Shipowners' Mutual Protection And Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat Ve Ticaret AS

This is the application of the Claimant, a P&I Club, for an order continuing the anti-suit injunction issued by Cooke J. on 18 July 2014 restraining the Respondents, the time charterers of the vessel YUSUF CEPNIOGLU, from commencing or continuing proceedings in Turkey against the Club.

On 8 March 2014 the vessel, which was operating on a liner service between Turkey and North Africa, grounded on the Greek island of Mykonos. Salvage services were rendered but the vessel was a total loss. At the time of the grounding the vessel was laden with 207 containers. The cargo was being carried pursuant to 74 bills of lading issued by the time charterers. The proper law and jurisdiction of the bills is Turkey. Cargo claims have been notified to both the owners and charterers of the vessel. They are both Turkish companies. The charterers have commenced arbitration proceedings in London against the owners pursuant to the terms of the time charter.

The owner of the vessel is a member of the Club. The owner therefore has insurance against third party claims pursuant to the terms of its Club cover. Those terms provide for London arbitration and for the Club only to be liable if the owner has paid the claims against it (“the pay to be paid” clause).

In May 2014 the charterers commenced proceedings in Turkey (the “precautionary” proceedings) in which they sought to attach the Club’s assets in Turkey up to a value of US$13.5m as security for a claim pursuant to a Turkish statute which gives the charterers a right of direct action against the Club. It is these proceedings, and the intended “substantive” proceedings in support of the right of direct action, which are the subject of the anti-suit injunction.

The debate before this court has concerned two matters; first, whether this court has jurisdiction to serve proceedings out of the jurisdiction on the charterers in Turkey and, second, if so, whether there are sufficient grounds to justify the grant of an anti-suit injunction. However, relevant to both matters is the “characterisation” of the right of direct action under Turkish law and I shall therefore deal first with that question.

The question is what is the substance of the claim? Is it in substance a claim to enforce the contract between the Club and its member, or is it in substance a claim to enforce an independent right of recovery? It is common ground that this involves a consideration of the nature of the right as a matter of Turkish law but that the question of characterisation is a question for the English court applying English conflicts of laws principles; see Hamblen J. in The London Steam Ship Owners Mutual Insurance Association v The Kingdom of Spain and another [2014] 1 Lloyd’s Rep. 309 (also known as the Prestige No.2) at paragraphs 51 and 52.

The relevant provisions of Turkish law are to be found in the Turkish Insurance Contract Law of 2012 (the “TCC”). It was in force before the relevant Club cover and charterparty were agreed. Part B deals with liability insurance and provides as follows:

“Article 1473

(1)

Under a liability insurance contract, the insurer shall pay to the victim compensation up to the amount stipulated in the insurance contract, for the liability of the insured due to an event that occurred, unless otherwise agreed, during the contract period, even if the loss materialised after that period.

(2)

If the insurance is taken out for the liability related to the enterprise of the insured, this insurance shall cover, unless otherwise agreed, the liability of the representatives, administrators , auditors and also the employees of the insured. In that case, the insurance shall be deemed taken out in favour of those persons.

……….

Article 1478

The victim may claim its loss up to the insured sum directly from the insurer provided that the claim is brought within the prescription period applicable to the insurance contract.

Article 1479

The insurer may request information from the victim for determining the cause and the extent of the loss. The victim must provide all of the documents that can reasonably be provided……..”

Article 1483

Subject to the provisions of other legislation, insurers shall not refrain from granting cover for compulsory insurances in the insurance classes in which they are active.

Article 1484

(1)

In case the insurer is totally or partially discharged of its obligation of performance towards the insured, its obligation of performance as against the victim shall remain effective up to the sum insured under the compulsory insurance.

(2)

The termination of the insurance relationship shall become effective after one month following the notification by the insurer to the competent authorities that the contract has expired or is to expire.

…….

It is apparent from both articles 1473 and 1478 that Turkish law confers upon “the victim” a right to sue the liability insurer. Such a right is not given by the liability insurance contract because only the insured can sue under that contract. However, there is obviously a close connection between the victim’s right and the insured’s right under the contract because the limit of the insurer’s liability to the victim is the limit under the contract and any claim by the victim must be brought within the time period allowed by the contract.

In The Prestige No.2 at paragraph 87 Hamblen J. said that in deciding whether the direct action right is “in substance” a claim to enforce the contract or a claim to enforce an independent right of recovery what is likely to matter most is the content of the right rather than the derivation of the right. “It is the content of the right which will be the most telling guide to what “in substance” the right is.” It was not suggested that this was other than a correct approach.

Mr. Karia QC made the following submissions as to the content of the right of direct action under Turkish law. First, he submitted that the contractual definition of insured perils applied. In support of this submission he referred to article 1473 which obliged the insurer to pay to the victim compensation “for the liability of the insured due to an event that occurred”. He said that this must mean the insured’s liability which is covered by the insurer. Consistently with this, article 1479 requires the victim to provide information as to the cause of the loss. Second, both article 1473 and article 1478 limited the victim’s right of recovery to the limit set out in the insurance contract. Third, article 1473 enabled the victim to recover in respect of an event which occurred “during the contract period”. That must be a reference to the provision in the contract insurance as to when an insured event must occur. The reference in article 1473 to “unless otherwise agreed” is a further reference to the agreement between the insurer and the insured. Fourth, the victim is bound by any time bar in the contract between the insurer and the insured as article 1478 makes plain.

Mr. Lewis QC on behalf of the charterers did not accept that the Club’s liability to the victim was dependent upon the cause of the loss being an insured peril as set out in the terms of the Club cover. He submitted that the phrase “for the liability of the insured due to an event that occurred” in article 1473 referred to the liability of the insured to the victim and that the obligation of the victim in article 1479 to provide information and documents relating to the cause and extent of the loss was to enable the Club to confirm that the insured was liable to the victim. When counsel was asked what were the insured perils on which the victim could rely when making his direct action claim against the Club he submitted that the perils were those typically insured by a P&I Club.

The identification of the insured perils on which the victim can rely was not expressly dealt with by Ms. Hatay, one of two Turkish lawyers who gave written evidence on behalf of the Club. But at paragraph 10 of her statement dated 18 July 2014 she said:

“There is also no guidance in the TCC as to what provisions, exceptions, limitations, defences etc. the liability insurer exposed to a direct action by a third party can rely on and whether it can only rely on defences available to the insured against the third party or on all of the provisions of the insurance contract. On my view of the correct construction of Article 1478, a liability insurer is only liable to the extent of the policy terms and limits it had concluded with the insured, and construing the article in wider terms would place the insurer in a contractual position it never intended or agreed to be.”

Ms. Selek, the Turkish lawyer who gave written evidence on behalf of the charterers, also did not deal expressly with the question of what were the relevant insured perils as between the Club and the victim in her witness statement dated 8 December 2014.

Ms. Peksen, the other Turkish lawyer who gave evidence on behalf of the Club (in circumstances where Ms. Hatay had left the relevant firm of lawyers) said, at paragraph 32 of her witness statement dated 12 January 2015, that

“according to article 1479 …….the insurer is entitled to investigate whether the loss falls within the policy terms….”

Ms. Selek in her statement dated 16 January 2015 in which she commented upon that of Ms. Peksen did not challenge the view that according to article 1479 the insurer is entitled to investigate whether the loss falls within the policy terms.

It is in this state of the evidence that I must resolve the conflicting submissions of Mr. Karia and Mr. Lewis as to the effect of Turkish law. On the balance of probabilities I consider that Mr. Karia’s submission is more likely to be correct, for these reasons.

First, if the victim was able to claim against the insurer for losses caused by those perils typically insured by P&I Clubs rather than for losses caused by those perils actually insured by the Club I would have expected the TCC to say so. Hamblen J. observed in The Prestige No.2 at paragraph 92:

“……..that most direct action statutes are likely to confer rights which to an extent follow the contract…..”

If a legislature intended not only to confer a right of direct action upon a victim but also intended to expose the liability insurer to a different range of insured perils from those which it had agreed to cover I would have expected such an intention to be clearly stated. Ms. Hatay’s opinion in her statement is consistent with the insurer being liable to the victim in respect of the perils insured by the insurer.

Second, Ms. Selek had the opportunity to challenge Ms. Peksen’s view that “according to article 1479 …….the insurer is entitled to investigate whether the loss falls within the policy terms” but did not do so.

Third, Mr. Lewis’ submission that the relevant perils were those typically insured by a P&I Club was not supported by evidence. The best he could do in this regard was to refer to the Regulation of Insurance and Control of Vessels for Maritime Claims 2010 which required vessels arriving at or departing from Turkish ports to have P&I Insurance against maritime claims which meant “insurance provided to vessels by International P&I Clubs”. There was, however, no evidence that the maritime claims in question were itemised in the 2010 Regulation or that, if there was such a list, that was the relevant list of insured perils for the purposes of the victim’s direct action claim against the Club pursuant to the TCC.

With regard to Mr. Karia’s other submissions Mr. Lewis accepted that the victim could only claim up to the limit of the Club’s contractual cover, that the liability must be due to an event that occurred during the period of the Club’s contractual cover and that any claim by the victim must be brought within the period allowed by the Club’s contractual cover.

Mr. Karia further submitted that the experts on Turkish law were agreed that the Club could rely upon the choice of English law and London arbitration in the Club cover.

Ms. Hatay, in her statement dated 18 July 2014, expressed the opinion that a liability insurer was only liable to a victim pursuant to article 1478 of the TCC to the extent of the policy terms. She noted that Assistant Professor Aras (who holds the Chair of Maritime law at Yasar University) accepted that the Club can rely upon the choice of applicable law and jurisdiction. Ms. Peksen, in her statement dated 12 January 2015, expressed the view that the Turkish court would apply the choice of law and arbitration clause in the Club cover.

Ms. Selek said, in her statement dated 8 December 2014, that she agreed with Assistant Professor Aras that the Turkish court “would at least attempt to apply English law to the intended Turkish substantive proceedings. However, practically speaking, that application could only be insofar as English law did not conflict with Turkish mandatory norms and public order.” She expressed the view that “where giving effect to the foreign law/arbitration clause would lead to the application of the pay to be paid rule, ….the Turkish courts would find it contrary to public order.” It thus appears that, subject to the public order point, Ms. Selek agrees that the victim would be bound by the choice of law and arbitration clause in the Club cover. Indeed, in paragraph 63 she said in terms that the victim’s right of recovery was “qualified only by (a) the policy limit…….(b) the policy time-bar …..and (c) any applicable law and jurisdiction clause, insofar as its application will not lead to Article 1478 being overridden, which would be contrary to public order/directly applicable norms.”

I therefore accept Mr. Karia’s submission that the experts on Turkish law were agreed that the Club could rely upon the choice of English law and London arbitration in the Club cover though I also accept that Ms. Selek is of the view that those clauses might not be enforced by the Turkish court where to do so would be contrary to public order.

Certain terms of the Club cover will give the Club a defence to claims brought against it by the member (eg non-payment of premium, failure to disclose a material fact or breach of warranty). However, pursuant to article 1484, where the liability insurance is compulsory, the Club, although its liability to the member has been totally or partially discharged, may remain liable to the victim. It therefore seems clear that to some extent article 1484 divorces the right of direct action from the claim under the Club cover.

Assistant Professor Aras has expressed the view that the ambit of article 1484 will depend upon whether the termination or withdrawal of cover was declared to the member by the Club before the occurrence of the risk. If it was so declared then the Club will have no liability to the victim. But if it was not so declared then, although the Club may have a defence to a claim brought by the member, it would have no defence to a claim brought by the victim. Ms. Selek has said in her statement dated 8 December 2014 that she would expect the Turkish court to adopt this view.

Ms. Peksen has expressed the opinion that article 1484 only applies to compulsory insurance and that since P&I Cover is not a form of compulsory insurance the Club will be entitled to rely upon all defences. However, Professor Atamer (of the Department of Maritime and Insurance Law at Istanbul University) considers that P&I Cover is a form of compulsory insurance; he relies upon the provisions of the Regulation on Inspection and Insurance of Vessels for Maritime Claims 2010. Ms. Hatay also expressed the view that it was compulsory “on the strict reading of the provisions of the Regulation.” Ms. Selek also agrees. So Ms. Peksen appears to be alone in her view. The basis of her view is that to be compulsory it must be compulsory both for the shipowner to have P&I Cover and for the P&I Club to provide it. She says that there is no legislation or decree requiring P&I Clubs to provide P&I insurance.

If it is assumed that Ms. Peksen is right (though this is challenged) when she says that compulsory means compulsory for both the shipowner and the Club then it would appear that the 2010 Regulation makes P&I cover compulsory for the shipowner and that article 1483 of the TCC makes it compulsory for the P&I Club to provide such cover (“insurers shall not refrain from granting cover for compulsory insurances in the insurances classes in which they are active”). This is the view of Ms. Selek (in her statement dated 16 January 2015) and is also the view of Professor Yazicioglu (of Istanbul University).

Ms. Peksen’s response is to say (see her statement dated January 2015) that article 1483 only applies to domestic insurers. There has been no response to this. However, in so far as it is necessary for me to make a finding on the balance of probabilities as to whether P&I cover is compulsory for the purposes of articles 1483 and 1484 of the TCC I consider that it is. That is the view of all of the Turkish lawyers whose opinions have been put before me save for Ms. Peksen. In any event, even if article 1483 is restricted to domestic insurers, article 1484 shows that provisions in a liability insurance which would operate to discharge the insurer from its obligations to the insured do not, or do not necessarily, discharge the Club from its obligations to the victim.

Attention has been focussed upon one particular clause which regulates the extent of the insurer’s liability to its member, the pay to be paid clause. As Hamblen J. said in the Prestige No.2 at paragraph 39 it is well established in English law that this clause operates as a complete defence to a claim if the liability in question has not been discharged by the insured member, since such discharge is a condition precedent to the insured member being indemnified by the Club. Professor Atamer and Assistant Professor Aras are of the view that the pay to be paid clause cannot be relied upon as against the victim. I infer from the (partial) translations of their papers that this is because reliance on such a clause as against a victim would render the right of direct action conferred by article 1478 ineffective (for the shipowner has not paid the charterers’ claim and is unlikely to do so). Ms. Hatay and Ms. Peksen disagree with this approach because article 1478 is not listed as an “imperative” or “mandatory” provision. It is correct that article 1478 is not listed in article 1486 but, as Professor Aras and Ms. Selek have said, the terms of article 1478 are themselves mandatory. I find Ms. Selek’s opinion on this matter more persuasive that of Ms. Hatay and Ms. Peksen.

It is therefore more likely than not that the pay to be paid clause could not be relied upon by the Club when faced with a direct action claim in Turkey by a victim who has sustained damage.

Having discussed the nature of the right of direct action in Turkish law it is necessary to consider whether, as a matter of English law, it is to be characterised in substance as a claim to enforce a contract or as an independent right of recovery.

The right of direct action pursuant to articles 1473 and 1478 of the TCC has several indicia of a claim to enforce the contract between the Club and its member. They are: (i) the perils insured against are those in the Club cover; (ii) the monetary limit in the Club cover applies; (iii) the contractual temporal limit applies; (iv) the contractual time bar applies and (v) subject to the question of Turkish “public order”, the choice of law and arbitration clause apply. However, in one respect the right of direct action appears to be a claim to enforce an independent right of recovery. Whilst the Club may be able to say as against its member that its liability is wholly or partly discharged, in some circumstances the Club cannot say that against the victim exercising its right of direct action in Turkey. Further, it is likely that the pay to be paid clause would not avail the Club in Turkey.

Mr. Lewis submitted that in circumstances where P&I Cover was compulsory in Turkey, where the defences available to the Club in Turkey are “severely circumscribed” and where the mandatory nature of the article 1478 claim is at odds with the claim being to enforce a contract, the right of direct action is not one which depends primarily and substantially on the terms of the contract. It is in substance an independent right of recovery.

In the Prestige (No.2) Hamblen J. had to consider a right of direct action conferred by a Spanish statute. Article 76 of the Spanish 1980 Insurance Contract Act provided that the injured party “shall be entitled to a direct action against the insurer to demand of him the fulfilment of the obligation to compensate”. It further provided that “direct action shall be exempt from the defences that the insurer may have had in respect of the insured.” A Spanish judgment indicated (see paragraph 70 of the judgment of Hamblen J.) that “the direct action rights which may be enforced against the insurer are the insured’s contractual rights, save that the insurer may not rely as against the third party on “personal” defences or a defence or exclusion based on wilful misconduct.” Hamblen J. concluded, notwithstanding that certain defences which would avail the Club as against the insured would not avail the Club as against the third party, that the direct action right conferred by Spanish law against liability insurers was in substance a right to enforce the contract rather than an independent right. His reasoning at paragraph 88 was as follows:

“The essential content of the right is provided by the contract. Save for the article 76 exceptions, the third party’s right is as set out in and defined by the contract. It is the contract that must be looked to in order to determine whether there is any right to recover from the insurer and, if so, on what basis and with what limitations. In many cases the contract is all that will need to be considered. In the present case, for example, there is no suggestion of wilful misconduct by the assured or of “personal” defences arising. In those circumstances the third party’s rights will be determined solely by reference to and by the contract. ”

With regard to the exceptions in article 76 Hamblen J. said, at paragraph 90:

“……the question is whether the extent of the exceptions is such as to change the essential nature of the right created so that it can no longer be regarded as being in substance a contractual right……..I do not consider that the exceptions go this far. ”

I consider it appropriate to follow the approach of Hamblen J. to the question of characterisation which arises in the present case. It was not suggested that his approach was wrong. The essential content of the right of direct action in the present case appears to me to be the contract between the assured and its member. In saying that I have in mind the perils insured against, the limit of the claim, the cover period and the time bar. To that extent the victim’s right is set out in and defined by the contract between the Club and its member. Pursuant to article 1484 of the TCC matters which would result in the Club’s liability to its member being discharged will not, or may not, avail the Club when facing a direct action by the victim. However, it is not apparent that such matters arise in the present case. But even if they do the essential content of the right would appear to be reflected in the contract between the Club and its member. The extent of the exceptions is not such as to change the essential nature of the right created. I have therefore concluded that the direct action conferred by Turkish law against the Club is in substance a right to enforce the contract between the Club and its member rather than an independent right of recovery.

In this regard it also to be noted that in Through Transport Mutual Insurance Association v New India Assurance [2005] 1 Lloyd’s Rep.67 (also known as the Hari Blum No.1) the right of direct action created by a Finnish statute to “claim compensation in accordance with the insurance contract” was also subject to certain anti-avoidance provisions. Those provisions rendered void those terms of the contract which had the effect of restricting the right to recovery in a way that was inconsistent with the statute. However, such terms did not detract from the conclusion that the essential nature of the right created by the statute was to enforce the terms of the contract; see paragraph 59 of the judgment of Clarke LJ.

The Club relies, first, on CPR 6 PD paragraph 3.1(6)(c). That provides that the claimant may serve a claim form out of the jurisdiction with the permission of the court where a claim is made in respect of a contract where the contract is governed by English law. Mr. Karia submitted that the Club is seeking to enforce the London arbitration agreement contained in the Club cover. Mr. Lewis made three submissions: first, CPR 6 PD paragraph 3.1(6)(c) does not permit service of an arbitration claim form because CPR 62.5 is an exclusive code; second, it is not available for applications for anti-suit injunctions; and third, it cannot be relied upon where the respondent is not a party to the relevant contract.

This argument is based upon CPR 6.1 which provides that “this Part applies to service of documents except where …(a) another Part, any other enactment or a practice direction makes different provision.” It is said that CPR 62.5 makes different provision for the service of an arbitration claim form and therefore CPR 6 PD para.3.1(6)(c) cannot apply to the service of an arbitration claim form.

The difficulty with this argument is that it is contrary to an observation by the Supreme Court in AES Ust-Kamenogorsk v Ust- Kamenogorsk JSC [2013] 1 WLR 1889 at paragraph 51. In that case the Supreme Court was concerned with an anti-suit injunction based upon an arbitration clause. Permission to serve out was granted pursuant to CPR 62.5 but Lord Mance (with the agreement of Lords Neuberger, Clarke, Sumption and Toulson) said that the court would appear to have had jurisdiction to give permission to serve out under CPR 6 PD 3.1(6)(c) also. Mr. Lewis said that his point had not been argued. But even if it had not been argued it would be a bold step for a first instance judge to say that an observation of the Supreme Court was in error. I consider that a first instance judge should follow a unanimous observation of the Supreme Court.

This argument is based upon the submission that an application for an anti-suit injunction based upon vexatious and oppressive conduct is not a claim made “in respect of a contract”.

Where no contractual right is asserted in support of a claim for an anti-suit injunction it can no doubt be said that the claim is not made in respect of a contract. However, in this case the reason that the actual or threatened proceedings in Turkey are said to be vexatious and oppressive is that the Club has a contractual right under the terms of its cover to be sued in arbitration in London. Ms. Selek, the Turkish lawyer who gave evidence on behalf of the Charterers, said that “the victim’s right of recovery was “qualified only by ………….(c) any applicable law and jurisdiction clause, insofar as its application will not lead to Article 1478 being overridden, which would be contrary to public order/directly applicable norms.” It is possible (for the reasons discussed earlier in this judgment) that a Turkish court would not, ultimately, enforce the arbitration clause but even so the Club’s reliance on its rights under its contract shows that its claim for an anti-suit injunction is “in respect of a contract”.

In Green Wood & McClean LLP v Templeton Insurance Limited [2009] 1 WLR 2013 Longmore LJ held at paragraphs 18 and 19 that in order for a claim to be “in respect of a contract” the contract need not be one to which the intended claimant and the intended defendant were party. It is sufficient if the case has a connection with a contract governed by English law. In Alliance Bank JSC v Aquanta Corporation and others [2012] EWCA 1588 Tomlinson LJ at paragraph 71 favoured a different approach, namely, that the contract upon which reliance is placed must be one to which the intended defendant is a party. He was also attracted by the proposition that “unless the claimant is suing to order to assert a contractual right ….his claim is not in this context properly to be regarded as one made in respect of a contract. I think it likely that ordinarily such claims can only be made in respect of contracts to which the intended party is party.” Tomlinson LJ did not, however, hold that the defendant had to be a party to the contract. He concluded as follows: “It is sufficient to dispose of the point in this case to indicate that the required connection between claim and contract must inevitably be the more difficult to establish in a case where the intended defendant is not party to the contract upon which reliance is placed than in a case where he is party to it.”

In the present case the charterers were not originally a party to the contract between the Club and its member to arbitrate in London. However, the charterers have the benefit of a right of direct action against the Club which to a large extent, though not exclusively, is circumscribed by the terms of the contract between the Club and its member. One of the terms of that contract is that claims against the Club must be brought in arbitration in London. As I have already said, Ms. Selek, the Turkish lawyer who gave evidence on behalf of the Charterers, said that “the victim’s right of recovery was “qualified only by ………….(c) any applicable law and jurisdiction clause, insofar as its application will not lead to Article 1478 being overridden, which would be contrary to public order/directly applicable norms.” Thus the right of direct action which the Charterers wish to exercise in Turkey is one which is qualified by the London arbitration clause, albeit that, ultimately, the Turkish court may decide not to enforce the arbitration clause. That to my mind is a sufficient connection with the contract for it to be said that the Club’s claim is “in respect of the contract”, notwithstanding that the charterers are not party to the contract between the Club and its member.

For these reasons I have concluded that the court has jurisdiction to grant permission to serve out pursuant to CPR 6 PD paragraph 3.1(6)(c).

In the alternative the Club relied upon CPR 62.5(1)(c) pursuant to which the court may grant permission to serve an arbitration claim out of the jurisdiction if the claimant seeks a remedy affecting an arbitration (whether started or not) or an arbitration agreement and the seat of the arbitration is or will be within the jurisdiction.

Mr. Karia submitted that the remedy the Club sought, an anti-suit injunction, affected an arbitration or an arbitration agreement and that the arbitration is or will be within the jurisdiction. Mr. Lewis submitted that CPR 62.5(1)(c) only applies where the defendant is party to the arbitration agreement or arbitration in question and in support of that proposition he relied upon the decision of Males J. in Cruz City 1 Mauritius Holdings v Unitech & Others [2014] EWHC 3705 (Comm).

Mr. Karia did not suggest that I should not follow that decision but submitted that the charterers were party to the arbitration agreement and the London arbitration (whether started or not). In this regard he relied upon a number of cases.

In DVA v Voest Alpine [1997] 2 Lloyd’s Reports 279 (also known as the Jay Bola) the insurers of voyage charterers commenced proceedings in Brazil against the time charterers. The insurers were subrogated to the rights of the voyage charterers and by the law of Brazil were entitled to sue in their own name. The voyage charter contained a London arbitration clause and the time charterers sought an anti-suit injunction against the insurers.

Hobhouse LJ held at p. 286 that the insurers were not entitled to enforce their right without also recognising the obligation to arbitrate.

“Where the action is brought by the assignee in another jurisdiction which does not recognise the equitable right of the debtor, the debtor’s only remedy …….. is to apply for an injunction to restrain the assignee from refusing to recognise the equity of the debtor. The present is such a case. The insurance company is refusing to recognise the equitable rights of the time charterers. The equitable remedy for such an infringement is the grant of an injunction.”

Sir Richard Scott said at p.291 that the insurer was

“bound by the arbitration agreement not because there is any privity of contract between [the insurer] and [the time charterers] but because [the voyage charterers’] contractual rights under the sub-charter-party, to the benefit of which [the insurer] has become entitled by subrogation are subject to the arbitration agreement which, too, is part of the sub-charter-party. [The insurer] cannot enforce those contractual rights without accepting the contractual burden, in the form of the arbitration agreement to which those rights are subject.”

The present case is distinguishable from the Jay Bola because the charterers in Turkey are not assignees of the shipowner, the insured, and have not been subrogated to its rights. However, their right to sue the Club by means of the right of direct action conferred by Turkish law is subject to the arbitration agreement (though the Turkish court may decide not enforce that obligation). That suggests that although there is no privity of contract between the charterers and the Club the charterers are, in a real sense, bound by the arbitration agreement if they choose to exercise their right of direct action.

In Through Transport Mutual Insurance Association v New India Assurance [2005] 2 Lloyd’s Reports 378 (also known as the Hari Blum No.2) the court was concerned with a right of direct action against a liability insurer under Finnish statute which provided that the victim may claim compensation from the insurer in accordance with the insurance contract subject to the effect of anti-avoidance provisions. Moore-Bick J. said, at paragraph 24:

“In the present case the Court of Appeal has held, applying English rules of characterisation, that section 67 of the Finnish Insurance Contracts Act gives a person in the position of New India the right to enforce the obligations of the Club under the contract of insurance. Whether one describes New India as a statutory transferee or simply as the beneficiary of a statutory provision, therefore, the right it enjoys is a right to enforce a chose in action which is itself subject to certain inherent limitations. One of those is the pay to be paid clause; another is the obligation to enforce any claim by arbitration in London. In Finland those limitations may be disregarded if mandatory provisions of the relevant legislation so require, but in English law, as the Court of Appeal has held, that legislation is not recognised as capable of affecting the parties’ rights and obligations.”

Thus, where the claimant wishes to enforce a contractual right which is itself subject to an arbitration clause, the claimant is bound to respect that clause. In the present case the charterers’ right to sue the Club by means of the right of direct action conferred by Turkish law is subject to the arbitration agreement (albeit that the Turkish court may decide not to enforce that obligation). Thus, although there is no privity of contract between the charterers and the Club the charterers are, in a real sense, bound by the arbitration agreement.

In the Prestige (No.2) the court considered a right of direct action conferred by a Spanish statute. As already noted article 76 of the 1980 Insurance Contract Act provided that the injured party “shall be entitled to a direct action against the insurer to demand of him the fulfilment of the obligation to compensate”. It further provided that “direct action shall be exempt from the defences that the insurer may have had in respect of the insured.” A Spanish judgment indicated (see paragraph 70 of the judgment of Hamblen J.) that “the direct action rights which may be enforced against the insurer are the insured’s contractual rights, save that the insurer may not rely as against the third party on “personal” defences or a defence or exclusion based on wilful misconduct.”

Hamblen J. concluded that the direct action right conferred by Spanish law against liability insurers was in substance a right to enforce the contract rather than an independent right. Further, Hamblen J. accepted and adopted the analysis by Moore-Bick J. in the Hari Blum No.2 of the decision of the Court of Appeal in the Hari Blum No.1 which he summarised as follows at paragraph 136:

“When the third party makes a claim under an insurance policy containing an arbitration clause he becomes a person claiming under or through a party to the arbitration agreement for the purposes of the Act [the Arbitration Act 1996]. When that claim is disputed he becomes bound to refer the dispute to arbitration in accordance with that arbitration agreement. He is not an original party to the arbitration agreement, nor does he become a party to that agreement by reason of a novation or other legal transfer of the rights and obligations of the agreement. He is not therefore a party to the agreement “in the full sense”. But he is bound by it and he is a party to the agreement for the purposes of the Act.”

The right of direct action conferred by Turkish law in the present case against the Club is in substance a right to enforce the contract between the Club and its member, just as the right conferred by Spanish law in the Prestige (No.2) was in substance a right to enforce the contract between the Club and its member. That being so, and for the reasons given by Hamblen J., the charterers, once they decide to exercise their right of direct action, are bound to refer the dispute to arbitration in accordance with the arbitration agreement in the Club cover. They are not an original party to the arbitration agreement and have not become party to that agreement by reason of a novation or other legal transfer of the rights and obligations of the agreement. But they are bound by it and are, in that sense, a party to the agreement.

Males J., in Cruz City 1 Mauritius Holdings v Unitech & Others [2014] EWHC 3705 (Comm), was concerned with the question whether the court had jurisdiction to make a freezing order in aid of the enforcement of a London arbitration award against the subsidiaries of the award debtor against whom no substantive claim was asserted. The position of such subsidiaries can readily be distinguished from the position of the charterers in the present case who, if they wish to enforce the contractual claim of the shipowner against the Club, are bound to do so subject to and in accordance with the limitations to which the shipowner’s cause of action is itself subject. In my judgment, insofar as CPR 62.5(1)(c) only permits service out of the jurisdiction against a party to the arbitration agreement, the charterers are to be regarded as a party to the arbitration agreement in the Club cover for the purposes of granting permission to serve out.

I have therefore concluded that the court has jurisdiction to grant permission to serve out of the jurisdiction either under CPR 6 PD para.3.1(6)(c) or under CPR 62.5(1)(c). Whether permission should be given depends upon whether England is the proper place in which to bring the claim. Mr. Lewis accepted that this effectively stands or falls with the merits of the claim for the anti-suit injunction itself and to those I shall now turn.

Mr. Karia submitted that his application was based upon the intended substantive proceedings in Turkey being a breach of the arbitration clause so that, in accordance with the Angelic Grace [1995] 1 Lloyd’s Rep. 87 at p.96 per Millett LJ, an anti-suit injunction should be granted unless there was good reason for not doing so. In the alternative he submitted that the proposed substantive proceedings in Turkey were vexatious and oppressive and it was appropriate to issue an anti-suit injunction to avoid such vexation and oppression.

Mr. Karia relied upon the decision in the Jay Bola (a case in which, it will be recalled, the defendants were subrogated insurers who were entitled to proceed in their own name by the law of Brazil) and in particular upon the reasoning of Hobhouse J. at p. 286 where he said:

“…….the application of the time charterers for an injunction has been made to protect a contractual right of the time charterers that that the dispute be referred to arbitration, a contractual right which equity requires the insurance company to recognise. The jurisdiction in this case does not depend upon such concepts as forum non conveniens or oppressive and vexatious conduct. It depends upon the contractual rights of the time charterers although it can fairly be said that those rights show that Brazil is an inappropriate forum for the determination of the dispute and that the conduct of the insurance company has in fact been oppressive. ”

Mr. Lewis submitted that the present case was not one of breach and therefore the only basis upon which an injunction could be granted was that the proposed proceedings in Turkey were vexatious and oppressive. He submitted that they were not; the Charterers, a Turkish company, wished to proceed in Turkey pursuant to a Turkish statute which gave them the right to do so.

Mr. Lewis relied upon the decision in the Hari Blum No.1 (a case which, it will be recalled, concerned a right of direct action conferred upon a third party to claim compensation from the insurer) and in particular the decision of the Court of Appeal in paragraphs 93 and 95 that the principle of the Angelic Grace does not apply “by parity of reasoning” in a direct action case. In so holding the Court of Appeal disagreed with the approach of Moore-Bick J. at first instance who had applied the principle of the Angelic Grace. I consider that I must follow that decision by the Court of Appeal on the non-applicability of the principle in the Angelic Grace in a direct action case. Thus an injunction can only properly be granted if the proceedings in Turkey are vexatious and oppressive.

Mr. Karia submitted that they were because they are an attempt to enforce the Club’s liability under its contract with its member whilst ignoring the term of that contract which required the Club’s liability to be determined by arbitration in London. It would also, on the charterers’ case, deprive the Club of the benefit of the pay to be paid clause. Mr. Lewis submitted that the charterers’ intended proceedings in Turkey were not vexatious or oppressive for the same reasons that the proceedings in Finland in the Hari Blum No.1 were held not be vexatious or oppressive, namely, that the charterers are simply proceeding in Turkey under a Turkish statute which gives it the right to do so.

On this question the approach of the Court of Appeal in the Jay Bola appears to have been different from the approach of the Court of Appeal in the Hari Blum No.1. In the Jay Bola Hobhouse LJ., having noted at p.286 that the anti-suit injunction was “to protect a contractual right of the charterers that the dispute be referred to arbitration, a contractual right which equity requires the insurance company to recognise”, said that that contractual right shows that “the conduct of the insurance company has in fact been oppressive”. By contrast in the Hari Blum No.1, although Clarke LJ agreed that New India, if it wished to pursue a claim under the Finnish Act, was bound to do so by arbitration in London because the Club was entitled to rely upon the arbitration clause (see paragraph 60), Clarke LJ held that it could not “fairly be said that the proceedings in Finland were vexatious or oppressive. New India is simply proceeding in Finland under a Finnish statute which gives it the right to do so.” (see paragraph 96).

The decision in the Jay Bola was not cited to the Court of Appeal in the Hari Blum No.1, as Colman J. observed in the Front Comor [2005] 2 Lloyd’s Rep. 257 at paragraph 67 and as Sir Anthony Clarke observed in his article entitled The Differing Approach to Commercial Litigation in the European Court of Justice and the Courts of England and Wales (2007) EBLR Vol.18 101 at p.128.

In both the Jay Bola and the Hari Blum No.1 the issue was whether, in the circumstances of those cases, an anti-suit injunction should be granted. The circumstances of both cases were different from the circumstances of the present case. The Jay Bola concerned a claim by a subrogated insurer rather than a claim by a third party granted a statutory right of direct action against a liability insurer. The Hari Blum No.1 did concern a claim by a third party granted a statutory right of direct action against a liability insurer but, unlike the present case, the third party sought to bring its claim in a Convention country; see paragraphs 95 and 97. It is clear that that was a material circumstance which affected the judgment of the court. Indeed, in the Hari Blum No.2 Moore-Bick said at paragraph 18:

“……I think it is clear from paragraph 97 of the judgment that the decisions of the European Court of Justice in Erich Gasser GmbH v Misat Srl [2004] 1 Lloyd’s Rep. 222 and Turner v Grovit [2004] 2 Lloyd’s Rep. 169 and the developing jurisprudence governing the relationship between courts of different Convention states played an important part in persuading the court that it was not appropriate to restrain new India from continuing the proceedings in Finland. ”

It follows that neither the decision in the Jay Bola nor the decision in the Hari Blum No.1 can determine the outcome of the present case.

As a matter of principle it seems to me that the question of whether proceedings are vexatious or oppressive will depend upon their effect on the defendant to them. Consistent with that approach Hobhouse LJ in the Jay Bola focussed upon the infringement of the charterers’ contractual right to have claims brought against it in arbitration. By contrast Clarke LJ in the Hari Blum No1 appears to have focussed on the right of direct action given by a foreign law. Since the Court of Appeal in the Hari Blum No.1 was dealing with a foreign statute which conferred a right of direct action, as I am, it is arguable that I ought to follow the approach of the Court of Appeal in that case.

However, in deciding which approach to follow I have borne in mind that, as observed by Moore-Bick J. in the Hari Blum No. 2 at paragraph 18, the developing jurisprudence governing the relationship between courts of different Convention states “played an important part in persuading the court that it was not appropriate to restrain New India from continuing the proceedings in Finland.” That factor is not present in the case before me. I would add that in circumstances where Clarke LJ had accepted that New India was bound, if it wished to pursue its claim, to do so by arbitration in London because the Club was entitled to rely upon the arbitration clause it is unlikely that that factor played no part in his consideration of the question whether an anti-suit injunction should be granted. Indeed, it seems to me likely that it must have done so. Had he not considered that there were grounds for the issue of an anti-suit injunction based upon New India’s obligation, if it wished to pursue its claim, to do so by arbitration in London it would have been unnecessary for him to consider the European law question. But he did consider that question and it played an important part in his refusal to grant an injunction.

I have concluded that I should follow the approach of Hobhouse LJ in the Jay Bola and focus upon the effect of the foreign proceedings on the party seeking the anti-suit injunction. That appears to me to be right in principle or, at any rate, the starting point. I am not persuaded, despite the language used by Clarke LJ in paragraph 96 of his judgment in the Hari Blum No.1, that Clarke LJ disagreed with this approach. It is more likely that he considered that the circumstance that the claimant was exercising a right given him under a foreign statute was a relevant factor to bear in mind when deciding whether or not to grant an anti-suit injunction.

In deciding whether the Turkish proceedings in the present case would be vexatious or oppressive I have therefore considered their effect on the Club. Their effect would be to deprive the Club of its right to have claims brought against it enforced by arbitration in London. Further, there is a real risk that those proceedings will also prevent the Club from being able to rely upon the pay to be paid clause in its contract with its member. Both of those interferences with the Club’s contractual rights mean that, from the Club’s point of view, the Turkish proceedings are vexatious and oppressive. Against that must be considered the fact that the charterers are merely exercising a right given them by the legislature of Turkey. However, if the charterers wished to enforce their right in arbitration in London they could do so. For example they could, if necessary, apply for the appointment of an arbitrator; see The Hari Blum No.2 paragraph 25. But the Charterers are no doubt unwilling to advance their claim in a London arbitration because English law would uphold the pay to be paid clause. However, as a matter of English law, the Club is entitled to the benefit of that clause. In those circumstances I remain of the view that the Turkish proceedings are vexatious and oppressive because they would infringe the contractual rights of the Club.

Mr. Lewis identified a number of other matters to be taken into consideration in deciding whether, in the exercise of the court’s discretion, it is appropriate to grant an anti-suit injunction.

Mr. Lewis submitted that the application in the present case raised an important question of policy. Should the court give priority to the Club’s contractual rights or to the right of direct action conferred upon the charterers by Turkish law? He submitted that priority should be given to the right of action conferred upon the charterers by Turkish law. He pointed out that the effect of the court’s decision will be that the charterers’ right of direct action will be determined in accordance with English law rather than by Turkish law. In the present case that will have one particular and damaging consequence, namely, the pay to be paid clause will be given effect in English law whilst it would not be given effect in Turkish law.

I agree that this is an important question of policy for English law. It is discussed in The Anti-Suit Injunction by Rafael at paragraphs 1-27 – 1-35. However, English law has answered that question by giving priority to contractual rights. It did so in the Jay Bola, the Hari Blum No.2 and the Prestige No.2. It did not do so in the Hari Blum No.1 but in that case the determining factor was the developing European law on anti-suit injunctions in Convention states, a factor not present in the present case. In the present case it can be said that there is no privity of contract between the Club and the charterers. It can therefore be said (as was held in the Hari Blum No.1 with regard to New India ) that the charterers are not acting in breach of contract because, not being party to a contract, they cannot act in breach of it. However, as was said in the Hari Blum No.2 and in the Prestige No.2, once the charterers elect to exercise their right to enforce directly against the Club its contractual liability to its member they must abide by the limitations on that contractual liability. Thus, although it cannot be said that the charterers are acting in breach of contract, the reason why the proposed Turkish proceedings are vexatious and oppressive is that, if the charterers are permitted to continue them, they will infringe the Club’s contractual rights. The policy of English law to respect contractual rights is therefore engaged in the present case and answers the question of policy posed by Mr. Lewis.

It was suggested that the prospect of the English Court deciding questions of Turkish law ahead of the Turkish Court was contrary to comity. But the English Court will not be deciding such questions save to the extent that it does so in this judgment. If the charterers advance their claim in arbitration it will be the arbitral tribunal who will decide the claim. Since the charterers will be seeking to enforce the Club’s contractual liability in the contractual forum I am not persuaded that permitting that to happen is contrary to comity.

Three further points were relied upon by Mr. Lewis. It was said that the Club, after the introduction of the TCC, wrote insurance business in Turkey for the benefit of Turkish owners operating vessels from Turkish ports. That is true. But the insurance written by the Club provided that claims against the Club were to be resolved in arbitration in London. I am not therefore persuaded that the writing of business in Turkey is a reason for not granting the relief sought by the Club. The Turkish owner would be bound by the arbitration provision and the charterers are seeking to enforce the Club’s contractual liability to the Turkish owner.

It was said that the Turkish legislature is not alone in seeking to avoid the effect of the pay to be paid clause. Most American states have done so; see P&I Clubs Law and Practice 4^th ed. 2010 by Semark at paragraph 17.46. However, in English law foreign legislation is not capable of affecting contractual rights and obligations governed by English law; see the Hari Blum No.2 at paragraph 24.

Finally, Mr. Lewis drew the court’s attention to Directive 2009/20/EC of the European Parliament and the Council on the insurance of shipowners for maritime claims and to the UK Merchant Shipping (Compulsory Insurance of Shipowners for Maritime Claims) Regulations 2012 which seek to give effect to the Directive. Paragraph 4 of the Regulations makes it compulsory for ships entering or leaving a UK port to have insurance for maritime claims. The recitals to the Directive record that the obligation to have insurance should make it possible to ensure better protection for victims. Mr. Lewis submitted that “victim protection” has become a policy which is part of English law. He submitted that this consideration should now be borne in mind by the Court when deciding whether to grant an anti-suit injunction restraining the Charterers from exercising their right of direct action as a victim. I have borne that consideration in mind but am not persuaded by it to refuse an anti-suit injunction. First, neither the Directive nor the Regulations confer a right of right of direct action. Second, the grant of an anti-suit injunction does not prevent the charterers from exercising their right of direct action against the Club. They may pursue that right in arbitration in London and thereby seek to enforce the contractual liability of the Club to its member.

For these reasons I have concluded that the anti-suit injunction granted by Cooke J. should be continued.