Lauritzencool Ab v Lady Navigation Inc

An interlocutory injunction may restrain shipowners from employing vessels inconsistently with existing charter-parties, even where specific performance of the charters is unavailable. The court must examine substance rather than labels: a negative order is not mandatory merely because compliance may make continued charter performance commercially attractive. Commercial vessel-management contracts are not treated like personal-service contracts merely because they involve fiduciary or cooperation obligations. In assessing damages, the court may consider loss of competitiveness, marketability, reputation and market share. On the evidence, the balance of convenience favoured preserving the charter arrangements pending arbitration.

Lauritzen sought an interim injunction under section 44(2)(e) of the Arbitration Act 1996 to prevent the owners of the vessels Lady Racisce and Lady Korcula from withdrawing them from two ten-year time charters. The owners alleged that the pooling arrangements and charters infringed Article 81 of the EC Treaty and had complained to the European Commission. An earlier arbitration award had also found fiduciary and implied duties owed by Lauritzen.

The owners argued that the injunction would amount to impermissible specific performance or enforcement of personal-service obligations, and that damages would be adequate. The issues were the character of the proposed orders, the availability of injunctive relief, adequacy of damages and the balance of convenience pending arbitration and the Commission’s investigation.

1. The application was granted in substance. The owners were restrained from employing the vessels inconsistently with the charters or fixing them with third parties for periods before the contractual expiry dates. Relief was granted in the forms described in paragraphs 12(b) and (c).

2. The authorities on charter-parties, including De Mattos v Gibson, Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd, The Georgios C and The Oakworth, supported restraining employment of a vessel outside the charter. The Scaptrade concerned an injunction restraining the exercise of a contractual right of withdrawal. That was materially different from restraining employment outside the charter. The latter order was negative in form and substance and did not compel performance.

3. The arrangements were commercial contracts between independent companies. Although the pool involved fiduciary obligations, the services were not personal and did not depend on the psychological, physical or special-talent considerations identified in Warren v Mendy. The case was closer to the hotel-management example in Re Regent International Hotels (UK) Ltd v Pageguide Ltd and to ordinary charter-party cases.

4. The court applied the ordinary interlocutory principles described in American Cyanamid Co v Ethicon Ltd, as refined in Bath and North East Somerset District Council v Mowlem Plc. There was a serious issue to be tried. The vessels’ distinctive speed, capacity and modernity meant that their loss could affect the pool’s business, competitiveness, reputation and market share. Those losses were difficult to quantify, so damages were inadequate for Lauritzen. The owners’ loss was readily quantifiable and covered by the undertaking in damages.

5. The order preserved the status quo. The possible illegality of the arrangements and the parties’ disputes did not make continued interim operation unworkable. The balance of convenience clearly favoured the injunction.