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Interim relief and court interference in arbitral disputes—the approach of the English and Hong Kong courts (Daelim v Bonita)

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Arbitration analysis: Catherine Earnshaw, partner, Ruaridh Guy, managing associate, and Jenny Efstathiou, senior associate, at Ince, London and Hong Kong, compare and contrast, and consider the practical implications of, two related judgments of the English and Hong Kong courts reviewing previous decisions to grant injunctions in respect of claims arising out of a charterparty and related settlement agreement.

English court: Daelim Corp v Bonita Company Ltd and other companies[2020] EWHC 697 (Comm)

Hong Kong court: Daelim Corporation v Bonita Co Ltd  [2020] HKCU 1300 (subscription to Lexis Advance® required)

What are the practical implications of these judgments?

Before considering the practical implications of these judgments, it is worth summarising, briefly, the background and what the courts decided.

The charterparty contained an agreement to arbitrate in London, under the London Maritime Arbitrators Association (LMAA) Terms. The tripartite settlement agreement between the owners, charterers and sub-charterers contained an agreement to arbitrate in Hong Kong, under the Hong Kong International Arbitration (HKIAC) Administered Arbitration Rules.

In the English Commercial court, the issue was whether an injunction made pursuant to the court’s powers under section 44(3) of the Arbitration Act 1996 (AA 1996) restraining the respondent, Bonita Company Ltd (Bonita), from pursuing a claim against the other respondents (together known as EMIC) was still required.

In the Hong Kong Court of First Instance, the question was whether to continue an injunction restraining Bonita from dealing with assets in Hong Kong in aid of the arbitration proceedings commenced in London by Daelim Corp (Daelim), the applicant in both jurisdictions.

The English court decided that the part of the injunction which remained in place should not have been granted because it was not required for the purpose of preserving evidence or assets under AA 1996, s 44(3).

In contrast, the Hong Kong court confirmed that it had the power and discretion to continue the injunction, despite arguments raised as to whether Daelim had a good arguable case on the jurisdiction of the arbitral tribunal and on the manner and circumstances in which the injunction had been obtained at the ex parte stage.

The English and Hong Kong courts have long adopted the approach that they will only intervene in arbitral proceedings where they have the express power to do so and where their intervention is clearly necessary.

The judgments in these two cases returned very different outcomes. However, when one looks closely at the reasoning of the judgments, it is clear that the decisions stem from the same starting position—whether the courts had the power/discretion to grant the relief in the first place and, if so, whether the relief should be continued. The English court found that relief should not have been granted in the first place. The Hong Kong court, on the other hand, found that it had the power and discretion to grant the relief, and considered it appropriate to do so.

The English court decision provides another example of the court adopting a cautious approach regarding intervention in arbitral proceedings. While the court is there to assist parties if necessary, parties 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. In this case, 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’.

By contrast, the decision of the Hong Kong court is an example of where the court has exercised its powers to support parties in arbitration proceedings. The Hong Kong court considered each and every aspect of Bonita’s arguments and assessed whether there were any good reasons to discharge the HK Injunction. However, ultimately the court was not convinced by any of Bonita’s arguments and considered that continuing the HK Injunction was appropriate and necessary.

Careful consideration should be given as to what assistance a party is seeking from the court, as well as to where the application should be made and by whom. Parties making any ex parte application should remain conscious of their duty of full and frank disclosure in relation to the evidence and arguments presented. While non-disclosure was not a determinative issue in these cases, in other ex parte applications it might well be.

The facts underpinning these two decisions also highlight the need for parties to carefully consider the terms of any settlement which may be reached with a view to avoid further disputes arising out of a settlement agreement as occurred here. The decisions also show the complications which can arise out of the inclusion of differing dispute resolution clauses in related contracts.

What was the background to these judgments?

Daelim bareboat chartered a Panamax bulker, the DL Carnation (the vessel), to Bonita (the head charter), who subsequently sub-chartered the Vessel to EMIC (the sub charter). The charterparties were materially on back-to-back terms. Both charterparties 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 charterparties. At that time, Bonita owed Daelim approximately $US 1m in unpaid hire under the head charter.

The TSA provided for payments by EMIC of: (i) approximately US$6m, 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 with English law to apply.

Daelim commenced arbitration proceedings against Bonita in London, pursuant to the terms of the Head Charter for the outstanding hire of approximately US$1m.

The relief sought in the English Commercial Court

A dispute arose in relation to the payment of the $US 500,000 sum (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 its right arose out of an assignment by Bonita of its rights under the sub charter. Daelim was concerned that if EMIC paid Bonita, the money would disappear before there was any final determination of whether EMIC should in fact 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.

On 17 June 2019, Daelim sought and obtained from the English court an ex parte injunction in respect of the disputed sum (the English injunction). The English injunction:

  • restrained EMIC from paying the disputed sum to Bonita, pending further order of the court
  • required EMIC to pay the disputed sum into an agreed account or failing an agreement, into court, and
  • 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 The return date for the English injunction was 19 July 2019.

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. By this stage, Daelim had commenced LMAA arbitration under the head charter against Bonita.

In its application, Bonita submitted that point (iii) of the English injunction should not have been granted on the basis that it was—(a) not necessary, (b) not appropriate for the purposes of AA 1996, 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 English Injunction and denied that there had been any unfairness in the ex parte presentation of the case.

The relief sought in the Hong Kong court

In July 2019, Daelim sought and obtained from the Hong Kong court an ex parte injunction restraining Bonita from dealing with its assets up to the sum of approximately $US1.3m (the HK injunction). The HK injunction was obtained in aid of the arbitration commenced by Daelim against Bonita under the head charter in England. The substantive hearing of whether the HK injunction should be continued came before the Hong Kong court in December 2019, with the judgment subsequently being published on 28 May 2020.

Bonita argued that the injunction restraining it from dealing with its assets should be discharged for the following reasons:

  • Daelim had no good arguable case in its underlying claim for unpaid hire because the parties had intended the TSA to settle both past and future hire of the vessel under the head charter
  • the English arbitral tribunal had no jurisdiction in the dispute because the dispute resolution clause in the head charter (providing for arbitration in London in accordance with LMAA terms) had been superseded by the dispute resolution clause in the TSA (providing for arbitration in Hong Kong adopting the HKIAC rules) and it followed that the arbitration would not be capable of giving rise to an award which could be enforced in Hong Kong
  • the injunction was obtained irregularly in the absence of any genuine need for urgency or secrecy, and
  • the injunction was obtained by non-disclosure of material facts relating to discussions between the parties (via their legal representatives)

What did the court decide?

The English injunction

References:
Cetelem SA v Roust Holdings Ltd[2005] EWCA Civ 618

The English court confirmed the limited nature of its power under AA 1996, 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 (Cetelem SA v Roust Holdings Ltd). On that basis, it concluded that point (iii) of the English Injunction should not have been granted because preventing Bonita from commencing proceedings against EMIC was not required for the purpose of preserving any asset under AA 1996, s 44(3). Further, it was not necessary in order to enable compliance with points (i) and (ii) of the UK injunction. The court ordered that point (iii) of the UK injunction be discharged. The court declined to make a determination on whether there had been an unfair presentation because it did not need to do so.

The HK injunction

The Hong Kong court, in agreeing to continue the injunction, held as follows:

  • Daelim had a good arguable case that the TSA only covered prospective loss and did not cover the claim for unpaid hire. If the TSA was intended to cover the unpaid hire, specific terms to that effect could have been included. There were none
  • despite the head charter and the TSA having differing locations and applicable arbitration rules set out in their respective arbitration clauses, the court rejected the argument that the English arbitration would not be capable of giving rise to an award that may be enforced in Hong Kong. Bonita faced a particular difficulty here, in that there is previous Hong Kong authority to the effect that the court will not, when considering whether to grant interlocutory relief in aid of an arbitration, interfere in that arbitration by deciding jurisdictional issues. The rationale is that jurisdictional matters are primarily for the arbitral tribunal itself to determine. Bonita was thus in the unenviable position of seeking to persuade the Court that previous authority to this effect was wrongly decided. Unsurprisingly, Bonita was not successful in this attempt
  • in considering the no urgency/secrecy and material non-disclosure issues, it was important for the application for the injunction to have been made on an ex-parte basis and the alleged non-disclosure was not material. Even if the facts which were not disclosed could be considered to be marginally material, the court still had discretion to continue the injunction. In any event, Daelim (as opposed to its solicitors) could not be blamed for the nondisclosure and accordingly to discharge the injunction would have been a disproportionate punishment for the offence

English case details

  • Court: Commercial Court, Queen’s Bench Division, Business and Property Courts of England and Wales, High Court of Justice
  • Judge: Mr Justice Andrew Baker
  • Date of judgment: 16 March 2020

Hong Kong case details

  • Court: Hong Kong Court of First Instance
  • Judge: Justice K Yeung
  • Date of judgment: 28 May 2020

This article was first published by Lexis®PSL on 11/06/2020

Ruaridh Guy

Ruaridh Guy Partner

Jenny Efstathiou

Jenny Efstathiou Senior Associate

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