Helice Leasing S.A.S v PT Garuda Indonesia (Persero) TbK (Rev 1)

This is the hearing of the Defendant (“D”)’s application:

D’s application to set aside service has resulted in a counter-application by the Claimant (“C”) for retrospective permission to serve the claim form at an alternative place, or to extend time to serve the claim form, or to dispense with service altogether. C’s counter-application has been heard at the same time as D’s application.

C is represented by Mr. James Cutress QC on these applications, and D by Mr. Aaron Taylor.

Although it was not required to do so, for the assistance of the Court when hearing these applications, C has produced a draft Particulars of Claim which helpfully particularises its claims which it says it is entitled to bring before this Court.

As can be seen from the Draft Particulars of Claim, following a novation by a previous lessor (ACG) of an Aircraft Operating Lease Novation and Amendment Agreement dated 8 January 2016 between ACG as the original lessor, C as the new lessor and D as the Lessee (the novation), C became the lessor and D became the lessee of a Boeing B737-800 aircraft MSN 38884 (the Aircraft) under an operating lease, the amended and restated terms of which are set out in sch.3 to the novation (the Lease).

The claim is one for non-payment of Basic and Additional Rent as defined in the Lease, as well as an indemnity. In particular, as set out in paragraphs 12-16 of the Draft Particulars of Claim, D had failed to pay any of the monthly Rent or Additional Rent that became due each month under the Lease from January 2020 (when default first occurred) to October 2020. Since service of the Draft Particulars of Claim, although D has acknowledged the debt by paying just over USD 585,000 towards the amounts outstanding, there have been further defaults in the payment of the monthly Rent or Additional Rent, resulting in a total now due of over USD 5.15m plus interest. (Footnote: ¹) C says that the continuing payment breaches that have occurred constitute Events of Default under the Lease.²

C says that D has not to date identified any defence to the claims and C is not aware of any such defence.³ To the contrary, in correspondence D has essentially acknowledged the debt. In particular:

It follows that D has never identified a defence and has impliedly admitted the debt in correspondence. I should add that D initially contended that these exchanges were protected from disclosure by without prejudice privilege: see Allen-2 [6]. In fact, that is wrong: see Bradford & Bingley v Rashid [2006] 1 WLR at 73 per Lord Brown. D did not pursue this point orally.

However, the fact remains that despite demands, D has not paid C the sums that it says are due and owing under the lease.

By its application, issued on 31 August 2020, D makes three challenges not to the substance of the claim, but rather in relation to jurisdiction. In particular:

‘Goshawk’ appears to be used in this email as shorthand for C - C is an indirect subsidiary of Goshawk Aviation Limited (see Mack-1 [4]).

The payment plan also suggested replenishing the Security Deposit in 2021.

I shall take these service issues in turn. For the purposes of the first issue (10(1)) I shall assume therefore that the court has jurisdiction to hear this action (that is, that D is wrong on its application, issue 10(2), before going on to consider whether that is correct or not.)

Was service at the Hammersmith office valid service?

The Claim form in this case was issued on 16 April 2020 and was served on 16 July 2020 at D’s Hammersmith, London address. I should say at the outset that D acknowledged service of the claim form on 3 August 2020, within the required 14 days after deemed service of the claim form on 20 July 2020. D did not say anything in correspondence or otherwise to indicate that the claim form had not been validly served. This is despite the fact that C also emailed D the claim form on 22 July 2020, referring to the “claim form served on your English branch late last week”, as well as a covering letter which accompanied the claim form. That letter expressly referred to the fact that C understood from Companies House that the Hammersmith address was D’s principal place of business in England. D did not respond and say: “No that is not correct – we have moved”. Indeed, there is no evidence before me that it did not receive the claim form sent to its Hammersmith address. D chose not to raise any issue about the address for service until after the 16 August 2020 deadline for service had elapsed. It raised the issue for the first time when it filed its application on 31 August. Had it raised the point within the 4 weeks before expiry of the claim form C says it would have served on the Hounslow address to which D says that it moved on 1 July 2020, but this change of address was not posted on the Companies House website until 18 August 2020 – before that date it showed the Hammersmith address as being D’s registered address.

D has instructed solicitors and counsel in relation to this claim and upon these applications. Since, as the Supreme Court stated in Abela, the most important function of service is to ensure that the contents of the claim form are communicated to D, there is no doubt that this function has been fulfilled in this case. Moreover, there is no limitation defence which arises in this case as a result of any defective service; one may legitimately ask therefore why D requires the C to issue and serve a fresh claim form upon it, unless it is intended simply to delay matters.

As I say, the claim form was issued on 16 April 2020. It was amended on 16 July 2020. On the same day (and the day previously), C’s solicitors checked D’s details as

As a result, in reliance on D’s public Hammersmith Filing, C’s solicitors sent the claim form by first class post to the Hammersmith Address. (Footnote: ⁴) It would therefore have been deemed served under CPR r.6.26 (if valid) on 20 July 2020. (Footnote: ⁵)

The Hammersmith Address remained D’s place of business in the UK as published on the Companies House website until 18 August 2020. On that date, the address details for D’s UK establishment was shown as changed on the Companies House website to the Hounslow Address by reason of a further Form OS CH01 filed by D (the “Hounslow Filing”). Whilst the Hounslow Filing refers to the address having changed on 1 July 2020, from the Companies House stamp that appears on it, it does not appear to have been filed until 2 July 2020 and it was not published on the Companies House website until 18 August 2020: see the filing history, which under the date 18 August 2020 states “Details changed for a UK establishment - BR001984 Address Change 26-28 hammersmith grove…”.

That was because, as D says, from 1 February 2020 to 1 July 2020, D ceased business activities from the UK, as a consequence of the travel disruption caused by the Covid19 pandemic.

Since 1 July 2020, D’s place of business in the UK has been 3rd Floor, Block B Suite 15, The Vista Centre, 50 Salisbury Road, Hounslow TW4 6JQ (“the Hounslow address”).

It follows, so says D, that the Amended Claim Form was not sent, as a matter of fact, to a “place within the jurisdiction where the [Defendant] caries on its activities” or a “place of business of the [Defendant] within the jurisdiction”. The fact that the website had not yet been updated to reflect D’s filing of 2 July 2020 does not mean that the Hammersmith address was in fact D’s place of business for the purposes of CPR 6.9.

C contends, by contrast, that service of the Claim Form at the Hammersmith Address by its letter dated 16 July 2020 constituted valid service in accordance with CPR

Mr. Taylor on behalf of D submits that D did not make any representation that its address was the Hammersmith address after it wrote to Companies House with the new address. However, he also rightly accepted that the website operated for the benefit of the public. I consider that the representation that D knew it was making to the public, via the website, must continue until Companies House remove it, and D must know that or be deemed to know it. In consequence, as Mr. Cutress put it, the question is who bears the risk in the short interim period whilst Companies House is updating the website with the new address: the public or the company? In my judgment it must be the company. The company can take measures to ensure that there is no misapprehension during the short interim period:

Indeed, D says that the Hammersmith Address ceased to be its place of business from 1 February 2020. Yet it did not file any change of particulars of address in relation to its UK establishment until 2 July 2020. Under Reg.7 of the Overseas Companies Regulations 2009, D was required to file a return setting out (among other things) the address of its establishment and business carried on at it. Under Reg.13:

“13.—(1) If an alteration is made in any of the particulars delivered under— … (b) regulation 7 (particulars of the establishment), the company must deliver to the registrar a return containing details of the alteration. ….

(4)

The details required of the alteration are— (a) the particular that has been altered,

(b)

details of the particular as altered, and

(c)

the date on which the alteration was made.

Under Reg.17 [408] it is an offence not to comply with such requirements. D did not comply with these requirements because it did not file a change of particulars to the effect that it had ceased business at the Hammersmith Address. Had it done so within 21 days of the alleged cessation of business (i.e. by 22 February 2020), then service never would have been effected at that address.

Further, if the test were a purely factual one, then D would be entitled to prove that it was not carrying out business at the Hammersmith Address even in circumstances where D had failed to comply with the above requirements by filing an alteration in particulars and even though its publicly available filings continued to represent that it was carrying out business at that address. Moreover, D could rely on the factual position as to a change of address even in circumstances where it had not yet filed a change of address with Companies House (given that it has 21 days to do so). This would mean the register could not be relied upon, undermining part of its purpose.

Once it is accepted that the test is not a purely factual one (and Mr. Taylor accepted in submission that this question is not a purely factual question), but rather that the company should be held to its statements on the public record as to its place of business, then the question arises as to the point at which it should cease to be held to such statements: should it be the point at which it has filed a change, which has not yet been published, or should it be the point at which the change is published and thus publicly available on the Companies House website? In my judgment it is the latter for the reasons I have already given.

Mr. Taylor also submits that C must be wrong because service at the Hounslow premises would be good service and there cannot be two places of business. But why not? Unless and until the address for service is removed from the website, there are indeed two places of business where service may be effected.

I therefore agree with C that in circumstances where D’s statements in its Hammersmith Filing available as a matter of public record on the Companies House website stated that its address was the Hammersmith Address, D should not be entitled to go behind such statements by denying that the Hammersmith Address was a place of business of the company within the jurisdiction at the time of service.

Support for this conclusion may also be found in the judgment of Hamblen J (as he then was) in Teekay Tankers v STX Offshore [2014] EWHC 3612 at [47]-[48], where the Judge rejected a submission that STX’s address registered at Companies House as a place of business of the company within the jurisdiction was not in fact a place of business at the time of service for the purposes of CPR r.6.9(2)(7) and s.1139(2)(b) of the Companies Act 2006 (Footnote: ⁶), stating that:

“STX should not be allowed to go behind the statement which it made as a matter of public record that it has opened a UK establishment where it is carrying on business.”

True it is that the Companies House website contains an unsurprising disclaimer that the information on the website is not intended to be comprehensive: see Allen/2/10. But that is simply Companies House protecting itself from litigation and it does not detract from the fact that D has made a representation as to its place of business via the website, knowing that it will be published to the world at large unless and until it is removed by Companies House.

Last, D also contends that service of the claim form did not comply with cl.16.10 of the Lease (“Notices”). This provides for “notices” and “other communications” to be

“in writing (including telefax and e-mail)” and provides for them to be sent to D’s address in Sch.7, namely an address or fax number in Indonesia. He submits, by reference to Ageas v Kwik Fit [2014] EWHC 2178 (QB)at [85] that service of the claim form is a communication within the meaning of this clause.

I reject that submission: Green J’s remarks in [85] of Aegeas are obiter as Mr. Taylor accepts; they are also particular to the special facts of that case, where service was said to have a loose, colloquial meaning. The case is not authority for any proposition that a standard notice clause of the type that we have in this case means that it is mandatory to serve legal proceedings in accordance with its terms.

I agree with C that this clause concerns the sending of notices and other communications, not the service of proceedings. It is a standard notices provision, not a service of suit clause and that clause 2.1(i) of the Novation Agreement (which refers to the appointment of a process server) lends support to that construction. In any event, despite the mandatory nature of the Notice clause, CPR rule 6.11 is a permissive provision (“the claim form may be served by a method or place stated in the contract”) and it does not exclude service in accordance with CPR rule 9. CPR rule 6.9 is subject to rule 6.8 but rule 6.8 does not apply to a business address outside the UK (here, Indonesia).

Accordingly, for these reasons, service at the Hammersmith Address on 20 July 2020 was valid service.

Application for a retrospective order to serve at an alternative place

C also contends that if (contrary to C’s position) service at the Hammersmith Address was not valid, then the court should exercise its powers to rectify the defect in service by various other means, rather than requiring C to issue and serve a fresh claim form, which it says would do nothing other than increase costs.

I shall briefly consider these in case I am wrong about the first point.

First, if service at the Hammersmith Address on 20 July 2020 was not valid service, then C seeks retrospective permission under CPR r.6.15 to serve the claim form at an alternative place, namely the Hammersmith Address. As to the relevant principles under CPR r.6.15:

As set out in Abela v Baadarani [2013] UKSC 44 (per Lord Clarke):

As further stated by Lord Sumption in Barton v Wright [2018] UKSC 12, there is only one stage to the inquiry, namely whether there is “good reason” to make the order. This is because “If there is “good reason” to make the order, it would be irrational for a court to decline to make it as a matter of discretion” (ibid at [12]).

D resists the application. It relies upon what Lord Sumption JSC stated in Cameron v Liverpool Victoria Insurance Co Ltd [2019] UKSC 6 at [21], namely “it is an essential requirement for any form of alternative service that the mode of service should be such as can reasonably be expected to bring the proceedings to the attention of D.” That is not so it says of the Hammersmith address, since D was not at the date of purported service (and is not now) present at that address.

In my judgment, service at the address published at Companies House could reasonably have been expected to bring the proceedings to the attention of D for the following reasons and there is good reason to make the order sought:

Accordingly, if service had not been validly effected by service at the Hammersmith Address on 20 July 2020 because that was not in fact any longer D’s place of business, then I would have remedied that defect by ordering that such service at the Hammersmith Address is deemed to be good service.

Indeed, in this respect Mr. Taylor rightly conceded that if the retrospective order sought was for service by email “I might have difficulty in resisting that”. But here service by email expressly referred to the service by post of the very same claim form

Application for a retrospective order extending the time for service of the claim form

Alternatively, C seeks an order granting retrospective permission under CPR r.7.6 to extend the time for service of the claim form to 17 September 2020. This would have the result that the claim form would be deemed to have been validly served on that date, because C served the claim form at the Hounslow Address on that date. (Footnote: ⁸) Again, Mr. Taylor realistically accepted that “This is the most appropriate of all possible courses” which C could take.

Under CPR r.7.6(3), where the application was (as here) made after expiry of the claim form, the court will only make an order if (so far as relevant):

“b.

C has taken all reasonable steps to comply with rule 7.5 but has been unable to do so; and

c.

… C has acted promptly in making the application.”

D has agreed not to take any issue with CPR r.7.6(3)(c) (whether C acted promptly in making the application), so the only point in dispute relates to 7.6(3)(b) (whether C took all reasonable steps to serve within the 4 month period of validity).

I find that C did take all reasonable steps to serve within the 4 month period of validity:

D submits that C did not take all reasonable steps and relies upon para 26 of Allen 2 in that respect:

Accordingly, I would, were it necessary, have ordered that any defect in service should be rectified by the mechanism of a retrospective order extending the period of time for service.

Application for a retrospective order dispensing with service

In the further alternative, C seeks a retrospective order under CPR r.6.16 dispensing with service. Under CPR r.6.16, the court may dispense with service in “exceptional circumstances”. Given that this is a higher burden than “good reason” under CPR r.6.15, the point is addressed briefly. As regards the relevant principles, as set out in Kuenyehia v International [2006] EWCA Civ 21 at [26] per Neuberger LJ:

“First, it requires an exceptional case before the court will exercise its power to dispense with service under r 6.9, where the time limit for service of a claim form in r 7.5(2) has expired before service was effected in accordance with CPR Part 6. Secondly, and separately, the power is unlikely to be exercised save where C has either made an ineffective attempt in time to serve by one of the methods permitted by r 6.2, or has served in time in a manner which involved a minor departure from one of those permitted methods of service. Thirdly, however, it is not possible to give an exhaustive guide to the circumstances in which it would be right to dispense with service of a claim form”

Here C did (on the hypothesis that service was invalid) make an effective attempt to serve in time by one of the methods permitted by Part 6. Further, insofar as necessary, for all the reasons set out above, I find that the circumstances are exceptional – they include the existence of an unpublished change of address, combined with the filing of an acknowledgment of service and D’s failure to make any objection to service for the remaining month of validity of the claim form, leading C to believe that it had effected valid service. Accordingly, in the further alternative, had there been any defect in service I would have rectified it by the mechanism of a retrospective order dispensing with service.

It follows that if the court has jurisdiction to hear this dispute, there has been good service by one means or another.

I turn next to the question of construction and D’s application for a stay under s.9 of the Arbitration Act 1996.

D seeks an order that the proceedings be stayed pursuant to s.9 of the Arbitration Act 1996, which provides as follows:

“(1)

A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter. …

(4)

On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.” (emphasis added)

D contends that the proceedings are in respect of a matter which is required under the Lease to be referred to arbitration. This is on the basis of cl.15.2 of the Lease, which provides as follows:

So any dispute is to be referred to arbitration, and for clarity it is provided that that will include even questions concerning the existence, validity or termination of the lease (no doubt to prevent any argument that the arbitration clause is not valid or no longer applicable).

C disagrees that the proceedings are required to be referred to arbitration by reason of cl.13.2 of the Lease which it contends provides an exception to cl.15.2(a). That provides as follows:

“If an Event of Default occurs, and for as long as it shall continue, Lessor may at its option (and without prejudice to any of its other rights under this Lease Agreement or that may arise by operation of Applicable Law), at any time thereafter:

…

(b)

proceed by appropriate court action or actions to enforce performance of this Lease Agreement or to recover damages for the breach of this Lease Agreement;” (emphasis added)

An Event of Default is defined in clause 13.1 and it includes the following default at sub-paragraph (a)

Clause 13.1 also provides, in subparagraph (c), that an Event of Default occurs if the lessee fails to comply with any other provision of the lease agreement, and also provides an Event of Default occurs under subparagraph (j) if it becomes unlawful for the lessee to perform any of its material obligations under the lease, and an Event of Default occurs under subparagraph (m), if the existence, validity, enforceability or priority of the rights of the lessor in respect of the aircraft are challenged by the lessee.

C makes four points in support of its construction as follows.

So taking these points together, C submits that clause 13.2(b) is a unilateral option to the lessor to litigate in court, by way of court action or actions upon an event of default and that option, it says, makes good commercial sense because it is understandable that on an event of default, the lessor would wish to have greater flexibility as regards forum, due to the location of the aircraft or D's other assets or the availability of summary procedures.

D makes four main points in response. First, D contends (in essence) that the right in cl.13.2(b) is subject to cl.15.2(a), such that “the only “appropriate” enforcement action that can be taken is to bring arbitral proceedings in accordance with that clause”. D further states that any interim or enforcement actions in support of the arbitration could be brought before the English court, as the seat of the arbitration is England.

Second, D contends that “a more reasonable interpretation of the reference to “court action” in this context is that this was an erroneous remnant of the original Lessor’s template lease agreement, which seems to have contemplated the law and courts of New York, as evidenced by the reference to New York law in clause 2.1(k) of the Lease Agreement” Furthermore, Mr. Taylor submits that the reference to “court” is a slip.

Third, D complains that C’s interpretation “presupposes that which [C] is required to prove” and “is circular”, since it requires C to prove that there is an Event of Default, which is one of the issues apparently to be determined in the proceedings.

Fourth, D refers to the fact that claims by C for rescission or a declaration of nullity, or claims by D, do not fall within the scope of the option to litigate under cl.13.2(b). In this respect, D notes that under cl.13.2(b) C is entitled to proceed by appropriate court action “to enforce performance of this Lease Agreement or to recover damages for breach”; and says that claims for rescission or for a nullity are not appropriate actions for such purposes.

On any view clause 13.2 is not happily worded. However, in my judgment, the proper construction of the Lease is as follows. How do clauses 13.2 and 15.2 inter-relate?

The first point to note is that Clause 15.2 is not said to be subject to clause 13.2 as one would expect to see if 13.2 was carving out a right on the part of the lessor at its option to take certain disputes to court. One would particularly expect to see that where the carve out is so extensive, namely in respect of any Event of Default, which is widely defined in clause 13.1 and includes, for example, a breach of any provision of the Lease Agreement (13.1.(c)); or false representations or warranties (13.1(d)). Moreover, clause 13.1(j) provides that there is an Event of Default if it becomes unlawful for the Lessee to perform its material obligations under the Lease; and likewise, clause 13.1(m) provides that there is an Event of Default if the Lessee challenges the existence, validity and enforceability of the rights of the Lessor. And yet, under clause 15.2 the parties have agreed to arbitrate any question concerning the existence, validity or termination of the Lease.

An Event of Default on the part of D gives rise to various rights on the part of C. I consider that Clause 13.2 is simply a clause which sets out the rights of Cif an Event of Default occurs. The rights are various and consist of each of those described in subclauses (a)-(e). They include, therefore, at (b), the right on the part of C to proceed by appropriate court action or actions to enforce performance of the Lease Agreement or to recover damages for breach of the Lease Agreement. In my judgment, all that clause 13.2 is doing is setting out the options that are available to C – its “rights” - in

Mr Cutress QC says that these are additional rights without prejudice to C’s other rights, and one of these additional rights is the right to proceed in court, by court action. Whether they are additional or not (and for what it is worth the clause is headed “Rights” not “Additional Rights”), the purpose of this clause is, in my judgment, to make clear that C may adopt any of these courses of action, regardless of whether they arise in any event under applicable law. In other words, as well as proceeding by “appropriate court action” to enforce performance of the Lease or to recover damages for breach under clause 15.2, which two courses of action naturally arise in the case of an Event of Default, C may at its option also terminate the lease; take possession of the aircraft; sell the aircraft; de-register the aircraft.

In this context, in order to give the contract a business common sense construction, I consider that “court action” in clause 13.2(b) must reasonably have been intended by the parties to mean action before the London Court of International arbitration, that is action within clause 15.2.

Some support for that construction is also provided by clause 2.1(k), whereby D represents and warrants to C that “The choice by [D] of the law of England and Wales to govern this lease agreement as set out in section 15.1 and the submission by [D] to the non-exclusive jurisdiction of the courts as set out in section 15.2 are valid and binding.”

Mr. Cutress QC submits that 2.1(k) in fact doesn't support a case that "courts" is referring to LCIA arbitration. Rather, what it is referring to is the non-exclusive jurisdiction of the English courts as the seat of the arbitration. Clause 15.2(b) provides that the seat of the arbitration is England. So Mr. Cutress QC says the reference to non-exclusive is a reference to the English courts as the seat of the arbitration and this also reflects the fact that the seat is not exclusive, not least because clause 13.2(b) entitles the lessor to sue in court upon an event of default. So that is why, he suggests, it is the non-exclusive jurisdiction of the court. He adds that the reference to courts makes clear that this is not a reference to the Court of Arbitration, singular.

As I have said, the relevant clauses of the lease are not happily worded. However, I do consider that clause 2.1(k) throws some light on what was objectively intended. Clause 15.2 is a consent to jurisdiction clause – both parties consent to submit to the jurisdiction of the London Court of International Arbitration. The decision of that court is final and incontestable. That submission is said to be valid and binding. True it is that the clause refers to courts; but the fact that clause 15.2 only refers to one court does not seem to me to matter. The greater embraces the lesser. True it is that there is a reference to non-exclusive jurisdiction in clause 2.1(k) but whether exclusive or non-exclusive, the reference in that clause is to the submission to the jurisdiction of the courts identified in 15.2. That is a reference to the Court of arbitration, whose decision is agreed to be final and binding by the parties.

Perhaps most importantly, were the Claimant’s construction of clause 13.2 and 15.2 to be adopted, it is difficult to see how clause 13.2 would operate. 13.2 only applies “If an Event of Default occurs”. It does not say “If an Event of Default is alleged”. If there is a dispute as to whether an Event of Default has occurred, that is something which must surely be resolved under clause 15.2. I do not accept the argument of Mr. Cutress QC that whether an event of default has occurred or not is a jurisdictional fact for the court to determine, on a “Who has the better of the argument” basis. That would be to usurp the role of the arbitrator, because whether an Event of Default has or has not occurred is plainly a “dispute” within the meaning of clause 15.2.

Indeed, if C’s construction were correct, and there was a dispute about whether or not an Event of Default had occurred, there could potentially be a lengthy trial of many disputed issues, thereby emasculating the arbitration agreement. And what if in determining whether an Event of Default had occurred, the Court was required to determine other, disputed events, which would otherwise require to be determined under clause 15.2. What is the court then to do? For example, if D argued that no Event of Default had occurred because the lease is invalid as a matter of competition law; or because the lease had already terminated? These are issues which fall expressly within clause 15.2. Does the court have to adjourn the proceedings before it and refer the matter to arbitration?

And, importantly, what of cross-claims by a Defendant? A Defendant might say that he has a claim in damages which exceeds C’s claim. Does he have to bring that claim in arbitration, whilst C obtains its damages in a High Court action? This is likely a recipe for confusion, cost and delay.

There may be also be sub-issues which require determination in the court action which fall within the remit of the arbitrators. How would that be resolved? Would the court have to stay its proceedings and refer those issues to the arbitrators? This construction runs entirely contrary to the one-stop shop construction of such arbitration clauses advocated by the House of Lords in Fiona Trust v Privalov [2007] UKHL 40.

Moreover, if it is for the arbitrators to decide whether there is an event of default or not it, as I find it is, it makes no sense for the contract then to provide a right to the lessor to go to court to enforce the lease or obtain damages for breach rather than the arbitrators themselves providing that remedy.

I also agree with D’s submission that claims by C for rescission or a declaration of nullity, do not fall within the scope of the option to litigate under cl.13.2(b). In this respect, D notes that under cl.13.2(b) C is entitled to proceed by appropriate court action “to enforce performance of this Lease Agreement or to recover damages for breach”; and yet claims for rescission or for a nullity are not appropriate actions for such purposes. That seems to me to be an unlikely result, particularly applying a Fiona Trust construction to this clause. I have already referred to the significance of this in the context of clauses 13.1 (j) and (m). Mr. Cutress’s only response to this point was to say that it is unlikely that C would wish to avail itself of those remedies, but I do not see why that would necessarily always be so and will depend upon the facts of the particular case.

Mr. Cutress QC also submits that the reference to court action or actions support his argument that 13.2 is focusing on court proceedings. I do not accept that submission. The wording is undoubtedly loose. However, in the overall scheme of the lease, where the word “court” is used loosely (possibly as D says by way of hangover from a standard form or different draft), I consider it very unlikely that the parties intended to carve out certain remedies in this way from the arbitration clause. In any event, in the same way that a party might wish to bring more than one court action, it might wish to bring more than one set of arbitration proceedings in respect of, for example, different events of default, albeit that they may ultimately come to be consolidated in one arbitral reference.

Although it is not necessary to rely upon the point, I also note that the original lease contained an identical clause 15.2, 13.2(b) and a reference in the choice of law clause at 2.1(k) to the non-exclusive jurisdiction of the courts as set out in clause 15.2; the parties changed the governing law from New York to English law in the novated version of clause 2.1(k) but they left in that clause the reference to the “courts” as set out in clause 15.2.

I should add that I do, however, agree with Mr. Cutress QC that it cannot be the case that the appropriate court action being referred to in clause 13.2 is interim or enforcement action in support of an arbitration, as the clause is not drafted in such restrictive terms, but rather confers the much broader right to litigate “to enforce performance of this Lease Agreement or to recover damages for the breach of this Lease Agreement”.

Finally, as I have set out, Mr. Taylor submits that “a more reasonable interpretation of the reference to “court action” in this context is that this was an erroneous remnant of the original Lessor’s template lease agreement, which seems to have contemplated the law and courts of New York, as evidenced by the reference to New York law in clause 2.1(k) of the Lease Agreement”. Similarly, he says, the reference to “court” is a slip. As I have said, I do consider that what the parties objectively intended was to refer any dispute to arbitration and, in clause 13.2, they were intending to confirm that in the case of an Event of Default, C would have all of the rights set out in that clause, which included proceeding to arbitration to enforce performance of the lease or to recover damages, and that would not prevent it from seeking the other items of relief listed in clause 13.2. I would therefore have been prepared, if necessary, to correct clause 13.2(b) to read “proceed by way of arbitration under clause 15.2”, applying the approach in Lewsion on Interpretation of Contracts, clause 1.33 and 1.34, namely that in exceptional circumstances the court may conclude that the parties have used the wrong words; if it is clear what the error is, and the nature of the correction required, the court may correct it (Footnote: ¹¹)). However, I do not consider that it is necessary to do so for the reasons that I have given.

This brings me to the issue of whether or not there is a dispute capable of being referred to arbitration.

I do consider that back in correspondence back in April 2020 D impliedly admitted that monies are owed by it to C for Basic Rent and Additional Rent. It has never purported to put forward any defence in correspondence. It has never suggested that it disputed the quantum of the claim. The furthest D goes in its skeleton is a bare assertion that D “will defend” the allegation of an Event of Default in the substantive proceedings. This gives rise to an argument that it was open to C to bring these proceedings, as there is no dispute capable of being arbitrated.

However, whilst I find that D has impliedly admitted that sums are due and owing to C by way of Basic and Additional Rent and that it said, back in April 2020, that it was not its intention not to pay C, the fact is that it has failed to pay the majority of the monies due and it is now before the court, telling it that it will defend the claim and that it is now not going to pay. In these circumstances, is there a dispute?

This requires an analysis of three authorities: Halki Shipping v Sopex [1998] 1 WLR 726; Exfin Shipping v Tolani [2006] EWHC 1090 and PvQ [2018] EWHC 1399. Mr Cutress QC urges me to find that Exfin was wrongly decided in the light of Halki Shipping.

In Halki Shipping the Court of Appeal was concerned with the following issue:

“whether it is still open to a plaintiff to bring [summary judgment] proceedings to enforce a claim to which D has no arguable defence, where the claim arises under a contract which contains an arbitration clause.”

The case concerned a claim for demurrage under a charterparty for $517,000, and the defendants did not admit liability. The question was therefore, as Henry LJ recorded at 746A:

“whether there is a dispute within the meaning of the arbitration clause when the charterers refuse to admit and refuse to pay the amount claimed.”

This was a case therefore where, although the defendant had no arguable defence, it refused to admit, and it refused to pay the claim.

The rival submissions were recorded by Hirst LJ, who dissented, at 731 G-H as follows:

“Mr. Hamblen [for the Claimant owners] submitted that the critical question is what is meant by “dispute,” which, as here, and as in most arbitration clauses, is under section 9 the “matter which under the agreement is to be referred to arbitration.” Relying on the decision of theHouseofLordsinNova(Jersey)KnitLtd.v.KammgarnSpinnereiG.m.b.H.

[1977] 1W.L.R.713,andonanumberofsubsequentCourtofAppealdecisions, he submitted that it is settled by well established and binding authority that “dispute” means a genuine or real dispute, and that a claim which is indisputable because there is no arguable defence does not create a dispute at all. It follows, he submitted, that claims to which there is no arguable defence are outwith the scope of section 9, and are therefore properly the subject matter of court proceedings under Order 14, notwithstanding the omission fromsection9of the 1975 qualification.

Mr. Waller on the other hand [for the Defendant charterers] submitted that “dispute” means any disputed claim, and therefore covers any claim which is not admitted as due and payable, thus leaving no scope whatsoever for court proceedings under Order 14 save where the defendant has made a positive admission. He relied primarily on a decision of Saville J. in Hayter v. Nelson [1990] 2 Lloyd's Rep. 265 , which he portrayed as a landmark decision; in that case it was held that the word “dispute” in an arbitration clause should be given its ordinary meaning, and was not confined to cases where it could not then and there be determined whether one party or the other was in the right, so that the fact that a person has no arguable grounds for disputing something does not mean in ordinary language that he is not disputing it.”

The Judge referred at 735G-H to Ellerine v Klinger [1982] 1 WLR 1375, which concerned an arbitration clause under section 1(1) of the 1975 Act. Lord Templeman, giving the leading judgment, said this:

“Again by the light of nature, it seems to me that section 1(1) is not limited either in content or in subject matter; that if letters are written by the plaintiff making some request or some demand and the defendant does not reply, then there is a dispute. It is not necessary, for a dispute to arise, that the defendant should write back and say ‘I don't agree.’ If, on analysis, what the plaintiff is asking or demanding involves a matter on which agreement has not been reached and which falls fairly and squarely within the terms of the arbitration agreement, then the applicant is entitled to insist on arbitration instead of litigation”

The Judge then referred at 736B-C to the judgment of Kerr J in Tradax v Cerrahogullari [1981] 3 All ER 344 at 350:

“Where an arbitration clause contains a time limit barring all claims unless an arbitrator is appointed within the limited time, it seems to be that the time limit can only be ignored on the ground that there is no dispute between the parties if the claim has been admitted to be due and payable. Such an admission would, in effect, amount to an agreement to pay the claim, and there would then clearly be no further basis for referring it to arbitration or treating it as time-barred if no arbitrator is appointed. But if, as here, a claim is made and is neither admitted nor disputed, but simply ignored, then I think that the time limit clearly applies and that the claimant is obliged (subject to any possible extension of time) to appoint an arbitrator within the limited time.”

Henry LJ and Swinton Thomas LJ were in the majority in the Court of Appeal. Both Judges relied upon the fact that the 1996 Arbitration Act (with which they were concerned) effected a change in the law from the position which obtained under s. 1(1) of the Arbitration Act 1975. Under the 1975 Act one of the grounds for refusing a stay of legal proceedings was where there was an arbitration agreement was where the court was satisfied that “there is not in fact any dispute between the parties with regard to the matter agreed to be referred”. Under section 9 of the 1996 Act, however, it is simply provided that:

“A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.”

The reference to there not being in fact any dispute does not appear in the 1996 Act, and the Court considered the change to be significant. As Swinton Thomas LJ stated at 762C, “The important distinction between section 9 of the Act of 1996 and section

In particular, both Henry LJ and Swinton Thomas LJ approved a particular passage in the judgment of Clark J at first instance in Halki, to which Henry LJ referred at 753CD as follows:

“InEllerineBros.(Pty.)Ltd.v.KlingertheCourtofAppealwas also considering a question of construction of an arbitration agreement, in which it was agreed that all disputes or differences whatsoever should be referred to arbitration. The plaintiffs claimed an account. The defendants had simply done nothing. TheCourtofAppealexpresslyfollowedthedecisionin[TradaxInternacionalS.A.v.CerrahogullariT.A.S.[1981] 3AllE.R.344]and held that silence did not mean consent and that, as Kerr J. said, until the defendant admits that a sum is due and payable there is a dispute within the meaning of the arbitration clause. Even in such a case I can see an argument for saying that a claimant would be entitled to an award if the respondent then refused to pay. But, however that might be, theEllerineBros. case is authority for the proposition that where a party simply does nothing there is a dispute which the claimant is both entitled and bound to refer to arbitration. It follows that there is binding Court of Appeal authority in favour of the defendant's case on construction of the clause.”

(emphasis added)

Swinton Thomas LJ again referred to the question before the court at 755H, and the argument which the court rejected at 756A-C. It is in that context that he held at 761F-G: “In my view, following those cases, Mr. Waller's submission is correct, and in the words of Templeman L.J. inEllerineBros.(Pty.)Ltd.v.Klinger [1982] 1W.L.R.1375, 1383H there is a dispute once money is claimed unless and until the defendants admit that the sum is due and payable.”

The Court of Appeal accordingly decided that even if no arguable defence is advanced by the defendant, but he simply refuses to pay the claim, there is a dispute for the purposes of the arbitration clause and section 9 of the 1996 Act. But what the court did not say, as is apparent from the fact that the passage from Clark J’s judgment was approved by it, is that if a defendant admits that a sum is due and payable, but then thereafter refuses to pay it, that there is no dispute for the purposes of an arbitration clause such as clause 15.2 in the present case.

Before leaving this case, it is worth noting at 757D-F, Swinton Thomas LJ cited with approval Templeman LJ’s observations in Ellerine which are pertinent in this case as demonstrating the kind of problems which would arise on C’s construction of clause 13.2.

When Halki Shipping is properly understood as above, the decision of Langley J in Exfin Shipping is unsurprising. That was a wholly unmeritorious application by the charterers. As the Judge recorded in paragraph 5 of his judgment, the applicant’s argument was as follows:

“The Charterers’ submission is, and was, that there was no dispute because they had admitted their liability, and the amount of the claim, and the due date for payment and the fact that payment had not been made. All they had not done, of course, was pay.”

This is therefore the situation that Clark J envisaged in the passage of his judgment in Halki Shipping set out above, and it is the situation with which this court is concerned.

At paragraphs 7-11 of his judgment Langley J pointed out the difficulties with the charterers’ argument in determining that there was clearly a dispute capable of being referred to arbitration. In particular at paragraph 11 he stated:

“In The Halki, at first instance, [1998] 1 Lloyd’s Rep 49, Clarke J, referring to it making no commercial sense to conclude that arbitrators only had jurisdiction over those parts of a claim which were defendable, decided that it made more sense to hold that the arbitration clause there (materially the same as the present clause) was intended to give the arbitrators jurisdiction over all claims which either party had refused to pay. Henry LJ, in the Court of Appeal (at page 478) quoted that passage with approval. So too did Swinton Thomas LJ (at page 484). Mr Mocatta relied upon it. The Halki was a case of refusal to admit and refusal to pay. Mr Aswani, on behalf of Charterers, sought to distinguish the case on that basis. But I see no good reason why the one should not be characterised as a dispute as much as the other. It would be remarkable if parties had chosen to address the issue of jurisdiction by reference to whether non-payment was due to a failure to admit a valid claim rather than a failure to pay it.”

I respectfully agree with this analysis. It follows in my judgment that there is no inconsistency between Halki and Exfin, and I follow the reasoning of Langley J in Exfin.

Finally, the reasoning in Exfin was also approved by Sir Richard Field in P v Q at paragraph 52 of his judgment.

It follows that by reason of D’s refusal to pay in this case, which may very well be wholly unmeritorious, there is nonetheless a dispute within the meaning of the arbitration clause.

This conclusion is fortified by the fact that C also seeks an indemnity pursuant to clause 13.3 of the lease, which was not foreshadowed by it in inter partes correspondence, and as Mr. Taylor points out is therefore not admitted and he says bound to be contested. Mr. Cutress QC says that the claim to an indemnity is either a claim to damages for breach of the agreement or an action to enforce performance of the lease. I disagree. I do not consider this can be characterised as an action to enforce performance of the Lease and nor do I consider it can properly be characterised as a claim for damages for breach of the agreement. It is not a claim for breach; it is a

Nor do I accept Mr. Cutress’s fall-back position in this regard, that the Claimant is not yet advancing a claim for an indemnity in paragraph 20 of the draft Particulars of Claim. That paragraph states that “Further, the Claimant is entitled to and will claim an indemnity from garuda for any loss, damage, expense, cost or liability … suffered or incurred by the Claimant directly or indirectly as a result of the matters set out in clause 10.1(a)(i) of the Lease; and/or … sustained or incurred directly or indirectly by the Claimant as a result of the Events of Default…”

The Claimant positively asserts that it is entitled to and will claim an indemnity from the Defendant. It must, presumably, have something in mind in order for it to wish to plead this aspect of its claim. Moreover, clause 10.1(a)(i) is not an Event of Default and this aspect of the claim would undoubtedly fall within the scope of the arbitration agreement in clause 15.2. The Defendant has not admitted that the Claimant is entitled

In all the circumstances, I grant the Defendant a stay of these proceedings under section 9 of the Arbitration Act 1996 in favour of arbitration under clause 15.2 of the Lease.

Finally, I add that, whilst not as quick as court proceedings, it is nonetheless possible nowadays for a party to an LCIA arbitration to obtain an expedited constitution of a panel under the LCIA Rules, article 9A, and a relatively speedy award.

I turn finally to the Defendant’s application to stay on forum non conveniens grounds. This would only arise if C were right on its construction of the lease, which I have found it is not. I shall therefore deal with it relatively briefly in deference to the parties’ arguments on the point.

In my judgment this application is hopeless.

In order to establish this ground for a stay:

D contends that Indonesia is clearly or distinctly more appropriate than England. (Footnote: ¹⁴) However, it has failed to discharge its burden of showing that another forum is clearly or distinctly more appropriate in circumstances where it has not identified any defence to the claim and accordingly any particular disputed issues that would more appropriately be tried elsewhere. Indeed, it has not identified any such issues in the two witness statements served on its behalf.

For this reason alone, the application to stay on forum non conveniens must fail: D has not identified any particular issues which it would be clearly more appropriate to try elsewhere. Without an articulation of the issues which might arise, all that the court is left with are the following factors:

The remaining factors put forward by D do not assist it:

In the circumstances, I would have dismissed D’s application to stay on forum non conveniens grounds.

Finally, I should mention that at paragraphs 17-21 of its Skeleton argument, D takes issue with C’s reliance upon expert evidence in support of certain other factors which it says makes England the proper forum (“the MKK Letter”). I accept those submissions: no permission was sought or obtained to rely upon this evidence (as it should have been) and C is therefore unable to rely upon it: see Baker J in BB Energy v Al Amoudi [2018] EWHC 2595 at [49].