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English Court upholds LOU jurisdiction provision, notwithstanding Singapore limitation proceedings

Insights / / Dubai, Piraeus

Enemalta Plc v. Standard Club Asia Ltd (MV Di Matteo) [2021] EWHC 1215 (Comm)

The English Court has dismissed a P&I Club’s challenge to its jurisdiction. The Club had sought to set aside or stay English proceedings brought by a Claimant for protective relief in circumstances where the Vessel’s Owners were attempting to establish a limitation fund in Singapore.

The Court considered the inter-relationship between: (i) the limitation proceedings in Singapore, which applies lower limits of liability pursuant to the Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 1976) and: (ii) the exclusive English jurisdiction clause in the Club letter of undertaking (LOU) which covered an amount reflecting the higher limits under the 1996 Protocol to LLMC 1976, to which the UK is party. The LOU was for a maximum of EUR 21 million, whereas the maximum limitation sum under LLMC 1976 was EUR 5.77 million.

The Court found it unlikely, as a matter of English law, that the Singapore Court would have jurisdiction to discharge the LOU and it was, therefore, appropriate for the Claimant to apply for the protective declarations sought in the English proceedings.

The background facts

Damage to an underwater High Voltage Alternating Current connector cable in the Sicily Channel caused a nationwide power outage in Malta on 23 December 2019. The Claimant alleged that the damage to the cable was caused by the Vessel. The Vessel’s Owners were registered in Singapore, and the Vessel was entered with the Defendant P&I Club.

Before any attempt to arrest the Vessel had been made, the Club provided a LOU as security to the Claimant in the sum of approximately EUR 21.5 million. This figure was calculated by reference to the limitation figure prescribed under the 1996 Protocol. The LOU was subject to English law and exclusive English Court jurisdiction.

The Claimant commenced proceedings against the Owners in Malta for damages arising as a result of the incident. Malta is a signatory to the 1996 Protocol.

The Owners commenced proceedings in Singapore in an attempt to establish a limitation fund and to limit their liability in respect of the incident to a lower value of EUR 5.77 million calculable by reference to LLMC 1976. The Owners applied for an order that the LOU be released upon the establishment of a limitation fund in accordance with Article 13.2 of the 1976 Convention which provides:

"After a limitation fund has been constituted in accordance with Article 11, any ship or other property, belonging to a person on behalf of whom the fund has been constituted, which has been arrested or attached within the jurisdiction of a State Party for a claim which may be raised against the fund, or any security given, may be released by order of the Court or other competent authority of such State…".

The Owners argued that this meant that the Singapore Court could discharge the LOU once the limitation fund was established, notwithstanding the English law and exclusive jurisdiction clause.

The Claimant issued English Court proceedings, seeking a declaration that: (i) any dispute arising over the validity of the LOU was to be determined by the English Court in accordance with English law; (ii) the LOU remained valid and binding and was not null and void; (iii) any challenge by the Club to the LOU’s validity had to be brought in English Court proceedings; and (iv) any conflicting decision made by the Singapore Court would not affect the validity of the LOU under English law.

The Club challenged jurisdiction and sought an order setting aside or staying the proceedings in favour of the Singapore Court on the basis that the Singapore Court had sole and exclusive jurisdiction to make an order under Article 13.2 of LLMC 1976 and that the Singapore Court was the proper forum for determining whether an order should be made under Article 13.2.

The Commercial Court decision

The Court found in the Claimant’s favour and refused the Club leave to appeal.

As a matter of English law, and based on past authority, it was better than seriously arguable that the LOU was not security within the jurisdiction of the Singapore Court. Specifically, it was not a vessel or any other property secured in Singapore or within the jurisdiction of any state party to LLMC 1976, nor was it security given to obtain the release of a vessel or other property attached. To the extent that physical location was relevant, the LOU was physically located in Malta, which was not a state party to LLMC 1976. However, English law would probably treat the LOU as being located in England because of the exclusive English jurisdiction clause, but England was also not a party to LLMC 1976. The Court held, therefore, that an English Court, applying English law, was likely to conclude that the LOU should be treated as located in England and that the Singapore Court had no jurisdiction to order its release.

Further, the exclusive jurisdiction agreement governed all disputes between the parties concerning the LOU, and the English Court should not decline jurisdiction to hear a claim by a party seeking a declaration as to its rights under a contract which was subject to the English Court's exclusive jurisdiction in deference to a decision that may be made by a court in another jurisdiction under a convention to which England was not a party. The Owners’ application in Singapore under Article 13.2 was wholly separate from the Claimant's claim against the Club, which was not a party to the Singapore proceedings.

Additionally, the issue concerning the effect of any order by the Singapore Court on the enforceability of the LOU was one that the parties had agreed must be determined exclusively by the English Court.The Owners were not a party to these proceedings. The English proceedings did not impinge on the Owners’ ability to apply to the Singapore Court or the right of the Singapore Court to make whatever order it considered appropriate. These proceedings were concerned with the entirely separate question of the impact, if any, that an order sought in Singapore would have on the liability of the Club under its independent contract with the Claimant as contained in the LOU. That issue was one that the parties to the LOU had agreed should be determined exclusively by the English Court.

Comment

The decision highlights the English Courts’ stance of giving effect to exclusive jurisdiction agreements. It also serves as a reminder that a letter of undertaking issued by a third party as security for the underlying claim is an entirely autonomous contract and will, therefore, be governed by the jurisdiction provisions in the LOU.

More specifically, this decision will be of interest to those who may be involved in jurisdictional arguments in the context of limitation proceedings.

Jamila Khan

Jamila Khan Partner and Head of Office, Piraeus

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