Beijing Jianlong Heavy Industry Group v (1) Golden Ocean Group Ltd (2) Golden Zhejiang Inc. (Defendants (Folio 1616) (3) Ship Finance International Ltd and Another (Defendants (Folio 1617)
| Jurisdiction | England & Wales |
| Judge | Judge Mackie |
| Judgment Date | 01 May 2013 |
| Neutral Citation | [2013] EWHC 1063 (Comm) |
| Docket Number | Case No: FOLIOS 1616 AND 1617 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 01 May 2013 |
[2013] EWHC 1063 (COMM)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
His Honour Judge Mackie QC
Case No: FOLIOS 1616 AND 1617
and
Simon Rainey QC and Benjamin Coffer (instructed by Reed Smith) for the Claimant
Richard Gillis QC and Conall Patton (instructed by Clyde & Co) for the Defendant
Hearing date: 10 April 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Judge Mackie QC:
These two arbitration claims under Section 67 of the Arbitration Act 1996 concern one point which arises in each of the five cases before the Court. If an English law guarantee is (or, as in this case, is assumed to be) unenforceable because it involves the commission in a foreign country of acts that are unlawful under local law is its provision for London arbitration also unenforceable?
As both claims raise essentially the same issue, it has been agreed that they should be heard and determined together. I have two bundles of documents, and witness statements from Lianjun Li for the Claimant and from Rupert Gordon for the Defendants. I bear in mind that an application under Section 67 is not an appeal but an independent and fresh evaluation of the issues.
The claim in Folio 1616 relates to a single partial final award made by Steven Berry QC, as sole arbitrator, on 15 November 2012 (as corrected on 19 November 2012). This arbitration was commenced under a letter of guarantee dated 26 February 2010 given by the Claimant ("Jianlong") to Golden Ocean Group Limited ("Golden Ocean") and subsequently novated, by a Novation and Amendment Agreement made on or about 31 August 2011 to Golden Zhejiang Inc. The guarantee relates to a time charterparty on NYPE form dated 24 February 2010 whereby Golden Ocean chartered a vessel (ultimately the "Golden Zhejiang") to Hong Xiang Shipping Holding (Hong Kong) Limited ("HXS"), a subsidiary of Jianlong. The charterparty was also subsequently novated to Golden Zhejiang. Jianlong did not cooperate in the appointment of an arbitrator so Mr Berry QC was appointed by Order of Gloster J on 12 October 2012.
The claim in Folio 1617 relates to partial final awards, in similar terms, made in four arbitrations heard concurrently by a tribunal consisting of Mr Patrick O'Donovan, Mr Clive Aston and Mr Christopher Moss (the Moss Tribunal), on 14 November 2012 (as corrected on 20 November 2012). These arbitrations were commenced under four letters of guarantee dated 29 September 2010 given by Jianlong in respect of HXS' performance as charterer under four time charterparties made by Ship Finance International Limited and/or SFL Bulk Holding Limited in respect of the vessels "SFL Kent", "SFL Medway", "SFL Spey" and "SFL Trent". The terms of the SFL guarantees were similar to the Golden Ocean Zhejiang Guarantee but also contained certain differences.
The substantive claims in all five arbitrations contend that HXS repudiated its obligations under the charterparties and that Jianlong is liable to the Defendants under the guarantees. Jianlong's principal defence under the guarantees is that the parties knew that it is illegal under Chinese law for a Chinese legal person to give a guarantee to a foreign entity without having obtained the prior authorisation of the State Administration for Foreign Exchange ("SAFE"), that the guarantees did not and could not have had such authorisation, and that the funds needed to meet any demand on the guarantees would inevitably have to have been transferred from China, in contravention of Chinese law. On this basis, Jianlong contends that the guarantees are unenforceable as a matter of English public policy.
The five partial awards each declare that the relevant tribunal has substantive jurisdiction over the dispute that has been referred to it and grant final anti-suit injunction relief which restrains Jianlong from continuing the proceedings it has commenced in the Tianjin Maritime Court ("TMC") in China and requires Jianlong immediately to take effective steps to discontinue and withdraw such proceedings.
The injunctions were sought because the Claimants took action in China well after the SFL arbitrations were under way. On 1 June 2012, Jianlong issued a motion in the TMC seeking a declaration that the arbitration agreement in the Golden Zhejiang Guarantee was invalid. Jianlong issued similar motions in respect of the arbitration agreements in the SFL Guarantees on 18 June 2012. The motions before the TMC prompted the Defendants to apply to the tribunals on 5 October 2012 (in the SFL Arbitrations) and 23 October 2012 (in the Golden Zhejiang Arbitration) for the awards which were later made.
Jianlong served defence submissions on jurisdiction in the arbitrations, claiming that both the Guarantee and the Arbitration Agreement formed part of a scheme the object and intention of which was to break the laws of China in China and were therefore unenforceable.
The Defendants' applications required the tribunals to make final determinations that they had substantive jurisdiction. It was common ground, once Jianlong had objected to that course, that the tribunals could not determine any questions of fact on a summary basis. It was therefore accepted by the Defendants that for the purposes of its applications the tribunals were required to take Jianlong's case at its highest and to proceed on the assumption that Jianlong would make good its factual case.
The applications in the SFL Arbitrations were heard by the SFL Tribunal on 30 October 2012 and the application in the Golden Zhejiang Arbitration was heard by Mr Berry QC on 12 November 2012. Partial final awards were published by the SFL Tribunal on 14 November 2012 and by Mr Berry QC on 15 November 2012, making the anti-suit orders sought by the Defendants. Both tribunals concluded that, on the assumed facts, the Arbitration Agreements would not be void or unenforceable. It is that conclusion which Jianlong challenges.
The assumed facts
The assumed facts upon which the tribunals were asked to determine their own jurisdiction, (by the second hearing the assumed conduct of the Defendants had become more culpable), are set out in the witness statements of Lianjun Li and in detail in the skeleton of Mr Rainey QC and Mr Coffer for Jianlong and, abbreviated, are as follows.
Jianlong is incorporated in China and the Defendants in Bermuda and Liberia respectively. Chinese foreign exchange regulations apply mandatorily to 'foreign guarantees' (i.e. guarantees issued by Chinese companies to foreign entities). It is illegal under Chinese laws for a Chinese legal person to make a foreign guarantee in favour of a foreign legal entity without having obtained the prior authorisation of SAFE or to transfer funds out of China in order to make payment pursuant to a foreign guarantee which has not been approved and registered by SAFE. Violation of these requirements results in the invalidity and unenforceability of the guarantee and penalties applicable to the 'guarantor' and its officers. The Chinese courts will apply the mandatory provisions of Chinese foreign exchange law when considering the validity of the Guarantees, even though they contain a clause purporting to provide for the application of English law.
During the negotiation of the charterparties and the guarantees, the Defendants and/or the individuals negotiating on the Defendants' behalf were aware and/or believed that the guarantees had to be approved by and registered with SAFE as a matter of Chinese law. Jianlong and the Defendants deliberately conspired together to contravene Chinese law, knowing of the requirement for prior authorisation and subsequent registration of the Guarantees, intending to break and/or evade the Chinese foreign exchange control law.
The Arbitration Agreements were part of the unlawful scheme to execute illegal guarantees and were themselves agreements with the improper purpose of furthering the illegal scheme. The parties and/or their representatives knew that the Chinese courts would not recognise or permit enforcement of the guarantees because of their illegality. The sole purpose of the parties in concluding the arbitration agreements in the light of the known and intended contravention of Chinese law was to provide a forum where the illegality could be concealed and/or its effects evaded or mitigated and/or the prospects of recovery under the Guarantees improved.
The facts are assumed only for the purpose of the applications. The Defendants strongly deny the truth of most of them.
The issue between the parties
While it is necessary to consider the legal position as a whole it is now conceded by the Defendants that on the assumed facts the guarantees are unenforceable because they were entered into as part of a scheme the object or intention of which was to procure the carrying out of illegal acts in China. The issue is the arbitration clauses.
Legal matters which are common ground or not much in dispute.
The issue turns on the application of the principle in Foster v Driscoll [1929] 1 KB 470 to an arbitration provision which is, particularly since Section 7 of the Arbitration Act 1996, an agreement distinct and separate from the contract of which it otherwise forms part. The parties disagree about many aspects of the law but there is some common ground and this seemed to increase at the hearing.
The principle in Ralli Brothers v...
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