The importance of the letter of undertaking wording

Thursday, 1st February 2018

“Alpine Tramp SA & another v. Jordan International Insurance Company (Flag Evi) [2016] EWHC 1317 (Comm)”

The dispute arose out of a cargo damage claim. The Jordanian cargo underwriters commenced proceedings in Jordan. The vessel Owners and their P & I Club sought an anti-suit injunction in the English Court to restrain those proceedings on the grounds that the bills of lading provided for London arbitration and the letter of undertaking (LOU) issued by the Club provided for English court jurisdiction. The Court granted the Owners, but not the Club, the requested anti-suit injunction. In the Court’s view, the wording of the jurisdiction clause in the LOU did not amount to an exclusive jurisdiction clause in favour of the English courts. There was also nothing vexatious and oppressive about the Jordanian proceedings against the Club. An anti-suit injunction was not, therefore, appropriate in the circumstances.

The background facts
The vessel was time-chartered and then sub-chartered on amended NYPE 1946 forms. There may also have been a sub-voyage charter, although this was not entirely clear. The vessel first loaded a consignment of Argentinian yellow corn and then, at the subsequent loading port, loaded soyabean meal. Both cargoes were destined for Jordanian Buyers, who were named as the notify party in the bills of lading.

On arrival at Aqaba, the Jordanian Ministry of Agriculture rejected the whole of the vessel’s corn cargo due to localised surface moulding. The Buyers asserted a cargo claim against the Owners and subsequently arrested the vessel. The Owners’ P & I Club issued a LOU in order to lift the arrest. The rejected cargo was subsequently sold and a revised LOU issued for a reduced amount.

Subrogated insurers presented a claim against the Owners and commenced proceedings against the Owners and the Club in Jordan. The Owners and the Club applied to the English Court for an anti-suit injunction.

The Commercial Court decision
The Owners’ case was that the bills of lading expressly incorporated the law and arbitration clause of the relevant charterparty, which provided for English law and London arbitration.

The Court found in favour of the Owners. The Owners had a contractual right for any claims arising out of or in connection with the bills of lading to be resolved in London arbitration and subject to English law. The Buyers’ rights of suit against the Owners were a contingent benefit and could not be enforced by advancing a claim under the bills of lading without recognising the Owners’ right to have any disputes arising arbitrated in London. The subrogated underwriters also took their subrogated rights under the bills of lading subject to the obligation to resolve disputes arising from or in connection with the bills in London arbitration and subject to English law. The Court relied on past case-law that made it clear that subrogated insurers were not entitled to assert their claim inconsistently with the terms of the underlying contract. If the contract provided that disputes had to be referred to arbitration, then the insurers were not entitled to enforce their subrogated rights without also recognising the obligation to arbitrate.

The Court further held that this was an appropriate case in which to grant the Owners an anti-suit injunction. An exclusive jurisdiction clause was very significant and the parties’ bargain, freely entered into by them, should not lightly be disregarded. The fact that the Hamburg Rules were in force in Jordan and that the effect of the Hamburg Rules would be to give jurisdiction to the Jordanian courts, as the courts of the place of discharge, was not good enough reason to disregard the exclusive jurisdiction clause in this case.

However, the Club’s application for an anti-suit injunction was rejected. The wording of the jurisdiction clause in the LOU was as follows:

“This Letter of Undertaking shall be governed by and construed in accordance with English law and we agree to submit to the exclusive jurisdiction of the English Courts.”

In the Court’s view, this amounted to a unilateral submission by the Club to English jurisdiction, rather than a mutual or bilateral agreement to submit any disputes under the LOU to the English courts. Furthermore, the wording of the LOU as a whole placed the emphasis on obligations undertaken by the Club towards the cargo interests. The format of the LOU – on the Club’s headed notepaper and addressed to the cargo interests – reinforced this conclusion. The Court did not believe that the cargo interests would have considered that, by accepting the LOU, they were agreeing to sign away any jurisdictional rights elsewhere.

In addition, the use of the words “exclusive jurisdiction” were not determinative. As a matter of construction, and reading the LOU as a whole, the Court found that there was no exclusive jurisdiction agreement.

The Court also dismissed the argument that the Jordanian proceedings were vexatious and oppressive. The Club argued that the substantive proceedings in Jordan were against the Owners and they, the Club, had only been joined because that was the formal procedure under Jordanian law. The Court said, however, that it was for the Jordanian Court to decide how the litigation should be handled following the removal of the Owners from the Jordanian proceedings. It was likely that, once the Jordanian proceedings against the Owners fell away, because of the anti-suit injunction, the proceedings against the Club would also be discontinued or stayed pending an English court decision.

This decision should be noted by all those who deal regularly with the issuing and accepting of Club LOUs. In the light of this decision, it cannot be assumed that a cargo claimant who has accepted a Club LOU as security has also, without more, agreed to the law and jurisdiction clause in the LOU. The wording of a Club LOU will vary on a case-by-case basis but such a clause will need to be drafted carefully to make it clear that any jurisdictional obligations are mutual, not unilateral.

Source : INCELAW