Club holds on to anti-suit injunction to stop proceedings in Turkey

The latest round in the fight between the charterers of the “Yusuf Cepnioglu” and the owners’ P&I club has gone to the club with the Court of Appeal upholding the anti-suit injunction previously granted by Teare J.

The full case citation is Ship-owners’ Mutual Protection and Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat Ve Ticaret AS [2016] EWCA 386.

The basic facts of the case were that the “Yusuf Cepnioglu” grounded on Mykonos in 2014 and became a total loss. Cargo claims were later pursued against the vessel’s Turkish charterers. The charterers brought proceedings against the ship owners under the charterparty seeking an full indemnity. Unfortunately, the ship owners had lost their ship and had no money so there was no way for the charterers to obtain security from the owners. Accordingly, the charterers sued the ship owners’ P&I club relying on a provision in the Turkish Commercial Code which purported to allow direct claims against an insurer. Similar legislation exists in a number of other jurisdictions and such provisions can cause substantial headaches for P&I clubs and liability insurers. The charterers also rather ingeniously obtained an order in Turkey seeking to attach premiums due from other ship owners in Turkey to the P&I club in the hands of local brokers so as to secure their claim. Obviously this caused considerable inconvenience for the P&I club concerned: it potentially deprived them of the right to rely on the well known “pay to be paid” rule and sought to bypass the English arbitration clause in the club rules which form the basis of the contract of P&I insurance.

The Court of Appeal upheld the injunction but the decision is of interest to the legal community because it contains some interesting points about how the Court should address local legislation purportedly giving direct rights of action against insurers. The Court referred extensively to “The Prestige (No 2)” [2015] 1 Lloyds Rep 33 which of course dealt with the attempts by the Spanish government to set aside, on jurisdictional grounds, the English arbitration award in favour of the Owners’ P&I club. Essentially, it was argued in that case that the arbitration award was not relevant as the Spanish government’s claim against the club arose under national law independently of the contract of insurance. The Court of Appeal held that under the Spanish legislation the right conferred on the claimant was in substance one to enforce the contract of insurance. The nature and scope of the obligation was therefore said to be governed by the law under which it was created, namely the proper law of the contract, which was English law. Applying English law, if the Spanish (and French) governments wished to pursue claims against the club then they had to do so in arbitration in accordance with the terms of the contract of insurance and subject to the “pay to be paid” clause.

Applying the above test, the Court of Appeal decided that the underlying claim against the P&I club in Turkey was contractual and so should be determined by English law and subject to arbitration. The Court of Appeal also clarified the position as to the basis on which an anti-suit injunction can be obtained where there is a direct claim against the insurer. There were two conflicting Court of Appeal authorities on that point – “The Hari Bhum” [2005] 1 All ER 715 and “The Jay Bola” [1997] 2 Lloyds Rep 279 (CA). The first suggested that an insurer could not get an anti-suit injunction against a claimant because the claimant was not a party to the contract of insurance and thus not bound by the arbitration clause. Accordingly, an anti-suit injunction could only be granted on the basis that the foreign proceedings were vexatious and oppressive. The second case suggested that an insurer has a contractual right to have all disputes against him determined in accordance with the law and jurisdiction clause in the contract of insurance and an anti-suit injunction could be granted to uphold this principle. The Court of Appeal indicated that the test in “The Jay Bola” should be preferred on the basis that where the claim is characterised as contractual the P&I club has the contractual right to insist that any claim against it must be pursued in arbitration.

The Yusuf Cepnioglu case differs from the Prestige in the sense that it concerns proceedings in a jurisdiction outside the EU. Whilst that provides a way around the prohibition on anti-suit injunctions relating to claims in other EU member states, it also means that it is more difficult to enforce the injunction in a non EU state. It remains to be seen whether the Turkish proceedings will continue notwithstanding the recent Court of Appeal decision. If so then there is the prospect of potentially competing judgments in different jurisdictions. The P&I club concerned may find itself paying out in Turkey and then trying to enforce an English arbitration award in Turkey under the New York Convention to get the money back!

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