Today, the Law Commission published its first consultation paper as part of its review of the Arbitration Act 1996 (the “Act“). The stated aim of the review has been to ensure that the Act remains “best in class”: an approach based upon fine-tuning, rather than root and branch reform. Nonetheless, the consultation paper proposes some notable and very welcome changes and clarifications, which we outline and briefly comment on below. Continue reading
Tag: s44 Arbitration Act
In the recent decision of Daelim Corporation v Bonita Company Ltd and Others  EWHC 697, the Commercial Court overturned an injunction previously granted under s44(3) of the English Arbitration Act 1996 (the Act). The injunction had amounted to an anti-arbitration injunction which, the Court held, was not necessary for the statutory purpose of preserving assets.
The English High Court recently decided in A and another v. C and Others  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  EWHC 3704 (Comm) (“Cruz City”) and DTEK Trading SA v Morozov  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.
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.
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.
In the recent case of Gerald Metals SA v Timis  EWHC 2327 (Ch), the English High Court considered its power to grant urgent relief under s 44(3) of the Arbitration Act 1996 ("Act") in circumstances where timely and effective relief could have instead been granted by an expedited tribunal or emergency arbitrator under the LCIA Arbitration Rules 2014 ("LCIA Rules").
Under s 44(3) of the Act, the English court may, in cases of urgency, make in support of arbitration proceedings such orders as it thinks necessary to preserve evidence or assets (e.g. freezing injunctions). However, s 44(5) provides that the court may only act to the extent that the arbitral tribunal (or other person or body vested with power in that regard) has no power or is unable for the time being to act.
In Gerald Metals, the Court held that where there is sufficient time for an applicant to obtain relief from an expedited tribunal or emergency arbitrator under the Rules, it does not have power to grant urgent relief. As a consequence, the Court did not have power to grant the freezing injunction requested by the applicant because the applicant's request for an emergency arbitrator under the LCIA Rules had already been considered and dismissed by the LCIA.
The decision is significant because it suggests that the availability of timely and effective relief under the LCIA Rules and other institutional rules (such as emergency arbitrators) may in certain circumstances erode the court's power to grant urgent relief in support of the arbitral proceedings.
The case concerned a claim by Gerald Metals SA ("Gerald Metals"), a commodities trader, in respect of a financing arrangement entered with Timis Mining Corp (SL) Limited ("Timis Mining").
Under the arrangement, Gerald Metals would advance $50 million to Timis Mining to finance the development of an iron ore mine in Sierra Leone. Timis Mining would then sell iron ore extracted from the mine to Gerald Metals in monthly shipments pursuant to an offtake agreement. The sum advanced by Gerald Mining would be repaid, with interest, in monthly installments deducted from the price of the iron ore shipments.
Timis Mining was controlled by Mr Timis, whose business interests were held by a trust called the Timis Trust ("Trust"). The Trust's assets were said to have been worth in excess of $2 billion. In order to secure Timis Mining's performance, the trustee of the Timis Trust, Safeguard Management Corp ("Safeguard"), provided a guarantee of all sums due to Gerald Mining under the offtake agreement up to a maximum of $75 million. The guarantee was subject to arbitration in London under the LCIA Rules.
Following defaults under the offtake agreement, Gerald Metals commenced arbitral proceedings under the LCIA Rules against Safeguard under the guarantee.
Before the constitution of the tribunal, Gerald Metals applied to the LCIA for the appointment of an emergency arbitrator, with a view to seeking emergency relief, including an order to prevent Safeguard from disposing of the Trust's assets. Safeguard responded to the application by giving undertakings not to dispose of any assets other than for full market value and at arm's length, and to give 7 days' notice to Gerald Metals before disposing of any asset considered to be worth more than £250,000. In light of those undertakings, the LCIA rejected Gerald Metals' application for the appointment of an emergency arbitrator.
Gerald Metals applied to the English High Court for urgent relief against Safeguard, including a freezing injunction to prevent the disposal of the Trust's assets.
Mr Justice Leggatt began by considering its power to grant urgent relief under the Act. Section 44(3) provides:
If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.
This power, however, is subject to s 44(5):
In any case the court shall act only if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively.
Leggatt J then turned to the LCIA Rules relating to urgent relief:
- Paragraph 9.1 of Article 9A of the LCIA Rules provides that in cases of "exceptional urgency", any party may apply to the LCIA Court for the expedited formation of the arbitral tribunal.
- Paragraph 9.4 of Article 9B provides that "in the case of an emergency", at any time prior to the formation or expedited formation of the arbitral tribunal, any party may apply to the LCIA Court for the appointment of an emergency arbitrator.
- Paragraph 9.12 of Article 9B provides that Article 9B shall not prejudice a party's right to apply to a state court or other legal authority for any interim or conservatory measure before the formation of the arbitral tribunal.
It was common ground that (1) the test of urgency in s 44(3) was to be assessed by reference to whether the arbitral tribunal has the power and practical ability to grant effective relief within the relevant timescale; and (2) there can be situations where the need for relief (e.g. a freezing injunction) is so urgent that the power to appoint an emergency arbitrator is insufficient and the court may properly act under s 44(3) of the Act – for example, if the application needs to be made without notice.
However, Leggatt J held that if an expedited tribunal could be constituted or an emergency arbitrator appointed within the relevant timeframe, and the expedited tribunal or emergency arbitrator could practically exercise the necessary powers, the test of "urgency" under s 44(5) of the Act will not be satisfied and the court will not have power to grant urgent relief. In other words, the court will only have power to grant urgent relief under s 44(3) where either:
- there is insufficient time to form an expedited tribunal or appoint an emergency arbitrator; or
- an expedited tribunal or emergency arbitrator could not exercise the necessary powers.
In the present case, the LCIA had considered Gerald Metals' application for an emergency arbitrator and dismissed the application in light of Safeguard's undertakings. As the case was not sufficiently urgent to satisfy the requirements of Article 9A or 9B under the LCIA Rules, it could not be urgent enough to fall within s 44(3) of the Act.
Accordingly, the application for relief was dismissed.
The case is significant because it provides that s 44(3) of the Act only empowers the court to grant urgent relief where effective relief could not be granted in a timely manner by the arbitral tribunal or other relevant body.
Although the facts of the case were somewhat unusual – the applicant had already applied to the LCIA Court for an emergency arbitrator and the application had been refused – the principle, as expressed by Leggatt J, was not confined to that particular fact pattern and was of general application.
As a result, arbitration rules (including the LCIA Rules) which give the parties more options to obtain urgent relief through an expedited tribunal or emergency arbitrator may at the same time reduce the ability of the English court to step in and provide urgent relief against one of the parties to the arbitration. The fact that the LCIA Rules themselves, in paragraph 9.12 of Article 9B, state that the emergency arbitrator provision "shall not prejudice" the parties' rights to apply for urgent relief from the court could not prevent the urgency limitation built in to s 44(5) from operating. This is not the effect the institutional rules were intended to have – it is generally said that emergency arbitrators are intended to provide an additional, rather than alternative, avenue of relief.
The impact of this decision is of course not limited to arbitrations under the LCIA Rules. The reasoning, if followed in subsequent cases, will apply in a similar way to arbitrations under other institutional rules (or arbitration agreements) which provide avenues for urgent relief. Indeed, the court has previously made some obiter comments in relation to urgent relief under the current ICC Arbitration Rules and the effect on s 44 of the Act: see Seele Middle East FZE v Drake & Scull International SA Co  EWHC 4350 (TCC).
In light of the court's approach, parties arbitrating in London may wish to consider whether they ought to "opt out" of the emergency arbitrator provisions in the LCIA Rules (which is permissible under paragraph 9.14), so preserving as far as possible the jurisdiction of the English courts pursuant to s 44 of the Act (but at the expense of the option of an emergency arbitrator).
Another option for parties to consider is including in their arbitration agreement a statement that they agree that certain matters amount to "a case of urgency" within the meaning of s 44(3) of the Act. Although such a clause could not override the limitation in s 44(5) of the Act or turn a genuinely non-urgent matter into an urgent one, it may go some way to persuading the court of the urgency of the situation.
For further information, please contact Chris Parker, Partner or Aaron McDonald, Associate.