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Award enforceable against money paid into court (Court of Appeal)
Practical Law UK Legal Update Case Report 8-505-7940 (Approx. 5 pages)
Award enforceable against money paid into court (Court of Appeal)
by PLC Arbitration
| Published on 20 Apr 2011 • England, Wales |
The Court of Appeal has decided that money paid into court as a condition of the grant of a freezing injunction should not be paid out of court, although the injunction had been set aside. Instead, the money should remain available for the enforcement of an arbitration award. (Free access).
Speedread
In CMA-CGM Marseille v Petro Broker International [2011] EWCA Civ 461, the court granted a freezing injunction restraining an award creditor from drawing down on guarantees securing the award. The injunction was granted on condition that the award debtor paid the amount of the award into court. The Court of Appeal held that the fact that the freezing injunction was subsequently set aside was not enough, of itself, to entitle the award debtor to the return of its money. Instead, the money would stay in court so that the award could be enforced against it.
The case is a striking reminder that money paid into court as a condition of the exercise of the court's discretion remains under the control of the court, even where the applicant no longer seeks the exercise of that discretion. The treatment of the money in court is governed by CPR 3.1(6A), which contemplates that money paid into court should be held as security for "any sum" payable in the proceedings. There is no automatic right to the return of the money.
Background
Section 44 of the Arbitration Act 1996 empowers the court to grant freezing injunctions in support of arbitration. It provides:
"(1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings.
(2) Those matters are - …
(e) the granting of an interim injunction ...
(3) If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets ...
(5) In any case the court shall act only if or to the extent that the arbitral tribunal...has no power or is unable for the time being to act effectively".
For further discussion of the court's power under section 44, see Practice note, Court's supportive powers: interim injunctions and receivers.
CPR 3.1(6A) provides:
"Where a party pays money into court following an order under paragraph (3) or (5), the money shall be security for any sum payable by that party to any other party in the proceedings."
CPR 3.1(3) sets out the court's general power to make an order subject to a condition to pay a sum of money into court. For discussion of payments into court, see Practice note, Payments into and out of court.
Facts
The underlying dispute arose under a contract for the supply of bunker fuel. The contract was on Baltic and International Maritime Council (BIMCO) terms, clause 8(b) of which provides:
"Payment shall be made in full, without set-off, counterclaim, deduction and/or discount, free of bank charges."
The claimant, P, commenced arbitration in London, claiming the price of bunkers supplied to the respondent, C, and contractual interest. C advanced counterclaims for damages arising from the supply of allegedly off-specification bunkers.
The tribunal granted P's application for an interim final award in respect of its claims. In its reasons, the tribunal noted that the existence of P's counterclaims was not a reason to refuse an interim award, given the terms of clause 8(b) of the contract. It further noted that, while it would theoretically be possible to grant an interim award on condition that P provided security for C's counterclaims, to do so would be to use a procedural device to undermine P's substantive rights.
C's attempts to challenge the award in the English court were dismissed. P took steps to enforce the award and obtained security (by arresting bunkers in the Netherlands) in the form of a bank guarantee and Protection and Indemnity Club guarantee. On 24 November 2010, P obtained an order granting recognition and leave for enforcement of the award from the Dutch court, and thereby became entitled to draw down on the guarantees.
On 30 November 2010, C applied to the English court for a freezing injunction restraining P from drawing down on the guarantees. C argued that there were grounds for believing that P had ceased trading and that there was a risk of assets being dissipated. In the event, Gloster J granted an interim order restraining P from drawing down on the guarantees, save to the extent that any sums drawn down were paid directly into court or escrow. The order was conditional on C's undertaking to pay into court the amount of the award. The injunction also restrained P from "dealing with" the awards and P took the view that this provision prevented it from applying to court to enforce the award.
Before the return date, P was sold as a going concern. C accepted that there were no longer grounds for continuing the freezing injunction, and indicated that it instead wished to withdraw the injunction and apply for the return for the money paid into court. P issued an application to enforce the award.
Hamblen J acceded to C's request. In his view, C's payment into court had been the quid pro quo for the inability of P to draw down on the guarantees. As the injunction was to be discharged, and P could now draw down on the guarantees, there was no reason to keep the money in court. It would not be fair for P to be placed in a better position than it had been before the grant of the injunction. P appealed.
Decision
The Court of Appeal allowed the appeal, and set aside Hamblen J's order requiring the money in court to be paid back to C.
Delivering the lead judgment, Collins LJ noted that it was not relevant to consider whether or not the injunction should have been granted. The remedy, if the injunction had been improperly granted, lay in the undertaking in damages.
It was clear that the rationale for the payment into court was that the freezing injunction deprived P of its right to draw down against the guarantees. The payment into court therefore ensured that P remained fully secured in respect of the award. However, the fact that this rationale no longer existed (because the injunction was, properly, set aside) was not conclusive of the issue of whether the money in court should be repaid to C.
In this connection, Hamblen J had not been referred to the provisions of CPR 3.1(6A), which provided the proper starting point for the exercise of the court's discretion. CPR 3.1(6A) indicated that the predisposition of the court:
"...ought to be that the money should be available as a secured fund against which one party to litigation can enforce against the other payment of such sums as may become due in connection with the litigation."
P would not be placed in a better position by retaining the money in court. P had already been put in a better position by C paying the money into court as a condition of the freezing injunction. There was no reason why P should not now take advantage of its debtor having brought the money into court. The court had a role to play in assisting and facilitating the enforcement of its judgments and there was no question of P obtaining any preferential treatment to the disadvantage of other creditors of C. In the circumstances, the application for repayment should be refused.
Comment
The Court of Appeal appears to have been motivated, in part, by the fact that C's conduct suggested that it intended to place every possible obstacle in the way of P enforcing the awards, despite the fact that there was no realistic defence to enforcement. Furthermore, although Collins LJ stated that the question of whether the injunction should have been granted was not relevant at this stage, he expressed some surprise that it had been granted, noting that Gloster J had not been referred expressly to the tribunal's reasons for refusing to make a conditional interim award.
The judgment of Collins LJ contains some interesting observations about the effect of clause 8(b), which entitled P to payment without set-off. Collins LJ noted that although, in theory, the tribunal might have refused to make an interim award in P's favour, had they done so they would have "failed properly to apply and to give effect to the contractual provision".
The case is a striking reminder that money paid into court as a condition of the exercise of the court's discretion remains under the control of the court, even where the applicant no longer seeks the exercise of that discretion. The treatment of the money in court is governed by CPR 3.1(6A), which contemplates that money paid into court should be held as security for "any sum" payable in the proceedings. There is no automatic right to the return of the money. Here, C paid in the money voluntarily as the "price" of securing the tactical advantage of the freezing injunction, but ultimately found itself in a worse position than it would have been in had no freezing injunction been granted.