In a recent decision rendered by the Queen's Bench in
the case of Swallowfalls Limited v. Monaco Yachting &
Technologies S.A.M. and ANR, it has been re-iterated that the
dismissal of claims by the Tribunal on account of failure of a
Party to provide security for costs is final and binding. The
claims cannot be brought up subsequently in Court despite the fact
that they were dismissed without any discussion as to their
Facts Of The Case:
The dispute arose out of a construction contract entered into in
2006 for the construction of a 71.5m luxury yacht that the Claimant
had commissioned from the Defendants. It was, however, understood
between the Parties that the actual construction would be
sub-contracted to Cantiere San Marco SRL, in Italy. The
total consideration for the yacht was Euro 35, 231, 6000, to be
paid in 11 instalments which were linked to the construction of the
The agreement was amended four times to provide interim finance
to the Defendant as the Defendant did not seem monetarily equipped
to complete the construction in time. In accordance with all four
amendments, the Claimant gave an advance directly to the suppliers
and sub-contractors of the Defendant and the latter agreed that
this advance would be deducted from the payment due to them in
accordance with the next instalment or a fixed deadline (failing
the completion of the construction milestone by the Defendant),
whichever was earlier. The title of the yacht which was earlier
supposed to be transferred on payment of the fifth instalment, was
to be transferred within 30 days of the first interim finance
The most pertinent amendment with respect to the dispute herein
was the fourth amendment, dated 3rd November 2010, under which a
Loan Agreement was signed and a personal guarantee was given by the
Chairman and Managing Director of the Defendant. The Defendant,
however, failed to repay the interim loans, nor did they transfer
In 2011, after the fourth amendment, when the construction was
still not progressing in a timely manner and the title had not been
transferred, the Parties referred their disputes to arbitration as
per the construction agreement which provided for arbitration in
London in accordance with the LMAA Rules.
During arbitration, the Tribunal ordered the Defendants to
provide security for costs to the Claimant, which the Defendant
failed to comply with. The Defendant's failure to follow this
order resulted in a partial Final Award wherein the Tribunal
allowed the Claimant's application for dismissal of the
Defendant's claims under Section 41(6) of the English
Arbitration Act, 1996 which provides that: "If a claimant
fails to comply with a peremptory order of the tribunal to provide
security for costs, the tribunal may make an award dismissing his
Issue Before The Court:
While the arbitration was pending, the Claimant had initiated
proceedings in the Court for a summary judgement under the Loan
Agreement of 2010 and the personal guarantee given by Chairman of
the Defendant. In response, the Defendant raised the claims which
it had brought against the Claimant in arbitration, for set-off.
Thus, the proceedings had been stayed till the arbitration was
concluded. Subsequently the stay was lifted and the Claimant
requested the Court for a summary judgement in view of the fact
that the claims of the Defendant had been dismissed by the Tribunal
by a partial final award.
The Defendant contended that the Court should consider whether
the claims of the Defendant provided a defence of set-off,
notwithstanding the award by the Tribunal. However, the Court
rejected their submission.
It concluded that by virtue of Section 46(6) and the arbitral
award, the claims of the Defendant had been dismissed
"with all the consequences of finality that such an award
brings". Thus, allowing the Defendant to raise those
claims a second time would be an abuse of process and a vexatious
burden for the Claimant.
This decision sends a strong pro-arbitration message to all
Parties and highlights the importance of compliance with a
peremptory order of the Tribunal.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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