Joanna Steele Partner
Court finds interim relief obtained from foreign court breached arbitration agreement
Aquavita International S.A. v Indagro SA (Aquavita Eternity)  EWHC 892 (Comm)
The English Court has granted an anti-suit injunction to restrain court proceedings brought in Brazil because they breached a charterparty arbitration provision. Anti-suit relief was appropriate because the relief obtained from the Brazilian Court had not been sought in support of substantive proceedings elsewhere but in effect amounted to a determination that left nothing substantive to be decided in arbitration.
The background facts
In November 2021, the Owners voyage chartered their vessel to carry a cargo of ammonium sulphate from Qinghuangdao, China to two or three ports in Brazil. The Charterers were also the buyers of the bulk of the intended cargo. The shippers under the bills of lading were the sellers of the cargo.
In January 2022, the shippers notified the Owners that the Charterers had not made payment under the sale contract and so the bills of lading had not been released to them. The shippers instructed the Owners not to discharge the cargo except against presentation of the original bills of lading.
Part of the cargo was to be discharged at Sao Francisco do Sul, Brazil. In March 2022, the Charterers sought a “preliminary injunction” and obtained an order from the local Brazilian Court compelling the Owners to discharge the relevant portion of the cargo or face a daily fine as well as potential criminal sanctions. The Charterers had argued that the refusal to discharge was illegal and breached the Brazilian Civil and Commercial Code. The court order required delivery of the cargo to the alleged receivers directly as opposed to discharge into a warehouse under the Owners’ control.
The charterparty provided for London arbitration and also expressly made any bills of lading issued under it subject to London arbitration. The Owners, therefore, sought an anti-suit injunction in the English Court, requiring the Charterers to withdraw the Brazilian proceedings, set aside the Brazilian court order and refrain from commencing any further proceedings in respect of the balance of cargo. The Charterers resisted the application, arguing that the Brazilian proceedings were interim measures only and so there was no breach of the arbitration provision.
The judge did not grant an injunction with respect to the cargo at Sao Francisco do Sul (as discharge was almost complete) but he did grant one in respect of the balance of cargo to be discharged subsequently at Rio Grande. At the return date, the Court considered whether to continue the anti-suit injunction.
The Commercial Court Decision
The Court stated that as a matter of English law, proceedings brought in any jurisdiction other than the agreed forum (i.e. a non-contractual forum) for the purposes of obtaining security for a claim to be advanced in the agreed forum, will not in general be considered a breach of the arbitration agreement or subject to anti-suit injunctive relief. That principle was applicable not only in the context of the arrest of a vessel but also in relation to proceedings commenced in a non-contractual forum to obtain security for a claim in some other form (e.g. freezing order or similar relief). However, proceedings which went beyond simply seeking reasonable security would constitute a breach of the arbitration clause which the English courts would restrain. In determining the nature of the foreign proceedings for these purposes, the Court would consider the following:
- Whether the non-contractual court was concerned with reaching a final (as opposed to an interim) decision on the merits of the claim;
- Whether the relief sought (even on an interim basis) was not the type which should instead follow from the final enforcement of substantive rights and obligations e.g. the payment of a debt; and
- Whether the relief sought could be said to be in aid of the substantive proceedings in the agreed forum and of limited value if those proceedings were not advanced to an award, judgment or settlement.
While the interim nature of security applications in foreign proceedings was the reason why they did not merit anti-suit relief, the Court would consider the substance (rather than form) of the proceedings in the non-contractual forum. Such proceedings would constitute a breach of the choice of forum clause if they amounted to an attempt to outflank the arbitration agreement.
Here, the steps in Brazil were not taken with a view to obtaining security in support of the London arbitration. The Court accepted that the mere fact that the relief sought was the interim performance of a substantive obligation did not, per se, render the proceedings in Brazil a breach of the arbitration agreement. However, in its view, the Brazilian court order amounted to a practical determination of the Charterers’ argument that the Owners were obliged to discharge the cargo such that it left nothing substantive to be decided in the London arbitration (except perhaps a complaint by the Owners that the Brazilian court order should not have been made).
Consequently, the order was not made “in support of” the London arbitration but was instead an attempt to oust the arbitration agreement. Therefore, the Court continued the anti-suit injunction.
The English Court has once again demonstrated its willingness to restrain breaches of London arbitration agreements by issuing anti-suit injunctions as appropriate. Those who commence proceedings in a non-contractual forum will need to consider carefully whether those proceedings merely seek to “hold the ring” pending a determination by the agreed tribunal or whether they directly or indirectly render the arbitration clause ineffective.
In a shipping context specifically, some jurisdictions in which vessels are arrested for security may require what essentially amount to substantive proceedings on the merits to be advanced following the arrest, otherwise the vessel might be released.
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