No counterclaim or Part 20 claim available in proceedings to enforce an arbitration award

England and Wales

The Commercial Court in London has ruled that a respondent in proceedings to enforce an arbitration award cannot bring a counterclaim against the applicant in the same proceedings. The respondent’s application to join an additional defendant under the Part 20 procedure was also refused.

Background

In Selevision v Bein Media Group [2021] EWHC 2802 (Comm), the underlying arbitration concerned a dispute over the termination of an agreement between the respondent media company and the applicant distributor. The agreement provided for arbitration under the rules of the DIFC-LCIA Arbitration Centre in Dubai. The tribunal found that the respondent had wrongfully suspended the distribution agreement and that the applicant had been entitled to terminate. It awarded the applicant damages of some US$8m. Believing that the respondent had assets in England, the applicant applied to the Commercial Court to enforce the award under s.101 of the Arbitration Act 1996 and Part 62.18 of the Civil Procedure Rules (CPR).

The counterclaim

The respondent applied for:

  1. permission to bring a counterclaim against the applicant for alleged breaches of its intellectual property rights;

  2. permission to bring a Part 20 claim against the applicant’s CEO for, effectively, procuring those breaches; and

  3. a stay of enforcement of the award pending the outcome of the counterclaim, which was said to have a value exceeding the amount of the award.

The issues

The issues for the court were:

  1. Did it have discretion to permit a counterclaim and/or Part 20 proceedings in a claim under CPR 62.18?

  2. If so, should it exercise that discretion?

  3. If the court was minded to exercise any such discretion, did it also have discretion to stay enforcement of the award?

  4. If so, should it grant such a stay?

The decision

Did the court have discretion to permit a counterclaim and/or Part 20 proceedings?

The question of whether or not the court could permit a counterclaim arose out of the parties’ differing interpretations of CPR 62.18(3). This provides that, once a respondent has acknowledged service of the claim form seeking the order to enforce the award, the proceedings will continue pursuant to Section I of Part 62, which sets out the procedure for other arbitration-related claims such as applications to challenge an award or the constitution of the tribunal. Section I includes CPR 62.3(1), which provides that an arbitration claim is begun by issuing a Part 8 claim form.

The respondent claimed that effect of this provision is import the entirety of the Part 8 procedure into the application to enforce the award under CPR 62.18, including the ability to bring a counterclaim under CPR 8.7. The applicant argued that CPR 62.3(18) dealt with how the claim should “continue” and was therefore unaffected by CPR 62.3(1), which was only concerned with how certain other types of claim could be started. Further, if the respondent’s argument was correct that Part 8 was incorporated at the point when the respondent acknowledged service of the claim form, this would lead to the strange result that whether or not a counterclaim was available would depend on whether the application for enforcement was made with or without notice.

Butcher J agreed with both of these arguments by the applicant. He also referred to the previous case of Union Fenosa Gas SA v Egypt [2020] EWHC 1723 (Comm), in which the Commercial Court held that the use of Part 8 to register an ICSID award in the High Court under CPR 62.21 was a procedural device to generate a claim number and to allow the claim to be determined on the basis of written evidence only; it did not import the entirety of the Part 8 procedure. This was an indication that care must be taken to establish which aspects of Part 8 were intended to apply to any given type of arbitration claim. In addition, Butcher J noted that in VTB Commodities Trading DAC v JSC Antipinsky Refinery [2021] EWHC 1758 (Comm), Cockerill J (who is the judge in charge of the Commercial Court) had already expressed doubts as to whether or not Part 20 claims were permissible in any arbitration proceedings. He concluded that neither counterclaims nor Part 20 claims were consistent with the purpose of CPR 62.18, which was to provide a simple method of enforcing an award.

Should the court exercise any discretion to permit a counterclaim and/or Part 20 claim?

Having decided not to allow the counterclaim and Part 20 claim, the court did not strictly have to address the remaining issues. However, Butcher J offered some commentary on them in case his decision on the first point might be overturned on appeal. He stated that he would not have exercised any discretion to allow these additional claims because:

  • Even in regular Part 8 proceedings, counterclaims and Part 20 proceedings were intended to be exceptional;

  • CPR 62.18 was intended to give effect to the New York Convention on the Recognition and Enforcement of Arbitral Awards by providing a highly summary and quasi-administrative procedure;

  • The respondent’s IP claim was of a different legal and factual nature from the applicant’s contractual claim;

  • The IP claim would require disclosure and witness evidence and was therefore unsuitable for the Part 8 procedure in any event;

  • Absent the arbitration claim, the IP claim was not one over which the English court would have jurisdiction.

Did the court have jurisdiction to stay enforcement of the award?

Butcher J indicated, without deciding the issue or discussing it in any detail, that in his view the case law suggested that the court did have jurisdiction to stay enforcement of a New York Convention arbitration award in appropriate circumstances.

Should the court exercise any discretion to stay enforcement?

The judge commented that, if he had allowed the counterclaim and Part 20 claim to proceed, he would nevertheless have refused a stay of enforcement of the award because:

  • There was insufficient connection between the claim and the counterclaim; and

  • The applicant was a small company which was suffering hardship due to the non-payment of the award.

Accordingly, the outcome was that all of the respondent’s applications were dismissed.

Comment

This decision confirms the indications in previous case law that the Part 8 procedure does not automatically apply in its entirety to all arbitration claims merely because, for administrative reasons, some such claims are commenced on a Part 8 claim form. Rather, the court must consider the purpose of each type of claim and determine which features of Part 8 are consistent with that purpose.

Whilst in the short term this may create a degree of uncertainty for parties as to how Part 8 will be applied to their claims, in the longer term it is a welcome confirmation that the English courts continue to assign a high priority to the smooth enforcement of New York Convention awards without re-opening the merits of the underlying claim or considering wider disputes between the parties outside the scope of the award.

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