English High Court dismisses challenge to enforcement of award where award debtor allegedly unable to engage a hearing advocate

In a recent application (Shell Energy Europe Limited v Meta Energia SpA [2020] EWHC 1799 (Comm)), the English court dismissed a challenge to the court’s previous order under s66 of the Arbitration Act 1996 (“the Act”) granting leave to enforce an award. The challenge was made on the ground that the applicant was not able to participate in the merits hearing in the arbitration, due to difficulty in securing an advocate. In circumstances where the evidence “fell well short” of persuading the Court that the applicant had no choice but to cease its hearing participation, the challenge was unsuccessful.

Background

The applicant in this case, Meta Energia SpA (“Meta”) had participated fully in the underlying LCIA arbitration until the last stage. Less than 10 days ahead of the planned two-day final merits hearing, Meta dismissed its entire legal team, saying this was because it was unsatisfied with the way the legal team had pursued or presented the defence.

Meta was granted a hearing adjournment of two weeks and instructed new solicitors, but said that it was unable to instruct new leading counsel as advocate.

Meta’s new solicitors attended the final hearing, but did not participate other than to make a brief submission that Meta was unable to present its case.

The arbitrators considered whether it was just and appropriate to continue and concluded that it was. The claimant’s legal team reminded the arbitrators of points of substance raised against the claimant, based upon Meta’s written submissions on the merits.

The arbitrators afforded Meta a further period of time to engage with the merits, if it chose to do so after receiving the hearing transcript. Meta did not make any submissions on the merits and did not seek additional time to do so, although it did make a number of comments on costs. The award was then issued in December 2019.

The claimant sought to enforce the award in Italy under the New York Convention, but Meta attempted to resist enforcement there on the basis that Meta had been unable to present its case in the arbitration (Article V.1(b)). The claimant also sought to enforce the award in the UK and in May 2020 had obtained the High Court’s leave pursuant to s66 of the Act to enter judgment in the terms of the award (the “May 2020 enforcement order”). Meta subsequently applied to the Court to set aside the May 2020 enforcement.

S66 of the Act

The summary procedure under s66 of the Act can be used to enforce arbitral awards in arbitrations seated in England and elsewhere. An award creditor can apply to the English court under s66 to enforce an award in the same way as an English court judgment and may also seek judgment in terms of the award. Applications under s66 will be refused either where the award debtor can show that the tribunal lacked substantive jurisdiction (s66(3) of the Act), or where the court refuses the application on discretionary grounds.

In this case Meta sought to persuade the court that there was a “’due process’ complaint”…as a discretionary reason why… [the award] should not be enforced under s.66”.

Court’s decision

The Court was unsympathetic to Meta’s argument that it was not able to participate in the merits hearing because it was unable to be represented by leading counsel.

The Court noted that there was no clarity as to how the applicant’s defence in the arbitration could have been improved or set out differently by any new legal team. In addition, Meta had said it wanted to instruct leading counsel to provide the advocacy at the hearing and ”took the view that it would not participate on the merits unless it could be represented by leading counsel”. Despite this, the Court took the view that Meta could have been appropriately represented at the merits hearing by suitable junior counsel.  The Court went on further to say that Meta did not need to use the Bar and could have instructed suitable solicitors for the advocacy, there being “highly skilled and experienced international arbitration practitioners, not just the Bar”, able to provide advocacy services in arbitration.

No evidence had been put before the court to explain Meta’s decision not to provide written submissions in response to the receipt of the hearing transcript, or to explain how Meta’s position had allegedly been worsened by the hearing having gone ahead.

The Court also noted that no challenge to the award had been made under s68 of the Act, which would be the “normal means to pursue a complaint of lack of due process or other procedural unfairness”. It was in any event clear that there was no arguable basis for any s68 challenge. The arbitrators had been “scrupulously even-handed” and the process “unimpeachably fair”. Meta could have presented and fully developed its case, but simply chose not to do so.

Accordingly, the Court dismissed the challenge, and the May 2020 enforcement order was confirmed.

Comment

This judgment confirms the pro-arbitration stance of the English courts in relation to applications for enforcement under s66 of the Act. While the courts will refuse applications where enforcement would not be in the interests of justice, the courts will not exercise their discretion to deny enforcement on questionable grounds.

For more information, please contact Chris Parker, Partner, Rebecca Warder, Professional Support Lawyer, Peter Chen, Associate, or your usual Herbert Smith Freehills contact.

Chris Parker
Chris Parker
Partner
+44 20 7466 2767
Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418
Peter Chen
Peter Chen
Associate
+44 20 7466 3868

ENGLISH HIGH COURT REJECTS DEFERRAL OF A STAY APPLICATION FOR LITIGATION WITH PARALLEL ARBITRATIONS ON FOOT

In Republic of Mozambique v Credit Suisse International and others [2020] EWHC 1709 (Comm) here, the English High Court gave directions to proceed to a hearing of an application for a stay of English court proceedings under s9 of the 1996 Arbitration Act (the “Act“). The court rejected arguments brought by a number of defendants that determination of the s9 application should be deferred until the arbitrators in ongoing Swiss arbitrations had decided the question of jurisdiction. The court considered the effect on those defendants who were not party to the arbitrations and also the realistic timescale of 2.5-3 years before the arbitral proceedings would be completed. Based on that analysis, the court gave directions for the hearing of the s9 application in January 2021.

Continue reading

English High Court rejects application to remove the arbitrator named in the arbitration agreement on the grounds of apparent bias

The English High Court recently heard an application under s24(1)(a) of the 1996 Arbitration Act (the “Act”) to remove the arbitrator agreed in the arbitration agreement, on the grounds of apparent bias. The challenge was based on the fact that the arbitrator in question had, until recently, been an employee of one of the parties to the arbitration.

The Court was alive to the importance of honouring freedom of contract when the arbitrator had been identified and agreed in the arbitration agreement itself. On the facts of the case, there was no evidence of apparent bias and the application was accordingly refused.

Background

The disputes in question revolved around a family business in the transportation of oil and other commodities, with companies incorporated in both London (the “London Company”) and Nigeria.

In 2009, J, who was solely responsible for the Nigerian company’s trade, threatened to leave the family business. In an attempt to rescue the business and regulate the affairs of the family members, the family members and the companies controlled by them entered into an agreement expressed to be governed by English law (the “Agreement”). The Agreement contains a dispute resolution clause naming a “Mr Y as arbitrator and in the event of his unavailability Mr F”.

Mr F worked as the family accountant from about 1985 and was a full-time employee for the London company until 2002. Between 2002 and 2010, he worked part-time for the family. In 2010, Mr F returned to full-time employment for the London Company and reported directly to J only.

The family relationship became strained again and in September 2019, J commenced arbitration to resolve disputes relating to the interpretation of various provisions of the Agreement and stated in the notice of arbitration that “Mr [F] is the only other person entitled to sit as arbitrator”. Mr Y had died in 2015.

In November 2019, Mr F resigned from his employment with the London Company. He observed that the “family feud between the directors is getting nastier by the day and the employees…have been subjected to constant bullying, fabricated lies and allegations by some directors, for some time now… I, no longer wish to be dragged into this family dispute and with great regret, hereby submit my resignation with immediate effect.

Some of the family members objected to the appointment of Mr F as arbitrator, arguing that Mr F was conflicted and accordingly unable to act fairly and impartially. They pointed out that Mr F had reported only to J, and that Mr F would potentially be a witness in the dispute. They alleged that Mr F’s resignation might be a sham, or might lead to a claim for constructive dismissal against one of the parties. It was also alleged that Mr F’s refusal to provide some of the family members with information in relation to the company accounts before the commencement of the arbitration demonstrated bias. There were additionally said to have been secret conversations between Mr F and J. An application was made under s24 of the Act to remove Mr F.

Continue reading

ENGLISH HIGH COURT REFUSES TO CONTINUE FREEZING INJUNCTIONS IN A SPA DISPUTE WITH COMPLEX SHAREHOLDING STRUCTURE

In Petrochemical Logistics Limited, Mr Axel Krueger v PSB Alpha AG, Mr Konstantinos Ghertsos [2020] EWHC 975 (Comm) the English High Court considered whether it would be “just and convenient” to maintain two freezing injunctions against the Defendants in support of a London-seated LCIA arbitration. The court declined to continue either injunction, finding insufficient connection with England and Wales in relation to the first injunction (over the bearer shares of a Swiss company), and insufficient risk of dissipation in relation to the second (over shares and assets in a Dutch company). In considering the individual circumstances of the case, the court provided helpful analysis on the exercise of the court’s jurisdiction in support of English and foreign seated arbitral proceedings.

Continue reading

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

 

ENGLISH COURT REJECTS S68 CHALLENGE MADE ON THE GROUNDS OF APPARENT BIAS

In Rabbi Moshe Avram Dadoun v Yitzchok Biton [2019] EWHC 3441 (Ch), the High Court dismissed an appeal against an arbitral award (the “Award”) of the Beth Din of the Federation of Synagogues in London (the “Beth Din”) under s68 of the Arbitration Act (the “Act”). While there were unilateral and undisclosed communications between a member of the tribunal and an individual involved in the case, the Court decided that this did not amount to apparent bias. The decision clearly demonstrates the high hurdle for succeeding with a s68 application.

Background

The original dispute centred on the ownership of shares in a company. A Memorandum of Agreement (the “MOA”) had been signed by the Claimant, the Defendant, the Defendant’s brother and another individual, in relation to a “quasi-partnership” between them.

The case was heard by the Beth Din, a Jewish Rabbinical Court which can be used by Orthodox Jews to arbitrate their commercial disputes, on 2 June and 4 August 2008. The Award was not produced for over five years and was finally issued on 4 April 2014, largely finding in favour of the Defendant. The Claimant subsequently brought an application to challenge the Award under s69 of the Act, on the basis that the Award contained an error of law.

In 2017 the Claimant discovered the existence of a letter dated 23 July 2013, which referred to a unilateral meeting that had taken place around 9 months before the Award was issued, between the Defendant’s brother and a member of the tribunal, the head of the Beth Din. This letter, sent by the Defendant to the tribunal member, also referred to another letter sent to the tribunal member by the Defendant’s brother on 18 July 2013. This second letter was never found and there was no evidence of any reply by the Beth Din.

The Claimant amended his application to challenge the Award to include an application under s68 of the Act, on the basis that there was a serious irregularity affecting the Award. The initial application under s69 was then stayed.

Application under s68

The Claimant sought to challenge the Award under s68 of the Act, on the grounds that the discussion was “highly suspicious”, with the unilateral communications leading to apparent bias on the part of the relevant tribunal member. This challenge was possible because awards of the Beth Din are English-seated arbitration awards and therefore subject to the supervisory jurisdiction of the English court.

The Claimant contended that:

  • The discussion between the tribunal member and the Defendant’s brother was due to the Defendant’s brother deliberately attending at the Beth Din’s offices in order to have the opportunity to discuss the case.
  • It would have been “implausible and inconceivable that there would not have been a discussion as to the merits of the case”.
  • The further delay in producing the Award was “suspicious”, particularly as the Award was ultimately largely in the Defendant’s favour.
  • The non-disclosure of both the discussion and the letters in itself amounted to serious irregularity.

Decision of the High Court

The High Court emphasised that the Defendant’s brother had been party to the initial financial arrangements between the parties and had signed the MOA. While he had not given evidence in the arbitration and was not a party, he was nonetheless “clearly a person who featured in the case”.

The Defendant had taken the position that the conversation between the Defendant’s brother and the tribunal member merely involved asking the Beth Din to make a decision in the case. The tribunal member concerned had also given evidence to the Court and confirmed that the conversation had been confined to a query about the timing of the Award.

The Court concluded that the evidence of the Defendant’s brother and the tribunal member as to the limited nature of the conversation was credible. This was because, given the circumstances in which the meeting occurred, at the end of public afternoon prayers at the Federation of Synagogues’ Offices, any conversation would necessarily have been short. The Defendant’s letter of 23 July 2013 confirmed that the discussion was limited to the question of delay and that the tribunal member had promised that the Award would be with the parties within around three weeks. The High Court noted that “the shortness and insignificant nature of the discussion is given more credence by the fact that…[the tribunal member]… did not make a note of the discussion nor inform the Claimant”. There was “no evidence at all to contradict” the accounts of the tribunal member and the Defendant’s brother.

While it was “regrettable” that the letters were not disclosed to the Claimant, there was no evidence that this was deliberate, or done in order to hide the discussion. The further delay in relation to production of the Award was not suspicious in the context of the existing delay.

The Court applied the test for apparent bias as set out in Porter v Magill, which is “whether a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.” It noted that an enquiry by one party to an arbitrator requesting information on the likely timing of an award “cannot possibly be improper or constitute evidence of apparent bias”.

The Court referred to the leading authority on the arbitrator’s duty of disclosure, which is the Court of Appeal’s judgment in Halliburton Company v Chubb Bermuda Insurance Ltd and ors [2018] 1 WLR 3361, discussed in more detail here. The tribunal should disclose facts and circumstances that would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased. However, the Court of Appeal has emphasised that non-disclosure of a fact which does not give rise to justifiable doubts as to the arbitrator’s impartiality cannot, in and of itself, justify an inference of apparent bias, as “something more is required“.

The unilateral conversation in the Dadoun v Biton case did not even meet the test of being something that “should have been disclosed”. The non-disclosure of the Defendant’s letter had resulted only from a “failure of administration at the Beth Din”. Had this letter been disclosed to the Claimant at the time, he would then have learned of the conversation itself and would probably have been “totally unconcerned about that”. The non-disclosure of this letter accordingly did not provide evidence of apparent bias. As the 18 July 2013 letter had never been found, it was not possible for the Court to comment on whether it should have been disclosed. The Claimant’s challenge was accordingly dismissed.

Comment

This case is a further illustration of the robust approach taken by the English courts to s68 challenges. The courts regularly emphasise the difficulty of meeting the serious irregularity test and very few applications are successful.

The threshold for showing apparent bias remains high, with the Court in this case applying the Court of Appeal’s approach to non-disclosure in Halliburton v Chubb. While the Court of Appeal determined in Haliburton v Chubb that non-disclosure of a fact which does not give rise to justifiable doubts as to the arbitrator’s impartiality will not amount to apparent bias without “something more”, this requirement has proved controversial. There has been particular criticism of the lack of comment in the Haliburton v Chubb judgment about what might constitute “something more”. Haliburton v Chubb has been appealed to the Supreme Court, and the Supreme Court’s judgment is likely to provide useful clarification of the English law in this respect.

The decision in Dadoun v Biton highlights the importance of avoiding all unilateral communications with arbitrators once the tribunal has been appointed, to avoid the risk of future challenges to the award. The case is also a reminder to tribunals that the tribunal’s duty under s33 of the Act to act fairly means that any unilateral approaches, however innocuous or objectively insignificant, should be disclosed to all parties to the arbitration.

For more information, please contact Craig Tevendale, Partner, Peter Chen, Associate, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445
Peter Chen
Peter Chen
Associate
+44 20 7466 3868
Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

THE MALDIVES ACCEDES TO THE NEW YORK CONVENTION

The Maldives recently became the latest state party to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“).

The Maldives acceded formally to the New York Convention on 17 September 2019, which will come into force for the Maldives on 16 December 2019, 90 days thereafter. The Maldives becomes the 161st state party of the New York Convention in a year that marks the 60th anniversary of its coming into effect on 7 June 1959.

Continue reading