The “Lucky Lady”: Declaratory Relief and anti-suit injunctions

Introduction

In this case the journey for obtaining an anti-suit injunction was convoluted and difficult because the terms of the bills of lading in question incorporating the sub charter were too general to incorporate the arbitration clause in the sub-charter. They did however incorporate the English law provision so that English law applied to the contracts evidenced by the bills of lading.

So, to obtain an anti suit injunction the applicant was left only with the argument that the foreign proceedings were vexatious or oppressive which is a more difficult case to establish. Further, a claim for an injunction on the grounds that the foreign proceedings are vexatious or oppressive does not involve the assertion of a contractual right or of a right and so falls outside paragraph 3.1(6) (c) of Practice Direction 6B of the CPR and is not a claim in respect of a contract governed by English law. (Paragraph 3.1 (6) (c) covers claims made “in respect of a contract where the contract is… governed by English law”). The effect of this was that the respondent’s application contesting the jurisdiction of the English court in respect of the anti-suit proceedings succeeded.

By way of background, English courts will only accept jurisdiction if the claimant can demonstrate in respect of his claim that:

1. He has a good arguable case that his claim is covered by one of the grounds (‘gateways’) set out in paragraph 3.1 of Practice Direction 6B to the Civil Procedure Rules or part 62.5 of the CPR;
2. The claim has reasonable prospects of success;
3. That England and Wales is the proper place to bring it and;
4. As a matter of discretion permission to serve out of the jurisdiction should be given.

The burden of proof lies on the claimant even if the defendant is applying to set aside an existing order granting permission to issue and serve out of the jurisdiction.

Notwithstanding the respondent’s success in resisting the anti-suit proceedings, the matter did not end there. The applicant successfully applied for permission to issue and serve a claim for a declaration that the applicant was not a party to the contract evidenced by the bills of lading. The applicant then proceeded to obtain the declaration sought, and could, if necessary, obtain a post trial anti suit injunction to ensure that the declaration would not be ignored

This article summarises the facts of the case and examines:

1. The judgment of Andrew Smith J and
2. The judgment of Field J on the application for permission to apply for summary judgment on the claim for declaratory relief.

 

Facts

The case arises from a shipment on Lucky Lady, of a cargo of palm oil and palm olein (the cargo) from Malaysia to Jordan, which the receivers of the cargo, Al Riyadh Co for Vegetable Oil Industry (Al Riyadh), claimed was off-spec.

i. Contractual arrangements

The sellers and shippers of the cargo were Pacific Inter-Link SDN BHD (PIL) who were also the sub charterers of the vessel under a Shelltime 4 form charterparty dated 7.03.08 (the sub charter) between PIL and the vessel’s disponent owners, Navig8 Pte Ltd. (“Navig8”). Navig8 had time-chartered the vessel from its registered owner, Ladies Shipping Ltd. (“LSL”).

The sub-charterparty contained an English law and arbitration clause. The bills of lading issued in respect of the cargo provided as follows:

“This shipment is carried under and pursuant to the terms of the charter dated 7 March 2008 at Kuala Lumpur between Navig8 Ptd Ltd., Singapore as owners and Pacific Inter-Link SDN BHD as charterers, and all conditions liberties and exceptions whatsoever of the said Charter apply to and govern the rights of the party concerned in this shipment…”

The bills of lading further provided that:

“If, … any other than said ship owner or demise charterer is carrier or bailee of the said shipment …. all limitations of or exonerations from liability and/or defences provided by law or by the terms of the contract of carriage shall be available to such other”.

ii. Jordanian proceedings

Al Riyadh issued proceedings for damages in Jordan against PIL (as sellers) and Navig8 (as alleged carriers under the bills of lading). Al Riyadh also arrested the vessel and obtained security from LSL but did not bring in personam proceedings against LSL even though the security only responded to a Jordanian judgment or settlement with LSL (not Navig8). Instead Al Riyadh continued to pursue Jordanian proceedings against Navig8.

iii. Anti-suit proceedings and seeking Declarations

Navig8 then applied for an anti-suit injunction on the basis that:

1. the bills of lading incorporated from the sub charter the London arbitration agreement, and
2. the Jordanian proceedings against it were “vexatious / oppressive”

Hamblen J rejected the application for an anti suit on the basis that the general words of incorporation in the bills of lading did not cover the arbitration agreement in the sub-charter, but he nonetheless did accept that the bills of lading were governed by English law and did grant Navig8 permission to issue proceedings against PIL out of the jurisdiction.

Navig8 then issued the subject proceedings against Al Riyadh and served particulars of claim claiming declarations that:

1. Navig8 were not a party to the bills of lading,
2. Navig8 were not at any material time bailees of or in possession of the cargo,
3. Navig8 were under no liability to Al Riyadh in respect of the cargo;

Navig8 also claimed a final injunction restraining Al Riyadh from maintaining proceedings in Jordan against Navig8, equitable damages, interest and costs.

Al Riyadh issued an application contesting the jurisdiction of the High Court, and Navig8 issued an application for summary judgment in respect of their claim for declarations.  The court directed that Al Riyadh’s application challenging the jurisdiction should be heard before Navig8’s application for summary judgment.

The Jurisdiction issue: Judgment of Andrew Smith dated 22/02/2013

i. Not in respect of contract governed by English law

Andrew Smith J held that the court lacked jurisdiction to hear the claims for an anti-suit injunction and damages for breach of jurisdiction on the grounds that they were not in respect of a contract governed by English law.

The Judge agreed that “there is no dispute that Navig8 have (at least) a sufficiently strong argument for present purposes that the contracts evidenced by the bills of lading are, under English private international law, governed by English law”, but he did not think that Navig8 had a good arguable case that their claim for an injunction was in respect of the contract evidenced by the bills of lading.

“The claim for an injunctive relief on the grounds that foreign proceedings are vexatious or oppressive falls outside paragraph 3.1(6)(c): no contractual right is asserted and no right resulting fromany (actual or threatened) non-performance of a contract is asserted”.

ii. Unconscionable issue

The Judge also found that the conduct of Al Riyadh in issuing the Jordanian proceedings was not unconscionable. The Jordanian proceedings were brought comfortably before the English proceedings. The fact that Al Riyadh had no security was of no consequence: “proceedings are not oppressive or vexatious because the claimant has no security for them”. The Judge considered that Al Riyadh’s claim in Jordan was not hopeless.

iii. Submission to Jordanian jurisdiction

The court took account of the fact that it was a live issue in the Jordanian proceedings as to whether Navig8 had (inadvertently due to a typo in their Jordanian pleadings) submitted to the Jordanian jurisdiction whereas there was no question that al Riyadh had not submitted to the High Court. The Judge (at [19]) quoted Rix LJ in Star Reefers Pool Inc v JFC Group Ltd:

“… the unconscionability of the foreign claimant is often to be found, mainly or substantially, in the very reason that he has first submitted to English jurisdiction as the forum where the parties’ dispute will be resolved and then sought vexatiously to extricate himself from the consequences of that submission or oppressively to prolong or multiply the litigation by commencing further proceedings abroad.”

iv. Contracts (Rights of Third Parties) Act

Counsel for Navig8 argued that the parties to the contract evidenced by the bills of lading chose English as the governing law, and under English law Navig8 had a right under the Contracts (Rights of Third Parties) Act 1999 to the protection of the exclusion or limitation provision. Since Al Riyadh’s proceedings against Navig8 are on the basis that they are a party to the bills of lading contracts the matter must be considered on the basis that Al Riyadh and Navig8 chose English law to govern the relationship: the implication being that neither party would act so as to defeat the rights of the other or to circumvent their duties under English law. “By its prosecution of the Jordanian proceedings, Al Riyadh seeks to prevent Navig8 from availing itself of the exclusions and limitations of liability”.

Andrew Smith J rejected this argument on the basis that it was too wide a proposition, because in effect:

“Navig8’s argument asserts a right, deriving apparently from the choice of English law, not to be sued in any jurisdiction that does not give effect to a choice of English law…”.

The judge added that “Al Riyadh’s claim in Jordan does not seek to circumvent any protection that Navig8 would have under the 1999 Act” and concluded that Navig8 should not be permitted to serve out of the jurisdiction a claim for an injunction or damages.

v. Permission to serve claim for three declarations

The Judge did however grant permission to serve the claim for the three declarations sought and deemed such service on the date of the order. The permission was granted on the grounds that Navig8 had shown that England is the proper place in which to bring the declaratory relief claimed, and the court was satisfied that the declarations would have a solid practical benefit in that it was likely that Navig8 would be granted a post-trial anti-suit injunction should Al Riyadh ignore the declarations.

In granting permission to serve the claim for the three declarations sought Andrew Smith J quoted Lord Mance in VTB Capital plc v Nutritek International Corp:

“the governing law, which is here English, is in general terms a positive factor in favour of trial in England, because it is generally preferable, other things being equal, that a case should be tried in the country whose law applies. However, that factor is of particular force if issues of law are likely to be important and if there is evidence of relevant differences in the legal principles or rules applicable to such issues in the two countries in contention as the appropriate forum.”

The judge was also strongly influenced by the fact that the reason English law is the lex causae is the result of a choice made by Al Riyadh. It is a fundamental principle of English conflict law that “intention is the general test of which law to apply”.

The court will only exercise its discretion to allow service out of the jurisdiction of a claim for a negative declaration if satisfied that a “solid practical benefit will ensue”.

While the court did not accept that declaratory relief would be justified by any possible pressure a declaration may bring to bear on Al Riyadh to abandon the Jordanian proceedings, it did accept that declaratory relief might help Navig8 resist enforcement of a Jordanian judgment in a third country, such as Singapore where Navig8 was incorporated. The court took account of the fact that Singapore was a common law jurisdiction that was likely to recognise a declaratory judgment obtained where the foreign court, in this case England is the natural forum. Also, it was likely Navig8 would be granted a post trial anti-suit injunction.

The court did consider whether, given that there was no proper basis for permitting service of a claim for an injunction out of the jurisdiction Navig8 should be allowed to effectively circumvent this by serving a claim for declaratory relief out of the jurisdiction with a view to obtaining a “post trial anti-suit injunction”.

In deciding this Andrew Smith J stated that

“… the important point is, to my mind, that the parties to the putative contracts between Al-Riyadh and Navig8 chose (and so evinced an intention) that English law should govern them, and Navig8 have a sufficient case that this choice cannot be vindicated without a declaration and potentially an ancillary anti-suit order, and so cannot be vindicated without permission to serve their claims for declaratory relief on Al Riyadh in Jordan”.

The permission granted by Hamblen J was dismissed, but that did not prevent Navig8 from obtaining permission to serve their claim out of the jurisdiction on a different basis as “justice requires that Navig8 should have the permission necessary to pursue its declaration claims”.

The Summary Judgment Appliction: The Judgment of Field J dated 10th May 2013

i. Developments in Jordan

Prior to the case coming before Field J the Jordanian court found in favour of Navig8’s challenge of their jurisdiction and, unlike the English court, held that the bills of lading incorporated the arbitration agreement in the sub-charter. Al Riyadh issued an appeal against this finding. The court took this as an indication that Al Riyadh was continuing to prosecute the claim in Jordan.

ii. Principles governing negative declaratory relief

Field J quoted (at [15]) the principles governing the grant of negative declaratory relief as set out by Pmfrey J in Nokia Corp v InterDigital Technology Corp:

“1) The correct approach to the question of whether to grant negative declarations was   one of discretion rather than jurisdiction.

2) The use of negative declarations should be scrutinised and their use rejected where it would serve no useful purpose, but where such a declaration would help ensure that the aims of justice were achieved, the court should not be reluctant to grant a negative declaration.

3) Before a court can properly make a negative declaration, the underlying issue must be sufficiently clearly defined to render it properly judiciable.”

iii. Governed by English law

The judge referred to Dicey, Morris & Collins, the Conflict of Laws and said “it is well established that the incorporation of a charterparty governed by English law into a bill of lading is a circumstance demonstrating an implicit choice that the bill of lading contract should be governed by English law”.

iv. Contractual carrier under bills of lading

The bills of lading were signed by the agents ‘for and on behalf of the Master’. The Master is employed on behalf of the registered owners. The bills of lading also contained an identity of carrier clause which read “the contract of carriage evidenced by this bill of lading is between the shipper, consignee and/or owner of the cargo and the owner or demise charterers of the vessel named herein to carry the cargo described above.”

Reading the above clause together with the signature of the bills of lading indicated that the contractual carrier is the registered owner. In reaching this conclusion Field J applied the leading authority of The Starsin.

Al Riyadh relied on a paragraph preceding the identity of carrier clause which read “this shipment is carried under and pursuant to the terms of the charter dated 7th March 2008 at Kuala Lumper between Navig8 Ptd Ltd Singapore, as owners ….”.

Field J decided that the reference to Navig8 as “owners” in the above paragraph was to their status under the sub charter sought to be incorporated to the bills of lading and not to their status under the contract evidenced by the bills of lading .

v. Bailment

Navig8 were the intermediate time charterers of the vessel and it therefore followed that they were never bailees in possession of the cargo. Indeed Al Riyadh did not even suggest the contrary.

The judge then held that: “once it is plain that [Navig8] had no contractual liability to Al Riyadh because it was not the contractual carrier and because it was not a bailee or in possession of the cargo, it must follow that [Navig8] does not have nor could have any liability to Al Riyadh in respect of the cargo.”

vi. “Solid practical benefit”

Field J agreed with Andrew Smith J that there was a “solid practical benefit” in granting the declarations sought. The judge also considered whether the fact that Al Riyadh had failed to acknowledge service or appear in the proceedings before him would preclude the granting of a post judgment anti-suit and concluded that that the fact that al Riyadh had not entered an appearance need not be an obstacle to the granting of a post judgement anti-suit injunction.

Field J then proceeded to exercise his discretion to grant the declarations sought.

Comment

If Navig8 had been a defined as ‘carrier’ in the bills of lading the declarations sought would not have been granted nor would permission have been given to serve the claim.

From a Club, owners’ and (in some cases) charterers’ perspective this case highlights the necessity to ensure that bills of lading are drafted in such a way as to incorporate not just the English law but also the jurisdiction/ arbitration clause in the sub charter that is incorporated to the bills of lading.

It further highlights the importance of “definition of carrier” clauses in bills of lading and the care that needs to be taken when signing the bills. Owners need to give the ship agents and Master clear instructions as to whether the bills are to be signed by the Master or agent and whether such signature is to be for an on behalf of the owners or disponent owners/time charterers.

All parties should be aware of the fact that declaratory relief is available depending on the circumstances, and defeating an anti-suit application does not necessarily result in a victory for cargo receivers.

Author Maria Gerakaris

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