English court reaffirms its jurisdiction and willingness to compel foreign defendants to disclose their assets worldwide in aid of execution of arbitration awards

In a judgment handed down on 23 May 2013 in Cruz City 1 Mauritius Holdings v (1) Unitech Limited; (2) Burley Holdings Limited; and (3) Arsanovia Limited, the English High Court reaffirmed its jurisdiction under section 37(1) of the Senior Courts Act 1981 (the 1981 Act) to make an order to compel the Defendants to provide disclosure of all their assets worldwide. In doing so, the English court has once again demonstrated its commitment to the policy that arbitration awards should be enforced.

Background

The application under s37(1) of the Senior Courts Act 1981 in the case of Cruz City 1 Mauritius Holdings v (1) Unitech Limited; (2) Burley Holdings Limited; and (3) Arsanovia Limited was brought by the Claimant against three Defendants who had failed to satisfy two awards made against them in an LCIA arbitration seated in London. In January 2013 an order was made under s66(1) of the Arbitration Act 1996 permitting the Claimant to enforce the awards in question in the same manner as judgments or orders of the court. The Claimant then applied for an order to compel the Defendants to disclose their assets worldwide.

Legal Issue

The main legal issue in the case was whether the English court has jurisdiction under s37(1) of the 1981 Act to compel a foreign defendant to disclose its assets worldwide to aid execution of an arbitral award, where such disclosure is sought without a Mareva injunction. A Mareva (or a freezing) injunction is an order prohibiting the judgment debtor from disposing of, or dealing with, its assets to ensure that the successful party can enforce its judgment against the judgment debtor. To make Mareva injunctions effective, ancillary disclosure orders are often sought together with the injunction.

Arguments of the parties

The Claimant relied on two cases, Maclaine Watson & Co Ltd v International Tin Council (No 2) [1989] 1 Ch 286 and The Naftilos [1995] 1 WLR 299 in support of its application. In both of these cases the court held that it did have jurisdiction under s37(1) of the 1981 Act to make an order compelling the defendant to disclose its assets worldwide without a Mareva injunction.

To the extent that Maclaine Watson decided that a foreign defendant can be ordered by injunction to disclose its assets outside the jurisdiction in aid of execution of a judgment, the Defendants argued that this was no longer good law following the decision of the House of Lords in Masri v Consolidated Contractors International (No 4) [2008] UKHL 43. In Masri (No 4) an order was sought under Civil Procedure Rules (“CPR“) Part 71.2 to direct an individual (the director of the judgment debtor) who was resident and domiciled in Greece to attend court and provide information about the financial means of the judgment debtor. An order under CPR Part 71.2 requires the judgment debtor or, if the judgment debtor is a company, an officer of the judgment debtor, to attend court to provide information about the judgment debtor’s means or any other matter about which information is needed to enforce a judgment or order. The person served with such order must then attend court and produce the documents which are described in the order. The House of Lords held that CPR Part 71 does not have this extraterritorial effect. The Defendants argued that Part 71 of the CPR provided a means for a judgment creditor to apply for an order to obtain information from the officer of the judgment debtor. If this was unavailable because the officer of the judgment debtor was outside the jurisdiction, the judgment creditor could not outflank Masri (No 4) by applying for a disclosure order under s37 of the 1981 Act.

Judgment

Field J disagreed with the Defendants and held that the decision in Masri (No 4) does not prevent the court from granting the order sought by the Claimant in this case. Masri (No 4) could be distinguished because that case involved a non-party resident outside the jurisdiction. In this case, the order sought was against the Defendants who were subject to the English court’s jurisdiction. Neither the Court of Appeal nor the House of Lords in Masri (No 4) had suggested that post-judgment orders under s37 of the 1981 Act (including for a freezing order and disclosure of assets) may be invalid because CPR Part 71 does not have extraterritorial effect. Moreover, both Maclaine Watson and The Naftilos were cited with approval in a later case of Vitol SA v Capri Marine Ltd [2011] 1 All ER 366, where the use of documents obtained under an order that was made ancillary to the grant of a world-wide freezing injunction was permitted.

Having established that the court had jurisdiction to make the order sought, Field J went on to consider whether it was just and convenient to do so in this case. He noted that two of the Defendants were SPVs and that the Claimant was not aware of the extent and nature of the Defendants’ assets or the manner in which such assets are held. Field J observed that it is the policy of the law that judgments of the court and arbitration awards should be enforced, especially where the seat of the arbitration is within the jurisdiction of the English courts. Field J therefore found that it was just and convenient to order the Defendants to disclose their assets worldwide as such disclosure had the potential to materially assist the Claimant in enforcing the awards.

Service out of jurisdiction – let the parties beware!

The other ground on which the Claimant’s application was opposed was that the service of the claim form and further documents relating to the application were effected on the Defendants’ firm of solicitors, who the Defendants claimed were not authorised to accept service. The Defendants therefore argued that this alternative method of service under CPR 6.15(1) should not have been permitted. Field J, however, held true to the commercial court’s “invariable practice” in respect of arbitration applications concerning arbitrations with a seat within the jurisdiction – that there is good reason for service to be achieved faster than it would be under the relevant service convention. Based on the fact that: (1) the same firm of solicitors acted for all the Defendants in the arbitrations and in the jurisdictional challenges; (2) at the relevant time it did not appear that these solicitors were disinstructed; and (3) the Defendants paid nothing in satisfaction of the awards against them since they were made in June 2012, Field J held that the quicker the applications for disclosure in aid of enforcement were brought before the court, the better.

Comment

The evolution of the case law suggests that the English courts are increasingly willing to accept jurisdiction to compel domestic and foreign defendants to disclose their assets worldwide in aid of execution of arbitration awards. It now seems to be firmly established that the order for disclosure can be made independently of a Mareva injunction, that such order can be made as against a foreign defendant (as long as the defendant is subject to the jurisdiction of the English court) and that this order can be in respect of assets located inside and outside the jurisdiction. Such decisions can only serve to reinforce England’s position as an “arbitration friendly” jurisdiction. However, successful parties to international arbitral proceedings should not be over-optimistic in considering that this decision gives the English courts carte blanche to order disclosure of assets worldwide – the key element in this case is that the English court had jurisdiction over the Defendants, given that the arbitral seat was London. Nevertheless, the case is among an increasingly long line of cases where the English courts demonstrate their commitment to assist in the enforcement of international arbitration awards. This may include, as in this case, the very practical consideration that where all evidence points to a continuing instruction and in the absence of an express indication to the contrary, the parties’ solicitors will be deemed to be authorised to accept service even months after the award was rendered.

For further information, please contact Craig Tevendale, Partner, Vanessa Naish, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
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+44 20 7466 2445
Vanessa Naish
Vanessa Naish
Professional Support Lawyer
Email
+44 20 7466 2112

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