CMA CGM SA v Hyundai Mipo Dockyard Co Ltd

A novation which substitutes a party into an existing contract may bind that party to the contract’s arbitration clause, including in respect of a dispute that arose before the novation but after the original contract. A broadly worded clause covering disputes connected with the interpretation and fulfilment of the contract may encompass a tortious claim concerning an unreasonable refusal to consent to novation. A party in breach of its obligation to arbitrate cannot rely on the resulting foreign judgment when assessing the loss caused by that breach. The proper counterfactual is that the dispute would have been resolved by arbitration.

The claimant appealed under section 69 of the Arbitration Act 1996 against awards arising from four related arbitrations. The defendant had claimed damages because the claimant continued French court proceedings after becoming party, by novation, to shipbuilding contracts containing a London arbitration clause.

The appeal concerned whether the arbitration clause applied to the pre-existing dispute and, if so, whether the arbitral tribunal was bound to recognise the French judgment under Council Regulation (EC) No 44/2001. The tribunal had found that the claimant breached the arbitration clause and that the defendant had not unreasonably withheld consent to the novation.

1. Appeal dismissed. The arbitral awards, including the declaration that consent to the novations had not been unreasonably withheld or delayed, stood unchanged.
2. The novation agreements substituted the claimant into the original shipbuilding contracts and preserved their terms and dates. From each transfer date, the claimant was obliged to perform the contractual obligations as if it had been named in the original contract. That obligation included arbitration of a dispute arising after the date of the original contracts, even though the claimant did not become contractually bound until the transfer dates.
3. The other novation provisions did not amount to permission to continue the French proceedings. They preserved possible claims between the original buyer and the builder, but did not displace the claimant’s obligation to arbitrate.
4. The arbitration clause covered any dispute arising in connection with the interpretation and fulfilment of the shipbuilding contracts. That wording encompassed the dispute about whether consent to novation had been unreasonably refused. A tortious character did not prevent arbitrability where the claim was sufficiently connected with the contractual relationship.
5. For the damages claim, the relevant counterfactual was that the parties would have complied with their arbitration obligations. There would then have been no French judgment. The arbitrators were therefore entitled to decide the underlying issue themselves without regard to that judgment.
6. The court did not need to determine conclusively whether Council Regulation (EC) No 44/2001 applied to arbitration or whether recognition of the French judgment would offend public policy. The claimant’s appeal failed on the counterfactual damages point in any event.

This was an appeal under section 69 of the Arbitration Act 1996 from awards made by the arbitral tribunal on 13 March 2008. Permission to appeal was granted by Tomlinson J on 4 July 2008. The High Court dismissed the appeal and left the awards unchanged.