High Court of Justice maintains freezing order tied to GAFTA arbitration award indefinitely
October 2016 | SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION
Financier Worldwide Magazine
In Touton Far East Pte Ltd vs. Shri Lal Mahal Ltd, the English High Court of Justice determined that a post-judgment worldwide freezing order related to a Grain and Free Trade Association (GAFTA) arbitration award, should continue indefinitely until payment of the judgment or a further order was made.
In February 2016, the Court issued a freezing order in favour of the claimant, Touton Far East Private Limited against Shivnath Rai Harnarain Limited, an Indian company. The freezing order was made in support of a judgment which had previously been entered in the claimant’s favour, following and giving effect to a GAFTA arbitration award.
GAFTA’s standard form contracts and arbitration rules, like many commercial agreements and international arbitral rules, are governed by English law.
The Court subsequently made an additional order continuing the freezing order until payment of the judgment debt or further order and instructed that there would be a hearing on 18 March 2016, at which time the defendant’s compliance with the freezing order would be considered.
The defendant, although notified of the order, had up to that point failed to give any of the disclosure the Court required it to give regarding its worldwide assets. Additionally, the defendant’s solicitors indicated that they might wish to make an application to vary or discharge the order and the Court gave them opportunity to apply to vary or discharge the order but stipulated that any application must be made in time to be heard at the 18 March 2016 hearing.
Just prior to the 18 March hearing, the defendant provided a witness statement, purporting to comply with the Court’s order for disclosure.
At the 18 March hearing, the defendant raised two main points of argument regarding the freezing order that had previously been granted.
Firstly, the defendant submitted that it was not appropriate to maintain a freezing order that lasted indefinitely and that an expiration date should be stipulated. In the defendant’s submission, an appropriate period of time would have been one month.
Secondly, the defendant argued that it should have an extension of time to 1 April 2016 from 18 March 2016 to make a formal application to vary or set aside the freezing order.
The Court determined that the freezing order would remain in place until payment of the judgment debt or further order of the Court and refused the defendant’s request for additional time to bring an application to vary or set aside the freezing order.
The Court noted that while pre-judgment freezing orders should normally be of limited duration, this general principle did not apply to a judgment debt, even one that was almost six years old, where a party was making reasonable efforts to enforce the judgment.
The Court also specifically took issue with the defendant’s unacceptably sparse attempt to comply with the requirement for disclosure regarding its worldwide assets and, in addressing the issue of whether the claimant had promptly attempted reciprocal enforcement of the judgment, noted that while there had been several unsuccessful attempts to enforce the judgment in a number of jurisdictions, no attempt had been made to enforce the judgment in India, where the defendant was domiciled.
The Court held that while refusing to attempt enforcement in an appropriate jurisdiction could militate against continuing a freezing order, it was acceptable in this case as the defendant’s own position, supported by evidence it had provided, was that the judgment was unenforceable in India on the ground that it was contrary to public policy.
The Court further noted, disapprovingly, the unfortunate problem with two parties agreeing to be bound by arbitration to settle their disputes and then one party, dissatisfied with the result, relying on the domestic law in its home jurisdiction in an effort to justify its non-compliance with an arbitrator’s decision.
In concluding that the order should remain in place, the Court determined, in particular that (Touton at para 3): (i) it is the policy of English law that English judgments should be paid; (ii) the defendant was in a position to pay the judgment at any time; (iii) it was clear that the defendant was a substantial company and was choosing not to pay as opposed to being unable to pay; and
(iv) if it was determined at a later date that the freezing order was being maintained by the claimant for an illegitimate purpose, the Court’s position could be reconsidered at that time.
The decision arguably suggests a continued desire by English courts to attempt to ensure that English judgments (whether court or arbitral) have a reasonable opportunity to be enforced internationally and that a successful arbitration claimant, acting diligently, be given fair opportunity to see that its judgment or award is realised, particularly when it is obvious that a defendant is attempting to avoid satisfying the award or judgment despite an ability to do so.
The appeal period for the decision has passed and, to date, there has been no further application or attempt by the defendant to vary or set aside the order.
Neil Finkelstein and Timothy St. John Ellam are partners and Layne Thiessen is an associate at McCarthy Tetrault LLP. Mr Finkelstein can be contacted on +1 (416) 601 7611 or by email: firstname.lastname@example.org. Mr St. John Ellam can be contacted on +1 (403) 260 3533 or by email: email@example.com. Mr Thiessen can be contacted on +1 (403) 260 3690 or by email: firstname.lastname@example.org.
© Financier Worldwide
Neil Finkelstein, Timothy St. John Ellam and Layne Thiessen
McCarthy Tetrault LLP