Long arms or hands off? The English courts in arbitration proceedings

A guest post by Arish Bharucha, Sam Roberts and Rosie Wild, who are all senior associates at City firm Cooke Young & Keidan

Arish Bharucha

It is generally considered that, in order for a jurisdiction to be seen as an attractive one in which to arbitrate, it is necessary for that jurisdiction to respect the independence of the arbitral process and, in particular, for the courts to be both supportive and non-interventionist.

This is not always an easy balance to strike but it’s important because, when parties enter into arbitration agreements, they are expressly choosing to resolve any potential disputes through the private, party driven mechanism of arbitration, rather than through the courts.

If the courts are too ready to intervene in arbitrations (as they are in a number of jurisdictions) by, for example, staying arbitrations, directing how they must proceed, and/or overturning arbitral decisions, this undermines the parties’ choice to arbitrate and is liable to make others wary of that jurisdiction in the future.

At the same time, as set out below, the courts must be prepared to use their powers to support arbitrations where necessary.

England is widely recognised as an arbitration-friendly jurisdiction, in no small part due to the provisions of the Arbitration Act 1996 – which explicitly mentions, in section 1(c) the general principle of non-intervention – and the fact that its courts respect and support the independence of the arbitral process.

Nowhere is this more apparent than in the English courts’ reluctance to overturn decisions of arbitral tribunals (under sections 67, 68 and/or 69 of the Arbitration Act 1996), save in cases where procedurally or legally, something truly egregious has occurred.

Interesting issues can, however, arise when the court is seeking to support the arbitral process. Such support will sometimes be necessary because the arbitral tribunal, deriving its jurisdiction as it does from the agreement of the specific parties to arbitrate, lacks ‘bite’ in wider society and needs assistance from the courts to enable the arbitral process to be effective.

Accordingly, section 44 of the Arbitration Act 1996 grants the court the same power to make orders in support of arbitral proceedings as it has in legal/court proceedings in relation to matters such as taking or preserving evidence and granting an injunction.

The difficulty in practice is that, in seeking to exercise these powers, the courts might be considered to be ‘interfering’ in the arbitral process and/or to be expanding the reach of the arbitration unjustifiably against non-parties, i.e. those who have not agreed to arbitrate.

In this article, we briefly consider a couple of interesting cases where the courts have had to grapple with these difficulties and strike the right balance between supporting arbitrations whilst also recognising their independence and jurisdictional limitations.

The ’hands on’ approach: A and B v C, D and E [2020] EWCA Civ 409

Sam Roberts

In this recent decision, the Court of Appeal came down firmly on the side of granting the relief sought to support an on-going New York arbitration.

A and B were engaged in a dispute with C and D over the sale of a stake in an oil field in Central Asia, and E was a witness from whom A and B wished to obtain evidence but who had declined to give evidence before the tribunal. E was not a party to the arbitration.

As explained above, on its face, section 44 gives the court the same powers to make orders in support of arbitrations as it has in English litigation. This power is linked to five different areas, one of which is taking witness evidence, under section 44(2)(a). The applicants therefore sought an order requiring that E give evidence by way of deposition under rule 34.8 of the Civil Procedure Rules – a remedy which, if rarely used, is available to parties in certain circumstances in English litigation.

However, previous Commercial Court authorities were something of a mixed bag as to whether section 44 could be used to obtain orders against non-parties. At first instance, Mr Justice Foxton sided with those decisions which viewed the contractual privity of the arbitral process as something sacrosanct, and dismissed the application.

When the matter came before the Court of Appeal just over a month later, however, Lords Justices Flaux, Newey and Males unanimously came to the opposite conclusion. Their interpretation was a plain English reading of section 44: if the power was available in litigation before the English courts, and it was, then it was available in arbitration, too.

As section 44 is one of a handful of provisions which applies to arbitrations seated anywhere in the world, it could be used in aid of an overseas arbitration, as well. It did not matter that other routes might have been available, such as an inbound letter of request from the supervising court in New York under the Hague Evidence Convention – given effect in England by the Evidence (Proceedings in Other Jurisdictions) Act 1975 – or an application under section 43, which allows parties to witness summons a non-party witness in certain circumstances).

The court was also clear that the focus of previous authorities on the so-called ‘consensual’ nature of arbitration was misplaced. It therefore allowed the appeal and ordered the deposition to take place.

Since at least some of the court’s reasoning is equally applicable to the other four areas in which section 44 empowers the English court to grant relief, it may well be that the ability to obtain orders against non-parties is not confined to taking evidence from witnesses.

Can the hands-off approach still be justified in certain situations? A reflection on Cruz City post A v C

Rosie Wild

As mentioned, the power granted to the courts by the Arbitration Act 1996 covers a number of different matters, as set out in section 44(2). One of these areas, and perhaps the most invasive, is the power to grant an interim injunction under 44(2)(e), one example of which would be a freezing injunction.

The decision of the Commercial Court in Cruz City 1 Mauritius Holdings v Unitech Limited and others [2014] EWHC 3704 (Comm) is well known, and at that time, suggested that the English court would adopt a cautious approach in relation to supporting parties to an arbitration. It is interesting to consider whether, if this type of case came before the Commercial Court again now, especially in light of A v C, it would be decided the same way.

In Cruz City, the question for the court was whether it had jurisdiction to make a Chabra freezing order (i.e. grant a freezing injunction against a third party) against subsidiaries of the award debtor against whom no substantive claim was asserted, and who had no presence, or assets, within the jurisdiction.

Cruz City had obtained permission to serve proceedings seeking freezing order relief outside of the jurisdiction on the subsidiary companies. The subsidiary companies applied to set that order aside and that is the issue that was before Mr Justice Males.

Males J found in favour of the subsidiary companies and, in doing so, restricted the scope of the Chabra jurisdiction when it comes to international arbitration claims. His reasoning, in essence, was that CPR 62.5(1)(c) (one of the jurisdictional gateways set out in the CPR under which a claimant can seek to serve proceedings outside the jurisdiction) was limited to a remedy sought against a party to the arbitration or arbitration agreement in question.

The result of this was that Cruz City was not able to obtain a Chabra freezing order against Unitech’s subsidiaries’ assets. Hence, this case is frequently cited as authority for the position that one cannot obtain a freezing order against a third party in arbitration proceedings, and certainly not where the third party is outside the jurisdiction.

Given this, it is not surprising that Cruz City was one of the cases cited to the court in A v C. However, the Court of Appeal in A v C declined to consider whether Cruz City was correct or not and instead limited its consideration and decision to the proper scope of section 44(2)(a) only (i.e. whether the courts could order the taking of evidence from a witness who was not party to the arbitration).

Despite the decisions being made on different aspects of the courts’ supportive powers, A v C does seem to show a shift in the court’s mindset to exercise its powers to be more supportive of arbitration proceedings.

Going forwards, it will be interesting to see how the courts consider applications for injunctions against third parties in light of the decisions in Cruz City and A v C and whether, after A v C, a case such as Cruz City might be decided differently.

In our view, although the court in A v C did not overturn Cruz City, the authority of the earlier judgment has now been weakened.

Despite this analysis, it is worth bearing in mind that the court will always have a discretion under section 2(3) to refuse an application where the fact of the seat being outside England and Wales would make the relief inappropriate to grant.

It will be crucial for practitioners in future to tailor their applications appropriately and ensure that what is being sought is ‘light touch’ and reasonable to reduce judges’ concerns that their arms might be getting too long.

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