Assignees Beware: English Court Confirms Taking Contract Benefit Means Accepting Related Obligation To Arbitrate

The Commercial Court held that, under the conditional benefit principle, assignees must accept the limits attached to contractual rights, including the obligation to arbitrate

In MS V1 GmbH & Co KG v SY Co Ltd [2026] EWHC 52 (Comm), the Commercial Court dismissed a challenge under section 67 of the Arbitration Act 1996 to two LMAA arbitration awards. The case concerned whether an arbitral tribunal had jurisdiction to determine a dispute involving parties who were not signatories to the original arbitration agreement but had acquired the benefit of certain contractual rights by assignment. The Court upheld the tribunal's jurisdiction, providing a helpful restatement of the "conditional benefit principle" and its application to arbitration clauses.

Background

The Defendant, a shipyard, built two vessels under shipbuilding contracts dated 10 November 2006. Article 9 of each contract contained a "Warranty of Quality" provision, which established a guarantee regime in the event of defects after delivery. This warranty was subject to various exclusions. Article 9(g) provided that "any dispute under this Article" was to be referred to LMAA arbitration and decided in accordance with English law (as also provided in Article 13).

In 2007, the Claimants (MS and MV) purchased the vessels from the original buyer. The shipbuilding contracts were novated to a company called XY Carriers, which became the contractual buyer. When the vessels were delivered in 2010, XY Carriers assigned the benefit of Article 9 to the Claimants under a guarantee agreement. Importantly, this assignment transferred only the benefit of the warranty rights; it did not operate as a novation of the shipbuilding contracts themselves. As a result, the Claimants did not become parties to the arbitration agreement contained in Articles 9 and 13.

The Claimants brought several warranty claims, some of which were remedied or settled without proceedings. In 2019, asbestos was allegedly discovered on the vessels, prompting the Claimants to pursue the Defendant for the costs of removal.

Nanjing Maritime Court and the LMAA arbitration

In September 2020, the Claimants commenced proceedings against the Defendant in the Nanjing Maritime Court ("NMC") in China. They brought claims in tort and under Chinese product liability legislation, seeking the costs of asbestos removal. These were not contractual claims under Article 9; rather, they were independent statutory claims arising under Chinese law.

The Defendant responded by arguing that the Claimants' claims were barred by the exclusions set out in Article 9 of the shipbuilding contracts. Because the Claimants disputed the application of those exclusions, a disagreement arose as to the proper scope and effect of Article 9. The Defendant contended that this dispute had to be referred to arbitration in London pursuant to Article 9(g), and challenged the jurisdiction of the Chinese court. The NMC agreed and held that the dispute should be referred to arbitration. That decision is currently under appeal in China.

Meanwhile, the Claimants commenced LMAA arbitration proceedings in London, although no substantive steps were taken beyond the appointment of arbitrators. In February 2021, the Claimants proposed to stay the London arbitration proceedings, but this was rejected by the Defendant. The proceedings then lay dormant until August 2023, when the Claimants sought to discontinue them. The Defendant refused the discontinuation, reiterating their position that the Chinese court had no jurisdiction and that the claim should be submitted to arbitration. In September 2023, the NMC dismissed the Claimants' claims on the basis that they had to be referred to arbitration in London. To support their appeal, the Claimants applied to the tribunal for a declaration that it had no substantive jurisdiction. Following a jurisdiction hearing, the tribunal concluded that it did have jurisdiction over the Article 9 dispute. The Claimants then challenged that decision under section 67 of the Arbitration Act 1996.

The Commercial Court's Decision

The central question before the Court was whether the tribunal had jurisdiction over a dispute concerning non-contractual tort claims brought under foreign law by a party who was not a signatory to the underlying arbitration agreement. Despite having commenced the arbitration proceedings, the Claimants submitted that the tribunal lacked jurisdiction on the basis that they had never been party to, nor otherwise bound by, those agreements. They further argued that the claims they sought to advance were independent statutory tort claims arising in their capacity as shipowners, rather than claims derived from the post‑delivery warranty rights assigned to them. In their submission, a party acquiring rights by assignment or subrogation only becomes subject to an arbitration or exclusive jurisdiction clause when seeking to enforce those derived rights. As the Claimants were not attempting to enforce Article 9 rights, they contended that no "derived‑rights obligation" to arbitrate arose.

The Defendant invited the Court to reject those submissions. It argued that the Claimants had themselves initiated the arbitration and that both parties accepted the references were validly made. On the substance, the Defendant contended that once they had invoked the exclusions contained in Article 9 as a defence to the Chinese tort claims, a dispute arose as to the scope and effect of those exclusions which, under Article 9(g), was required to be referred to arbitration. The Defendant relied upon the conditional benefit principle which, in the words of the judge (Pelling J) "is the means by which English law prevents the enforcement of rights derived from contracts by assignment or subrogation inconsistently with any constraint on enforcement imposed by the contract from which those rights are derived". In other words, on assignment of a contract, generally only the benefit, not the accompanying obligations, of the contract are assigned to the assignee.

The exception to this is where the right assigned is conditional. If the party seeks to exercise that right, they must abide by the conditions attached to it (seeour blogpost on the M/t Prestigefor further detail). The Defendant emphasised that it would be inconsistent with the conditional benefit principle for the Claimants to rely on the benefits of Article 9 (by notifying defects for remediation and by entering into settlement agreements) yet seek to avoid arbitrating a dispute arising from the qualifications attached to those same rights. Having taken the benefit of the assigned rights, the Defendant argued, the Claimants could not disregard the procedural obligations that accompanied them.

The Court accepted the Defendant's position, rejecting the section 67 challenge. It held that the Claimants, as assignees who had "taken full advantage" of Article 9, were bound by the limitations attached to those rights, including the agreement that "any dispute under this Article" be resolved through arbitration. Rooting its analysis in the conditional benefit principle, the Court reiterated that an assignee may not assert contractual rights inconsistently with the constraints to which those rights are subject.

The trigger for arbitration

The Court made an important clarification about when arbitration obligations are triggered. Arbitration agreements "bite" on disputes, not claims. In other words, once a claim has been disputed, the resulting dispute falls within the scope of the arbitration agreement (provided, as a matter of construction, it falls within its scope). Here, once the Defendant raised Article 9's exclusions as a defence, a dispute arose regarding their scope and effect. If that dispute fell within Article 9(g), the Claimants were bound in equity to arbitrate it. The Court rejected the Claimants' argument that equitable obligations arise only when an assignee seeks to enforce the assigned contractual right. By accepting the benefits of Article 9, the Claimants could not avoid arbitrating the exclusions‑based defence.

On the proper construction of the contract, the Court held that the Article 9 exclusions were effective to bar claims of the kind advanced in the Chinese proceedings.

Independent tort claims

The Claimants had argued that independent tort claims cannot be compelled into arbitration. The Court dismissed this submission, but with an important clarification: the tribunal's jurisdiction extended only to determining whether Article 9's exclusions operated as a defence to the tort claims. The tribunal did not have jurisdiction to adjudicate the tort claims themselves; those properly remained before the Chinese court.

Comment

This decision provides a clear and timely reaffirmation of the conditional benefit principle in the context of assigned contractual rights. The Court's analysis underscores that an assignee who has taken the benefit of contractually qualified rights may also be required to accept the procedural obligations attached to those rights, including an agreement to arbitrate. Importantly, this can apply even where the substantive claims pursued by the assignee are non‑contractual and arise under foreign law.

The decision also highlights the broad potential reach of arbitration clauses. Once a defence is raised relating to contractual exclusions, a dispute concerning the scope and effect of those exclusions may fall within the arbitration agreement, even if the substantive cause of action lies outside the contract.

For parties acquiring rights by assignment, this case underscores the importance of understanding the full scope of what is being assigned, including any associated dispute resolution provisions. Ensuring clarity on these points at the outset is essential to avoiding jurisdictional uncertainty later.

The authors would like to thank Samuel Barker for his contribution to this blog post.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.