UK: Commercial Court Rules On Scope Of London Arbitration Clause In Bill Of Lading

Last Updated: 7 October 2010
Article by Daniel Jones and Jo Stephens

Louis Dreyfus Commodities Kenya Limited v Bolster Shipping Company Limited (Giorgis Carras)
[2010] EWHC 1732 (Comm)

Facts

Louis Dreyfus Commodities Kenya Limited ("LDCK") were named as the shipper of 5,000 tonnes of grain under a bill of lading dated 10 March 2007 ("the Bill of Lading"). The carriers under the Bill of Lading were Bolster Shipping Company Limited ("Owners"), who were the registered owners of the vessel, the Giorgis Carras, in which the grain was carried. There was a chain of sale of the grain from LDCK downwards. The consignee of the cargo in the Bill of Lading was identified as a Mexican company, Suministros de Maiz del Mayab S.A. de CV ("Suministros").

The vessel was chartered from Owners by a company in the same group as LDCK on an amended New York Produce Exchange Form. That time charter contained an arbitration provision as follows:-

"17. That should any dispute arise between the Owners and the Charterers, the matter in dispute shall be referred to Arbitration in London in accordance with Arbitration Act 1994 (sic) and any subsequent alterations (see Clause No. 64).

...

Clause 64

With reference to Clause 17, it is agreed that all disputes or differences arising out of this contract which cannot be amicably resolved should be referred to Arbitration in London.

...

This contract is governed by English law and there shall apply to all proceedings under this Clause the terms of the "London Maritime Arbitrators Association" current at the time when the Arbitration Proceedings were commenced".

It was common ground between the parties that the Bill of Lading successfully incorporated the charterparty arbitration clauses set out above.

When the vessel arrived at the discharge port in Mexico, samples were taken from the cargo holds for analysis. The consignees, Suministros, asserted that there was a "quality cargo damage". They alleged a difference between the quality of the samples drawn at the discharge port and the description of the cargo on an SGS Certificate of Quality from the loadport. Suministros then commenced proceedings in Mexico ("the Mexican proceedings") against a number of parties, namely: the sellers directly above them in the chain (not LDCK); the insurers of the cargo; Owners (as the owners of the vessel which carried the cargo); and the managers of the vessel. Suministros claimed damages of just over US$800,000 on the basis that the cargo was unfit for human consumption.

Owners then joined LDCK as a party to the Mexican proceedings, and alleged that they were not liable under the contract evidenced by the bill of lading for pre-shipment damage. LDCK stored the cargo pre-shipment.

LDCK applied to the English court for an anti-suit injunction restraining LDCK from being joined into the Mexican proceedings on the grounds that such joinder constituted a breach of the arbitration clause contained in the Bill of Lading to which both Owners and LDCK were a party, because London arbitration was the correct forum for the relevant disputes arising out of the Bill of Lading.

Arguments and considerations by the Court

The English court looked in some detail at the purpose of the Mexican proceedings. Expert evidence was presented on Mexican law by both parties. Mexican law evidence was heard on the apparent differences between a "mere third party" and an "interested third party". Owners submitted that LDCK being joined into the proceedings did not necessarily mean they would be bound by a judgment. The English court looked at Owners' purpose in seeking to involve LDCK in the Mexican proceedings. One aim of Owners was to ensure that information and documents which would enable Owners "to make good their case as to the condition of the cargo on shipment" were available to the Mexican court.

LDCK argued that their being joined in the Mexican proceedings meant that Owners were essentially asking the Mexican court to render a judgment against LDCK, or at the very least that LDCK would be bound by the Mexican court's judgment.

Owners pointed out that they made no claim against LDCK and, whilst they accepted that they were seeking to deflect liability from themselves, they denied that they were seeking to deflect responsibility onto LDCK. Owners did not assert that LDCK were liable to Suministros for the damage to the cargo. There was no claim by Owners against LDCK in the Mexican proceedings. Owners did not accept that they were inviting Suministros to bring a claim against LDCK and pointed out that there is no obvious cause of action upon which Suministros could rely against LDCK.

Judgment

In his judgment, Mr Justice Tomlinson stated that, even if Owners had been suggesting that Suministros should claim against LDCK, "[a] party to an arbitration clause does not undertake to his contractual partner that he will not, if sued by a third party, suggest that it is to the contractual partner that a third party should rather look for recompense". Mr. Justice Tomlinson found that Owners were not inviting the Mexican court to resolve a dispute between themselves and LDCK; Owners did not assert a claim against LDCK; and they did not identify any dispute between themselves and LDCK arising out of the contract. There was therefore no issue arising between the two parties "as to which the judgment of the Mexican court could in any real sense be binding as between them".

Accordingly, Mr. Justice Tomlinson did not consider that the conduct of Owners amounted to a breach of the arbitration clause under the bill of lading and therefore he refused LDCK's application for an anti-suit injunction.

Comment

This case suggests that the English court will carefully consider the nature and purpose of the foreign proceedings in question in order to consider whether there has been a breach of an arbitration clause in a contract. The judgment shows that the presence of a London arbitration clause does not automatically mean that a party bound by the arbitration clause in a contract may not in certain circumstances find themselves involved in foreign proceedings arising out of the contract in question. It depends on the nature of the foreign proceedings, and the reason for the party being joined into those proceedings. In some circumstances, such as where the other party is not actually asserting a claim against them and there is therefore no dispute between the two parties who have made the arbitration agreement, an anti-suit injunction may not be granted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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