ON APPEAL FROM THE QUEEN'S BENCH DIVISION
Mr Justice Hamblen
2010 Folio 222
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE JACKSON
LORD JUSTICE TOMLINSON
| CMA-CGM Marseille
|- and -
|Petro Broker International
(Formerly known as Petroval Bunker International)
Nicholas Craig (instructed by Withers LLP) for the Appellant
Hearing date : 30 March 2011
Crown Copyright ©
Lord Justice Tomlinson :
Introduction and Overview
"(b) Payment shall be made in full, without set-off, counterclaim, deduction and/or discount, free of bank charges.
(d) Any delay in payment and/or refund shall entitle either party to interest that the rate of two (2) per cent per month or any part thereof."
In their reasons for making the first award the arbitrators considered at length, and comprehensively rejected, CMA's objection that it would be inappropriate to make an award for the cost of bunkers supplied without regard to the prospect that CMA might in due course be unable to enforce any award which it might obtain against Petroval on the strength of its counterclaim for damages arising out of the supply of allegedly off-specification bunkers and wrongful termination of the supply contract. Petroval had, said CMA, "withdrawn to some Singapore holding entity in the context of various international litigations and investigations". The second award was for the contractual interest due on the principal amount represented by the first award. As at 30 November 2010 when the injunction was obtained the amounts due under the two awards was about US$4.5M. The security provided was in the sum of US$1.8M and about US$3.6M respectively – the latter guarantee was in fact denominated in Euros. The injunction, described as a freezing order, provided that it was not to come into effect until CMA had paid US$4.5M into court. CMA gave an undertaking to the court to make that payment on or before 1 December 2010 and duly did so.
1) The unpaid invoice for the MV Fidelio supply of US$3,100,136.30 and contractual interest thereon at 2% per month;
2) Contractual interest at 2% per month arising from CMA paying the MV Orfeo invoice approximately one month late;
3) Damages for breach of contract by CMA by cancelling the MV Rigoletto delivery, calculated by reference to a claimed loss on selling the fuel oil to a third party of US$1,090,220.00 plus barge cancellation charges of US$18,000;
4) Damages arising from CMA's alleged repudiatory breach of the Supply Contract, estimated at US$800,000.
1) US$5,979,630 for losses arising from the supply of off-specification bunkers to the MV Norma;
2) US$218,000 for losses arising from the supply of 3,000 tonnes of off-specification bunkers to the MV Fidelio;
3) US$787,882.00 for losses arising from Petroval's alleged wrongful termination of the supply contract.
"CMA's Point on Severability and Prejudice
14.15 It is submitted by CMA in its Rejoinder Submissions of 10th November (see 10.11 above), that it is inappropriate for a single issue (payment in respect of the Fidelio Supply) to be carved out of a larger dispute and decided in isolation. For the various reasons given above, we disagree. In particular, sub-clause 8.(b) of the BIMCO Terms seems to us to countenance precisely such an occurrence.
14.16 CMA argues that if the preliminary award is in Peroval's favour but CMA subsequently succeeds on its counterclaim, there would be a greater amount due to CMA from Petroval than would otherwise be the case and that this increased risk is prejudicial to CMA. It may well be the case that there is such an increased risk but it is a foreseeable consequence of the terms the parties agreed in the supply Contract and CMA must therefore take its chances, as indeed depending on the final outcome of the dispute, must Petroval, that this and any further award or awards will be honoured.
. . .
16.1 We have well in mind that this is an application for an interim or partial award and that there are other issues between the parties. Such applications as this are within the discretion of the tribunal. CMA are clearly concerned to hold money otherwise due to Petroval in respect of the Fidelio Supply as security for their counterclaim. It would be theoretically possible, we suppose, to exercise our discretion in favour of Petroval and require CMA to pay only on condition that Petroval provides security in a like amount. However we would be most uncomfortable in doing so; it would smack of using a procedural "device" to undermine Petroval's substantive rights. Their right in this case is to be paid without set-off, counterclaim, deduction and/or discount. On the basis of our findings it would be wrong for us to exercise our discretion other than in favour of Petroval when faced with such clear and unequivocal wording. No doubt, if so advised, CMA will seek to secure their position by other means if they make payment in accordance with our order."
i) Under s.68 of the Arbitration Act 1996, on the ground of serious irregularity said to consist in the arbitrators determining the issue whether there had been an agreement to derogate from Clause 8(b) without giving to CMA a reasonable opportunity of putting its case and/or while adopting an unsuitable and unfair procedure;
ii) Under s.69 of the Act on the basis that the tribunal erred in law as to the proper construction and effect of Clause 8(b).
"1. Given the replacement of the bunkers alleged to be off-spec, the determination of the question as to the true construction of Clause 8(b) will have no substantial effect on the rights of the parties.
2. In any event the question is not one of general public importance and the tribunal's conclusion was not obviously wrong. To the contrary it was probably right:
(a) Such a clause was commonplace in the oil supply industry and merited a consistent approach.
(b) The clause was indeed analogous to that in Totsa Total Trading v Bharat  EWHC 1641 (Comm)."
The s.68 application was dismissed by Simon J on 8 October 2010. His judgment is not before us, but Mr Russell was to tell Gloster J in due course that in rejecting that application one of Simon J's observations "was that he didn't think much of our evidence anyway that there was an agreement to [the] effect" that the anti-set-off provision would not apply.
"I accept that in one sense a freezing order now might be seen as defeating the anti-set-off provision. However, for the reasons set out above I consider the order justified. Moreover, the reason why at this stage CMA limits its application to the proceeds of the Award (creating the impression that it is linked to the anti-set-off provision) is to avoid any disruption to Petroval's business (to the extent that it is still trading at all). A general freezing order (which I believe CMA would be entitled to) could not be seen as being in any way connected to the application or otherwise of an anti-set-off clause in respect of a particular debt."
No reference was made in the skeleton argument to the anti-set-off provision but at the hearing itself Mr Russell pointed out that because the purpose of the application was to freeze the proceeds of the award and the security that was in place for the award, it looked as though CMA was attempting to "get round the decision" of the arbitrators to the effect that Petroval was entitled to payment without regard to the unresolved counterclaim.
"Unaudited profit before tax for PBI [Petroval] for the ten months ended 31 October 2009 was approximately US$3.5M and unaudited net assets of 31 October were approximately US$10M. Net assets of PBI at completion are expected to be approximately US$2.3M.
. . .
By acquiring PBI, the Company [Baltic] will gain access to an important new market, with opportunities to trade and trans-ship significant volumes of oil product out of a major global shipping hub. The addition of PBI to the Group's existing operations will also provide an additional immediate source of free cash flow for the Group, estimated to be approximately US$0.5M per month . . .
. . .
The Company intends to take full advantage of the experienced management team within PBI to establish a single management team, responsible for managing all of the Group's trading and terminal activities both in Kaliningrad and Rotterdam."
Although announced on 2 December 2010 the sale was not completed until 20 December 2010.
"44(1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings.
(2) Those matters are –
. . .
(e) the granting of an interim injunction . . .
(3) If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.
. . .
(5) In any case the court shall act only if or to the extent that the arbitral tribunal and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively."
"One of the undertakings that we are giving is to pay the full amount into escrow. So once that is done, on one view the Respondent to this application, Petroval, is actually going to be in a better position than it would otherwise be because if, for the sake of the argument, they have lost the right to drawdown under the Fortis guarantees, the sum that will then be available [to abide] by the result of the determination of all of the claims in the arbitration will be greater than the sum that's currently available for drawdown under the North of England guarantee."
"This order shall not come into effect until the Applicant has complied with the undertaking at paragraph 1 of Schedule B and has paid US$4.5million into court.
1. This is a Freezing Injunction made against PETROVAL BUNKER INTERNATIONAL BV ("the Respondent") on 30 November 2010 by Mrs Justice Gloster on the application of CMA-CGM MARSEILLE ("the Applicant").
. . .
6. Until the return date or further order of the court, save as set out in this order:
(1) The Respondent must not make demand on or in any way draw down monies pursuant to the 3 guarantees set out below unless any sums so demanded and drawn down are paid directly by the relevant guarantor into court or into an escrow account agreed by the Applicant:
(a) The guarantee from Fortis Bank dated 13 November 2008 in the sum of US$500,000.
(b) The guarantee from Fortis Bank dated 26 November 2008 in the sum of US$1,810,462
(c) The Letter of Undertaking/guarantee from the North of England Club dated 1 April 2010 in the sum of Euro 2,600,000.
(2) The Respondent must not assign or otherwise transfer or dispose of or deal with the benefit of the said guarantees.
(3) The Respondent must not assign or otherwise transfer or dispose of or deal with or diminish the value of its assets being the Interim Final Awards of the arbitral tribunal (Harrison, Baker-Harber) dated 28 January 2010 and 18 August 2010 and/or the proceeds of any enforcement of the said Awards.
. . .
PROVISION OF INFORMATION
8. (1) Within 3 working days after being served with this order, the Respondent must swear and serve on the Applicant's solicitors an affidavit setting out all of his assets worldwide exceeding £10,000 in value whether in his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets.
. . .
EXCEPTIONS TO THIS ORDER
9. (4) The order will cease to have effect if the Respondent -
(a) provides security by paying the sum of US$4.5million into court, to be held to the order of the court; or
(b) makes provision for security in the sum by another method agreed with the Applicant's legal representatives.
UNDERTAKINGS GIVEN TO THE COURT BY THE APPLICANT
(1) The Applicant shall on or before 1 December 2010 or as soon as possible thereafter pay the sum of US$4.5million into court.
. . ."
"The Respondent must not assign or otherwise transfer or dispose of or deal with or diminish the proceeds of any enforcement of the Interim Final Awards of the arbitral tribunal (Harrison, Baker-Harber) dated 28 January 2010 and 18 August 2010."
The wording of the order is of course very different. It prohibits "dealing with" the Awards. Mr Russell accepted that the wording adopted had inadvertently prevented Petroval from enforcing the Awards by means other than drawing down the guarantees.
"3. On 2 December 2010 it was announced that the defendant company was being acquired by Baltic Oil Terminals plc.
4. In the light of the new ownership of the defendant, the Claimant does not seek a continuation of the freezing order."
In the light of this observation it is apparent that steps should have been taken by CMA to discontinue the injunction at the latest when they became aware that the sale had been completed, although it may be that they were unaware of this until 4 February 2011. However nothing turns on this.
"Section 66 Application/US$4.5M paid into court
13. On very short notice the Defendant has issued an application under s.66 of the 1996 Act. The Claimant has had no proper opportunity to consider or respond to this application and therefore its hearing should be adjourned.
14. The Defendant also wishes to enforce any judgment obtained pursuant to s.66 against US$4.5M which was paid into court by the Claimant.
15. The payment into court was volunteered by the Claimant of its own motion when it obtained the freezing order ex parte. Now that the freezing order is not being pursued, it should be paid back out to the Claimant.
16. It would be inequitable for the Defendant now to be in a better position with regard to enforcement than it would have been had the application for the freezing order not been made at all, in particular where the reason that the order is no longer pursued is the fact of the sale to Baltic, which post-dated the obtaining of the original order.
17. The Defendant still has the benefit of the three guarantees which it obtained to secure its claim."
"1. The Respondent has two arbitration awards against the Claimant in the sum of about US$4.6 million. It has 3 guarantees in its favour as security for its claims which exceed this amount.
2. On 30 November 2010 Gloster J made a freezing order against the Respondent. Due to her concern that the effect of the order would be to prevent enforcement of the guarantees US$4.5 million was offered and required to be paid into court as a condition of the grant of the order.
3. The Claimant now accepts that the freezing order should be discharged. It says this is because the Respondent's new ownership means that there is no longer a real risk of dissipation. The Respondent contends that the order should never have been granted in the first place.
4. The discharge of the order means that the Respondent can now enforce its claims against the guarantees. In those circumstances the Claimant contends that the US$4.5 million should be released. The Respondent contends that it should remain in court so as to be an available fund against which they can enforce their claims.
5. In the exercise of my discretion I consider that the US$4.5 [million] should be released. In particular:
(1) The rationale for requiring the payment of the US$4.5 million into court no longer applies;
(2) On discharge of the freezing order the Respondent is in a position to enforce its claims under the guarantees;
(3) It does not apply for a freezing order against the Claimant and no principled reason has been advanced as to why it should be secured for its claims (and, moreover, secured over and above the guarantee security it already has);
(4) It is suggested that the fact that the order allegedly should not have been obtained is a reason why there should be no payment out. However, the Respondent has the protection of the Claimant's secured undertaking in damages should it be established that some loss has been suffered as a result of the order for which they should be compensated. No such loss has so far been identified.
(5) In effect the Respondent is seeking to be put in a better position than it was in before the freezing order was applied for. No justification for this has been made out.
(6) . . ."
"(6A) Where a party pays money into court following an order under paragraph (3) or (5), the money shall be security for any sum payable by that party to any other party in the proceedings."
CPR 3.1(3)(a) contains the general power that a court may, when it makes an order, make it subject to a condition to pay a sum of money into court. Rule 3.1(6A) contains, as it seems to me, at any rate the starting point of the enquiry whether the money paid in should simply be paid out to CMA. Mr Craig was at first inclined to argue that this rule in fact deprived the court of a discretion in this regard, since it is expressed in mandatory terms. Mr Russell for his part countered that the sum payable by CMA to Petroval could only be said to be payable "in the proceedings" by virtue of Petroval having headed its s.66 application with the Folio Number of CMA's extant Action rather than issuing a new Arbitration Claim Form. However Mr Russell also pointed out that CPR 3.1(7) provides that "a power of the court under these rules to make an order includes a power to vary or revoke the order". In these circumstances it became common ground that the court has a power simply to revoke the requirement to make the payment in, so that it is unnecessary to decide whether Mr Russell's approach to the expression "payable by that party to any other party in the proceedings" is correct, either as a matter of construction of the rule or in the circumstances of this case. Nonetheless, CPR 3.1(6A) should I think inform the exercise by the court of its discretion. In my view it indicates that the predisposition of the court ought to be that the money should be available as a secured fund against which one party to litigation can enforce against the other payment of such sums as may become due in connection with the litigation.