In a further decision in the case of U & M Mining Zambia Ltd v Konkola Copper Mines PLC  All ER (D) 136 (Oct), the English Commercial Court granted U&M Mining Zambia Ltd (“U&M”)’s application to continue a Worldwide Freezing Order (“WFO”) over the assets of Konkola Copper Mines PLC (“KCM”). U&M had been granted the WFO on an ex parte basis to prevent KCM’s dissipation of assets before it had satisfied the various arbitration awards granted by a London-seated tribunal (the “Awards”). For the background to the case, see our blog posts here, here and here.
The Court upheld the application. Where the seat of arbitration is London, it will ordinarily be appropriate for the English court to issue orders in support of the arbitration, but there may be reasons why, notwithstanding that the seat is in England, that it is not appropriate. A WFO, being an order which operates in personam by requiring the defendant not to dissipate his assets in a way that will render enforcement impossible or more difficult, is conceptually different from enforcement of an award, which requires an asset to be attached. The mere fact that enforcement will take place in Zambia was thus insufficient to make it inappropriate to grant a WFO. Even if the Zambian Court could also grant a freezing order, this did not make it inappropriate for the English court to do so.
This case confirms that a WFO in support of sums awarded by a London-seated tribunal can be granted by the English court, even if the assets against which the award will be enforced are outside the jurisdiction and it may be appropriate for another court to grant that same relief. The willingness of the English court to issue such relief should provide reassurance to parties who choose to seat their arbitrations in London, even where the contractual arrangements and/or the assets against which an award will ultimately be enforced are located outside England.
In this latest decision, the English Court considered three points in relation to the WFO granted in favour of U&M: whether U&M had established a risk of dissipation; whether it was just and convenient to grant a WFO; and whether U&M had failed in its duty of full and frank disclosure. This post focuses on the second of these points.
Source of the Court’s power to grant a freezing order
There was no dispute between the parties as to the Court’s ability to make a WFO, however they each submitted that it came under different legislation. U&M claimed the ability of the court to grant a freezing order in respect of assets in arbitration proceedings came from s44 of the English Arbitration Act 1996(the “Arbitration Act”).KCM argued that after an award had been published and the tribunal was functus officio, s44 of the Arbitration Act did not apply, and instead the power came from s37(1) of the Senior Courts Act 1981. As it was common ground that the Court had the power to make such an order, the Court did not need to decide either way. However, Teare J indicated that s44 could apply even after the arbitration had ended and an award had been issued.
Appropriate to grant a WFO
KCM argued that it was not appropriate for the Court to grant the order because:
- the assets in question were located in Zambia;
- it was undisputed that the Awards would be enforced in Zambia;
- KCM was resident in Zambia and therefore amenable to the in personam jurisdiction of the Zambian Courts; and
- there was no evidence that the legal remedies available in Zambia were inadequate.
The Court found that while the court can exercise its discretion and “refuse to exercise its powers if it is inappropriate to do so“, where the seat of the arbitration is in England and Wales “in the absence of some reason or indication to the contrary, it will be appropriate for this court [as opposed to another court] to grant relief in support of the arbitration”.
The Court distinguished between orders enforcing an arbitration award and orders in personam preventing dealing in assets. Teare J considered that “Enforcement of an award requires an asset to be attached. A WFO does not attach an asset. It operates in personam, requiring the defendant not to dissipate or deal with his assets in such a way that will render enforcement of an award by attachment of an asset impossible or more difficult than it would otherwise be.”
Therefore, the fact that the Awards would be enforced in Zambia was not enough to make it inappropriate for the court in England, where the arbitration was seated, to grant a freezing order. The Court also noted that it was possible for two courts to be appropriate forums to bring an application (London because it was the seat of arbitration, Zambia because of the residency of KCM). The fact that it may be appropriate for another court to grant a freezing order did not mean that it was inappropriate for the English court to do so, where in personam jurisdiction derived from the London arbitration clause to which KCM agreed.
This decision confirms the reasoning in Cetelem SA v Roust Holdings Limited and Belair v Basel that the courts of the seat of arbitration will generally be the appropriate place to seek freezing orders over assets if a claimant is concerned that the defendant will deal with them so that an award will become impossible, or substantially more difficult, to enforce.
The fact that the English court is likely to consider it is an appropriate forum to issue such relief further supports London as a choice of seat of arbitration for international parties, even where the contractual arrangements and/or the assets against which an award will ultimately be enforced are located outside England.
For further information, please contact Nick Peacock, Partner, Hannah Ambrose, Professional Support Lawyer or your usual Herbert Smith Freehills contact.