ENGLISH COURT OF APPEAL ORDERS NON-PARTY TO GIVE EVIDENCE IN SUPPORT OF NEW YORK-SEATED ARBITRATION

In a recent judgment, the English Court of Appeal determined that English courts do indeed have jurisdiction under s44(2)(a) of the English Arbitration Act (“the Act”) to issue an order compelling a non-party to an arbitration agreement to give evidence in support of arbitration proceedings seated both inside and outside England and Wales. In A and B v C, D and E [2020] EWCA Civ 409 (“the Court of Appeal Decision”), the Court of Appeal deviated from a line of first instance decisions which had held that the English courts did not have the power to make orders against non-parties under s44. Having considered the facts of the case, the Court of Appeal held that it would exercise its discretion and grant the order. Accordingly, the Court of Appeal overturned the High Court decision (“the First Instance Decision”), which we had previously written about here.

Background

C and another party applied to the Commercial Court to compel the third defendant, E (a non-party to the New York seated arbitration), to give evidence in England on certain bonus payments. It remained an issue in the underlying arbitration whether these were deductible from the amounts claimed by C and another party in the underlying arbitration. E was involved in the negotiations regarding these bonus payments. The arbitral tribunal in New York delayed the closing of the evidentiary phase of the arbitration to enable this appeal to be heard and judgment to be given.

The First Instance Decision

In the First Instance Decision, the court acknowledged that the wording of s44 of the Act might suggest that s44(2)(a) could apply to give the court the power to issue an order compelling a non-party to give evidence in support of a foreign seated arbitration. However, given the decisions in earlier cases on s44, this was not a simple question.

The Commercial Court referred extensively to the decisions in Cruz City Mauritius Holdings v Unitech Limited [2014] EWHC 3704 (Comm) (“Cruz City”) and DTEK Trading SA v Morozov [2017] EWHC 1704 (Comm) (“DTEK”). In light of these authorities, the Court determined that s44(2)(a) was confined to parties to the arbitration agreement. This was due to the following reasons:

• s44 was stated to be subject to contrary agreement between the parties;
• a number of other subsections pointed towards an intra-parties interpretation of s44 as a whole (such as subsections (4), (5), (6), and (7));
• if Parliament had intended to permit the court to make third party orders in support of arbitrations around the world, it would have expressly said so in the Act; and
• a difference in treatment between different subsections of s44 was unattractive without a difference in language.

Permission was given to appeal the decision to the Court of Appeal.

The Court of Appeal Decision

Overruling the First Instance Decision, the Court of Appeal unanimously found that English courts do have jurisdiction under s44(2)(a) to compel a non-party to give evidence in support of an arbitration. Lord Justice Males, who had decided Cruz City, issued a concurring opinion to explain his decision.

This decision was based on the following considerations:

1. S44(1) must be read alongside s2(3) and s82(2):

The Court of Appeal considered that s44(1) of the Act must be read alongside s2(3) and s82(2) of the Act. When read with these provisions, it was clear that the English courts have the same powers in relation to foreign-seated arbitrations as they would in relation to civil proceedings before the High Court or a County Court.

2. The meaning of “witnesses”:

The Court held that the phrase “the taking of evidence of witnesses” in s44(2)(a) was broad enough linguistically to include all witnesses, and not just those who were parties to the arbitration. As the Act distinguished between witnesses and the parties in other sections when necessary, if Parliament had intended any different definition of witnesses in s44(2)(a), confining the term to parties only, it would have made this clear. The Court observed that it would be rare for a witness to also themselves be a party to the arbitration.

3. Powers of the court in relation to English court proceedings:

The key question was what powers the court had in relation to non-parties in English court proceedings. It was clear that the English courts had the power to compel non-parties to give evidence by deposition under the Civil Procedure Rules (“CPR”) 34.8. While the Court acknowledged that this would create the “somewhat anomalous” situation that an English court can give an order requiring a deposition in support of a foreign arbitration, when this would not be possible in support of foreign court proceedings, the Court decided that this did not justify interpreting s44(2)(a) as applying only to parties to the arbitration.

4. The relevance of other s44 subsections:

The various other subsections of s44 did not point against interpreting s44(2)(a) as applying to non-parties. The opening words of s44(1) and s44(4) were better understood as “gateways”, which needed to be satisfied before the court could exercise its discretion. Once the threshold was met, the court had the same powers regarding the taking of evidence of witnesses as it would in English court proceedings. The Court further observed that while the Respondents noted that third parties would not be able to appeal (given the limitation in s44(7)), this issue was “more apparent than real”. In practice, a first instance judge is likely to grant permission to appeal, and in any event this issue was not enough to justify interpreting s44(2)(a) so that it did not apply to non-parties.

5. Practical use of the power to order a deposition was irrelevant:

The Court of Appeal rejected the Respondents’ argument that the power to order a deposition in civil litigation proceedings was rarely used in practice and only in limited circumstances. There was no reason to justify interpreting CPR 34.8 narrowly such that it only applied when a witness was unable to attend trial. There was in fact no reason why the court should not have the power to order the deposition of a witness in support of a domestic arbitration, for example in circumstances in which a reluctant witness was unwell or about to travel abroad, but the arbitrators were unavailable to hear the evidence at that time.

6. The Respondents’ interpretation of s44(2)(a) would give the sub-section “little or no content”:

The Court rejected the Respondents’ narrow interpretation of s44(2)(a) on the grounds that it would mean the sub-section had “no or little content”. It was clear from previous authority that the section could not apply to inwards letters of request from arbitral tribunals. While it could apply to outward letters of request to a foreign court in support of an arbitration seated within England and Wales, it was hard to see how this would ever be useful in respect of a foreign-seated arbitration.

7. It was not relevant that different subsections of s44(2) might fall to be treated differently:

Any apparent inconsistency could be explained on the basis of different language in each subsection. The Court of Appeal was content to leave the decisions in Cruz City and DTEK on their respective subsections to stand until any future appeal on either subsection.

8. The reasoning of the decision in Commerce and Industry Insurance was compelling:

Finally, the Court of Appeal was persuaded by the earlier case of Commerce and Industry Insurance v Certain Underwriters at Lloyd’s [2002] 1 WLR 1323. This first instance decision directly dealt with the issue and held that an English court could issue an order in support of a foreign-seated arbitration to compel a witness who was a non-party to give evidence (although in this earlier case, the court had decided not to exercise its discretion to make the relevant order). The Court of Appeal cited the section of this judgment that considered it relevant that the arbitrators in New York had the power under s7 of the United States Federal Arbitration Act to subpoena witnesses to give deposition evidence in the form of oral testimony.

The Court of Appeal reiterated that in order to justify the court granting an order of this kind, the applicant must satisfy the relevant test. This requires the applicant to provide an explanation of the nature of the proceedings, identify the issues on which the witness was to give evidence, give reasons why the witness would be able to give evidence on these issues, and justify why the evidence is necessary for the just determination of the dispute.

In relation to the foreign-seated arbitral tribunal, the Court of Appeal noted that unless the parties are agreed, the party seeking the witness evidence will need the permission of the tribunal under s44(4) in order to make an application. In addition, the court always has a discretion under s44 whether to make the  order sought. In the case of a foreign arbitration, the court also has a specific discretion under s2(3) not to make an order if the court considers it inappropriate. In the circumstances of the case, the Court found that it was appropriate to make the order.

Comment

The decision of the Court of Appeal has provided some much-needed clarity on whether English courts have the power to issue orders under s44(2)(a) compelling a non-party witness to give evidence in support of arbitrations. This case has also provided useful guidance about the circumstances in which the courts will exercise their discretion and grant this type of order.

Whilst the decision has not overruled the earlier authorities of Cruz Shipping and DTEK, it is likely that some arbitration users will in future seek other types of orders against third parties in support of arbitrations under s44 of the Act.

For more information, please contact Nicholas Peacock, Partner, Rebecca Warder, Professional Support Lawyer, Aseel Barghuthi, Associate, Christine Sim, Associate, or your usual Herbert Smith Freehills contact.