Cetelem v. Roust Holdings

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Cetelem SA v Roust Holdings Ltd
English High Court: Beatson J.: [2004] EWHC 3175 QB: 29 December 2004
Michael Black QC appeared for Cetelem
Kenneth Maclean QC appeared for Roust Holdings Ltd.
Arbitration Act 1996 s.44: assistance of Court prior to commencement of arbitration: freezing orders: mandatory injunctions


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

On 23 December 2004 Cetelem SA (a French company and a subsidiary of BNP Paribas) applied for and was granted an injunction without notice, the injunction prohibiting Roust Holdings Ltd ("RHL") (a British Virgin Islands company) from dealing with any of the specified assets, in particular its direct shareholding in Roust Trading Ltd (a Bermudian company) and Roust Cetelem Ltd ("RCL") (a Cypriot company) and its direct shareholdings in ZAO Roust Inc and Russian Standard Company, both Russian closed joint stock companies, and Russian Standard Bank ("RSB"), a Russian commercial bank and closed joint stock company.

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 [2004] 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) [2003] 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 [1970] 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.

Beatson J held that the decision in Hiscox showed that the court did have jurisdiction; in particular, s.44(3) refers to a proposed party to arbitration proceedings and he agreed with Cooke J that the language of s.44(3) was permissive. In particular, s.44 (3) did not distinguish between cases involving a party to an arbitration and a proposed party.

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.

At first sight this decision appears to be ‘no more’ than common sense. However, the order sought and granted did indeed go well beyond "preserving evidence or assets" while still being "in support of arbitral proceedings", notwithstanding that there was no arbitration imminent. This is a distinctly wider view of ‘permissive’ than might be anticipated and, it is submitted, the key to this case is the extension of Hiscox (where an arbitration had commenced but the arbitrator had not yet been appointed) to cover the circumstance here where any disputes which might arise were covered by an arbitration agreement. Leading texts refer to s.44(3) as covering the time gap between commencement of proceedings (s.14) and constitution of the tribunal but the present case pushes the applicability s.44(3) much further back in time.

*Section 44 of the Arbitration Act 1996 reads:
"1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings.

*(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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