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The court's powers in aid of arbitration: a critical controversy
Practical Law UK Articles w-025-1933 (Approx. 5 pages)
The court's powers in aid of arbitration: a critical controversy
by Simon Rainey QC, Quadrant Chambers
| Published on 30 Apr 2020 • United Kingdom |
The long-standing controversy as to whether orders made by the court "for the purposes of and in relation to arbitral proceedings" under section 44 of the Arbitration Act 1996 can be made against non-parties to the arbitration has received at least a partial resolution after a recent decision from the Court of Appeal.
The long-standing controversy as to whether orders made by the court “for the purposes of and in relation to arbitral proceedings” under section 44 of the Arbitration Act 1996 (section 44) can be made against non-parties to the arbitration has received at least a partial resolution after the Court of Appeal’s recent decision in A and B v C, D and E ([2020] EWCA Civ 409).
The court held that it has the power to compel a non-party to provide evidence in relation to a foreign-seated arbitration under section 44(2)(a). However, the court did not resolve the question of whether its power to make the other orders listed in section 44(2) may also be used against non-parties.
The dispute
The case concerned a New York arbitration in relation to a dispute over net balances due under settlement agreements. One issue that arose was whether certain payments to a central Asian government were properly deducted as signature bonuses, as the respondents (C, D and E) argued, or were bribes and therefore to be left out of account, as the appellants (A and B) submitted.
The persons said to be involved in the negotiations for the making of the payments included E, an English resident. He refused to go to New York to give evidence. With the permission of the arbitration tribunal, A and B sought to compel E’s testimony and applied to the English court under section 44(2)(a) for an order under Civil Procedure Rule (CPR) 34.8 for the taking of E’s evidence by deposition. Accordingly, the application centred on the court’s power as to “the taking of the evidence of witnesses” in section 44(2)(a).
High Court decision
The High Court refused the application, with some reluctance, on the basis of previous High Court decisions, making it clear that its view would have been, absent this authority, that the court does have jurisdiction under section 44 over the particular order sought ([2020] EWHC 258 (Comm)). Recognising the controversy over the issue, it granted permission to appeal despite the settled High Court authority: a course of action that the Court of Appeal considered “obviously sensible”.
Court of Appeal decision
On an expedited appeal, the Court of Appeal held, with little hesitation, that section 44(2)(a) does give the court power to make an order for the taking of evidence by way of deposition from a non-party witness in aid of a foreign or domestic arbitration. However, the court declined to go any further than that or to express any concluded view on the position in relation to other section 44(2) powers.
It follows that the controversy remains a very live one, pending review by the Supreme Court or the next piecemeal pronouncement by the Court of Appeal in another section 44(2) case involving a different power.
Previous High Court decisions
The leading analysis in the High Court remains that of Mr Justice Males (as he then was) in Cruz City 1 Mauritius Holdings v Unitech Ltd ([2014] EWHC 3704 (Comm)). The case concerned the court’s jurisdiction under section 44(2)(e) as to the granting of an interim injunction or the appointment of a receiver. After a careful examination of the textual indications in other parts of section 44, Mr Justice Males concluded, obiter, that the better view is that section 44 does not include any power to grant an injunction against a non-party to the arbitration.
While limited to the grant of an injunction under section 44(2)(e), Mr Justice Male’s reasoning was expressed generally (as he later acknowledged in A and B) and was equally applicable to all of the subsections of section 44(2), without distinguishing between them. The thrust of his reasoning was that the wording of, for example, sections 44(4) and 44(5), made it unlikely that Parliament had intended to give the English court jurisdiction to make orders against non-parties in support of arbitrations happening anywhere in the world and that section 44 is not concerned with applications against non-parties.
In the later decision in DTEK Trading SA v Morozov, the High Court had to consider whether it had jurisdiction under section 44(2)(b) to make an order for the preservation and inspection of a document in the possession of a third party in Ukraine ([2017] EWHC 1704 (Comm)). The court rejected various commentators’ criticisms of Mr Justice Males’ approach in Cruz City and reached the same analysis, taking a general approach (although it is important to note that the application was unopposed). Later decisions applied the position as if were settled; for example, the High Court in A and B and, before that, the High Court in Trans-Oil International v Savoy Trading ([2020] EWHC 57 (Comm)).
The narrow and wide approaches
In A and B, the primary argument by A and B was that the appeal had to be determined first and foremost on the narrow question of whether the particular section 44(2)(a) power is exercisable against third parties. The Court of Appeal accepted that it is, based on the wide words of section 44(2)(a) with its reference to “witnesses” rather than “parties”, in circumstances where, given the wide range of potential witnesses who would not be expected to be only party witnesses, there is no justification in the wording of the statute for limiting “witnesses” to those who are in the control of one or other of the parties. The court asserted that, if Parliament had intended that limitation, it would have said so.
In addition, the nature of the “legal proceedings” referred to in section 44(1), being High Court and County Court proceedings, indicates the power that those courts have to take evidence on deposition wherever it is necessary and just to do so.
A and B also mounted an attack on the wider front that the section 44 controversy cannot be resolved by looking at the consensual nature of arbitration; the starting point for section 44 is not the consensual nature of the arbitration agreement but what powers the court is to have in a defined situation (see box “The section 44 controversy”).
The court avoided getting into the debate as to whether Cruz City and DTEK were correctly decided. Given that the position was clear for section 44(2)(a), it did not consider it necessary to deliberate any further on the other section 44 powers.
The end of the wide approach?
While the Court of Appeal refrained from tackling the correctness of the Cruz City wide approach, it is difficult to see how that approach can survive its decision in A and B. Either section 44 is dealing with powers only against parties, as Mr Justice Males opined in Cruz City, or it is not. Following the court’s decision in A and B that it is not, there are only two possible positions, either:
- The wide view that all of the section 44(2) powers are exercisable generally against non-parties is correct.
- Each separate power will turn on its own terms, so that different results may apply; indeed, it may be that only the section 44(2)(a) “evidence of witnesses” power is a non-party power, while the remainder of the section 44(2) powers are exercisable only against arbitral parties.
In so far as it is possible to identify the court’s view in A and B, it was in favour of the latter, “power by power”, approach.
In A and B, Lord Justice Flaux recognised that the effect of the decision and of the court’s narrow approach is that section 44(2)(a) applies to non-parties, whereas the other heads of the subsection may not do so, based on the previous decisions. He left the position open by stating that any apparent inconsistency between the various subsections of section 44(2) may be explained by the different language of those subsections.
Lord Justice Males, who in his decision in Cruz City had adopted, obiter, the wide approach, was careful to confine Cruz City to the particular power then before him. Like Lord Justice Flaux, he contemplated the possibility that different powers in section 44(2) might lead to different results. In particular, he made it clear that he saw no reason to doubt what he carefully referred to as the “actual” decisions in Cruz City and DTEK and then reserved his opinion on whether their reasoning on this point is correct in relation to the other subsections of section 44(2). He said that it may be that the position varies as between the various subsections of 44(2). However, he recognised that there are strong arguments either way.
The current position
While the court’s decision on section 44(2)(a) makes the position clear for that specific power, the section 44(2)(b) and (e) powers remain, for the present, governed by Cruz City and DTEK. However, these decisions may arguably be open to fresh challenge on the basis that the court in A and B chose not to endorse them. The position for the other section 44(2) powers, which have not yet been dealt with by any High Court or other decision, is fully up for grabs.
It is perhaps regrettable that the Court of Appeal did not grasp the opportunity to give at least a much clearer obiter steer. However, if the court favours a “power by power” approach, as it appears implicitly to have done in A and B, then as it heard no argument on each power, this may not be surprising. No permission to appeal was sought to take the matter further to the Supreme Court, so the section 44 controversy is unfortunately set to rumble on for a little longer yet.
Simon Rainey QC is a barrister at Quadrant Chambers.
The section 44 controversy
On one view, the controversy over section 44 of the Arbitration Act 1996 (section 44) might be said to be an arid one. Section 44(1) applies to all English-seated arbitrations, unless it is contracted out of. It provides that, unless the parties agree otherwise, the court has the same power to make orders in relation to the matters listed in section 44(2) “for the purposes of and in relation to arbitral proceedings” as it has for legal proceedings. A straightforward approach might be to conclude that the court has the same power to make orders against non-parties to an arbitration as it would have in legal proceedings to make orders against non-parties to the litigation, because that is what section 44(1) says. If the parties do not like it, they can opt out of section 44, whether in whole or in part.
However, that approach runs up against the concern that the powers in section 44(2) are solely in aid of the consensual process of arbitration, which binds only those who are party to the relevant arbitration agreement. Some argue that it would be odd if the court were to be placed in a stronger position than the underlying tribunal and able to exercise jurisdiction and powers over third parties in support of an arbitration, whereas the arbitrators would not have this jurisdiction or power. This concern was the dominant theme in the High Court decisions before A and B was decided ([2020] EWCA Civ 409) (see “Previous High Court decisions” in the main text).