Case Update: Gerald Metals S.A. v Timis & Ors [2016] EWHC 2327 (Ch)

TL;DR

The Chancery Division of the Commercial Court of England and Wales (Leggatt J) refused an application by Gerald Metals SA for a worldwide freezing order against the assets of Timis; and a further application under section 44, of the Arbitration Act 1996 (UK) for a freezing injunction against the Timis Trust. IAA Lead Editor Mark Clarkson reports.

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I.  BACKGROUND

‘Gerald Metals SA (‘Gerald Metals’), is a Swiss company which is part of a group of companies engaged in commodities trading. Mr Timis (‘Timis’) is a businessman whose principal interests are in the mining industry’.¹ On 14 November 2014, Gerald Metals entered into an Offtake Contract with a company called Timis Mining Corp (SL) Limited (‘Timis Mining’), which owns an iron ore mine in Sierra Leone. Gerald Metals advanced US$50 million to Timis Mining to finance the development of a mine called the Marampa Mine in return for monthly deliveries to Gerald Metals of iron ore extracted from the mine. Gerald Metals was to be repaid its advance, ‘with interest, in monthly instalments which were to be deducted from the price of the iron ore shipments’.² A Panamanian company Safeguard, the trustee of the Timis Trust, guaranteed payment of all sums due to Gerald Metals under the Offtake Contract up to a maximum amount of $75 million.³ The guarantee is governed by English law and provides for disputes to be referred to arbitration in London under LCIA rules.

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II.  ENFORCEMENT

There were defaults under the Offtake Contract consisting both in failure to make shipments of iron ore and failure to pay sums due to Gerald Metals.⁴ Arbitration proceedings were commenced against Safeguard under the guarantee. Each party had appointed one arbitrator, but the party-appointed arbitrators had not appointed the third arbitrator needed to fully constitute the tribunal. The time allowed for the appointment was still running.⁵ Before seeking the intervention of the Court, Gerald Metals had applied to the LCIA for the appointment of an emergency arbitrator. That application was refused.⁶

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III.  THE DECISION 

In relation to the first claim for a worldwide freezing order against the assets of Timis, Leggatt J found that Gerald Metals had to show that they had ‘a good arguable case’⁷ and that they did not have one in relation to any of the four claims made.⁸

In relation to the action against the Timis Trust, Leggatt J found that while section 44(3) of the Arbitration Act 1996 (UK) allowed the Court in urgent matters to make orders preserving evidence or assets, section 44(5) demanded that the Court only act ‘if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively’. ⁹

Citing Starlight Shipping v Tai Ping Insurance,¹⁰ Leggatt J found that ‘the test of urgency under subsection (3) is to be assessed by reference to whether the arbitral tribunal has the power and the practical ability to grant effective relief within the relevant timescale’.¹¹ Leggatt J found that Articles 9A and 9B of the LCIA Rules provided for the appointment of an emergency arbitrator and for emergency relief.¹² Leggatt J refused to find that there was a ‘gap’ between these provisions in the LCIA Rules and the provisions of section 44 of the Arbitration Act 1996 (UK) which would permit applications seeking relief from the Court instead.¹³ The test to be applied was whether an arbitral tribunal could act ‘in time’ to grant effective relief ‘within the relevant timescale – the relevant timescale for this purpose being the time which it would otherwise take to form an arbitral tribunal’.¹⁴

Leggatt J found that the refusal of the LCIA to appoint an emergency arbitrator should be interpreted on the basis that the LCIA ‘was not persuaded that the application was so urgent that it needed to be decided before the arbitral tribunal is constituted in the ordinary way, and not that there was no power under the LCIA rules to act in a case of such urgency’.¹⁵ Leggatt J also found that paragraph 9.12, of the LCIA rules ‘makes it clear that Article 9B is not intended to prevent a party from exercising a right to apply to the court, for example under section 44 of the Arbitration Act; but it does not prevent the powers of the court on such an application from being limited as a result of the existence of Article 9B – as they are pursuant to the terms of section 44 itself. In any case this rule does not extend to Article 9A’.¹⁶ The application was refused on the basis that the case was not one in which the court may at this stage make the orders sought,¹⁷ and also refused on the merits.¹⁸

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The LCIA Registrar’s Report 2015 discloses that: ‘The LCIA did not receive any applications in 2015 for the appointment of an emergency arbitrator under Article 9B of the LCIA Rules 2014’.¹⁹ There were no applications in 2014,²⁰ the first year the appointment of an emergency arbitrator was permitted under the rules. This appears to indicate that perhaps the first application to the LCIA under the emergency powers provisions was refused. Au contraire, the Singapore International Arbitration Centre (SIAC) accepted 50 applications for the appointment of an emergency arbitrator from 01 July 2010 (when the procedure was first permitted) to 01 June 2016, and disposed of them as shown hereunder.²¹

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IV.  CONCLUSION

Parties wanting to preserve full access to Courts in emergent circumstances may need to craft arbitration clauses in contracts opting out of the emergency provisions in arbitration rules that permit the appointment of an emergency arbitrator or other relief in an emergency. One problem may be defining in those clauses, what constitutes an emergency. Another problem may be that the opt-out will allow either party access to the Court and this may frustrate the capacity of the wronged party to bring the other to arbitration and that arbitration to a happy conclusion. Neither arbitration nor the Courts can effectively repair bad commercial bargains or grant full remedies to parties who enter into relationships with those who may not be all they represent themselves to be. Due diligence before contract may be the best remedy.

This article may be cited as follows: Mark Clarkson, “Case Update: Gerald Metals S.A. v Timis & Ors [2016] EWHC 2327 (Ch).” International Arbitration Asia (27 February 2017) <www.internationlarbitrationasia.com/articles/uncategorized/case-update/geraldmetals/>.

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