In Dainford Navigation Inc v PDVSA Petroleo SA; ‘Moscow Stars’ [2017] EWHC 2150 (Comm), Judge Males was asked to order the sale of a non-perishable cargo to compensate a ship owner for non-payment of the charter in support of an arbitration but before the arbitrators had determined whether the owner had a right to sell. He decided that he had a discretionary power to order the sale and in deciding to order a sale he spelt out the criteria he took into account when considering how to exercise his discretion.

Background

The Claimant, owner of the vessel “Moscow Stars”, entered into a time charter with PDVSA, the Venezuelan state-owned oil and gas company. The vessel was loaded with cargo (crude oil), owned by the Defendant, on 14 October 2016 at Puerto La Cruz (Venezuela) and proceeded to Freeport (Bahamas).

When the charterer failed to pay the hire charges, the ship owner exercised a lien over the cargo and started an arbitration to recover the charges due. The owner then asked the arbitrators to order the sale of the cargo so as to be paid from the proceeds. The arbitrators decided that while section 38 of the Arbitration Act 1996 gave them power to make orders to preserve goods, it did not give them power to order the sale of the goods.

Court power

However, as the courts enjoy wider powers in support of arbitral proceedings, the arbitrators granted the owner permission to apply to the English High Court. Males J heard that application and first had to decide whether he had any jurisdiction as section 44 of the Arbitration Act 1996 gives the court powers exercisable in support of arbitration, including the power to order the sale of the cargo, if it was ‘the subject of the arbitral proceedings’.

With reference to the Singaporean judgment in Five Ocean Corporation v Cingler Ship Pte Ltd [2015] SGHC 311, Males J concluded that there was a sufficient nexus between the cargo and the arbitral proceedings, as the Claimant had exercised a lien over the cargo in support of the arbitral claim.

Discretion

Males J decided that the power to order a sale was discretionary so he would have to decide how to exercise that discretion. He found that there were three principal arguments against ordering a sale.

First, there was the fact that ordering a sale before the arbitrators had decided the merits would deprive the Defendant of its ownership of goods against its will before the Claimant’s right had been established. Secondly, as section 44(1) of the Arbitration Act 1996 states that the power to order a sale ‘was the same power as the court has for the purposes of and in relation to legal proceedings, he considered that CPR 25.1. , which governs the court’s power to sell, would provide relevant guidance. That Rule provides that the court has the power to make an order for “the sale of relevant property which is of a perishable nature or which for any other good reason it is desirable to sell quickly”. Since the cargo was not of a perishable nature, Males J. needed to find another ‘good reason’ for a quick sale. Thirdly, the Claimant had delayed for approximately four months before making any application.

Notwithstanding those arguments against ordering a sale, Males J considered they were trumped by the fact that one day before the application was to be heard the Defendant offered to sell the cargo and pay the proceeds of sale into escrow. Males J decided that this reflected the fact that the Defendant had recognised that sale of the cargo was inevitable at some point and the offer was an attempt to keep control of the sale. Since the cargo was going to be sold anyway, the only remaining question was whether that should be done by the Defendant voluntarily or by the Claimant with the authority of a court order. Given the Defendant’s previous resistance to a sale of its cargo, Males J considered that allowing the Defendant to sell involved a substantial risk that the situation would drag on indefinitely. Males J therefore exercised his discretion in favour of the sale.

Comment

This judgment usefully details the criteria that are likely to be taken into account when considering whether or not the court’s discretionary powers will be exercised in support of arbitration.