Enforcing Arbitration Awards in the English Courts

The final award in arbitration should mark the end of a dispute but more often than not the real battle begins when the successful party seeks to enforce it.

In Cruz City v Unitech & Ors [2014], the English High Court confirmed that a claimant could enforce an arbitral award in the English Courts by making an application under section 37 of the Senior Courts Act 1981 to appoint receivers against the foreign assets of the defendants.

Background to Cruz City v Unitech & Ors [2014]

In July 2012 the London Court of International Arbitration (LCIA) made an award for almost $300 million dollars against the defendants (Unitech & Ors) following a dispute over a failed investment venture.

In the two- year period that followed the arbitral award, the defendants refused to pay the award and claimed that it was unenforceable in India. They also repeatedly challenged and flouted orders issued by the courts.

Following a series of disclosure orders, the claimant discovered that the defendants held shareholdings in four companies incorporated in India, the Isle of Man and Cyprus. Consequently in April 2014, the claimant made a section 37 application for a receivership order against the assets held in these four companies.

The claimant was able to engage the mechanism under section 37 because it had been a party to a London based arbitration and therefore it could enforce the arbitral award in the English courts. The court granted relief under section 37 on the basis that the claimant had demonstrated that the facts of the case indicated that an order was necessary in the circumstances.

Reasoning Behind the Courts Decision to Enforce the Arbitration Award

There were a number of factors that the court considered in coming to its conclusion. Firstly, the complexity of the defendants’ multi-jurisdictional corporate structure meant that it was difficult to identify and realise the value of the defendants’ shareholding assets.

Secondly, the claimant had established that it was both difficult and impractical to recover the award in the jurisdictions where the defendants’ assets were domiciled. The claimant argued that the defendants would exploit the legal processes in Cyprus, India and the Isle of Man to delay and obstruct the enforcement of the award. The facts of the case suggested that such delays would increase the risk of the dissipation of the defendants’ assets.

Thirdly, the fact that the defendants had offered no undertakings to any of the courts in Cyprus, India or the Isle of Man, suggested that they would use those proceedings to continue to resist the claimant’s attempts to enforce the award. Males J also considered that reputational risk associated with contempt of court proceedings would deter the defendants from disobeying the section 37 order.

Comment

The reasoning in Cruz City v Unitech & Ors [2014] provides a clear framework for applying the principles in established case law for using the jurisdiction of the high courts against uncooperative defendants who refuse to honour their obligations under arbitration awards. Cruz also provides companies with the assurance that English courts will make use of ancillary relief to uphold arbitral awards, therefore rendering London a more attractive forum for arbitral proceedings.

For specialist advice regarding arbitration or commercial disputes please contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.