ASM Shipping Ltd. of India v TTMI Ltd. of England

Factual and Procedural Background

The dispute arises from a voyage charterparty dated 11th December 2000, under an amended Exxonvoy '84 form, by which Company A chartered the vessel to Company B for a single voyage carrying gasoil. The vessel was laid up at the time of the charter. In March 2001, Company B initiated arbitration proceedings under the charter, appointing two arbitrators ("the original Arbitrators"). Company A claimed freight and demurrage, while Company B claimed damages for alleged breaches of charter causing late arrival at the loadport. Company B's claim was based on an indemnity agreement with a related company ("Sempra Oil"), which suffered losses due to the delays.

In April 2002, the arbitral tribunal made an award in favour of Company A for outstanding freight, ordering Company B to pay $640,100 plus interest. Subsequently, $707,500 was paid into a joint escrow account pending resolution of remaining claims. Company A's claim for demurrage was declined in November 2002, with costs awarded against Company A.

Discovery disputes arose, with costs awarded to Company B. In August 2004, a third arbitrator was appointed. A hearing on preliminary issues took place in October 2004, resulting in an award substantially favouring Company B on liability, with costs reserved. Company A challenged this award under sections 68 and 69 of the Arbitration Act 1996, but abandoned the section 69 challenge before the hearing. The section 68 challenge raised concerns about the independence of the third arbitrator and refusal to adjourn the hearing.

In October 2005, the challenge was dismissed by Morison J, who found apparent bias in the third arbitrator but held that Company A had waived their right to object by failing to act promptly. The third arbitrator resigned in November 2005, but the original arbitrators remained. Security for costs was ordered, and enforcement proceedings for the freight award were initiated, with various deductions and set-offs agreed or ordered by the court.

The Court of Appeal dismissed Company A's application for permission to appeal, ordering costs to be paid. Company B's attempted appeal was abandoned due to lack of proper leave, with costs ordered accordingly and set off between the parties.

Company A sought to levy execution against assets at Company B's registered office, leading to interpleader proceedings over claimed assets. Company A then applied under section 24 of the Arbitration Act 1996 to remove the original arbitrators and sought to debar Company B from resisting that application and from advancing claims in the arbitration, alleging contempt of court for failure to comply with a costs order.

Legal Issues Presented

1. Whether the original arbitrators should be removed pursuant to section 24 of the Arbitration Act 1996 due to alleged bias and procedural irregularities;
2. Whether Company B should be debarred from resisting the section 24 application and from advancing claims in the arbitration on the basis of alleged contempt of court for non-compliance with a costs order;
3. The scope of the court's powers to debar a party from arbitral proceedings;
4. The proper interpretation and enforcement of orders relating to the arbitration and costs, including the distinction between enforcement of an award and obtaining a judgment under the Arbitration Act.

Arguments of the Parties

Company A's Arguments

• Company B is in wilful contempt of court for failing to comply with the order of 7th September 2006, justifying debarment from resisting the section 24 application and from advancing claims in the arbitration.
• The conduct of Company B in failing to pay amounts due under the freight award and costs orders is contumelious and warrants serious sanctions.
• Company B has disabled itself from satisfying the costs order by paying a substantial dividend, evidencing an intention to frustrate enforcement.
• Reliance on precedent where courts have imposed sanctions, including debarment, for non-compliance with court orders in arbitration contexts.

Company B's Arguments

• Company B asserts it is owed sums exceeding the amount it allegedly failed to pay, including costs of interim awards, Court of Appeal costs, and claims in the arbitration, resulting in a net balance owed by Company A.
• Company B's failure to pay is not contumacious but due to lack of assets and the ongoing arbitration claims; payments made by Company B have been in the ordinary course of business.
• Company B has no assets other than its claims in the arbitration and the intangible benefit of an indemnity agreement with related companies, which may provide funds.
• Company B denies any deliberate refusal to obey court orders and contends that enforcement mechanisms and set-offs have been agreed or applied practically.
• Company B maintains that the court lacks power to debar a party from arbitral proceedings, as jurisdiction derives from the parties' agreement and statutory powers do not extend to debarment.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Leavis v Leavis [1921] P 299	Consideration of whether contempt was due to fault or misfortune in deciding refusal to hear a summons.	Supported the principle that inability to pay does not necessarily amount to contempt warranting debarment.
Gower v Gower [1938] P 106	Granting decree despite non-payment where failure was due to inability, not contumacy.	Reinforced that contempt requires deliberate refusal to comply.
Hadkinson v Hadkinson [1952] P 285	Ancient rule that a party in contempt is not to be heard until purging the contempt.	Recognized but qualified by later authorities; court has discretion.
Bettinson v Bettinson [1954] P 465	Restriction of the ancient rule to contempt in the same cause.	Supported the court's discretion to hear a party in contempt in distinct proceedings.
The Messiniaki Tolmi [1981] 2 Ll Rep 595	Exception to the rule excluding parties in contempt when appealing the order causing contempt.	Confirmed discretion to hear appeals despite contempt.
X Ltd v Morgan Grampian [1991] 1 A.C. 1	Strong public policy cautions against refusing to hear a party unless contempt impedes justice and no other means to secure compliance.	Informed the court's discretion not to debar Company B despite alleged contempt.
Richco International Ltd v International Industrial Food Co. SAL [1989] 2 Lloyd's Rep 106	Court's power under former Arbitration Act to debar party from arbitration for non-compliance with security order.	Distinguished as based on statutory powers not present under current Arbitration Act; court declined to apply similar debarment.
Bremer Vulkan Schiffbau und Maschinenfabrik Corporation Ltd v South India Shipping Corporation Ltd [1981] I Lloyd's Rep 253	Limits on court's inherent jurisdiction to make orders affecting arbitration parties.	Supported conclusion that no inherent jurisdiction exists to debar parties absent statutory authority.

Court's Reasoning and Analysis

The court began by examining the nature of the orders made and the status of the enforcement proceedings. It distinguished between enforcement of an award under section 66(1) of the Arbitration Act 1996 and obtaining a judgment of the court under section 66(2), emphasizing that the enforcement order did not itself constitute a judgment or an order requiring Company B to pay the sums immediately. This distinction led to a strict approach in considering contempt and debarment.

The court then assessed whether Company B was in breach of the relevant orders. Apart from a minor outstanding costs sum, Company B was not in clear breach. Even if a breach existed, the court considered whether the failure to pay amounted to contumacy. Drawing on precedent, the court held that inability or commercial reasons for non-payment do not equate to contempt warranting debarment.

Company B's evidence showed lack of assets other than claims in arbitration and an indemnity agreement with related companies, which complicated the assessment of whether payment could be made. The court found that Company B's conduct did not demonstrate deliberate refusal to obey orders.

The court also addressed the scope of its powers, concluding that while the court has powers to enforce orders and grant certain injunctions under the Arbitration Act, it does not have power to debar a party from arbitral proceedings, as jurisdiction arises from the parties' agreement and statutory provisions do not authorize such a sanction.

Finally, the court exercised its discretion under the principle that a party in contempt is generally not heard until purging contempt but recognized exceptions where justice requires hearing both sides, especially where the application is adverse to the party alleged to be in contempt and where proceedings differ.

Holding and Implications

The court DECLINED TO REMOVE the original arbitrators and REFUSED TO DEBAR Company B from resisting the section 24 application or from advancing claims in the arbitration.

The court held that Company B was not in such contempt of court as to warrant debarment and that the court lacks statutory power to debar a party from arbitration proceedings. The decision means that the arbitration will proceed with the original arbitrators, and Company B may continue to defend and advance claims. No new precedent was established beyond the application of existing principles regarding contempt, enforcement, and the limits of the court's powers under the Arbitration Act 1996.