The Admiralty Court ruled in a recent decision1 that a German ship management company was entitled to issue proceedings in the English Court to obtain security for its claims against the German shipping companies in a dispute subject to German arbitration.
The dispute between a German ship management company and the owners of six tugs registered in Germany arose from the owners’ decision to sell the vessels to one of their competitors. The management company claimed this was a breach of the partnership agreements to which it was a party, and which gave it pre-emptive rights to purchase four of the vessels. The owners, on the other hand, said they had discovered that two of the management company directors had been taking secret commissions from the builders of three of the vessels which led them to lose trust in the company and, as a result, to terminate ship management agreements that were also in place between the parties.
The claims in the English court
The ship management company issued six in rem claims against the owners in the English court. There were two separate sets of claims. The first was a claim for damages for the unlawful termination of the ship management agreements by the owners, by way of selling the vessels without notice to the management company (the ship management claims). The second was a claim for breach of the articles of association of the corporate entity of
the owners, which allegedly required notice of the sale of the vessels to be given to the management company, a shareholder in the corporate entity (the articles of association claims).
The purpose of the management company in issuing the claims in the English court was to obtain security for its claims in arbitration and German court proceedings. Although the in rem forms were not served and none of the vessels had been arrested, the owners filed an acknowledgement of service, and entered an appearance for the purposes of challenging jurisdiction. They later changed their approach, indicating they wished the English court to hear the ship management claims, but not the articles of association claims. The management company’s position was that it was content for both substantive claims to be decided in the English court, but not just the ship management claims.
The ship management claims
The ship management agreements provided for German law and arbitration. On the other hand, it was common ground that the claims fell within the jurisdiction of the Admiralty Jurisdiction of the High Court by reason of s.20(1)(a) and s.20(2)(h) of the Senior Court Act 1981, as amended, these being claims arising out of an agreement relating to the use of a ship. This allowed the management company to issue the in rem claims in order to obtain security.
In submitting that the claim should be heard by the English court, the owners argued that there had been an agreement between the parties, in the exchange of submissions, to confer jurisdiction on the English court. Upon an analysis of the submissions, this argument was rejected by the court.
The owners also argued that once an in rem claim had been issued, it was always open to a defendant to file an acknowledgement of service and submit to the jurisdiction and that they had decided to do so in relation to the ship management claims.
Simon J held that the starting point was Council Regulation (EC) No. 44/2001 (the Brussels I Regulation). He referred to Article 31, which provides that an application can be made to the courts of one member state for security which is available in that particular member state, even if, under the Regulation, the court of another member state has jurisdiction over the substance of the matter.
Simon J held that the management company’s action in issuing in rem claim forms in order to obtain security was both unexceptional in domestic terms and consonant with the Brussels I Regulation. The Court, he said, “will normally recognise both the obligation to submit disputes to arbitration or courts in a foreign jurisdiction, and the claimant’s right to obtain and retain security in respect of such disputes”.
Simon J concluded that the proceedings had not been brought in breach of the arbitration clause, and the owners were not entitled to submit to the jurisdiction of the court for the substantive claims. These claims were, therefore, stayed pending the provision of security in the arbitration proceedings.
The articles of association claims
The article of association claims were linked to proceedings before the German courts, which had jurisdiction under Article 22.2 of the Brussels I Regulation since the proceedings had as their object the validity of decisions of companies whose seat was in Germany.
The issue in dispute in the English court was whether the in rem claims issued in England fell within the admiralty jurisdiction under section 20 of the Senior Courts Act 1981.
The management company argued that they fell under section 20(2), being either (a) a claim to the possession or ownership of a ship or the ownership of any share therein; or (b) a question arising between the co-owners of a ship as to possession, employment or earnings of that ship.
The purpose of the German proceedings was to nullify the resolutions to sell the vessels. The management company argued that, if the resolutions were annulled, their rights of pre-emption would be vindicated, making it a claim to the ownership of the vessels. The claim forms in the English court characterised the sale of the vessels as constituting a breach of the articles of association and a claim in tort and/or breach of statutory duties. The court concluded that in both sets of proceedings, the claim was essentially for damages resulting from the sale of the vessels, and could not be properly characterised as a claim to the ownership of the vessel (within the meaning of s.20(2)(a)).
As for s.20(2)(b), Simon J held that the section was concerned with co-ownership of vessels or shares in the vessel, and not with claims relating to the ownership of shares in companies or other legal entities which may own vessels. It followed that the English court had no jurisdiction in relation to the articles of association claims.
Simon J’s decision confirms that in circumstances where a claim falls within the admiralty jurisdiction, a party’s right to issue a claim in order to obtain security will be upheld even where the dispute is subject to an arbitration agreement or to the jurisdiction of a foreign court.