GRANTING PRE-AWARD SECURITY – AN ARBITRATOR ’ S PERSPECTIVE

1. GRANTING PRE-AWARD SECURITY – AN ARBITRATOR’S PERSPECTIVE BY: DAVID W. MARTOWSKI ARBITRATOR/MEDIATOR MLA ARB/ADR COMMITTEE MEETING - OCTOBER 18, 2018

2. ARBITRATORS’ EMPOWERMENT TO ORDER PRE-AWARD SECURITY IS WELL-ESTABLISHED OBJECTIVE: TO ESTABLISH A LEVEL PLAYING FIELD AND PREVENT AN EMPTY-POCKETED PYRRHIC VICTORY. BANCO DE SEGUROS DEL ESTADO V. MUTUAL MARINE OFFICE, INC., 344 F.3D 255 (2D CIR. 2003); SPERRY INT’L TRADE, INC. V. ISRAEL, 689 F.2D 301 (2D CIR. 1982); BRITISH INS. CO. V. WATER STREET INS. CO., 93 F. SUPP. 2D 506 (S.D.N.Y. 2000); COMPANIA CHILENA DE NAVEGACION INTEROCEANICA, S.A. V. NORTON LILLY & CO., 652 F. SUPP. 1512 (S.D.N.Y. 1987).

3. SMA RULE 30. SCOPE THE PANEL, IN ITS AWARD, SHALL GRANT ANY REMEDY OR RELIEF WHICH IT DEEMS JUST AND EQUITABLE, INCLUDING, BUT NOT LIMITED TO, SPECIFIC PERFORMANCE. . . .

4. CRITERIA THE CLAIM QUANTIFIABLE? FRIVOLOUS? DOES AN ALLEGED BREACH GO TO THE HEART OF THE CONTRACT? IS THERE SUFFICIENT EVIDENCE TO ESTABLISH A LIKELIHOOD OF SUCCESS? THE OPPOSING PARTY’S CONDUCT IS THERE A CONTINUING BREACH OF THE CONTRACT? FAILURE TO RESPOND TO AN ARBITRATION DEMAND?

5. THE OPPOSING PARTY’S FINANCIAL CONDITION ARE THERE OTHER MEANS OF SECURING THE CLAIM? ITS CREDITWORTHINESS-PHYSICAL ASSETS? ITS FAILURE TO POST SECURITY PREVIOUSLY AGREED UPON? ITS RESTRUCTURING? ITS ASSETS TRANSFERRED OR SOLD? INSURANCE FOR THE LIABILITY FOR WHICH SECURITY ASKED?

6. THE ORDER OF SECURITY NOT A DETERMINATION ON THE MERITS AND WITHOUT PREJUDICE TO THE OPPOSING PARTY’S DEFENSES. IN A REASONABLE AMOUNT SUBJECT TO SUBSEQUENT ADJUSTMENT. TO BE POSTED BY A DATE CERTAIN IN A FORM REASONABLY ACCEPTABLE TO THE REQUESTING PARTY

7. THE SAMHO DREAM–VESSEL SEIZED BY SOMALI PIRATES WHILE LADEN WITH $170 MILLION OF CRUDE OIL - $9 MILLION RANSOM PAID. CHARTERER’S APPLICATION FOR SECURITY OF $14.2 MILLION GRANTED. SMA 4154 (2011); PARTIAL FINAL AWARD CONFIRMED, 2012 A.M.C. 2096; 2012 WL 2357314 (S.D.N.Y. 2012). CME v FMO– $233.7 MILLION IN CLAIMS FOR VENEZUELAN SELLER’S FAILURE TO PERFORM ORE SUPPLY AND TRANSFER CONTRACTS - SELLER ORDERED TO POST SECURITY OF $62.7 MILLION.SMA 4296 (2017). AWARD CONFIRMED 17-CV-20196 (S.D. FLA. – MIAMI DIVISON JULY 19, 2018); FMO IS APPEALING TO THE 11TH CIRCUIT. THE GEORGIA S–CHARTERER FAILED TO PROVIDE CARGO AT THE VESSEL’S LOADING PORT –PRIMA FACIE CASE OF CONTRACT REPUDIATION. OWNER’S APPLICATION FOR SECURITY $850,000 GRANTED. SMA 4163 (2012).

8. THE SONGA PEACE–CHARTERER’S FAILURE TO PERFORM ITS OBLIGATIONS ON TWO VOYAGES. OWNER HELD ENTITLED TO AN ORDER OF SECURITY.SMA 4262 (2016). THE MTM SANTOS–DELAYS DUE TO ICE CONDITIONS AT NIKOLAYEV, UKRAINE –APPLICATION FOR SECURITY DENIED. SLOW PAYMENT IS NOT NECESSARILY SYMPTOMATIC OF AN UNDERLYING MORTAL FINANCIAL AILMENT AND ARBITRATORS’ EMPOWERMENT TO ORDER PRE-AWARD SECURITY SHOULD NEVER BE EXERCISED WITH IMPUNITY. SMA 4339 (2018).

9. CONCLUSION SMA RULE 30 WAS AMENDED IN MARCH 2018 TO CODIFY ALREADY EXISTING ARBITRAL POWERS - IN PERTINENT PART: SECTION 30. SCOPE THE PANEL SHALL GRANT ANY REMEDY OR RELIEF WHICH IT DEEMS JUST AND EQUITABLE INCLUDING, BUT NOT LIMITED TO, SPECIFIC PERFORMANCE AND THE POSTING OF SECURITY FOR PART OR ALL OF A CLAIM OR COUNTERCLAIM IN AN AMOUNT DETERMINED BY AND IN A FORM ACCEPTABLE TO THE PANEL. . . . [EMPHASIS ADDED]

10. SMA/U.S. ARBITRATORS’ EMPOWERMENT TO ORDER PRE-AWARD SECURITY IS UNIQUE IN INTERNATIONAL MARITIME PRACTICE. IT IS EXERCISED IN APPROPRIATE CASES ONLY AFTER CAREFUL CONSIDERATION OF THE FACTS, CIRCUMSTANCES AND MERITS OF EACH DISPUTE. IT SHOULD NEVER BE EXERCISED WITH IMPUNITY.