In Classic Maritime Inc v (1) Lion Diversified Holdings Berhad (2) Limbungan Makmur SDN BHD [2009] EWHC 1142 (Comm) (see also 2.1) the Claimant, Classic Maritime, applied for summary judgment in its claim for damages. The second respondent in the application, Limbungan, sought a stay of the claim so that the dispute between it and the Claimant could be submitted to arbitration. The first respondent, Lion, sought a stay of the proceedings on case management grounds. The dispute arose out of Limbungan’s alleged non-performance of a Contract of Affreightment (COA) and in relation to a guarantee given by Lion, guaranteeing the performance of the Limbungan, a subsidiary. Two voyages were undertaken by Limbungan under the COA but the cargo was not discharged. Classic Maritime sought damages for loss of freightage as a result of non-discharge. The COA, which incorporated an earlier COA, provided for four shipments a year for periods of five and a quarter and six years respectively, with a total value in excess of $300 million. The COA and the earlier incorporated COA both contained arbitration clauses. The guarantee given by Lion covered both contracts although it was agreed at a later date. Classic Maritime argued that this was a suitable case for summary judgment on the grounds that pursuant to the terms of the guarantee provided by Lion, neither respondent had any real prospect of defending its claim. Lion argued that the guarantee was unenforceable as the consideration given for the guarantee was past consideration. It also argued that the cargo had not been discharged due to the unanticipated downturn in world trade which had resulted in all the possible trade ports being full and that this amounted to a force majeure or frustrating event. Limbungan argued that a stay should be granted in the proceedings against it as the COA contained an arbitration clause, the terms of which had not been varied by the guarantee. Lion argued that a stay should be granted in the proceedings against it as concurrent arbitration and court proceedings could result in inconsistent decisions.

Cooke J rejected Lion’s submission that the guarantee was unenforceable because there was no valid consideration and only past consideration. He also dismissed an argument that extrinsic evidence to show other consideration was inadmissible as “devoid of commercial sense” and wrong as a matter of law. Cooke J ruled that in light of Limbungan’s lack of assets and capital, the guarantee was a precondition to Classic Maritime’s performance under the COA. The judge considered that it was inappropriate to grant summary judgment in relation to the force majeure/frustration argument. He was not in a position to say that Lion did not have a chance of defending the claim on the grounds of force majeure or frustration. In light of the improbability of Lion succeeding, however, he thought that this was an appropriate case for making a conditional order pursuant to Practice Direction 24 paragraph 5.1(4) that Lion pay into court the sums claimed. The claim against Limbungan was stayed. The parties had agreed to an arbitration clause and this was not superseded by the provision of the guarantee by Lion. In relation to the stay sought by Lion, Cooke J could see no good reason, whether for case management purposes or otherwise, why the court would prevent the Classic Maritime from pursuing their claim against Lion. The parties had specifically agreed in the terms of the guarantee that the obligations of the guarantor would be considered separately from the obligations of Limbungan. If the respondents wished to avoid the risk of inconsistent decisions, Limbungan had the ability to submit to the jurisdiction of the English courts.