Staying enforcement of awards: the English Commercial Court offers practical guidance for both sides

In a recent decision Y and S [2015] EWHC 612, the English Commercial Court considered the circumstances in which the Court would (i) make an order suspending the enforcement of an award and (ii) make an order for the provision of security pending an application to set aside an award.

This judgment contains useful practical guidance on both the appropriate grounds on which to make such applications and the factors that the Court will bear in mind when exercising its discretion (see the comment section below).

Background

Disputes arose between S and Y which were referred to arbitration under the LCIA Rules.  The tribunal awarded S damages of approximately USD 84 million.  Y subsequently issued a claim in the English Court purporting to challenge the award under s67(1)(a) of the English Arbitration Act (the "Act") on the basis that the tribunal lacked substantive jurisdiction (the "Arbitration Claim").

In its Arbitration Claim, which was made without notice to S, Y applied for a pre-emptive stay of any enforcement of the award prior to the determination of its challenge, even though S had not yet commenced any enforcement proceedings in England.  This request was granted in an order which contained the following terms (the "Original Order"):

"No steps to be taken by [S] to enforce the Award prior to determination of [Y's] challenge to the Award in these proceedings under s 67 of the Arbitration Act 1996"

S immediately applied to discharge or vary the Original Order, on the grounds that it was made without proper legal basis, it had been improperly obtained without notice and it was liable to seriously prejudice S.  In particular, S argued that the order appeared to be an injunction restraining steps to enforce the award anywhere in the world, without Y even having given any cross-undertaking in damages to the Court.

The order was of particular concern given that S had commenced protective proceedings seeking to preserve assets for the purpose of enforcing the award in California and Cyprus.  The Court limited the scope of the Original Order to proceedings in England and Wales and required a cross-undertaking in damages (the "Varied Order").

S subsequently made two further applications which came before the Court:

1. To discharge the Varied Order (and Original Order) on the basis that both orders should not have been granted at all (the "Discharge Application"); and
2. For leave under s66 of the Act to enforce the award in the same manner as a judgment or order of the Court (the "Section 66 Application").

The Discharge Application

S argued that the Court had an inherent jurisdiction to make an order suspending enforcement of an award in England, and that this was no more than a "case management restriction" rather than an injunction, as Y had characterised it.

Although the judge was "prepared to assume" that the Court had such inherent jurisdiction, he considered that it was both unnecessary and inappropriate for such jurisdiction to have been exercised in this case.  There was no evidence that Y had any assets in England and Wales and, at the time the Arbitration Claim was brought, S was not seeking enforcement in the jurisdiction.  Indeed, if S had been seeking enforcement in accordance with s66 of the Act, the civil procedure rules would have expressly permitted the grant of an order prohibiting enforcement pending a set-aside application (see CPR 62.18(9), which would have operated automatically and mandatorily).  Therefore, the judge discharged the Varied Order.

The Section 66 Application for leave to enforce

Counsel for Y submitted that this application should be rejected on the grounds that (i) it was contrary to the mandatory and exclusive regime for the enforcement of awards under CPR 62.18, which required an application to be made via a separate arbitration claim rather than an application notice and (ii) such an order would be in breach of Article V of the New York Convention, which does not permit enforcement of awards in the courts of the seat until the final disposal of any challenge.

Ultimately, however, the Court did not need to rule on these issues, as it became evident that Y accepted that these points were not fatal to S's application.  Therefore, the question evolved into how the order granting leave to enforce would be framed rather than whether it would be granted.  Having considered the issues, the judge handed down an order in the following terms:

 "No steps be taken to enforce the Award within this jurisdiction prior to [date] or any application made by Y within that period has been finally disposed of."

This ensured that the suspension of enforcement was limited to England and Wales and reflected the fact that an application under s67 of the Act had already been made.

Lastly, the Court was tasked with deciding whether it should order Y to provide security for the amount in dispute, though the judge noted that he had had insufficient time to permit proper consideration of the arguments [see our previous blog posts which have considered this issue: X v Y [2013] 1 Lloyd’s Rep 230 and Konkola Copper Mines Plc v U&M Mining Zambia Ltd [2014] EWHC 2146 (Comm).  His tentative view was that there was nothing in CPR 62.18 which contemplated that enforcement would be made subject to an order for the provision of security, and that such an application should usually be made in the context of a discrete application under s67, 68 or 69 of the Act.  In particular, s70(7) of the Act contemplated that the Court could, in its discretion, order the provision of such security alongside adequate evidence, and there was no such provision relating to an application under s66.

In any event, the Court noted that the approach to the same question under s66 of the Act would be similar to an application under s70(7).  In this case, he was not persuaded that the set-aside application was "flimsy" or that there would be any prejudice if no security was awarded, and these factors gravitated against the exercise of his discretion to grant the security sought.  Therefore, he declined to award the provision of security.  Finally, however, the judge noted that S was not precluded from making an application under s70(7) of the Act and that this judgment would not affect the Court's consideration of such an application if and when it was ever made.

Comment

This judgment provides important practical guidance and clarification for parties who either (i) wish to resist the enforcement of arbitral awards in England & Wales pending a set-aside application or (ii) are on the receiving end of set-aside applications and wish to obtain security pending the determination of those applications.  In particular, it makes it clear that:

• Parties will not be able to obtain pre-emptive orders preventing enforcement on a worldwide basis, or even in England and Wales as a matter of course alongside set-aside applications under s67, 68 or 69 of the Act.
• Instead, the appropriate means of doing so is at the time that the successful party actually takes steps to enforce the award under s66, and even then, a party is unlikely to receive an order with worldwide effect.
• Parties who have obtained favourable arbitration awards and wish to obtain security whilst a set-aside application is pending should make an application under s70(7) of the Act rather than alongside a s66 application to obtain leave to enforce an award.  Whether security will be granted will be a matter for the Court's discretion.  The Court is likely to take into account the strength of the set-aside application and whether there will be any prejudice if no security is granted.

The above guidance highlights the importance of choosing the correct basis for applications under the Act, ensuring that such applications are brought at the appropriate time, and of the importance of not "over-reaching" when seeking orders from the English Courts to restrain enforcement of an arbitral award.

For further information, please contact Craig Tevendale, Partner, Elizabeth Kantor, Associate or your usual Herbert Smith Freehills contact.