In Swallowfalls Limited (the “Claimant”) v (1) Monaco Yachting & Technologies SAM (the “First Defendant”) and (2) Mr Peter Landers JR (the “Second Defendant”) (together the “Defendants”)  EWHC 2013 (Comm), the Commercial Court held that it would be an abuse of process to allow the Defendants to re-litigate claims determined by an arbitral tribunal.
The case concerned a dispute in relation to the building of a 240 ft luxury vessel.
The Claimant commenced its proceedings against the First Defendant and the Second Defendant under a loan agreement and a guarantee respectively. In turn, the Defendants counterclaimed in respect of the alleged breaches by the Claimant under the Construction Agreement.
As the Defendants’ counterclaims were already subject to arbitration proceedings (commenced by the First Defendant), the Defendants asked the Court to order a stay of the proceedings pending resolution of the arbitration on the basis that the Defendants had signalled that they would set-off the sums awarded to it against the claims brought in the Commercial Court under the loan agreement and guarantee. Agreeing to the Defendants’ request, the Commercial Court stayed the proceedings.
At an interim stage in the arbitration, the Claimant (who was the respondent in the arbitration) applied to the tribunal for security for costs in respect of the arbitration proceedings. In a final and peremptory order, the tribunal ordered the First Defendant (who was the claimant in the arbitration).
(i) to provide security for costs in the sum of £200,000, either by payment into the client account of the Claimant (to be held to the tribunal’s order) or by providing a bank guarantee from a first class London Bank;
(ii) to provide its accounts for the years since 2010 either in draft or otherwise and to agree with the respondent to an independent accounting expert with requisite experience, failing which the tribunal would nominate such an expert.
The First Defendant failed to comply with either alternative and in the circumstances, the arbitrators (using their powers under section 41(6) of the Arbitration Act 1996 (the “Act”)), dismissed the claims brought by the First Defendant.
Section 41(6) of the Act states as follows:
“If a claimant fails to comply with a peremptory order of the tribunal to provide security for costs, the tribunal may make an award dismissing his claim”.
Commercial Court Decision
Following the dismissal of the claims brought by the First Defendant in the arbitration, the parties requested that the court lift the stay. Thereafter, the Claimant sought summary judgment on its claims. In response, the Defendants asked the court to review its counterclaim, which previously they had urged be dealt with, in the arbitration.
In considering the Defendants’ request the judge stated that "I am entirely satisfied that to allow the defendants in the proceedings before this court to traverse, in these proceedings, the subject matter of the arbitration, would be an abuse…The defendants were given what they had asked for, which was that certain matters be submitted for decision by arbitration… To litigate the subject matter of the arbitration now through counterclaim would be to vex the claimant in these proceedings for a second time with those allegations…”.
It is sometimes suggested that security for costs are rarely granted in international arbitration. However, this case demonstrates that an arbitral tribunal under the right circumstances will (a) make an order for security costs; and (b) if the parties fail to comply with its order may use its powers under section 41(6) of the Act to dismiss the claims brought in arbitration.
Further, the court’s position appears clear, namely that a party to arbitration will not be allowed to re-litigate its claims in the English courts in circumstances, where it has failed to engage in the arbitral proceedings, to which it previously agreed.