Enforceability of English arbitration agreements and a cautionary tale on safe registration in China

The decision in Beijing Jianlong Heavy Industry Group v Golden Ocean Group Ltd and others [2013] EWHC 1063 (Comm) answered the question of whether a London arbitration agreement contained in a guarantee governed by English law would be unenforceable by reason of the guarantee itself being unenforceable as a matter of English public policy because it would involve committing an unlawful act in the guarantor’s jurisdiction (in this case, China). On appeal from an arbitration award on the question of jurisdiction, the Commercial Court agreed with the Tribunal that the arbitration agreement was not impeached or tainted even if the guarantee in which it was contained was unenforceable. Consequently, the Commercial Court held that the arbitrators had the jurisdiction to rule on the enforceability or otherwise of the underlying guarantees.

The matter involved claims pursued by various ship owners against their charterers’ guarantor in London arbitration proceedings. Five claims (which were heard together since they raised essentially the same issue) were brought in arbitration for payment under separate letters of guarantee given by Beijing Jianlong Heavy Industry Group (‘Jianlong’) to various ship-owning parties (‘the owners’) in relation to several time charterparties concluded between the owners and a subsidiary of Jianlong, Hong Xiang Shipping Holding (Hong Kong) Ltd (HXS). The owners sought payment from Jianlong under the guarantees on the basis that HXS had repudiated its obligations under the charterparties. Jianlong claimed that the guarantees were unenforceable as a matter of English public policy and that the Tribunal did not have jurisdiction to hear the claims since both the guarantees and the London arbitration agreements incorporated in them formed part of a scheme, the object and intention of which was to contravene the laws of China…

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