England and Wales High Court (QB): English Court has the power to grant interim relief even in a foreign seated international commercial arbitration

Sally Roberts court case

 

It is common in international commercial arbitration for the parties to plead for interim relief in order to advance security for their claims. Under Section 44 read with Section 2(3)(b) of the English Arbitration Act, 1996 (‘the Act’), the English Courts have the power to grant interim relief in support of domestic arbitration proceedings.

English Law on interim relief under the Act

The relevant Section reads as under:Scope of application of provisions.

(3) The powers conferred by the following sections apply even if the seat of the arbitration is outside England and Wales or Northern Ireland or no seat has been designated or determined

(a)section 43 (securing the attendance of witnesses), and

(b)section 44 (court powers exercisable in support of arbitral proceedings);

but 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.

44. Court powers exercisable in support of arbitral proceedings.

(1)Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings.

(2)Those matters are—

(a)the taking of the evidence of witnesses;

(b)the preservation of evidence;

(c)making orders relating to property which is the subject of the proceedings or as to which any question arises in the proceedings—

(i) for the inspection, photographing, preservation, custody or detention of the property, or

(ii) ordering that samples be taken from, or any observation be made of or experiment conducted upon, the property;and for that purpose authorising any person to enter any premises in the possession or control of a party to the arbitration;

(d)the sale of any goods the subject of the proceedings;

(e)the granting of an interim injunction or the appointment of a receiver.

(3)If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.

(4)If the case is not one of urgency, the court shall act only on the application of a party to the arbitral proceedings (upon notice to the other parties and to the tribunal) made with the permission of the tribunal or the agreement in writing of the other parties.

(5)In any case the court shall act only 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.

(6)If the court so orders, an order made by it under this section shall cease to have effect in whole or in part on the order of the tribunal or of any such arbitral or other institution or person having power to act in relation to the subject-matter of the order.

(7)The leave of the court is required for any appeal from a decision of the court under this section.

In Company 1 v Company 2 and another [2017] EWHC 2319 (QB), the seat of the arbitration (lex arbitri) was Zürich (Switzerland) and the law to govern the arbitration (lex fori) was that of England and Wales. The material questions before the English High Court were as follows:

  1. Whether the Court had jurisdiction under Section 44 of the Act to hear the application seeking interim freezing order?
    1. If yes, then
      1. Was it urgent in terms of Section 44(2) of the Act? and;
      2. Whether the interim relief of freezing order is necessary to preserve evidence or assets?
  • Whether it would be appropriate for the English Court to exercise that jurisdiction in the present circumstances when lex arbitri was Zürich?

Factual Background

A British Virgin Island Company (‘Company 1’) entered in to a Joint Venture Agreement (JVA) with a Cyprus Company (Company 2) and Mr. A (a US citizen) who is the owner of Company 2. JVA was entered to distribute the commission earned by a Joint Venture Company (JVC) in which both companies had equal shareholding. the seat of the arbitration (lex arbitri) was Zürich (Switzerland) and the law to govern the arbitration (lex fori) was that of England and Wales.

Dispute arose between the parties and Company 2 and Mr A triggered Swiss arbitration proceedings. Company 2 then launched ex parte proceedings in the BVI. Company 1 sought interim freezing order in the English court over commissions due from the JVC and it further sought court to order disclosure of sales transactions of JVC. Although this issue was resolved by a consent order yet there were two more transactions were disputed by Company 1. To this Company 2 and Mr.A contended these transactions are outside the scope of JVA as the same was frustrated. The Company 1 then filed a Section 44 application asking the Court to order payment of commissions that belongs to Company 1 and further order Company 2 to disclose the sales and bank statements related to these two disputed transactions

Contentions of Company 1

  1. That the test for urgency 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 time scale.
  2. That the arbitration is in its earliest stages and no arbitrator has been appointed. There is no basis upon which relief can therefore be obtained in the arbitral proceedings. “Urgency” in this case simply covers the hiatus that exists before the appointment of an arbitrator.
  3. That his application is urgent because there is risks of dissipation since the commissions are disappearing.

Contentions of Company 2

  1. It was contended that the documents sought by Company 1 amount to no more than an application for disclosure. Section 44 does not extend the court’s jurisdiction to dealing with disclosure.
  2. Even if the court does have jurisdiction, it should refuse to exercise it on the basis that it is inappropriate to do so pursuant to Section 2(3), the court has power to refuse to exercise any power granted by section 44 if the fact that the seat of the arbitration is outside England and Wales (as is the case here) makes it inappropriate to do so.

Decision of High Court

  1. Currently there is no mechanism by which such relief could be obtained in the arbitral proceedings.

Urgency

  1. The application meets the test of urgency since the parties are in the hands of the Swiss courts for the appointment of an arbitrator and there is the additional issue as to whether Mr.A agrees to be a party to the arbitration process. At the moment he does not. All these issues can be a cause of delay which feeds to the issue to be urgent.
  2. The manner in which the Section 44(3) is phrased, it is intended simply to place limits on the extent of the court’s jurisdiction in cases of urgency. Essentially the court only has jurisdiction where an order is necessary to preserve evidence or assets and has no jurisdiction for no other reason. This view is supported by the editors of Russell paragraph 7 – 194 in which it is said that

“some caution is however necessary: s44(3) is intended to be limiting provision and does not extend to making any kind of interim injunction but only those to preserve evidence or assets”

Necessity to preserve evidence or assets

  1. It is clear that the application is necessary step to preserve assets. It is undeniable that if the order was made then assets in question would indeed be preserved. Accordingly, the court does have jurisdiction to consider the application in respect of the commissions on the basis that is it necessary.

Test of appropriateness under Section 2(3)

  1. Even if the BVI court was unable to grant relief, the natural court for granting interim injunctive relief is the court of the country of the seat of arbitration. That was particularly so where the curial law is that of the same country but, all that means is that, if that is the case, the hurdle which the applicant has to negotiate is even higher. It does not detract from the proposition that the general principle is that for interim relief one goes to the court of the country of the seat of arbitration. The natural corollary to that is that, as a general principle, an application to an alternative court is inappropriate. In this case the matter is obviously compounded somewhat by the fact that there is already another court seized of the matter namely the courts of the BVI.
  2. In addition, the link between the dispute and England and Wales is tenuous. None of the dramatis personae have any link with England other than the fact that Mr A resides here and Company 6 (a non party) operates out of London and Company 2 did some business here. The fact that the JVA specifies English law as the law to govern the arbitration is possibly a factor but nevertheless when all the matters to which Company 1 argued are weighed in the scales against those to which Company 2 argued with regard to reaching a conclusion as to the link that this dispute has with England the Court was satisfied that those of Company 2 will prevail.
  3. This is especially so when, the BVI court is already seized of this dispute. The Court held that it is not appropriate for litigation on the same subject matter to be conducted simultaneously in England and in the BVI to say nothing of the involvement of Switzerland.

The Court held that Company 1 is really seeking is advance security for its claim. That is not a permissible basis for the order sought under Section 44. Alternatively Company 1 is seeking something akin to an interim payment when quite clearly that is no more appropriate than an order giving advanced security.

Even if there was a strong link with England and Wales the Court simply cannot accept that Company 1 has established that there is a real risk of dissipation. Further the bank statements sought are actually third party documents and would therefore usually be the subject matter of third party disclosure proceedings. It is not appropriate to make such order, even if it were urgent and appropriate to exercise the jurisdiction, without giving the escrow agents the opportunity to have some input into the application.