01/12/2015

Crescendo Maritime Co v Bank of Communications Company Ltd [2015] EWHC 3364 (Comm)

In his judgment of 25 November 2015, Teare J showed the Commercial Court’s willingness to use anti-suit injunctions to restrain foreign proceedings brought by a party to an arbitration agreement. This was tempered, however, by his refusal to maintain an anti-suit injunction to restrain proceedings brought by a non-party to the arbitration agreement but which the applicant said would undermine the effect of the arbitration award.

The case was triggered by the decision of a London arbitral tribunal deciding rights of parties to a guarantee to join the security assignee of that guarantee to proceedings.   This prompted one party to the original arbitration to bring proceedings against both other parties in China.  The existence of such security assignments is commonplace; the joinder of such assignees to arbitrations is less common.

Facts / Procedural Background: Nantong Mingde Heavy Industry Stock Co. Ltd. (the Builder) agreed to construct and sell a vessel to Crescendo Maritime Co., (the Buyer). In the usual way the shipbuilding contract provided that the Buyer would pay for the vessel in instalments. In the event, the Buyer paid three instalments under the shipbuilding contract, each one funded by way of a loan from the Buyer’s Bank: Alpha Bank. Each instalment paid was secured by the Builder’s Bank (Bank of Communications Company Limited Qingdao Branch) issuing a refund guarantee (the RGs). As security for its loan to the Buyer, the Buyer’s Bank took a security assignment of the Buyer’s rights under the RGs. The RGs and the shipbuilding contract all contained English arbitration clauses.

Following the payment of the first three instalments of the sale price the parties’ relationship broke down.  The Builder purported to terminate the shipbuilding contract and the Buyer claimed it was entitled to cancel the contract and be repaid the instalments. The Buyer and Builder commenced arbitration under the shipbuilding contract and, following the Builder’s Bank’s refusal to pay out under the RGs (on the basis that the Shipbuilding contract had been back-dated and the RGs obtained by fraud), so too did the Buyer and Builder’s Bank under the RGs.

Among other defences, the Builder’s Bank denied that the Buyer had title to sue under the RGs arguing that the Buyer’s Bank had been assigned this title.  The Buyer’s Bank therefore sought permission from the tribunal to be joined as a party to the arbitrations.  Although that application was opposed by the Builder’s Bank, the Buyer’s Bank was joined.

The tribunal’s decision to join the Buyer’s Bank to the arbitration proceedings vexed the Builder’s Bank.  It thereafter refused to participate further in the arbitrations.  Instead  the Builder’s Bank commenced proceedings in China against the Buyer, Builder and the Buyer’s Bank – in which (just as they had in the arbitration) the Builder’s Bank sought declarations of non-liability under the RGs and claimed damages from the Buyer’s Bank.

Predictably the Buyer and its bank responded by each applying to the English court for anti-suit injunctions, restraining the Builder’s Bank (and the Builder) from continuing with the Chinese proceedings.

Interim anti-suit injunctions were granted, the arbitrations proceeded to awards (in which the validity of the RGs was upheld, the assignment to the Buyer’s Bank declared “provisional” such that all rights under the RGs remained vested in the Buyer, and the Buyer’s claims vindicated).  The Buyer and its bank then sought (among other things) final anti-suit injunctions.

The Commercial Court’s decision

The Buyer’s anti-suit injunction restraining the Builder and its Bank from proceeding against the Buyer in China  Rightly, Mr Justice Teare had little difficulty granting the Buyer the final anti-suit injunction it sought: there was a London arbitration agreement between it and the Builder/ the Builder’s Bank and, absent strong reasons, English law entitled the Buyer to an anti-suit injunction to ensure compliance with that agreement (see [41] of the judgment).

There were no strong reasons in this case. In particular, the fact that the natural forum for the dispute was China was immaterial. Teare J applied by extension cases where the court had upheld exclusive jurisdiction agreements notwithstanding the natural forum was elsewhere.  In this case, the parties had agreed on a neutral forum of London arbitration, with the result that the parties’ agreement to arbitrate meant that the factors pointing to China as the natural forum were of “little consequence” (see [45]-[47]).

The Buyer’s and its Bank’s anti-suit injunction restraining the Builder and its Bank from proceeding against the Buyer’s Bank in China   Of particular interest, was Teare J’s consideration of the Buyer’s (& its bank’s) claim for an anti-suit injunction restraining the Bank suing the Buyer’s Bank (with whom the Bank had no contractual relationship) in China.

The anti-suit injunction was sought on the basis that the proceedings in China amounted to a collateral attack on (a) the arbitration agreement between the Buyer and the Builder’s Bank and (b) the tribunal’s awards. The Buyer argued that if in China the Builder’s Bank obtained a judgment against the Buyer’s Bank that it was not liable under the RGs, the Buyer would have to indemnify its bank under the security assignment for the instalments which the Buyer’s Bank had funded (and which were irrecoverable under the RGs).  This would, in turn, undermine the awards the Buyer had obtained.

Teare J noted that the law concerning the grant of anti-suit injunctions in favour of persons not themselves a party to an arbitration agreement, but against whom proceedings abroad amounted to a collateral attack on an arbitration agreement/award was a difficult area.  The approach in the two previous cases on point (Donohue v Armco [2002] 1 Lloyd’s Reports 425 at paragraphs 60-62 and Noble Assurance v Gerling-Konzern General Insurance [2007] EWHC 253 (Comm)) was not identical.

Teare J followed the approach in Noble Assurance.  He took this as authority for the proposition that where proceedings abroad amount to a collateral attack (which is a question of fact in each case) on an arbitration decision, the court has jurisdiction to grant an anti-suit injunction restraining the pursuit of those proceedings not only against a party to the arbitration agreement but also against a non-party to the arbitration agreement.

Applying that approach to the facts, Teare J found there was no collateral attack which justified an anti-suit injunction.  While the Builder’s Bank’s attempts to obtain a declaration in China that it was not liable under the RGs was a collateral attack on the award (which would be stopped by restraining the proceedings against the Buyer in China), the thrust of its claim against the Buyer’s Bank in China was a claim for damages. That claim was based on the allegation that the Buyer’s Bank had helped fraudulently to procure the RGs under which the Builder’s Bank was forced to pay out to the Buyer and, as such, depended on the Builder’s Bank being held liable under the valid RGs. The Builder’s Bank’s claim in China was therefore consistent with the arbitral award (it was predicated on the RGs being valid), not an attack upon it – and therefore an anti-suit injunction was not appropriate.