Using the English courts in support of international arbitration

The UK is generally seen as a pro-arbitration jurisdiction. Arbitration is a creature of contract. In order to refer a dispute to arbitration, parties are required to agree an arbitration clause in writing. The English courts have therefore adopted the approach of ensuring the sanctity of contract and requiring the parties to uphold their end of the bargain if they have agreed to refer their disputes to arbitration. 

But what happens when a party requires the assistance of the English courts in aid of arbitration.  Below we discuss five key examples of the support the UK courts can provide to international arbitration at different stages in the process. 

Anti-suit injunctions – Stopping a party commencing court proceedings in breach of an arbitration agreement

Commencing proceedings in the English courts

When parties enter into an arbitration agreement, they agree that their disputes should be referred to arbitration rather than to the courts.  Accordingly, if a party commences proceedings before the English courts in breach of an arbitration agreement, the courts have power to stay or dismiss the proceedings.  There have been a significant number of cases where parties have commenced such proceedings in breach of an arbitration agreement and the courts have generally adopted to enforce arbitration agreements strictly.  This has even been in the case where there is evidence that the agreement containing the arbitration agreements may have been subject to bribery.  

Commencing proceedings in a court outside of the EU 

If proceedings are commenced before a local court of a foreign jurisdiction outside of the EU, the UK courts also have the power to issue anti-suit injunctions restraining parties from commencing proceedings before another court.  The injunction does not have an automatic effect on the proceedings which have already been commenced in a court of another jurisdiction.  However, it does compel the respondent party from taking any steps in those proceedings or requires them to bring those proceedings to an end.  Breaching such an injunction has grave consequences.  Any party breaching an anti-suit injunction risks being deemed in contempt of court which could lead to, among others, sequestration of assets, fines and even custodial sentences.

Commencing proceedings in another EU Member State

The situation is more complicated if court proceedings are commenced in a court of an EU Member State in breach of arbitration agreement.  Under EU Law, English courts cannot grant an anti-suit injunction to restrain proceedings in breach of an arbitration agreement brought in another EU Member State (referred to as the West Tankers principle).   Nori Holdings  provided a novel case where a party commenced proceedings in both the Russian Federation and Cyprus in breach of an arbitration agreement.  The English courts determined that it had jurisdiction to issue an anti-suit injunction restraining the party from continuing the Russian proceedings (the Russian Federation not being an EU Member State).  However, the English court did not have power to issue an anti-suit injunction in respect of the Cypriot proceedings.  The position may change after Brexit although the position remains unclear and will depend on what arrangements the UK has in place with the EU once the transitional period comes to an end.

Appointment of the tribunal 

A major advantage of arbitration in comparison to litigation is the parties’ ability to select the tribunal who will determine the case.  Parties can agree which independent experts will review and determine the key issues in dispute with the benefit of their existing appreciation of both the legal and commercial considerations at play, often gained over a long career in the relevant field.

The English Arbitration Act 1996 dictates that the parties are free to agree the procedure for the appointment of their tribunals.  If the parties have failed to agree the procedure, then s16 English Arbitration Act 1996 provides a procedure for how parties should appoint their tribunals in arbitrations seated in England and Wales or Northern Ireland.  For example, if a party fails to engage with the appointment process, the non-defaulting party may proceed to make an appointment in absence of the defaulting party’s agreement.

If there is still a failure in the appointment of the tribunal following this, a party may apply to the English courts to resolve the impasse.  The English courts have an unfettered discretion as to how they will approach such cases.  For example, provided they are satisfied they have jurisdiction, they may proceed to appoint the tribunal.  Alternatively, they may provide directions requiring the parties to make an appointment within a set period such as 28 days failing which the court will proceed to make the appointment.  As a result, parties understand that their ability to frustrate the process is limited, and that simply refusing to comply with their previous contractual agreement to arbitration will not be effective. 

Freezing Injunctions – Safeguarding assets and documents

At the outset of any dispute. a key consideration for any claimant should always be how they will enforce any decision against a debtor.  Accordingly, the parties should assess if there is a risk that assets will be disposed of or put out of reach of an Award creditor.  If such a risk exists, parties may need to obtain an interim injunction freeze assets.  In the UK such injunctions are readily available in appropriate circumstances, even without giving notice to the other party, and are often paired with orders for search and seizure in cases where it is not known exactly what property or documents are being sought.  Freezing injunctions can apply to most types of assets and, for example, can be used to prevent banks from transferring funds from accounts held by the other party. 

The English courts have power to grant such injunctions in support of arbitration.  It can be an effective weapon for parties who want to ensure that assets are not disposed of before they get their Award.  Following Gerald Metals  however, parties will need to consider if they are able to get such relief from their arbitral tribunal.  In Gerald Metals, the English courts decided it could not grant the urgent relief sought in support of an LCIA arbitration as the applicant could obtain the relief sought through the arbitral process, for example by appointing an emergency arbitrator under the LCIA Rules.

Compelling witness attendance and preservation of documentary evidence

Arbitral tribunal’s do not have the power to compel witnesses to attend a hearing to provide evidence.  However, the English Arbitration Act 1996 allows tribunals to permit parties to seek an order from the courts requiring witnesses based in the England and Wales to provide evidence (provided that the parties have not agreed to dispense with the court having such power).  The Court of Appeal recently concluded that their powers also extend to require a witness based in England to provide evidence in an Arbitration seated outside of England & Wales.   The courts have discretion whether to make such orders and will take into account whether it is reasonable and necessary to make such as order.
Similarly, if there is a real risk before or during arbitration proceedings that a party may dispose of assets or destroy documentary evidence, a court has the discretion to order that such assets or documents be preserved.  

Enforcement of awards

In respect of Awards issued in arbitrations seated in England, parties can seek the court’s permission to enforce them as if they were court judgments.   The English courts will only refuse to grant permission if it is established that the tribunal did not have jurisdiction to make the Award.

The UK is a signatory to the New York Convention 1958 which has been signed by over 160 states.  If an Award is made in an arbitration seated in a New York Convention State, a party can apply to the English courts for permission to enforce the Award as if it was a court judgment.  The English courts have limited grounds to decline enforcing an Award.  Examples of where a court may choose not to enforce an Award is if it can be established that, among other limited circumstances:

• the tribunal was not valid for me
• there was a material irregularity in the conduct of the proceedings
• the subject matter of the arbitration was not capable of being resolved by arbitration
• to recognise and enforce an Award would be contrary to public policy.

In practice, it is rare for an English court to decline to enforce an arbitration Award.

The UK courts are generally supportive of aiding parties in enforcing Awards.  For example, the UK courts have exercised its powers and permitted the appointment of Receivers to enforce Awards.  Receivers are empowered to gather assets, exercise the rights of shareholders, and can take control of entire companies to help realise their assets to pay a debt or award.  Taking control of a company can be an important step when they have a complex international structure of subsidiaries and other interests, making it difficult to ascertain what property of value can be sold to pay the award.  The power of the UK courts to do this was clearly set out in the case of Cruz v Unitech where the court appointed Receivers to assist in enforcing a USD 360m LCIA Award. 

Sources:

• West Tankers Inc. v Allianz SpA2 (Case C-185/07) [2009] EUECJ C-185/07
• Nori Holdings Ltd & Ors v Public Joint-Stock Company Bank Otkritie Financial Corporation [2018] EWHC 1343 (Comm)
• Gerald Metals SA v The Trustees of the Timis Trust & Ors [2016] EWHC 2327 (Ch)
• A v C [2020] EWCA Civ 409
• Cruz City 1 Mauritius Holdings v Unitech Ltd and others [2014] EWHC 3131 (Comm)