The courts have been staunch supporters of enforcing arbitration awards but, as David Owens argues in our latest alternative dispute resolution series article, there are limits.
It has been a truth universally acknowledged in recent years that the English courts are prepared to go to almost any lengths to facilitate the enforcement of arbitration awards. It therefore comes as something of a surprise that recent developments in the case of Cruz City 1 Mauritius Holdings v Unitech Ltd [2013] EWHC 1323 (Comm) appear to place a limit on what will be allowed.
The case relates to a slum clearance and redevelopment project in Mumbai that went badly wrong. Cruz City was investing in the scheme, and Unitech are one of India's largest real estate and development companies. Under the terms of the arbitration agreement between them, Cruz City commenced a number of LCIA arbitrations against Unitech in London. It was largely successful, and in July 2012 obtained a decision that Unitech should pay it US $300m. Unitech, however, declined to pay the award, and Unitech's latest accounts report that it considers the award is unenforceable in India.
Faced with this failure to honour an arbitration agreement, Cruz City has had to be rather more imaginative in the methods of enforcement it pursued than it might otherwise have expected. It has obtained worldwide freezing and disclosure orders from the English courts against Unitech, and in October 2014 it obtained from the court an order appointing receivers over Unitech's shareholdings in four companies.
It then sought an order for a permission to serve a claim form out of the jurisdiction, with a view to obtaining freezing orders over seven of Unitech's foreign subsidiaries. This was initially granted, but on application from four of those subsidiaries has now been set aside.
Cruz City relied on two potential routes under the Civil Procedure Rules 1998 (CPR) by which to obtain permission to serve out of the jurisdiction on a non-participant to the original matter. CPR 62.5(1)(c) allows service out of the jurisdiction in relation to a claim under s 44 of the Arbitration Act 1996, which sets out the court's powers in support of arbitrations proceedings. However, the court in this case found that s 44 applied only to the participants in an arbitration, and so service out against a non-participant was not possible via this method. The other route advanced by Cruz City was under Practice Direction 6B para 3.1(3), which allows service out of the jurisdiction on a defendant to a claim, but also on:
'... another person who is a necessary or proper party to that claim.'
The court found that this was not the circumstance here; there was no substantive claim against Unitech to which the subsidiaries were 'necessary or proper parties'. This was an enforcement action seeking a freezing order against the subsidiaries. The language of the Practice Direction thus did not cover the action being requested.
The message
This is a highly technical judgment relating to the precise details of the proper interpretation of the CPR. However, the messages that can be taken from the decision are that the courts are prepared to go a long way to allow a party to enforce an arbitral award (particularly, it would seem, against a party that is simply attempting to ignore that award), but that they are not prepared to stretch the wording of the CPR beyond what was intended in order to assist that enforcement.
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