Dainford Navigation Inc. v PDVSA Petroleo S.A. "Moscow Stars"

Section 44(2)(d) of the Arbitration Act 1996 permits an order for sale where goods have a sufficiently close nexus with the arbitral proceedings. A contractual lien exercised over goods as security for an arbitrated claim may provide that nexus, even if the arbitration is not formally about ownership of the goods.

The court must also be satisfied that there is good reason why the goods should be sold quickly under CPR 25.1(c)(v). That requirement overlaps with the broader discretion. Prolonged detention, mounting costs, statutory or classification deadlines, the absence of a viable alternative, and the parties’ recognition that sale is necessary may collectively justify sale before the underlying claim is finally determined.

The claimant, owner of the vessel MOSCOW STARS, sought an order for sale of crude oil cargo held on board. The application was made under section 44 of the Arbitration Act 1996, with permission from the arbitral tribunal, while arbitration proceedings concerning unpaid time-charter hire were ongoing.

The defendant argued that the cargo was not goods which were the subject of the proceedings, that CPR 25.1(c)(v) was not satisfied because the cargo was not perishable and did not need to be sold quickly, and that sale was inappropriate. The central issues were the statutory nexus required by section 44(2)(d), the meaning of good reason for a quick sale, and the exercise of the resulting discretion.

1. The application was granted and an order was made for the sale of the cargo.

2. Section 44(2)(d) of the Arbitration Act 1996 requires the goods to be the subject of the arbitral proceedings. That phrase requires a closer nexus than merely relating to or concerning the proceedings. It is not confined to cases in which ownership of the goods is disputed.

3. A sufficient nexus existed. The claimant was exercising a contractual lien over the defendant’s cargo as security for claims being advanced in arbitration. Until the arbitration determined whether hire was due, the claimant could not enforce its claim against the cargo and the defendant could not obtain delivery without resolving the dispute. The resulting impasse meant that the arbitration would determine what should happen to the cargo.

4. The power was not a free-standing power to order sale as independent relief. The approach in On Demand Information Plc v Michael Gerson Finance Plc [2002] UKHL 13, [2003] 1 AC 368 was explained as identifying a paradigm case, rather than an exhaustive definition.

5. Under CPR 25.1, good reason for a quick sale was a jurisdictional requirement. Here, the cargo had been detained for over nine months, the vessel was incurring continuing costs, dry-docking requirements were approaching, and no viable storage alternative existed. The defendant’s late recognition that sale was the only realistic course materially reduced the force of objections based on interference with its ownership.

6. The court also had power to direct the defendant to sign the sale contract as seller. Fortification of the claimant’s undertaking in damages was unnecessary at that stage.