Peter McNamee Partner
Court declines anti-enforcement injunction in charterparty dispute
E-Star Shipping and Trading Company v. Delta Corp Shipping Ltd (MV Eships Progress)  EWHC 3165 (Comm)
The Court has highlighted the difference between an anti-suit injunction and an anti-enforcement injunction and made it clear that the latter will not in practice be granted because comity requires the English Court to respect a foreign court’s decision where it has issued a detailed considered judgment following contested proceedings.
The decision also demonstrates that, while the English Court will grant an anti-suit injunction against foreign proceedings in breach of an arbitration agreement, the anti-suit applicant must demonstrate, to a high degree of probability, that: (1) a binding arbitration agreement exists; and (2) the parties against whom the injunction is sought are parties to that agreement.
The dispute arose out of a chain of charterparties. EShips were head owners. They time-chartered the vessel to Delta, the defendant in these proceedings. There was then a string of sub-charters, including a voyage charter to the claimant, E-Star. E-Star subsequently entered into various fixtures and sub-charters with other entities.
The vessel loaded bagged rice in India, bound for discharge at various ports in Africa. Hire was not paid up the chain and discharge of the cargo was consequently delayed at the first discharge port, Durban, because bills of lading were not available. EShips initially exercised rights of lien and, after the cargo was eventually discharged, suspended the vessel’s service, bunkered the vessel at its own cost and sailed for Abidjan.
A settlement agreement was then purportedly agreed between various parties, that required payment of certain sums to EShips, following which the vessel would continue on her voyage and discharge the remaining cargoes at various ports. The terms of the time charter to Delta were to remain unchanged. The settlement agreement provided for English law and London arbitration. It also stated that: "This agreement becomes effective only upon signature by all parties. All parties signing this agreement warrant that they are duly authorized by the company on behalf of whom they are signing."
The settlement sums were not paid in full. At Benin, EShips sought to exercise a lien on freight with Delta’s cooperation. However, Benin law did not allow a shipowner to keep goods on its ship on account of a failure to pay freight. Therefore, Delta obtained an order for discharge of the cargo out of the vessel and into the Court’s custody.
A group of Benin shippers and receivers (Benin plaintiffs) sought to have this order set aside and to obtain their goods without payment of any further sums. Only the shippers, but not the receivers, had been party to the settlement agreement. The Benin Court nonetheless ordered that the Benin plaintiffs should pay freight to Delta, failing which the cargo would be sold at auction. However, the Benin plaintiffs subsequently obtained an order putting in place a holding measure and for the money to be paid into the Benin Court pending an appeal.
While E-Star was named as a defendant in the Benin proceedings, it did not participate in them and subsequently sought anti-suit relief from the English Court on the basis that the settlement agreement provided for London arbitration.
The Commercial Court decision
The Court found that there was no binding arbitration agreement because the settlement agreement required signature by all the parties and E-Star had not produced sufficient evidence to show that this had in fact happened. The Court dismissed the argument that the arbitration agreement was separate to the underlying contract and that it was for the arbitrators to decide whether there was a binding arbitration agreement.
E-Star had to show, to a high degree of probability, that there was indeed a binding settlement agreement and therefore a binding arbitration agreement between the parties. It had not done so. The relevant clause in the settlement agreement stated that the agreement became effective only when signed by all parties. That provision clearly applied to all of the provisions which were set out in the previous clauses of the settlement agreement. There was nothing which suggested that the parties agreed that there should be a binding arbitration agreement.
The Court also noted that what was in fact sought was an anti-enforcement injunction, rather than anti-suit relief, because the Benin proceedings had in substance concluded. Anti-suit injunctions on the other hand were sought when foreign proceedings were still underway.
Anti-enforcement injunctions were, in practice, not granted because they gave rise to very serious comity considerations. The Benin Court had applied its mind in contested proceedings to the question of what was to happen to cargo within its jurisdiction. It had reached conclusions on that question, and issued a detailed reasoned judgment. The English Court could and should not now, in effect, tell the Benin Court that it had come to the wrong decision by granting anti-enforcement or anti-suit relief. This application had in any event come far too late because a party genuinely seeking anti-suit relief generally had to do so well before the foreign court had continued with its proceedings and come to a decision. A delay of this nature, without good explanation, was likely to be a bar to the grant of an anti-suit injunction.
The Court also refused to grant E-Star’s application for the proceeds of the sale of the cargo to be preserved so that those proceeds could be held on trust for one or more of the shippers or receivers in Benin. The application was made pursuant to s. 44(3) Arbitration Act 1996, which permits preservation of an asset in the context of arbitration proceedings.
The Court noted, however, that E-Star did not claim any interest in the proceeds of the sale. The principal plaintiffs in Benin were also not parties to the settlement agreement, even if it were binding, and so could not complain that it had been breached. The shippers had also not threatened any arbitration proceedings, nor sought any relief from the English Court. They continued to assert their rights and seek remedies in Benin. The Court concluded that it was for the Benin Court to decide how the cargo, or any proceeds from its sale, should be dealt with.
The Court’s conclusions with regard to the arbitration agreement reflect the recent Court of Appeal decision in Newcastle Express, which made it clear that where the parties failed to conclude a binding underlying contract in the first instance, that would prevent any arbitration agreement in that contract coming into existence.
The decision also makes it clear that a significant delay in seeking an anti-suit injunction can be fatal to the application.
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