MS “V1” GmbH & Co KG & Anor v SY Co, Ltd

An assignee who takes the benefit of contractual rights takes it subject to the contractual burdens and limitations attached to those rights. This may require the assignee to arbitrate a dispute about the scope or effect of those limitations, even where the assignee’s substantive claim is an independent non-contractual claim under foreign law.

The relevant question is whether there is a dispute within the scope of the arbitration agreement, not whether the assignee’s underlying claim is contractual. Clear words in an arbitration clause must be given their natural meaning. A clause referring any dispute under a warranty article to arbitration may therefore cover a dispute about whether the article’s exclusions defeat an independent tort claim.

The claimants, owners of two vessels, challenged two declaratory awards under section 67 of the Arbitration Act 1996. The awards held that the tribunals had jurisdiction to decide whether exclusions in Article 9 of shipbuilding contracts governed by English law excluded tort or equivalent non-contractual claims brought by the claimants in China.

The claimants had acquired assigned warranty rights but had never become parties to the shipbuilding contracts or their arbitration agreements. They nevertheless had previously used the assigned warranty rights and later brought Chinese statutory claims concerning concealed asbestos. The central issue was whether the conditional benefit principle bound them to arbitrate the dispute about the applicability of Article 9’s exclusions.

1. The claims were dismissed. The tribunals had jurisdiction to determine whether the Article 9 exclusions applied to the claimants’ Chinese tort claims.
2. The Guarantee Agreements assigned the benefit of Article 9 but did not novate the shipbuilding contracts. The claimants were therefore not contractually parties to the arbitration agreement. However, the assigned benefits were conditional upon the limitations and exclusions attaching to them.
3. The derived-rights obligation was an aspect of the conditional benefit principle. An assignee cannot take the benefit of contractual rights while avoiding the contractual constraints governing their enforcement. The principle was not confined to disputes concerning enforcement of the assigned contractual rights. It also applied where the assignee’s independent claim was disputed by reference to exclusions attached to the assigned rights.
4. The material dispute was not whether the Chinese courts had jurisdiction over the underlying claims. It was whether the Article 9 exclusions constituted a defence to those claims and, if so, whether that dispute fell within Article 9(g). Once the defendant disputed the tort claims by reference to those exclusions, a dispute existed which could be referred to arbitration.
5. On ordinary principles of construction, the words “any dispute under this Article” in Article 9(g) had to be given their full force. They covered a dispute about whether the Article 9 exclusions operated to exclude the claims made in China. The court left the Fiona Trust one-stop presumption out of account because neither party relied on it and both submitted that it had no application.
6. The fact that the underlying claims were independent statutory claims did not alter the conclusion. The tribunal had jurisdiction over the issue concerning the availability of the Article 9 exclusions as a defence, rather than jurisdiction to determine the Chinese claims themselves.