Richard Lissack QC and Leonora Sagan, who acted for the successful appellants in A and B v C, D and E  EWCA Civ 409 (together with Teresa Rosen-Peacocke of Outer Temple Chambers) reflect on the significance of the Court of Appeal’s decision on Court powers in support of arbitrations under section 44 Arbitration Act 1996.
Last week the Court of Appeal handed down judgment in an area described as one of “long standing controversy”, addressing the question of whether section 44 of the Arbitration Act 1996, which gives the Court powers “in support of arbitral proceedings” gives the Court jurisdiction to make orders against a non-party to the underlying arbitration.
The Court’s answer in A and B v C, D and E  EWCA Civ 409 is “yes” – at least in part: under s.44(2)(a), which grants powers for “the taking of the evidence of witnesses” the Court is empowered to order a non-party witness resident in England to be deposed in support of an arbitration seated and being conducted in New York.
This is a welcome judgment for many in the increasingly global arbitration community: the support of foreign courts is often much needed to fill the voids in which localised tribunals are powerless to act. Yet it remains to be seen whether this more expansive interpretation of the Court’s powers in support of arbitral proceedings will apply beyond the particular subsection considered in A v C, and in particular whether the Court’s powers in respect of property (under s.44(2)(c)) and to issue injunctions (under s.44(2)(e)) will be similarly interpreted in future.
The New York arbitration
The dispute being arbitrated in New York in A v C arose in the context of two settlement agreements entered into between the appellants and the first and second respondents in relation to the exploration and development of an oil field off the coast of Central Asia. Under those agreements the appellants were entitled to a percentage of the net sale proceeds if the first and second respondents sold their interests in the field, which they did in 2002. A key issue in the arbitration then became whether, in calculating the sums due to the appellants, the respondents were entitled to make deductions for certain “signature bonuses” they paid over to the relevant Central Asian government in return for the rights to the oil field.
The Appellants contended that these “signature bonuses” represented bribes; were contrary to public policy; and should not be deducted from the sums they were due. They relied, among others, on the fact that the individual who negotiated the “signature bonuses” on behalf of the relevant Central Asian government (“G”) had been indicted in 2003 by the Southern District of New York for (among others) violations of the US Foreign Corrupt Practices Act.
The third respondent, “E”, from whom evidence was being sought, was the lead negotiator for the Respondents in respect of the “signature bonuses” and had negotiated directly with G. Since he was unwilling to give evidence to the tribunal in New York, the tribunal granted the appellants permission to seek his evidence by deposition from the English Court under s.44(2)(a) Arbitration Act 1996 and the Civil Procedure Rules, r.34.8.
The judgment at first instance and the controversy
At first instance, Foxton J refused the application on the basis that s.44 does not give the Court jurisdiction against non-parties. With express reluctance, the judge noted the “considerable force” in the arguments to the contrary, particularly as “at first blush, the language of s.44 lends some support to the…argument that orders can be made against non-parties.” ( EWHC 258 (Comm) ). However, he felt duty bound to follow the reasoning in two High Court decisions to the opposite effect: that of Males J in Cruz City Mauritius Holdings v Unitech Limited  EWHC 3704 (Comm) and Sara Cockerill QC in DTEK Trading SA v Morozov  EWHC 1704 (Comm).
In both those cases the judges had been strongly influenced by the consensual nature of arbitration and the principle that agreement-based resolution mechanisms ought to be binding only on the parties to that agreement. As a result, though the subsections under consideration in those cases were 44(2)(e) and (c) respectively, the real difficulty the authorities posed to the facts of A v C stemmed from the breadth of the judges’ conclusions: in both Cruz and DTek the judges proceeded to construe s.44 as a whole, concluding that its provisions envisaged the making only of inter-partes orders.
In following that reasoning Foxton J also chose to give less weight to another High Court decision based specifically on s.44(2)(a), and therefore arguably more applicable to A v C: in Commerce and Industry Insurance Co of Canada v Certain Underwriters at Lloyd’s  1 WLR 1323 Moore Bick J proceeded on the basis that section 44(2)(a) did give the Court power to order the taking of the evidence of a non-party witness.
Recognising this conflict in authority and the importance of the question to the arbitration community, Foxton J did however grant the appellants permission to appeal.
On appeal, the Court was presented with two possible routes to resolution: a narrow route based on a discrete construction of s.44(2)(a) alone, which placed much emphasis on the word “witnesses” (to mean more than merely “parties”), and a broader approach which harnessed the extensive criticism of Cruz and DTek appearing in the academic commentaries.
Perhaps unsurprisingly given the Court’s composition (whose members included the now elevated Males LJ, whose decision in Cruz City was being (re)considered) the Court opted squarely for the former route. In doing so, it expressly left open the question as to whether Cruz City and DTek were correctly decided (; ). It also resuscitated the judgment of Moore Bick J in Commerce & Industry, the reasoning of which it found “compelling”, but which had not been cited at all to Males J in Cruz City (). Interestingly, among the reasons given by Moore Bick J in that case for a broader interpretation of section 44(2)(a) AA 1996 was the fact that its predecessor provision in the 1950 Arbitration Act had also been applied such as to permit orders against non-parties (see the decision of Clarke J in Unicargo v Flotec Maritime (The Cienvik)  2 Lloyd’s Rep 395 at 404 rhc; and A v C at .).
Moreover, in rejecting the Third Respondent’s arguments to the effect that the Court has only limited powers to order evidence for foreign proceedings, the Court took a common-sense approach to the purpose and reality of arbitration proceedings. Males LJ astutely noted that in modern arbitrations a witness is rarely a party () and showed a willingness to consider arbitral proceedings in their particular context, to which the complex machinations of state-to-state treaties such as the Hague Convention are simply not applicable () and “rough edges” may be tolerated ().
So what about Cruz City and DTek?
But the effect of the Court’s decision, despite its reluctance to grapple directly with the correctness of Cruz City and DTek, is certainly to cast considerable doubt on those authorities given that they opine on the interpretation of s.44 as a whole. Males LJ appeared to acknowledge as much in noting that his prior reasoning had been expressed as “equally applicable to all the different paragraphs of section 44(2) without distinguishing between them”. () Plainly in light of the Court of Appeal’s broader construction of s.44(2)(a) specifically, the breadth of that reasoning at least has been impugned.
Further, looking at the language of those specific sections there is little to suggest they should be limited to inter-partes orders, particularly if the broader concerns as to the consensual nature of the arbitral process fall away:
- Section 44(2)(b) simply provides for the Court’s powers in respect of “the preservation of evidence”, without tying that down to, for example, evidence held specifically by either party to the proceedings.
- Sections 44(2)(c)(i) and (ii) are similarly untethered, providing for the “inspection, photographing, preservation, custody or detention [of property]…[and] ordering that samples be taken from…the property” without stating that the property must belong to one or other of the parties. It is only if access to premises is required for those purposes that the subsection expressly acknowledges that the relevant premises must be “in the possession or control of a party to the arbitration” (though, even that language appears to anticipate that insofar as property is legally owned by a third party then non-party orders may be made necessary).
- Section 44(2)(e) which envisages “the granting of an interim injunction” makes no reference back to the parties to the arbitration.
This language very much suggests that other subsections too are “up for grabs” insofar as their correct interpretation is concerned, and Flaux LJ, in noting that “it does not seem…that the other subsections of section 44 point against the Court having the power to make an Order against third parties under section 44(2)(a)” () left the door in respect of them wide open.
However, both Cruz and DTek concerned the interpretation of section 44 primarily through the lens of the CPR provisions in relation to service-out (CPR 62.5). It is possible that insofar as they deal with that particular combination of statutory and procedural powers, they remain good law.
Watch this space
Yet the better view is likely that the decision of the Court of Appeal signals a judicial willingness to re-consider each subsection to section 44 on its own language. No doubt considerable encouragement will be drawn from Flaux LJ’s words to the effect that “Any apparent inconsistency between the various heads of subsection (2) may be explained by the different language of those heads”. This means that for now, the arbitration community and the authors of the various commentaries can only speculate on how different sections might be differently construed, and await appropriate facts to test their theories.
The long-standing controversy continues.