This is the latest case in the lengthy litigation between these
two parties. The claimant obtained a freezing order against the
defendant. He has since breached that freezing order by pledging
certain of his assets to two banks. The Court of Appeal, in an
earlier judgment, confirmed that the pledges were a breach of the
order because the defendant was not dealing with the assets in the
ordinary course of business (the defendant not having any relevant
business). In this case, the claimant sought an order that the
defendant exercise his best endeavours to reverse the pledges.
Teare J held as follows:
(1) The defendant's argument that, since the pledges did not
conflict with the purpose of the freezing order (ie to prevent the
defendant making himself "judgment-proof"), he should be
granted retrospective permission, was incorrect. The court does not
simply look at the purpose of the transaction - it examines all the
circumstances of the case to do justice between the parties.
(2) The defendant further argued that he could not take any step
to undo the pledges (the two banks not being under his control).
The judge was reluctant to order the defendant to use his best
endeavours to undo the securities when no steps likely to be
effective could be identified. Nevertheless, he did order the
defendant to use his best endeavours to intervene in any
enforcement procedures brought by the two banks to ensure that a
Russian court is informed that the pledges were in breach of the
freezing order made by the English court.
(3) Teare J noted that a court must give consideration to third
party interests (here, the interests of the two banks which might
wish to enforce the pledges). He held, however, that the banks'
interests would only be prejudiced if the Russian court considers
that the pledges should not be enforced in accordance with Russian
The claimant alleged that a Mr Emmott had breached his fiduciary
duty to it. That claim was rejected by an arbitral tribunal. Mr
Emmott had been assisted by a Mr Sinclair in the arbitration. The
claimant then commenced proceedings in the Commercial Court against
Mr Sinclair. He had not been a party to the arbitration but sought
a strike out on the basis that the litigation proceedings were an
abuse of process because the claimant was seeking to raise the same
issues as those decided in the arbitration. This case therefore
raised interesting questions regarding the interplay between
arbitration and litigation. Teare J held as follows:
(1) The doctrine of abuse of process can, in principle, apply
where the previous decision is that of an arbitral tribunal.
Nevertheless: "it will probably be a rare case where an action
in this court against a non-party to an arbitration can be said to
be an abuse of the process of this court".
(2) Usually, it will not be possible to argue that there is an
abuse of process where an arbitration takes place between A and B
but A then wishes to commence litigation against C, who was not a
party to the arbitration. However, in this case, there were
"special circumstances" which did make the litigation an
abuse of process. Mr Sinclair had been a witness in the arbitration
and had funded Mr Emmott's defence. It could not be said that
the claimant was "labouring under a disadvantage in the
arbitration from which it would be free in the litigation".
Whereas many arbitrations are intended to have effect only between
the parties, this arbitration was different. The arbitrators had
envisaged that Mr Sinclair would take certain action pursuant to
the arbitral award. Furthermore, the underlying factual allegations
concerning Mr Emmott were the same in the arbitration and the
litigation - Mr Sinclair could not be found to have dishonestly
assisted a breach of fiduciary duty if the tribunal had found that
there had not been such a breach.
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