Silver Dry Bulk Company Ltd v Homer Hulbert Maritime Company Ltd

Factual and Procedural Background

The dispute arises from a sale and purchase agreement for a vessel, where the Plaintiff, a Maltese company and wholly owned subsidiary of a national maritime company, purchased a Capesize bulk carrier from the Defendant, a special purpose vehicle incorporated in the Marshall Islands. The Defendant company was dissolved shortly after the transaction was completed. The Plaintiff alleges that the purchase price included a secret commission paid corruptly to a third party and seeks to arbitrate against the Defendant company. However, the Defendant was dissolved before arbitration was commenced, raising questions about its continued legal existence and capacity to be a party to arbitration proceedings.

Under the Marshall Islands Business Corporations Act ("BCA"), a dissolved corporation continues to exist for winding up affairs for three years after dissolution, but no arbitration proceedings were initiated within this period. The Plaintiff commenced arbitration approximately eight months after the expiry of this three-year continuation period, nominating an arbitrator to whom the Defendant did not respond, resulting in the Plaintiff's nominee becoming sole arbitrator by operation of the arbitration clause.

The arbitration tribunal proceeded with the case despite the Defendant's dissolution, and the Plaintiff sought a court order under section 18 of the Arbitration Act 1996 to confirm the validity of the tribunal's constitution. The Plaintiff also sought orders under sections 43 and 44 of the Act to compel production of documents from brokers involved in the vessel purchase negotiations, some within the jurisdiction and some abroad.

Legal Issues Presented

1. Whether the Defendant company, having been dissolved before the arbitration commenced and after the statutory continuation period expired, continues to exist sufficiently to be a party to arbitration proceedings.
2. Whether the court should exercise its powers under section 18 of the Arbitration Act 1996 to direct that the arbitral tribunal has been validly constituted despite the Defendant's dissolution.
3. Whether the court should grant orders under sections 43 and 44 of the Arbitration Act 1996 for the production of documents from third-party brokers both within and outside the jurisdiction.

Arguments of the Parties

Plaintiff's Arguments

• The Defendant company continues to exist for the purpose of arbitration because: (a) under section 105(2) of the Marshall Islands BCA, upon dissolution, the directors become trustees with continuing authority to settle affairs, allowing proceedings to be brought beyond the three-year winding-up period; and (b) in cases of fraud, the applicable six-year limitation period applies regardless of the company's dissolution, consistent with principles of equity.
• The Plaintiff contends there is a good arguable case that the Defendant exists sufficiently to be a respondent in arbitration and seeks a court order under section 18 to confirm the tribunal's valid constitution, thereby encouraging participation by the Defendant's parent company and others.
• The Plaintiff seeks orders under section 43 to compel a UK-based broker to produce documents via witness summons and under section 44 to issue Letters of Request to Korean courts for documents from foreign brokers, asserting the documents are relevant to the arbitration's key issues.

Defendant's Arguments

• The Defendant contends that under section 105(1) of the BCA, the company ceased to exist for all relevant purposes after the three-year continuation period expired, including the trusteeship under section 105(2), which also ended at that time.
• The Defendant argues that principles of equity cannot override the clear statutory language, and thus the arbitration against a dissolved company commenced after the continuation period is invalid.
• The Defendant did not participate in the arbitration or the court proceedings, and no representative appeared to oppose the Plaintiff's applications.

Table of Precedents Cited

Court's Reasoning and Analysis

The court identified the fundamental issue that arbitration requires both parties to exist, referencing established case law. The Defendant's dissolution before arbitration and the expiry of the statutory three-year continuation period under the Marshall Islands BCA raised serious questions about the Defendant's capacity to be a party to arbitration.

The Plaintiff's argument that the Defendant continues to exist due to trusteeship under section 105(2) and equitable principles related to fraud claims was supported by an expert opinion but remained untested by cross-examination. The Defendant's contrary expert opinion emphasized the clear statutory language limiting continuation to three years.

The court acknowledged the complexity and uncertainty of these competing legal arguments but declined to resolve the substantive issue on this application. Instead, it focused on the procedural question of whether the appointment of the arbitrator had failed such that the court's powers under section 18 of the Arbitration Act 1996 could be invoked.

The court found no failure in the appointment procedure because the arbitration clause provided for automatic appointment of the sole arbitrator if the respondent failed to appoint one within the specified time. This automatic mechanism operated as intended, meaning the court had no section 18(3) powers to exercise.

The court further considered whether it would exercise discretion to make a section 18 order confirming the tribunal's valid constitution, but concluded that such an order would require deciding the very issue of the Defendant's existence, which the Plaintiff conceded should be left to the arbitrator. The court found the Plaintiff's request for an order that the tribunal was "validly constituted" contradictory and potentially misleading.

Regarding the applications for document production, the court granted permission under section 43 for the Plaintiff to issue a witness summons to the UK-based broker, subject to the broker's right to apply to set aside the summons. The court rejected the application under section 44 for Letters of Request to Korean courts for documents from foreign brokers, reasoning that the court could not make representations to foreign courts about the existence of the arbitration given the unresolved status of the Defendant, and that the requested documents' relevance was speculative.

Holding and Implications

The court dismissed the Plaintiff's application under section 18 of the Arbitration Act 1996 for an order directing that the arbitral tribunal has been validly constituted.

The court held that there was no failure of the appointment procedure as the arbitration clause's automatic appointment mechanism operated correctly, depriving the court of section 18(3) powers. The court declined to make any discretionary order confirming the tribunal's constitution due to the unresolved fundamental issue of the Defendant's existence, which should be determined by the arbitrator.

The court granted permission under section 43 to issue a witness summons to the UK-based broker for document production, but dismissed the section 44 application for Letters of Request to Korean courts for documents from foreign brokers due to the speculative nature of the request and the court's inability to confirm the arbitration's existence for that purpose.

The decision directly affects the parties by allowing the arbitration to proceed without court endorsement of the tribunal's constitution and limits the scope of document production. No new legal precedent was established; the ruling emphasizes the procedural boundaries of court intervention in arbitration appointments and the necessity of resolving jurisdictional and existence issues within arbitration proceedings themselves.