The Court of Appeal has confirmed that the Court has jurisdiction to compel the evidence of third party witnesses in arbitration proceedings under s. 44(2)(a) of the Arbitration Act 1996. However, the Court’s jurisdiction against third parties in respect of other powers under s. 44 remains an open question for future judicial development.

Introduction

England and Wales has long been known as an arbitration-friendly jurisdiction. That reputation is in part founded upon the tools available to the English Court to grant various forms of relief in aid of arbitration. One such tool is found in s. 44(2) of the Arbitration Act 1996, titled “Court powers exercisable in support of arbitral proceedings”. That provision furnishes the Court with the same powers as it has for litigation proceedings to make orders relating to five broad matters, being:

  1. the taking of the evidence of witnesses;
  2. the preservation of evidence;
  3. the inspection, photography, preservation, custody, and detention of (as well as other steps relating to) property that is subject of the proceedings or as to which any question arises in the proceedings;
  4. the sale of any goods that are the subject of the proceedings; and
  5. the grant of an interim injunction or the appointment of a receiver.

In the recent case of A and B v. C, D and E [2020] EWCA Civ 409, the Court of Appeal has given – at least partial – clarity to what was described by the first instance judge as “a long-standing controversy, on which there are conflicting statements by a number of judges“; namely whether s.44 relief can be granted against non-parties to the arbitration.

The Court of Appeal has now clarified that an order under section 44(2)(a) may be made to compel a non-party witness to give evidence to a foreign seated Tribunal. In coming to that decision, that Court of Appeal declined to follow the reasoning in previous High Court authority in Cruz City[1] and DTEK[2], which were concerned with different heads of s. 44(2). As the Court of Appeal’s decision went no further than the confines of section 44(2)(a) and did not overturn Cruz City and DTEK, it will not be the last word on the scope of s. 44 relief. The Court of Appeal’s reasoning lays the foundation for a piecemeal broadening of the ambit of s. 44 to encompass relief against non-parties under the heads of relief contained in the other subsections.

Facts

The appeal concerned an arbitration seated in New York between the Appellants, A and B, and the first and second Respondents, C and D. The dispute referred to arbitration related to balances due under two settlement agreements between those parties arising from the exploration and development of an oil field in Central Asia. Pursuant to those agreements, if C and D sold their respective interests in the field, which they did in 2002, they were to pay A and B a percentage of the net sale proceeds.

A key issue in the arbitration was the nature of certain payments made by C and D to the government of the Central Asian country. C and D contended that those payments were signature bonuses and therefore deductible as costs when calculating the net sums due to A and B. The Appellants contended that they were not properly deductible as those payments were bribes. A and B relied upon the fact that the person, G, who negotiated the payment on behalf of the Central Asian government, was indicted in the US for violations of the US Foreign Corrupt Practices Act.

The third respondent to the appeal, E, was the lead negotiator for C and D. He negotiated directly with G. E is resident in England. He refused to go to New York to give evidence to the Tribunal. The Tribunal granted A and B permission to make an application to the English Court to compel E’s testimony. A and B therefore sought an order under section 44(2)(a) permitting them to take E’s evidence by deposition under CPR r.34.8.

Conflict of authority at first instance

At first instance, the judge refused the application but with clear reluctance. Finding that he was bound by the decisions in Cruz City and DTEK, he held that the Court’s jurisdiction under s. 44 does not extend to non-parties.

Whilst both Cruz City and DTEK concerned the scope of the Court’s jurisdiction to grant s. 44(2) relief against non-parties, those cases were respectively concerned with the matters set out in s. 44(2)(e) (i.e. “the granting of an interim injunction or the appointment of a receiver”) and s. 44(2)(b) (i.e. “the preservation of evidence”).

The High Court’s decision in Commerce and Industry Insurance Co of Canada[3] pre-dated both Cruz City and DTEK and also appears to be the only High Court authority specifically concerned with an application under s. 44(2)(a) for the taking of evidence of a witness for a foreign seated arbitration. In that case, the judge considered that he had jurisdiction to make an order against the unwilling witnesses under s. 44(2)(a). However, as the first instance judge observed in A and B, the issue of whether the Court’s power under s. 44(2) was limited to making orders only against the parties to the arbitration appeared not to have been argued before the judge in Commerce and Industry, in which the judge had declined to make an order under s. 44(2)(a) as a matter of discretion. The first instance judge in A and B therefore gave less weight to that decision in reaching his decision.

Against the backdrop of the mixed authorities, the first instance judge in A and B expressed the view that “[a]pproaching this question without the benefit of prior authority, I can see considerable force in the arguments advanced in favour of the view that the jurisdiction under s. 44 could, in an appropriate case, be exercised against a non-party.

The judge also contrasted the approach of other arbitration-friendly jurisdictions, noting for instance that in Company A and Ors[4], the Hong Kong Court of First Instance held that the Hong Kong Court has the power to make orders against non-parties under s. 45(2) of the Arbitration Ordinance (Cap 609), albeit (as the Hong Kong Court noted) the wording of that Hong Kong provision differs from s. 44 of the Arbitration Act 1996.

The first instance judge in A and B therefore followed the approach in Cruz City and DTEK, whilst also giving permission to appeal for the issue to be determined at appellate level, a point that was praised by the Court of Appeal as “obviously sensible”.

The Court of Appeal’s approach

The Appellants mounted their appeal on two fronts – the “narrow question” of whether the specific power in s. 44(2)(a) was exercisable against non-parties and the more general question of whether or not s. 44(2) was in fact confined only to parties to the arbitration (and therefore whether Cruz City and DTEK were correctly decided).

The Court of Appeal, whose constitution included the first instance judge in Cruz City, preferred to decide the appeal on the narrow basis. The Court of Appeal therefore left the question of whether Cruz City and DTEK were correctly decided to future occasions when the specific subsections of s. 44(2) with which they were specifically concerned arose directly on appeal.

In reaching its decision on the narrow question, the Court grounded its reasoning on the words of s. 44(2)(a), which referred to “witnesses” and were therefore apt to cover all witnesses, not only those who happened also to be parties to the arbitration. The Court of Appeal noted that in modern commercial arbitration, it was in fact rare for a witness also to be a party. Given that other provisions of the Arbitration Act 1996, such as s. 38(5) and s. 43(1), clearly distinguishes between a “party” and a “witness”, the Court of Appeal found no basis to construe “witnesses” in s. 44(2)(a) synonymously with “parties”.

The future

This case underscores the policy tensions underlying the debate. As a consensual dispute resolution mechanism between the parties to an arbitration agreement, there is a legitimate question as to the extent of the Court’s jurisdiction to grant relief against third parties to support arbitral proceedings in circumstances where the Tribunal has no similar jurisdiction.  Whilst the parties have the option to bring themselves outside of the reach of s. 44 altogether by contracting out of it, that is not of course an option open to non-parties such as witnesses. Such considerations appeared to drive the decision in Cruz City.

Although the Court of Appeal’s decision was limited to the narrow confines of s. 44(2)(a), A and B undoubtedly leaves the ambit of the other heads of s. 44(2) relief – including those considered in Cruz City and DTEK – open to challenge.

Parties and practitioners should not, however, rush to assume that all heads of s. 44(2) relief can safely be taken to apply to non-parties in all cases. In endorsing an incremental “subsection by subsection” approach, the Court of Appeal contemplated a situation where orders under some subsections of s. 44(2) might apply to non-parties and some may not. One of the judges recognised that deciding the appeal on the narrow question leaves open the possibility that s. 44(2)(a) applies to non-parties but other subsections of s. 44(2) may not; but considered that any apparent inconsistency could be explained by the different language of each subsection. Another noted that “…it may be that the position varies as between the various paragraphs of subsection (2)”.

The scope of s. 44 therefore remains ripe for further judicial development. A and B v. C, D and E [2020] EWCA Civ 409: the judgment can be accessed here.

This article was first published in the April 2020 issue of Mealy’s International Arbitration Report.

 

[1] Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] EWHC 3704 (Comm)

[2] DTEK Trading SA v Morozov [2017] EWHC 1704 (Comm)

[3] Commerce and Industry Insurance Co of Canada v Certain Underwriters at Lloyd’s [2002] 1 WLR 1323

[4] Company A and Ors v Company D and Ors [2018] HKCFI 2240