Chipping away at the ‘narrow approach’ to the Court’s powers in aid of arbitration?

A and B v C, D and E [2020] EWCA Civ 409

Simon Rainey QC looks at the Court of Appeal’s decision:

The long-standing controversy as to whether orders made by the Court “for the purposes of and in relation to arbitral proceedings” under s. 44 of the Arbitration Act 1996 can be made against non-parties to the arbitration received at least a partial resolution on Thursday 19th March 2020, when the Court of Appeal handed down its judgment in A and B v C, D and E [2020] EWCA Civ 409. 

The case concerned a New York arbitration in relation to a dispute over net balances due under settlement agreements. One issue which arose was whether certain payments to a central Asian government were properly deducted as ‘signature bonuses’ (as the Respondents contended) or were bribes and therefore to be left out of account (as the Appellants submitted). The persons said to be involved in the negotiations for the making of the payments included one E, an English resident. He refused to go to New York to give evidence. With the permission of the Tribunal, the Appellants sought to compel his testimony and applied to the English Court under s. 44(2)(a) for an order under CPR34.8 for the taking of E’s evidence by deposition. 

Accordingly, the application centred on the Court’s power as to “the taking of the evidence of witnesses”.

Foxton J. refused the application (with some reluctance) on the basis of accrued first instance Commercial Court authority, making it clear that his view would have been, absent authority, that the particular order sought was one the Court had jurisdiction to make under section 44: see [2020] EWHC 258 (Comm) at [18]. Recognising the controversy over the issue, he granted permission to appeal, notwithstanding the settled first instance view, a course of action which the Court of Appeal considered “obviously sensible”: [55].

On an expedited appeal, the Court of Appeal (Flaux, Newey and Males L.JJ  held), with little hesitation, that s.44(2)(a) did give the Court power to make an order for the taking of evidence by way of deposition from a non-party witness in aid of a foreign or domestic arbitration. But the Court declined to go any further than that or to express any concluded view on the position in relation to other s.44(2) powers. 

It follows that the controversy remains a very live one, pending review by the Supreme Court or the next piecemeal pronouncement by the Court of Appeal in another s.44(2) case involving a different sub-section (2) power.

The s.44 controversy and the previous Commercial Court decisions 

On one view, the controversy might be said to be an arid one. S. 44(1) applies to all English seated arbitrations, unless contracted out of. It provides that, absent such contrary agreement, “the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings”. A straightforward approach might be to conclude that the Court has the same power to make orders against non-parties to an arbitration as it would have in legal proceedings to make orders against non-parties to the litigation because that is what s.44(1) says (see [7] and Foxton J. at [18]). If the parties do not like it, they can opt of the section, in whole or in part.

That approach runs up against the concern that the powers in s.44(2) are solely in aid of a consensual process of arbitration which binds only those who are party to the relevant arbitration agreement. It is argued that it would be odd if the Court were placed in a stronger position than the underlying tribunal itself and were able to exercise jurisdiction and powers over third parties, in support of an arbitration, where the arbitrators themselves would have no such jurisdiction or power. This concern has proved to be the dominant theme in the Commercial Court decisions prior to A&B.

The leading analysis remains that of Males J. (as he then was) in Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] EWHC 3704 (Comm).

That case concerned the Court’s jurisdiction under s.44(2)(e) as to “the granting of an interim injunction or the appointment of a receiver”. The case turned on the application of CPR 62.5(1)(c). However, after a careful examination of the textual indications in other parts of s.44. Males J. concluded obiter at [47] that “the better view is that section 44 does not include any power to grant an injunction against a non-party” to the arbitration. While limited to the grant of an injunction under section 44(2)(e), the Judge’s reasoning was generally expressed (as he acknowledged in A&B: [52]) and was equally applicable to all the different paragraphs of section 44(2), without distinguishing between them. The thrust of his reasoning was that the wording of e.g. ss.44(4) and 44(5) made it unlikely that Parliament had intended to give the English court jurisdiction to make orders against non-parties in support of arbitrations happening anywhere in the world and that “the section is simply not concerned with applications against non-parties” [48(e)].

In the subsequent decision of DTEK Trading SA v Morisov [2017] EWHC 1704 (Comm), the Court had to consider whether it had jurisdiction under section 44(2)(b) to make an order for the preservation and inspection of a document in the possession of a third party in Ukraine. Sara Cockerill QC (as she then was) rejected various commentators’ criticisms of Males J’s approach (i.e. Merkin & Flannery, Arbitration Act 1996, 5th Edn; see now 6th Edn at 44.7.5) and reached the same analysis as Males LJ, taking a general approach (note that the application was unopposed). Thereafter later decisions applied the position as if settled at first instance (see e.g. Foxton J. and before him, Trans-Oil International v Savoy Trading [2020] EWHC 57 (Comm), Moulder J.).

The “wide” and the “narrow” questions in play on the appeal

So lay the land on the appeal. 

The Appellant’s primary case was that the appeal had to be determined first and foremost on the “narrow question” of whether the particular s.44(2) power was one which was exercisable against third parties. 

This was accepted by the Court, basing itself on the wide words of s.44(2)(a) with its reference to “witnesses”, not to “parties”, in circumstances where given the wide range of potential witnesses who would not be expected to be only “party” witnesses, “there is no justification in the wording of the statute for limiting “witnesses” to those who are in the control of one or other of the parties. If Parliament had intended that limitation, it would have said so” (Flaux LJ at [37]; see also Males LJ at [59]). Further, the nature of the “legal proceedings” referred to in s.44(1), being High Court and County Court proceedings, connoted the power which those Courts had to take evidence on deposition wherever necessary and just to do so: (; [38]; [61]).

The Appellant nevertheless also mounted an attack on the wider front that the s.44 controversy was not to be resolved by looking at the consensual nature of arbitration and that the starting point for section 44 is not the consensual nature of the arbitration agreement but what powers the Court is to have in a defined situation. 

The Court of Appeal avoided getting into the debate as to whether Cruz City and DTEK were correctly decided. Given that the position was clear for s.44(2)(a), it was not considered necessary to go any further on different s.44 powers.

The end of the wide Cruz City view?

While the Court of Appeal refrained from tackling the correctness of the Cruz City wide approach, it is difficult to see how that approach can survive its decision. Either s.44 as a section is dealing with powers against parties only (as Males LJ opined in Cruz City) or it is not. 

If it is not (as has now been held), then there are only two possible positions: either (a) the wide view that all of the s.44(2) powers are exercisable generally against non-parties is correct or (b) each separate power will turn on its own terms, so that different results may apply; indeed, it may be that only the s.44(2)(a) ‘evidence / witness’ power is a non-party power, while the remainder of s. 44(2) are powers are exercisable against arbitral parties only.

In so far as it is possible to identify the Court of Appeal’s view, this was in favour of the latter, ‘power by power’, approach.

Flaux LJ recognised that the effect of the decision and of the Court’s “narrow approach” was to posit that s.44 (2)(a) applies to non-parties, whereas the other heads of the subsection may not do so, based on the previous decisions. He left the position open by stating that “Any apparent inconsistency between the various heads of subsection (2) may be explained by the different language of those heads.” [44].

Males LJ, who had adopted obiter the wider view in his decision in Cruz City was careful to confine Cruz City to the particular power then before him. Like Flaux LJ he contemplated the possibility that different powers in s.44(2) might lead to different results. In particular, he made it clear that he saw “no reason to doubt” what he carefully referred to as “the actual decisions in in Cruz City and DTEK”(emphasis added)  and only went on (at [56]) to “reserve my opinion whether their reasoning on this point is correct as regards the other paragraphs of section 44(2). […] it may be that the position varies as between the various paragraphs of subsection (2).” He however recognised that there were “strong arguments” either way.

So where are we now?

While the Court’s decision on s.44(2(a) make the position clear for that s.44 power, the s.44(2)(b) and (e) powers remain for the present governed by the Cruz City / DTEK decisions, although arguably open to fresh challenge on the basis that the Court of Appeal chose not to endorse the decisions as such. The position for other s.44(2) powers, not yet dealt with by any current Commercial Court or other decision is fully up for grabs. It is perhaps regrettable that the opportunity for at least a much clearer obiter ‘steer’ was not grasped by the Court of Appeal, although if the Court favoured a ‘power by power’ approach (as it appears implicitly to have done) then as it heard no argument on each power, this may not be surprising. No permission to appeal was sought to take the matter further to the Supreme Court, so the s.44 controversy is unfortunately set to rumble on for a little longer yet.

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