Gemyat Gemi Insa VE & Anor v Oakley & Ors

LORD JUSTICE LONGMORE: The underlying dispute from which this application for permission to appeal arises is a dispute between, on the one hand, the sellers and builders and, on the other, the buyers of a vessel that came to be known as the Orahope. The disputes went to arbitration. The sellers have objected to the findings of the arbitration and have issued two sets of proceedings in the High Court. The buyers were awarded security for costs to defend those proceedings in the High Court and this is now the sellers’ application for permission to appeal the decision on security for costs made by Morison J. The application has been presented by Mr Sahin, who also appeared in front of Morison J, on behalf of the sellers.

The original contract was dated 18 September 1999. The sellers agreed to build and sell a chemical and product tanker to the buyers, and the delivery date was 31 July 2001. Disputes then arose and the parties agreed to adopt an arbitration procedure. They, in particular, agreed that England would be the seat of the arbitration and that the LMAA (2002) terms would apply. The buyers appointed Mr Oakley as their arbitrator, the sellers appointed Professor Ataergin, and the third arbitrator, appointed by the two arbitrators, was Mr George Lugg, who is a qualified Marine Engineer, ship surveyor and full member of the London Maritime Arbitration Association.

The buyers, who were the claimants, submitted a claim for a total of approximately £1.9 million, and then, on 10 January 2004, the sellers submitted their defence and also a counterclaim in the sum of €1 million, said to be due as an indemnity under article 5 of the contract, and further other claims being approximately £2.7 million altogether.

The buyers were concerned that the sellers did not have sufficient assets to pay the costs of the counterclaim if the sellers lost their counterclaim, and so, on 18 February 2004, they applied to the arbitrators for security for costs of the counterclaim. The arbitration tribunal was persuaded that it was right to order security for costs and made an order accordingly. The sellers did not put up that security for costs and so their counterclaim was dismissed by the arbitration tribunal on 10 September 2004, pursuant to section 38 of the Arbitration Act 1936. The sellers asked for an oral hearing in respect of the order for security for costs of the counterclaim, but they never paid the tribunal’s booking fees for that oral hearing and, accordingly, the dates given were vacated and the parties were notified that the matter would proceed on the basis of the documentation only.

That resulted in the sellers issuing proceedings against the buyers in the Commercial Court on 7 June 2005 under section 24 (that is the section relating to the power of removal of arbitrators of the Arbitration Act) and sections 68 and 69 of the Act (I will call those the sellers’ first High Court proceedings). The application was for an order to remove the arbitrators on the grounds of bias and acting unfairly, and also to set aside the interim declaratory order made by arbitrators dismissing the counterclaim, and there were various other claims.

The arbitrators, not unnaturally, applied to the Commercial Court to be heard on the application to remove them, since personal allegations were being made against them, and on 23 September 2005, Colman J ordered that the arbitrators be joined as intervening parties in those first High Court proceedings. He also ordered that the sellers should pay the arbitrators’ costs for that hearing. Those costs remained unpaid.

Section 24 of the Arbitration Act allows the tribunal to make an award, even while an application to remove the arbitrators is pending, and indeed the arbitration tribunal did proceed to issue a final award on 30 September 2005 and that award was in favour of the buyers. Professor Ataergin dissented. The damages awarded were liquidated damages and damages for breach of contract. The buyers, meanwhile, issued proceedings in the High Court for security of the costs to be ordered against the sellers, and the arbitrators themselves also applied to the High Court for security for costs in respect of the applications being made by the sellers, and in due course judgment was given, as I have said, that security for costs of those proceedings should be provided.

There were, I should mention, second High Court proceedings because, on 26 October 2005, the sellers issued further proceedings seeking to appeal the final arbitration award. The decision in respect of which permission to appeal is sought is that of Morison J of 28 February 2006, in which he ordered that the sellers should provide the arbitration tribunal with £37,500 as security for costs, and they should provide the buyers with £40,000 as security for costs in respect of the proceedings sought to be brought by the sellers. He ordered further that both the first and second High Court proceedings were to be stayed until they paid the security as ordered, and a time was given for that payment.

The order of Morison J was made on 28 February 2006, but this application for permission to appeal against that order was not made until 27 June 2006, and it is thus three months out of time. That lapse of time is not unimportant, although Mr Sahin has explained the difficulties of getting instructions from the company, getting translations for the various documents and so on, but the reason why it is not unimportant is this: the position now is that both sets of High Court proceedings were struck out by Morison J on 12 June 2006 because the security had not been provided. If the application had been made within the time prescribed by the rules, or with only a short extension of time needed, that striking out might not have happened and the position now is therefore that there are no existing proceedings and that the application for permission to appeal is therefore technically misconceived.

It seems to me that the fairest way for me to approach the matter, rather than just to dismiss the application as having been made out of time and being now too late, is to treat the application as if the permission which is now being sought were permission to appeal from the final order dismissing the claim for failure to provide security for costs. On that basis, an extension of time would not be necessary since the application has been made within three weeks of the time when the final order was made, although the sellers would still be open to the criticism that they have left everything very much to the last minute. Nevertheless, it is, as it seems to me, appropriate for me to consider the merits of the matter, and I will leave question of extension of time on one side.

There are numerous grounds of appeal, but Mr Sahin has put the matter shortly to me orally and I think I can summarise the matter overall as follows. He submits, firstly, that the order for security for costs is unduly oppressive because, although the company has funds, they are not liquid funds and the money just cannot be provided. In his written material he had cited the well known statement of Gibson LJ in Keary Developments v Tarmac Construction Ltd [1995] 3 All ER 524 in these terms:

As to that point, that was a matter that was fully considered by Morison J, and he said that there was no evidence of a likely stifling of the claim, since no evidence had been provided of the possibility or otherwise of obtaining money from sources outside the company who are the sellers. One feels that some such sources must exist since the sellers have been able to finance the litigation on their side so far.

Secondly, permission to appeal is sought on the grounds that the application to remove the arbitrators under section 24 of the 1996 Act is so serious that it should not be subject to an order for security for costs. Moreover, it is said that the statutory provision in the 1996 Act relating to costs only applies to sections 68 and 69 and not to section 24. However, this matter was also ventilated before the judge, who came to the clearly correct conclusion that if an attack is to be made on the arbitrators in such a form as to suggest that they should be removed on the grounds of unfairness or bias, it is natural that they should respond and that, although there is no provision in section 24 of the Act itself for security for costs to be ordered in respect of such an application, nevertheless it fell under the general power of the rules in CPR 25.12.

So that matter was fully considered by the judge. So also was an argument that there was no jurisdiction to order security by virtue of a reciprocal treaty in force between Turkey and the United Kingdom.

In those circumstances, I have to ask myself if there is any realistic prospect that if I granted permission to appeal, this court would set aside the judgment of the judge on the application for security and his subsequent order dismissing both sets of High Court proceedings. Asking myself that question, I can only come to the conclusion that there is no such realistic prospect and therefore I have to refuse this application, courteously and pleasantly as it has been argued by Mr Sahin.