Factual and Procedural Background
The Claimant, a Protection and Indemnity (P&I) Club, applied for an order to continue an anti-suit injunction originally issued by Judge Cooke on 18 July 2014. The injunction restrained the Respondents, who are the time charterers of the vessel YUSUF CEPNIOGLU, from commencing or continuing legal proceedings in Turkey against the Club.
On 8 March 2014, the vessel, operating a liner service between Turkey and North Africa, grounded on the Greek island of Mykonos and was declared a total loss after salvage efforts. At the time, the vessel was carrying 207 containers under 74 bills of lading issued by the charterers, with the proper law and jurisdiction of the bills being Turkey. Cargo claims were notified to both the owners and charterers, both Turkish companies. The charterers initiated arbitration proceedings in London against the owners under the terms of the time charter.
The vessel owner is a member of the Club and has insurance coverage against third-party claims under the Club’s terms, which provide for London arbitration and limit the Club’s liability to claims paid by the owner ("pay to be paid" clause).
In May 2014, the charterers commenced precautionary proceedings in Turkey seeking to attach the Club’s assets as security for claims under a Turkish statute granting a right of direct action against the Club. These proceedings, along with intended substantive proceedings in Turkey, are the subject of the anti-suit injunction.
The court addressed two main issues: whether it had jurisdiction to permit service of proceedings on the charterers in Turkey, and whether sufficient grounds existed to justify the anti-suit injunction. Central to both issues was the characterization of the right of direct action under Turkish law.
Legal Issues Presented
- Does the English court have jurisdiction to permit service out of the jurisdiction on the charterers in Turkey under CPR 6 PD paragraph 3.1(6)(c) or CPR 62.5(1)(c)?
- Is the right of direct action under Turkish law to be characterized as a claim to enforce the contract between the Club and its member or as an independent right of recovery?
- Are the proceedings commenced or intended in Turkey vexatious and oppressive, justifying the continuation of an anti-suit injunction?
- Should the anti-suit injunction be granted to restrain the charterers from pursuing proceedings in Turkey contrary to the arbitration agreement?
Arguments of the Parties
Appellant's Arguments (Claimant - the Club)
- The Club argued that the Turkish right of direct action is, in substance, a claim to enforce the contract between the Club and its member, subject to contractual terms including the arbitration clause and the pay to be paid clause.
- The Club contended that the court has jurisdiction to grant permission to serve proceedings out of the jurisdiction under CPR 6 PD 3.1(6)(c) and CPR 62.5(1)(c), as the claim is made in respect of a contract governed by English law.
- The Club submitted that the proposed Turkish proceedings are vexatious and oppressive because they seek to circumvent the arbitration agreement and deprive the Club of the benefit of contractual defences, including the pay to be paid clause.
- The Club relied on precedent, including the Jay Bola case, to support the view that the charterers, although not parties to the contract, are bound by the arbitration agreement when exercising their right of direct action.
Respondents' Arguments (Charterers)
- The charterers contended that the right of direct action under Turkish law is an independent right and is not primarily dependent on the contract between the Club and its member.
- They argued that the proceedings in Turkey are not vexatious or oppressive, as they are exercising a statutory right granted by Turkish law.
- They disputed the Club’s jurisdictional arguments, asserting that CPR 6 PD 3.1(6)(c) does not apply to arbitration claims or anti-suit injunction applications, and that the charterers are not parties to the contract with the Club.
- The charterers submitted that the Turkish courts might not enforce the arbitration clause if it conflicts with Turkish mandatory norms or public order.
- They emphasized the policy of victim protection under Turkish law and relevant European directives, arguing that priority should be given to the charterers’ statutory rights over the Club’s contractual rights.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| The London Steam Ship Owners Mutual Insurance Association v The Kingdom of Spain [2014] 1 Lloyd's Rep 309 (Prestige No.2) |
Characterisation of direct action rights under foreign law and their contractual nature. |
The court followed Hamblen J’s approach that direct action rights are, in substance, claims to enforce the insurance contract, with certain exceptions. |
| Through Transport Mutual Insurance Association v New India Assurance [2005] 1 Lloyd's Rep 67 (Hari Blum No.1) and [2005] 2 Lloyd's Rep 378 (Hari Blum No.2) |
Effect of direct action rights and arbitration clauses on third parties; limitations on defences available to insurers. |
The court relied on these cases to conclude that third parties exercising direct action rights are bound by arbitration agreements and that pay to be paid clauses apply under English law. |
| Green Wood & McClean LLP v Templeton Insurance Limited [2009] 1 WLR 2013 |
Definition of claims "in respect of a contract" for jurisdictional purposes. |
The court accepted that claims connected to a contract governed by English law may justify service out even if the defendant is not a party to the contract. |
| Alliance Bank JSC v Aquanta Corporation [2012] EWCA 1588 |
Requirement that the contract relied upon must be one to which the intended defendant is a party. |
The court noted this approach but found that the charterers’ right of direct action sufficiently connected them to the arbitration agreement. |
| DVA v Voest Alpine [1997] 2 Lloyd's Reports 279 (Jay Bola) |
Enforcement of arbitration agreements by anti-suit injunctions against subrogated insurers. |
The court distinguished this case but adopted its principle that parties exercising rights derived from contracts must respect arbitration agreements. |
| Cruz City 1 Mauritius Holdings v Unitech & Others [2014] EWHC 3705 (Comm) |
Jurisdiction to grant freezing orders and service out in arbitration-related matters. |
The court found charterers to be parties to the arbitration agreement for the purposes of service out jurisdiction. |
| AES Ust-Kamenogorsk v Ust-Kamenogorsk JSC [2013] 1 WLR 1889 |
Jurisdiction to serve arbitration claims out of the jurisdiction. |
The court followed the Supreme Court’s observation that permission to serve out under CPR 6 PD 3.1(6)(c) is available even for arbitration claims. |
| Angelic Grace [1995] 1 Lloyd's Rep. 87 |
Principle for granting anti-suit injunctions to enforce arbitration agreements. |
The court distinguished the application of this principle in direct action cases, following later authority. |
| Erich Gasser GmbH v Misat Srl [2004] 1 Lloyd's Rep 222 |
European law principles on anti-suit injunctions and jurisdiction between courts of Convention states. |
The court noted that European law considerations influencing anti-suit injunctions in Convention states were not applicable in the present case. |
| Turner v Grovit [2004] 2 Lloyd's Rep 169 |
European law on jurisdiction and anti-suit injunctions. |
Referenced similarly to Erich Gasser; not directly determinative here. |
Court's Reasoning and Analysis
The court first analyzed the nature of the right of direct action under Turkish law through the Turkish Insurance Contract Law (TCC). It found that Turkish law confers a direct right of action on victims against liability insurers, but this right is closely tied to the insurance contract terms, including coverage limits, insured perils, and time bars. The court preferred the submission that the victim’s right is limited to the perils actually insured under the Club cover, rather than a broader set of perils typically insured by P&I Clubs.
The court accepted expert evidence that the Club could rely on the choice of English law and London arbitration clause in the Club cover, although Turkish courts might refuse enforcement if it contravenes mandatory Turkish public order.
Regarding the “pay to be paid” clause, the court found that it is unlikely to be enforceable against the victim under Turkish law, thus partially divorcing the victim’s direct action right from the Club’s contractual relationship with its member.
Applying English conflict of laws principles, the court characterized the right of direct action as, in substance, a claim to enforce the contract between the Club and its member rather than an independent right of recovery. This characterization was supported by the similarity to the Spanish statute considered in the Prestige No.2 case and the Finnish statute in the Hari Blum cases.
On jurisdiction, the court held that it had power to grant permission to serve proceedings out of the jurisdiction under CPR 6 PD 3.1(6)(c) and CPR 62.5(1)(c), following Supreme Court authority and case law. The court found that although the charterers were not originally parties to the Club contract, their statutory right of direct action was sufficiently connected to that contract and its arbitration agreement to justify service out.
In relation to the anti-suit injunction, the court distinguished the principle in Angelic Grace as not applicable to direct action claims. It adopted the approach from the Jay Bola case focusing on whether the foreign proceedings are vexatious or oppressive to the party seeking the injunction. The court concluded that the Turkish proceedings were vexatious and oppressive because they interfered with the Club’s contractual right to arbitrate in London and risked depriving the Club of contractual defences, including the pay to be paid clause.
The court acknowledged the charterers’ statutory rights under Turkish law and relevant European directives but held that English law gives priority to contractual rights. The court rejected arguments based on comity and policy considerations favoring victim protection where they conflicted with the Club’s contractual rights.
Holding and Implications
The court’s final decision was to CONTINUE THE ANTI-SUIT INJUNCTION granted by Cooke J., restraining the charterers from pursuing proceedings in Turkey against the Club.
This decision enforces the Club’s contractual right to have disputes resolved by arbitration in London and protects the contractual defences available to the Club under English law. The charterers’ statutory right of direct action under Turkish law does not override the arbitration agreement or the Club’s contractual protections in this context. No new precedent was established beyond applying established principles regarding direct action rights, jurisdiction, and anti-suit injunctions.