Commercial Court grants freezing order in support of LMAA arbitration proceedings

Universal Africa Lines BV -v- Knidos Shipping Corporation (Knidos) [2025] EWHC 770 (Comm)

The Commercial Court has granted a freezing order in support of LMAA arbitration proceedings arising out of a charterparty dispute.

The case usefully highlights the way in which the English Court can use its powers under s.44 of the Arbitration Act 1996 (1996 Act) to support both English-seated (and, in appropriate cases, foreign seated) arbitrations. 

The background facts

Knidos Shipping Corporation (Knidos), a one ship company registered in Panama, time-chartered its Vessel to Universal Africa Lines (UAL). UAL subsequently sub-chartered the Vessel to Cargill BV (Cargill) for the carriage of a cargo of cocoa beans from Ghana to the Netherlands. 

The bills of lading issued in respect of the cargo named UAL as the contractual carrier and Cargill as the consignee. 

Upon completion of discharge in Rotterdam, a portion of the cargo was found damaged by heat and/or smoke. Cargo interests alleged that the damage was due to the cargo coming into contact with a hot sodium light that was used to illuminate the hold inside which the cargo had been loaded and that the light had been negligently left on after the cargo reached the light when it should have been switched off. 

Cargill arrested the Vessel in Rotterdam in order to secure their cargo claim and obtained security in the form of a P & I Club letter of undertaking. Around one year later, in June 2023, Cargill and their insurers brought court proceedings in Rotterdam in respect of the cargo claim against both Knidos and UAL.

Arbitration proceedings

In the meantime, UAL had commenced LMAA arbitration proceedings against Knidos under the time charterparty, seeking declarations that the Vessel was unseaworthy and that the unseaworthiness had caused all or at least part of the cargo damage. 

UAL submitted that Knidos had failed to implement an appropriate logistical/safety system with regard to switching off the light. Knidos contended that UAL was responsible for the loading operations and for giving instructions as to when the light should be switched off. 

UAL also indicated that it intended imminently to enter into negotiations to settle the cargo claim in the Rotterdam proceedings and that, once it did so, it would be seeking to amend its arbitration submissions in order to make a money claim under the Interclub Agreement 1984 (ICA) which was incorporated into the charterparty. It is a condition precedent for an indemnity claim under the ICA 1984 that the cargo claim, including any legal costs, shall have been “properly settled and compromised”. 

In September 2024, the Vessel became a total loss following a collision. As the Vessel was Knidos’ only tangible asset, UAL became concerned that that even if it succeeded in the arbitration, there would be nothing against which to enforce an award. UAL considered there was a possibility that any proceeds received by Knidos in respect of its claim under the Vessel’s hull and machinery policy for the total loss would be dissipated before UAL had any opportunity to make a claim against those proceeds. Lengthy correspondence between the parties’ solicitors aimed at obtaining security for the arbitration claim came to nothing.

S.44 of the 1996 Act

UAL sought to obtain freezing relief in respect of the insurance proceeds. As the LMAA Rules do not permit an LMAA tribunal to grant freezing relief, UAL obtained the tribunal’s permission to apply to the Court for a freezing order under s.44 of the 1996 Act. S.44 deals with court powers exercisable in support of arbitral proceedings.

The Commercial Court decision

The Court granted the freezing order.

The Court accepted that the application for a freezing order had been appropriately made without notice to Knidos because there was a risk that Knidos might otherwise engage in tactical delays in order to buy time for it to receive the insurance proceeds and deal with them in such a way as to put them out of UAL’s reach. However, Knidos would be protected by granting it permission to apply on short notice to vary or set aside the freezing order.

The Court also found that UAL had a good arguable case as to Knidos’ liability for the cargo damage, which was supported by expert evidence as to the absence of an appropriate safety system for dealing with lights in the hold.

There was also a realistic risk of dissipation. The fact that the asset of the company was no longer a ship that was being traded in the ordinary course, but was a fund due to be received or possibly even now having been received from insurers acutely increased the risk faced by UAL since it was inherently easy to transfer such a fund and Knidos was a one ship company with no other assets. Additionally, Knidos was registered in Panama, there was limited open access to its financial assets and there would be real difficulties in enforcing any award or judgment in Panama.

Furthermore, the correspondence between the parties’ solicitors suggested an unwillingness by Knidos to engage timeously or proactively with the proposal of a claims handling agreement and also the issue of security. Among other things, Knidos had declined to request its P & I Club to provide security for the arbitration claim. This led to an inference of real risk of dissipation.

As to the fact that the claim under the ICA had not yet crystallized, there was no requirement for the right to an indemnity to have crystallized at the time that the application for a freezing order was made. It was enough that the Court could be satisfied with a reasonable degree of certainty that a right to bring proceedings would arise and that proceedings would be brought. 

Here, UAL undertook to imminently commence settlement discussions with Cargill and to progress the negotiations as quickly as reasonably practicable and, once a settlement was reached (on the basis of legal advice it had received) to amend its arbitration claim to include the ICA indemnity claim. This was sufficiently certain for the Court’s purposes. It would be for the arbitrators to enquire into the merits of any settlement.

The Court declined to limit the amount of the freezing order to the insurance monies since the risk of dissipation extended beyond those monies. It also decided that there was no need for UAL to provide security in support of its cross-undertaking in damages because it was a worldwide trading company with substantial assets and any judgment against it would be readily enforceable in the Netherlands, where it was registered.

The Court finally decided that the circumstances in this case were exceptional, making it appropriate to grant an order for alternative service of the proceedings on Knidos’ London solicitors rather than require UAL to serve them on Knidos in Panama.

Comment

The English Court will be prepared to grant a freezing order or similar relief in support of arbitration proceedings where the applicant, as here, provides sufficient evidence to substantiate that it has a meritorious claim and that there is a real risk of dissipation of assets. In appropriate case, a realistic risk of dissipation may be inferred from the surrounding circumstances.