The use of applications for injunctive relief in support of arbitration proceedings is becoming increasingly common, particularly in support of foreign proceedings if institutional rules do not allow for the appointment of emergency arbitrators or the expedited formation of tribunals.
As the need for urgent injunctive relief is often required at the start of the arbitral process and at times before the commencement of an arbitration, parties can turn to the Court for support.
In these situations, the expertise of commercial arbitration solicitors can be invaluable in advising on and facilitating the application for such relief, ensuring that the parties’ interests are protected throughout the arbitration process.
The Source of the Court’s Powers
Section 44 of the Arbitration Act 1996 gives the Court wide powers to make orders for the preservation of assets and evidence in an arbitration, including the useful and important power to grant interim injunctions. However, the Court will only exercise its powers to the extent that the arbitral tribunal or institution has no such power or is unable for the time being, to act effectively.
The Court will therefore adopt a cautious approach, bearing in mind the purpose of section 44 which the Court of Appeal in Cetelem S.A. v Robust Holdings Limited held was to “assist the arbitral process in cases of urgency before there is an arbitration on foot” with Court’s having to “take great care not to usurp the arbitral process…”.
Arbitrations with a Foreign Seat
With parties to arbitrations often having a presence in multiple jurisdictions, the question which often arises is whether a Court in England and Wales can grant an injunction in arbitrations abroad? Helpfully, section 44 applies even if the seat of the arbitration is outside England, Wales or Northern Ireland, or even if no seat has been determined.
However, the Court may refuse to act in these circumstances when it considers it inappropriate to do so. For example, if there are significant differences between the provisions of the curial law and English law; or if there is an insufficient link between the defendant and this jurisdiction, such as residency or assets within England and Wales.
What are the requirements for an injunction in support of arbitration proceedings?
In order to get over the first hurdle of jurisdiction, you must demonstrate that the arbitral tribunal, or any arbitral institution, has no power or is unable for the time being to act effectively. The two main ways in which this threshold is met, is either:
- By establishing that the tribunal will have no power to grant the order you are applying for. This is particularly the case in applications for freezing injunctions, where the applicant is looking to freeze a respondent’s assets in this jurisdiction backed by a penal notice – a useful deterrent in proceedings with elements of fraud or dishonesty; and/or
- By establishing that a tribunal is not yet constituted and is therefore unable to act. However, in circumstances where you have yet to commence an arbitration, you will have to be able to demonstrate a clear intention to do so, which will often require the provision of a Court undertaking.
Once you have established that the Court has jurisdiction, the usual common law principles apply. The touchstone for injunctive relief is whether there is a serious issue to be tried and that the balance of convenience favours the relief sought (i.e., whether the inconvenience of any damage which could be suffered by the applicant outweighs that of the respondent). The main injunction sought in arbitration proceedings are freezing injunctions, where the Court will consider urgency and whether there is a real risk that the respondent may dissipate its assets before the enforcement of any arbitral award.
If you are thinking of using section 44 to support your arbitration proceedings, the balance the Court will draw between its power to grant injunction relief and the risk of displacing the arbitration tribunal should always be borne in mind.
Although the Court may approach section 44 applications with caution, injunction applications are a useful tool for interim protection particularly in arbitrations where you have discovered that a respondent is dissipating its assets in this jurisdiction making any enforcement of an award futile.
Eldwick Law has recently successfully obtained a freezing injunction in arbitration proceedings before the German Arbitration Institute (DIS). If you would like to discuss any of the points raised in this article, please contact our litigation team below.
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