January 2009
In breach of agreed jurisdiction clauses in charterparties or bills of lading, the owners of damaged or short-landed cargo frequently attempt to have their claims heard in their local jurisdiction. These jurisdictions are often perceived to be more favourable to cargo interests than the contractual jurisdiction clauses, which often provide for London arbitration. It is common for the local courts to seize jurisdiction over such claims. However, more recently, efforts have been made by cargo insurers to intervene actively to ensure that cargo claims are heard in the cargo owners’ jurisdiction. Two recent cases, Kallang Shipping S.A. v AXA Assurances Senegal and Comptoir Commercial Mandiaye Ndiya [2008] EWHC 2761 (Comm) (The “Kallang”) and Sotrade Denizcilik Sanayi Ve Ticaret A.S. v Amadou Lo and Others [2008] EWHC 2762 (Comm) (The “Duden”) have brought this problem to the attention of the English courts.
Both cases arose separately, but on very similar facts. The vessels each carried a cargo of rice to Dakar, pursuant to the terms of bills of lading which incorporated London arbitration clauses. Disputes arose with regard to the quantity of rice discharged by the vessels at Dakar and the cargo receivers demanded security for their claims for short-landed cargo. In both cases the policy under which the cargo was insured provided for the insurers (Axa) to take the place of the assured to take “mitigating measures to prevent damage or losses”. Owners’ P&I offered to provide Letters of Undertaking as security in consideration for the release of the vessels. However, the cargo insurers refused to accept the Letters of Undertaking and the cargo receivers applied to arrest the vessels. In accordance with local procedure, a Huissier attended on board the vessels and demanded payment of the cargo receivers’ claim, plus a figure apparently for interest and costs, failing which the vessels would be arrested. Payment was not made and the vessels were arrested.
The owners of the vessels commenced proceedings in the High Court in London, claiming that the arrest was a breach of the law and jurisdiction clauses in the relevant bills of lading and that the breach was procured by Axa Senegal.
The court delivered its judgments on the two cases simultaneously. It held that:
- The bills of lading incorporated the London arbitration clause in the charterparties and therefore contained an express agreement, binding on all holders, including the receivers, that all disputes were to be referred to arbitration in London, to be decided in accordance with English law and practice.
- Attempts by cargo receivers to arrest vessels in foreign jurisdictions solely in order to obtain reasonable security for a claim to be arbitrated or litigated in England would not generally be restrained by injunction, unless the owners tendered security in lieu of arrest. In addition, Section 11 of the Arbitration Act 1996 assumes that a claimant can properly arrest a vessel in order to obtain security for an arbitration claim. However, where proceedings in a foreign jurisdiction are not confined to the obtaining of reasonable security, there is a breach of the arbitration clause which the English courts will restrain.
- The arrest of the vessels was conservatory, and the demand for security and payment, instead of only security, by the Huissier immediately prior to the arrest was made in error. It should have been a demand for security only.
- However, the arrest of the vessels only permitted release on the provision of bank guarantees. In practice, unless Axa Senegal made it clear that it would accept the provision of a first class bank guarantee in support of London arbitration, this would require the provision of a Senegal bank guarantee which would answer to a Senegal judgment. The arrest of the vessels was being used as a means of forcing the Owners to relinquish the London arbitration clause. The actions of the cargo receivers, through Axa Senegal, went well beyond seeking to obtain reasonable security for their claims and were in breach of the London arbitration clause.
- Axa Senegal was the driving force behind the efforts to displace London jurisdiction. The court held that its motives for doing so were twofold, but perhaps they can be summarised as one motive: Axa Senegal did not like having claims decided in London arbitration under the Hague-Visby Rules (which were incorporated in the bills of lading) instead of the Hamburg Rules, which would be applied by the Senegalese Court and which are far more favourable to cargo interests. If Axa Senegal could have its claim heard by the Senegalese Court, its chances of recovery would be far greater.
- Axa Senegal’s conduct was such as to amount to the tort of wrongful inducement or procurement of a breach of contract, in this case the London arbitration clause, for which it was liable to the owners in damages. It knew it was inducing a breach of contract and intended to do so. It is not necessary for a defendant to a claim for wrongful inducement or procurement of a breach of contract to know the terms of the contract in respect of which it is alleged to have procured a breach, provided that it had the means of finding out. A cargo insurer has the means of finding out the terms of its assured’s contract of carriage.
- The defendants were not liable for damages for the whole period of the arrest. They were entitled to seek security for their claim and, in assessing damages, the court had to ask what the position would have been if the defendants had recognised that there was a binding arbitration clause and had acted in good faith in seeking reasonable security for the arbitration.
These cases do not establish any new law. However, they do show that where a cargo receiver, or a third party such as a cargo insurer, attempts to circumvent a contractual jurisdiction clause, the English courts will restrain that party from doing so. Points arising for the attention of owners or charterers are that, as before, the jurisdiction clause must be validly incorporated in the bills of lading to be binding on cargo receivers. In addition, cargo interests are entitled to arrest a vessel in order to obtain reasonable security for their claim, provided that they do not attempt to displace the jurisdiction of the London tribunal to hear the substantive claim. However, even where an arrest is made either to displace the jurisdiction of the London tribunal or at the instigation of a third party, owners should bear in mind that their damages are limited to the period in excess of the time it should have taken to provide security if the receivers had been acting in good faith. It is therefore important for owners or charterers to show that they have made every effort to provide reasonable security promptly.
With thanks to Nick Barber of Reed Smith for preparing this article.
