Starlight Shipping v. Tai Ping Insurance

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(1) Starlight Shipping Co (Marshall Islands) (2) Overseas Marine Enterprises Inc. (Liberia) v. (1) Tai Ping Insurance Co Ltd, Hubei Branch (People’s Republic of China (2) International Economic & Trading Corporation, Wugang Group (People’s Republic of China)
English High Court, Commercial Court: Cooke J.: [2007] EWHC 1893 Civ: 1 August 2007
Stephen Males QC, instructed by Holman Fenwick & Willan, for the Applicant ship interests
Michael Collett, instructed by MFB Solicitors, for the Respondent cargo interests
A shipowner was entitled to an anti-suit injunction to restrain Chinese proceedings commenced in breach of the arbitration clause contained in a bill of lading, but the English court had no jurisdiction to grant an injunction in favour of the ship manager that was not party to the arbitration agreement. The court’s discretion to grant an injunction under the Supreme Court Act 1981 remains available in regard to arbitration but is to be exercised with regard to the matters which arise under s.44 of the Arbitration Act

DMC Category Rating: Confirmed

The applicant shipowner (Starlight) and manager (Overseas Marine) applied for an anti-suit injunction to restrain proceedings brought by the respondent insurer (Tai Ping) in China. Starlight had chartered its vessel, the "Alexandros T", to Transfield ER Cape Ltd for a voyage from Brazil to China with a cargo of iron ore. The terms of this charter, dated 24 March 2006, included an English law and arbitration clause. Transfield then sub-chartered the vessel to the second respondent cargo owner (International) on identical terms as to law and arbitration. The bill of lading, which was issued on 13 April 2006, incorporated the terms of the head charter. In due course, International became the holders of that bill. In the course of the voyage from Brazil the vessel and cargo were lost.

The Chinese insurers, Tai Ping, commenced proceedings against Starlight, Overseas and Transfield in the Wuhan Maritime Court in China. The insurers alleged that these three parties were jointly liable for loss of the cargo, in respect of which Tai Ping had indemnified International in the sum of US$5.25 million. Starlight and Overseas had challenged the jurisdiction of the Chinese court. Security had been obtained in the Chinese proceedings in the sum of over US$4 million in respect of frozen freight payments under the head charter and sub-charter. Tai Ping and International had also commenced arbitration proceedings in London against Starlight, under reserve as to jurisdiction.

Starlight and Overseas submitted that the Chinese proceedings had been commenced in breach of the arbitration clause contained in the bill of lading and that there was no good reason why an anti-suit injunction should not be granted. The respondents maintained that the arbitration clause in the bill was ineffective as a matter of Chinese law and that the Chinese court would not recognize any award of the arbitrators or any order of the English court.

The Applicable Principles
The judge held, at para.12 that, "As a matter of English law which governs the Bill of Lading and charter party contracts, the Cargo Owners are clearly bound by the arbitration clause incorporated in the Bill of Lading issued by the Owners, to which the Cargo Owners became party. In accordance with principles laid down in a number of authorities, including The Angelic Grace [1995] 1 LLR 87, where contracting parties agree to refer disputes to arbitration and a claim falling within the scope of the arbitration agreement is made in proceedings elsewhere, the English court will ordinarily exercise its discretion to restrain the prosecution of those proceedings in the non-contractual forum, unless the party suing in that forum (the burden being on him) can show strong reasons for proceeding there. No strong reason is available to the Cargo Owners here to militate against the grant of such an injunction where, as a matter of English law, the arbitration clause plainly binds."

It was also clear, as a matter of English law, that the insurers were similarly bound by the arbitration clause in the bill of lading, on the authority of The "Jay Bola" [1997] 2 Lloyd’s Rep 279, a decision of the Court of Appeal. The fact that the insurers in this case said that they were not bound by the arbitration clause as a matter of Chinese law was irrelevant, because "because the cargo claim is one which gives rise to a dispute "arising under the contract" and was therefore arbitrable.

The inter-relationship between s.37 Supreme Court Act 1981 and s.44 Arbitration Act 1996
Section 37 of the 1981 Supreme Court Act empowered the court to grant an injunction "in all cases where it appears to the court to be just and convenient to do so." This power related both to interim and final injunctions. Historically, it was the section under which injunctions to protect arbitration clauses had been granted. The applicants submitted that that power could be exercised whether or not arbitration had been commenced and that the limitations on the court’s powers to grant injunctive relief, set out in s.44 of the Arbitration Act did not apply. The relevant provisions of s.44 are set out below.

The judge held that he had to work on the basis that section 37 remained available to the court in a case such as the present, whether or not section 44 of the later Act could also be brought into play. In exercising any discretion under section 37 of the earlier Act, he would have regard to matters which arose under section 44.

In the first place, the arbitrators did not have power to grant an interim injunction. They could, therefore, only issue an award. Secondly, the court had power under s.44 to grant an interim injunction if the case were "one of urgency", "for the purpose of preserving assets". On the authority of the Court of Appeal decision in Cetelem SA v. Roust Holdings Limited [2005] 2 Lloyd’s Rep 494, the contractual right to have disputes referred to arbitration was an asset, as it was a chose in action.

As regards the question of urgency, the court could act under section 44(3) but only – by reason of the terms of section 44(5) - if, or to the extent that, the arbitral tribunal had no power or was unable for the time being to act effectively. The question thus arose as to whether or not the arbitral tribunal could, in the time before any decision of theWuhan Court was issued, make a final (as opposed to an interim) award against the cargo owners and the insurers, who were party to the arbitration, restraining them from pursuing the Chinese proceedings.

After comparing the time by which the arbitrators could be expected to produce such an award and that by which the Chinese Court would rule on the jurisdiction issue, the judge concluded that the case was indeed one of urgency. He held, in consequence, that the arbitral tribunal was unable for the time being to act effectively, so that the requirements of section 44(5) were also met. In these circumstances, the court would issue an injunction, to cover the position up to such time when the arbitration tribunal could itself determine this matter and make a final award in relation to the restraining orders sought – provided always that the discretionary requirements of s.37 were satisfied.

The judge concluded that these requirements were satisfied – "I find every reason for making [the order sought by the owners] and no strong reason against it", subject to the condition that the owners provided the respondents with the same security as was available to them in China, as and when that security was released.

The position of the Managers
The position of Overseas, as managers, was however, different from that of the owners. As Overseas were not party to the arbitration agreement, since they were not, under English law, parties to the bill of lading contract, there was no provision in the Civil Procedure Rules entitling them to serve a writ out of the jurisdiction on the Chinese respondents. The court had, therefore, no jurisdiction to restrain the respondents from proceeding against the managers in China, even though the claim against them appeared, as a matter of English law, "to be hopeless and therefore, vexatious and oppressive."

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