Pacific Maritime (Asia) Ltd. v Holystone Overseas Ltd.

On an application to vary a freezing injunction supporting arbitration, the court must assess the claimant’s best arguable case, including interest and costs. Where contractual performance is available in alternatives, damages are generally assessed on the assumption that the contract-breaker would have adopted the mode of performance most beneficial to itself. That is a general rule, not an immutable one. The court may decline to make an assumption where the parties’ contractual choices and the evidence make the likely mode of performance uncertain.

Under section 44(5) of the Arbitration Act 1996, the court may retain interim protection where the arbitral tribunal cannot act effectively. An arbitral order may be insufficient where it would not bind third parties or carry equivalent sanctions.

Pacific Maritime (Asia) Ltd. sold an accommodation barge to Holystone Overseas Ltd. under an agreement governed by English law and subject to arbitration. The agreement required Holystone either to return specified accommodation modules or, depending on where the vessel was taken, to provide an equivalent accommodation unit in Indonesia.

Pacific obtained a freezing injunction under section 44 of the Arbitration Act 1996 for $4 million. After an arbitrator had been appointed, Holystone applied to reduce or discharge the injunction, arguing that Pacific’s claim should be valued by reference to the old modules rather than the cost of a new unit. It also sought increased security for Pacific’s cross-undertaking in damages and argued that the matter should be left to the arbitrator.

The issues were the proper approach to the arguable value of Pacific’s claim, the appropriate security, and whether the arbitrator could act effectively to preserve the assets.

1. Freezing order continued and increased. The court rejected Holystone’s submission that Pacific’s claim was necessarily limited to the scrap or market value of the existing accommodation block. The contractual documents arguably imposed a primary obligation to return the old block, with an equivalent new block becoming relevant if the primary obligation was not fulfilled. The court therefore accepted that Pacific had a well arguable claim measured by the value of a new equivalent block delivered in Batan.
2. The principle in Robinson v Robinson—that where a party has alternative contractual obligations damages generally reflect the less burdensome mode of performance—was not immutable. The formulation in McGregor on Damages, focusing on the performance most beneficial to the covenantor, could produce a different result. The contractual choice of destination itself suggested that taking the vessel somewhere other than Batan might have been commercially beneficial to Holystone. It was therefore inappropriate, on an interlocutory application, to assume that Holystone would necessarily have taken the vessel to Batan.
3. On the evidence, $2.75 million was a fair arguable figure for a new equivalent accommodation block. Adding interest and costs produced $3.2 million. A further $5 million was allowed on the present evidence for loss of use. The freezing order was accordingly continued in the sum of $8.2 million.
4. The application for additional security was refused. Requiring Pacific to provide substantially greater security risked stifling a claim which was likely to be lost without the injunction. Holystone’s corporate group was, by contrast, capable of providing security.
5. The matter was not remitted to the arbitrator. Although section 38(4) of the Arbitration Act 1996 permitted directions for detention of property, an arbitral order would not bind third parties or carry sufficient sanctions. The tribunal therefore could not act effectively within section 44(5).

The freezing injunction was originally made by Simon J on 23 May 2007. The present court considered Holystone’s subsequent application to vary or discharge that order.