Arbitrating against a dead defendant. Section 18 to the rescue?

Silver Dry Bulk v Homer Hulbert Maritime [2017] EWHC 44 (Comm) involved an arbitration where the defendant had ceased to exist by the time arbitration was commenced. Silver Dry Bulk Company Ltd, a Maltese company and a 100% subsidiary of General National Maritime Transportation Company (“GNMTC”), the Libyan national maritime company had bought a vessel from Homer Hulbert Maritime, a Marshall Islands company, which was a 100% subsidiary within the Sinokor group of companies, a Korean ship owner and operator. Silver Dry claimed that part of the purchase price represented a secret commission to one of Colonel Gaddaffi’s sons who at the time had complete control over GNMTC.

Shortly after completion of the sale Homer Hulbert filed articles of dissolution. Under the law of the Marshall Islands a dissolved company is kept alive for three years for the puposes of prosecuting suits by or against them. After expiry of that time Silver Dry commenced arbitration against Homer Hulbert. The arbitration clause in the sale contract provided:  “On the receipt by one party of the nomination in writing of the other party’s arbitrator, that party shall appoint their arbitrator within fourteen days, failing which the decision of the single arbitrator appointed shall apply.” Receiving no response from the dead company, after 14 days Silver Dry constituted their arbitrator as sole arbitrator. They claimed  that Homer Hulbert continued  to survive sufficiently for the purpose of being the defendant to a claim in arbitration, an issue which it wanted to be decided by the sole arbitrator, applying the principle of kompetenz-kompetenz.  The ultimate intent behind the proceedings seems to have been to go against the Korean parent company

To avoid wasting time and expense of arbitrating if the arbitration were subsequently turn out to be a nullity, Silver Dry asked the court the court should make an order under section 18(3) of the Arbitration Act 1996 directing that the arbitral tribunal has been validly constituted.  The provision gives the Court power to (a) give directions as to the making of any necessary appointments;(b) direct that the tribunal shall be constituted by such appointments (or any one or more of them) as have been made; (c) to revoke any appointments already made;(d) to make any necessary appointments itself

Teare J refused to make such an order.  When there is an issue whether a tribunal would have jurisdiction, it has been held that the court has power to make the orders listed in section 18(3) if the claimant can satisfy the test of showing a good arguable case. However, these powers can only be exercised if there has been “a failure of the procedure for the appointment of the arbitral tribunal”. That will not be the case if the procedure has operated in the way that it was supposed to, albeit without the cooperation of one of the parties. Here the appointment procedure had worked as contemplated by the parties’ agreement, with the claimant’s nominee automatically becoming sole arbitrator after 14 days, for which no assistance from the court was required.

Silver Dry also applied under section 44 for the issue of Letters of Request directed to the Korean courts for the production of emails between specified individuals or email accounts, connected with the negotiation of the sale, for a limited period. Teare J refused to make such an order. The issue of a Letter of Request would require him  to make a representation to the foreign court that (1) there was, or at the very least there probably was, an arbitration in existence for the purpose of which production of the documents is requested and (2) the documents were required for the purpose of the arbitration. He was not able to do so as the issue of the continued existence of Home Hulbert remained to be decided.  The position might be different if the sole arbitrator had expressed a view that production of the documents was necessary in order for there to be a fair resolution of the issues in the arbitration, but this was not the case.

 

One thought on “Arbitrating against a dead defendant. Section 18 to the rescue?

  1. Pingback: Arbitrating against a dead defendant. Section 18 to the rescue? – Inno TankBulk

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