UK: Insurance And Reinsurance Weekly Update - 3 June 2014

Last Updated: 17 June 2014
Article by Nigel Brook

Diag Human Se v Czech Republic

Whether a New York Convention arbitration award had become binding and so could be enforced in England

The claimant sought to enforce a New York Convention award made in the Czech Republic against the defendant. The defendant resisted enforcement on the ground that the award had "not yet become binding on the parties" (section 103(1)(2)(f) of the Arbitration Act 1996). Eder J held as follows:

(1) A decision by the Austrian Supreme Court (in separate enforcement proceedings) that the award is not binding gave rise to an issue estoppel between the parties, with the effect that the claimant could not argue otherwise. The judge rejected the claimant's argument that in proceedings to enforce under the New York Convention, issue estoppel cannot arise from decisions in other states on enforcement itself. The only conditions which had to be met were those affirmed by the Court of Appeal in The Good Challenger [2004]: (1) the judgment was given by a foreign court of competent jurisdiction; (2) the judgment is final and conclusive and on the merits; (3) there is identity of parties; and (4) there is identity of subject matter (i.e. the issue decided by the foreign court was the same as that arising in the English proceedings). Those conditions were met here.

(2) Even if there had been no issue estoppel, the judge would have found that the award was not binding. Having reviewed prior caselaw, Eder J concluded that if an award is subject to "ordinary recourse", rather than "extraordinary recourse", in the courts of its home jurisdiction, it will not be binding. However, he said he was "extremely reluctant to provide any definition of either category" and did not approve the claimant's argument that "ordinary recourse" should mean "a genuine appeal on the merits" (as opposed to an application to set aside, usually on procedural irregularity grounds). The judge held that here, the decision of the Municipal Court of Prague that two issues should be resolved by a review tribunal meant that the award was subject to a process of "ordinary recourse" and so was not binding.

(3) The judge also rejected the claimant's argument that it was entitled to an award of interest on the capital sum awarded by the tribunal. The claimant had argued that even if an award cannot be enforced in full, such part of the award in respect of which is there is no realistic or credible challenge can still be enforced and entitles the claimant to an award of interest (see IPCO v Nigerian National Petroleum Corporation (No 2) (Weekly Updates 17/08 and 41/08)). However, here there was no pending application in the foreign jurisdiction to set aside an award. Instead, the award was not binding and so: "In my view, that conclusion is fatal to any question of partial enforcement. I know of no case in which the English Court (or indeed any court) has permitted enforcement of any award in such circumstances i.e. which it has held is not binding. The fact that a particular sum may be said to be "indisputable" ... does not, in my view, justify the relief sought".

Hone & Ors v Abbey Forwarding

Court of Appeal assesses damages for the breach of a cross-undertaking where freezing injunction should not have been made and whether general damages can be awarded

As is customary, the respondents had provided a cross-undertaking in damages in return for the grant of a freezing order against the appellants. At first instance, the judge ordered the respondents to pay the appellants almost GBP 30,000 for losses suffered as a result of the freezing order (which, it was subsequently shown, had been made without justification). On appeal, having reviewed prior caselaw, the Court of Appeal agreed with the judge that the starting point for an assessment of those damages was that set out by Lord Diplock in Hoffmann-La Roche v Secretary of State [1975]: "The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction".

However, there was a caveat to that basic position: "Logical and sensible adjustments may well be required, simply because the court is not awarding damages for breach of contract. ...The court is compensating for loss caused by the injunction which was wrongly granted. It will usually do so applying the useful rules as to remoteness derived from the law of contract, but because there is in truth no contract there has to be room for exceptions. In my judgment, the law also meets the justice of the matter. A defendant wrongly injuncted should be compensated for losses that he should not have suffered, but a claimant should not be saddled with losses that no reasonable person would have foreseen at the time when the order was made, unless the claimant knew or ought to have known of other circumstances that was likely to give rise to the particular type of loss that occurred in the case at hand. A claimant may, however, find himself liable for losses which would not usually be foreseen in particular cases. One such case may be if a loss, not usually foreseeable, arises before a defendant has had any real opportunity to notify the claimant of the likely loss or sensibly to apply to the court for a variation".

Applying these principles to this case, an additional GBP 10,000 was awarded. However, the Court of Appeal also said that the appellants could not claim for loss of individual investment or earning possibilities if those possibilities had never been mentioned to the respondents. They could not simply argue that, given the respondents' attitude to the administration of the freezing order, there had been no point in discussing potential investments with them.

The Court of Appeal further held that general damages for distress and anxiety were recoverable in respect of a cross-undertaking (even though such damages are not usually recoverable for a breach of contract). In this case, there had been the aggravating feature of the "needlessly aggressive approach" of the respondents' solicitors to the administration of the order. The Court of Appeal ordered GBP 15,000 to be paid to each of the three appellants under this head (instead of the GBP 8,000 ordered by the judge).

Dar Al Arkan & Anor v Al Refai

Court of Appeal confirms that the English courts have jurisdiction to commit a foreign director of a foreign company for contempt

The first instance decision in this case was reported in Weekly Update 01/14. The claimant foreign company was in contempt of court for breaches of court orders and Smith J held that the claimant's managing director (who is domiciled and resident in Saudi Arabia) could be served with committal proceedings because the English court had jurisdiction under CPR r81.4 to make a committal order against the director. The director appealed against that decision.

The Court of Appeal has now unanimously dismissed that appeal. Although CPR r81.4 (which provides that a committal order can be made against the director of a company which is in breach of a judgment, order or undertaking) does not expressly have extra-territorial effect, the Court of Appeal held that the legislative intention behind the rule was that it should have such an effect. That was because, absent such a power, the English courts would have "significantly weakened" powers to deal with contempt of its orders by companies with foreign directors. In reaching this conclusion, Beatson LJ noted that following the introduction of the CPR, "the general position is that reference to authorities under the former rules is generally no longer relevant and the courts generally refuse to look at equivalent provisions in the RSC as an aid to interpretation".

The Court of Appeal also drew a distinction between this case and Masri v Consolidated Contractors (see Weekly Update 30/09), where the House of Lords held that the English courts did not have jurisdiction to order the examination of a foreign director of a debtor company under CPR r71: "In my judgment, the nature of committal proceedings is very different from the nature of the power of the court under Part 71 to obtain information from judgment debtors" (as per Beatson LJ).

Furthermore, the judge had been correct to exercise his discretion to give permission for service out. That was because the notice of the committal application did fall within the meaning of a "claim form" under CPR r6 as it commenced "proceedings", which in turn included committal proceedings.

The Court of Appeal also referred to Article 22(5) of Regulation 44/2001 which provides that, in proceedings concerned with the enforcement of judgments, the courts of the Member State in which the judgment has been or is to be enforced shall have exclusive jurisdiction, "regardless of domicile". At first instance, the judge held that this Article did not apply because the director was not domiciled in an EU Member State. In reaching that conclusion, the judge said that he was bound by the Court of Appeal's decision in Choudhary & Ors v Bhatter & Ors (see Weekly Update 44/09). Although not required to decide the point, the Court of Appeal nevertheless expressed the view that, in light of ECJ caselaw, there was a "compelling" argument that Choudhary was incorrectly decided and that the English courts did have jurisdiction under the Article, no matter where the defendant is domiciled.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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