Fiona Trust And Holding Corporation v Primalov

We gave judgment in this appeal on 24 January 2007. We granted a stay of the respondents’ rescission claims and dismissed their claims for declarations and/or injunctions made under section 72 of the 1996 Act. We refused leave to appeal to the House of Lords, but did however restrain the successful appellants from continuing the arbitration which they had begun, pending an application being made to petition the House itself for leave to appeal.

The House granted the respondents leave to appeal on 29 March 2007 and the question now arises whether the restraint on the appellants from continuing the arbitration should be extended until the House has given judgment. There is no indication as to when the appeal would be likely to be heard and it is not impossible that any restraint ordered would be in existence for a period of about 12 months, but one would hope that in the light of the appeal being an interlocutory appeal, the House of Lords might it give it priority.

What, therefore, is to happen meanwhile? The current position is that this court has held that no injunction should be granted restraining the arbitration, but it is possible that the House of Lords may reverse our order and decide that an injunction should be granted or, at any rate, that they might declare that the dispute, whether the relevant charter parties have rescinded, is a dispute that does not fall within the arbitration clause.

Section 72 of the 1996 Arbitration Act only entitles a claimant to relief if he has taken no part in the proceedings. So far, the respondents have taken no part, but it is said that if no order restraining the appellants from continuing the arbitration is made, they will be forced to decide between taking part in the arbitration and forfeiting their right to relief on one hand, and allowing the appellants to obtain default awards on the other.

To meet that difficulty, the appellants have undertaken that if the arbitration continues and the respondents take part, they will not argue that the respondents have forfeited their rights under Section 72 of the Act. In other words, they will accept that the respondents can participate in the arbitration without prejudice.

They are not prepared to concede expressly that the respondent should be entitled to appoint their own arbitrator because they have exercised their rights to appoint Mr Hamsher as sole arbitrator since no arbitrator has been appointed by the respondents; but it seems to me, in any event, that the logic of their position is that that is a matter which ought to be conceded here and now, so that if no order is made by this court for restraining any arbitration, then the respondent should be permitted, as part of the without prejudice exercise, to appoint their own arbitrator.

Mr Butcher, in support of his application for a continuing restraint pending the hearing in the House of Lords, says that this is not satisfactory. He submits that, even if the respondents are able to appoint their own arbitrator, they would be prejudiced if the arbitration continued because:

Mr Hamblen submits that the respondents’ fears are much exaggerated and that his clients will be prejudiced if they cannot pursue the arbitration that they have begun until such time as the House of Lords delivers judgment. He says that, if an injunction is granted restraining any arbitration until the outcome of the appeal, his clients will be unable to arbitrate plainly arbitral claims, such as the claims for the balance of the account at the end of charterparties, some of which have now expired. He says that itself would not be right, but more generally, he says that any such order asked for would be granting to the respondents by the back door relief, which the court has refused by the front.

Moreover, Mr Hamblen has offered to indemnify the respondents in respect of any costs or expenses incurred which will have been incurred solely because arbitration proceedings have been allowed to continue. He points out that most of such expenditure will have been incurred, in any event, in the progress of the litigation. He also points out that it is most unlikely that any arbitration hearing would take place before the House of Lords give their judgment, but he does submit that it would be sensible for pleadings, discovery, exchange of witness statements and exchange of experts reports to take place, since that is what is anyway will be happening in the action. Any excessive enthusiasm on the part of his clients to rush to any award can be catered for, he says, by the liberty to apply, which exists in the current order.

In evaluating these submissions it has to be recognised that what the respondents are applying for is an injunction which this court has, rightly or wrongly, already decided that it is inappropriate to grant, albeit that it should only be pending an appeal. That is not a difficulty in itself, of course, since any court has jurisdiction to preserve a state of affairs by granting an injunction if necessary, so as to ensure that if its order is reversed by a higher court, the losing party is not prejudiced by the fact that the lower court has made a wrong order.

It is nevertheless important to remember that the relevant provisions of the 1996 Act are said, in section 1(1) of that Act, to be founded on the principle inter alia that the court should not intervene in arbitral matters except as provided in the Act. This gives a statutory prompt to the effect that the court should always be cautious about granting an injunctive relief in an arbitration context.

That consideration persuades me that the respondents have to have a strong case of potential prejudice before it would be appropriate for the court to grant injunctive relief, even for the purpose of attempting to preserve the position against the possibility that the arbitration clause will, in due course, be held to be ineffective to determine the question of whether the charterparties have been or ought to be rescinded.

On that basis, I come to the conclusion that the respondents’ case here is not strong enough. First, any extra cost in pursuing to the arbitration is not likely to be excessive if the respondents are anyway progressing court proceedings. In any event, they have the benefit of the undertaking of the appellants to pay any costs, which would truly not have been incurred in any event. Secondly, although there will be a certain amount of distraction inevitably from the court proceedings, the arbitration in the court proceedings are currently, and likely in the future, to cover much of the same ground so that the distraction will be minimal. Thirdly, it is not at this stage clear that the arbitration proceedings, because they are less complex, will go somewhat faster than the court proceedings and be ready for hearing before the court proceedings. If that happens and if the respondents are really likely to be prejudiced, that is a matter which the respondents can invite the arbitrator to consider at an appropriate time. Fourthly, the fact that the court makes no restraining order at this stage will not prevent the parties from making any application to the Arbitration Tribunal at any stage. The respondents have already indicated that they might well wish to ask the arbitrators to stay their hand on the question of bribery, pending the wider investigation to be mounted by the court. If any such application were to be made to the Arbitration Tribunal, that tribunal will have to consider it carefully on the evidence available at the time.

In any event, the liberty to apply provision in our order will continue as a long stop, if necessary. Having discussed the matter with my Lady, Lady Justice Arden, it seems to us, however, that it would be more appropriate now that the liberty to apply should to be a liberty to apply to a judge of the Commercial Court rather than to this court, save for the purpose of working out any consequences of the order that we make today.

For those reasons, I would refuse this application, but on the understanding that the appellants undertake the three matters which I have referred to already, that I will now compendiously refer to again: firstly, that the respondents can participate in the arbitration without prejudice to any question which is currently before the courts; secondly, that the respondents be allowed to appoint their own arbitrator; and thirdly, that any additional costs as result of the arbitration, if it is eventually decided that it is not to take place, will be borne by the appellants.

On the basis of those undertakings I would decline to grant this application

For the reasons given by my Lord, Lord Justice Longmore, I too would refuse this application.