Arbitration is based on consent. An arbitral tribunal derives its powers from an agreement between the parties. Tribunals also take time to form and their orders are not binding upon third parties. Whilst this grants procedural flexibility, it can pose difficulties if a respondent attempts to dissipate or alienate assets, or if crucial documents are in the hands of a non-party.
The Arbitration Act 1996 (the “Act”) provides some ways to redress this balance. Section 44 of the Act gives the English Court the same powers as it would have in respect of litigation in respect of an actual or proposed arbitration in respect of the following matters:
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Taking evidence from witnesses;
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Preserving evidence;
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Making order for inspection, preservation, experimentation on, etc. of property which is the subject of the proceedings;
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The sale of goods; and
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The granting of an interim injunction or the appointment of a receiver.
These powers are subject to 2 important caveats:
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If the matter is urgent, a party to an ongoing or potential arbitration may apply for such orders as are necessary for the purpose of preserving evidence or assets. These orders can be made without notice to the other parties to the arbitration or to the tribunal.
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If the matter is not urgent, the party must apply on notice, with the permission of the tribunal or with the written agreement of the other parties.
The wording of this requirement was considered in detail in Cetelem SA v Roust Holdings Ltd [2005] EWCA Civ 618. The Court of Appeal held that the Court may only make an order without notice and agreement or permission if the matter was urgent and if the order sought was necessary to preserve evidence or assets. However, the Court of Appeal went on to adopt a very wide approach to what would be an “asset”, saying it would stretch to include contractual and other legal rights.
Applications for freezing injunctions and similar remedies to prevent dissipation or alienation of assets are the most commonly sought orders. By their nature such applications will usually be urgent. Such applications may be made:
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Before or immediately upon commencing an arbitration. If there is a risk that assets will be dissipated or alienated to prevent enforcement of any arbitral award it is common to apply for an interim injunction to prevent this until an arbitration can be completed.
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To prevent use of property in breach of contract. In circumstances where damages may not be an adequate remedy an order requiring a party to keep to their contractual obligations may be required.
Lady Navigation Inc v Lauritzencool AB & Anor [2005] EWCA Civ 579: This involved an arbitration concerning the chartering of 2 ships. The Court of Appeal upheld an in interim injunction restraining the owners of the vessels in question in a manner which would breach the existing time charters pending the outcome of an arbitration.
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After obtaining an award in aid of enforcement. If a party’s conduct during or after the arbitration gives rise to an inference that they will dissipate assets to frustrate enforcement then a freezing injunction may be appropriate. This conduct need not be limited to transferring assets – it may include giving repeated false evidence during the arbitration, forging documents and/or failing to comply with orders for disclosure.
Arbitrations With A Seat In England & Wales
When dealing with an arbitration with a set in England and Wales the position is relatively straightforward.
U&M Mining Zambia Ltd v Konkola Copper Mines Plc [2014] EWHC 3250 (Comm) Mr. Justice Teare granted a freezing injunction against a Zambian company in support of enforcement of an LCIA award. He went on to hold that when dealing with an English-seated arbitration it would normally be appropriate for the English Court to make any order (including a worldwide freezing order), even against a party with little or no connection to the jurisdiction. The fact that the respondent’s assets were in Zambia, and that a similar order might be made by the Zambian Court, did not prevent the English Court making such orders as it considered appropriate.
Arbitrations Outside England & Wales
These powers are not only exercisable in support of an English-seated arbitration. Section 2(3) of the Act provides that these powers can apply to an arbitration with its seat outside England & Wales or Northern Ireland subject to the caveat that:
“the court may refuse to exercise any such power if, in the opinion of the court, the fact that the seat of the arbitration is outside England and Wales or Northern Ireland, or that when designated or determined the seat is likely to be outside England and Wales or Northern Ireland, makes it inappropriate to do so.”
Econet Wireless Ltd v Vee Networks Ltd & Ors [2006] EWHC 1568 (Comm): A freezing injunction was sought against a party based in Nigeria, which was a respondent to a Nigerian-seated arbitration. Mr Justice Morrison described the powers of the Court to support a foreign-seated arbitration as a “long arm reach” and went on to say that when the Court is faced with such an application “the first question [should be]: ‘why are you asking for an order from this court?”’. The Judge suggested good reasons might be that the arbitration is to be conducted under English procedural law, or that an order was sought in respect of assets in this jurisdiction. As these matters did not apply, in that case, the Judge did not make an order.
When considering whether to make an application in support of a foreign-seated arbitration it is therefore important to begin by stating why the English Court ought to be approached. Obvious reasons include that
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the order is intended to secure assets in England;
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the order is sought against a party based in, or with a close connection to England; or
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when professionals (e.g. brokers) based in England administer the assets in question.
In practice, given London’s position as a global financial and legal hub as well as a home for the world’s elite, parties to an arbitration seated anywhere in the world may need to consider an application to the English Court for a freezing injunction or similar remedy.
