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Light cycle oil smuggling affair generates further English case law on anti-suit injunctions

05.11.2019 Maritime

Catherine Earnshaw

Catherine Earnshaw Partner

Joe Crompton

Joe Crompton Associate

(1) Clearlake Singapore Pte Ltd & (2) Gunvor Shipping Singapore Pte Ltd v. Xiang Da Marine Pte Ltd (Chang Hang Guang Rong) [2019] EWHC 2284 (Comm)

Readers may be following the ongoing fallout arising from the light cycle oil smuggling affair that resulted in a Singaporean oil trader receiving a 12 year prison sentence from a Chinese court in 2018. The affair related to shipments of light cycle oil over 36 voyages between 2014 and 2016, and has resulted in numerous Singaporean proceedings being brought by Chinese oil buyers against carriers under bills of lading. In our June 2019 e-brief, we discussed the Grand Ace 12 decision, in which a carrier unsuccessfully applied to the English Court to restrain Chinese buyers’ Singaporean proceedings. In this case (under a different contractual framework), an anti-suit injunction was granted by the Commercial Court, restraining Singaporean third-party proceedings.

The background facts

The first claimant (“Charterers”) voyage chartered the Vessel from the defendant (“Owners”). The head charter provided for English law and jurisdiction.

The Charterers in turn sub-chartered the Vessel to the second claimant (“G”) on different terms, pursuant to a longstanding contract of affreightment. The sub-charter also provided for English law and jurisdiction. The Charterers were a wholly-owned subsidiary of G.

G entered into a sale contract to sell 40,000 mt of light cycle oil to Chinese Receivers, cif Nansha, China. G nominated the Vessel to perform the sale contract. Payment was to be made against an irrevocable letter of credit.

The cargo was loaded and the Owners issued a bill of lading. Two letters of credit were opened in favour of G on the Chinese Receivers’ application: one in respect of approximately 40% of the cargo, the other in respect of approximately 60% of the cargo.

Due to the way in which the Chinese Receivers had opened the letters of credit, it was decided that the originally issued bill of lading should be cancelled and replaced with two switch bills: one in respect of approximately 40% of the cargo; the other in respect of approximately 60%, in order to correspond with the letters of credit. 

The Master duly signed and issued the switch bills against a letter of indemnity from the Charterers pursuant to the terms of the head charter and subject to a non-exclusive English jurisdiction clause. The switch bills named Subic Bay as the port of shipment and purported to incorporate “all the terms and exceptions of the Charter”. The Owners were the carrier under the switch bills.

The Vessel arrived in Nansha where part of the cargo was seized by the customs authorities on the alleged basis that the cargo did not in fact originate in Subic Bay.

The Chinese Receivers commenced proceedings in Singapore against the Owners under the bills of lading, alleging fraudulent and/or negligent misrepresentation on the switch bills and cargo manifests. The Owners brought the Charterers and G into the Singaporean proceedings as third parties, claiming indemnities against them.

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Figure 1: A diagram of the contractual relations between the parties

The application for an anti-suit injunction

The Charterers and G applied without notice to the English Commercial Court for an anti-suit injunction against the Owners to restrain them from continuing their third-party indemnity claims in Singapore.

A temporary interim injunction was granted, and a return hearing was scheduled. Between the without notice hearing and the return hearing, the Owners refined their third-party claims in Singapore against the Charterers and G, such that they were only claiming:

  1. Against the Charterers, an indemnity under the re-documentation letter of indemnity; and
  2. Against G, in tort for fraudulent and/or negligent misstatement.

The Court considered the following legal issues:

  1. Whether the Charterers were entitled to an interim anti-suit injunction to prevent the Owners’ letter of indemnity claim against the Charterers proceeding in Singapore.
  2. Whether G was entitled to an interim anti-suit injunction to prevent the Owners’ tortious misrepresentation claims against G proceeding in Singapore.
  3. Whether the Charterers were entitled to an interim anti-suit injunction to prevent the Owners’ tortious misrepresentation claims against G proceeding in Singapore.

In respect of the first question, the Court held that the jurisdiction clauses in the head charter and the re-documentation letter of indemnity respectively were not inconsistent. Therefore, the non-exclusive jurisdiction clause in the re-documentation letter of indemnity did not override the exclusive jurisdiction clause in the head charter. It followed that, where there was an exclusive jurisdiction clause and no strong reasons not to grant an anti-suit injunction, then one should be granted.

The second question was more complicated. As can be seen from Figure 1, above, there was no contractual relationship between G and the Owners, and, as such, there could be no contractual basis for granting an anti-suit injunction. Nonetheless, the Court granted G the anti-suit injunction against the Owners for the following reasons:

  1. Although G and the Owners were not in direct contractual relations, they were members of a common charter chain in which each constituent charterparty in the chain incorporated an exclusive English jurisdiction clause. This pointed in the direction of England being the natural forum for the third-party claims;
  2. The Owners had manipulated their third-party claims in order to avoid being caught by the exclusive jurisdiction clause in the head charter. The most obvious tortious representation claim open to the Owners was against the Charterers, not G; and
  3. Given the Court’s decision to grant an anti-suit injunction to restrain the Owners’ third-party proceedings against the Charterers in Singapore, there was a very good reason to grant G an anti-suit injunction as well in order to avoid forum-fragmentation.

Given the Court’s decision on the second question, it did not have to decide the third question. While the Court framed the third question as being a matter of interpreting the exclusive jurisdiction clause in the head charter, it declined to rule either way on the point.

Comment

The case provides a useful illustration of the circumstances in which anti-suit injunctions may be obtained in circumstances where there is no contractual relationship between two parties.

It also highlights the danger a shipowner, as the contractual carrier, can face where a foreign court accepts jurisdiction over a claim under bills of lading against the shipowner, but where the shipowner cannot join its charterer to those proceedings because of the existence of an exclusive jurisdiction clause in the charterparty.

Article authors:

Catherine Earnshaw Joe Crompton