W v X Company

This is a claim by the Claimant seller (“W”) for orders under sections 42, 43 and 44 of the Arbitration Act 1996 (“s. 42”, “s. 43” and “s. 44”) in support of London arbitral proceedings brought against the buyers of two vessels. Y SPC ("Y") are formally treated by W as the buyers for the purposes of these applications but for such purpose only.

The applications under ss. 43 and 44 are unopposed. Yesterday I made orders under both sections for the production of specific documents in relation to three English shipbrokers and one Norwegian shipbroker. The application under s. 42, however, is opposed. In this regard, W seeks an order for compliance by Y with certain peremptory disclosure orders of the arbitral tribunals, all subject to a penal notice. The orders in question are dated 1^st May, 29^th May, 4^th June, 6^th June, 13^th June, 18^th June, 8^th July and 13^th November 2017. In each case the tribunals have given permission for the applications to be brought.

Y resist the application, in essence because they contend that the disclosure orders have already been complied with. As will be seen below, the central issue in dispute for me is whether or not I can be satisfied that that is the case.

On this application I have received two witness statements from Mr. Henry Dunlop for W and two witness statements of Mr. Jeremy Biggs for Y. Those witness statements and their exhibits contain a very significant amount of detail, including intense correspondence with the tribunals. It is not necessary for me to refer for today’s purposes to all of that detail but whether or not a document is expressly referred to below, I can confirm I have taken into account all of the matters which have been drawn to my attention during the course of submissions in particular.

Two concurrent arbitration references concerning alleged breach of two materially identical memoranda of agreement dated 29^th November 2013 have been commenced. The references relate to the sale and purchase of two newbuilding vessels to be built in Japan ("the Vessels"). W signed the memoranda of agreement as sellers and X Company ("XCo") signed as buyers. It has, however, since emerged that XCo is only a trading name.

The central issue in both arbitrations is the true identity of the buyers. W’s claim ultimately is for repudiation of the memoranda of agreement by termination by the buyers in March 2016. The total value of the claims in both references is said to be some US$23 million. The buyers counterclaim for the return of down payments. Those down payments were made by Z Inc, a company incorporated in the Marshall Islands, payments being made from a Swiss bank account on instructions from personnel at the office of a Mr A and B Inc in Greece.

The references were commenced in December 2015 originally against XCo as buyers. In May 2017, for reasons which will become apparent, further notices were then served on B Inc, B Inc having elsewhere asserted ownership of the vessels, and Mr A, B Inc's principal. By March 2016 and as the tribunals were finalising their partial awards on the question of whether or not the memoranda of agreement were binding at all, uncertainty had begun to emerge as to the status and identity of the buyers.

On 24^th March 2016 Ince & Co. solicitors, informed W that they had been instructed by Mr C. He is the individual who, it turns out, signed the memoranda of agreement for XCo. In April 2016 Ince & Co. intimated that XCo Group LLC had been incorporated in Dubai in February 2014 and that that entity was not the buyer. On 16^th May 2016 Ince & Co. said that Y had been incorporated in Bahrain and may have been the XCo vehicle. In August 2016 Ince & Co. stated that Y were the buyers doing business under their trade name of XCo. In April 2017 Ince & Co. intimated that Y was run by Mr C and a Mr D.

W’s case on identity in the arbitral proceedings can be summarised as follows. The buyers are those persons or entities that use the name XCo. This is something to be determined as a question of fact. Subject to disclosure, the buyers are either the investors in the investment fund used to purchase, including B Inc and its principals or any entity used by them, or the firm or corporate using the name XCo as agent of the said investors. These parties are jointly and severally liable in and under the name of XCo. Alternatively, the buyers are B Inc pursuant to a joint venture agreement or similar. The buyers were not Y, or if they were Y it was Y as agent of the investors as invested jointly and severally with others, or agent of B Inc, or for both, pursuant to a joint venture agreement or similar.

Y’s case can be summarised as follows. The identity of the contracting party is to be determined as a matter of contractual construction. XCo means an incorporated entity. Y have volunteered to submit to the references as buyers. Y are the buyers. At the relevant time they were conducting their business with the trading name of XCo. The individual investors are not parties to the arbitration agreements and the memorandum of agreement, nor are they respondents to the notices of arbitration, nor have they submitted to the tribunals' jurisdiction. Ince & Co. do not act for them.

The history of disclosure is set out in great detail in the first witness statement of Mr. Dunlop. That history, I should record, is not accepted as full or fair by the buyer, by Y, but it is at least an outline. It will be necessary to refer to some of the detail in due course but, for present purposes and by way of overview, W’s first application for disclosure was made on 19^th October 2016. In January 2017 the tribunals made an order for disclosure of documents relevant to the identity of the buyers by late February.

That order was repeated on 20^th February but with a specific order for information as to the buyers of other vessels. There is material to show or suggest that other vessels were purchased at the same time by the same parties. They are referred to in the XCo corporate brochure available to W at the time of sale. There is reference to a vessel called “E”, a vessel purchased in the same month as the Vessels, and five other vessels referred to in the corporate brochure. In March 2017 the tribunals requested a statement as to the identity of the buyers of those other vessels. A case management conference took place on 28^th March 2017.

On 14^th June 2017 the full arbitral hearing was adjourned due to a lack of disclosure on the part of Y. On 8^th July 2017 the tribunals ordered that all of their pre-18^th June 2017 orders should be treated as final and peremptory for the purpose of section 41(7) of the Arbitration Act 1996. At this stage and to date, some 14 orders have been elevated to the status of “final and peremptory”. In the course of the disclosure disputes and exchanges between the parties, Mr C and Mr D have provided signed disclosure statements in effect saying that they have produced all relevant documents that they can locate. Those statements are dated 15^th May and 13^th June 2017.

The tribunals granted permission to bring the application under s. 42 on 10^th September 2017. The tribunals have confirmed in terms that they have considered the documents of which disclosure is being sought under the ss. 42, 43 and 44 applications to be of direct relevance to the central issue in the arbitrations, that being the question of identity.

W contends that there has been a history of serious and pervasive failures on disclosure by Y. Most strikingly, there has been no relevant correspondence from the individual handling the transaction for XCo, Mr A, to key personnel at Broker 1 and Broker 2, no financial documents evidencing the agreements for payment and actual payments have been produced and there has been inadequate disclosure on the other vessels to which I have referred.

W contends that the fact that the tribunals who are best placed to understand the full background and issues between the parties have granted permission to make these applications, that that fact is, without more, an answer to any objection that Y might raise before me, the tribunals would not have granted permission had they not considered there to have been the very failures of compliance which Y now denies has taken place and W advances its position by reference to four categories of documents or information by reference to various peremptory orders as follows:

Y does not accept W’s characterisation of the disclosure process. Y have given substantial disclosure of documentation within their power, possession or control. They have made reasonable and proportionate searches. Mr C has signed disclosure statements. The tribunals have positively declined to say that there has been a failure to comply with peremptory orders on their part. It cannot be said, for example, that Y should be required or has failed in some way to give disclosure of documents evidencing a partnership, in circumstances where Y says there was no such partnership. In short, Y contend that I cannot properly or reliably be satisfied that they have failed to comply with the tribunals’ final and peremptory orders as required by s. 42(4).

S. 42 provides as follows:

“42.

Enforcement of peremptory orders of tribunal.

(1)

Unless otherwise agreed by the parties, the court may make an order requiring a party to comply with a peremptory order made by the tribunal.

(2)

An application for an order under this section may be made—

(a)

by the tribunal (upon notice to the parties),

(b)

by a party to the arbitral proceedings with the permission of the tribunal (and upon notice to the other parties), or

(c)

where the parties have agreed that the powers of the court under this section shall be available.

(3)

The court shall not act unless it is satisfied that the applicant has exhausted any available arbitral process in respect of failure to comply with the tribunal’s order.

(4)

No order shall be made under this section unless the court is satisfied that the person to whom the tribunal’s order was directed has failed to comply with it within the time prescribed in the order or, if no time was prescribed, within a reasonable time.

(5)

The leave of the court is required for any appeal from a decision of the court under this section.”

The power in s. 42 to enforce peremptory orders is part of a set of complementary statutory provisions in the Arbitration Act 1996. S. 33(1)(b) provides for the tribunal’s duty to adopt procedures to avoid unnecessary delay or expense, so as to provide a fair means of resolving the dispute. S. 40(2)(a) provides for the parties’ general duty to comply with an order of the tribunal. S. 41(5) provides for the tribunal’s power to impose a peremptory order in the event of a party’s non-compliance. S. 41(7) sets out the tribunal’s range of sanctions in the event of a party’s non-compliance with a peremptory order.

The terms of s. 42 make it clear that the court has a discretion as to whether or not to grant an order under s. 42. The nature of that discretion and the proper approach can be identified in the judgment of Mr. Justice Teare in Emmott v Michael Wilson & Partners Ltd (No 2) [2009] EWHC 1 (Comm) (in particular at paragraphs 59 and 62):

I am satisfied that the conditions for an application under s. 42(2) and (3) are made out. The central question is whether or not the condition in s. 42(4) is likewise established. The orders for me to consider, as I have identified, are those of 1^st May, 29^th May, 4^th June, 6^th June, 13^th June, 18^th June, 8^th July and 13^th November.

W emphasises that the tribunals have granted permission to make these applications. It contends that this is an answer to the issue before me without more. The tribunals have decided that there has been non-compliance since otherwise they would not have granted permission. I should not second-guess that decision, particularly in circumstances where the tribunals are best placed to assess the disclosure exercise.

The granting of permission is, of course, supportive of the application in a sense but I accept Y's submission that a degree of caution needs to be exercised in this regard when the history of W’s application is traced through. The tribunals were being asked to treat the question of permission by reference to all three sections of the Arbitration Act 1996 together. The applications under ss. 42, 43 and 44 were said to complement each other. It was submitted that it was therefore right that this court should have more before it all available powers together. There was no particular scrutiny of the merits of the s.42 application for the purpose of granting permission as a separate matter, although of course the tribunals will have had the merits of the applications well in mind in general terms.

That said, I do not accept Y's submission that the tribunals have in some way sought to avoid making a finding of non-compliance on the part of Y. At most, the tribunals have, understandably, declined to confirm what, if any, inferences from non-compliance they may draw at the end of any hearings. Nor do I accept the in terrorem submission for Y that a finding of non-compliance on my part necessarily amounts to a finding of dishonesty on the part of Mr C and/or Mr D in relation to their statements made to date, particularly in circumstances where, as will be seen below, the full extent of their enquiries to date is unclear.

Against this background, I turn to the category of documents and the peremptory orders relied upon.

On 29^th May 2017 the tribunals made a final and peremptory order that the buyers should produce all relevant correspondence with Mr A that was in the possession of Mr D and/or Mr C, or:

“..if it is asserted that the correspondence is not in their possession and control, precisely what searches have been made for it in their files.”

The deadline was 7^th June 2017. On 4^th June 2017 another peremptory order was made that Y produce by 5pm on 7^th June:

“…all correspondence of Mr D and Mr C with any person, other than Broker 2, relating to the sale of the Vessels and Vessel "E". This includes any and all correspondence with Mr A with regard to these transactions.”

and also:

“a statement from Mr D and Mr C explaining the precise nature of the searches they have made in their files or those of XCo or Y for documents described… above.”

The tribunals repeated this on 6^th June with a new deadline of 5pm on 9^th June 2017.

No documents have been produced by Y or Mr C or Mr D in response to these orders. There have been statements from Mr C dated 15^th May and 13^th June 2017 alongside a very short one from Mr D also dated 13^th June 2017. Ignoring questions of lateness, those statements are, in my judgment, materially inadequate. Mr A is not referred to expressly at all, although there is reference to at least one other named individual. There is no or insufficient precision as to the searches carried out. The reference, for example, to “any available backup documents” in Mr C’s first statement does not disclose whether or not there were backup documents and, if so, what they were. I am quite satisfied that there has been a breach of the peremptory orders of 29^th May, 4^th and 6^th June 2017.

On 13^th June 2017 the tribunals made a final and peremptory order targeting documents relating to the contemporaneous purchase of Vessel "E" initially to be produced by 10am on 14^th June 2017 as identified in an earlier order of 3^rd June 2017. The order related to all material which may have been passed between those acting on behalf of XCo and Broker 1 in relation to sales, including that of Vessel "E" and documentation relating to payments. The tribunals also stated that they expected:

“..appropriate statements… by Mr D and Mr C detailing the searches which have been made in their own files and the requests made to Broker 1 to procure the production of the relevant material from Broker 1’s files.”

On 18^th June 2017 the tribunals directed Y to procure and produce by 5pm on 26^th June 2017 from Broker 1’s files relating to the purchase of Vessel "E" all documents relating to the payment of the deposit, the payment of the balance of the purchase price and any commissions paid to Broker 1. On 8^th July 2017, as indicated, this order was made peremptory.

Some limited disclosures from Y have been produced in response but there are still significant gaps, for example relating to payment documents and purchase terms. W says that this is most surprising in circumstances where, on Y’s own case, Broker 1 were its brokers and where significant disclosure has been made (in August 2017) after the disclosure statements of Mr C and Mr D. This disclosure revealed material showing that the purchase price payments were made by B Inc. Y in response says it was only the guarantor on these transactions and Broker 1 were not its brokers. The latest documents disclosed in August 2017 were properly disclosed having been obtained following requests by Ince & Co directly to Broker 1.

This seems to me to highlight Y's failures at the very least to detail adequately or at all the searches made in their own files and the requests made of Broker 1. There has been no further disclosure statement or explanation on these points from either Mr C or Mr D. I am quite satisfied that there has been a breach by Y of the orders of 13^th June, 18^th June and 8^th July 2017.

On 1^st May 2017 the tribunals made a final and peremptory order that Y produce by 5pm on 5^th May 2017 memoranda of agreement and other contractual documents in relation to the purchase and sale of the five other vessels. On 18^th June 2017 the tribunals made a peremptory order for the production of the same documents now by 5pm on 26^th June 2017, together with documents identifying the source of funds for the purchases and application of proceeds of on-sale.

No documents have been produced in response to these orders. W says that this is extraordinary when one looks at the XCo brochure at the time and the publicity prevailing. Mr C produced a statement on 4^th April 2017 stating that neither he nor Mr D had signed any contracts for these vessels, nor did any company in XCo to the best of his belief and this was repeated by him on 10^th April 2017. Then there are also the two disclosure statements to which I have already referred.

I consider the position to be unsatisfactory, certainly without full particulars of quite whom Mr C has consulted and in the context of the history of the failures, the striking nature of the representations made by XCo at the time and the very limited nature of the statements in response to the disclosure orders. In all the circumstances, it can be said that the spirit, if not the letter, of the orders has been broken.

However, I bear in mind the potentially serious consequences of the order that I am being asked to make. In the face of bare denials by Mr C and Mr D as to the existence of any documents in their possession or control and in the absence of a peremptory order for provision of the precise details of the searches to be provided in the absence of production, I am not satisfied for present purposes that a breach of the orders of 1^st May and 18^th June has been made out in this regard. In the event that further or different directions are made by the arbitral tribunals, it may be possible to re-visit this issue under what is a proposed paragraph 6 of the draft order that has been produced to me. However, at present and for these reasons, I decline to make an order under s. 42 in respect of category (3).

On 18^th June 2017 the tribunals ordered Y, Mr C and Mr D to provide answers to specific questions relating to the purchase and on-sale of five vessels, including questions identified as C1, E3, E4 and E5. Significantly for present purposes, the three entities or persons were ordered to provide the information sought from their own knowledge:

“…and/or make reasonable enquiries of individuals, servants, intermediaries, agents, representatives who were involved.”

No answer has been provided by either individual or Y at all, save by reference to the individuals’ personal knowledge.

The requirement that one of Mr C, Mr D or a Mr F answer questions C1 and E1 to 5 was made peremptory on 13^th November 2017 (with answers to be provided by 27^th November 2017).

These orders have not been complied with either within the original deadline or by reference to any subsequent extensions and I am satisfied that there has been a breach accordingly.

I do not need to make any finding as to whether or not the tribunals themselves made a positive finding of breach by the order of 10^th December 2017. Equally, I do not consider that my finding is at odds with subsequent correspondence from Ince & Co. in which they sought clarification from the tribunals. In particular, the tribunals’ response of 13^th December 2017 confirms that it is not clear what enquiries Mr C has made in the context of the orders against him and, in any event, that a statement of truth on negative answers was required.

It was suggested for Y that if I was satisfied that there had been a failure to comply, then I should nevertheless not exercise my discretion to make s. 42 orders in respect of categories (2) and (3) since the documents in question would be forthcoming from third parties under the ss. 43 and 44 orders that I have made. S.42 orders were thus not necessary.

I do not accept this. I am satisfied that I should exercise my discretion to make the orders sought in principle in respect of categories (1), (2) and (4) as being necessary for the just disposal of the central issue in dispute.

Ignoring the question of what precise fruits those other orders will bear, the issue here is compliance by Y with their direct disclosure obligations and this court’s supervisory support in the interests of justice to assist the proper functioning of the arbitral process. Disclosure issues have been an ongoing thorn in the side of that process. It is time for some finality and closure. Whether or not further substantive disclosure emerges, given the potential consequences for Y and Mr C and Mr D there will, on any view, be greater security in the evidential picture.

I will now hear submissions on the precise form of the order including proposed paragraph 6 and also the question of costs.