View source for The Duden 2008 EWHC 2762 Comm

DMC/SandT/10/11

'''High Court of England and Wales'''

'''Sotrade Denizcilik Sanayi Ve Ticaret AS v Amadou LO and others (The “Duden”)'''

'''Queen's Bench Division (Commercial Court): Jonathan Hirst, Q.C.: [2008] EWHC 2762 (Comm); [2009] 1 Lloyd's Rep. 145: 19 November 2008'''

Michael Collett (instructed by Jackson Parton) for the Claimants, Sotrade Denizcilik Sanayi Ve Ticaret AS (“the owners”)
Dominic Happé (instructed by Marine Law LLP) for the Defendants, Amadou Lo and Tiger Denrées Sénégal (“the receivers”), and Axa Assurances Sénégal (“Axa Sénégal”)

'''CARRIAGE OF GOODS BY SEA: CHARTERPARTY: LONDON ARBITRATION CLAUSE INCORPORATED IN BILLS OF LADING: CONSERVATORY ARREST BY CARGO OWNER AND INSURER: JURISDICTION: ANTI-SUIT INJUNCTION: WRONGFUL INDUCEMENT OR PROCUREMENT OF BREACH OF EXPRESS AND IMPLIED TERMS OF BILL OF LADING CONTRACT: REFUSAL TO ACCEPT PROTECTION AND INDEMNITY CLUB UNDERTAKING'''

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

'''Summary'''

'''This judgment should be read with the related judgment of Kallang Shipping SA Panama v Axa Assurances Sénégal and Comptoir Commercial Mandiaye Ndiaya (The “Kallang (No 2)”), [2009] 1 Lloyd's Rep 124, which was delivered simultaneously by the same judge. The conduct of the cargo insurer in The Kallang was very similar to what had been alleged in this case, namely seeking to use an arrest as a means of forcing Senegalese jurisdiction. It was claimed that accordingly the insurer should be liable for the accessory tort of procuring the breach by the cargo receivers of their obligation under the bill of lading contract to arbitrate all disputes in London. The only difference between the judgment of this case from that of The Kallang is that the loss was suffered by the bareboat charterer, not the registered owner of the vessel claiming for damage. The owners thus were only granted a final anti-suit injunction, as soon as the evidence established that the insurer indeed sought to use a foreign arrest for purposes beyond obtaining reasonable security for an arbitration claim.'''

'''Facts'''

This action arose out of the arrest of MV “Duden” (“the vessel”) at Dakar in Senegal between 9 and 21 December 2005. The claimants, Sotrade Denizcilik Sanayi Ve Ticaret AS as the registered owners of the vessel (“the owners”), claimed that the arrest at the suit of the first and second defendants (“the receivers”) was a breach of the express and implied terms of the London arbitration clause incorporated in the contracts of carriage. The owners contended that such breach was induced or procured by the cargo insurers, Axa Assurances Sénégal (“Axa Sénégal”), the third defendants, against whom they claimed damages amounting to US$115,988.72 and €5,145.00. Most of the damages were for loss of hire for 8.27 days, whilst the vessel was under arrest after completion of discharge, and for bunkers consumed and port charges incurred during that period. The owners also claimed that Axa Sénégal had interfered with their business relations with the receivers, and thus forming a conspiracy. 

On 10 March 2005, the vessel was chartered to a wholly-owned subsidiary, Anchor Navigation Ltd of the Marshall Islands (“Anchor”), on a bareboat charter. On 28 September 2005 Anchor, as disponent owners, entered into a time charter on an NYPE form (“the charterparty”) with Capezzana Shipping and Trading SA (“Capezzana”) for a trip from Thailand and/or Vietnam to West Africa. The charterparty contained a London arbitration clause. The cargo of bagged rice loaded in the vessel pursuant to the charterparty was sold by Capezzana to the first and second defendants.

Between 19 and 22 October 2005, 10 bills of lading on a Congenbill form were issued by the master. The bills of lading each clearly identified the owners on their face as “Owner/Carrier”. Dakar was the named port of discharge. The face of the bills stated: “Freight payable as per CHARTER-PARTY dated September 28, 2005”, and clause 1 on the reverse of the bills provided: “All terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated.”

On discharge at Dakar on 8 December 2005, Axa Sénégal, as the insurer of the cargo, claimed that there was substantial damage/shortage. Axa Sénégal sought a bank guarantee from the owners in the sum of FCFA 67 million. The guarantee was to be answerable to the Senegalese Courts. The owners’ P&I club indicated that it would prefer to use its standard letter of undertaking incorporating English law or at least “court or tribunal of competent jurisdiction” wording. In the meantime Axa Sénégal applied to the Dakar court, on behalf of the receivers, for the arrest of the vessel as security for a claim provisionally valued at FCFA 53,557,511 million. No payment was made and the vessel was arrested on 9 December 2005.

In order to ensure that the agreed forum for disputes, namely London arbitration, was honoured, the owners commenced proceedings in the English Commercial Court against the receivers and Axa Sénégal. On 14 December 2005, the owners were granted an interim anti-suit injunction on the basis that there was a good arguable case that cargo interests were trying to apply improper commercial pressure on the owners to concede jurisdiction to Senegal. However, the vessel was not released from arrest and the owners applied to sequestrate the assets of the receivers and of Axa Sénégal. On 20 December 2005 a compromise was reached whereby the arrest of the vessel was lifted in return for the provision of the Club letter of undertaking previously offered and an undertaking to replace it within three months with a bank guarantee from a first class bank. The vessel was released from arrest on 21 December 2005.

In responding to the claims raised by the owners, Axa Sénégal denied there was any implied term as contended by the owners, and any breach of the express terms of the London arbitration clause. It asserted that at all times Axa Sénégal was acting on behalf of and under direct instructions from the receivers. It disputed that the owners were the contractual carriers under the bills of lading and contended that any loss had not been sustained by the owners, but by Anchor. 

It was agreed that the following issues arose in the action:
(1) Were the owners party as carriers to the bills of lading?
(2) Did the bills of lading incorporate the London arbitration clause in the time charterparty?
(3) Was it an implied term of the bills of lading that no party would conduct itself so as directly or indirectly to frustrate the arbitration agreement?
(4) Did the Dakar proceedings breach any express or implied terms of the bills of lading? In particular: (i) Were the Dakar proceedings conservatory only, or did they seek payment of the claim or otherwise constitute substantive proceedings?, and (ii) Were the Dakar proceedings commenced for the sole purpose of obtaining security, alternatively reasonable security, in relation to claims to be made in London arbitration in accordance with the arbitration agreement?
(5) What (if any) involvement did Axa Sénégal have in the commencement or prosecution of the Dakar proceedings?
(6) Did Axa Sénégal knowingly and intentionally procure and/or induce the receivers to breach the arbitration agreement and/or the implied term?
(7) Did Axa Sénégal unlawfully interfere with the arbitration agreement and/or the implied term?
(8) Did Axa Sénégal and the receivers conspire to injure the claimant by causing it economic loss?
(9) What (if any) loss, recoverable from Axa Sénégal, had the owners suffered?
(10) Should a final injunction be granted restraining the continuance, instigation or commencement of proceedings for any claims arising out of or under or relating to the bills of lading other than before a duly constituted London arbitration tribunal?

'''Judgment'''

1.	The bills of lading clearly and expressly identified the owners as the carrier. The judge acknowledged that while it was unusual where a vessel had been bareboat chartered, it was well known that many letters of credit require the presentation of owners’ bills. It might have been held that the master issued the bills of lading without actual or apparent authority, since he was not an employee of the owners, if the owners and the bareboat charterers had been different organisations dealing at arm’s length. However, in the present case, Anchor was a subsidiary of the owners, and both companies were operated out of the same office by the same management. The master and crew were actually employees of the owners, not Anchor. Therefore, the master had actual authority from the owners to issue the bills of lading in their name, making the owners bound by the bills of lading.
2.	The bills of lading expressly provided that all terms and conditions, liberties and exceptions of the charterparty dated 28 September 2005 “including the Law and Arbitration Clause” were incorporated. Such express reference to the arbitration clause would be sufficient to incorporate a charterparty arbitration clause, even if it required a degree of manipulation, as was held in The Rena K [1978] 1 Lloyd's Rep 545. The bills of lading therefore were subject to a London arbitration and English law clause.
3.	As had been set out in The Kallang, there was no need to imply any arbitration agreement in the present circumstances. 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 to be decided in accordance with English law and practice. If one party sought to use a foreign arrest for ulterior purposes – that is, beyond obtaining reasonable security for the arbitration claim – it would be held in breach of the express agreement.
4.	On the evidence, the actual arrest in Dakar was a conservatory arrest for security and not a substantive claim. However, Axa Sénégal intended to use the arrest as a means of forcing Senegalese jurisdiction. The conduct of the receivers, through Axa Sénégal, went well beyond seeking security for its claims in London arbitration. By seeking to use the arrest as a means of achieving Senegalese jurisdiction, the receivers were in breach of the express terms of the arbitration clause. 
5.	The judge was satisfied on the evidence that Axa Sénégal 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 the receivers or even consulting them; Axa Sénégal disclosed nothing which showed that any such communication had actually taken place. It 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 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 and the Hague-Visby Rules which would be applied by London arbitrators under English law. 
6.	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 concluded that AXA Sénégal plainly had sufficient knowledge of the London arbitration clause which was incorporated into the bills of lading contracts once its lawyer received a copy of the charterparty on 12 December. As to intention, it was clear for the judge that Axa Sénégal 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 in London and to accept Senegalese jurisdiction. That amounted to an intention to procure a breach of contract. It was held, therefore, that - as from 12 December, if not earlier - Axa Sénégal's conduct, knowledge and intent was such as to make it liable for the accessory tort of procuring the receivers’ breach of the contract to arbitrate all disputes in London.
7.	It had been recognised by the counsel for the owners that the question whether Axa Sénégal unlawfully interfered with the arbitration agreement and/or the implied term would have added nothing to his case. The judge did not, therefore, deal with the point.
8.	The judge was not satisfied that there had been any conspiracy involving the receivers. The reality was that Axa Sénégal simply took over the running of the claim. There was no evidence that it consulted with the receivers. Given the owners’ case as to Axa Sénégal's conduct, which was largely accepted by the judge, it would have been somewhat inconsistent to contend that the receivers were party to any conspiracy.
9.	As to quantum, it did not automatically follow that Axa Sénégal were liable for damages for the entire period of the arrest. The losses sustained were US$90,970 in respect of hire and US$7,505.02 for gasoil consumed during that period. Extra expenses of US$8,483.53 were also attributable to the period under arrest. The other expenses claimed were not attributable to Axa Sénégal's tortious conduct and would have been incurred anyway. Since the vessel was on bareboat charter, the losses were sustained by Anchor, not by the owners and the owners' claim for damages would be dismissed. 
10.	On the other hand, the owners were entitled to a final anti-suit injunction restraining the continuance, instigation or commencement of proceedings for any claims arising out of or under or relating to the bills of lading other than before a duly constituted London arbitration tribunal, unless an undertaking was given to the court instead.

'''Comment'''
Similar with The Kallang, the judgment in this case confirms that the English Courts should not restrain an arrest by injunction, when the arrest is made in good faith for the purpose of obtaining security for a just demand. If the arrest is indeed made in good faith, even though it is said to be in breach of an exclusive jurisdiction clause, the English Courts still should not award damages for the breach of such a clause. As provided in the International Convention for the Unification of Certain Rules Relating to the Arrest of Sea-Going Ships of 1952 (the Brussels Arrest Convention), it is for the arresting court, where the vessel is present and situate, to decide on the appropriate nature of the security. 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. Nevertheless, if one party seeks to use an arrest for ulterior purposes, beyond obtaining reasonable security for the arbitration claim, he is in breach of the express agreement whereby he agreed that all disputes would be decided by the specified arbitration tribunal.