Stemcor UK Ltd v Global Steel Holdings Ltd & Anor

Summary judgment requires a realistic, more-than-arguable prospect of success. The court must avoid a mini-trial, but may analyse evidence where a factual assertion has no real substance. It should hesitate to decide finally where a fuller trial may alter the evidential picture.

A guarantor may generally rely on the principal debtor’s equitable set-off, including an unliquidated cross-claim. Joinder of the principal debtor is ordinarily desirable but remains discretionary.

Proceedings against a guarantor may be stayed pending arbitration between the creditor and principal debtor where the circumstances are sufficiently rare and compelling. The risk of inconsistent decisions, duplication, relative progress, the guarantor’s agreement to be bound, and the derivative nature of the guarantee may justify a stay despite an exclusive jurisdiction clause.

Stemcor sought summary judgment against Global Steel Holdings Ltd and Pramod Mittal under guarantees securing liabilities allegedly owed by Global Ispat Koksna Industrija Lukavac. The application concerned approximately US$75 million said to comprise the Coal Debt.

GIKIL had commenced LCIA arbitration against Stemcor concerning alleged under-selling of coke, renunciation of the trading arrangements, and defective coal. The defendants contended that GIKIL’s cross-claims could found an equitable set-off and that the court proceedings should be stayed pending the arbitration.

The issues were whether the cross-claims had a realistic prospect of success, whether the defendants could rely on set-off without joining GIKIL, and whether the circumstances justified a stay.

1. Summary judgment refused. The court applied the principles summarised in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch). The alleged implied term requiring Stemcor to sell coke at the best reasonably obtainable price had a realistic prospect of being established. The interlocking agreements, the commercial importance of the sale price, the effect on GIKIL’s coke battery, the possible analogy with an exclusive sales agency, and the ambiguity in the pricing clause required fuller factual investigation.
2. The court declined to determine finally whether the implied term would ultimately be established. It was sufficient that Cross-Claim 1 had a realistic prospect and could exceed the Coal Debt. It was therefore unnecessary to determine Cross-Claim 2 or the precise quantum of the Coal Debt.
3. A guarantor may rely on a set-off available to the principal debtor. The court accepted the modern English authorities, including Hyundai v Pournaras [1978] 2 Lloyd’s Rep 502, BOC Group Ltd v Centeon [1993] 1 All ER (Comm) 53, and Carey Value Added v Grupo Urvasco [2010] EWHC 1905 (Comm), rather than the contrary approach suggested by Wilson v Mitchell [1939] 2 KB 869 and Cellulose Products v Truda [1970] 92 WN (NSW) 561.
4. Equitable set-off is a substantive defence, but it does not reduce or extinguish the cross-demands at law until agreement or judgment. The court therefore accepted the analysis in Fearns v Anglo Dutch Paint & Chemical Co Ltd [2011] 1 WLR, with which Equitas Ltd v Walsham Brothers & Co Ltd [2013] EWHC (Comm) 3264 agreed.
5. Joinder of the principal debtor will generally be required to bind it and protect the creditor against a later claim, but there is no inflexible rule requiring joinder. The issue is discretionary and depends on the circumstances. In this case, the stay made joinder unnecessary.
6. Stay granted. The circumstances were rare and compelling. There was a real risk of inconsistent decisions, substantial duplication of evidence and costs, and a more satisfactory forum for determining liability under the primary contracts. The defendants agreed to be bound by the arbitration. The arbitration was materially more advanced, and the guarantees’ jurisdiction provisions did not outweigh those factors.
7. The court distinguished Classic Maritime v Lion Diversified Holdings [2009] EWHC 1142 (Comm) on the wording of the guarantee, the existence and progress of the arbitration, the relationship between the parties, and the defendants’ agreement to be bound. The extent and terms of the stay required further consideration.

First-instance decision. No prior appellate decision is stated in the judgment.