26 Aug 2021

Stuck in the middle…?

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How the English Court can help owners in arbitration

When disputes arise as to who is entitled to delivery up of the cargo on board a ship, the vessel owner can often find themselves stuck in the middle.  They have no interest in the cargo beyond getting it off their ship, but no control in deciding who is the rightful receiver. 

If the matter was subject to the jurisdiction of the English High Court, the owner would be able to make a stakeholder application (previously know as an interpleader action) under Part 86 of the Civil Procedure Rules and ask the Court to determine the competing claims. But few charterparties and bills of lading are subject to English Court jurisdiction.  More common is the arbitration clause which requires disputes to be dealt with by arbitration in London, usually under the LMAA Rules. 

Recent case law has reminded us that although there is no stakeholder procedure in arbitration, the English Court can and does assist owners who are stuck in the middle to maintain the position and reduce the potential for being subject to claims for wrongful delivery. 

Section 44 of the Arbitration Act 1996 allows the Court to grant a number of interim remedies to support the arbitration proceedings, including orders to preserve evidence, interim injunctions, and orders to inspect, sample or sell property that is the subject of the proceedings.  Such powers can be exercised either before or after the tribunal has been constituted, as long as the arbitration agreement does not exclude the Court having these powers. Section 37 of the Senior Courts Act 1981 also allows the grant of injunctions where proceedings have been commenced in breach of an arbitration agreement. 

In Grand Financing Co v La Mere Maritime SA and another [2021] EWHC 1803 (Comm), the owner of the "NIOVI" arrived at the discharge port in China with a cargo of crude oil, in advance of the bills of lading.  The voyage charterer provided an LOI for the owner to deliver the cargo to the consignee named on the bills of lading (La Mere), without production of the bills of lading.  The cargo was discharged into shore tanks and some delivered, however about 50,000mt remained in the tanks. At least five different parties claimed to be entitled to the remaining oil. 

The bills of lading contained a London arbitration clause but in breach of that clause, La Mere obtained an order from the Qingdao Maritime Court declaring that La Mere was entitled to the cargo. The owner (and the terminal and local agents) came under significant pressure to deliver the cargo and was potentially facing competing claims for conversion or misdelivery. So they obtained an order from the English Court:

  • for an anti-suit injunction, preventing further breach of the arbitration clause; and
  • restraining La Mere from attempting to obtain delivery of the cargo, as well as requiring La Mere to withdraw their demands. This was aimed at preserving the property for whomever was properly entitled to it.

That order was made under section 44 Arbitration Act 1996 because of the arbitration background (although section 37 SCA 1981 was pleaded in the alternative).

At the hearing of La Mere's application to set aside the order (which failed), the judge held that although the disputes between the other parties arose under sale contracts governed by other law and jurisdiction, the matters before the owner (and therefore the arbitrators), as to who the cargo should be delivered to, arose out of the contract evidenced by the bills of lading.  That arbitration taking place in England gave the English courts sufficient jurisdiction to preserve assets and property that were the subject of claims in the arbitration.  The judge also resisted the suggestion that the owner should fortify their injunction; that would be inappropriate.  They were in the classic position of a party who would normally be able to interplead, they had acted perfectly properly and a party who interpleads would not be required to provide security. 

In ZHD v SQO [2021] EWHC 1262 (Comm) the court granted an injunction under section 37 SCA 1981 to prevent the continuation of Vietnamese proceedings in breach of a London arbitration agreement.  

In an earlier case, the Court has ordered, under section 44 AA 1996, sale of a cargo of crude oil belonging to charterers, which remained on board because charterers owed sums to the owner of the vessel (The MOSCOW STARS [2017] EWHC 2150 (Comm)). The judge held that "goods the subject of the proceedings" did not mean that the proceedings had to be a dispute about the cargo itself.  It was a sufficient nexus that the goods had a lien exercised over them as security for the hire claim. 

Conclusion

Court intervention in arbitration is limited but effective, supporting the tribunal in situations where they may lack jurisdiction, and helping parties to preserve the position as agreed in the contract. An application under section 44 can be made rapidly to deal with an urgent situation and is therefore particularly useful for owners who want to free up their vessel again to carry on trading. 

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