No place to hide? Recent decisions illustrate how far the English Courts are prepared to go to support enforcement of awards

Speedread

Obtaining a favourable arbitration award may be reason enough to celebrate, but it could end up being a hollow victory if faced with a losing party who refuses to comply with the terms of the award. In such circumstances the victor will be left to seek enforcement in those jurisdictions where the debtor's assets may be found. Enforcement in some jurisdictions is notoriously more difficult than in others.

Four recent decisions of the English Commercial Court illustrate the jurisdictional reach (and its limitations) of the English courts' pro-enforcement stance.

Appointment of receivers

In Cruz City 1 Mauritius Holdings -v- Unitech Limited and others¹, the Commercial Court appointed a receiver over Unitech's foreign assets to help prevent dissipation of the assets and thereby assist with enforcement of a London arbitration award against them. The judge's reasons included the following:

• The court had jurisdiction to appoint a receiver where it appeared to be just and convenient to do so.
• There needed to be a sufficient connection with the English jurisdiction to justify the making of such an order in relation to foreign assets. It was sufficient that the order was made with a view to the enforcement of an English award.
• What matters is whether the court has personal jurisdiction over the defendant. The fact that the English court's order will or may not be recognised by the foreign court where the assets are located is not a bar to the appointment of receivers.
• A receiver would not be appointed if the appointment would be fruitless. However, a receiver might be appointed if there was a reasonable prospect that the appointment would assist in the enforcement of a judgment or award.
• The overriding consideration in determining the scope of the court's jurisdiction is the demands of justice. Those demands include the promotion of the policy of English law that English arbitration awards should be complied with and, if necessary, enforced.
• The jurisdiction is not unfettered. It had to be exercised in accordance with established principles. The jurisdiction would not be exercised unless there was some hindrance or difficulty in using the normal processes of execution, and it was necessary to take account of all the circumstances of the case.
• Unitech had made it clear by words and conduct that it would do whatever it could to avoid having to meet its liabilities. Normal methods of execution were likely to be ineffectual and recovery of the debt by other methods was not practicable in the countries where the defendants had assets.

The present case was a classic case for the appointment of receivers. Among other things, Unitech held its assets through multiple chains of companies located not only in India but in a variety of jurisdictions, many of which did not offer transparency as to the assets held even if company accounts were publicly available. Further more, recovery of the award debt by other processes of execution in the countries where the defendants had assets was not practicable, at least in any reasonable timescale.

Freezing injunctions

An award may be rendered ineffective if a respondent hides its assets. To avoid this, a freezing injunction may prevent the respondent from dealing with or disposing of its assets.

Under English law, the court has power to grant a freezing order in support of the enforcement of an award where:

• there is a real risk that the defendant will dissipate, dispose of, or otherwise deal with, its assets in order to evade enforcement; and
• it is just and convenient to make the order.

In U&M Mining Zambia Ltd -v- Konkola Copper Mines Plc², the Commercial court continued a worldwide freezing order (WFO) in support of a London arbitration award. The court held that:

• Where the seat of arbitration is in England and Wales, it will usually be appropriate for the English court to make orders in support of arbitration.
• A real risk that the defendant would dissipate assets could be inferred from the totality of its conduct during the arbitration. While none of the conduct in question amounted to a dealing with its assets, the defendant's employees had shown themselves willing to give untrue evidence, to cause unnecessary harm, to be obstructive of the arbitration process and to take untenable points with a view to delaying enforcement.
• It was just and convenient to grant a WFO and the court had jurisdiction to do so. The fact that most of the defendant's assets were in Zambia, where enforcement would take place, and that the Zambian courts could grant a freezing order, did not make it inappropriate for the English court to grant the WFO.
• Notwithstanding the seriousness and number of respects in which the claimant had failed in its duty of full and frank disclosure on its without notice application, it was in the interests of justice to continue the freezing order. The failures were not deliberate and did not relate to the defendant's conduct. The claimant was, however, penalised on costs.

IOT Engineering Projects Ltd -v- Dangote Fertiliser Ltd and another³ concerned an appeal against the lower court's refusal to continue a freezing order. In effect the appellant was seeking the preservation in London of a fund against which it could seek to enforce any award in its favour. During the course of the hearing the appellant accepted the respondent's offer of a parent company guarantee. Therefore the appeal only looked at whether the alleged difficulty of enforcing an award in Nigeria justified the court in restraining payment.

The Court of Appeal firmly rejected the appellant's arguments. The alleged risk of dealing with assets should make "enforcement of an award or judgment more difficult", and that meant "more difficult than usual". The Court of Appeal recognised that enforcement was rarely straightforward and that it is more difficult in some jurisdictions than in others. However a party who contracted with, in this case, a Nigerian company, could not legitimately seek to justify a freezing order by relying on the difficulties routinely encountered by those who seek to enforce judgments or awards in that jurisdiction.

Both these cases concerned freezing orders against parties to a London arbitration. In Cruz City 1 Mauritius Holdings -v- Unitech Ltd and others⁴ the issue was whether the English court had jurisdiction to make a freezing order in aid of enforcement of a London arbitration award against subsidiaries of the award debtor. No substantive claim was asserted against the subsidiaries, who had no presence or assets within the jurisdiction. The Commercial Court decided that it did not. In particular:

• Where it appears that a non-party to the arbitration may hold assets on behalf of the defendant, it may be possible to obtain a freezing order in aid of enforcement against the non-party under the so-called Chabra jurisdiction.⁵ However, the courts have to be cautious in exercising this jurisdiction, particularly where the non-party has no presence in the jurisdiction.
• Cruz City had already obtained various orders against Unitech, including a WFO, a disclosure order, and an order for the appointment of receivers over Unitech's shareholdings in four subsidiary companies (as set out above). While Unitech had agreed to arbitrate in England, and must therefore be taken to have submitted to the supervisory jurisdiction of the English courts, there was no basis for suggesting that its subsidiaries (who were not parties to the arbitration agreement) had done likewise.
• It was questionable as to whether the court had jurisdiction over the subsidiaries. There was authority that service out of the jurisdiction was permissible only against a party to the arbitration agreement or arbitration in question and any doubt had to be resolved in favour of the foreign defendant.

Comment

The Konkola case confirms that, where the seat of the arbitration is England and Wales the court may grant a freezing order against a party even where there are no assets (and therefore no enforcement) within the jurisdiction. The fact that the parties had expressly agreed in relation to one of the awards that enforcement should take place in Zambia exclusively did not make it inappropriate for the English court to issue a WFO. Nor was the court deterred by the fact that the Zambian court could have issued a freezing order itself.

The judge's approach to the duty of full and frank disclosure in Konkola is also noteworthy. Teare J recognised that the seriousness and number of breaches of this duty tended to suggest that the appropriate course would be to refuse to continue the WFO in order to reflect the importance of the duty. However, on the facts, he felt that the interests of justice were better served by continuing the WFO while penalising the claimant by making an adverse costs order.

The Cruz City decisions are a good demonstration of the English courts' policy that awards should be satisfied, as well as the limits on that policy. When he ordered receivers to be appointed over Unitech's shareholdings in its subsidiaries, Males J stated that "the policy of the English court is that arbitration awards should be satisfied notwithstanding that it may be open to a Respondent to resist enforcement in its home state or elsewhere. It follows…that an English court should do what it properly can to assist such enforcement. If that has the consequence of making it harder for a Respondent to resist enforcement abroad, that should be regarded as a good thing and not a bad thing". He stood by this statement when deciding the court did not have jurisdiction to grant a freezing order against the subsidiaries but said that the policy of supporting arbitration cannot justify extending the English court's jurisdiction beyond its proper bounds. However, it is clear that he felt an order against the subsidiaries would add nothing of substance to the relief already obtained as the receivership order required Unitech to co-operate with the receivers and not to do anything to impede or interfere with the exercise of their functions and powers.

_Notes

_{^1. [2014] EWHC 3131 (Comm).}

_{^2. [2014] EWHC 3250 (Comm).}

_{^3. [2014] EWCA Civ 13488.}

_{^4. [2014] EWHC 3704 (Comm).}

_{^5. TSB Private Bank International SA -v- Chabra [1992] 2 All ER 245}