Shipowners' Mutual Protection and Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat VE Ticaret A.S. ("Yusuf Cepnioglu")

A statutory right to claim directly against a liability insurer is essentially contractual where its content is substantially defined by the insurance contract. Its statutory origin, compulsory insurance requirements, and limited statutory exclusion of policy defences do not alter that character where they do not change the right’s essential nature.

A person enforcing such a right must accept an arbitration clause governing the underlying obligation. Equity may restrain foreign proceedings brought otherwise than by arbitration, even though that person is not a party to the insurance contract. The The Angelic Grace approach applies: an injunction should be granted unless there is good reason to refuse it; the insurer need not establish ordinary vexation and oppression.

The respondent P&I Club insured the Turkish vessel owner under rules governed by English law which required London arbitration and contained a “pay to be paid” clause. After the vessel was lost, the Turkish charterers sought in Turkey to attach the Club’s assets and to bring a statutory direct action against it under Turkish insurance legislation.

Teare J granted an anti-suit injunction and permission to appeal in [2015] EWHC 258 (Comm). The charterers contended that their statutory right was independent of the insurance contract and that Turkish proceedings could be restrained only if vexatious and oppressive. The central issues were whether the direct right was essentially contractual and, if it was, whether an injunction should protect the London arbitration clause.

1. Appeal dismissed. The anti-suit injunction restraining the proposed substantive proceedings in Turkey was maintained.

2. The court held that the Turkish statutory right was essentially contractual. Characterisation depended on the content of the right obtained, not merely on its statutory source. The right was confined by the insured perils, policy terms, contractual limit, period of cover and contractual limitation period. Although Turkish law could prevent reliance on the “pay to be paid” clause and might preserve a victim’s claim despite a discharge of the insurer’s liability to its member, those exceptions did not alter the right’s essential contractual nature.

3. The claim was therefore governed by English law and had to be pursued by London arbitration under the Club rules. A claimant who becomes entitled to enforce an obligation under a contract cannot enforce its benefit while disregarding its arbitration burden. That conclusion does not depend on privity or upon a contractual breach by the claimant. Equity protects the insurer’s right to arbitration by injunction.

4. The court preferred The Jay Bola to the contrary approach taken in the Court of Appeal in The Hari Bhum (No 1). The latter had not considered The Jay Bola. The principle in The Angelic Grace therefore applied by analogy: an injunction should issue unless there is good reason not to grant it. It was unnecessary for the Club to prove vexatious and oppressive conduct in the ordinary sense.

5. There was no good reason to refuse relief. The charterers’ reliance on Turkish victim protection, compulsory insurance, comity, and the likely effect of the “pay to be paid” clause did not outweigh the Club’s right to arbitration. The appellant was ordered to pay the respondent’s appeal costs, including £50,000 on account.

• Court of Appeal (Civil Division): dismissed the charterers’ appeal and maintained the anti-suit injunction: [2016] EWCA Civ 386.

• High Court, Commercial Court: Teare J held that proceedings could be served out and granted an anti-suit injunction restraining the Turkish direct action: [2015] EWHC 258 (Comm).