Anti-suit injunction granted against “victim” attempting to take advantage of foreign direct action laws

Lucy Hayes

In Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat Ve Ticaret AS, the Commercial Court continued an anti-suit injunction restraining the defendant charterers from commencing or continuing proceedings in Turkey against the claimant P&I Club, in breach of a London arbitration clause in the insurance contract between the Club and the owners of the vessel. The court confirmed it had jurisdiction on the basis that the claim for an anti-suit injunction was a claim “in respect of a contract governed by English law” under the jurisdiction gateway in paragraph 3.1(6)(c) of Practice Direction 6B (“PD 6B”), even though the charterers were not party to the insurance contract. There were grounds to continue the injunction because the Turkish proceedings were vexatious and oppressive.

Background

The decision relates to “pay to be paid” clauses, under which an insured will not receive payment from their insurers until they pay out on any claims against them. Some countries have “direct action” laws which entitle third-party victims to sue insurers directly, apparently overriding such clauses. The claim arose from an ocean liner which grounded off the cost of Mykonos in 2014. The owners were insured with the Shipowners’ Mutual Protection and Indemnity Association (described as a P&I Club) (the “Club”). Their insurance agreement had an English law and jurisdiction clause and provided for arbitration in London. The charterers attempted to make a claim for their loss of cargo directly against the Club in Turkey, pursuant to a Turkish statute which gives “victims” a right of direct action against an insurer. The Club, which was the claimant in this action, sought an anti-suit injunction against the charterers

Decision

Teare J characterised the key question as being whether it was “in substance a claim to enforce the contract between the Club and its member” or “a claim to enforce an independent right of recovery”. Applying The Prestige (No. 2) [2014] 1 Lloyd’s Rep. 309, he considered that “what is likely to matter most is the content of the right rather than the derivation of the right”. In this case, he held that the right followed the contract. Under the statute, the insurer’s liability related only to the insured perils, the victim could only claim up to the limit of the agreed cover and the contractual time limit applied. The choice of law and arbitration clause would also apply provided that a Turkish court did not find it was contrary to public order; the court acknowledged that it a Turkish court might have found the “pay to be paid” rule contrary to public order, but held that it applied subject to a court order to the contrary.

For a claim to be “in respect of a contract” under paragraph 3.1(6)(c) of PD 6B, it is not necessary for the contract to be one to which the intended claimant and intended defendant are a party (applying Green Wood & McClean LLP v Templeton Insurance Limited [2009] 1 WLR 2013); there simply must be a connection to a contract governed by English law. The charterers were not party to the contract, but their right of direct action was qualified by the London arbitration clause. Teare J stated, “that to my mind is sufficient connection with the contract for it to be said that the Club’s claim is ‘in respect of the contract’”. The Club’s claim, and anti-suit injunction, was therefore “in respect of a contract”.

The court also held that paragraph 3.1(6)(c) of PD 6B may apply to arbitration claims, relying on a unanimous obiter observation of the Supreme Court in AES Ust-Kamenogorsk v Ust-Kamenogorsk JSC [2013] 1 WLR 1889.

Alternatively the Club relied on CPR Rule 6.25(1)(c), under which the court may grant permission to serve an arbitration claim out of the jurisdiction if the claimant seeks a remedy affecting an arbitration, and the seat is (or will be) in the jurisdiction. The court agreed. The charterer’s right to sue the Club, being in essence a right to enforce the contract, was subject to the arbitration agreement (albeit that a Turkish court might not enforce that obligation); “although there is no privity of contract between the charterers and the Club the charterers are, in a real sense, bound by the arbitration agreement”.

Whether or not the permission should be given depended on whether England was the proper place to bring the claim, which depended on the merits of the anti-suit injunction itself. The charterers argued their claim could not be vexatious and oppressive because they simply wished to proceed in Turkey pursuant to a Turkish statute which gave them the right to do so. Relying on the Jay Bola (DVA v Voest Alpine [1997] 2 Lloyd’s Reports 279) and Hari Blum No. 1 (Through Transport Mutual Insurance Association v New India Assurance [2005] 1 Lloyd’s Rep.67), Teare J held that equity requires the claimant to recognise the defendant’s contractual right. In deciding whether the proceedings were vexatious and oppressive he considered the effect on the Club – which would be “to deprive the Club of its right to have claims brought against it enforced by arbitration in London”, and to create “a real risk that those proceedings will also prevent the Club from being able to rely on the pay to be paid clause”.

The charterers submitted that the application raised an important question of policy, namely whether the court should give priority to the Club’s contractual rights or to the right of direct action conferred upon the charterers by Turkish law. Teare J held that, although the charterers could not be in breach of the contract (as they were not a party), once they elected to enforce directly against the Club’s liability to its member, they had to abide by the limitations on that contractual liability.

Turkey is one of many jurisdictions which have sought to avoid the effect of the “pay to be paid” clause (most American states have done so); however, the court held that “foreign legislation is not capable of affecting contractual rights and obligations governed by English law”. The charterers submitted that EU law (in particular Directive 2009/20/EC on maritime insurance) and therefore English law followed a policy of “victim protection”, which should be borne in mind. Teare J was “not persuaded by it to refuse an anti-suit injunction”. The Directive, and its implementing Regulations, did not confer a right of direct action, and furthermore the injunction would not prevent the charterers from exercising that right; they would simply have to pursue that right in arbitration in London.

Comment

This decision provides welcome clarification of what it means for a claim to be “in respect of a contact governed by English law” under the gateway in paragraph. 3.1(6)(c) of PD 6B. The ruling will also make it harder for third parties to exercise rights under “direct action” laws. It confirms that where a third party’s right arises from a contract (despite the fact they are not a party to it themselves), the English courts will require that third party to abide by the jurisdiction and dispute resolution terms included in that contract.

Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat Ve Ticaret AS [2015] EWHC 258 (Comm)

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