Trade Advantage - August & September 2011

A commodities update

Welcome to the August/September 2011 edition of our Trade Advantage bulletin, which includes a round-up of recent decisions.

We are delighted to be recognised by the latest edition of the Legal 500 as a leader in commodities with our “vastly experienced team” noted as “good, quick and commercially focused”. Recognition is further given to the firm’s shipping capabilities, with members of our team also singled out in this area.

Please feel free to contact any of our team if you wish to discuss the contents of the articles, or any other matter connected with trade.

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Settlement offers (Part 36) - "more advantageous"

Under English law, Part 36 offers to settle are used as a means of putting pressure on the other side and can be made both before and during proceedings. These offers are made on a without prejudice basis and must not be communicated to the trial judge until the case has been decided. The general rule is that if a party makes a Part 36 offer which is rejected, the other side will face severe financial penalties if they fail to obtain judgment "more advantageous" than that offer.

From 1 October, Rule 36.14(1A) of the 57^th update to the Civil Procedure Rules came into force, revoking the decision in Carver and providing much needed clarity on the position when a judgment equals or betters an offer to settle.

In Carver v BAA plc [2008], the Court of Appeal had held that where a claimant beat a defendant’s Part 36 offer to settle by £51, the judgment was not “more advantageous” for the claimant given that the £51 was offset by the irrecoverable costs incurred by the claimant and the stress of the trial. 

Rule 36.14(1A) now provides that; “For the purposes of paragraph (1) in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least advantageous” shall be construed accordingly”.

Accordingly, if a claimant were to beat a defendant’s Part 36 offer by any monetary amount, however small, the usual cost orders should follow.

Laura Neill

Freezing injunctions/piercing the corporate veil - Linsen International Ltd & Others v Humpuss Sea Transport PTE Ltd & 12 Others (2011)

In this case the claimants had time chartered their vessels to the first defendant Humpuss Sea, a member of the Humpuss group. Humpuss Sea, a Singapore registered company was a wholly owned subsidiary of the second defendant Humpuss Intermoda, an Indonesian company. Humpuss Intermoda had guaranteed Humpuss Sea’s obligations under at least two of the charters, such guarantees being subject to English law and jurisdiction.

The vessels were delivered at a time when the freight market had collapsed, which meant that D1 could not obtain the sub-charter rates which would have covered the head charter hire. The claimants agreed to reduce the hire rates but Humpuss Sea failed to pay, upon which the claimants obtained arbitration awards for the hire due plus interest and costs. The awards were subsequently converted into judgments and the claimants obtained summary judgment against Humpuss Intermoda on its guarantees. In the meantime, the Humpuss group had been restructured, with substantial assets (vessels and shares) of Humpuss Sea and its defendant subsidiaries being transferred to the third defendant Humpuss Transport, an Indonesian company.

The claimants had obtained a worldwide freezing injunction against Humpuss Sea and Humpuss Intermoda as well as against the third to the thirteenth defendants (D3-D13). The injunction against D3-D13 had been obtained on the basis that there had been abuse of the corporate structure of the Humpuss group of companies by D3-D13 so that the court was entitled to pierce the corporate veil and to hold that D3-D13 had become liable under the charterparties and guarantees to which Humpuss Sea and Humpuss Intermoda were parties. In the instant case the claimants sought to continue the worldwide freezing injunction against D3-D13.

The question for the court was whether the claimants had shown a sufficiently arguable case on the merits to justify the continuation against D3-D13 of the freezing injunction granted on that basis.

The court held:

Despite the claimants advancing a number of extravagant assertions of abuse of corporate structure within the Humpuss group (inter alia the mixing of funds; the transfer of funds and assets and circular loans; the closeness of companies within the group; over-inflation of assets; the alleged diversion of assets during the currency of the charterparties), on analysis the claimants could not point to anything in the operation of the Humpuss group before or at the time the charterparties were entered into (or when the vessels were delivered), which justified the court disregarding the corporate structure and piercing the corporate veil.

The claimants could show a good arguable case that (i) the purported sales of vessels and transfers of assets to Humpuss Transport were shams or facades designed to make enforcement against Humpuss Sea more difficult and (ii) that the corporate structure of the Humpuss group was misused to that end. Therefore, there was an arguable case for piercing the corporate veil between Humpuss Sea and Humpuss Intermoda. However, on the facts, it was difficult to see how any of the other defendants could be said to have been implicated in such misuse.

Even if the corporate veil were to be pierced between one or more of D3-D13, it was not arguable that the effect of doing so should be to make them liable under the underlying contracts. The effect of piercing the corporate veil would not go beyond the unravelling of the transactions implicated in the abuse of the corporate structure, i.e. the purported sale of the vessels and the transfer of shares in companies. Such abuse could not lead to D3-D13 being liable as if they were parties to the original charterparties and guarantees.

The claimants did not have an arguable case for a freezing injunction against a defendant in the absence of a substantive cause of action. It is only Humpuss Intermoda which held assets which were arguably Humpuss Sea’s assets and it was difficult to see on what basis any judgment obtained against Humpuss Sea could be enforced against the remaining defendants.

Accordingly the court found that the freezing injunction against D3-D13 must be set aside.

Laetitia Malan

Worldwide freezing injunctions - Antonio Gramsci Shipping Corporation v Recoletos Ltd & Others (2011)

This was an application to set aside a worldwide freezing order on the following grounds:

• there was unjustified delay in seeking it;
• there was no real risk of dissipation of assets by the seventh defendant; and
• there was material non-disclosure on the part of the claimants when making their application.

Background

In 2005 a complaint was made to the Latvian police by the claimants following an internal audit which revealed charters concluded at apparently large under-values. In 2008 the claimants brought proceedings against the corporate defendants 1-5, when freezing orders were obtained against them. Suspicion fell on five employees in particular, but the possible involvement of the seventh defendant, Mr Lembergs, was not readily detectable. Evidence of Mr Lembergs’ involvement came to light in mid-2009. In 2010 the court ordered that the corporate defendants were required to pay a large sum as a condition for defending the action, but there was failure to pay. The corporate defendants sought permission to appeal which was initially refused but renewed with the corporate defendants seeking a hearing. In November 2010 the claimants sought a worldwide freezing order against the sixth defendant Mr Stepanovs, which was granted.

Unjustified delay

The court explained that delay not only affected the issue of risk of dissipation of assets but also featured in the overall discretion of the court. The court held that there could be no possible complaint about delay prior to receipt of the evidence in mid-2009, which pointed the finger at Mr Lembergs, nor in the context of the extensive litigation in progress, could there be a complaint at the stance taken by the claimants who were awaiting the results of a summary judgment. The only area of delay which the court believed required an explanation was the period between October 2010 and April 2011 – the date when Mr Stepanovs was pursued and the date when Mr Lembergs was joined into the proceedings and the freezing order sought against him.

The court however accepted the explanations put forward by the claimants, namely that the claimants decided to pursue Mr Stepanovs as he was thought to be the main protagonist behind the fraud and also that they anticipated that Mr Stepanovs would contest jurisdiction so took the view that there was little point incurring further costs until this jurisdictional issue was resolved. The court held that the delay was not unjustified, there was no prejudice and that the approach taken by the claimants to obtain the freezing order against Mr Lembergs was understandable.

Risk of dissipation

In order to establish whether there is such a risk that a judgment will go unsatisfied, the court held that it was essential that the claimants provide solid evidence to support their assertions, the standard for which is “relatively high”. There were seven reasons for belief in the real risk of such dissipation.

• the scheme itself was a dishonest scheme which revealed the intention and means required to conceal assets from the claimants.
• aspects of the scheme favoured there being a real risk – use of a network of offshore companies and complicated inter-company transfers.
• the corporate defendants’ evidence for the summary judgment hearing was to the effect that Mr Stepanovs and Mr Lembergs were the masterminds behind the scheme.
• Mr Lembergs was the subject of ongoing criminal proceedings in Latvia with charges against him relating to financial dishonesty, bribery, blackmail, extortion and the suppression of assets.
• there was evidence from Mr Lembergs’ former lawyer making allegations against Mr Lemebrgs’ use of bribery and intimidation.
• Mr Lemebrgs had transferred substantial assets to his children and wife. 
• Mr Lembergs had not made adequate disclosure in response to the order of the court in the freezing injunction itself.

The court held that these were very good grounds for saying that there was a real risk of dissipation. The court did consider the fact that Mr Lemebrgs had had plenty of opportunity to have dissipated his assets long before the freezing order was granted in April 2011 – a letter sent to the corporate defendants must have come to Mr Lembergs’ attention as their alter ego; the claimants also wrote to Mr Lembergs setting out the substance of the case, but decided that this may have been because Mr Lembergs may have felt secure up to now in the absence of any proceedings against him in England. Mr Lembergs would need to show that there was no risk of dissipation on grounds other than saying he had not done it so far and so would not do it in the future.

Non-disclosure

The court noted the main principles including:

• full and fair disclosure of material facts;
• proper inquiries;
• no advantage where injunction obtained without full disclosure;
• innocent non-disclosure i.e. not known or relevance not perceived is not a decisive reason for not making proper enquiries;
• court's discretion: an injunction will not be discharged for every incident of non-disclosure.

The claimants did not refer in their evidence to the fact that Mr Lembergs was not a recognised suspect in the criminal proceedings begun in July 2005. The court held that there was little or nothing to be gained by a judge from knowing that Mr Lembergs was not a suspect in those proceedings, as knowledge that the police took a different view to that of the claimants could only be a small factor in any judge’s assessment. It was therefore held that there was no material non-disclosure.

In conclusion, the court applied the just and convenient test and the principles set out in The Niedersachsen and The Laemthong Glory, and looked at the position in relation to all of the arguments that were put forward to decide whether or not the injunction should be maintained. The court had no hesitation in dismissing Mr Lembergs’ appeal and continuing the freezing order.

Amanda Williamson

Guarantees - Star Reefers Pool INC v JFC Group Co Ltd (2011)

This case concerned the liability of a guarantor (JFC) under guarantees made in respect of the obligations of its affiliate (Kalistad) under two charterparties concluded with Star Reefers Pool Inc. (Star Reefers).  The first charter, concluded in April 2008, was for two vessels; M.V. Almeda Star and M.V. Avelona Star. The second, concluded in July 2008, was for one vessel; M.V.Cape Town Star.  The object of the charterparties was the carriage of bananas from South America to ports in Russia and the Mediterranean.

Disputes subsequently arose and Kalistad accused Star Reefers of committing various breaches amounting to repudiation. In response to the allegations, Star Reefers claimed that Kalistad clearly had no intention of fulfilling its contractual obligations and their repudiation was to be treated as terminating the charterparties.  The differences between these two parties were the subject of arbitration.

Star Reefers commenced separate proceedings against JFC and the question before the court was whether Star Reefers were correct in their construction of the guarantees that JFC were liable for any failure in performance by Kalistad under the guarantees.

In reaching its conclusion, the court considered the principal events in relation to the two charterparties:

• In respect of Almeda Star, Kalistad claimed expenses associated with several periods of off-hire in 2009 and during detention in Novorossiysk in April 2010.  However, the court held it was difficult to believe that Kalistad could have considered the charterparty commercially pointless given that it continued to pay hire after the last off-hire event and during the vessel’s 22 days detention at Novorossiysk. The Hong Kong Fir (1962) was applied.
• The Avelona Star was off-hire for approximately 17 days and was on hire throughout its detention in Tripoli. Kalistad alleged that Star Reefers were under an obligation to release the vessel following its detention and were, therefore, responsible for the condition of cargo. However, the court disagreed and found that there was nothing in the pattern or the total off-hire periods that justified repudiation of the charterparty and that Star Reefers were not responsible for the condition of cargo during the vessel’s detention in Tripoli, given that the problems with the cargo originated from poor quality packaging and pallet bases, inadequate post discharge handling and Kalistad’s failure to ensure cooling during storage.
• Following the court’s conclusions in respect of bullet points 1 and 2 above, there was no doubt that the April charterparty was wrongfully repudiated by Kalistad.
• Kalistad also complained of minor incidents in respect of crane failure onboard the Cape Town Star, however, the schedule showed the vessel was merely off-hire for a period of 5 days. Accordingly, the court considered that Kalistad was not entitled to repudiate the July charterparty.

The conclusion was that Kalistad wrongfully repudiated the two charterparties and JFC were liable to Star Reefers for Kalistad’s failure in performance under the guarantees.

Laura Neill

Removing sole arbitrator - A & Others v B & Another (2011)

The claimants sought to remove the sole arbitrator and to set aside his award.  The application was made under section 24(1)(a) of the Arbitration Act 1996 and consisted of two limbs:

• claimants sought to remove the sole arbitrator on the basis that the fair minded and informed observer would conclude there was a real possibility of “unconscious bias”; and
• the arbitrator’s delayed disclosure of his involvement in a separate ongoing matter in which he was instructed by the first defendant’s solicitors was a “serious irregularity” within the meaning of section 68 of the Arbitration Act 1996.

Facts

The underlying dispute between the claimants and first defendant arose in March 2009 and was in respect of a share sale and purchase agreement.  During proceedings, the claimants’ solicitors (SJ/WC) suggested that the second defendant act as sole arbitrator.  The arbitrator’s appointment was agreed by solicitors of the first defendant (DLB).  The arbitrator had previously been instructed to act as counsel for both SJ/WC and DLB. Notably, in 2004, the arbitrator was instructed by DLB to act in a separate ongoing matter; that dispute and the clients had no connection with the current proceedings. In February 2011, shortly before issuing the arbitration award, X disclosed his involvement in Y litigation.  The claimants sought to challenge the arbitrator’s involvement and the award on the basis of the two aforementioned grounds.

Judgment

In reaching his conclusion, Mr Justice Flaux addressed the following issues:

• whether the fair minded and informed observer, having considered all facts, would conclude from those facts that there was a real possibility that the arbitrator was biased

There are 3 aspects to this test:

(a)   objectivity – whether an impartial observer (irrespective of nationality) would consider that there was a real possibility of the arbitrator being biased;

(b)   fair minded and informed –  there is an assumption that an impartial observer will reserve judgment until all facets of the argument have been understood, they will seek justified conclusions, not be unduly sensitive or suspicious and will take a balanced approach, considering the context of each argument before passing judgment;

(c)   awareness of legal profession – the impartial observer will be aware of how the legal profession operates and that the close relationship between the judiciary and the legal profession should not be regarded as giving rise to a possibility of bias.

After due consideration of the above, it was held that the arbitrator’s delayed disclosure of his involvement in the other litigation was merely inadvertent and it was likely that a fair minded and informed observer would conclude that there was no real possibility of apparent or unconscious bias. 

• whether delayed disclosure was a serious irregularity which caused substantial injustice to the claimants within the meaning of section 68 of the Arbitration Act 1996

It was the claimants’ case that even if the answer to the first issue was negative, the arbitrator’s failure to disclose his involvement in Y litigation at an earlier stage was a “serious irregularity” within the meaning of section 68 of the Arbitration Act.

Mr Justice Flaux disagreed. At the most, the claimants lost the opportunity to have another arbitrator appointed and this evidently failed to constitute “substantial injustice”. It is clear from Mr Justice Flax’s judgment that section 68 sets a considerably high threshold and should, therefore, only be used “where the tribunal has gone so wrong in its conduct of the arbitration in one of the respects listed in section 68, that justice calls for it to be corrected” (Lesotho Highlands Development Authority v Impregilo SpA [2005])

Laura Neill

Enforcing declaratory awards - African Fertilizers & Chemicals NIG Ltd (Nigeria) v B D Shipsnavo GMBH & Co Reederei KG (2011) 

By an earlier court order, the claimant shipowner had been given leave pursuant to s.66 of the Arbitration Act 1996 to enforce an arbitration award and to enter judgment against the defendant cargo interests.

Cargo interests applied to set aside the order arguing that parts of the award were purely declaratory such that the tribunal had no jurisdiction.

The award was made pursuant to an arbitration agreement contained in a bill of lading on the Congenbill 1994 form. The bill of lading incorporated the terms of a voyage charter on the Gencon 1994 form and included an English law and arbitration clause.

The dispute arose out of the grounding of the vessel when General Average was declared. Prior to the London arbitration, cargo interests had commenced both arbitration and court proceedings in Romania. An injunction was granted restraining the Romanian arbitration from continuing and an interim declaration was also made stating that the London arbitration clause in the Gencon charterparty was validly incorporated into the bill of lading and was binding on the Defendant thus the Romanian court and arbitration proceedings were in breach of this agreement to arbitrate in London.  

The defendant cargo interests made the following submissions:

• Enforcement of a purely declaratory arbitration award is not possible and that enforcement consists not merely of recognising the legal force of an award, but ensuring that it is carried out using legal sanctions, whereas recognition is purely a defensive process. The Defendant submitted that the Claimant wished to use the judgment entered in the terms of the award to defend any future proceedings to enforce a Romanian judgment, and this was purely recognition not enforcement.
• In light of the decision of the ECJ in Case C-414/92 Solo Kleinmotoren v Boch [1994], a judgment entered under s66 in the terms of an arbitration award does not constitute a judgment within the meaning of the term in Article 34(3) of the Brussels Regulation 2001, because it does not involve any consideration by the Court of the issues between the parties but is simply a mechanism for summary enforcement.

The court rejected the defendant’s first submission. Instead it agreed with the claimant’s argument that the terms in s.66 are to be given their plain meaning and that following the case of The Amazon Reefer [2010], the Arbitration Act was intended to be “sufficiently clear and free from technicalities and readily comprehensible to the layman”. The Defendant relied on the case of Margulies Brothers Ltd v Dafnis Thomaides & Co (UK) Limited [1958], however the court held that in this case the award was not for a “sum certain” and that was why it was incapable of enforcement. In the case of “The Front Comor” [2011], Field J distinguished the case of Margulies on the ground that a judgment in the terms of an award would not have assisted in giving the successful party the fruits of his victory, however in The Front Comor, it was held that “the claimant had a real prospect of establishing the primacy of the award over an inconsistent judgment”. The court followed this approach.

The court also rejected the defendant’s second submission on the grounds that Solo Kleinmotoren concerned a court-approved settlement and that although submitting to arbitration is a consensual process, the outcome of the arbitration and the contents of the award are not.

The court therefore held:

• the English Court had jurisdiction to enforce a declaratory award as to jurisdiction under s.66 of the Arbitration Act 1996.
• the enforcement order amounted to a judgment for the purposes of Article 34 of the Brussels Regulation 2001.

The defendant’s application was therefore dismissed.

Amanda Williamson

Arbitration/interim anti-suit injunctions - Niagara Maritime SA v (1) Tianjin Iron & Steel Group Co Ltd (2) PICC Property & Casualty Ltd (Tianjin Branch) (2011) 

Pursuant to a contract which was stated to be subject to the terms of the charterparty, Niagara Maritime SA (owners) had contracted with Tianjin Iron & Steel Group Co Ltd (cargo receivers) to carry on board its vessel cargo from Brazil to China. The charterparty contained a clause providing for arbitration in England in the event of a dispute.

During the voyage the vessel was grounded, subsequent to which cargo receivers' insurers provided salvage security. This allowed the vessel to be salvaged, with insurers receiving delivery of the cargo.

Insurers subsequently brought proceedings in China seeking an indemnity from owners for the salvage contribution. The basis of insurers' claim was that owners had failed to carry the cargo safely to its destination.

Owners, seeking to commence arbitration in England, issued an urgent application to an arbitration tribunal to rule on its jurisdiction when insurers denied the existence of the arbitration agreement. The tribunal found it had jurisdiction to arbitrate, and owners were subsequently granted an interim injunction restraining insurers from pursuing the proceedings in China. In the instant application, owners applied for a continuation of the interim anti-suit injunction against cargo receivers and their insurers. At the same time, owners were in the process of appealing the Chinese court's decision to accept jurisdiction to hear the claim.

In this application owners argued that because the claim brought in China was within the scope of the arbitration agreement, it was necessary to grant an injunction.

The London Commercial Court held that it had jurisdiction under s.44 of the Arbitration Act 1996 to grant an anti-suit injunction for the preservation of assets. The relevant parts of s.44 are as follows:

"(1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings.

(2)   Those matters are—

(a) - (d)     ...

(e)   the granting of an interim injunction...

(3)   If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets..."

As the situation was urgent (the Chinese court's decision in respect of owners' appeal on the issue of jurisdiction was pending), the London court's power to grant an anti-suit injunction derived from s.44(3). If the Chinese court dismissed owners' appeal, then they would move on to consider the claim on its substantive merits; and it would not be possible to obtain an order from the tribunal in time to prevent the Chinese court from doing so. Further, the tribunal had no jurisdiction to issue an injunction against the insurers as they were not a party to the contract. Moreover, the tribunal only had jurisdiction to issue final injunctions. In any event, even if the London court had no jurisdiction under s.44, jurisdiction would have been granted by English legislation, namely the Senior Courts Act 1981 of which s.37(1) states:

"The High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so."

The London court further held that as owners had demonstrated to a high probability that there was a binding arbitration agreement enforceable against insurers on the basis of the contract terms and the connection to the Chinese proceedings, the court should enforce that agreement unless there was a strong reason for not doing so. The delay occurring between the commencement of the Chinese claim and the issue of injunction proceedings was not a strong reason for refusing the injunction, because owners had acted promptly, notwithstanding that procedural matters had taken longer than anticipated. Further, the proceedings in China had not advanced passed the jurisdiction stage. Consequently it was appropriate for the court to exercise its discretion to continue the injunction.

Laetitia Malan

Arbitration/enforcement/parallel proceedings - Sovarex SA v Romero Alvarez SA  (2011) 

Sovarex applied to the English court to enforce an arbitration award in the same manner as a judgment and to enter the judgment in the terms of the Award pursuant to s.66 of the Arbitration Act 1996 (the Act).

s.66 Enforcement of the award

(1) An Award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.

(2) Where leave is so given, judgment may be entered in terms of the award.

(3) Leave to enforce an award shall not be given where, or to the extent that, the person against whom it is sought to be enforced shows that the tribunal lacked substantive jurisdiction to make the award.

The award in question was one delivered by the FOSFA Tribunal and awarded Sovarex damages against the Respondent (“Alvarez”) for repudiation of contract. The contract provided for English Law and London FOSFA arbitration proceedings.

Alvarez argued that the award was a nullity because no contract was concluded. Alvarez had issued proceedings in Spain which the Spanish courts dismissed as they did not recognise negative declaratory relief asserting the non-existence of a contract. Alvarez appealed this decision.  Sovarex then commenced these proceedings.

Alvarez submitted that the English court should decline jurisdiction for three main reasons. Firstly that the application should be dismissed because the evidence showed that there was a real ground for doubting the validity of the award. Secondly, that an English judgment would interfere with jurisdiction of the Spanish courts and that the Spanish courts had found that the validity of the contract is to be determined in Spain under Article 33 (1) of the Judgments Regulation. Thirdly, in the alternative, these proceedings should be stayed on grounds of lis pendens and forum non conveniens.

Regarding the first reason, the English court had to determine whether Alvarez, by participating in the arbitration, had lost the right to object to enforcement of the Award under s.66(3). This had to be determined objectively. Alvarez relied on Caparo Group Ltd v Fagor Arrasate Sociedad (2000), where Clarke J held that merely saying that you are not party to any arbitral agreement would not be classed as taking part in the arbitration. Sovarex submitted that Alvarez took part in proceedings by reason of Alvarez’s numerous messages to FOSFA setting out reasons why FOSFA should refuse to deal with the arbitration. They submitted that the fact that the Tribunal had a section in its award saying “Respondents Submission” and made “findings” in respect of these submissions was further evidence of Alvarez’s participation in the arbitration. The court held that this correspondence did no more than make clear Alvarez was protesting the Tribunal’s jurisdiction and dismissed Sovarex’s argument that Alvarez had lost its right to object the jurisdiction of the arbitration under s.66(3). The court then had to decide whether Alvarez’s objections to the enforcement of the award could be dealt with under the s.66 procedure. It held that s.66 dealt with enforcement generally so an alternative procedure need not be adopted, thus Alvarez’s objection could be dealt with under s.66.

As to the second reason, Alvarez submitted that the validity of the alleged contract had been an issue before the Spanish courts. The court held however that the position was that no determination of the validity of the contract was going to be made, so there would be no duplication of proceedings.  Sovarex submitted that no relevant issue has been decided in the Spanish courts and the English court agreed.

With regards to Alvarez’s third reason, that the proceedings should be stayed on grounds of lis pendens or forum non conveniens, Alvarez made a number of submissions including that principal witnesses were Spanish speakers, parallel proceedings would be undesirable and Sovarex had weak evidence, all of which the English court rejected. It held that the issue was where was appropriate to decide whether an award from an arbitration with its seat in London should be converted into an English judgment, not where a trial on the merits should be held.

Accordingly the natural forum for such a dispute was England.

In conclusion, the English court rejected Alavarez’s case that the s.66 application should be dismissed or stayed, but accepted that Alvarez had not lost the right to challenge jurisdiction under s.66(3) (and that therefore directions of its jurisdictional challenge were to be given).

Amanda Williamson

Arbitration/enforcement/binding awards (1) Dowans Holding SA (2) Dowans Tanzania Ltd v Tanzania Electric Supply Co Ltd (2011) 

The defendant applied to the English courts to set aside an order granting permission to enforce an arbitration award made by an ICC Tribunal, under s103(2) of the Arbitration Act 1996 (the Act), or alternatively to adjourn the issue of enforcement of the Award under s103(5) of the Act.

"S103(2) Recognition of enforcement of the award may be refused if the person against whom it is invoked proves -

… (f) that the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which it was made.”

“S103(5) Where an application for setting aside or suspension of the award has been made ... the court before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the recognition of the enforcement of the award."

The Award had been filed with the High Court of Tanzania but the Defendant had applied to set it aside.  The Award, relating to the enforcement of a Power Off-Take Agreement (the Agreement), found that the Agreement was valid and that payment was due to the two claimants.

Five issues were not resolved at the outset of the case:

• Does the fact that there are pending petitions to set aside the Award in the home jurisdiction mean that the Award is not yet binding within the meaning of s 103(2)(f)?
• If so, how should the discretion thus given to the English court under s103(2) be exercised?
• Under s103(5), if the enforcement of the Award is not refused, are the merits of the defendant's petition to set aside in Tanzania such that there should be an adjournment of the enforcement issue in the English courts?
• In light of the above, how should the discretion to adjourn be exercised?
• If the application is to be adjourned, should it be on terms?

As to the first issue, there was no doubt that the parties intended that the Arbitrators' decision would be binding. The Agreement contained a choice of law clause which stated that it should be construed in accordance with the Laws of Tanzania. The Tanzanian Arbitration Act states that an award made by arbitrators shall be final and binding on the parties. Furthermore the Agreement itself provided that the "decision of the arbitrator shall be final and binding on the parties and shall not be subject to appeal".

The English court found that as the parties agreed to the ICC Rules the Award has become binding and once it is binding it cannot cease to be binding because of some event in the home jurisdiction.

The second issue was reliant on the outcome of the first, the decision of which means that it did not fall to be answered. However, had the court found that the Award was not binding it would have in any event had a discretion to exercise under s103(2).

Turning to the third issue, the claimants submitted that there was no prospect of success in Tanzania by reference to the applicability of the Absalom Exception.  This was an exception to the susceptibility of arbitration awards where what was referred to the arbitrator was a point of law. This challenged the pre-1996 Act approach, the old test of error on the face of the award, which the Tanzanian court would usually apply. Case law referred to was very similar on the facts and hard to distinguish. The English court could not be certain as to which approach the Tanzanian courts would take. The court held that this issue was not for them to decide.

The fourth issue of whether the court should adjourn enforcement of the Award could however be decided by the court. The English court simply looked at the merits and prospects of the defendant's application in Tanzania and found that although they were not fanciful, they were to the lower end of the scale such as to justify an adjournment with an order for security if the judge so concluded.

Finally the fifth issue, as to security, was considered. The court acknowledged that granting security often acted as an incentive against delay. They also acknowledged that an adjournment requires continued time and thus costs, therefore the defendant's assets had to be secured. The claimants argued that they would be greatly prejudiced by an adjournment, which could only be safeguarded by granting them security.

The court had noted that granting security was a condition of granting an adjournment. As the court had decided to grant the adjournment it therefore also ordered security.

Amanda Williamson

NYPE and asbatime charterparties/cargo claims/ Inter-club New York Produce Exchange Agreement 1996 (as amended September 2011)

The revised version of the Inter-Club Agreement (ICA) came into effect from 1 September 2011 (ICA 2011).

Formally referred to as the “Inter-Club New York Produce Exchange Agreement 1996 (as amended September 2011)” the ICA 2011 is the latest revision to the ICA which was originally introduced in 1970 by the International Group of P&I Clubs to govern how sums paid in settlement of certain categories of cargo claims should be apportioned between owners and charterers under the New York Produce Exchange (NYPE) form of time charterparty.

The purpose of the ICA is to reduce the time and cost of litigation in respect of cargo claims arising under NYPE form charterparties. A criticism aimed at the earlier version of the ICA, is that it restricted the ability of the party defending the cargo claim to obtain reciprocal security from the other party. The ICA 2011 aims to rectify this position by way of a new security provision which provides that should one party put up security for the claim, the other party must put up an equivalent amount of security and “regardless of whether a right to apportionment between the parties to the charterparty has arisen under [the ICA 2011]”.

The remaining amendments to the ICA 1996 are minor and correct typographical errors.

Application of the ICA 2011 – at a glance

• The ICA 2011 is intended to apply to NYPE and Asbatime form charterparties (or contracts of carriage authorised under them) entered into on or after 1 September 2011.
• It must generally be incorporated by specific reference in the charterparty i.e. by referring to “the ICA1996 (as amended September 2011)”. 
• It may also apply to charterparties entered into before 1 September 2011, if the parties agree to include the revised ICA by way of an addendum. 
• The International Group guidance suggests that the ICA 2011 may be incorporated in charterparties entered into before 1 September 2011 by reference to the “ICA 1996 or any amendments thereto,” however in practice this may be an area for debate.
• The International Group are encouraging their members to incorporate the new revision to the ICA into current and future NYPE and Asbatime charterparties, and to agree to apply the ICA 2011 to all charterparties and claims regardless of whether the ICA 1996 or the ICA 2011 has been contractually incorporated.

Jonathan Woods / Rory Grout

The International Convention on Arrest of Ships 1999, in force September 2001

Click here to view the article from 14 September 2011.