Commercial Court rules that third party is bound by arbitration agreement and grants anti-suit injunction

The Commercial Court has granted an anti-suit injunction (ASI) against a third party which commenced proceedings in China in reliance on a settlement agreement between two other parties that contained an arbitration clause. The court considered that there was no issue of comity and that the third party was bound by the arbitration clause. It also ruled that the applicant was not barred by its delay in applying, since it was necessary for it to wait for clarifications provided in the foreign court’s decisions.

Background

In Qingdao Huiquan Shipping Co v Shanghai Dong He Xin Industry Group Co Ltd [2018] EWHC 3009 (Comm), a ship owner and a cargo receiver agreed to settle various disputes under a charter on the basis that the receiver’s agent would make a payment to the owner in respect of outstanding hire charges, while the owner would bring proceedings against the charterers and refund the agent if the proceedings resulted in recovery of the charges due. In the event, the owner failed to make any recovery in the proceedings. The agent (which was not party to the settlement agreement) then brought proceedings before a Chinese court to recover its payment.

The settlement agreement was governed by English law and contained an arbitration clause providing for London arbitration to resolve “all disputes arising under, out of or in connection with” the settlement agreement. The owner applied to the Commercial Court for an ASI to restrain the Chinese proceedings.

The court’s decision

The court first considered whether the agent was bound by the arbitration clause, given that it was not a party to it. The court held that since the agent had brought its claim under the settlement agreement and relied on its terms in the Chinese proceedings, it was also obliged to take the burden of the arbitration clause contained in it.

Secondly, the court considered whether the owner had acted sufficiently promptly in bringing its application, bearing in mind that more than a year had elapsed since it was first served with the Chinese proceedings. The court found that although the owner could have applied for an ASI in July 2017 when the Chinese proceedings had just started, it was appropriate for it to wait for the Chinese court’s confirmation that the agent was relying on the terms of the settlement agreement, which would help the owner to establish its case for an ASI to the high standard required by English law. In addition, the foreign proceedings were not too far advanced for an ASI to be granted, as no hearing regarding the merits of the claim had taken place.

Although the Chinese court had already ruled on its own jurisdiction, the Commercial Court held that the circumstances did not raise any comity concern because the Chinese courts had not dealt with the arbitration clause, but with questions of internal jurisdiction within the Chinese court hierarchy.

Finally, the court decided to grant the ASI on an interim rather than a final basis because, although the hearing was inter partes, no appearance had been made by the respondent (the agent).

Comment

Although this is not the first case granting an ASI against a non-party to an arbitration agreement, it is instructive for several reasons:

• A third party should be aware that it may be bound by an arbitration clause in an agreement to which it is not a party in circumstances where it needs to rely on that agreement to bring a claim.
• A party applying for an ASI should carefully consider the timing of its application. While the need to obtain clarification as to the basis of the foreign proceedings may provide a justifiable reason for delay, the chances of success will be higher if the application is made before the foreign court has considered the merits of the claim or ruled on matters that will be in issue in the application itself.

The authors would like to acknowledge the assistance of Linh Dao, intern (CMS London), in preparing this article.