Cargo interests bound by arbitration agreement in P & I insurance contract

Cargo interests bound by arbitration agreement in P & I insurance contract

The London Steam-Ship Owners’ Mutual Insurance Association Ltd -v- Trico Maritime (PvT) Ltd & others (X-Press Pearl) [2024] EWHC 884 (Comm)

The Court has granted a final anti-suit injunction and declaratory relief to a P & I Club in respect of Sri Lankan court proceedings brought by cargo interests following the sinking of a container ship off the coast of Sri Lanka. 

The Court held that the claims being brought against the Club in Sri Lanka were not independent of the insurance contract. They were founded on the insurance contract, pursuant to which the Club was the vessel’s P & I insurer. Accordingly, cargo interests were bound by the arbitration agreement provided for by the Club Rules, which were incorporated into the insurance contract by the Certificate of Entry.

The Court arrived at this decision notwithstanding that cargo interests did not appear and were not represented at the trial of the matter. In the Court’s view, this was a deliberate decision on the part of cargo interests not to participate in the proceedings and not to provide a good reason why the anti-suit injunction should not be granted.

The background facts

The cargo interests commenced court proceedings in Sri Lanka, seeking compensation for loss of their cargo as a result of the sinking of the vessel. The proceedings were brought against the vessel’s P & I insurer and others. 

On the evidence of a Sri Lankan lawyer, the following were established:

• The Club was said to be liable in the Sri Lankan proceedings “as the insurer”
• The claims in the Sri Lankan proceedings were for loss of or damage to goods and constituted maritime claims under the relevant Sri Lankan admiralty legislation
• Sri Lankan law did not specifically provide for an independent or direct right of recovery against the insurers in respect of claims arising out of the incident involving the vessel
• In determining whether the Club had any liability to the cargo interests, the Sri Lankan Court would look to the terms of the insurance policy between the Club and the assured and would apply English law as the governing law of the insurance contract; and
• The Sri Lankan Court would also take into account the “pay to be paid” clause in the Club Rules

Having considered the Club Rules, the Court stated that under the insurance contract:

• English law applied
• Any claim against the Club had to be referred to arbitration in London
• By contrast, the Club could take action in other fora in order to pursue or enforce its rights. That included a claim such as the arbitration claim before the Court; and
• It was a condition precedent to any right to recover from the Club that the assured must first have paid the full amount of its liabilities

The law

There are two main authorities dealing with the situation where a claimant outside England wishes to bring a claim in its own country against an indemnity insurer based in England, alleging wrongful acts by a defendant who is insured against liability by the liability insurer. 

These are the Yusuf Cepnioglu [2016] EWCA Civ 386 and QBE Europe -v- Generali Espana de Seguro [2022] EWHC 2062 (Comm). These decisions established the following:

1. The Court should first clarify the right being asserted in the foreign proceedings by reference to English conflict of law principles. This is to ascertain whether the foreign claimant is seeking to enforce a contractual obligation derived from the contract of insurance or is advancing an independent right of recovery under a local law. If the foreign claimant is in substance relying on a contractual right arising under the insurance contract, and if the insurance contract is subject to English law, then the right being asserted must also be governed by English law.
2. If so, then the foreign claimant is treated as bound by the insurance contract, including any arbitration provision, even though not a party to it. This is on a ‘benefit and burden’ basis: the foreign claimant cannot enjoy the benefit of the right derived from the insurance contract, without complying with the associated obligation to pursue that right only in arbitration.
3. If stages (1) and (2) lead to the conclusion that the claim is linked to the enforcement of the insurance contract such that the foreign claimant is bound to observe the arbitration agreement in the insurance contract, then it is open to the insurer to apply for an anti-suit injunction against the foreign claimant. The Court will generally grant an anti-suit injunction, unless there is a good reason why it should not be granted.

The Commercial Court decision

Applying the above principles to the facts of this case, the claims being asserted against the Club in Sri Lanka were not independent of the insurance contract, they arose out of and were necessarily dependent on the terms of that contract. 

The insurance contract contained conditions and exclusions, which affected the kinds of claim that were covered; they defined the period over which insurance cover was provided; and they were generally subject to a financial limit on the level of cover provided by the insurer. Liability “as the insurer” was and had to be subject to those provisions, and any other relevant contractual provisions. Furthermore, on the foreign law evidence, Sri Lankan courts would take into account the terms of the insurance contract when considering the Club’s liability.

Therefore, the Club was entitled to be sued only by way of arbitration in London. As to whether an anti-suit injunction should be granted, the Court noted that there had been some delay in making the application but the Sri Lankan proceedings had not advanced materially or at all on the merits. Importantly also, the Club had not submitted to the jurisdiction of the Sri Lankan courts and it had undertaken to withdraw applications it had made raising preliminary jurisdictional objections in those proceedings. Therefore, the anti-suit injunction should be granted. 

In addition, the Court granted a “pay to be paid” declaration, making it clear what the effect of the pay to be paid provision in the Club Rules was as between the Club and the cargo claimant. 

Comment

This is a useful reminder that the English courts will not allow foreign claimants to bypass arbitration agreements in insurance contracts by arguing that they are bringing claims that are not covered by the arbitration agreement because they do not strictly arise under the insurance contract, especially in circumstances where those claims are not independent of the insurance contract. 

Additionally, the Court will not allow a party’s tactical non-appearance or non-participation in the proceedings to act as an obstacle to granting the relief sought against that party.

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