Catherine Earnshaw Partner
Anti-suit injunction granted where foreign proceedings breached London arbitration agreement in contracts of carriage
Ulusoy Denizilik AS v. COFCO Global Harvest (Zhangjiagang) Trading Co Ltd (Ulusoy-11)  EWHC 3645 (Comm)
In finding that the parties were bound by a London arbitration agreement incorporated into the bills of lading, the Court has dismissed an argument that a letter of undertaking (“LOU”) issued as security for the receivers’ cargo claims had varied the contracts of carriage such that the receivers were entitled to bring their claims in Chinese Court proceedings. Those Chinese proceedings were brought in breach of the arbitration agreement and consequently, an anti-suit injunction was justified.
The background facts
The Owners chartered the vessel to time charterers on an amended NYPE form. The time charterers, in turn, sub-chartered the vessel for one time charter trip from Brazil to China. Both the head charter and the sub-charter provided for London arbitration and English law.
A cargo of Brazilian soya beans was subsequently loaded pursuant to five bills of lading. On discharge in China, however, the receivers (bill of lading holders) alleged that parts of the cargo were heat damaged. They arrested the vessel and subsequently declined to accept a letter of indemnity from the Owners’ P&I Club in order to get the vessel released. Instead, the Club provided security to Chinese insurers, who then issued a LOU to the receivers. This LOU provided for Chinese law and jurisdiction.
The arrest was subsequently lifted, but the Chinese proceedings remained afoot. The Owners sought and obtained an interim anti-suit injunction to prevent the receivers from pursuing the claims in China on the grounds that this would be in breach of the arbitration agreement between the parties. In resisting the subsequent application to make the anti-suit injunction final, the receivers argued that they were not party to any arbitration agreement and, alternatively, that the LOU had varied the arbitration agreement in the bills of lading such that their claims were properly brought in Chinese Court proceedings.
The Commercial Court decision
The bills of lading were on the Congen form and contained a very wide incorporation clause: “All terms and conditions, liberties and exceptions of the charter party dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated." Pursuant to English law, this incorporation clause was wide enough to incorporate the law and jurisdiction clause of the relevant charterparty. However, the receivers argued that the issue of incorporation should be decided in accordance with the law of their domicile, namely Chinese law.
The Court disagreed and stated that English law governed the question of whether a London arbitration clause was validly incorporated into the bills of lading. This was confirmed by previous decisions and also leading texts. Further, to ignore the London arbitration clause would go against the parties’ ordinary commercial expectations, particularly where there was an English law clause as well.
The Court added that it was common in the trade for cargo receivers to become bill of lading holders without being aware of or seeing any charterparty terms that were incorporated into the bills, including any law and arbitration clause, and consequently becoming bound by those terms. As the lawful holder of the bills, the receivers were entitled to take delivery of the cargo and to claim losses in respect of the alleged damage against the carrier under those bills. At the same time, the receivers became bound by the original contracting party's liability under the contracts of carriage as evidenced by the bills, including the obligation to resolve any claims in accordance with the terms of the bills pursuant to the law and jurisdiction provision. The Court concluded that the receivers had not sufficiently demonstrated that they did not consent to be bound by the arbitration agreement in the bills.
As the head charter and sub-charter both provided for English law and London arbitration, the Court did not need to decide which was incorporated. However, it inclined to the view that it was the head charter that was incorporated as the charter to which the carriers were party.
The Court also dismissed the argument that the LOU varied or superseded the bills of lading and the parties’ agreement to arbitrate disputes arising under those bills. The LOU wording specifically stated that it was the LOU that was subject to Chinese law and jurisdiction. The LOU provisions did not indicate any agreement or intention to abandon the agreement to arbitrate disputes under the bills. The Court also highlighted that the LOU had been issued by a third party on its own behalf and was an entirely separate contract. It was not issued on behalf of the Owners and could not, therefore, bind them.
The Court further rejected the argument that the Owners had submitted to the Chinese Court’s jurisdiction such that they had waived their right to arbitrate. It also found that the LOU would respond to an arbitration award and even if did not, this was what had been agreed. This was not a good enough reason for the Court not to grant or continue the anti-suit injunction. In any event, the practice of the Chinese Courts was to give effect to arbitration awards by entering a civil judgment that would lead to the LOU responding according to its own express terms.
Finally, the Court found that the Owners were not subject to Chinese jurisdiction but that even if they were, that was not a sufficiently strong ground for not granting an anti-suit injunction in circumstances where there was a binding agreement to arbitrate in London that continued to be breached. Accordingly, the Court granted a final anti-suit injunction.
In another recent decision, the Majesty, the Court read the dispute resolution provisions of the bills of lading and the LOU together and concluded that the LOU had varied the arbitration agreement in the bills. One point of distinction between the two disputes, however, is that the LOU in that case was given on owners’ behalf, whereas in this case it was issued by an unconnected third party.
Ultimately, the outcome of such disputes will depend on how the Court construes the express wording used by the parties in the relevant agreements and also by considering the commercial context.