Silver Dry Bulk Company Ltd v Homer Hulbert Maritime Company Ltd [2017] EWHC 44 (Comm)

[2017] EWHC 44 (Comm)Case No CL-2016-000626
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 18/01/2017
Before
MR JUSTICE MALES
Between
SILVER DRY BULK COMPANY LIMITEDClaimantHOMER HULBERT MARITIME COMPANY LIMITEDDefendant
Mr Thomas Sprange QC & Ms Ruth Byrne (of King & Spalding LLP) for Claimant for The Defendant did not appear and was not representedHearing Hearing date: 13 January 2017
Judgment ApprovedMr Justice Males :Introduction
[1]It takes two to arbitrate, just as it does to tango. There cannot be a valid arbitration when one of the two parties has ceased to exist: Baytur S.A. v Finagro Holding S.A. [1992] 1 QB 610. Typically such points arise when it is the claimant in the arbitration which ceases to exist after arbitration has been validly commenced and the respondent contends that the arbitration has been or should be brought to an end. There may then be an issue whether, even though the claimant no longer continues in existence, its claim in arbitration can survive, for example by means of a principle of universal succession (Eurosteel Ltd v Stinnes AG [2000] CLC 470) or some broadly equivalent principle (A v B [2016] EWHC 3003 (Comm)).[2]In the present case, however, it is the respondent in the arbitration which has been dissolved and which was dissolved before the arbitration was commenced. The claimant contends that despite this dissolution, the respondent company survived and continues to survive sufficiently at any rate for the purpose of being the defendant to a claim in arbitration. But it recognises that there is some uncertainty about this. It accepts that this is an issue which needs to be decided, but wants it to be decided by the arbitrator which it has appointed, applying the principle of kompetenz-kompetenz.[3]It might be wondered why anybody should want to arbitrate against a company which no longer exists. Leaving that question aside for the moment, however, a complication of this situation (unlike the typical situation when it is the claimant whose status is uncertain) is that there is nobody available to put the case for the respondent’s non-existence. The respondent cannot do so if it has been dissolved and, ex hypothesi, there is nobody who has (or who accepts that he has) standing to represent a company which he maintains no longer exists. That is why nobody appeared before me to oppose the claimant’s applications on behalf of the respondent.[4]In a case such as the present where there are clearly arguments to be made that the respondent has ceased to exist, it would be unfortunate if a court or tribunal determining the respondent’s existence or otherwise did not have the benefit of evidence and adversarial argument which could be properly tested. Moreover, it would be a pity to incur the trouble and expense of an arbitration if at the end of the day, perhaps in the course of proceedings for recognition or enforcement of an award, it were to turn out that the whole arbitration had been a nullity from the start. The claimant’s proposed solution, which it contends will remove any uncertainty, is that the court should make an order under section 18 of the Arbitration Act 1996 directing that the arbitral tribunal has been validly constituted. This, it suggests, will encourage the respondent’s parent company (which is the real albeit indirect target of the arbitration proceedings) to participate in the determination of the continuing existence of the respondent by the arbitrator.[5]This application under section 18 is the principal application before me. In addition the claimant seeks orders for production of documents against various third parties both within and outside the jurisdiction under sections 43 and 44 of the 1996 Act.

Background

[6]The claimant in the arbitration and in this court is Silver Dry Bulk Company Ltd, a Maltese company and a 100% subsidiary of General National Maritime Transportation Company (“GNMTC”), the Libyan national maritime company. It is Silver Dry’s case that until the overthrow of Colonel Gadaffi, GNMTC was under the control and direction of the Colonel’s fifth son, Hannibal, during which time GNMTC and its subsidiaries acquired close to US $1 billion worth of vessels.[7]One of these vessels was a newbuilding Capesize bulk carrier then named “Homer Hulbert” but also referred to by its shipyard number as “Vessel 1045” which Silver Dry purchased from the defendant (the respondent in the arbitration) Homer Hulbert Maritime Company Ltd pursuant to a Memorandum of Agreement dated 1 February 2011 for a price of US $66.5 million. Homer Hulbert was a special purpose vehicle incorporated in the Marshall Islands on 13 December 2010 for the purpose of owning the vessel and selling it to Silver Dry. Its sole director was Mr Ga-Hyun Chung and it was a 100% subsidiary within the Sinokor group of companies, a Korean ship owner and operator.[8]It is Silver Dry’s case that the purchase price of US $66.5 million paid by Silver Dry to Homer Hulbert included the payment of a secret commission of between US $5 million and US $7 million to Hannibal Gadaffi. It relies in particular on(1) documentary evidence of a payment by Homer Hulbert of US $5 million to a company called Babel Shipping Company which is said to be a nominee company of Hannibal Gadaffi,(2) an admission made in an interview in Libya by a Captain Belhag, said to be a close associate of Hannibal Gadaffi, that secret commissions were paid in connection with such vessel transactions and that such payments were made to Babel, and(3) evidence given by a broker, Nikolas Gkatzionis, in proceedings in Malta to the effect that a secret commission had been required in connection with the Vessel 1045 transaction and that the price stated in the MOA had been artificially inflated by US $5 million to enable this to be paid. Effectively, therefore, Silver Dry says that it paid US $5 million more than it need have done to purchase the vessel, and that this money was corruptly diverted to Hannibal Gadaffi’s company. According to Silver Dry, in this respect the transaction followed a common pattern. Indeed, I was told that an arbitral tribunal concerned with a similar transaction at about the same time for the purchase of Vessel 1046 has found that a corrupt payment was made to Babel, although that transaction had nothing to do with Sinokor.[9]Although Silver Dry’s case remains to be proved, so far at any rate nobody from Homer Hulbert or its parent Sinokor has denied these allegations or given an account of what the payment of US $5 million represented. Dissolution of Homer Hulbert and commencement of arbitration.[10]Once the sale of Vessel 1045 to Silver Dry was completed, Homer Hulbert was dissolved. On 28 February 2011 it filed Articles of Dissolution with the Registrar of Corporations of the Republic of the Marshall Islands.[11]Section 105 of the Marshall Islands Business Corporations Act (“the BCA”) provides:
“Winding up affairs of corporation after dissolution.” (1) Continuation of corporation for winding up. All corporations, whether they expire by their own limitations or are otherwise dissolved, shall nevertheless be continued for the term of three (3) years from such expiration or dissolution as bodies corporate for the purpose of prosecuting and defending suits by or against them, and of enabling them gradually to settle and close their business, to dispose of and convey their property, to discharge their liabilities, and to distribute to the shareholders any remaining assets, but not for the purpose of continuing the business for which the corporation was organized. With respect to any action, suit, or proceeding begun by or against the corporation either prior to or within three (3) years after the date of its expiration or dissolution, and not concluded within such period, the corporation shall be continued as a body corporate beyond that period for the purpose of concluding such action, suit or proceeding and until any judgment, order, or decree therein shall be fully executed. (2) Trustees. Upon the dissolution of any corporation, or upon the expiration of the period of its corporate existence, the directors shall be trustees thereof, with full power to settle the affairs, collect the outstanding debts, sell and convey the property, real and personal, as may be required by the laws of the country where situated, prosecute and defend all such suits as may be necessary or proper for the purposes aforesaid, distribute the money and other property among the shareholders after paying or adequately providing for payment of its liabilities and obligations, and do all other acts which might be done by the corporation, before dissolution, that may be necessary for the final settlement of the unfinished business of the corporation. (3) Supervision by court of liquidation. At any time within three (3) years after the filing of the articles of dissolution, the High Court of the Republic, in a special proceeding instituted under this subsection, upon the petition of the corporation, or of a creditor, claimant, director, officer, shareholder, subscriber for shares, incorporator or the Attorney-General on behalf of the Government of the Republic, may continue the liquidation of the corporation under the supervision of the court in the Republic and may make all such orders as it may deem proper in all matters in connection with the dissolution or in winding up the affairs of the corporation, including the appointment or removal of a receiver, who may be a director, officer or shareholder of the corporation.”
[12]Accordingly Silver Dry had a period of three years from 28 February 2011 within which to commence proceedings against Homer Hulbert. If it did so within that period, Homer Hulbert would continue in existence pursuant to section 105(1) for as long as was necessary for the proceedings to be concluded. If it did not do so, the three year continuation period provided by that subsection would expire.[13]No such proceedings were commenced within the three year period. Nor was an application made for continuation of the liquidation under court supervision pursuant to section 105(3). Instead, on or shortly after 28 October 2014 (i.e. eight months after the expiry of the three year period), Silver Dry served or purported to serve a notice of arbitration on Homer Hulbert pursuant to the arbitration clause in the MOA. This provided:
“16. Arbitration This Agreement shall be governed by and construed in accordance with English law and any dispute arising out of this Agreement shall be referred to arbitration in London in accordance with the Arbitration Acts 1950 and 1979 or any statutory modification re-enactment thereof for the time being in force, one arbitrator being appointed by each party. 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. If two arbitrators properly appointed shall not agree they shall appoint an umpire’s decision shall be final.”
[14]The notice of arbitration nominated Mr Klaus Reichert SC as the arbitrator appointed by Silver Dry. Homer Hulbert did not respond, either within the 14 day period referred to in the arbitration clause or at all. Accordingly, on the expiry of 14 days after receipt by Homer Hulbert of the notice of arbitration, Mr Reichert automatically became the sole arbitrator appointed pursuant to the clause – at any rate on the assumption that Homer Hulbert continued to have a sufficient existence to be a party to arbitration proceedings.[15]The notice of arbitration made clear that the only respondent to the claim was Homer Hulbert. No arbitration was commenced against any other Sinokor company and the notice contained no suggestion that any other such company was under any liability to Silver Dry. However, Silver Dry took steps to ensure that notice of the arbitration was given to Sinokor and to Mr Chung.

The arbitration proceedings

[16]In due course there was a procedural hearing before the arbitrator on 4 December 2015 which (at the invitation of the arbitrator) was attended by Mr Timothy Young QC and Holman Fenwick Willan on behalf of Sinokor Merchant Marine Company Ltd (but not on behalf of Homer Hulbert). In the lead up to that hearing Silver Dry had indicated that it might apply for orders joining Sinokor and/or other parties as respondent(s) to the arbitration. Mr Young made clear that Sinokor did not submit to the arbitrator’s jurisdiction and would deal with any such attempted joinder as and when it arose. He indicated that he was present to alert the arbitrator to “a rather knotty jurisdictional point”. This point, in short, was that Homer Hulbert had been dissolved under the law of the Marshall Islands in 2011 and that the three year continuation period provided for in section 105(1) of the BCA had expired before commencement of the arbitration with the consequence, applying Baytur S.A. v Finagro Holding S.A. [1992] 1 QB 610, that the arbitration proceedings were invalid. In addition Mr Young requested some clarification of Silver Dry’s intentions so far as Sinokor was concerned.[17]In response Mr Thomas Sprange QC representing Silver Dry indicated that there was a serious issue which would require careful consideration as to the continued existence of Homer Hulbert but that, if that issue was resolved in Silver Dry’s favour, a further issue would arise, namely “is Homer Hulbert actually the party to the arbitration agreement, or is it Sinokor?”[18]The upshot was a direction by the arbitrator that Silver Dry should prepare a comprehensive Memorial addressing both applicable jurisdictional issues and the merits of its case. That Memorial, dated 4 April 2016, contended that although Sinokor was not a signatory to the MOA, it (as opposed to Homer Hulbert) “was the driving force behind and the real participant in the HN 1045 transaction, and, thus, should be made a party to this arbitration as a party to the arbitration clause". It contended that, by one or other of various routes, “Sinokor should be made a party to this arbitration and ultimately be held liable for its assistance in embezzling funds out of GNMTC either by piercing its corporate veil or, alternatively, as the principal of its agent Homer Hulbert, or as proper party to the MOA”. As I understand it, this is the answer to the puzzle mentioned earlier of why Silver Dry is so keen to arbitrate against a company which at any rate for all practical purposes no longer exists, and which has disposed of its only asset and wound up its affairs. Evidently it hopes to use the arbitration as a means of getting at Sinokor. In the course of argument before me, Mr Sprange and Ms Ruth Byrne who appeared with him rightly described these submissions as “ambitious". Be that as it may, however, the current position is that no arbitration has been commenced against any Sinokor company other than Homer Hulbert and that latter company, if it continues to exist, is the only respondent to the arbitration.

The arguments as to the continuing existence of Homer Hulbert

[19]As to the continuing existence of Homer Hulbert, Silver Dry’s position set out in its Memorial was that, despite the terms of section 105(1) of the BCA with its “seeming implication … that a claimant is prevented from suing a dissolved company, unless the claim is brought within three years of its dissolution”, nevertheless Homer Hulbert continues to exist for the purpose of being a respondent to Silver Dry’s arbitration claim for two reasons. Those reasons have now been developed in an expert opinion by Mr Frederick Canavor Jr, a former Attorney General of the Marshall Islands.[20]Mr Canavor’s first reason is that the effect of section 105(2) of the BCA is that upon the dissolution or expiration of a corporation, the directors automatically become trustees by operation of law and that their trusteeship continues without limitation of time. The effect is that proceedings can be commenced at any time within the applicable limitation period (which in the Marshall Islands is a period of six years, running in the case of a fraud claim from discovery of the fraud) even after the three year continuation period referred to in section 105(1) has expired. Accordingly Mr Chung as sole director became the trustee of Homer Hulbert, either on 28 February 2011 when the Articles of Dissolution were filed or possibly three years after that date on expiry of the three year continuation period and his role as trustee provides a means by which Homer Hulbert can be sued.[21]Mr Canavor’s second and independent reason is that in a fraud case a claimant is entitled to the benefit of the six year limitation period regardless of the dissolution of the defendant. To hold that a company cannot be sued within the six year period just because it has ceased to exist would in his view be contrary to applicable principles of equity.[22]Sinokor takes issue with these arguments, first as set out in the Silver Dry Memorial and now as developed by Mr Canavor. It has obtained an opinion from a Marshall Islands law firm, Reeder & Simpson PC, albeit that the author of the opinion is not identified and it does not contain the usual expert’s declaration. The opinion maintains in summary that Homer Hulbert ceased to exist for all relevant purposes on expiry of the three year continuation period referred to in section 105(1), that the trusteeship referred to in section 105(2) operated during but not beyond that three year period, and that principles of equity cannot be invoked to override the clear and unambiguous language of section 105(1).[23]I need not explain these arguments in greater detail because I do not propose to decide which of them is correct for the purpose of the section 18 application. For the same reason I did not find it necessary to accept Mr Young’s generous offer of his services as an amicus curiae to explain further the reasons why it may eventually be determined that Homer Hulbert has ceased to exist and the arbitration is a nullity. In the event Mr Young was not available on the date fixed for the hearing of the section 18 application but I did not find it necessary to adjourn the hearing so that he could attend. In any event I do not see how counsel for Sinokor could act as a disinterested amicus curiae, albeit that it would no doubt be useful for whoever has finally to determine these issues to have the benefit of counsel’s assistance in testing the evidence and arguments which will be relied on by Silver Dry.

Section 18 -- principles

[24]Section 18 of the 1996 Act provides that: “18 Failure of appointment procedure(1) The parties are free to agree what is to happen in the event of a failure of the procedure for the appointment of the arbitral tribunal. There is no failure if an appointment is duly made under section 17 (power in case of default to appoint sole arbitrator), unless that appointment is set aside.(2) If or to the extent that there is no such agreement any party to the arbitration agreement may (upon notice to the other parties) apply to the court to exercise its powers under this section.(3) Those powers are— (a) to give directions as to the making of any necessary appointments; (b) to 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.(4) An appointment made by the court under this section has effect as if made with the agreement of the parties.(5) The leave of the court is required for any appeal from a decision of the court under this section.” (a) to give directions as to the making of any necessary appointments; (b) to 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.[25]Section 18 has been described as a “gateway” provision (Noble Denton Middle East v Noble Denton International Ltd [2010] EWHC 2574 (Comm), [2011] 1 Lloyd’s Rep 387 at [6]) which, as I understand it, means that it provides a way of getting an arbitration started, or at least prevents arbitral proceedings from being aborted by a failure in the agreed appointments process, but does so without requiring the final determination of issues affecting the arbitral tribunal’s jurisdiction which are better decided in some other way, for example by the tribunal itself under section 30 (applying the kompetenz-kompetenz principle) or by the court (but only with the agreement of the parties or the tribunal) under section 32.[26]For that reason it has been held that when there is an issue whether a tribunal would have jurisdiction, 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 (or possibly just arguable) case: Noble Denton at [10] to [12]. I note (as did Burton J in Noble Denton) that in Vale Do Rio Doce Navegacao S.A. v Shanghai Bao Steel Ocean Shipping Co Ltd [2000] EWHC 205 (Comm), [2000] 2 Lloyd’s Rep 1 at [57] Thomas J commented that although it was not necessary for him to decide the point, he saw “the force of the argument … that, in accordance with the policy of the Act, a court on an application for an appointment under section 18 might not wish to get embroiled in a trial of the question of whether there was an arbitration agreement, but merely enquire whether there was sufficient on the material before it to enable it to appoint an arbitrator and then leave the arbitration tribunal constituted after the exercise of the court’s powers to make the determination in accordance with section 30 or allow recourse to the courts under section 32”. The Lapad [2004] EWHC 1273 (Comm), [2004] 2 Lloyd’s Rep 109 may suggest that the court must determine the question of jurisdiction (see [20] where Moore-Bick J said that if he was wrong in his conclusion that the notice of arbitration was effective, the court would have no jurisdiction to appoint an arbitrator under section 18) but the contrary does not appear to have been argued and, in in any event, I respectfully consider that the decision in the Noble Denton case accords better with the scheme of the 1996 Act.[27]“Good arguable case” is an expression which has been hallowed by long usage, but it means different things in different contexts. For the purpose of an application under section 18, I would hold that what must be shown is a case which is somewhat more than merely arguable but need not be one which appears more likely than not to succeed. I shall use the term “good arguable case” in that sense. It represents a relatively low threshold which retains flexibility for the court to do what is just, while excluding those cases where the jurisdictional merits are so low that reluctant respondents ought not to be put to the expense and trouble of having to decide how to deal with arbitral proceedings where it is very likely that the tribunal has no jurisdiction. In this connection it is important to remember that crossing the threshold of “good arguable case” means that the court has power to make one of the orders listed in section 18(3). It remains for consideration whether it should do so as a matter of discretion.[28]However, the section 18(3) 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. That is made clear by the express exclusion of the section 18(3) powers if an appointment is duly made under section 17. Section 17 applies when one party fails to appoint an arbitrator within the time specified and the other gives notice in writing that he proposes to appoint his duly appointed arbitrator to act as sole arbitrator. By parity of reasoning, when a clause provides what is to happen automatically in the event that one party does not appoint its arbitrator, it is difficult to say there has been a failure of the appointment procedure. On the contrary, the clause has operated as intended. Another way of looking at the same situation would be to say that in such a case the parties have agreed what is to happen in the event of such a failure, although I would prefer to say that there has been no failure in the first place.[29]Once it is determined that there has been a failure of the appointment procedure and that when necessary the claimant can satisfy the good arguable case test, the court has a discretion whether to exercise any of the section 18(3) powers. The section does not prescribe how the discretion should be exercised and it must ultimately depend on all the circumstances of the case. As a general proposition I would respectfully agree with Moore-Bick J in The Lapad at [24] that respect for the principle of party autonomy and the desirability of holding parties to their agreement “together provide strong grounds for exercising the Court’s discretion in favour of constituting the tribunal except in the small number of cases in which it can be seen that the arbitral process cannot result in a fair resolution of the dispute". That said, however, these principles may carry less weight in a case where the assistance of the court is not required in order to constitute the tribunal. It is one thing to step in to prevent an arbitration from being strangled at birth. It is another when the arbitration is already alive and kicking and what the claimant is seeking is some endorsement from the court of its position that the tribunal has been validly constituted. West Tankers Inc v RAS Riunione Adriatica Sicurta SpA [2007] EWHC 2184 (Comm) may be an example of a case where such an order served a useful purpose, but at all events the relevant considerations may be different where there is a tribunal in existence which is capable of getting on with the arbitration without help from the court even if its status remains for the time being uncertain.

Section 18 – application of principles

[30]I would accept that there is a good arguable case that Homer Hulbert continues in existence sufficiently for the purpose of being a respondent in arbitration. I reach that conclusion because there is before me an expert report to that effect from a former Attorney General of the Marshall Islands who appears to be well qualified to express that opinion which has not been tested by cross-examination.[31]That said, and without attempting to grapple with all the detail of the arguments on either side in this judgment, to the extent that it is relevant I would not be prepared to conclude that Silver Dry has the better of the argument. On the contrary, my provisional view is that its arguments face formidable difficulties in view of the clear language of section 105 of the BCA, for the reasons given in the Reeder & Simpson opinion. I express this view with some caution, recognising that it is not for me to decide this issue on this application, because it is as I see it a factor to take into account when considering Silver Dry’s further application under section 44 of the 1996 Act.[32]In any event Silver Dry’s section 18 application must fail because there has in this case been no failure of the appointment procedure. The issue is more fundamental than that, namely whether one of the parties was in existence so as to be capable of being arbitrated against at all. But the appointment procedure worked perfectly well in accordance with the terms of clause 16 of the MOA. The clause provides that if a respondent fails to appoint its arbitrator within 14 days of receipt of nomination in writing of the claimant’s arbitrator, the decision of the single arbitrator appointed shall apply. The effect is that after 14 days the claimant’s nominee automatically becomes sole arbitrator. No assistance from the court is required for that to happen. It is what the parties have agreed. It is not a clause to which section 17 of the 1996 Act applies because it does not require the appointing party to give notice that it proposes to appoint its duly appointed arbitrator as sole arbitrator. But if the operation of a clause to which section 17 does apply is not to be regarded as a failure in the appointment process, as section 18(1) makes clear that it is not, nor is the operation of a clause which provides for an automatic appointment as sole arbitrator in the event of the respondent’s failure to appoint an arbitrator within a specified time.[33]It follows that the court does not in this case possess any of the powers listed in section 18(3).[34]In case I am wrong about that, however, I go on to consider whether I would be prepared to exercise those powers as a matter of discretion. The only relevant power is that contained in section 18(3)(b), namely “to direct that the tribunal shall be constituted by such appointments (or any one or more of them) as have been made". There is no need for any arbitrator to be appointed or for any appointment be revoked. Mr Reichert has been appointed and has been conducting the arbitration proceedings for some time. I understand that he has given directions for a hearing in March 2017, or failing that for later in the year, at which it is envisaged that issues of both jurisdiction and merits will be considered. No intervention by the court is needed in order for the proceedings to continue and for those hearings to take place. Accordingly this is not a case where the assistance of the court is required in order to constitute the tribunal or to enable the arbitration to proceed. Rather it is a case where the claimant, Silver Dry, is seeking an endorsement by the court of its position with a view to drawing in a third party, Sinokor, to the arbitration proceedings. I doubt whether that would be an appropriate use of the section 18(3) powers, at any rate on the facts of this case.[35]Silver Dry’s position is set out in Mr Sprange’s skeleton argument in support of its section 18 application (my emphasis):
“10. [Silver Dry] asks the Court to exercise its power under s. 18 (3) to confirm that the Tribunal (comprising of Mr Klaus Reichert SC, Sole Arbitrator) has been validly constituted. [Silver Dry] does so on the basis that it has been contended that the arbitration is a nullity. An order under s. 18 shall remove any uncertainty arising in this regard. This in turn shall allow the Tribunal to proceed with the merits of the arbitration and at the same time make clear to HH, Mr Chung and indeed Sinokor that the Tribunal is validly constituted and that they may, if they so wish, participate in the proceedings. Given the serious nature of the allegations made it is obviously in the interests of all concerned that there be full participation in the arbitration. 11. In seeking this relief, [Silver Dry] does not seek a final determination of the underlying questions relating to HH’s status. It accepts that the Tribunal will ultimately need to make determinations regarding its own jurisdiction and this will include whether it should exercise jurisdiction over HH. It follows that it will be open to HH, Mr Chung or Sinokor to advance arguments in the course of the arbitration relating to HH’s status. As discussed below, [Silver Dry] submits that it need only establish that it has a good arguable case with respect to HH’s status.”
[36]Consistently with this position, Silver Dry seeks an order directing that the arbitral tribunal has been “validly” constituted by the appointment of Mr Reichert. Although Mr Sprange was inclined to accept that the insertion of the word “validly” (which is not to be found in section 18(3)(b)) could be problematical, he maintained the application for an order in these terms. It seems to me that such an order would go much further than would be justified by a conclusion that Silver Dry has a good arguable case. Whether the arbitral tribunal has been validly constituted in this case must depend upon whether Homer Hulbert continues to have a sufficient existence to be a party to arbitration proceedings. If it does, it is obvious that the arbitrator was validly appointed and the tribunal has been validly constituted. If not, it was not possible for arbitration to be commenced against a non-existent company.[37]In order to determine whether the tribunal has been validly constituted it would therefore be necessary to decide the very point which Silver Dry submits need not be decided and on which it contends that it need only show a good arguable case. I have to say, therefore, that I find Silver Dry’s position contradictory, or at any rate that far from removing any uncertainty (the avowed object of this application), an order in the terms sought would be liable to misinterpretation. On the other hand, an order to the effect that there is a good arguable case that the tribunal has been validly constituted (which is in effect what I am asked to decide) would say so little that it would be pointless.[38]For these reasons, even if I had power to make an order under section 18(3)(b), I would refuse as a matter of discretion to make the order sought. Nor is there any order in alternative terms which would serve any useful purpose.

The applications under sections 43 and 44

[39]Silver Dry’s next application is for orders under sections 43 and 44 of the 1996 Act to enable it to obtain documents from brokers who were involved in the negotiation of the MOA. There were a number of brokers involved. Initially the negotiations involved(1) London brokers Poten & Partners, who were in contact with GNMTC in Libya,(2) intermediate brokers Silverbulk Trading Ltd of Malta, and(3) Korean brokers Mutual Shipbroking & Pioneers who were in contact with Sinokor. It appears that in the course of the negotiations some or all of these brokers were cut out of the business and replaced by Marubeni Corporation of Tokyo and JR Shipping, another Korean broker. Silver Dry has been able to obtain documents from Silverbulk as a result of proceedings brought by that company in Malta in an attempt to obtain its commission and is hopeful of obtaining further documents from Marubeni by agreement. Accordingly the orders which it now seeks are not directed to Silverbulk or Marubeni. Its present applications are directed against Poten in this country and against Mutual Shipbroking & Pioneers (“MSP”) and JR Shipping (“JR”) in Korea. They are brought with the permission of the arbitrator.[40]Ms Byrne, who conducted this part of Silver Dry’s applications, explained the relevance of the documents sought from MSP in these terms:
“With respect to the specific categories of correspondence sought from Sinokor’s broker, MSP, they are highly likely to contain evidence directly relevant to two key questions which arise in the underlying arbitration, and their inspection and copying is therefore warranted: (1) first, as Sinokor’s broker for the majority of the negotiation which preceded the conclusion of the HN 1045 Transaction, instructions received by MSP from Sinokor should be probative on the question of whether Sinokor was, as [Silver Dry] alleges, the real party in interest to the transaction; (2) secondly, the existing MSP correspondence obtained by [Silver Dry] (from Mr Gkatzionis’s evidence and as detailed in the Memorial) demonstrates that MSP expressed reservations, apparently on behalf of Sinokor, with respect to the additional sums that Hannibal and his cronies wanted to add to the purchase price for the Vessel with a view to their repayment to Hannibal or related entities, for example the sum of USD 5 million as a “consultancy fee”
. MSP’s correspondence with Sinokor on the subject should therefore be probative on the question of the true nature of the requested price up-lift and of Sinokor’s understanding of that true nature.”[41]She submitted that, despite JR’s more limited period of involvement in the negotiations, its documents were likely to be relevant for the same reasons and, by implication at least, that the same applied to Poten’s documents.

Section 43 – Poten & Partners

[42]As Poten is a company situated in England, the relevant provision is section 43. This provides:
“A party to arbitral proceedings may use the same court procedures as are available in relation to legal proceedings to secure the attendance before the tribunal of a witness in order to give oral testimony or to produce documents or other material evidence.”
[43]Silver Dry seeks permission to issue a witness summons for production of Poten’s documents pursuant to CPR 34.2(1)(b). In court proceedings a party would be entitled to issue a witness summons requiring the witness to produce documents without (in most circumstances) needing the permission of the court, although permission is required if, as in this case, production of the documents is sought in advance of the date fixed for the trial (CPR 34.3(2)(b)). It is then for the witness either to produce the documents or to apply to set aside the witness summons. In principle, therefore, Silver Dry would be entitled to issue a witness summons without the permission of the court if it was content to have documents produced at the arbitration hearing, albeit subject to a right on the part of Poten to apply to have the witness summons set aside. This is a material consideration. In effect the only issue is when any documents to which Silver Dry is entitled should be produced. If documents are to be produced, it is obviously convenient that they be produced sooner rather than later.[44]There has been correspondence between Silver Dry’s and Poten’s respective solicitors from which it appears that the documents sought by Silver Dry have in fact been collected without difficulty and are available for production. However, Poten has raised three objections (or at any rate qualifications on its willingness) to producing the documents requested. The first is that the category of documents sought is too broad. The second is that Silver Dry should pay its legal costs. The third is that the documents or some of them are or may be confidential. It seems to me in these circumstances that the appropriate course is to allow Silver Dry to issue the witness summons, without prejudice to Poten’s right to apply for it to be set aside in whole or in part. Ms Byrne was content with that approach.[45]As objections have been identified in correspondence, it may assist if I state my provisional views about them. First, applying the test set out in Tajik Aluminium Plant v Hydro Aluminium AS [2005] EWCA Civ 1218, [2006] 1 Lloyd’s Rep 155 at [27] and [28], I consider that the documents are sufficiently specified for the purpose of a witness summons. They consist entirely of emails and their attachments either sent or received by one individual, Mr Trevor Bowers, during a limited period. There can be no real doubt as to what is sought. However, I will not shut Poten out from explaining to the court, if appropriate, why it takes a different view. So far as legal costs are concerned, Silver Dry must pay (and as I understand it is willing to pay) Poten’s reasonable costs of collecting and producing the documents, but these are likely to be modest in view of the limited scope of the documents in question. I do not at present see why Poten should be able to recover the costs of obtaining legal advice, any more than any other witness in receipt of a witness summons could do, but it is open to Poten to make an application for those costs if appropriate. Finally, so far as confidentiality is concerned, it appears that Poten was acting as the broker for the Libyan interests (and thus ultimately for Silver Dry) in the negotiations in question, in which case confidentiality is unlikely to be a valid objection to production of the documents. It may be that Poten is merely concerned to have the protection of being required to produce the documents pursuant to a court order. However, if there is an objection on grounds of confidentiality which goes further than this, once again Poten is free to raise that objection.[46]Any application by Poten to set aside the witness summons on these or any other grounds must be made within 14 days of service of the summons on Poten.

Section 44 – MSP and JR

[47]Section 43 is only available when the witness in question is in the United Kingdom. The application for equivalent documents of MSP and JR is therefore made under section 44 and takes the form of an application for the issue of Letters of Request directed to the Korean courts for the production of emails between specified individuals or email accounts for a limited period. Section 44 provides:
“(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.

(a) the taking of the evidence of witnesses; …”

[48]Section 44(5) provides that the court shall act only if or to the extent that the arbitral tribunal has no power or is unable for the time being to act effectively.[49]I am prepared to assume that the court has power under this provision to direct the issue of a Letter of Request, and that the arbitrator is unable to make an order which would enable Silver Dry to obtain production of documents of MSP and JR in Korea. (There is no evidence before me whether the Korean courts would be prepared to act upon a request from an arbitral tribunal, although it may be that this is possible in some jurisdictions).[50]Nevertheless, as a matter of discretion I am not prepared to make the order sought at this stage. It seems to me, as a minimum, that the issue of a Letter of Request would require this court to make a representation to the foreign court that(1) there is, or at the very least there probably is, an arbitration in existence for the purpose of which production of the documents is requested and(2) the documents are required for the purpose of the arbitration. If the court is not in a position to make those representations, I consider that powerful reasons would need to be shown before the foreign court and parties who are not party to the arbitration should be put to the trouble and expense of responding to a Letter of Request. In this case there are no such powerful reasons.[51]As for the existence of the arbitration, it remains to be decided whether Homer Hulbert continues in existence. Homer Hulbert is the only respondent in the arbitration and if in truth it does not exist the arbitration is a nullity. While I have accepted that there is on the material presently available a good arguable case that Homer Hulbert continues in existence for the purpose of being a respondent in arbitration, I have not been prepared to conclude that Silver Dry has the better of the argument.[52]Nor is it apparent that the MSP and JR documents are required. First, the submission that these documents “should be probative on the question of whether Sinokor was, as [Silver Dry] alleges, the real party in interest to the transaction” is completely speculative. I see no reason to think that the documents will do anything other than confirm that, in the usual way, commercial interests negotiating the sale and purchase of a vessel determined that the contract would be concluded between two special purpose vehicles (or in more traditional language, two one ship companies), Silver Dry on the one hand as buyer and Homer Hulbert on the other as seller, each of which would contract as a principal and would be the only party to the contract. Second, even if Silver Dry hopes to use the arbitration against Homer Hulbert as a means of establishing that one or more Sinokor companies are in some way bound by the arbitration clause in the MOA, the fact remains that no arbitration has been commenced against any other Sinokor company. Third, while the arbitration remains in effect an undefended arbitration against Homer Hulbert, it is difficult to see that further documents are necessary in order to establish the true nature of the payment to Babel. As Silver Dry submits, the evidence and documents which it has already obtained appear, at any rate on the face of things, to be compelling. As noted above, substantially similar material has already persuaded one international arbitral tribunal, concerned with Vessel 1046, that the transaction in question was corrupt. That was an arbitration which was defended. Although this will be a matter for the arbitrator and not for me, it is hard to think that Silver Dry will be in a worse position when there will be no contrary evidence to explain any legitimate reason for the making of the payment.[53]My view of this last matter might be different if the arbitrator had expressed a view that production of the documents is necessary in order for there to be a fair resolution of the issues in the arbitration. Whether that is so is ultimately a matter for the arbitral tribunal rather than the court. There would be no difficulty in an arbitral tribunal expressing such a view in an appropriate case. That would not amount to pre-judging the issue to be decided. It is a daily occurrence for courts to order disclosure on this basis without any element of pre-judging. The expression of such a view would be likely to be a highly relevant factor for the court in exercising its discretion whether to make an order under section 44. However, while the arbitrator has given permission for this application to be made, so that the jurisdictional requirement in section 44(4) is satisfied, he has expressed no such view.

Disposal

[54]For these reasons:a. The application under section 18 for an order directing that the arbitral tribunal is validly constituted is dismissed.b. Silver Dry has permission pursuant to section 43 to issue a witness summons for the production of documents by Poten, such documents to be produced within 14 days of service of the summons on Poten unless within that period an application is made for the summons to be set aside in whole or in part.c. The application under section 44 for an order directing the issue of Letters of Request addressed to the courts in Korea for the production of documents from MSP and JR is dismissed.

Cited in 5 later judgments