AWARD ENFORCEMENT ORDERS FROM THE ENGLISH COURTS: DISPUTED FACTUAL ISSUES

Earlier this year, the English High Court handed down a judgment (A v B [2020] EWHC 952 (Comm)) delivering a stern warning to claimants who were considering the enforcement of an arbitration award which did not establish a clear “right to payment” (see our previous blog post in connection with that decision.) In brief, the claimant’s leave to enforce a tribunal award was set aside on grounds that there was a triable issue of fact in respect to whether the acceleration provisions of the consent award had been triggered for the amount claimed. As a result, the court gave directions for a fresh hearing to hear disputed factual issues and to determine whether or not permission to enforce the award should be given.

The High Court has now determined, following a hearing of these disputed factual issues, that the Claimant was entitled to enforce the consent award. The decision clarifies the scope of the courts’ powers under s66 Arbitration Act 1996 (the “Act”), which provides a summary enforcement procedure for arbitral awards, allowing award creditors to enforce awards swiftly.

Background

A dispute between the parties in relation to a 2015 settlement agreement was referred to arbitration. Those arbitral proceedings were then settled by consent through a further settlement agreement in 2018, in which the parties agreed that the arbitrator would make an award that reflected the settlement.

The ensuing award, made on 4 December 2018 (the “Award”), provided for the Defendant to pay US$34.6 million, plus interest of US$10.2 million, provided that no interest was payable if the principal sum was paid in accordance with the payment schedule set out in the Award. However, the final instalment due from the Defendant under the payment schedule was paid over two weeks late, in the second half of October 2019.

Crucially, the late payment followed a meeting between the Claimant and the Defendant on 4 October 2019 where the Defendant alleged that the Claimant (1) orally agreed to not enforce its rights under the Award pending an agreement on alternate security and (2) was, in part, the reason for the late payment, due to late notification of the recipient’s bank account details and the resultant banking issues that obstructed immediate payment.

On 17 October 2019, the October 2019 instalment, less USD 10,000, was paid. However, unfortunately for the Defendant, the Claimant had in the meantime issued a claim (on 14 October 2019) seeking leave from the court to enforce the Award, which was granted on 17 October 2019 “under sections 101(2) and 66(1) of the Arbitration Act 1996 to enforce the operative part of the Award” (the “October Order”).

The Defendant subsequently applied to the court on 7 November 2019 to set aside the October Order (the “Set Aside Application”) on the basis that the Defendant had agreed not to enforce its rights under the Award pending the agreement on alternative security.

The Set Aside Application was disputed by the Claimant, who maintained in correspondence to the Defendant (sent on 8 October 2019) that the Defendant was in breach of the Award as a result of failing to pay the instalment on 1 October 2019. Further, the full sum was now due and payable.

In April 2020, the High Court granted the Defendant’s application, and ordered a hearing of the factual dispute between the parties.

There were two issues for the Court to decide in relation to enforcement of the Award under s66 of the Act:

1. Whether, as a matter of law, the Court had jurisdiction to decide matters of fact relating to enforcement of the consent Award (“Issue 1”); and
2. Whether, as a matter of fact, the acceleration provisions in the consent Award had been triggered (“Issue 2”).

Decision

The Court analysed the legal basis for the court's jurisdiction under s66 (Issue 1), noting that upon the issuance of a final award, an arbitral tribunal becomes functus officio in most circumstances under English law. Once a tribunal renders a decision in respect of the issues submitted, the tribunal no longer has jurisdiction, preventing a re-examination of the decision rendered by the same tribunal. As a result, issues regarding the enforcement of the award are the preserve of the national courts, as opposed to the arbitral tribunal.

The Court also noted that the national courts have proven to be well equipped to deal with questions of fact when dealing with the enforcement of an award. However, such questions of fact were typically confined to questions regarding the jurisdiction of the tribunal (as was the case in Sovarex S.A v Romero Alvarez S.A [2011] EWHC 1661 (Comm)), or whether proceedings have been conducted unfairly (as in Honeywell International Middle East Ltd v Meydan Group LLC [2014] EWHC 1344 (TCC)).

The Court stated that an “English arbitration award creates a new cause of action – the implied promise to honour the award”. From this standpoint, the Court has jurisdiction to hear defences to an action on an award and there is no reason why a court would not be able to determine such questions in the context of a disputed s66 application, provided that doing so was an appropriate exercise of the court’s discretion in the context of the relevant case.

It was noted that there may be cases where the tribunal retains jurisdiction in relation to certain issues arising as to implementation of an Award, such as “when the award grants specific performance in favour of the claimant conditional upon the reciprocal performance of the claimant's obligations, and when the tribunal expressly retains jurisdiction over any issues arising from the carrying of its order into effect, which might include whether the claimant has performed its part of the bargain” . If the tribunal retained such jurisdiction the Court stated there would be a “very compelling case for the court to refuse an order under s.66 on discretionary grounds, as it is entitled to do”.

Given the circumstances of the case in question (the tribunal being functus officio), the Court found it was appropriate to examine the facts surrounding the acceleration of the debt pursuant to clause 3.3 of the consent Award (i.e. that payment was “due and owing in full and payable immediately”) in the context of the leave to enforce the Set Aside Application.

In respect of the factual issue on the acceleration provisions (Issue 2), the High Court found that the Defendant was unable to deny that the payment made in October 2019 had not been made on the date it was due, and was less than the agreed instalment amount. Accordingly, the acceleration provisions had been triggered and judgment was entered for the full sum.

Comment

The case is a welcome clarification of the English courts’ power to examine the facts in relation to an award and whether or not an award can be considered enforceable. This decision exemplifies  the courts’ robust approach to applications under s66, which will not be granted where the underlying award does not establish a right to payment.

However, the decision is potentially something of a double-edged sword. While it is an important confirmation of the courts’ role in ensuring arbitral awards are only enforced as originally intended, there is nonetheless some risk that it may lead to more parties attempting to challenge the enforcement of arbitration awards by raising questions of fact.

In practical terms, the case is a reminder of the importance of careful consideration of future enforceability and the need to make submissions in respect of any provisions required to ensure the award is enforceable. Where the wording of a consent award is agreed between the parties (as in this case) attention to enforceability is key.

For more information, please contact Stuart Paterson, Partner, Benjamin Hopps, Of Counsel, Rebecca Warder, Professional Support Lawyer, Elikem Dzikunu, Associate, or your usual Herbert Smith Freehills contact.