[co-author: Emily Hack]
On 20 January 2026 the English Commercial Court delivered a judgment in MS “V1” GmbH & Co KG & Anor v SY Co., Ltd [2026] EWCH 52 (Comm), rejecting a challenge to arbitral jurisdiction under section 67 of the Arbitration Act 1996. This case, which involved a long-running dispute over asbestos contamination on two vessels, centred on the question of whether the claimants, who were not parties to the original shipbuilding contracts, were bound by the arbitration agreements as assignees of warranty rights.
Against the backdrop of parallel foreign court and arbitration proceedings, HHJ Pelling KC confirmed that the tribunal did have jurisdiction – because the claimants had taken the benefit of the warranty regime under the underlying contracts and were therefore bound by the arbitration clauses contained therein.
Background
The claimants were the ship owners, who, in 2010, acquired two vessels built by the defendant, SY Co. Ltd. Although the claimants were not parties to the original shipbuilding contracts, they were assigned warranty rights under Article 9 of those contracts through guarantee agreements entered into upon the delivery of the vessels. Article 9 of the shipbuilding contracts set out a warranty regime, including an arbitration clause referring “any dispute under the Article” to LMAA arbitration.
In 2019, asbestos was discovered on both vessels which had to be removed at a substantial cost. The claimants sought to recover the costs of decontamination in tort and product liability claims commenced before the Chinese courts. Simultaneously, the claimants commenced arbitral proceedings.
In the Chinese litigation the defendant maintained that the claims were excluded by various provisions within Article 9 and that there was a dispute as to the true scope and effect of those exclusions. That dispute had to be resolved by arbitration in accordance with the arbitration clause, with the arbitration proceedings already afoot, and the defendant challenged the jurisdiction of the Chinese court on this basis. The Chinese court agreed with the defendant and the claims were rejected.
Shortly after commencing litigation in China the claimants had also initiated arbitral proceedings. No steps were taken in the proceedings, however, other than the parties appointing an arbitrator (in the case of the defendant, under reservation), until the claimant sought to discontinue the arbitral proceedings, and pursue only the litigation in the Chinese courts. The defendant objected to the discontinuation and a hearing was held following which the tribunal determined that it had jurisdiction.
The claimants subsequently challenged the tribunal’s jurisdiction in the English High Court under s.67 of the Arbitration Act 1996 on the basis that they were not parties to an arbitration agreement and the claims they made were statutory claims available to them irrespective of their assigned rights under the guarantees. In response, the defendants raised two principal arguments: first, it was the claimants who initiated the references and asserted their rights under the agreements to arbitrate; secondly, and in any event, the claims are within the scope of the relevant arbitration clauses.
In the 20 January 2026 judgment, HHJ Pelling KC upheld the tribunal’s jurisdiction.
Why did the court find that the Tribunal had jurisdiction?
1. There was a “Dispute under Article 9”
The judge held that Article 9 of the shipbuilding contracts was intended to be a complete code by which the parties agreed to apportion the risks of defects to the vessels. The same article also stated that “Any dispute under this article shall be referred to arbitration…”.
The defendant’s case was that Article 9 excluded liability for asbestos claims, which was disputed by the claimants. The court found that a “dispute under Article 9” therefore existed, as to the interpretation and scope of this provision, regardless of whether the claimants’ claims for the contamination costs were in tort or contract.
The words “any dispute under this article” were broad and unambiguous, and the court stated that the language should be given full effect.
2. The “conditional benefit principle” required the claimants to arbitrate
The court relied on the “conditional benefit” principle which states that, where a party enjoys certain benefit as a result of an assignment or subrogation, it may also be required to accept the corresponding burdens. This is to prevent inconsistency that would otherwise arise if an assignee were permitted to assert its rights free of the contractual constraints, whilst an assignor would have been bound by them. An arbitration agreement was held to impose such a constraint on the enforcement on the assigned rights.
The judge followed Hobhouse LJ findings in The Jay Bola (No. 2) [1997] 2 Lloyds Rep 279 (affirmed by the Supreme Court in Aspen Underwriting Ltd v Credit Europe Bank NV [2020] UKSC 11) which, in the context of a subrogated claim brought by the insurer, stated that “The insurance company is not entitled to enforce its right without also recognising the obligation to arbitrate.” The Court also relied on Airbus SAS v Generali Italia SpA [2019] EWCA Civ 805 to confirm that the conditional benefit principle applies to non contractual claims, if they depend on contractual rights or are sufficiently connected.
In this case, the claimants had taken the benefits of Article 9 and were therefore bound by the associated constraints on those benefits, including the requirement to arbitrate disputes about the scope of Article 9’s exclusions.
3. The “conditional benefit principle” applies to disputes about the scope and interpretation of contractual rights
The court further considered the nature of the dispute between the parties. In the Chinese litigation the claimants sought to establish the defendant’s liability in tort on grounds arising from Chinese legislation. The claimants therefore argued that their claims are not contractual, and cannot be construed as an assertion of the warranty rights assigned under the post-delivery guarantees. On this basis, the claimants maintained that the conditional benefit doctrine should not apply, and that there is no agreement to arbitrate.
The judge rejected this and held that, since the dispute in the arbitration proceedings is whether Article 9 excludes the claims pursued by the claimants in the Chinese courts, it is properly characterised as a dispute as to the true meaning and scope of Article 9. As such, the dispute falls within the arbitration agreement. Accordingly, the tribunal had jurisdiction to decide whether Article 9, as a matter of English contract law, excludes liability for the Chinese tort claims.
Key takeaways
1. If a party acquires the benefit, it may also acquire the constraints
When a party acquires rights under a contract this may include assuming the contract’s requirements such as procedures for resolving disputes. A party may be precluded from relying on the benefit, whilst ignoring the obligations corresponding to that benefit.
2. Arbitration may still apply even if a claim is not contractual
Even where a party’s main claim is in tort, or under foreign law, questions about whether the contract’s exclusions or limitations defeat that claim may still fall into the contract’s arbitration clause. This can lead to arbitration, even where the underlying cause of action is non-contractual.
3. Early procedural decisions can have long-term consequences
Commencing arbitration, including “defensively” or as a precautionary measure, can later be used as evidence that you agreed to arbitrate. Courts may also rely on this when deciding whether they have jurisdiction.
4. Warranty and exclusion clauses should be drafted carefully to ensure future clarity
A well-structured warranty and exclusion regime can govern not only contractual disputes but also how associated tort or statutory claims interact with those exclusions. It is important to ensure clear drafting at the outset to reduce risk down the line.
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