The English court’s powers in support of arbitral proceedings in section 44 of the Arbitration Act 1996 are not exercisable against non-parties to an arbitration

Last month, the High Court in DTEK Trading SA v Morozov [2017] EWHC 94 (Comm) held that orders under section 44 cannot be made against non-parties to the arbitration, a question which had been touched on but not been addressed directly until then. Where a party wishes to require a foreign non-party to an arbitration agreement to preserve evidence, it should do so by way of letter of request; and where a party wishes to obtain other ancillary orders against foreign non-parties, it must do so using other statutory provisions (such as section 37 Senior Courts Act 1981).

The facts

DTEK was the respondent in arbitral proceedings brought by Steel Mont Trading SA. Steel Mont claimed for the purchase price of coal from DTEK, which DTEK argued was of the wrong specification. DTEK argued that a report on the cargo produced by Incolab Services Ukraine LLC, which was not a party to the arbitration, was incorrect. In the arbitration, DTEK alleged that it had entered into a settlement agreement with Incolab. However, Steel Mont produced a witness statement of the second defendant, who was also not a party to the arbitration, referring to a differently-worded settlement agreement. Therefore, DTEK sought an order, under section 44(1)(b) of the Arbitration Act, that Incolab and Mr Morozov (based in the Ukraine) preserve the second alleged settlement agreement and allow DTEK to inspect it, which would entitle DTEK to serve the claim form on the defendants out of the jurisdiction under CPR 62.5(1)(b).

The decision

Ms Sara Cockerill QC, sitting as a deputy High Court judge, dismissed the application. She held that the court did not have power to make orders under section 44 against those who are not parties to the arbitration proceedings, and so it could not also grant permission to serve proceedings out of jurisdiction on non-parties under CPR 62.5(1)(b).

Ms Cockerill QC examined a number of cases which discuss the court’s jurisdiction in relation to non-parties and CPR 62.5, and found that there was a line of authority that service out against third parties was not permissible, at least under CPR 62.5(1)(c) (The Cienvik [1996] 2 Lloyd’s Rep 395; Vale do Rio Doce v Shanghai Bao Steel [2000] 2 Lloyd’s Rep 1). Whilst there were a number of cases which expressed the view (without deciding the point) that section 44 (and consequently CPR 62.5(1)(b)) does cover claims against third parties, she held that the correct view is that it does not. This was the view expressed obiter by Males J in Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] EWHC 3704 (Comm).

Citing Males J’s reasoning in Cruz City, Ms Cockerill QC held that, considering the entirety of section 44 in context, the wording does not indicate that it was intended to cover applications against third parties; rather, it appears intended to be confined to the parties in the arbitration.

Ms Cockerill QC recognised that her ruling risked creating a lacuna whereby a non-party can take steps to thwart an arbitration, and an injunction could not be obtained against it. However, in her view, that could not justify a finding that the court has jurisdiction against third parties where this is not justified on the wording of section 44. In any event, she noted that in the majority of such cases, jurisdiction had ultimately been established under CPR PD6B.

Ms Cockerill QC did, however, hold that section 44(2) gives the court power to issue letters of request. This acts as a request for assistance from a foreign court, which the third party can challenge under its local laws.

Implications of the decision

As a result of DTEK, there is positive authority that section 44 (and consequently CPR 62.5(1)(b)) cannot be invoked to obtain an ancillary order against a third party outside the jurisdiction. As a result of Cruz City it is also clear that CPR 62.5(c) is not available in such cases either.

The question then arises of what can be done to obtain such an order against a third party in such circumstances. Some other route to relief will need to be found. This will usually involve identifying another statutory or common law basis for the relief sought, other than section 44, (for example, section 37 Senior Courts Act 1981 – which the Supreme Court has held as co-existing with section 44 (AES Ust-Kamenogorsk [2013] UKSC 35)) and jurisdiction over the third party for the relief will need to be established other than using CPR 62.5 (which will often mean resorting to CPR PD6B).

Alternatively, some other remedy (such as, in DTEK, using letters of request) could be considered. Of course, where the third party is within the territorial jurisdiction of the English courts, there would be no need to find a basis for service out of the jurisdiction, and direct resort to an appropriate basis for relief can be had (see, for example, The Tasman Spirit [2004] EWHC 3005 (Comm), where, in relation to a third party to an arbitration who had relevant documents, section 43 Arbitration Act was invoked to obtain them by way of witness summons).

Joanne Finnegan

+44207456 [3412]
Email Joanne