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English Court of Appeal finds that the Arbitration Act s.44(2)(a) applies to third-parties

Following the decision in A and B v C, D and E [2020] EWCA Civ 409, the Court of Appeal held that the English courts’ powers in support of arbitral proceedings under s. 44(2)(a) of the Act may be exercised against a non-party to the arbitration agreement. In doing so, the Court of Appeal overturned the High Court’s decision on the point.

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Published 13 July 2020

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In the context of a New York arbitration, the decision in A and B v C, D and E [2020] EWCA Civ 409 concerned an application to the English court for an order under s.44(2)(a) of the Arbitration Act 1996 (“the Act”) to take the evidence of an English resident (non-party to the arbitration) by deposition.

The Court of Appeal (Flaux LJ, Newey LJ and Males LJ) held that the English courts’ powers in support of arbitral proceedings under s. 44(2)(a) of the Act may be exercised against a non-party to the arbitration agreement. In doing so, the Court of Appeal overturned the High Court’s decision on the point.

Background

The underlying dispute arose in the context of two settlement agreements concerning the exploration of an oil field off the coast of Central Asia, and, in particular, whether certain payments made by the respondents amounted to bribery.

The appellants (A and B) and the first and second respondents (C and D) were parties to the New York arbitration. However, the third respondent (E), who was resident in England, was an ex-employee of one of the respondents and had been the lead negotiator in connection with the payments, but was unwilling to give evidence to the tribunal in the New York arbitration. The third respondent opposed the application to the English court.

The High Court Decision

Foxton J (reluctantly) dismissed the application at first instance. In doing so, the judge followed two previous High Court decisions which restricted the English courts’ powers under s. 44 to make orders against non-parties to foreign-seated arbitrations: In Cruz City Mauritius Holdings v Unitech Limited [2014] EWHC 3704 and DTEK Trading SA v Morozov [2017] EWHC 1704, the courts’ powers under s.44(2)(e) (to grant an interim injunction) and s.44(2)(b) (to make an order for the preservation of evidence) were respectively held not to extend to non-parties to the arbitration proceedings.

Foxton J was clear that but for these prior authorities he would have granted the application. He granted leave to appeal.

The Court of Appeal’s Decision

Flaux LJ and Males LJ, giving judgment, reversed the first instance decision and confirmed that s.44(2)(a) provides the English courts with the power to make an order for the taking of evidence in respect of a non-party and in connection with an arbitration seated outside England and Wales. Their reasoning largely turned on the language of s.44.

Males LJ held that s.44(2)(a) “… is clearly directed towards obtaining the evidence of individuals who are not parties to the arbitration.” In modern commercial arbitrations, a witness giving evidence is rarely a party to the arbitration and Males LJ held that s.44(2)(a) was “… apt as a matter of language to cover all witnesses, not just those who are a party to the arbitration“. If the latter had been intended, the language would refer to a ‘party’ not a ‘witness’.

Further, Males LJ determined that s. 44(1) must be read in the light of other provisions in the Act, namely, (i) s. 2(3) which confirms that the courts’ powers under s. 44 “… apply even if the seat of the arbitration is outside England and Wales” and (ii) the definition of “legal proceedings” in s. 82 of the Act, which includes “… civil proceedings in England and Wales in the High Court…”.

As such, in circumstances where the English courts have the power to order a deposition in respect of proceedings in the High Court, Males LJ considered that there is no good reason why it should not have the same power under s.44(2)(a) in support of foreign seated arbitral proceedings.

Accordingly, the Court of Appeal ordered the third respondent to give evidence by way of deposition before an examiner (to be videotaped for the arbitral tribunal).

Comment

As a result of the Court of Appeal’s decision, parties to foreign-seated arbitrations will be at liberty to seek orders to compel evidence from non-parties under s. 44(2)(a).

The long standing controversy on orders against non-parties remains for the other heads of 44(2). In relation to the decisions in Cruz City and DTEK, Males LJ said:

“…I would reserve my opinion whether their reasoning on this point is correct as regards the other paragraphs of section 44(2). There are, in my view, strong arguments either way and it may be that the position varies as between the various paragraphs of subsection.”

As a consequence, it will not be surprising if parties attempt to test the scope of the other heads of s. 44(2) against non-parties in the future.

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Longer Reads

English Court of Appeal finds that the Arbitration Act s.44(2)(a) applies to third-parties

Following the decision in A and B v C, D and E [2020] EWCA Civ 409, the Court of Appeal held that the English courts’ powers in support of arbitral proceedings under s. 44(2)(a) of the Act may be exercised against a non-party to the arbitration agreement. In doing so, the Court of Appeal overturned the High Court’s decision on the point.

Published 13 July 2020

Authors

In the context of a New York arbitration, the decision in A and B v C, D and E [2020] EWCA Civ 409 concerned an application to the English court for an order under s.44(2)(a) of the Arbitration Act 1996 (“the Act”) to take the evidence of an English resident (non-party to the arbitration) by deposition.

The Court of Appeal (Flaux LJ, Newey LJ and Males LJ) held that the English courts’ powers in support of arbitral proceedings under s. 44(2)(a) of the Act may be exercised against a non-party to the arbitration agreement. In doing so, the Court of Appeal overturned the High Court’s decision on the point.

Background

The underlying dispute arose in the context of two settlement agreements concerning the exploration of an oil field off the coast of Central Asia, and, in particular, whether certain payments made by the respondents amounted to bribery.

The appellants (A and B) and the first and second respondents (C and D) were parties to the New York arbitration. However, the third respondent (E), who was resident in England, was an ex-employee of one of the respondents and had been the lead negotiator in connection with the payments, but was unwilling to give evidence to the tribunal in the New York arbitration. The third respondent opposed the application to the English court.

The High Court Decision

Foxton J (reluctantly) dismissed the application at first instance. In doing so, the judge followed two previous High Court decisions which restricted the English courts’ powers under s. 44 to make orders against non-parties to foreign-seated arbitrations: In Cruz City Mauritius Holdings v Unitech Limited [2014] EWHC 3704 and DTEK Trading SA v Morozov [2017] EWHC 1704, the courts’ powers under s.44(2)(e) (to grant an interim injunction) and s.44(2)(b) (to make an order for the preservation of evidence) were respectively held not to extend to non-parties to the arbitration proceedings.

Foxton J was clear that but for these prior authorities he would have granted the application. He granted leave to appeal.

The Court of Appeal’s Decision

Flaux LJ and Males LJ, giving judgment, reversed the first instance decision and confirmed that s.44(2)(a) provides the English courts with the power to make an order for the taking of evidence in respect of a non-party and in connection with an arbitration seated outside England and Wales. Their reasoning largely turned on the language of s.44.

Males LJ held that s.44(2)(a) “… is clearly directed towards obtaining the evidence of individuals who are not parties to the arbitration.” In modern commercial arbitrations, a witness giving evidence is rarely a party to the arbitration and Males LJ held that s.44(2)(a) was “… apt as a matter of language to cover all witnesses, not just those who are a party to the arbitration“. If the latter had been intended, the language would refer to a ‘party’ not a ‘witness’.

Further, Males LJ determined that s. 44(1) must be read in the light of other provisions in the Act, namely, (i) s. 2(3) which confirms that the courts’ powers under s. 44 “… apply even if the seat of the arbitration is outside England and Wales” and (ii) the definition of “legal proceedings” in s. 82 of the Act, which includes “… civil proceedings in England and Wales in the High Court…”.

As such, in circumstances where the English courts have the power to order a deposition in respect of proceedings in the High Court, Males LJ considered that there is no good reason why it should not have the same power under s.44(2)(a) in support of foreign seated arbitral proceedings.

Accordingly, the Court of Appeal ordered the third respondent to give evidence by way of deposition before an examiner (to be videotaped for the arbitral tribunal).

Comment

As a result of the Court of Appeal’s decision, parties to foreign-seated arbitrations will be at liberty to seek orders to compel evidence from non-parties under s. 44(2)(a).

The long standing controversy on orders against non-parties remains for the other heads of 44(2). In relation to the decisions in Cruz City and DTEK, Males LJ said:

“…I would reserve my opinion whether their reasoning on this point is correct as regards the other paragraphs of section 44(2). There are, in my view, strong arguments either way and it may be that the position varies as between the various paragraphs of subsection.”

As a consequence, it will not be surprising if parties attempt to test the scope of the other heads of s. 44(2) against non-parties in the future.

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