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Court exhibits reluctance to interfere in arbitral process

News / / Court exhibits reluctance to interfere in arbitral process

Daelim Corporation v. (1) Bonita Company Limited (2) Eastern Media International Corporation and (3) Far Eastern Silo & Shipping (Panama) S.A. (DL Carnation)[2020] EWHC 697 (Comm)

This dispute, arising out of the early termination of bareboat charters, highlights once again that the English courts will only interfere in arbitral proceedings in limited circumstances. It is also a reminder that any party making an arbitration application to the Court should ensure that it has followed the correct procedure, that it is seeking relief in the right forum and that it has named the correct party as the applicant.

The English Court’s powers

Section 44 of the Arbitration Act 1996 sets out the powers that the English Court may exercise in support of arbitral proceedings. Pursuant to s. 44(3), these include making orders that the Court considers necessary for the purpose of preserving evidence or assets. 

The background facts

The Claimant, Daelim Corporation (“Daelim”), bareboat chartered a Panamax bulker, the DL Carnation (the “Vessel”), to Bonita Company Limited (“Bonita”), who subsequently sub-chartered the Vessel to Eastern Media International Corporation and Far Eastern Silo & Shipping (Panama) S.A (together known as “EMIC”). Each bareboat charter provided for disputes to be resolved by way of LMAA arbitration in London.

On 4 June 2019, the parties jointly entered into a Termination and Settlement Agreement (the “TSA") in which they settled terms for the early termination of the bareboat charters.  At that time, Bonita owed Daelim approximately US$ 1 million of hire under the head bareboat charter.  

The TSA provided for payments by EMIC of: (i) approximately US$ 6 million, directly to Daelim; and (ii) approximately US$ 500,000, to Bonita as a "full and final indemnity and settlement to any and all claims of loss, damage and/or incidental expenses with regard to the charter hire payable in the respective charter party and for the charter period not performed by EMIC and Bonita, and the costs of drydocking and damage repairs, if any…"

The TSA further provided for HKIAC arbitration in Hong Kong governed by English law.

A dispute arose in relation to the payment of the US$ 500,000 (the “Disputed Sum”) that EMIC was to make to Bonita. Both Daelim and Bonita asserted that they had a right to be paid the Disputed Sum. Daelim asserted that their right arose out of an assignment under the terms of the head charter. Daelim was concerned that if EMIC paid Bonita, the money would disappear before there was any final determination of whether EMIC should have paid Daelim. EMIC was willing to pay the money into a joint account subject to agreed terms and to leave Daelim and Bonita to argue between them who should be entitled to the money. However, Bonita did not agree to this. In the absence of a consensual tripartite solution, EMIC stated that it would pay Bonita unless restrained from doing so.

Therefore, in June 2019, Daelim sought and obtained from the English Court an ex parte injunction (“the June Order”) in respect of the Disputed Sum. The June Order: 

  • i) restrained EMIC from paying the Disputed Sum to Bonita, pending further order of the Court (paragraph 5.1 of the June Order);
  • ii) required EMIC to pay the Disputed Sum into an agreed account or failing an agreement, into court (paragraph 5.2 of the June Order); and
  • iii) restrained Bonita from demanding and/or taking any steps to demand or to recover the Disputed Sum from EMIC, until further order of the Court (paragraph 5.3 of the June Order).

By the return date, EMIC had complied with (i) and (ii) above. Bonita was required to issue an application if they wished to challenge point (iii) of the June Order.  At this stage, Daelim had commenced LMAA arbitration under the head charter against Bonita.

In their application, Bonita submitted that point (iii) of the June Order should not have been granted on the basis that it was: (a) not necessary; (b) not appropriate for the purposes of s. 44(3); and (c) was obtained on the basis of an incomplete, misleading and unfair presentation of the case to the Court. Daelim countered that the relief granted was a necessary and appropriate quid pro quo for point (ii) of the June Order and denied that there had been any unfairness in the ex partepresentation of the case. 

The Commercial Court decision

The Court confirmed the limited nature of its power under s. 44(3). It relied on past Court of Appeal authority to emphasise that any orders made had to be necessary for the preservation of evidence or assets.  

On that basis, it concluded that paragraph 5.3 of the June Order should not have been granted because stopping Bonita commencing proceedings against EMIC was not required for the purpose of preserving some asset under s.44(3). Further, it was not necessary in order to enable compliance with points (i) and (ii) of the June Order. The Court ordered that paragraph 5.3 of the June Order be discharged. The Court added that, while it noted the reason behind Daelim's original application for an injunction, “it was the wrong application by the wrong applicant in the wrong forum”. The Court, however, declined to make a determination on whether there had been an unfair presentation because it did not need to do so.

Comment

This is another example of the English courts adopting a cautious approach regarding their intervention in arbitral proceedings. While the courts are there to assist parties if necessary, those who have agreed to arbitrate their disputes should be aware that the Court’s assistance is only available in a limited number of circumstances, which will be strictly adhered to by the courts. Furthermore, those making any ex parte application to the Court should remain conscious of their duty of full and frank disclosure in relation to the evidence presented. While it was not a determinative issue in this case, in other ex parte applications, it might well be.

Jenny Efstathiou

Jenny Efstathiou Senior Associate

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