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1. Summary
In Company 1 v. Company 2 and another[1], the English court confirmed its jurisdiction to make orders, including granting interim injunctions, in support of foreign seated arbitrations. While the natural court for granting interim injunctive relief in support of arbitration is the court of the country of the seat of the arbitration, the English court will grant interim relief in support of foreign seated arbitrations where it is appropriate to do. However, the court declined to exercise these powers in this case in circumstances where the parties were already involved in litigation in courts before the British Virgin Islands (“BVI“) arising out of substantially the same issues as the dispute that was before a Swiss arbitration and where the link to the English jurisdiction was tenuous.
2. Legislative background
Under section 44 of the Arbitration Act 1996 (“AA 1996“), the English court has various powers that it can use to support arbitral proceedings (the “Section 44 Powers“). Those powers include making orders to preserve evidence (s. 44(2)(b) AA 1996) or granting injunctive relief in support of an arbitration (s. 44(2)(e) AA 1996). However, the court can only exercise its Section 44 Powers without the permission of the underlying arbitral tribunal or the consent of the parties if: (a) the case is urgent; and (b) the order is necessary to preserve evidence or assets (s. 44(3) – (4) AA 1996).
Section 2(3) AA 1996 extends the court’s Section 44 Powers to foreign arbitrations, but the court has a discretion to refuse to exercise these powers in relation to a foreign arbitration if it is of the opinion that the fact the arbitration is a foreign arbitration makes it inappropriate to do so. In considering the appropriateness of exercising its Section 44 Powers in relation to a foreign arbitration, the court is to have regard to all the circumstances of the case and in particular if there are any links between the dispute and England.
3. Factual background
A dispute arose in connection with a joint venture agreement (“JVA“) between Company 1 (incorporated in the BVI) and Company 2 (incorporated in Cyprus) and Mr A (a US citizen who resides in England and the owner of Company 2). The JVA operated so that commissions earned in relation to the marketing and sale of aircraft would be received and distributed by a joint venture company (the “JVC“), which was incorporated in the BVI and of which both Company 1 and Company 2 were equal shareholders. In essence, it was agreed that the JVC would be used to exploit any business opportunities that came to the knowledge of Company 1 and Company 2. The JVA was governed by English law, but provided for disputes to be referred to arbitration in Switzerland.
Various disputes arose, namely Company 2 claimed that Company 1 failed to sufficiently fund the JVC and that as a result of a priority fee structure in the JVA, Company 2 was owed around $10 million. Conversely, Company 1 alleged that Company 2 and Mr A had set up other companies in direct competition with the JVC in breach of the JVA and brought Swiss arbitration proceedings in respect of this on 9 June 2017 (the “Swiss Arbitration“). Company 2 then launched ex parte proceedings in the BVI (the “BVI Proceedings“) over concerns of underrepresentation on JVC’s board (Company 2 feared it would not be able to prevent funds being taken from the JVC at the behest of Company 1). Following this, on 26 June 2017, Company 2 alleged that as a result of Company 1’s actions, Company 1 had repudiated the JVA.
Company 1 denied the repudiation and in July 2017 it applied to the English court for an interim freezing order over various commissions that were claimed to be due to the JVC, and ancillary orders requiring disclosure of sales transactions said to have been diverted from the joint venture. This application was resolved by a consent order in which Company 2 and Mr A paid the amount of the commissions into escrow and Mr A swore an affidavit identifying two further transactions which would, if the JVA was still in place, be covered by it. Company 2 and Mr A contended that the commissions gained from these two aircraft sales fell outside the JVA as the JVA had been terminated (the “Disputed Commissions“). It was the discovery of these aircraft sales that prompted an application by Company 1 for the court to exercise its Section 44 Powers to order: (i) the payment of the Disputed Commissions into escrow, or alternatively a freezing order; and (ii) disclosure of agreements relating to the sales and relevant bank statements (the “Application“).
4. The Proceedings
On 20 September 2017, HHJ Saffman, sitting as a judge of the High Court, dismissed the Application for the court to exercise its Section 44 Powers in respect of the Swiss Arbitration on the basis that it would be inappropriate.
In considering the Application, the judge first considered whether the case was in fact one of urgency in order to allow the court to exercise its Section 44 Powers solely for the purpose of preserving evidence or assets without the consent of the tribunal or the parties (s. 44(3)-(4) AA 1996).
Counsel for Company 2 argued that the court did not have jurisdiction as the delay in bringing the Application showed the case was not urgent. Counsel for Company 1 argued that the Application was urgent as no arbitrator had been appointed for the Swiss Arbitration so there was no basis on which the relief sought could be obtained. The ‘urgency’ covered the hiatus that exists before the appointment of the arbitrator.[2] The judge agreed, noting that as no arbitrator had been appointed there was currently no mechanism for the relief sought from the Swiss Arbitration.
The judge found that although on the facts there were various delays with the Application, this did not “strike [him] as a basis for taking the view that the application does not meet the test of urgency”.[3] Further, he clarified that the way s. 44(3) AA 1996 operates is to put a limit on the courts ability to exercise its Section 44 Powers in cases of urgency. Essentially, if the case is urgent, then unless the order would actually be necessary to preserve evidence or assets, the court will not have jurisdiction. Further, in his view as the Application was seen by Company 1 as necessary to preserve the assets, it was “undeniable” that if the order was made then those assets would be preserved.
However, although the judge satisfied himself that the case was urgent and therefore the court had jurisdiction to hear the Application, he dismissed it on the following points:
- Company 1’s application for the production of the sales management agreements or bank statements was not really being made to preserve evidence or assets, and was in fact “akin to an application of disclosure”.[4]Further, there was no evidence to suggest that Company 2 or Mr A was likely to destroy evidence.
- In the circumstances of the case, it would be inappropriate for the court to act in support of the foreign arbitration. On the facts, the link to England was tenuous amounting to solely the governing law of the JVA and the residence of Mr A. Furthermore, Company 1’s solicitors had seemed to suggest in earlier inter partes correspondence that England would not be an appropriate forum for litigation.[5] The judge was also mindful of the principle expressed in Econet[6] that the natural court for granting interim injunctive relief is the court of the country of the seat of arbitration. He was also of the view that Company 1 could and should have made the Application in the BVI The judge reasoned that it would simply not be appropriate to have “litigation on the same subject matter conducted simultaneously in England”[7] where there were parallel proceedings being pursued in the BVI as well as the underlying arbitration.
In addition to the above, the judge also went on to consider the merits of the Application in the event that his conclusions as to appropriateness were wrong. He found that in reality what Company 1 was seeking to do was “advance security for its claim”[8], and further stated that even if there was a strong link with England, Company 1 had not established that there was any real risk of dissipation. Further, on the question of disclosure, even if it was deemed appropriate to exercise the court’s Section 44 Powers, the judge would have rejected the Application to produce the bank statements, particularly as they are third party documents and would therefore be subject to third party disclosure proceedings.[9]
5. Comment
This case shows the limits upon which the English courts will use its Section 44 Powers to assist a foreign arbitration. Though the English court is willing to exercise its powers in support of arbitration, including foreign seated arbitrations, it will not do so if it would usurp the jurisdiction of the arbitral tribunal or the supervisory courts. Furthermore, the English court will not grant relief in respect of a foreign arbitration where it is inappropriate to do so. If there is very little connection to the English jurisdiction and/or if there is already a court seized that could more appropriately grant the relief being sought then it is likely that the English court will deem it inappropriate for it to exercise its Section 44 Powers in aid of a foreign arbitration.
While considerable weight was placed on the principle expressed in Econet[10]that the natural court for granting interim injunctive relief is the court of the country of the seat of arbitration, that is not always the case. In U&M Mining Zambia Ltd v Konkola Copper Mines Plc[11], the English Commercial Court considered whether, pending the formation of an arbitral tribunal whose seat is London, English courts have exclusive jurisdiction to grant interim relief to the exclusion of national courts in other jurisdictions. The question arose in the context of an application before the English court for an anti-suit injunction by U&M Mining Zambia Ltd (“U&M“) against Konkola Copper Mines Plc (“Konkola“). The anti-suit injunction sought to prevent Konkola from seeking interim relief from the courts of Zambia, where the dispute arose and where both parties were based. The English court found that the jurisdiction to grant interim relief in support of an arbitration with its seat in England was not exclusive to the English courts and it refused to continue the anti-suit injunction at the inter partes hearing. In that case, despite the principle expressed in Econet, the English court found that the natural forum for seeking the interim relief that Konkola had obtained from the Zambian courts was the Zambian courts and not the English courts.
[1] Company 1 v. Company 2 and another [2017] EWHC
[2] Ibid. at [59]
[3] Ibid. at [68]
[4] Ibid. at [77]
[5] Ibid. at [83]
[6] Econet Wireless Ltd v Vee Networks Ltd [2006] EWHC 1568 at paragraph 19
[7] Supra fn 1 at [91]
[8] Ibid. at [126]
[9] Ibid. at [152]
[10] Supra fn 6
[11] [2013] EWHC 260 (Comm)
