Crescendo Maritime Co & Anor v Bank of Communications Company Ltd & Ors

This is the trial of two actions. In one action an anti-suit injunction is sought in circumstances where one party to a London arbitration agreement wishes to enforce it and another party, despite having agreed to London arbitration, prefers to litigate in another country, in this case China. In the other action a declaration on non-liability in fraud is sought.

In August 2007 Nantong Mingde Heavy Industry Stock Co. Ltd. (“the Builder”) agreed to construct a vessel and sell the same to Crescendo Maritime Co., (“the Buyer”). As is often the case where a Chinese shipbuilder enters into a shipbuilding contract with a foreign buyer (the Buyer in the present case is managed by a Greek company) the parties agreed that the contract would be governed by English law and that disputes would be resolved in London arbitration.

The price was to be paid in instalments. The Buyer obtained funding by way of a loan dated 29 October 2007 from a Greek bank, Alpha Bank (“Alpha”). In the event that the Shipbuilding Contract was cancelled the Builder was obliged to repay the instalments. As security for repayment of the instalments Refund Guarantees were provided by the Bank of Communications Company Limited Qingdao Branch (“the Bank”) to the Buyer. The first was issued on 14 September 2007, the second on 11 July 2008 and the third on 24 December 2009. The Refund Guarantees also provided for English law and London arbitration. As security for its loan to the Buyer Alpha took a security assignment of the Buyer’s rights under the Refund Guarantees.

New Future International Trade Co. Ltd. (“New Future”) is a Chinese trading house which was responsible for procuring the Refund Guarantees (pursuant to an agreement governed by Chinese law) and became a party to the Shipbuilding Contract as co-seller by addendum no.1 to the Shipbuilding Contract.

In November 2011 the Shipbuilding Contract, after much delay, was brought to a premature end. The Builder purported to terminate the contract. Arbitration in London was commenced and the Builder claimed damages. The Buyer claimed that it was entitled to cancel the contract because of delay and to claim repayment of the instalments. The Builder disputed the Buyer’s right to cancel and did not repay the instalments. The Buyer thus made a claim under the Refund Guarantees but the Bank declined to pay pending the outcome of the dispute between the Buyer and the Builder. The Buyer therefore commenced arbitration in London against the Bank. The same tribunal (Mr. Anthony Hallgarten QC, Mr. Ian Gaunt and Mr. Patrick O’Donovan) was appointed in each reference and the arbitrations were managed concurrently.

It is common ground that the Shipbuilding Contract was backdated to 2 December 2006 so as to circumvent the application of certain amendments to the SOLAS Convention concerning tank coatings, which amendments applied to vessels built pursuant to shipbuilding contracts signed after 8 December 2006.

In September 2013, after the exchange of Claim, Defence and Reply Submissions the Bank served Rejoinder Submissions. In those submissions the Bank alleged that there had been fraudulent ante-dating of the Shipbuilding Contract by the Builder with the intention of “sneaking” the financial facility from Alpha. It was said that the “concealment” of the ante-dating was unacceptable. It was claimed (see paragraph 9(2)) that the Bank was “cheated to agree to issue the refund guarantees” and (see paragraph 9(3)) that due to the frauds “the Refund Guarantees are null and void (ab initio) and/or unenforceable against the Respondent”. In addition the Bank alleged that the Buyer had assigned its rights under the Shipbuilding Contract to Alpha and it was Alpha, not the Buyer, who was entitled to commence arbitration proceedings.

After Surrejoinder Submissions from the Buyer the Bank served further submissions (described by the parties as Rebutter Submissions) by email dated 24 April 2014. The Bank gave notice that it may charge Alpha with having colluded in the commission of the alleged fraud and repeated that it had been unaware of the alleged fraud until the commencement of the arbitration and that it was “cheated to issue the RG,s which derived from the Buyer’s frauds.”

In March 2014 a hearing date was fixed for November 2014. Disclosure was given in April 2014 followed by the exchange of witness statements in July 2014.

Notwithstanding that it was the case of the Buyer and Alpha that the security assignment was not absolute and that the Buyer had title to sue Alpha decided in July 2014 to apply to the arbitral tribunal to join the arbitrations so that the alleged assignor and alleged assignee were both before the tribunal.

The Bank maintained that Alpha was not a party and that the tribunal had no jurisdiction over Alpha. The Bank refused to respond to the application and said that it would not even read the application. It added that Alpha’s solicitors, Reed Smith, were “conflicted out” because Alpha knew of and consented to the alleged fraud. The tribunal was dismayed to learn that there would be no response from the Bank and, in its email dated 3 August 2014, urged it to respond to Alpha’s application. But the Bank did not respond.

On 23 August 2014 the tribunal informed the parties that it had considered Alpha’s application. It had concluded, after considering certain authorities including the judgment of Rix J. in Charles M Willie & Co (Sipping) Ltd vOcean Laser Shipping Ltd [1999] 1 Lloyd’s Rep 225, that the tribunal had jurisdiction to join Alpha and had decided to join Alpha. On 4 September 2014 the tribunal explained that it had not decided any substantive issue. “Its decision was limited to simply allowing Alpha Bank to be joined; so that if for instance Alpha Bank rather than Buyers was technically entitled to relief or the presence of Alpha Bank was necessary for Buyers to have relief, justice could be done.”

The decision of the tribunal has been subjected by counsel for the Bank to much criticism. It is said that the tribunal misunderstood the Buyer’s submissions and that its decision was not a permissible exercise of its jurisdiction. It was further said that the Bank, which agreed to a private and confidential arbitral process, feels let down by the tribunal. Whatever the rights or wrongs of the decision (and it is no part of the court’s function in these actions to review it) this comment is inappropriate and unfair. The tribunal was faced with a case management decision which, in the context of arbitration, was difficult. It dealt with it in a practical manner designed to ensure that justice was done.

The Bank decided to take no further part in the arbitration. The tribunal urged it by email dated 13 October 2014 to change its mind but the Bank did not.

Instead, the Bank commenced proceedings in China. On 29 August 2014 the Bank issued a Civil Complaint against the Builder, the Buyer and Alpha as defendants 1-3 and joined New Future as a third party. The Bank requested the court to affirm that the actions of the defendants “constitute fraud as they intentionally concealed the pertinent facts when applying to the [Bank] for the issuance of the Refund Guarantees”. They sought damages and a decree “that the [Bank] shall terminate its payment to the [Buyer and Alpha] under the Refund Guarantees.” Under “Facts and Justifications” it referred to the backdating of the Shipbuilding Contract and the reasons therefor and said: “The defendants intentionally concealed the real facts and used the false Shipbuilding Contract to apply to the [Bank] for the issuance of Refund Guarantees.” It was said that the Refund Guarantees had no legal binding force ab initio.

On 10 and 17 September 2014 the Bank, New Future and the Builder issued applications challenging the tribunal’s decision to join Alpha pursuant to sections 67 and 69 of the Arbitration Act 1996.

On 8 October 2014 the Buyer and Alpha served a notice challenging the court’s jurisdiction under sections 67 and 69 (on the grounds that the tribunal’s decision to join Alpha was not an award but an order).

On 21 October 2014 the Chinese court issued a ruling “freez[ing] the principal sum and interest under the Refund Guarantees…and the [Bank] is refrained from making any payment ….to the [Buyer] and/or [Alpha].”

On learning of the proceedings in China the Buyer and Alpha applied, with the consent of the arbitral tribunal, for an anti-suit injunction. That injunction was sought in Claim No. 2014 Folio 1310 which was issued on 29 October 2014. On the same day Alpha issued Claim No. 2014 Folio 1311 in which it sought declaratory relief (to the effect that it had no liability for fraud) and an injunction. On 31 October 2014 this court (Males J.) granted an anti-suit injunction in Folio 1310. The Bank (and the Builder and New Future) were ordered, on an interim basis, not to pursue the proceedings in China. In addition and on the same day Males J. granted Alpha permission to serve the claim form in Folio 1311 out of the jurisdiction.

The arbitration hearing took place in London on 3-6 November 2014. The Bank, the Builder and New Future did not take part.

On 19 November 2014 the Buyer and Alpha applied for security for their costs of the challenges to the order of the tribunal joining Alpha.

On 28 December 2014 the Chinese court issued a further ruling to the effect that it had jurisdiction over the claim brought by the Bank, thereby rejecting a submission by the Buyer that it had no jurisdiction because of the arbitration clause in the Refund Guarantees.

The arbitration awards were published on 31 December 2014. The tribunal decided the references in favour of the Buyer. It held that the Buyer had validly cancelled the Shipbuilding Contract and that the Buyer was entitled to the refund of the instalments, some US$18,600,000. The Bank was ordered to honour the Refund Guarantees in the event that the Builder failed to refund the instalments. The tribunal’s reasons were careful, full and detailed and extended to some 88 pages.

The tribunal held that the Shipbuilding Contract had been backdated at the suggestion of the Builder. The Buyer was aware of the backdating and the reason for it. The tribunal said that backdating was not unique to this transaction. “The evidence was that this was common practice among Chinese and Korean yards who were not yet ready or otherwise willing to work to the new standard.” The tribunal held that the Bank and Alpha knew of the backdating. “Each bank would have asked its client the reason why the Contract was being backdated and been given an explanation along the lines set out above” (see paragraphs 42-46).

With regard to the assignment the tribunal held that it was not an immediate legal assignment as contended for by the Bank. It was “by way of security” and subject to a proviso that the Buyer was entitled to exercise all its rights unless a default had occurred and notice of such default had been given to Alpha (see paragraphs 189-190.) It further held that there had been no notice of any default (see paragraphs 210-212).

The tribunal considered whether the Refund Guarantees were void for fraudulent misrepresentation or non-disclosure. It described the essence of the Bank’s case as being that it was “cheated” into entering the Refund Guarantees because it knew neither of the backdating of the Shipbuilding Contract nor of the reason therefor. It held that the Bank had failed to establish any relevant misrepresentation, that the Buyer would have assumed that the Bank was aware both of the backdating and the reason for it, that there was no evidence of dishonesty between the Buyer and the Bank, that it was highly probable that the Bank was fully apprised of the situation and that there was no non-disclosure (see paragraphs 197-204).

The tribunal itself raised the question whether the Shipbuilding Contract or Refund Guarantees were unenforceable for illegality. The tribunal did not have evidence that there had been a deception of the class surveyor (he may have known of the widespread practice) or that either the Builder or the Buyer had an intention to deceive him. In those circumstances it was impossible to say that the contracts were tainted with illegality (see paragraphs 223-230).

On 27 February 2015 Eder J. continued the interim injunction and gave directions for a trial both of the claim to a final injunction and of the claim by Alpha to declaratory relief on 27 March 2015.

On 19 March 2015 the Bank issued an application challenging the awards of the tribunal pursuant to sections 68 and 69 of the Arbitration Act 1996.

Also on 19 March 2015 this court (Eder J.) gave the Buyer leave to enforce the arbitration awards dated 31 December 2014 as judgments of the court and entered judgment accordingly.

On 27 March 2015 the trial of these actions was stood out of the list and Hamblen J. gave further directions. This occurred because of an unexpected issue as to whether the Bank was a separate legal entity from its Qingdao Branch.

On 2 April 2015 the Bank issued an application for an extension of time for its challenges to the awards of the tribunal.

On 16 April 2015 the Buyer issued an application for security for its costs of the challenges to the awards of the tribunal.

Between 19 and 27 May 2015 there was correspondence between the Bank’s and the Buyer’s solicitors as to how the various arbitration applications should be dealt with by the court.

On 29 May 2015 the clerks for the parties’ counsel attended upon the Commercial Court Listing Office and a hearing date was fixed for 29 September 2015.

On 30 September 2015 Phillips J. dismissed the challenges to the tribunal’s order and awards. The Bank did not appear at this hearing but has issued applications seeking permission to appeal the court’s decision.

The Bank has complained that its section 69 application was not heard until September 2015. That complaint appears to me to be difficult to sustain in circumstances where the Buyer was arguing that there was no jurisdiction to entertain a s.69 application and was seeking security for its costs and the date for hearing those and other matters, 29 September 2015, was fixed on 29 May 2015. The complaint also sits unhappily with the Bank’s failure to attend the hearing of the arbitration applications.

At the trial of the Buyer’s claim for a permanent anti-suit injunction and of Alpha’s claim for declaratory relief on 3-5 November 2015 only the Qingdao Branch of the Bank was represented. The Bank was not represented. In the event it proved to be common ground between the Chinese lawyers that the Branch did not have a separate legal identity from the Bank. Thus the references in this judgment to the Bank are a reference to both the Bank and its branch.

There were three witnesses of fact. Alpha called Mr. Flokos, an assistant manager in Alpha. He gave evidence on the question whether Alpha had concealed the true date of the Shipbuilding Contract from the Bank. He appeared to me to be a fair and helpful witness who sought to tell the court what he thought had happened, although at times he gave what appeared to be inconsistent answers which were probably to be explained by some confusion on his part as to what was being suggested. The Bank called Mr. Zhao who gave his evidence by means of a video link. It turned out that he had no evidence to give from his own knowledge and some things he said appeared improbable. There were two expert witnesses of Chinese law. They were called primarily to deal with the question whether the Bank had a separate legal identity from its branch. In the event it appeared that there was no dispute that it did not. However, the experts also gave evidence as to the elements of the Chinese law of maritime fraud and other matters. The Buyer’s expert was Mr. Yuan. He was a very good English speaker and I found him to be a fair and helpful witness. The Bank’s expert was Mr. Li who gave evidence by audio link alone. Unfortunately, his English, although assisted by an interpreter, was not always easy to follow. He appeared to have a tendency to argue rather than answer simple questions. I therefore found Mr. Yuan to be the more reliable expert on Chinese law. Lastly, Mr. Weller of Reed Smith gave evidence. It was unclear why he was called and/or required to be called because, unsurprisingly, there was little to which he could speak of his own knowledge.

Although the claim of the Buyer for an anti-suit injunction was put on two bases (first, that the Chinese proceedings are vexatious and oppressive and, second, that they are in breach of the arbitration agreement) it is convenient, because there is an arbitration clause, to consider the claim based upon the arbitration clause in the Refund Guarantees.

English law is very clear. Where foreign proceedings are brought in breach of an agreement to refer disputes to arbitration in London the court will issue an anti-suit injunction unless there are strong reasons for not doing so: see The Angelic Grace [1995] 1 Lloyd’s Reports 87 and Donohue v Armco [2002] 1 Lloyd’s Reports 425. The reason for that approach is that the claimant has a contractual right to arbitrate disputes within the clause in London and the law will protect that right unless there are strong reasons for not doing so.

The arbitration agreement in the Refund Guarantees refers to arbitration of “any dispute under this guarantee”. Mr. Bailey submitted on behalf of the Buyer that on the authority of Fiona Trust v Privalov [2008] 1 Lloyd’s Reports 254 such language is broad enough to encompass all of the Bank’s claims in the Chinese proceedings, including both the question whether the Refund Guarantees are vitiated for misrepresentation and also any claim in tort for damages for fraud. I did not understand this to be challenged by Mr. Hatt on behalf of the Bank.

The question therefore is whether there are strong reasons for not issuing an anti-suit injunction to enforce that clause. I have read Mr. Hatt’s Closing Submissions (of some 58 pages) which were provided to me at the hearing and which I was invited to read after the hearing. As I understand those submissions and the additional points he made orally there were, in essence, three matters upon which he relied to establish the necessary strong reason for not issuing an anti-suit injunction. First, it was said (and this was described as the “key” point) that the claim in China is different from that which had been advanced in the London arbitration. Second, it was said that the natural forum for the resolution of the fraud claim was the Chinese court. Third, it was said that the Chinese proceedings were also brought against Alpha and others who were not party to the arbitration clause and therefore the claim against them could not be brought in the London arbitration.

The claims in arbitration and in China: It was submitted that the Bank’s claim in China was different from the Bank’s claim in the arbitration because (i) the claim in China alleged that Alpha was party to the fraud whilst in arbitration the Bank alleged that Alpha was innocent of the fraud and (ii) the claim in China alleged non-disclosure whilst the claim in arbitration alleged misrepresentation. It is true that the Bank alleged in arbitration that Alpha was innocent of the fraud (though by the Rebutter Submissions it was being suggested that Alpha might be party to the fraud). It is also true that in China the allegation is of non-disclosure but in arbitration the allegation was of “concealment” which would appear to be non-disclosure. In the event the tribunal addressed both misrepresentation and non-disclosure. I do not consider that the differences in the detail of the allegations, such as they are, indicate that in substance there is any difference between the allegations in China and the allegations in arbitration. In both the arbitration and in China the Bank is seeking to avoid liability under the Refund Guarantees on the grounds that it was deceived into thinking that the true date of the Shipbuilding Contract was the date borne by that contract. Thus in arbitration the Bank argued that it was “cheated to agree to issue the refund guarantees” and that “the Refund Guarantees are null and void (ab initio) and/or unenforceable against the Respondent”. In China the Bank is arguing that there was a deliberate concealment of the true facts and that the Refund Guarantees had no legal binding force ab initio. I therefore do not think that such differences as there are can amount to a strong reason not to enforce the arbitration clause.

The natural forum: I accept that the natural forum for determination of the allegation of fraud is China because the fraud is alleged to have been committed in China, the Builder is a Chinese yard and the Bank is a Chinese bank. The relevant evidence, or at any rate the greater part of it, is likely to be found in China. However, the Builder, the Buyer and the Bank have chosen London arbitration as a neutral forum. This is frequently done where Chinese yards agree to build ships for foreign buyers. When that is borne in mind the matters which suggest that China is the natural forum are of little consequence. In Akai Pty Ltd v People’s Insurance Co. Ltd. [1998] 1 Lloyd’s Rep. 90 Thomas J. (as he then was) said at p.105 rhc:

“Where the parties have chosen a neutral forum connected with neither party, factors relating to the convenience of the parties or the location of witnesses are of little relevance.”

In Skype Technologies SA v Joltid Ltd [2009] EWHC 2783 (Ch) at §33 Lewison J (as he then was) said:

“It follows, in my judgment, that what one might call the standard considerations that arise in arguments about forum non conveniens should be given little weight in the face of an exclusive jurisdiction clause where the parties have chosen the courts of a neutral territory in the context of an agreement with world-wide application. Otherwise the exclusive jurisdiction clause would be deprived of its intended effect. Indeed, the more “neutral” the chosen forum was the less the importance the parties must have placed on the convenience of the forum for any particular dispute. If the standard considerations that arise in arguments about forum non conveniens were to be given full weight, they would almost always trump the parties’ deliberate selection of a neutral forum. This coincides with the tentative view of Teare J in Morgan Stanley & Co International plc v China Haisheng Juice Holdings Co Ltd [2009] EWHC 2409 (Comm), § 37; and the view expressed by Raphael on The Anti-Suit Injunction § 8.06 fn 10, with which I agree.”

Both of those cases concerned exclusive jurisdiction clauses rather than arbitration clauses. However, I do not see why the same approach should apply where a neutral arbitration venue has been chosen by the parties. In Toepfer v Cargill [1997] 2 Lloyds Rep. 98 at p.110 rhc Colman J. regarded considerations of forum conveniens as of little or no weight in the context of arbitration clauses.

I therefore do not consider that the forum conveniens factors in favour of China can amount to a strong reason not to enforce the arbitration clause.

Multiple parties: Alpha is a defendant to the proceedings in China. Although it was made a party to the London arbitration so that, in the event that it was held, as contended by the Bank, that the right to sue under the Refund Agreement had been assigned to Alpha, the decision in the arbitration would be binding upon it, it was ultimately held that there was no legal or absolute assignment in favour of Alpha. Accordingly the Bank was unable to bring a claim in fraud against Alpha in the London arbitration. Nor could it bring a claim in the London arbitration against the Builder or New Future. It was therefore submitted that in circumstances where the Bank wished to allege fraud against the Buyer, Alpha, the Builder and New Future and where that could be done in China but not in London arbitration there was a strong reason not to enforce the arbitration clause. In this regard reference was made to other cases where the existence of multiple parties was a strong reason for not issuing an anti-suit injunction; Bouygues Offshore SA v Caspian Shipping Co. [1998] 2 Lloyd’s Reports 461, Donohue v Armco [2002] 1 Lloyd’s Rep. 425, Verity Shipping v NV Norexa [2008] EWHC 213 and Carlyle Capital Corporation v Conway [2013] 2 Lloyd’s Rep. 179.

I accept that the existence of claims against multiple parties, with the consequent risk of inconsistent findings, can amount to a strong reason not to issue an anti-suit injunction. But when one has regard to the circumstances in which the issue of fraud has been raised both in the arbitration and in China it is clear, in my judgment, that the proceedings in China against the Buyer are vexatious and oppressive and that there is strong reason for granting an anti-suit injunction. First, the Bank defended itself in the London arbitration (at least up until the close of pleadings and exchange of evidence) by arguing, inter alia, that the Buyer had committed a fraud such that the Bank should be released from any liability it would otherwise have under the Refund Guarantees. Second, despite having done so it issued proceedings in China alleging the same fraud, or essentially the same fraud, against the Bank and others in China. It is vexatious and oppressive for the Buyer to have to face the same charge in two different tribunals. Third, the Buyer proceeded with the arbitration and has defended itself against the allegations of fraud which the Bank had made in the arbitration. Fourth, the Buyer has obtained an arbitration award in which the allegations of fraud were considered and dismissed. It would be vexatious and oppressive for the Bank to have to defend itself again against the same allegation of fraud. Fifth, just as an attempt to re-litigate abroad the merits of a case which has been lost in the English court is a “classic case of vexation and oppression” (see Masri v Consolidated Contractors International [2008] 2 Lloyd’s Rep. 301 at paragraphs 95 and 100) so is an attempt to re-litigate abroad the merits of a case which has been lost in arbitration (see C v D [2007] 2 Lloyds Rep. 367 at paragraphs 51-53). This analysis is not based upon a case of vexation or oppression absent an arbitration clause. Rather, it is based upon the existence of the arbitration clause and of the awards which were made pursuant to that clause.

However, the question remains whether the risk of inconsistent findings between the arbitration award and the Chinese proceedings is a strong reason for refusing to issue an anti-suit injunction. I have concluded that it is not. In the circumstances of this case it is, it seems to me, inappropriate and unjust for the Bank to rely upon a risk of inconsistent decisions when that risk arises from the Bank’s own decision to allege fraud both in arbitration and in China in an endeavour to secure a finding that it may escape liability under the Refund Guarantees. Having had every opportunity to pursue its case before the arbitration tribunal in which it had alleged fraud it chose not to do so and, having lost in that tribunal, it now wishes to obtain an inconsistent finding in China by way of a collateral attack on the arbitration award.

In my judgment there is no strong reason for not enforcing the arbitration clause.

It must follow that it is appropriate to grant an injunction restraining the Bank from continuing to sue the Buyer in China. Comity is not breached because the injunction is directed at the Bank not at the Chinese court. It was suggested that the injunction has no utility because, as was accepted by Mr. Yuan, the Buyer’s expert on Chinese law, it is not easy to enforce an English judgment in China. However, the injunction has utility because the Bank can be expected to obey the order of this court. It has obeyed the interim order of Males J.

In addition to an injunction restraining the Bank from suing the Buyer in China, the Buyer seeks an injunction restraining the Bank from also suing Alpha in China. The basis of this claim is that the suit against Alpha is a collateral attack on the arbitration agreement, the arbitration awards which the tribunal has made in favour of the Buyer and the order of Eder J. permitting the award to be enforced as a judgment of this court. The collateral attack is said to arise because the Buyer is bound under the terms of the deed of Assignment with Alpha to indemnify Alpha. Thus, if a judgment against Alpha in China has the effect that the Bank is not liable under the Refund Guarantees then the Buyer will have to indemnify Alpha in an amount equal to the instalments of the purchase price which Alpha funded. That result would undermine the Buyer’s claim against the Bank in the arbitration and the arbitration award which the Buyer has obtained. Reliance was placed on 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).

In Donohue v Armco Lord Scott explained at paragraphs 61 and 62 that if proceedings abroad are brought in breach of an exclusive jurisdiction clause alleging fraud against a number of parties one of whom is entitled to enforce the exclusive jurisdiction clause that party is entitled to an injunction barring continuation of the claims abroad not only against himself but also against the others who are alleged to be jointly and severally liable with that party. That is because the claims abroad against the others will, if established, involve the party in some consequential liability (liability as a joint tortfeasor to contribute to the damages awarded by the foreign court). In Noble Assurance v Gerling-Konzern General Insurance Toulson LJ (as he then was) held that where a London reinsurer commences proceedings abroad attempting to nullify the result of a London arbitration award against the reinsurer such conduct is vexatious and oppressive and an abuse of process and/or unconscionable. Where the proceedings abroad are brought not only against the person who obtained the award (the reinsured) but also against another who was not party to the arbitration but was the parent of the reinsured and the ultimate assured the objectionability of the proceedings applies with equal force in relation to the non-party because it is a “collateral attack” on the award; see paragraphs 87 and 95-96.

This is a difficult area of the law and the approaches in the two cases are not identical. The observations of Lord Scott were obiter and, with respect, pose difficulty if the basis of the jurisdiction is said to be the arbitration clause to which Alpha was not party. However, the reasoning of Toulson LJ in Noble Assurance v Gerling-Konzern General Insurance was essential to the decision in that case which decision stands as authority for the proposition that where proceedings abroad amount to a collateral attack 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. However, whether proceedings abroad against a non-party are a collateral attack on an arbitration award and on that account vexatious and oppressive must depend upon an assessment of the circumstances of each particular case.

In the present case the proceedings in China have been brought against the Buyer and, in addition, Alpha, the Builder and New Future. The Bank seeks, in essence, release from its liability under the Refund Guarantees and also damages. However, if the Bank is released from its liability under the Refund Guarantees it is difficult to see what damages it might suffer. Thus the primary claim would appear to be for release from the Refund Guarantees. Since such a release would be contrary to the arbitration award the proceedings in China appear to be a collateral attack on that award.

In those circumstances the court has jurisdiction to grant an anti-suit injunction restraining the pursuit of the Chinese proceedings. However, whether such injunction should restrain the proceedings against the Buyer alone or whether, as submitted by Mr. Bailey, the injunction should also restrain the proceedings against Alpha is more difficult. Alpha is not a party to the arbitration agreement. Moreover, the remedy of damages against Alpha will only be relevant if the Bank does not avoid liability under the Refund Guarantees, that is, it will only be relevant if the Chinese court agrees with the arbitration tribunal that the Bank is liable under the Refund Guarantees.

Mr. Bailey relied upon the liability of the Buyer under the loan agreement to indemnify Alpha in the event that the Bank was released from its liability under the Refund Guarantees. That, it seems to me, supports the case that the proceedings in China against Alpha are a collateral attack on the arbitration award. But it is not apparent to me that it supports the case that the damages claim in China against Alpha is a collateral attack on the arbitration award. Such damages would only arise in the event that the Bank were held liable under the Refund Guarantees in agreement with the views of the arbitration tribunal. That does not involve a collateral attack on the arbitration award. I was therefore not persuaded that it was appropriate in this case to grant the Buyer an anti-suit injunction restraining the proceedings brought in China both against it and Alpha.

Mr. Bailey also relied upon the decision of the court in Michael Wilson & Partners Ltd. v Sinclair [2013] 1 All E.R. (Comm) 476. However, the decision in that case was also based upon proceedings being a collateral attack on an arbitration award and for the reasons I have given I am not persuaded that the claim for damages against Alpha is a collateral attack on the arbitration award in which it was held that the Bank was liable to the Buyer pursuant to the terms of the Refund Guarantees.

I therefore am unable to accept that the Buyer is entitled to an anti-suit injunction restraining the Bank from pursuing a damages claim against Alpha.

Mr. Hatt raised other considerations which he said would justify the court in refusing to restrain the Bank from proceeding against Alpha in China. It is unnecessary to deal with them but I will do so shortly so that my views, if relevant, are known.

Alpha also seeks an injunction in Folio 2014 No. 1310 based upon the arbitration clause and/or the proceedings in China against Alpha being a collateral attack on the arbitration award. Mr. Bailey based this claim on the same passages in Donohue v Armco and Noble Assurance v Gerling-Konzern General Insurance to which I have referred. For the same reasons I have given when dismissing the Buyer’s claim for an injunction restraining proceedings against both the Buyer and Alpha I must also dismiss Alpha’s claim for an injunction restraining proceedings against it.

A declaration is sought in action no. 2014 Folio 1311 that Alpha is not an assignee of the Refund Guarantees or the arbitration agreements and is not a party to them.

The deed of Assignment between the Buyer and Alpha dated 29 October 2007 provides as follows:

2.

ASSIGNMENT

2.1.

Assignment

a.

By way of security for payment of the Outstanding Indebtedness, the Buyer with full title guarantee and having given written notice to the refund guarantor as required by the Refund Guarantee, hereby assigns and agrees to assign to the Bank the assigned Property provided however that:

b.

all moneys payable to the Buyer comprised in the assigned Property (other than moneys described in clause 1.15, 1.15(a), 1.15(b), 6.1(c), 6.1(d) or 6.1(e) which shall in all circumstances be payable to the Bank) shall be payable to such account of the Buyer as the Bank shall from time to time agree and shall be at the disposal of the Buyer until such time as a Default shall occur and the Bank shall direct to the contrary whereupon the Buyer shall forthwith, and the Bank may at anytime thereafter, instruct the persons from whom such moneys are then payable to pay the same to the Bank or as it may direct and any such moneys then in the hands of the Buyer’s agents shall be deemed to have been received by them for the use and on behalf of the Bank;

c.

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 (subject as provided in this Deed) in all respects as if the foregoing assignment had not been made;

………….

5.2

Remedy of defaults: Without prejudice to the provisions of clause 5 or the generality of the powers and remedies vested in the Bank by virtue of the assignment herein contained, upon the happening of any Event of Default (whether or not the Bank shall have given any notice in accordance with the provisions of clause 102 of the Facility Agreement) the Bank shall become forthwith entitled, as and when it may see fit, to exercise in relation to the Assigned Property or any part thereof all or any of the rights, powers and remedies possessed by it as assignee of the Assigned Property (whether at law, by virtue of this Deed or otherwise) and in particular (without limiting the generality of the foregoing):

…………

f.

to implement the refund Guarantee and to agree with the Refund Guarantor any compromise of the obligations of the Refund Guarantor or grant any release or discharge of the Refund Guarantor;

………….

5.3.

Event of Default: At any time after the happening of any Event of Default (whether or not the Bank shall have given any notice in accordance with the provisions of clause 10.2 of the Facility Agreement) the Bank shall be entitled to exercise its powers of assignment and sale hereunder in such manner and at such times as the Bank in its absolute discretion may determine and the Bank shall not in any circumstances be answerable for any loss occasioned by such sale or resulting from postponement thereof.

…………

7.3

Bank as assignee: The Bank shall be entitled to do all acts and things incidental or conducive to the exercise of any of the rights, powers or remedies possessed by it as assignee of the Assigned Property (whether at law, under this Deed or otherwise).

In the undated letter which Mr. Flokos said was signed on 28 November 2013 and to which reference has already been made he said that that there had been no event of default. In his witness statement he said the same. He was cross-examined about this. He said that there had been events (for example, a failure to repay the amounts loaned and a material adverse change in the financial position of the Buyer) which would amount to an event of default under the loan agreement. But he said that Alpha did not regard them as such because they were all due to the default of the Builder. It seems to me that there probably were events of default. However, there is no dispute that notice had not been given by Alpha to the Buyer that it intended to enforce its rights under the deed of Assignment. The dispute between the parties was whether such notice was necessary in order make the assignment absolute. In my judgment notice was necessary. Clause 2.1(c) provided that until such notice had been given the Buyer was entitled to exercise its rights as if the assignment had not been made. Mr. Hatt relied upon clauses 5.2, 5.3 and 7.3 to argue that notice was not necessary. However, I consider that Mr. Bailey was correct in his submission that those clauses grant Alpha further powers but, so long as those powers are not exercised, do not affect the operation of clause 2.1 (c). There was no suggestion that those powers had been exercised.

I therefore consider that Alpha is entitled to the declaration which has been sought. Mr. Hatt said that that the declaration should not be granted because it was of no utility in circumstances where the arbitrators’ reasons could be deployed as Alpha saw fit in China. But since Alpha is not a party to the arbitration agreement it is doubtful that such deployment would assist it. Mr. Hatt further said that the declaration should not be granted because it was irrelevant to the Chinese proceedings and to the question of fraud. In this regard he relied upon the acceptance by the Buyer’s expert on Chinese law, Mr. Yuan, that the assignment question was of no relevance to the Chinese proceedings. However, the matter was of sufficient importance to the parties that both Alpha and the Bank incurred the expense of arguing the point. That suggests that it is useful to make the declaration so that the parties know the correct position in law.

Alpha also seeks declarations that (i) it did not make any false declarations or non-disclosures to the Bank in connection with or inducing the issue of the Refund Guarantees and (ii) it has no liability to the Bank in respect of any loss or damage suffered by the Bank by reason of the issue of the Refund Guarantees or any alleged misrepresentations or non-disclosures made to it.

Alpha seeks the first declaration on the basis that the Bank was, on the balance of probabilities, well aware of the true date of the Shipbuilding Contract.

The Shipbuilding Contract stated that it had been entered into on 2 December 2006. There is no dispute that it was in fact entered into on 16 August 2007.

On 14 September 2007 the Bank issued a Refund Guarantee in respect of the first instalment of the price up to $6.2m.

Mr. Flokos gave evidence that Alpha had no involvement in those matters. He said that on 29 October 2007 Alpha entered into a loan agreement with the Buyer to provide finance up to the sum of $46.5m. On the same day Alpha and the Buyer executed the deed of Assignment.

When cross-examined Mr. Flokos accepted that in October 2007 he was “in general terms” aware of the Class rules concerning tank coatings. The Builder did not want the new rules to apply. He said everyone was aware of that.

The true date of execution of the Shipbuilding Contract was stated in Addendum no. 2 dated 11 April 2008 to be 16 August 2007. The addendum provided that it shall be “strictly private and confidential between the parties and the Refund Guarantor.” That suggests that the Bank was aware of the contents of the addendum. Addendum no.3 is dated 12 April 2008 and provided that Addendum no.2 is “only for the purpose of Buyer use it during procedures required for transactions with their Bank.” Again it stated that it is confidential “between the parties and the Refund Guarantor”. Thus it also suggests that the Bank was aware of its terms. Mr. Flokos assumed that the contents of the Addenda had been shared with the Bank. He said that Alpha would not have advanced any further funds to the Buyer had they not thought that the Bank had approved the addenda.

When cross-examined Mr. Flokos accepted that in April 2008 he learnt more of the details of class rules concerning tank coatings. He said that the Builder and the Buyer did not want the new class rules. When asked whether there had been a fraud on class he agreed but then said there was no fraud at all “because everybody was aware of everything.” In re-examination he said that he did not know whether the class surveyor had been aware of the true date of the contract and that he did not consider at the time whether the surveyor was aware that the contract had been backdated.

On 11 July 2008 the Bank issued a Refund Guarantee which referred to the Shipbuilding Contract dated 2 December 2006 “as supplemented by addendum no.2 dated on April 11^th, 2008 and addendum no.3 dated on April 12^th, 2008”. The guarantee was in respect of the second instalment of the price up to $6.2m. It is improbable that the Bank issued such a guarantee without reading the terms of the addenda. The only probable circumstances in which the Bank would not have read the addenda before issuing the refund guarantee in July 2008 would have been that it had read them earlier in April 2008 when they were made.

Mr. Flokos accepted in cross-examination that at no point did Alpha send addenda nos.2 and 3 to the Bank. However, he said that the practice was for the trading house, New Future, to deal with the Bank. Whilst he could not say that New Future had been to the Bank he did not agree that it was possible that New Future may not have shown the addenda to the Bank because it was the role of the trading house to ensure that everything was in order. He said it was never in his mind that the Bank was unaware of the true date of the Shipbuilding Contract.

Mr. Zhao, deputy head of the Bank’s legal department, gave evidence by video link. He gave evidence that when the Bank issued the Refund Guarantees it did not know that the Shipbuilding Contract had been backdated. He said the Bank only became aware of this in the arbitration in January 2014. In particular he said the Bank was not aware of the contents of addenda nos.2 and 3 until seeing them in the arbitration. In re-examination he said that the Bank had only been provided with copies of addenda nos.1, 4 and 5.

However, it became apparent when he was cross-examined that he was not involved in the issue of the Refund Guarantees and had not spoken to those who had been involved in the issue of the Refund Guarantees at the Shibei sub-branch of the Bank. In his witness statement he did not identify the evidential basis upon which he stated that the Bank was unaware that the Shipbuilding Contract had been backdated. When cross-examined he said that he had spoken to a colleague in the international business department of the Bank who he said was Gao Dong. There was no evidence from Gao Dong though in the arbitration the Bank had provided a statement dated 18 July 2014 from Gao Dong. That statement dealt with the issue of the Refund Guarantees following receipt of the Shipbuilding Contract in September 2007 up to the demands made on those guarantees in 2012. No reference was made to the Bank not knowing that the Shipbuilding Contract had been backdated. Mr. Zhao’s evidence is therefore no more than hearsay. Moreover, he has not identified what he was told by Gao Dong or what Gao Dong’s source of knowledge was. There was no written evidence from Gao Dong confirming Mr. Zhao’s evidence and explaining the basis of her belief. Nor was there any evidence from personnel at the Shibei sub-branch saying what the Bank knew. In the result Mr. Zhao’s evidence as to what the Bank knew in 2007 and 2008 lacks cogency and no reliance can be placed upon it.

Mr. Zhao also gave evidence that there was no obligation upon the Bank’s employees to check the content of addenda nos.2 and 3. When it was suggested that no bank would issue a guarantee without knowing what the addenda said he replied that the Bank conducted its business on trust. He said in re-examination that the Bank’s employees would only check basic information such as the date, signature and size of the ship. I found this evidence unconvincing. He did however accept that those reading the Shipbuilding Contract would have seen on the title page to the Shipbuilding Contract “Contract No: MD2007-08-004” and so would have appreciated that the contract had in fact been made in 2007.

My conclusion is that from the time when the Bank first received the Shipbuilding Contract it was aware that the contract had been made in 2007, not 2006 and so had been backdated. I base that finding on the reference to 2007 on the title page to the Shipbuilding Contract which is likely to have been noted, as Mr. Zhao accepted, and on the fact that when addenda nos.2 and 3 were issued in April 2008 the probabilities are that the Bank must have been aware of their contents and yet no objection was made to their contents. That must have been because the Bank was already aware that the Shipbuilding Contract had been backdated. There was no evidence to the contrary from those employees of the Bank who were involved in the issue of the Refund Guarantees.

It must follow that there cannot have been any concealment or non-disclosure of the date of the Shipbuilding Contract by Alpha because the Bank was aware of the true date. I also accept, as submitted by Mr. Bailey, that Alpha cannot have had any intention to deceive the Bank. Alpha made efforts in April 2008 to get the Bank to countersign addendum no.2. Alpha would not have done this had it been seeking to hide the true date of the Shipbuilding Contract from the Bank. Furthermore, it is difficult to identify any reason why Alpha would seek to deceive the Bank. It would only imperil the security afforded by the Refund Guarantees.

The Buyer’s case is that the applicable law of the fraud is English law. There has however been expert evidence of Chinese law. With the benefit of that evidence it appears that whether the applicable law of the fraud is English or Chinese the court’s findings demonstrate that Alpha can have no liability in fraud because Alpha did not deceive the Bank. In English law fraud cannot be established if there is no deception. In Chinese law the elements of “maritime fraud” were said by the Bank’s expert Mr. Li to “include false statement, intention to deceive and inducement of contract”. The Buyer’s expert Mr. Yuan said that fraud occurs where “one party intentionally provides the other party with false information or deliberately conceals the truth in order to entice the other party to make any false declaration of will.” Since there was no deception of the Bank by Alpha and no intention to deceive the Bank by Alpha it does not appear to me that Alpha can have any liability in Chinese law for maritime fraud. On Mr. Li’s understanding of the elements of the Chinese law of maritime fraud it is not possible to identify a false statement by Alpha, an intention to deceive or an inducement to contract. On Mr. Yuan’s understanding of the elements it is not possible to identify a deliberate concealment of the truth by Alpha which enticed the Bank to enter into the Refund Guarantees. On this basis the court may grant a declaration of non-liability.

Mr. Hatt said very little about the merits of the claim in fraud against Alpha but submitted that the making of a declaration would not be useful and therefore the court should decline to grant the declaration. Mr. Bailey submitted that the utility in granting the declaration was (i) that it will resolve the substantive dispute between the Bank and Alpha as to whether Alpha is liable to the Bank for fraud and (ii) that it will help Alpha to resist enforcement of any inconsistent judgment of the Chinese court against Alpha, for example in Greece where Alpha is domiciled, by operating as a shield pursuant to Article 34 of the Brussels Regulation. It seems to me that these matters show that there is sufficient utility in making a declaration of non-liability.

Mr. Hatt has criticised the drafting of the declarations which have been sought. It seems to me, in the light of my judgment, that the court may declare:

There may nevertheless be refinements to the drafting which the parties consider necessary. They may be agreed by the parties.

Alpha also seeks an anti-suit injunction in 2014 Folio No.1311. This claim received little attention in either the written or oral submissions. In Mr. Bailey’s Skeleton Argument it was said (at paragraph 132) that “the injunctive relief follows the form of relief sought in the Arbitration Claim…..and for the same reasons.” Since I have dismissed Alpha’s claim for injunctive relief in Folio 1310 it follows that I must also dismiss Alpha’s claim for injunctive relief in Folio 1311.

For the reasons which I have given the court will (a) grant the Buyer a final anti-suit injunction in Folio 1310 restraining the pursuit of proceedings against the Buyer in China and will (b) grant the declaratory relief sought by Alpha in Folio 1311. However, the court dismisses the Buyer’s claim and Alpha’s claim in Folio 1310 and also Alpha’s claim in Folio 1311 for an anti-suit injunction restraining the pursuit of proceedings against Alpha in China.