reasons not to allow the application, including the effects of delay on the proceedings.

After analysing the above authorities, Mrs Justice Cockerill  observed that the cases do not resolve the question which remains hanging after The Yusuf Cepnioglu  as to whether the appropriate test is that of the Angelic Grace “applied quasi-contractually by analogy” or the analysis of vexation and oppression, regarding the inconsistent claims as giving rise to a strong factor militating in favour of finding vexation – but with the attendant tail of the capacity for other factors within the analysis to defuse that indicator in favour of vexation. Nor do the cases grapple with the question of whether, if the correct approach is the Angelic Grace one, that is because of an estoppel or some other form of equity.

Judgement

Analysing the above line of authorities, the Court observed that there are two categories in focus within the quasi-contractual cases.

  • Quasi-contractual/derived rights category: namely where the existence of the contract is not in doubt, but the person who has brought proceedings which are sought to be enjoined is not a direct party to that contract.
  • Inconsistent Contractual Claims: These are cases where the injunction Claimant denies the very existence of the contract under which he is sued, or otherwise denies the validity of the contract in a way which would also impeach the exclusive forum clause, or denies that he owes any contractual duties to or has any contractual rights against the injunction Defendant … but the injunction Defendant in effect seeks to make a claim under the contract, while not seeking to respect the forum clause which forms part of it.

From the legal authorities, thus far, the Court concluded that the thinking appears linguistically to tend to the “vexatious” rather than the “quasi-contractual” analysis, but that the rationale for that approach is based firmly in a quasi-contractual “benefit and burden” analysis(i.e. the Defendant bears the burden of proving that there are strong reasons to refuse the relief: Donohue v Armco Inc[10] ), suggestive of approaches in the cases concerning assignment, and bills of lading. Underpinning these two distinct factual paradigms within the quasi-contractual injunction authorities there is therefore discernible a common and consistent thread, which is to apply the Angelic Grace approach at least by analogy.

Conclusion

Applying the Angelic Grace test in the facts of the present case, the Court went on to hold that while the jurisdictional basis (strong reasons) for an injunction is made out, there are discretionary factors which, while being insufficient to persuade that there should be no injunctive relief at all, do militate against the grant of an injunction in the terms sought. Thus, in Court’s view, the grant of an injunction would only be just and convenient if it were on conditional terms – that condition being as to Times giving an undertaking not to rely on any time bar argument in the London arbitration.

[1] Mrs Justice Cockerill in Times Trading Corporation v National Bank of Fujairah (Dubai Branch) [2020] EWHC 1078 (Comm) at [62]

[2] [2020] EWHC 1078 (Comm)

[3] A clause paramount is essentially a clause that incorporates a cargo liability regime, usually the Hague or Hague-Visby Rules (the Rules), into the subject charter. Such clauses are necessary as, under English law at least, the Rules are not compulsorily applicable to charterparties.

[4] [1995] 1 LLR 87

[5] [1997] 2 LLR 279

[6] [2019] 1 Lloyd’s Rep 101.

[7] [2005] 1 Lloyd’s Rep 67

[8] [2017] EWHC 2397 (Comm)

[9] [2019] 1 Lloyd’s Rep 520

[10] [2002] 1 All ER 749 at [24]-[25] per Lord Bingham

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

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