Argos Pereira España SL and another v Athenian Marine Ltd (THE “FRIO DOLPHIN”)
| Jurisdiction | England & Wales |
| Judge | Sir Michael Burton |
| Judgment Date | 10 March 2021 |
| Neutral Citation | [2021] EWHC 554 (Comm) |
| Year | 2021 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 554 (Comm)
Sir Michael Burton (sitting as a High Court judge).
Queen's Bench Division (Commercial Court).
Arbitration — Shipping — Equity — Derived rights obligations — Inconsistent claim obligations — Equitable compensation — Transferred loss principle — Cargo shipped under bills of lading providing for English law and London arbitration — Cargo damaged on arrival in Spain — Cargo insurer as assignee of consignee bringing proceedings in Spain against shipowner's manager on mistaken assumption that it was carrier — Manager successfully challenging Spanish jurisdiction and recovering limited costs — Shipowner counterclaiming for manager's unrecovered costs in London arbitration — Whether insurer liable to pay equitable compensation to shipowner for breach of obligation to arbitrate — Whether shipowner entitled to recover manager's unrecovered costs by transferred loss principle — Senior Courts Act 1981, s. 50.
This was an appeal from an arbitrator's decision raising questions of law on the availability of equitable compensation for breach of an obligation to arbitrate and the principle of transferred loss.
The arbitration arose out of a shipment of frozen fish and squid on board MV Frio Dolphin and the discovery of defects in the cargo on arrival in Spain. The relevant bills of lading provided for English law and London arbitration. The cargo insurer, by subrogation from the consignee, brought proceedings in Spain against the shipowner's manager and the vessel's charterer (Lavinia), on the mistaken assumption that Lavinia was the carrier. Lavinia successfully challenged Spanish jurisdiction and was awarded a small proportion of its costs. The owner pursued a counterclaim in the arbitration for the unrecovered costs paid by Lavinia.
The arbitrator held that the insurer (party C) as assignee of the consignee (party B) owed an equitable obligation, derived from the arbitration clause in the bills of lading (a derived rights obligation or DRO), to the shipowner (party A) not only not to sue party A otherwise than in accordance with the arbitration clause but also not to sue the manager/charterer (party D) in respect of a dispute falling within the arbitration clause. Permission to appeal against that holding was refused on the basis that, on the authorities, the finding that the insurer, even if not in breach of the arbitration agreement, was in breach of an equivalent equitable obligation was not obviously wrong or open to serious doubt.
The questions of law for which permission was given were (i) whether the insurer as an assignee of cargo claims under bills of lading could be held liable to pay equitable compensation to the shipowner as the carrier if, in breach of an equitable obligation to arbitrate those claims, the assignee had brought proceedings in respect of those claims in a foreign court against a party other than the carrier; and (ii) if so, whether the shipowner/carrier could rely on the principle of ‘transferred loss’ to claim such equitable compensation in respect of legal costs incurred by Lavinia in defending the assignee's claim against it in a foreign court, where the shipowner/carrier itself was not the defendant and did not suffer any such loss.
Held, dismissing the appeal:
1. When a party had a right derived under a contract, e.g. by way of assignment, subrogation or direct action statute, and wished to exercise such right, it could only do so in accordance with the forum clause in the contract from which its right was derived. The obligation of the party which was thus bound by such forum clause had been described as an equitable right equivalent to contract and a substantive equitable obligation. Such DROs could be contrasted with inconsistent claim obligations (ICOs), which were an equitable obligation on a foreign claimant not to seek to take the benefit of a contract without the burden of the exclusive forum clause to which that contract was subject, even in circumstances where the foreign defendant denied that it was a party to the contract on which it was being sued. The basis for the ICO was the court's jurisdiction to restrain what was ‘vexatious’. It was common ground that equitable compensation was not recoverable in respect of a breach of an ICO. However, equitable compensation was recoverable for breach of the ‘extended’ DRO found by the arbitrator, in addition to the remedies of injunction or declaration. (West Tankers Inc v Allianz SpA (The Front Comor)[2012] EWHC 854 (Comm); [2012] 1 CLC 762andLondon Steam-Ship Owners' Mutual Insurance Association Ltd v Spain (The Prestige) (No. 3)[2020] EWHC 1582 (Comm); [2020] 2 CLC 95; [2020] 1 WLR 4943considered.)
2. The principle of transferred loss applied where the known object of a transaction was to benefit a third party or a class of persons to which the third party belonged, and the effect of a breach of duty would be to cause loss to that third party. There was no reason to limit the principle to contract, particularly where the equitable obligation was ‘equivalent to contract’. The arbitrator concluded that Lavinia was a ‘known object’, in the sense that a breach of the DRO in question by the insurer as assignee, if it sued a third party such as Lavinia in breach of the DRO owed to the shipowner, would lead to harm or detriment to Lavinia. In addition to the ‘known object’ requirement, it was also an essential feature of the principle that it only applied so as to avoid a ‘legal black hole’, in which in the expected course of events the only party entitled to recover would be different from the only party which could be treated as suffering loss. The loss suffered by Lavinia had fallen within a black hole and was lost unless the principle of transferred loss enabled the party to whom the DRO was owed, namely the shipowner, to recover that loss. If Lavinia was the claimant its only right would be to enforce an ICO by way of injunction and equitable compensation would not be available. It was doubtful whether damages could be claimed under the Senior Courts Act 1981, s. 50 in lieu of an injunction to restrain wrongful foreign litigation. (Swynson Ltd v Lowick Rose LLP[2017] UKSC 32; [2017] 1 CLC 764; [2018] AC 313applied.)
The following cases were referred to in the judgment:
AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58; [2015] AC 1503.
Airbus SAS v Generali Italia SpA [2019] EWCA Civ 805; [2019] 1 CLC 903.
Allianz SpA v West Tankers Inc (Case C-185/07) [2009] 1 CLC 96; [2009] ECR I-663.
Aspen Underwriting Ltd v Credit Europe Bank NV (The Atlantik Confidence) [2020] UKSC 11, [2020] 1 CLC 887.
Charterers Mutual Assurance Association Ltd v British & Foreign [1998] IL Pr 838.
Clearlake Shipping Pte Ltd v Xiang Da Marine Pte Ltd [2019] EWHC 2284 (Comm); [2020] 1 All ER (Comm) 61.
CMA CGM SA v Hyundai MIPO Dockyard Co Ltd [2008] EWHC 2791 (Comm); [2008] 2 CLC 687.
Dell Emerging Markets (EMEA) Ltd v IB Maroc.com SA [2017] EWHC 2397 (Comm); [2017] 2 CLC 417.
Eastwood v Lever (1863) 4 De GJ & S 114; 46 ER 859.
Horn Linie GmbH & Co v Panamericana Formas e Impresos SA (The Hornbay) [2006] EWHC 373 (Comm); [2006] 2 Ll Rep 44.
London Steam-Ship Owners' Mutual Insurance Association Ltd v Spain (The Prestige) (No. 2) [2013] EWHC 3188 (Comm); [2013] 2 CLC 562; [2015] EWCA Civ 333; [2015] 1 CLC 596.
London Steam-Ship Owners' Mutual Insurance Association Ltd v Spain (The Prestige) (No. 3) [2020] EWHC 1582 (Comm); [2020] 2 CLC 95; [2020] 1 WLR 4943.
Nederlandse Industrie van Eiprodukten BV v Rembrandt Enterprises Inc [2019] EWCA Civ 596; [2020] QB 551.
Nocton v Lord Ashburton [1914] AC 932.
Rhone v Stephens [1994] 2 AC 310.
Schiffahrtsgesellschaft Detlev von Appen GmbH v Voest Alpine Intertrading GmbH (The Jay Bola) [1997] CLC 993.
Shipowners' Mutual Protection and Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat ve Ticaret AS (The Yusuf Cepnioglu) [2016] EWCA Civ 386; [2016] 1 CLC 687.
SmithKline Beecham plc v Apotex Europe Ltd [2006] EWCA Civ 658; [2007] Ch 71.
Starlight Shipping Co v Allianz Marine & Aviation Versicherungs AG (The Alexandros T) [2014] EWHC 3068 (Comm); [2014] 2 CLC 503.
Swynson Ltd v Lowick Rose LLP [2017] UKSC 32; [2017] 1 CLC 764; [2018] AC 313.
Team Y&R Holdings Hong Kong Ltd v Ghossoub [2017] EWHC 2401 (Comm).
Times Trading Corp v National Bank of Fujairah (Dubai Branch) (The Archagelos Gabriel) [2020] EWHC 1078 (Comm); [2020] 1 CLC 790.
Tulk v Moxhay (1848) 18 LJ Ch 83; 41 ER 1143.
Union Discount Co Ltd v Zoller [2001] EWCA Civ 1755; [2002] CLC 314; [2002] 1 WLR 1517.
West Tankers Inc v Allianz SpA (The Front Comor) [2012] EWHC 854 (Comm); [2012] 1 CLC 762.
West Tankers Inc v Ras Riunione Adriatica di Sicurta (The Front Comor) [2005] EWHC 454 (Comm); [2005] 1 CLC 347.
XL Insurance Co SE v Little [2019] EWHC 1284 (Comm).
Thomas Corby (instructed by Preston Turnbull LLP) for the claimants.
Alexander Wright (instructed Sachs Solicitors) for the defendant.
Sir Michael Burton:
1. This has been the hearing of an application, with permission, under s. 69 of the Arbitration Act 1996 (the Act) by the claimants, also claimants in the arbitration (the consignee as first claimant, and the cargo insurer as second claimant), against the decision of a sole arbitrator, Mr William Robertson, on 10 February 2020, in favour of the defendant, respondent in the arbitration (the owner), on its counterclaim. The consignee and the insurer as claimants were represented by Thomas Corby and the owner as defendant was represented by Alexander Wright.
2. The arbitration arises out of a shipment of frozen fish and squid onboard MV Frio Dolphin (the vessel) by bills of lading dated 28/29 August 2012 and the discovery of defects in the cargo on arrival in Vigo, Spain. The insurer, by subrogation from the consignee, brought proceedings against Lavinia Corporation (Lavinia), the...
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The London Steam-Ship Owners' Mutual Insurance Association Ltd v The Kingdom of Spain
...329 At paras. [164]–[171], Sir Peter Gross considered, in detail, the decision of Sir Michael Burton GBE in Argos Pereira España S.L. v Athenian Marine Ltd (The ‘Frio Dolphin’) [2021] 2 Lloyd's Rep 387, ‘perhaps the high point of [the Club's] case on authority.’ Sir Michael Burton had ther......