The Kallang

DMC/SandT/10/09

English High Court

Kallang Shipping SA Panama v AXA Assurances Senegal and Comptoir Commercial Mandiaye Ndiaya (The “Kallang”)

Queen's Bench Division (Commercial Court): Jonathan Hirst, Q.C.: [2008] EWHC 2761 (Comm); [2009] 1 Lloyd's Rep. 124: 19 November 2008

Alexander Layton QC (instructed by Jackson Parton) for the Claimant, Kallang Shipping Co SA (“the Owners”) Dominic Happé (instructed by Marine Law LLP) for the Defendants, Axa Assurances Senegal (“Axa Senegal”) and Comptoir Commercial Mandiaye Ndiaya (“CCMN”)

CARRIAGE OF GOODS BY SEA: CHARTERPARTY: LONDON ARBITRATION CLAUSE INCORPORATED IN BILLS OF LADING: IMPLIED TERMS: ARREST BY CARGO OWNER AND INSURER: SECURITY: JURISDICTION: WRONGFUL INDUCEMENT OR PROCUREMENT OF BREACH OF CONTRACT: PROTECTION AND INDEMNITY CLUB: LETTERS OF UNDERTAKING

This case note has been contributed by Titis Andari, LL.B. from Universitas Indonesia, an International Contributor to DMC’s Case Notes.

Summary

The English court would not restrain a party to an English arbitration clause from arresting a vessel in another jurisdiction where the sole purpose of the arrest was to obtain reasonable security for the claim to be arbitrated or litigated in England. In this case, the bills of lading contained an express agreement, binding on all holders including the receivers of the cargo, that all disputes were to be referred to arbitration in London and to be decided in accordance with English law and practice. When, however, a cargo claim arose at the port of discharge, Dakar, the cargo insurer sought to use an arrest as a means of forcing Senegalese jurisdiction, in addition to obtaining reasonable security for the arbitration claim. The insurer was accordingly liable for the accessory tort of procuring the breach by the cargo receiver of its obligation under the bill of lading contract to arbitrate all disputes in London.

Facts

This action arose out of the arrest of the vessel “Kallang” (“the vessel”) at Dakar in Senegal between 11 and 24 March 2005. The vessel was chartered by the claimants, Kallang Shipping Co SA (“the Owners”), to Brobulk Ltd on an NYPE form dated 1 February 2005 for a trip from Montevideo to Dakar. The charterparty contained a London arbitration clause. On that same day, the vessel was sub-chartered on a Gencon form, which also contained a London arbitration clause although in slightly different terms.

The second defendant, Comptoir Commercial Mandiaye Ndiaye (“CCMN”) was the receiver of a cargo of bagged rice carried on board the vessel and discharged at Dakar between 3 and 11 March 2005. The first defendant AXA Assurances Senegal (“AXA Senegal”) was the insurer of the cargo. The face of the bills of lading stated: “Freight payable as per Charter Party dated Feb/01/2005”, and on the reverse of the bills there was a provision that: “All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated.”

While the cargo was being discharged on 8 March 2005, the defendants alleged that some of the cargo was lost or damaged. AXA Senegal demanded a bank guarantee from the Owners in the sum of FCFA 30,500,000, equivalent to € 46,496.95. AXA Senegal asserted that the arbitration clause in the charterparty did not apply to it because it was not a party to that contract. The Owners’ P&I Club (the American Club) refused the demand for a guarantee. It offered to provide a letter of undertaking on usual Club terms, subject to London arbitration as had been agreed. Instead of giving any response, on 11 March 2005, CCMN applied to the Dakar court for payment of the sum of FCFA 25 million, failing which the vessel was to be arrested. As no payment was made, the vessel was arrested on 11 March. She finished discharge that same day.

On 16 March 2005 the Owners were granted an interim anti-suit injunction on the basis that they had a good arguable case that the claim in Senegal was a substantive claim; hence it went beyond obtaining reasonable security for the arbitration claim. The vessel was released from arrest on 24 March on the defendants accepting a “competent court or tribunal” letter of undertaking in the amount of FCFA 25 million. The defendants subsequently applied to discharge the anti-suit injunction but their application was rejected by Gloster J on 7 November 2006 . The injunction was then allowed to lapse on the defendants’ undertaking to pursue their claim only by way of London arbitration. In the event, the defendants took no steps in their arbitration against the Owners apart from appointing an arbitrator.

On the trial of the Owners’ claims against CCMN and AXA Senegal relating to the breach of the London arbitration clause, the Owners contended that CCMN was in breach of the express obligation to submit all disputes to London arbitration and/or an implied term that no party would conduct itself in such a way as would frustrate the London arbitration clause. The Owners further alleged that AXA Senegal wrongfully induced or procured or conspired with CCMN to breach its contract. As against CCMN, the Owners sought only costs as relief. As against AXA Senegal, the Owners claimed damages amounting to US$160,436.65 and € 9,574.12. Most of the damages were for loss of hire for 11 and a half days while the vessel was under arrest after completion of discharge and for bunkers consumed and port charges incurred during that period.

The defendants denied that there was any implied term as contended for by the Owners, and denied that there was any breach of the express terms of the London arbitration clause. They asserted that the arrest was merely a conservatory arrest for security. They asserted that at all times AXA Senegal was acting on behalf of and under direct instructions from CCMN.

The main live issues that arose for decision were as follows: (1) Was an arbitration clause incorporated into the bills of lading, and if so which? (2) What, if any, terms are to be implied into arbitration clause in the bills of lading? (3) Was the arrest order obtained in Dakar merely security in support of the claim, or was it a substantive claim? (4) Were the arrest and the demand for security being used as a means of forcing the owners to relinquish the London arbitration clause? (5) In the light of those findings, was there a breach of the express or implied terms of the arbitration clause? (6) What role did AXA Senegal play? Was it merely acting on behalf of CCMN or was it the driving force in its own right? (7) What knowledge did AXA Senegal have of the arbitration clause and its incorporation into the bill of lading contracts? (8) Did AXA Senegal cause or procure CCMN so to act and was its conduct such as to amount to a wrongful inducement or procurement of any breach of the express or implied terms of the arbitration clause? (9) Did AXA Senegal unlawfully conspire with CCMN to injure the owners? (10) Damages.

Judgment

1. The bills of lading expressly provided that all terms and conditions, liberties and exceptions of the charterparty dated 1 February 2005 “including the Law and Arbitration Clauses” were incorporated. On general principle, as a result of the express identification of the arbitration clause, that would be sufficient to incorporate a charterparty arbitration clause, even if it required a degree of manipulation. The complication was there were two charterparties dated 1 February 2005; both had an English arbitration clause but in slightly different terms. The bills of lading also provided that freight was payable as per the charterparty, which was naturally a reference to the voyage charter under which freight (as opposed to hire) was payable. Further the terms of the voyage charter were more naturally germane to a bill of lading. The judge decided that the intention was to incorporate the terms of the voyage charter, including its arbitration clause, into the bill of lading contracts.

2. The judge considered it unnecessary to imply any term of the kind contended for (that no party would conduct itself in such a way as would frustrate the London arbitration clause). The bills of lading contained an express agreement, binding on all holders including the receivers, that all disputes were to be referred to arbitration in London and were to be decided in accordance with English law and practice. If one party sought to use a foreign arrest for ulterior purposes, i.e. tried to obtain security for proceedings in another jurisdiction or to force the other party to give up its right to arbitrate disputes, that would be a direct and straightforward breach of the arbitration clause.

3. The judge held that the arrest itself was clearly a conservatory arrest for security. The reference in the arrest order to payment was a word-processing error. The order obtained was a normal order for security of payment. Nonetheless, the case against AXA Senegal went much further than just the nature and terms of the arrest itself.

4. The arrest order only permitted the release of the vessel on provision of a bank guarantee. In practice, as AXA Senegal intended and the American Club were well aware, unless AXA Senegal was prepared to make it clear that it would accept a first class bank guarantee in support of London arbitration, this would require the production of a Senegal bank guarantee which would answer to a Senegal judgment and which would take some considerable time to obtain. Without agreement, the court would not accept a foreign bank guarantee. Even if the guarantee was expressed in terms of “competent jurisdiction”, the result would be that the Owners were forced to litigate the claim in Senegal. The judge concluded that this was not some accidental result; AXA Senegal’s intention had been to use the arrest as a means of forcing Senegalese jurisdiction. It was only the intervention of the English court which prevented this result from being achieved.

5. The conduct of CCMN through AXA Senegal went well beyond seeking security for its claims in the London arbitration. By seeking to use the arrest as a means of achieving Senegalese jurisdiction, the judge decided that it was in breach of the express terms of the arbitration clause.

6. The evidence sufficed for the judge to conclude that AXA Senegal was the driving force in arresting the vessel and using the arrest as a means of forcing Senegalese jurisdiction. It was not taking instructions from CCMN or even consulting with it – nothing had been disclosed by either defendant that any such communication took place. AXA Senegal was exercising its rights under the cargo insurance policy to take control of claims handling even prior to settlement of the insurance claim. Its motives were found to be twofold. First, it did not like having cargo claims decided in London arbitration. Second, its chances of effecting a substantial recovery would be much greater if the Hamburg Rules were applied, as they would be by a Dakar court, rather than the terms of the bills of lading, especially the FIOS clause, and the Hague-Visby Rules which would be applied by London arbitrators applying English law.

7. Another issue was whether AXA Senegal knew that the bills of lading purported to incorporate a charterparty arbitration clause. The judge decided that once AXA Senegal had been provided with the working copy of the charterparty, it was almost certain that it knew of the binding London arbitration clause. If it was in any serious doubt, it could have checked with Voest-Alpine, the shippers and sellers to CCMN.

8. In deciding the question of wrongful inducement or procurement of any breach of the express or implied terms of the arbitration clause, the judge referred to the House of Lords’ judgment in OBG Ltd v Allan [2008] 1 AC 1. It established that, in order for a tortious claim for wrongful inducement or procurement of breach of contract to succeed, it must be established that the defendant (1) knew that he was inducing a breach of contract; and (2) intended to do so. The judge’s findings showed that AXA Senegal plainly had sufficient knowledge as from the afternoon of 15 March, and therefore it was only a fair inference on the facts and in the absence of any proper evidence from AXA Senegal, that it was determined to try and avoid the arbitration clause. As to intention, it was clear that Axa Senegal was determined, if it could, to use the arrest as a means of forcing the owners to give up the right to have any dispute arbitrated and to accept Senegalese jurisdiction. The judge held that AXA Senegal's conduct, knowledge and intent was such as to make it liable for the accessory tort of procuring CCMN's breach of the contract to arbitrate all disputes in London.

9. Nonetheless, the judge was not satisfied that there had been any conspiracy involving CCMN. There was no evidence that AXA Senegal had consulted with CCMN. Given the Owners’ case as to AXA Senegal’s conduct, it would be somewhat inconsistent to contend that CCMN was party to any conspiracy.

10. It followed that the judge awarded of damages of US$130,350 to the Owners against AXA Senegal, representing some ten days charter hire and related expenses.

Comment

The approach by the English court in this case is perfectly consistent with the principle, as recognized in the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships of 1952 (the Brussels Arrest Convention), that it is for the arresting court, where the vessel is present and situate, to decide on the appropriate nature of the security. When a party makes an arrest in good faith – for the purpose of obtaining security for a just demand –the judgment in this case confirms that the English Courts should not restrain it by injunction, even though it be said to be in breach of an exclusive jurisdiction clause, nor should they award damages for the breach of such a clause. Such power of arrest should be available to a creditor wherever the ship is found, even though the merits of the dispute have to be decided by a court or arbitration tribunal in another country. Contrary to The Golden Trader [1974] 1 Lloyd's Rep 378; [1975] QB 348, the judge in this case also states that the same principle should be applied in the event the arbitration is mandatory.