Crescendo Maritime & Alpha Bank v Bank of Communications & Ors
Crescendo Maritime Co. & Alpha Bank AE v Bank of Communications Co Ltd & Ors.
English High Court; Teare J;  EWHC 3364 (Comm), 25 November 2015
David Bailey QC and Marcus Mander (instructed by Reed Smith LLP) for Crescendo Maritime Co. and Alpha Bank AE, Claimant
James Hatt (instructed by Ross & Co LLP) for Bank of Communications Co Ltd, Qingdao Branch, Respondent
BACK-DATED SHIPBUILDING CONTRACT: REFUND GUARANTEES: ARBITRATION PROCEEDINGS: ACTION COMMENCED IN CHINESE COURTS BY A PARTY TO THE ARBITRATION AGREEMENT: BREACH OF ARBITRATION AGREEMENT: WHETHER AN ANTI-SUIT INJUNCTION SHOULD BE ISSUED: WHETHER CHINESE PROCEEDINGS A COLLATERAL ATTACK ON ARBITRATION AWARD
A shipbuilding contract was backdated to circumvent certain SOLAS Convention regulations on tank coatings. Disputes arose and the bank which had provided the refund guarantees refused to honour them, claiming it was unaware of the backdating and so its refund guarantees were tainted by fraud and therefore unenforceable.
London arbitration proceedings were commenced, where the issue was ventilated. After the financing bank (which had taken an assignment of the claims under the refund guarantees) sought to join in the arbitration, the bank which had issued the refund guarantees ceased participating. It subsequently commenced litigation in China against the buyer and the financing bank, raising the same issue, i.e. backdating of the shipbuilding contract.
In response the buyer and the financing bank sought anti-suit injunctions in England. Further the financing bank sought, essentially, declarations of non-liability.
The bank which had provided the refund guarantees was found to be aware of the backdating – and so the refund guarantees were valid. An anti-suit injunction stopping the Chinese proceedings against the buyer (but not those against the financing bank) was granted. The financing bank was however granted the declarations of non-liability it sought.
This note has been contributed by Gan Boon Eng, Justin, solicitor (Hong Kong), advocate & solicitor (Singapore - non-practising)
These disputes arose out of Crescendo Maritime Co’s (“Buyer”) order of a vessel from Nantong Mingde Heavy Industry Stock Co Ltd (“Builder”) in August 2007. The shipbuilding contract was backdated to avoid SOLAS requirements taking effect in December 2006.
The Bank of Communications Co Ltd, Qingdao Branch (“Bocomm”) provided refund guarantees for the instalments paid to the Builder. The Buyer’s rights under the refund guarantees were assigned by way of security to Alpha Bank AE (“Alpha”), which financed the building.
Disputes arose between Builder and Buyer, which were referred to arbitration. The Buyer called on the refund guarantees and then commenced arbitration against Bocomm when Bocomm refused to pay until the Builder-Buyer dispute was resolved.
The same Tribunal presided over both arbitrations, which ran concurrently. In its exchange of pleading submissions, Bocomm alleged that it had been defrauded into issuing the refund guarantees for a fraudulently backdated shipbuilding contract and should not be bound.
Alpha subsequently applied to the Tribunal to allow it to join in both arbitrations. This was (presumably) intended to avoid questions of locus standi (fn.1) following the assignment of the Buyer’s rights under the refund guarantees. From that point onwards, Bocomm refused to participate in the arbitrations.
After the Tribunal joined the arbitrations, Bocomm commenced proceedings in China against, amongst others, the Buyer, the Builder, and Alpha, making the same allegations of fraud and seeking, in effect, declarations that Bocomm was not bound by the refund guarantees. Bocomm also sought damages allegedly resulting from the frauds. On 21 October 2014 the Chinese Court issued a ruling ordering Bocomm to refrain from paying under the refund guarantees.
On 31 October 2014, the Buyer and Alpha obtained an interim anti-suit injunction in London, against Bocomm and its pursuit of the proceedings in China. Alpha also sought declaratory relief in London, to the effect that it had no liability for fraud.
The Chinese Court subsequently held it had jurisdiction in respect of Bocomm’s claim.
Finally, the Tribunal then held that Bocomm was aware of the backdating and the refund guarantees were enforceable.
The claims for final anti-suit injunctions, and Alpha’s claims for, amongst other matters, declaratory relief, proceeded to trial in London. Teare J granted an anti-suit injunction restraining Bocomm’s Chinese proceedings against the Buyer, but not against Alpha. However, Teare J granted Alpha the declarations it sought.
The Buyer and Alpha sought final anti-suit injunctions against Bocomm’s Chinese proceedings. This was on the basis that Bocomm’s Chinese proceedings were (a) vexatious and oppressive, and (b) in breach of the arbitration provisions in the refund guarantees.
Teare J noted that where proceedings were in breach of an arbitration agreement, an anti-suit injunction would issue unless there were “strong reasons” otherwise.
Bocomm argued (a) its claims in the arbitration and in China were different, (b) China was the natural forum to decide whether there had been a fraud on Bocomm, and (c) Alpha was a party to the Chinese proceedings but not to the arbitration, the arbitration being based on the clause in the refund guarantees to which Alpha was not a party.
Teare J found (a) Bocomm’s claims in the arbitration and in China were not in substance different from one another, and (b) forum conveniens (fn.2) considerations had little relevance in the context of arbitration clauses. As to (c), Teare J accepted that claims against multiple parties and the consequent risk of inconsistent findings could be a “strong reason” – however the risk of inconsistent findings in this case arose from Bocomm’s own acts (that is, commencing additional proceedings and alleging fraud in both sets of proceedings), which meant that it could not rely upon this reason.
The anti-suit injunction stopping Bocomm from continuing the Chinese proceedings against the Buyer was therefore granted.
However, an injunction stopping Bocomm’s Chinese proceedings against Alpha was refused. In the first place, Alpha was not party to the arbitration agreement contained in the refund guarantees.
Secondly, the Buyer and Alpha argued that the Chinese proceedings against Alpha were a collateral attack on the arbitration award as, by the terms of the assignment, the Buyer would have to indemnify Alpha for the instalments Alpha had disbursed should Bocomm succeed against Alpha.
Here Teare J drew a distinction between the different claims in the Chinese proceedings:
(a) Bocomm’s claim for a release from the refund guarantees was potentially a collateral attack on the arbitration award.
(b) But Bocomm’s claim for damages (particulars of which had not been provided) would probably not amount to a collateral attack on the arbitration award, because damages against Alpha would only arise if the Chinese Court found Bocomm liable under the refund guarantees (consistent with the Tribunal’s position).
Declarations sought by Alpha
Alpha sought declarations that, primarily:
(1) Alpha was not an assignee of the refund guarantees and arbitration agreements, and not party to them.
The deed of assignment provided
“…unless and until a Default shall occur and the Bank shall have given notice to the Buyer that the Bank intends to enforce its rights under this Deed the Buyer shall be entitled to exercise all its rights under the Assigned Documents… as if the foregoing assignment had not been made.”
Teare J held that until Alpha gave such notice, no assignment took effect – and no such notice had been given. This declaration was accordingly granted.
(2) Alpha did not make false declarations or non-disclosures to Bocomm inducing Bocomm to issue the refund guarantees.
Following an assessment of Alpha’s witnesses and Bocomm’s witnesses, Teare J found Bocomm must have been aware of the backdating of the shipbuilding contract. In particular Teare J was unconvinced by the assertion of one of Bocomm’s witnesses that Bocomm would not fully check addendums to the refund guarantees but only check the date, signature, and size of the ship. Teare J therefore found that Alpha had not concealed the back-dating and that Bocomm was itself aware of it. This declaration was also granted.
(3) Alpha had no liability to Bocomm in damages in respect of the refund guarantees.
Following the findings of fact above, Teare J held that Alpha did not deceive Bocomm and that Bocomm was not induced to issue the refund guarantees by any deliberate concealment of the truth on Alpha’s part. Again, the declaration was granted.
Fn.1 “locus standi” means the right to bring an action, to be heard in court, or to address the Court on a matter before it
Fn.2. “forum conveniens” means the most appropriate court for the resolution of a particular dispute