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In Trans-Oil International SA v Savoy Trading LP [2020] EWHC 57 (Comm) the English High Court confirmed that its powers in support of arbitral proceedings under section 44 of the Arbitration Act 1996 are not exercisable against non-parties to the arbitration agreement.
Background
The claimant (Trans-Oil) had brought arbitration proceedings against the respondent (Savoy Trading LP), a Scottish limited partnership, in respect of a contract which was allegedly concluded on the respondent’s behalf by a Mr. Melnykov. The claimant was granted a worldwide freezing order against the respondent.
In these proceedings, the claimant applied to add Mr. Melnykov to the freezing order (or alternatively to have him named in the penal notice in the freezing order). It asserted that the court had jurisdiction to do this (such that the arbitration claim form could be served on him outside the jurisdiction) pursuant to CPR 6.36/PD6B (general grounds of jurisdiction) or CPR 62.5(1)(b) (where an order under s.44 Arbitration Act (court powers exercisable in support of arbitral proceedings) is sought).
The decision
Moulder J dismissed the claimant’s application, refusing permission to serve Mr. Melnykov out of the jurisdiction both under CPR 6.36/PD6B and CPR 62.5(1)(b).
Regarding permission to serve out pursuant to CPR 6.36, the claimant relied upon the ground in PD6B 3.1(6)(c). This essentially required the claimant to show that Mr Melnykov was a party to an English law governed contract. Moulder J noted that there would need to be a good arguable case that he was personally liable on the contract, and in her view the claimant had, on the facts, failed to establish this.
As for permission to serve out pursuant to CPR 62.5(1)(b), the claimant submitted that the issue of whether orders could be made against third parties to an arbitration agreement under s.44 was still open and that there were conflicting authorities.
Moulder J disagreed with the claimant, and held that, in DTEK Trading SA v Morozov [2017] EWHC 94 (Comm), Cockerill J had already considered the authorities and determined that orders under s. 44 (and therefore permission to serve out under CPR 62.5(1)(b)) cannot be granted against non-parties to the arbitration agreement.
Moulder J observed that, in DTEK, Cockerill J had concurred with the view taken by Males J in Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] EWHC 3704 (Comm). Moulder J dismissed the argument that the decision would result in a lacuna in the law by reference to observations in DTEK that in many such cases, jurisdiction had ultimately been established under the “necessary and proper party” gateway in CPR 6.36 and PD6 3.1(3). However, this sits uneasily with Moulder J’s observation at [17] that, following Linsen International Ltd v Humpuss Sea Transport Pte Ltd [2011] EWHC 2339, that gateway is not available where the substantive claim is being determined in arbitration.
Finally, Moulder J noted Males J’s observations in Cruz City regarding the “Chabra” jurisdiction (whereby a freezing order can be obtained against a third party who holds assets on behalf of the defendant). Males J had described the Chabra jurisdiction as “unusual” as it involves the court’s compulsive powers, backed by the sanction of contempt proceedings, against a party against whom no cause of action is asserted, and warned that there was a need for caution, especially when the relevant party is foreign and has no presence or assets within the jurisdiction.
Moulder J went on to hold that, even if she was wrong on the issue of jurisdiction, there was in any event insufficient evidence that Mr. Melnykov held any assets of the claimant, or that there was a real risk of dissipation. Moulder J also rejected the claimant’s application to have Mr. Melnykov named in the penal notice under CPR 81.4(3), holding that there was no basis for extending the rule to partners, and that there was insufficient evidence in any event to establish that Mr. Melnykov was acting as de facto partner.
Comment
The High Court in Trans-Oil followed DTEK and Cruz City, confirming that orders under s.44 (and consequently permission to serve out of jurisdiction under CPR 62.5(1)(b)) cannot be granted against a non-party to the arbitration agreement. Trans-Oil is a useful illustration of the limits of the court’s ability to grant relief against non-parties to an arbitration agreement, particularly where they are located outside, or otherwise have little or no nexus with England.
Following Trans-Oil and DTEK, parties seeking to obtain orders from the English courts against non- parties to an arbitration agreement will need to seek some other route to relief than s.44, for example under s.37 Senior Courts Act 1981. Additionally, where the non-party is based abroad, jurisdiction over the third party will need to be established other than using CPR 62.5 (which will mean resorting to a “general ground” under CPR PD6B). However, if that is not the case, applicants will need to consider other options (for example, using letters of request to obtain evidence from a non-party witness who is based abroad, or other forms of direct application in the courts in which the non-party is located).
Click here for a copy of the judgment.
Joanne Finnegan would like to thank Madeline Chan for her assistance in the preparation of this article.