Cetelem v. Roust Holdings
S.44 of the English Arbitration Act 1996 allows the Court to take certain actions in support of arbitration; s.44(3) allows it to do so prior to the appointment of a tribunal but the language of s.44(3) was previously decided in Hiscox to be permissive and not exhaustive; the decision in this case goes further (and further than the Model Law and most leading arbitral jurisdictons) in that the Court acted although there was not only no arbitration on foot, none was imminent, merely that there existed an arbitration agreement. The case highlights that s.44(3) also refers to a "proposed party" to arbitration, a feature absent in most other arbitration laws.
DMC Category Rating: Developed
This case note has been prepared by Hew Dundas, International Arbitrator, Mediator and Expert Determiner, who is a contributor to this website
Cetelem had entered into a Share Purchase Agreement (SPA) whereby it would purchase shares in RCL from RHL in order to create a 50/50 shareholding Cetelem/RHL. The consideration for the transaction was in the region of US$320m. The Roust group was controlled by a Mr Roustan Tariko. The SPA contained an arbitration agreement, for ICC arbitration in London under English law and in English. The reason for the urgency was that certain documentation concerning RSB had to be submitted to the Central Bank of Russia, before 31 December 2004, for approval; securing such approval was the principal Condition Precedent to the completion of the share purchase.
Cetelem had obtained a temporary injunction but now sought a mandatory injunction obliging RHL to deliver the documentation to Cetelem’s Moscow lawyers. Did the Court have jurisdiction to grant this?
Cetelem submitted that the Court did indeed have jurisdiction over the application because the arbitration agreement contained in the SPA was subject to the Arbitration Act 1996. It also argued that ss.44(3)* and (5)** Arbitration Act 1996 applied and relied on the decision of Cooke J in Hiscox Underwriting Ltd v Dickson  EWHC 479. In that case, Cooke J held that s.44(3) was permissive and not exhaustive of the court's powers, and that an interim injunction prior to the appointment of an arbitrator was permissible in an urgent situation where the injunction would be supportive of the arbitral process (in Hiscox a mandatory injunction was in fact given).
Alternatively, in any event, the court had a residual jurisdiction under s.37 Supreme Court Act 1981 to act in the interests of fairness and justice. Cooke J had noted that in making an order of this type it was essential not to prejudge the issue(s) which had to be determined by the arbitrator; further, a key principle in exercising jurisdiction was that s.1(c) of the 1996 Act provided that the court ‘should not’, as opposed to ‘shall not’, intervene in the arbitration process. [Note that Art.5 of the Uncitral Model Law on Arbitration uses the words "shall not" see www.uncitral.org]. Cetelem also referred to other authority governing mandatory injunctions to support its application for a mandatory, as opposed to temporary, injunction.
RHL submitted that there was no jurisdiction because the SPA involved the transfer of shares by a BVI company [this is incorrect: the transferor was actually RHL] in a Cypriot company to a French company (Cetelem) where the BVI company had no assets in England & Wales. The s.44 powers were in support of arbitral proceedings but here there was no arbitration in immediate contemplation; hence the order sought would not be in support of arbitral proceedings but would be a usurpation of the powers of the arbitrators. Further, where there was no arbitration imminent, the powers in s.44(3) were confined to the matters specified therein, namely, preserving evidence or assets. Hiscox was distinguishable because in that case the arbitration had commenced although the arbitrator had not yet been appointed. Further, in Motorola Credit Corporation v Uzan (No 2)  EWCA (Civ) 752 it had been held that parties without assets in the UK should not have a worldwide freezing order made against them by a UK court.
RHL also relied on the well known decision in Redland Bricks v Morris  AC 652, and in particular Lord Upjohn’s statement, as the fourth general principle relating to the grant of a mandatory injunction, that: "The court must be careful to see that the defendant knows exactly in fact what he has to do and this means not as a matter of law but as a matter of fact so that in carrying out an order he can give his contractors the proper instructions." Consequently, to oblige RHL to procure documents that were for other companies to provide, for example, constitutional and trading documentation for RSB without stating precisely what it was that RHL was to do, violated this principle.
Further, Motorola was distinguishable because in the present case the arbitration agreement made England the primary locus of jurisdiction for resolving disputes in contrast to the facts in Motorola. As regards the difficulty of enforcing any order, RHL’s Bye-Laws and Mr Tariko’s demonstrable control of the Roust Group gave it the necessary decision-making capability. He accordingly granted the mandatory injunction for which Cetelem had applied.
*Section 44 of the Arbitration Act 1996 reads:
*(3) If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.
**(5) In any case the court shall act only if or to the extent
that the arbitral tribunal, and any arbitral or other institution or person
vested by the parties with power in that regard, has no power or is unable for
the time being to act effectively.
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