In Y v S  EWHC 612 (Comm), the Commercial Court considered the circumstances in which it will:
- make an order suspending the enforcement of an arbitral award; and
- make an order for the provision of security pending an application challenging an award.
This case confirms that parties will not be able to obtain pre-emptive orders preventing enforcement on a worldwide basis or limited to England and Wales in conjunction with applications to challenge arbitral awards under sections 67, 68 and 69 of the Arbitration Act 1996 (the “1996 Act”). The appropriate time to apply for such an order is when the successful party takes steps to enforce the award. Parties who wish to obtain security whilst such an application is pending should apply under section 70(7) of the 1996 Act. Whether such security will be granted is at the court’s discretion and the court will likely consider the strength of the challenge to the award and if there would be any prejudice caused if no security is granted.
Y and S were both Russian nationals. Disputes arose between them. S alleged that those disputes were subject to an arbitration agreement and referred the disputes to arbitration under the LCIA Rules. Y asserted that the arbitration agreement was not binding and that the arbitral tribunal did not have jurisdiction. The tribunal rejected that assertion and upheld S’s case, issuing an award in S’s favour for US$ 72 million, plus interest totalling US$ 84.2 million.
Y issued a claim in the English High Court challenging the tribunal’s jurisdiction under section 67(1)(a) of the 1996 Act and applied on a without notice basis for “a stay of any enforcement of the Award prior to its determination of this challenge under section 67(1)(a) of the Arbitration Act 1996”. At the time of the application, S had not commenced any enforcement action in England and Wales.
An order was made that “no steps … be taken by S to enforce the Award prior to the determination of Y’s challenge to the Award in these proceedings under section 67 of the Arbitration Act”. Provision was made for S to apply to set aside or vary the order within seven days of service.
S applied without notice to vary the order and have the non-enforcement provision discharged in its entirety on the grounds that the order had been made without proper legal basis, improperly obtained without notice and was liable to cause serious prejudice to S. S had already commenced enforcement proceedings in Cyprus and California, and argued that the order appeared to be an injunction preventing him from enforcing the award anywhere in the world and had been granted without a hearing and despite Y failing to provide any cross-undertaking in damages.
The court refused to discharge the non-enforcement provision in its entirety, but instead varied the order so that it did not prevent S from taking steps outside the jurisdiction to enforce the award and preserve assets. The varied order also provided that the non-enforcement provision would be discharged if, within seven days of service of the application on Y, Y had not provided the court with a letter stating that he would provide a cross-undertaking in damages.
S subsequently applied:
- for the original and varied orders to be discharged on the basis that they should not have been made at all (the “discharge application”); and
- for leave under section 66 of the 1996 Act to enforce the award in the same manner as a judgment or order of the court (the “section 66 application”).
A point arose on the discharge application about the purpose and scope of the non-enforcement provision in the varied order. S argued that the order was still in the nature of an anti-enforcement injunction. Y, however, maintained that it was in effect a “case management restriction” which merely precluded S from taking steps to enforce the award until the section 67 challenge had been resolved. Y drew an analogy with Rule 62.18(9) of the Civil Procedure Rules, which precludes a party who has obtained an order under section 66 of the 1996 Act from enforcing the arbitral award until the time for making a challenge to the award has expired or the challenge, if made, has been finally disposed of.
The discharge application
Mr Justice Eder held that, whilst the wording of the order tracked that of Rule 62.18(9), as the order was not obtained pursuant to an application made under Rule 62.18, the language did not have the limited meaning in Rule 62.18(9). In the circumstances, the wording was ambiguous and required clarification that it was not intended to restrict enforcement outside of the jurisdiction.
It was unnecessary and inappropriate for the court to grant the order, either in its original form or as subsequently varied. The order was not intended to apply to, and did not apply to, foreign enforcement proceedings, and there was no suggestion that S intended to seek enforcement in the jurisdiction. In any event, any steps taken by S to enforce the award as a judgment in the jurisdiction would require the leave of the court. If S did make such an application, it would only have obtained an order nisi which would have been subject to the automatic mandatory restrictions on enforcement in Rule 62.18(9) which would have protected Y’s position. In the circumstances, there was no need for the provision in either the original or the varied order. Accordingly, the judge discharged the varied order.
The section 66 application
Eder J held that S was not entitled to a final order on the terms sought. The question for the court was how the order for leave to enforce would be framed. Eder J handed down an order that “no steps would be taken to enforce the Award within the jurisdiction prior to [a specific date] or any application made by Y within that period has been finally disposed of”. This wording ensured that the suspension of enforcement was limited to England and Wales and reflected the fact that Y had already issued an application under section 67 of the 1996 Act.
S had also applied for Y to put up security for the full amount in dispute. There was insufficient time for the court to consider this issue in full; however, Eder J did hold that section 70(7) of the 1996 Act (which gives the court power to order that any money payable under an arbitral award shall be brought into court or otherwise secured pending the determination of an application or appeal, and that the application or appeal be dismissed if the order is not complied with) only applied to sections 67, 68 and 69 of the 1996 Act and did not apply to an application for leave to enforce under section 66. Any order for the provision of security had to be made in the context of a discrete application under section 67, 68 or 69.