Daelim Corporation v Bonita Company Ltd & Ors

The court’s power under section 44(3) of the Arbitration Act 1996 is narrow. An order must be necessary for preserving evidence or assets and must involve as little interference with the arbitral process as possible.

Ancillary relief cannot be justified merely as a quid pro quo for primary relief, particularly where it prevents a party from commencing the arbitration which is the proper contractual forum for determining liability. Interpleader reasoning does not apply where the court is not seized of the debtor’s liability on the merits. An anti-arbitration injunction will not fall within section 44(3) without a rigorous analysis identifying the asset to be preserved and explaining why the injunction is necessary for that purpose.

Daelim, Bonita and EMIC entered into a termination and settlement agreement concerning the early termination of bareboat charters of the vessel DL Carnation. EMIC was required to pay a sum to Bonita, but Daelim asserted that Bonita’s rights had been assigned to it.

Daelim obtained an ex parte order restraining EMIC from paying Bonita, requiring payment into court, and restraining Bonita from pursuing EMIC under the settlement agreement. The primary injunctions were later replaced by an undertaking to retain the money in solicitors’ client account. Bonita applied to discharge the continuing restraint on pursuing EMIC in Hong Kong arbitration.

The central issue was whether that restraint was necessary for preserving assets under section 44(3) of the Arbitration Act 1996, or was otherwise justified as an ancillary measure.

1. Application allowed. Paragraph 5.3 of the June Order, restraining Bonita from demanding or recovering the disputed sum from EMIC, was discharged.
2. Section 44(3) of the Arbitration Act 1996 permits only orders necessary for preserving evidence or assets. The court must identify the asset concerned and must be satisfied that the order, whether primary or ancillary, is necessary for that statutory purpose. The power is intended to involve as little interference with arbitration as possible. The court applied the approach confirmed in Cetelem SA v Roust Holdings Ltd [2005] EWCA Civ 618.
3. The restraint on Bonita was not necessary to preserve EMIC’s alleged debt under the termination and settlement agreement. Bonita’s Hong Kong arbitration was the proper contractual means of determining whether EMIC owed the money to Bonita or Daelim. The court had no proper basis to prevent Bonita from commencing that arbitration while leaving Daelim free to do so.
4. The proposed analogy with interpleader failed. In an interpleader claim the court is properly seized of the debtor’s liability on the merits. This was not an interpleader claim, and EMIC had not sought interpleader relief in this court. The reasoning in The East India Company v Edwards (1811) 18 Ves Jun 376 was therefore inapplicable.
5. The restraint was, in substance, an anti-arbitration injunction. It had been sought as a quid pro quo for the primary relief, but that could not substitute for the statutory necessity required by section 44(3). The court also rejected the asserted identifiable-fund analysis: no earmarked fund existed before EMIC made the conditional payment.
6. Bonita’s alternative arguments based on unfair ex parte presentation and loss of continuing utility were rejected. Had the order originally been justified, the July Order’s qualified compromise could have supported its continuation. On the primary analysis, however, the order should never have been granted.