Emerald Shipping v. Elmhirst
DMC Category Rating: Confirmed
As security for its claim, the Charterer had obtained a letter of undertaking ("LOU") from the American Steamship Owners Mutual Protection and Indemnity Association (the "American Club"), in the amount of US$1 million. Under paragraph 1 of that letter, the Association agreed to file an appearance on behalf of the Owner in any suit the Charterer commenced against the Owner in the US District Court for the Southern District of New York "to confirm an arbitration award pursuant to the Charter". Under paragraph 3 of that letter, the Association undertook "upon demand by you, to cause to be filed a bond in form and sufficiency of surety satisfactory to you or the Court in the above amount [namely, US$ 1m.] securing your claim against the Vessel in said proceedings".
After hearings on the merits on the Charterer’s claims had been held in April 2007 and the evidentiary phase of the arbitration proceedings on liability and damages had been closed, Charterer applied to the arbitral tribunal to order the American Club to post a bond in accordance with paragraph 3 of its LOU. The Owner submitted to the tribunal a letter from the American Club in which it rejected the demand for a bond on a number of grounds. First, the Club was not a party to the arbitration clause1 of the charterparty and was not, therefore, subject to the tribunal’s jurisdiction. Second, the language of paragraph 3 of the LOU was clear, in that the Charterer might request a bond only in the event an action were commenced in the US District Court for the Southern District of New York to confirm an arbitration award (emphasis added); the Charterer had no right under the letter unilaterally to demand substitute security for any other reason.
The Interim Ruling
The tribunal went on to comment on club letters of undertaking in general and the position of the American Club in this case in particular. It said:
The tribunal accepted that it did have authority to order the Owner (emphasis added) to provide security for Charterer’s claim in appropriate circumstances but, without prejudice to Charterer’s rights, it declined to do so, one reason being that the Owner had said that it would not comply with any such order. The tribunal’s conclusion accordingly was that the Charterer’s "most appropriate, expeditious and cost-effective course under the circumstances would be to promptly seek summary enforcement of the Club’s LOU by way of specific performance before the US District Court for the Southern District of New York, as the American Club suggests."
 The arbitration clause read: “Any and all differences and disputes of whatsoever nature arising out of this Charter shall be put to arbitration….The arbitrators may grant any relief which they… deem just and equitable, including but not limited to , specific performance”
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