Silver Dry Bulk Company Ltd v Homer Hulbert Maritime Company Ltd

The court may exercise its powers under section 18 of the Arbitration Act 1996 where there is a good arguable case for arbitral jurisdiction, but only if the agreed appointment procedure has failed. A procedure does not fail when an arbitration clause operates as intended and automatically converts one party’s nominee into the sole arbitrator following the other party’s default.

A good arguable case is more than merely arguable, but need not be more likely than not to succeed. Even where jurisdiction under section 18 exists, the court retains a discretion. It should not use that discretion merely to endorse an already functioning tribunal’s validity when validity depends on an unresolved question about whether a party legally exists.

The claimant commenced an arbitration concerning an alleged secret commission included in the price paid for a vessel. The sole respondent, a Marshall Islands special-purpose company, had been dissolved more than three years before the arbitration began. The claimant maintained that the company nevertheless survived sufficiently to be sued, relying on provisions governing dissolved corporations and expert evidence on Marshall Islands law.

The respondent appointed no arbitrator. Under the arbitration clause, the claimant’s nominee therefore became sole arbitrator automatically. The claimant applied under section 18 of the Arbitration Act 1996 for an order directing that the tribunal had been validly constituted. It also sought permission under section 43 to summon documents from an English broker and orders under section 44 for Letters of Request seeking documents from two Korean brokers.

The central questions were whether the appointment procedure had failed, whether the court should endorse the tribunal’s validity despite the unresolved corporate-existence issue, and whether assistance should be given to obtain the brokers’ documents.

1. The section 18 application was dismissed. A party invoking section 18 of the Arbitration Act 1996 on a disputed jurisdictional basis must show a good arguable case. That means a case somewhat stronger than merely arguable, although it need not appear more likely than not to succeed. The claimant met that relatively low threshold because its expert evidence supported the respondent company’s continued existence. The court nevertheless regarded the claimant’s arguments as facing formidable difficulties and did not decide the company’s status.

2. Section 18 was unavailable because the agreed appointment procedure had not failed. The arbitration clause provided that, if the respondent did not nominate an arbitrator within 14 days, the claimant’s nominee would automatically act as sole arbitrator. That mechanism operated exactly as intended and required no judicial assistance. The unresolved issue was instead whether a legally existing respondent had been available to arbitrate at all. The court consequently possessed none of the powers in section 18(3).

3. Even if section 18(3)(b) had conferred power, the court would have refused relief as a matter of discretion. The tribunal had already been appointed and could continue with the scheduled jurisdictional and merits hearing. An order declaring it “validly” constituted would go beyond a finding of a good arguable case because validity depended on resolving the company’s existence. A more qualified order would serve no useful purpose.

4. Permission under section 43 was granted. The claimant could issue a witness summons requiring the English broker to produce specified emails and attachments before the arbitration hearing. The documents were sufficiently identified. Permission remained without prejudice to the broker’s right to apply within 14 days to set aside the summons wholly or partly and to raise its objections about scope, costs or confidentiality.

5. The section 44 application was dismissed. The court assumed that it could direct the issue of Letters of Request and that the arbitrator could not act effectively in Korea. It nevertheless declined to involve a foreign court and non-parties while the arbitration’s existence remained unresolved and the necessity of the documents had not been demonstrated. An arbitral finding that documents were necessary for a fair resolution would have been highly relevant, but the arbitrator had expressed no such view.

This was a first-instance application made during pending arbitral proceedings. The appointed arbitrator had directed the claimant to address jurisdiction and the merits and had permitted the applications concerning third-party evidence. No prior court decision in the same litigation is stated in the judgment.