ENGLISH COURT GRANTS ANTI-SUIT INJUNCTION RESTRAINING FOREIGN PROCEEDINGS IN BREACH OF ARBITRATION AGREEMENT INCORPORATED BY REFERENCE IN BILLS OF LADING

In Seniority Shipping v City Seed Crushing Industries, “Joker”, [2019] EWHC 3541 (Comm), the English Commercial Court granted an anti-suit injunction restraining proceedings brought by City Seed before a Bangladeshi court in breach of an arbitration agreement incorporated by reference in the bills of lading under which the dispute arose (the “Bills of Lading”). The Court first found that the arbitration agreement had been effectively incorporated from the relevant voyage charter and considered the law applicable to this issue of incorporation. The Court then concluded that, despite some steps taken by Seniority Shipping in the foreign proceedings, there was no good reason not to grant the anti-suit injunction.

Background

Seniority Shipping Corporation (“Seniority Shipping”) were owners of the m.v. Joker, a ship which collided with a tanker within Bangladesh waters, causing damage to cargo. City Seed Crushing Industries (“City Seed”) – as holder of the Bills of Lading and the intended recipient of the cargo – then filed a suit in Bangladesh (the “Cargo Claim”). The Bangladeshi court ordered the arrest of the ship.

Seniority Shipping subsequently issued proceedings in the English Commercial Court and filed an application for an anti-suit injunction in respect of the Cargo Claim on the basis that any claims arising under or relating to the Bills of Lading should have been referred to arbitration. Seniority Shipping argued that:

• the Joker was operating under a time charter between Seniority Shipping and DHL Project & Chartering Ltd (“DHL”) and a voyage charger between DHL and COFCO (the “Voyage Charter”).
• Clause 6 of the Voyage Charter, entitled “Law & Arbitration Clause” provided that: (a) the Voyage Charter was governed by English law; and (b) disputes which have not been settled shall be referred to arbitration in London in accordance with the small claims procedure of the LMAA.
• The Bills of Lading incorporated this arbitration agreement by reference. Based on the Congenbill 1994 form (a standard form designed to be used with charter-parties), the Bills of Lading provided that “all terms and conditions… of the Charter Party [i.e. the Voyage Charter], dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated” (emphasis added).

The Commercial Court granted an interim injunction restraining City Seed from continuing or further prosecuting the Cargo Claim. While Seniority Shipping participated in the Cargo Claim before the Bangladeshi court (discussed below), City Seed did not participate in the action before the Commercial Court.

The Court’s decision

In its decision on the question of a final anti-suit injunction, the Court considered two issues: (a) was the incorporation of the arbitration agreement in the Bills of Lading effective; and (b) if so, should the Court grant an anti-suit injunction restraining the Cargo Claim in breach of the arbitration agreement?

Was the incorporation of the arbitration agreement effective?

The Court began its analysis by determining the law applicable to the issue of incorporation. Applying English conflict of laws rules, the Court noted that the question of whether the Bills of Lading incorporated the express choice of English law from the Voyage Charter would typically be governed by English law by virtue of Article 10(1) of the Rome I Regulation. This Article 10(1) provides that “the existence and validity of a contract, or of any term of a contract, shall be determined by the law which would govern it under this Regulation if the contract or the term were valid” (emphasis added). However, Article 10(1) is subject to Article 10(2) of the Rome Regulation (addressed below).

If the choice of English law was incorporated from the Voyage Charter, the question whether the arbitration clause from the Voyage Charter was incorporated in the Bills of Lading would also be governed by English law (based on conflict of law rules under English common law as the Rome I Regulation does not apply to arbitration agreements.)

The Court found that if the issue of incorporation was governed by English law, it could “straightforwardly” conclude that the arbitration clause from the Voyage Charter had been incorporated in the Bills of Lading: the Bills of Lading expressly incorporated the “Law and Arbitration Clause” from the Voyage Charter and that was sufficient as a matter of English law.

Therefore, the only question was whether Article 10(2) of the Rome I Regulation precluded the application of English law to the issue of incorporation. In essence, pursuant to Article 10(2), the effectiveness of the incorporation of the choice of English law from the Voyage Charter would be determined by reference to the law of Bangladesh (i.e. the law of the country in which City Seed has habitual residence) if it was unreasonable to apply English law to that question.

The Court found that it was “eminently reasonable and in accordance with the ordinary expectations of international trade” to determine the effectiveness of the incorporation by reference to English law. The Court explained that City Seed, as a buyer who wished to leave to its seller responsibility for arranging carriage, had full freedom to contract and specify the terms on which the seller should cause it to become party to the Bills of Lading with Seniority Shipping.  In the absence of evidence to the contrary, the Court considered that the Bills of Lading, which were in a very well-known, widely used form, may be taken to have conformed with City Seed’s contractual requirements. If City Seed did not wish to refer disputes to London-seated arbitration or agree to any other terms of the Bills of Lading or the Voyage Charter whose terms were incorporated in the Bills of Lading, it was free to choose to contract on that basis.

In conclusion, the Court held that the incorporation of the arbitration agreement in the Bills of Lading was effective and City Seed was therefore bound to refer any disputes relating to the Bills of Lading (in this case, concerning the damage to the cargo) to London-seated arbitration.  It also followed that the Cargo Claim – the proceedings before the Bangladeshi court – was in breach of this arbitration agreement.

Should the Court issue an anti-suit injunction restraining the Cargo Claim?

It is well settled that, where foreign proceedings are brought in breach of a London arbitration agreement, the Court would enforce the negative aspect of that arbitration agreement (i.e. the obligation on the parties not to bring such foreign proceedings) by granting an anti-suit injunction unless there are good reasons not to restrain the foreign proceedings (including if they are covered by the intra-EU Brussels Regulation). Referring to The Angelic Grace, [1995] 1 Lloyd’s Rep 87, the Court considered that it would be right to restrain the Cargo Claim unless (a) Seniority Shipping had allowed the Cargo Claim to proceed so far and/or had participated in it to such an extent that it would now be inappropriate to interfere, or (b) there was some other good reason why City Seed should not be restrained.

As to (b), the Court held that the burden of establishing good reason lay upon City Seed.  By choosing not to participate in the injunction proceedings, City Seed had chosen not to seek to discharge the burden.  Nevertheless, the Court did briefly consider whether the possibility that City Seed would not comply with the anti-suit injunction was a good reason not to grant it (on the basis that equity would be acting in vain). The Court concluded that this should not affect its analysis because: (i) the fact that City Seed would not comply with the anti-suit injunction could not be inferred simply from its refusal to participate in the proceedings and/or other facts; and (ii) the Court should not lightly hold that it would be acting in vain if it granted the anti-suit injunction – the prospect of contempt proceedings against City Seed, its directors and/or insurers should not be assumed to be without value.

As to (a), the Court considered why, and the extent to which, Seniority Shipping had participated in the Cargo Claim before the Bangladesh Court. The Court found that while there was not complete inactivity on Seniority Shipping’s part before the Bangladeshi Court, Seniority Shipping’s participation did not advance the Cargo Claim to such an extent as to make it now inappropriate to interfere.  In particular, the Court noted:

• Seniority Shipping issued proceedings in the English court and applied for an anti-suit injunction “perfectly promptly” (as the Cargo Claim was filed on 14 May 2019 and the English court proceedings were issued on 3 June 2019).
• Seniority Shipping had neither done nor allowed anything to be done to advance the proceedings before the Bangladesh Court. Its participation was restricted to steps which were reasonably required to free the Joker from arrest, which arrest was a result of a breach of contract by City Seed.
• The steps taken by Seniority Shipping could not be regarded as voluntary submission to the jurisdiction of the Bangladeshi Court.
• Those steps were taken by Seniority Shipping alongside “clear and repeated protest” that City Seed was obliged to refer the matter to arbitration.
• Seniority Shipping’s three appearances before the Bangladesh Court to obtain extensions of time to file a Written Statement of Defence should not have been necessary and “were capable in principle, and if judged in isolation, of amounting to a voluntary submission … to the jurisdiction of the Bangladesh court”. However, in the context of the other steps Seniority Shipping had taken (the bullet points above), the Court did not view Seniority Shipping’s appearances as amounting to voluntary submission.

In conclusion, the Court found that there was no good reason not to restrain the foreign proceedings and granted a final anti-suit injunction.

Comment

The decision in Joker is a helpful reminder that where foreign proceedings are brought in breach of a London arbitration agreement, the English courts may be prepared to grant an anti-suit injunction. More significantly, the decision provides useful guidance for applicants faced with foreign proceedings and seeking anti-suit injunctions:

• An application for an anti-suit injunction should be made promptly. We have previously covered cases (see, for example, here and here) where English courts have denied delayed applications for anti-suit injunctions.
• Careful consideration should be given to whether any steps taken in the foreign proceedings may amount to voluntary submission to the jurisdiction of the foreign court.

As we have previously noted, if the claimant in the foreign proceedings does not voluntarily comply with the English court’s anti-suit injunction, and the applicant is unsuccessful in challenging jurisdiction in the foreign court, the applicant may wish to consider commencing arbitration proceedings (including, potentially for breach of the arbitration agreement) in order to obtain an award. This may be appropriate where the claimant in the foreign proceedings has assets in the UK or in another New York Convention country other than that in which the vexatious claims are brought.

For further information, please contact Nicholas Peacock, Partner, Divyanshu Agrawal, Associate, or your usual Herbert Smith Freehills contact.