ENGLISH COURT OF APPEAL ORDERS NON-PARTY TO GIVE EVIDENCE IN SUPPORT OF NEW YORK-SEATED ARBITRATION

In a recent judgment, the English Court of Appeal determined that English courts do indeed have jurisdiction under s44(2)(a) of the English Arbitration Act (“the Act”) to issue an order compelling a non-party to an arbitration agreement to give evidence in support of arbitration proceedings seated both inside and outside England and Wales. In A and B v C, D and E [2020] EWCA Civ 409 (“the Court of Appeal Decision”), the Court of Appeal deviated from a line of first instance decisions which had held that the English courts did not have the power to make orders against non-parties under s44. Having considered the facts of the case, the Court of Appeal held that it would exercise its discretion and grant the order. Accordingly, the Court of Appeal overturned the High Court decision (“the First Instance Decision”), which we had previously written about here.

Background

C and another party applied to the Commercial Court to compel the third defendant, E (a non-party to the New York seated arbitration), to give evidence in England on certain bonus payments. It remained an issue in the underlying arbitration whether these were deductible from the amounts claimed by C and another party in the underlying arbitration. E was involved in the negotiations regarding these bonus payments. The arbitral tribunal in New York delayed the closing of the evidentiary phase of the arbitration to enable this appeal to be heard and judgment to be given.

The First Instance Decision

In the First Instance Decision, the court acknowledged that the wording of s44 of the Act might suggest that s44(2)(a) could apply to give the court the power to issue an order compelling a non-party to give evidence in support of a foreign seated arbitration. However, given the decisions in earlier cases on s44, this was not a simple question.

The Commercial Court referred extensively to the decisions in Cruz City Mauritius Holdings v Unitech Limited [2014] EWHC 3704 (Comm) (“Cruz City”) and DTEK Trading SA v Morozov [2017] EWHC 1704 (Comm) (“DTEK”). In light of these authorities, the Court determined that s44(2)(a) was confined to parties to the arbitration agreement. This was due to the following reasons:

  • s44 was stated to be subject to contrary agreement between the parties;
  • a number of other subsections pointed towards an intra-parties interpretation of s44 as a whole (such as subsections (4), (5), (6), and (7));
  • if Parliament had intended to permit the court to make third party orders in support of arbitrations around the world, it would have expressly said so in the Act; and
  • a difference in treatment between different subsections of s44 was unattractive without a difference in language.

Permission was given to appeal the decision to the Court of Appeal.

The Court of Appeal Decision

Overruling the First Instance Decision, the Court of Appeal unanimously found that English courts do have jurisdiction under s44(2)(a) to compel a non-party to give evidence in support of an arbitration. Lord Justice Males, who had decided Cruz City, issued a concurring opinion to explain his decision.

This decision was based on the following considerations:

  1. S44(1) must be read alongside s2(3) and s82(2):

The Court of Appeal considered that s44(1) of the Act must be read alongside s2(3) and s82(2) of the Act. When read with these provisions, it was clear that the English courts have the same powers in relation to foreign-seated arbitrations as they would in relation to civil proceedings before the High Court or a County Court.

  1. The meaning of “witnesses”:

The Court held that the phrase “the taking of evidence of witnesses” in s44(2)(a) was broad enough linguistically to include all witnesses, and not just those who were parties to the arbitration. As the Act distinguished between witnesses and the parties in other sections when necessary, if Parliament had intended any different definition of witnesses in s44(2)(a), confining the term to parties only, it would have made this clear. The Court observed that it would be rare for a witness to also themselves be a party to the arbitration.

  1. Powers of the court in relation to English court proceedings:

The key question was what powers the court had in relation to non-parties in English court proceedings. It was clear that the English courts had the power to compel non-parties to give evidence by deposition under the Civil Procedure Rules (“CPR”) 34.8. While the Court acknowledged that this would create the “somewhat anomalous” situation that an English court can give an order requiring a deposition in support of a foreign arbitration, when this would not be possible in support of foreign court proceedings, the Court decided that this did not justify interpreting s44(2)(a) as applying only to parties to the arbitration.

  1. The relevance of other s44 subsections:

The various other subsections of s44 did not point against interpreting s44(2)(a) as applying to non-parties. The opening words of s44(1) and s44(4) were better understood as “gateways”, which needed to be satisfied before the court could exercise its discretion. Once the threshold was met, the court had the same powers regarding the taking of evidence of witnesses as it would in English court proceedings. The Court further observed that while the Respondents noted that third parties would not be able to appeal (given the limitation in s44(7)), this issue was “more apparent than real”. In practice, a first instance judge is likely to grant permission to appeal, and in any event this issue was not enough to justify interpreting s44(2)(a) so that it did not apply to non-parties.

  1. Practical use of the power to order a deposition was irrelevant:

The Court of Appeal rejected the Respondents’ argument that the power to order a deposition in civil litigation proceedings was rarely used in practice and only in limited circumstances. There was no reason to justify interpreting CPR 34.8 narrowly such that it only applied when a witness was unable to attend trial. There was in fact no reason why the court should not have the power to order the deposition of a witness in support of a domestic arbitration, for example in circumstances in which a reluctant witness was unwell or about to travel abroad, but the arbitrators were unavailable to hear the evidence at that time.

  1. The Respondents’ interpretation of s44(2)(a) would give the sub-section “little or no content”:

The Court rejected the Respondents’ narrow interpretation of s44(2)(a) on the grounds that it would mean the sub-section had “no or little content”. It was clear from previous authority that the section could not apply to inwards letters of request from arbitral tribunals. While it could apply to outward letters of request to a foreign court in support of an arbitration seated within England and Wales, it was hard to see how this would ever be useful in respect of a foreign-seated arbitration.

  1. It was not relevant that different subsections of s44(2) might fall to be treated differently:

Any apparent inconsistency could be explained on the basis of different language in each subsection. The Court of Appeal was content to leave the decisions in Cruz City and DTEK on their respective subsections to stand until any future appeal on either subsection.

  1. The reasoning of the decision in Commerce and Industry Insurance was compelling:

Finally, the Court of Appeal was persuaded by the earlier case of Commerce and Industry Insurance v Certain Underwriters at Lloyd’s [2002] 1 WLR 1323. This first instance decision directly dealt with the issue and held that an English court could issue an order in support of a foreign-seated arbitration to compel a witness who was a non-party to give evidence (although in this earlier case, the court had decided not to exercise its discretion to make the relevant order). The Court of Appeal cited the section of this judgment that considered it relevant that the arbitrators in New York had the power under s7 of the United States Federal Arbitration Act to subpoena witnesses to give deposition evidence in the form of oral testimony.

The Court of Appeal reiterated that in order to justify the court granting an order of this kind, the applicant must satisfy the relevant test. This requires the applicant to provide an explanation of the nature of the proceedings, identify the issues on which the witness was to give evidence, give reasons why the witness would be able to give evidence on these issues, and justify why the evidence is necessary for the just determination of the dispute.

In relation to the foreign-seated arbitral tribunal, the Court of Appeal noted that unless the parties are agreed, the party seeking the witness evidence will need the permission of the tribunal under s44(4) in order to make an application. In addition, the court always has a discretion under s44 whether to make the  order sought. In the case of a foreign arbitration, the court also has a specific discretion under s2(3) not to make an order if the court considers it inappropriate. In the circumstances of the case, the Court found that it was appropriate to make the order.

Comment

The decision of the Court of Appeal has provided some much-needed clarity on whether English courts have the power to issue orders under s44(2)(a) compelling a non-party witness to give evidence in support of arbitrations. This case has also provided useful guidance about the circumstances in which the courts will exercise their discretion and grant this type of order.

Whilst the decision has not overruled the earlier authorities of Cruz Shipping and DTEK, it is likely that some arbitration users will in future seek other types of orders against third parties in support of arbitrations under s44 of the Act.

For more information, please contact Nicholas Peacock, Partner, Rebecca Warder, Professional Support Lawyer, Aseel Barghuthi, Associate, Christine Sim, Associate, or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
Partner
+44 20 7466 2803

Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

Aseel Barghuthi
Aseel Barghuthi
Associate
+1 917 542 7859

Christine Sim
Christine Sim
Associate
+1 917 542 7853

ENGLISH COURTS DECLINE TO GIVE ORDER FOR TAKING OF EVIDENCE FROM NON-PARTY TO ARBITRATION AGREEMENT

The English High Court recently decided in A and another v. C and Others [2020] EWHC 258 (Comm) (“A v C”) that it did not have jurisdiction under s44(2)(a) of the English Arbitration Act (“the Act”) to issue a coercive order compelling a non-party to an arbitration agreement to give evidence in support of arbitration proceedings seated in New York.

The Claimants wished to compel the third defendant, E, who was not a party to the New York-seated arbitration, to give evidence in England. The claimants had been given permission by the New York tribunal to make such an application to the English court. However, despite the order of the tribunal, the Court ultimately found that it was unlikely that Parliament had intended to give the English courts jurisdiction to make the order sought under s44.

The Court considered the two leading authorities on the issue (Cruz City I Mauritius Holdings v Unitech Limited [2014] EWHC 3704 (Comm) (“Cruz City”) and DTEK Trading SA v Morozov [2017] EWHC 1704 (Comm) (“DTEK”)) and confirmed that the Court does not have jurisdiction under s.44 of the Arbitration Act to make an order against a non-party to the arbitration agreement.

Background Facts

The parties had embarked on a joint venture in relation to an oil field in Central Asia and the Claimants held a 15% interest in the oil field. A dispute arose between the parties, and an arbitration proceeding was initiated by the Claimants. The arbitration proceedings were seated in New York and, by the time of the High Court proceedings, the evidentiary hearing in the arbitration had already taken place. However, there remained an issue as to whether certain bonus payments made by the First and Second Defendants to the arbitration were deductible from the amount claimed by the Claimants in the arbitration.

Although the arbitral tribunal had already heard evidence from the assistant general counsel responsible for drafting and negotiating the agreements, the Claimants sought evidence from E, who was a non-party to the arbitration and the lead commercial negotiator who had been involved in negotiating the specific bonus payment.

The tribunal granted permission to the Claimants to bring an application in England, where E was domiciled, for the taking of his evidence.

S44 of the English Arbitration Act

Parties may apply under s44 of the English Arbitration Act for court assistance in relation to an arbitration seated within or outside England & Wales. The court’s power under this section is extensive and includes ordering the taking of witness evidence, the preservation of evidence, granting an interim injunction or appointment of a receiver, the sale of any goods which are the subject of the proceedings, and the power to make various other orders  relating to property which is the subject of the proceedings.

The Court noted that at first sight the language of s44 lent “some support” to the Claimants’ contention that it was possible for orders to be made against non-parties. The legislation specifically stated at s44(1) that the court had the same power in relation to the particular matters listed as it would do in respect of court litigation. This tended to suggest that the Court had the same power to make orders in respect of non-parties to an arbitration as it did against non-parties to court litigation. It was also noticeable that the specific legislative provision relevant to this case referred to “the taking of evidence of witnesses” and this might be taken as an indication that the provision was mainly focused on taking evidence from witnesses outside the control of the parties to the arbitration.

Cruz City and DTEK

The Court noted that while the wording of the legislation might suggest that the provision could be employed against non-parties, the leading authorities of Cruz City and DTEK made it clear that the question is much less straightforward.

Cruz City concerned an attempt to serve out of the jurisdiction an application for a freezing injunction against non-parties to the arbitration agreement. The court in Cruz City considered the question of application to non-parties and decided that there were a number of indications in s44 itself that it was intended to be limited to orders made against a party to the arbitration agreement. This was primarily because s44 is expressly stated to be subject to contrary agreement between the parties, which the court decided could only mean the parties to the arbitration agreement. Subsection (4) operated so that, unless the matter was urgent, the court could only act on an application made either with the tribunal’s permission or agreement in writing given by “the other parties”. This must again mean the other parties to the arbitration agreement.

In addition, Subsection (5) stated that the court can only act where the arbitrators either have no power or are currently unable to act effectively. This would always be the situation in respect of an order against a non-party. Subsection (6) provided that the court could hand back control in respect of the relevant issues to a tribunal with “power to act in relation to the subject matter of the order”. This could not be relevant to orders made against a non-party. Subsection (7) provided that an appeal could only be made against an order under s44 if the first instance court gave permission. The court commented that it would be surprising if the non-party’s right of appeal was limited in this way in respect of an order against a non-party. The court in Cruz City also noted that s44 was one of only a small number of sections in the Act to apply to arbitrations seated outside England and Wales or Northern Ireland. It seemed unlikely that Parliament would have intended to give the English courts the jurisdiction to give orders against non-parties in support of arbitrations happening around the globe. Had there been any intention to permit the court to make such third party orders this would have been clearly expressed in the Act.

The court in Cruz City accordingly decided that s44 did not allow orders to be made against non-parties and the court in DTEK later reached the same conclusion.

The Claimants’ application to the High Court

In A v C the Claimants advanced two arguments in an attempt to distinguish the current case from the position in Cruz City and DTEK.  They firstly contended that s44(2)(a) permitted orders to be made against non-parties because it referred to the taking of the evidence of witnesses, even if this was not the case for other sub-sections of s44(2). Secondly, the difficulties with making orders against non-parties in Cruz City and DTEK arose from the need to serve the applications out of the jurisdiction and this issue did not arise in A v C because E resided in England & Wales.

The Court took the view that the argument that some powers under s.44(2) can be exercised against non-parties, while others could not, was unattractive in the absence of statutory language justifying such a distinction. If s44(2)(a) orders could not  be made against non-parties, it would be surprising if coercive orders could nonetheless be made against non-party witnesses. The judge recognised that the English Court could issue letters of request asking foreign courts to take evidence from non-parties, but that ultimately depended on the discretion of foreign courts, which was a different matter from ordering non-parties to give evidence for the purpose of foreign arbitrations.

In respect of the Claimants’ second argument, the Court emphasised that the applications to serve out of jurisdiction in Cruz City and DTEK failed because s44 does not apply to non-parties, not because it is impossible to serve such applications out of jurisdiction.

Appropriateness of the order

The Court further considered whether it would have been appropriate to issue the requested order if the Court had found that it had the power to do so, having regard to the fact that the seat of the arbitration was New York.

The Court concluded that there was no particular inconvenience to the witness and there was sufficient justification for his attendance. The evidence requested was “clearly an issue of importance in the New York Arbitration”. Since the witness was the lead commercial negotiator of the contract under which the bonus was payable, the Court found that there was a sufficient possibility that he may have relevant evidence to give, notwithstanding the evidence already given by the assistant general counsel. It also did not matter that his memory of the events might have been compromised by the passing of time. In any event, his memory could be assisted by reference to the documents. In addition, the Court found that it would not be appropriate to delve too deeply into the relative weight of evidence, as this was “pre-eminently a matter for the arbitral tribunal”.

However, the proposed list of topics on which the Claimants wished to question the non-party was too broad and the Court would have required the Claimants to produce an amended, narrower list of questions. The Court also noted that E had offered to produce a witness statement and evidence by video-link to the arbitral tribunal. The proposal made by E reasonably balanced the interests of the arbitrating parties and E and, even if any order had been granted under s44 of the Act, the order would have been along the same lines.

Comment

This case has confirmed that the English courts’ powers in support of arbitration under s44 of the Act do not extend to orders against non-parties to the arbitration, whether or not there is a need to serve the application out of the jurisdiction. Accordingly, the current position is that s44 orders are unavailable against non-parties to the arbitration, even where those third parties are based within England & Wales. The decision is being appealed to the Court of Appeal.

For more information, please contact Nick Peacock, Partner, Rebecca Warder, Professional Support Lawyer, Peter Chen, Associate, Aseel Barghuthi, Associate, Christine Sim, Associate, or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
Partner
+44 20 7466 2803

Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

Peter Chen
Peter Chen
Associate
+44 20 7466 3868

Aseel Barghuthi
Aseel Barghuthi
Associate
+1 917 542 7859

Christine Sim
Christine Sim
Associate
+1 917 542 7853

 

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