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Direct access insurance claims and anti-suit injunctions

22 June 2016

​A claim by a time charterer, arising under foreign legislation providing a right of direct action against an insurer, was contractual in nature and therefore subject to the terms of the underlying insurance policy, including an agreement to arbitrate disputes.  The decision addresses a conflict between two previous Court of Appeal decisions, and clarifies that, where foreign direct access proceedings are brought in breach of an arbitration clause, an anti-suit injunction will be granted unless there are good reasons for not doing so; there is no need to demonstrate that such proceedings are vexatious or oppressive: Shipowners' Mutual Protection and Indemnity Association (Luxembourg) v Containerships Denizcilik Nakilyat Ve Ticaret AS ("Yusuf Cepnioglu") [2016] EWCA Civ 386.

In March 2014, the Yusuf Cepnioglu (the Vessel) ran aground while carrying cargo containers being carried under bills of lading issued by the time charterers, Containerships (the defendant). The proper law and jurisdiction of the bills was Turkish. Containerships commenced arbitration proceedings in London against the Vessel's owner (the Owner) under the time charter. The Owner was a member of the claimant P&I Association (the Club) and was thus covered by insurance against third party claims (the Insurance Contract). The terms of that cover provided for English law and London arbitration, cover being subject to the pay-to-be-paid rule (ie for the Club only to be liable if the Owner had paid the claims against it) and that an arbitration award was a condition precedent to the Club's liability.

In May 2014, Containerships also commenced proceedings in the Turkish courts seeking to attach the Club's assets in Turkey as security for an intended claim under Turkish direct access legislation (the Turkish Proceedings). This direct access legislation provided a direct right of recourse between a time charterer and the owner's insurer. The Club sought an anti-suit injunction in England in respect of these proceedings and the intended proceedings on the basis of the terms of the Insurance Contract. At first instance, Teare J granted the injunction and Containerships subsequently appealed to the Court of Appeal. Two significant questions were raised on appeal.

Characterisation of the claim

A key issue was the characterisation of the claim in the Turkish Proceedings – was it a contractual claim arising out of the Insurance Contract governed by English law (in which case, prima facie, there was a basis for the anti-suit injunction) or was it a separate claim arising out of Turkish statute (in which case the anti-suit injunction should be dismissed)? 

At first instance, Teare J had made a finding of fact that Containerships' right to claim was essentially contractual. The Court of Appeal agreed with Teare J, on the basis that the claim was, to a large extent, circumscribed by and reflected in the terms of the underlying Insurance Contract. It followed from this that Containerships was essentially enforcing the Insurance Contract for its own benefit and was therefore bound to accept that its claim was governed by English law and must be arbitrated in London.

Granting of anti-suit injunction

The Court of Appeal had to determine whether, given that Containerships had themselves never agreed to London arbitration under the Insurance Contract (which was between the Owner and the Club), it was necessary to establish that the Turkish Proceedings were vexatious or oppressive before an injunction could be granted. This arose because of the two conflicting decisions of the Court of Appeal in Schiffahrtsgesellschaft Detlev von Appen GmbH v Voest Alpine Intertraind GmbH (The Jay Bola) [1997] 2 Lloyd's Rep. 279 and Through Transport Mutual Insurance Association (Eurasia) Ltd v New India Insurance Co (The Hari Bhum) (No. 1) [2005] 1 Lloyd's Rep. 67. 

In The Jay Bola, the Court of Appeal applied the principles set out in Aggeliki Charis Compania Maritima S.A. v Pagnan S.p.A (The "Angelic Grace") [1995] 1 Lloyd's Rep. 87 and granted an anti-suit injunction restraining foreign proceedings commenced by subrogated insurers of voyage charterers who had brought foreign proceedings against the disponent owners. The insurers were not a party to the underlying contract of carriage but, by virtue of their rights of subrogation, were entitled under the law of the insurance contract to sue the time charterers directly. The basis of the court's decision was that such proceedings infringed rights arising under the voyage charterparty arbitration clause; whether the proceedings were vexatious or oppressive was irrelevant.

In The Hari Bhum (No. 1), however, an anti-suit injunction restraining foreign direct access proceedings was refused, notwithstanding that the right asserted was essentially contractual and therefore subject to the arbitration agreement in the underlying contract. The court held that, on the facts, the foreign proceedings could not be said to be vexatious or oppressive and, noting that the third party was not a party to the arbitration agreement, it would therefore not be just and convenient to grant the injunction.

The Court of Appeal preferred The Jay Bola and rejected The Hari Bhum (No. 1)  The court held that it was irrelevant that the charterers were not a party to the relevant arbitration agreement. It was only by way of injunction that Containerships could be required to recognise the Club's contractual right (to have its liability decided by arbitration). Thus, the correct approach was to apply the usual Angelic Grace principles and ask whether there were good reasons why an injunction should not be granted; there were none in this case.

In maintaining the injunction, the court dismissed issues of comity raised by Containerships, stating that "questions of comity in the established sense do not arise in a case such as this" and making it clear that any party pursuing a claim under direct access legislation must "accept what the legislation gives him, including [if applicable] the obligation to pursue any claim in arbitration".

COMMENT

Whether claims arising out of statutory rights of direct action are subject to an arbitration agreement contained in the underlying insurance contract will depend on the characterisation of the underlying right in question. In this respect, this most recent decision is in line with previous case law covered in this Litigation Review (see, eg The London Steamship Owners' Mutual Insurance Association Ltd v The Kingdom of Spain & anr [2015] EWCA Civ 333). This case is a useful reminder that direct access legislation will rarely create an unfettered, independent right to litigate in the courts, but will usually be subject to the constraints of the underlying contract (including any arbitration agreement in that contract).

In resolving the conflict between The Jay Bola and The Hari Bhum (No. 1), the Court of Appeal has now made clear that where a third party seeks to enforce rights that are subject to an arbitration (or jurisdiction) clause, any proceedings brought in breach of that clause will be restrained on usual Angelic Grace principles. The fact that the third party was not itself a party to the original contract is irrelevant and there is no need for a claimant to go further and demonstrate that the foreign proceedings are vexatious or oppressive.

The Court of Appeal was clear that comity played no part outside the scope of its application under Angelic Grace principles; namely whether there has been a delay in applying for an anti-suit injunction and/or whether the foreign proceedings which the applicant seeks to restrain are too far advanced. However, the English High Court has, in a few recent cases, shifted towards a strict approach in respect of any perceived delay by an applicant seeking an injunction. For example, in Essar Shipping Ltd v Bank of China Ltd [2015] EWHC 3266 (Comm) Walker J held that a delay by an applicant in applying for an anti-suit injunction could, in and of itself, prevent relief being granted regardless of whether or not the proceedings were at an advanced stage. This approach has been followed in The Magellan Spirit [2016] EWHC 454. While the Court of Appeal in the case discussed here did confirm that the "right approach is to apply The Angelic Grace", unfortunately it did not address the issue raised by the Essar decision. It therefore remains to be seen how the Essar approach will be assessed if and when the issue properly comes before the Court of Appeal – which may be persuaded that the better approach to the test in the Angelic Grace is to factor in to the assessment of delay the progress of the foreign proceedings. Until then, any party considering an application for an anti-suit injunction should issue and serve those proceedings as soon as possible and regardless of the progress of the foreign proceedings.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.