Eric Eyo Partner
Anti-suit injunctions: delay at your peril!
You can listen to this article in podcast format here:
A v. B (MV Star Moira)  EWHC 3657 (Comm)
The Court has granted a final anti-suit injunction, restraining a cargo claimant from continuing proceedings in the Chinese courts, in breach of a London arbitration agreement in the bills of lading. Despite the Chinese Court reserving jurisdiction over the dispute, the English Court granted the injunction because, importantly, the Shipowners had not unduly delayed in seeking relief and the Chinese proceedings were not very far advanced.
The background facts
The case concerned a cargo of soya beans loaded onboard the Owners’ vessel in early June 2019 under two bills of lading. The front of each bill referred to the underlying charterparty dated 24 May 2019, which provided for English law and LMAA arbitration. The conditions of carriage on the reverse side of each bill provided:
“All terms and conditions, liberties and exceptions of the Charterparty as dated overleaf, including the law and arbitration clause”.
During discharge operations in China on or around 21 August 2019, some of the cargo was found to be damaged. The Defendant, as the notify party and the receiver of the cargo, issued a letter of protest to the vessel’s master, reserving the right to claim against the Owners in respect of the damaged cargo. Security for the claim was sought from the Owners’ P&I Club and, on 29 August 2019, was given in the form of a letter of undertaking from China Re. Matters then lay in abeyance until 8 July 2020.
The Chinese Proceedings
On 8 July 2020, the Defendant sought to bring its claim for damage to the cargo in the Qingdao Maritime Court. While the proceedings were served on the Owners’ lawyers on 17 August 2020, supporting documents were not received until 14 September, at which time the Owners sought to challenge the Chinese Court’s jurisdiction over the dispute. On 21 September, the Chinese Court dismissed the jurisdictional challenge on the basis that, pursuant to Chinese maritime procedure law, the charterparty arbitration clause was not validly incorporated into the bills because the bills did not state the name of the parties to the allegedly incorporated charterparty or the date of its signature on their face.
On 2 October, the Owners commenced LMAA arbitration in respect of the disputes arising under the bills and, on 8 October, they applied for an anti-suit injunction from the English Court. Those proceedings were duly served on the Defendant’s Chinese lawyers on 27 October but were not acknowledged. In the meantime, on 19 October, the Owners appealed the Chinese Court’s jurisdictional ruling. The outcome of that appeal is pending.
The Commercial Court decision
In considering whether it should grant an anti-suit injunction, the Court first had to be satisfied that, on a balance of probability, the Defendant had breached the agreement to arbitrate. The three relevant questions were: (i) was there a London arbitration clause in the bill of lading?; (ii) was the Defendant bound by any arbitration clause as the holder of the bills of lading?; and (iii) was the Defendant in breach of any agreement to arbitrate by commencing proceedings in the Chinese courts? The answer to all three questions was yes.
As to (i), the front of the bills of lading referred to “freight payable as per the charterparty dated 24 May 2019”. The conditions of carriage were set out overleaf. Further, under English law, where words of incorporation in a bill of lading included a clear reference to the charterparty law and arbitration clause, then that clause would be incorporated into the bill of lading.
As to (ii), the Defendant was undisputedly the receiver of the cargo and had sought to bring the cargo claim in China as lawful holder of the bills of lading. Consequently, per the rights of suit vested in the Defendant pursuant to ss. 2(1) and 3(1) of the Carriage of Goods by Sea Act 1992, it became bound by the original contracting party’s liability under the bills of lading, including the agreement to arbitrate.
As to (iii), the Defendant was in clear breach of the arbitration clause by commencing Chinese Court proceedings in respect of the bill of lading claims.
In light of the Defendant’s breach, the Court had the power to grant an anti-suit injunction where it was just and convenient to do so. An application for an anti-suit injunction had to be made promptly in fairness to the respondent and in the interests of comity towards the foreign court. Undue delay in making the application could of itself be a strong reason not to grant an anti-suit injunction.
On the facts of this case, the Court found that there was no sufficient delay in seeking an anti-suit injunction such that there was good enough reason for the Court not to grant it. While the Owners did not immediately seek an anti-suit injunction when they were served with the Chinese proceedings, they had promptly challenged the Chinese Court’s jurisdiction and, when that challenge was dismissed, had applied for injunctive relief three weeks later. This was admittedly a modest delay. However, the Court noted that the Chinese proceedings were not very far advanced and had not yet proceeded on the merits. While the fact that the Chinese Court had reserved jurisdiction was not per se a bar to granting an anti-suit injunction, the English Court would become less willing to grant the injunction the further along the foreign proceedings were. This was because more time and costs would potentially be wasted by abandoning the foreign proceedings and because considerations of comity would then become more important.
Finally, the Court noted that the Defendant had failed to participate either in the LMAA arbitration or by acknowledging service of the Court proceedings on them. The Court concluded that granting an interim anti-suit injunction was unlikely to result in the Defendant participating in a hearing before the Court to argue issues such as delay. The Court, therefore, proceeded to grant a final anti-suit injunction.
In seeking an injunction, time is of the essence. Failure to act promptly can of itself be a strong reason to deny an application. The questions of delay and comity are inextricably linked. The sooner relief is sought, the less likely the perceived interference with the processes of the foreign court and the less likely the prospect of wasting the foreign court’s time and resources. The message is clear: delay at your peril!