"Very limited link" sees High Court dismiss request for worldwide freezing order

The English High Court recently decided that it was not appropriate to grant a worldwide freezing order, confirming that generally only a sufficiently strong link with this jurisdiction will justify a freezing order affecting assets not located in England & Wales.

Background

In Eastern European Engineering Ltd v Vijay Construction (Proprietary) Ltd [2018] EWHC 1539 (Comm), the Claimant entered into six contracts with the Defendant in relation to the construction of the Savoy Resort and Spa Hotel on Mahé (Seychelles). The contracts were governed by Seychelles law and contained an ICC arbitration clause with Paris as the seat of arbitration.

The Claimant alleged that there had been delays and defects in the works performed by the Defendant and subsequently terminated the contracts. The Defendant disputed the lawfulness of the termination and the Claimant then issued arbitration proceedings seeking damages.

The sole arbitrator rendered a Final Award on 14 November 2014, deciding that the termination was valid and ordering the Defendant to pay damages to the Claimant. This resulted in a variety of proceedings to either enforce or to challenge the Award in France, Seychelles and England, as the Defendant refused to pay any of the sums awarded.

The Decision

The Claimant applied to the English High Court for a worldwide freezing order against the Defendant, requesting to restrain the Defendant from a) removing from England & Wales any assets which are in England & Wales, and b) disposing of or dealing with or diminishing the value of its worldwide assets.

The Defendant argued that the Court did not have jurisdiction to make a worldwide freezing order but the judge disagreed and held that s. 37 (1) of the Senior Courts Act 1981 does give the court such power, even where the seat of the arbitration was (as here) outside the jurisdiction of the Court.

The question of whether or not to grant such an order was however a matter of discretion and in considering whether to exercise that discretion, Butcher J had regard to the dicta of Lord Donaldson in Rosseel NV v Oriental Commercial & Shipping Co (UK) Ltd [1990] 1 WLR 1387 that:

…apart from the very exceptional case, the proper attitude of the English courts … is to confine themselves to their own territorial area, save in cases in which they are the court or tribunal which determines the rights of the parties. So long as they are merely being used as enforcement agencies they should stick to their own last.

The judge also considered the principles applicable to orders under s. 44 Arbitration Act 1996 and under s. 25 Civil Jurisdiction and Judgments Act 1982 (CJJA);

Firstly, in Mobil Cerro Negro Ltd v Petroleos De Venezuela SA [2008] EWHC 532 it was decided that the court would only be prepared to exercise its discretion to grant a freezing order affecting assets not located in England & Wales if the respondent or the dispute had a sufficiently strong link to England, or where there was some other factor of sufficient strength (e.g. international fraud) to justify proceeding in the absence of such a link.

Secondly, in relation to s. 25 CJJA, in Motorola Credit Corporation v Uzan and others [2003] EWCA Civ 752 the court set out the following five matters as being relevant:

1. whether the making of the order will interfere with the management of the case in the primary court;
2. whether it is the policy in the primary jurisdiction not itself to make worldwide freezing/disclosure orders;
3. whether there is a danger that the orders made will give rise to disharmony or confusion and/or risk of conflicting inconsistent or overlapping orders in other jurisdictions;
4. whether at the time the order is sought there is likely to be a potential conflict as to jurisdiction rendering it inappropriate and inexpedient to make a worldwide order; and
5. whether, in a case where jurisdiction is resisted and disobedience is to be expected, the court will be making an order which it cannot enforce.

In all the circumstances of this case, Butcher J refused to grant worldwide freezing order, as this was not an exceptional case of the type which would justify such an order, but particularly due to the fact that there was only a very limited link with this jurisdiction. The judge was however prepared to grant a domestic freezing order on the basis that there was solid evidence of a real risk that any judgment would go unsatisfied. The relevant assets were movable and there was evidence that the Defendant had indicated it would rather be wound up than pay the Award.

Comment

This judgment shows that while the English Court might have jurisdiction under s. 37(1) of the Senior Courts Act 1981 to grant a worldwide freezing order in support of enforcement when the seat of the arbitration is outside the jurisdiction, it will have regard to this factor in deciding whether or not to exercise its discretion. Where the seat is located outside England & Wales, it seems that the Court may exercise that discretion more sparingly, as this factor could point to insufficient links to this jurisdiction to justify an Order.