International Arbitration: Careful or the sheriff might come a'knockin'

A recent decision of the England and Wales High Court (Admiralty Division)[1] provides a cautionary reminder that awards made at the conclusion of international arbitrations are just as powerful as judgments obtained following court proceedings. 

While Australia has not become a hub of international arbitration in the same way as England, Singapore or Hong Kong, as a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (Convention), Australia has adopted the UNCITRAL Model Law on International Commercial Arbitration (Model Law), which was enacted in Schedule 2 of the International Arbitration Act 1974 (Cth). Individuals and entities based in Australia, or with assets in Australia, need to be aware of the risks and opportunities that come with agreement to participate in international arbitrations.

In many cases arbitration of a cross-border dispute will be the preferable form of dispute resolution when compared to litigation in a court, whether in Australia or overseas.  In terms of efficiency of process, confidentiality and ease of enforcement in signatory countries, international arbitration has much to offer.

The case

The decision the subject of this bulletin was handed down by Mr Justice Phillips in July 2015. 

The background was that the claimant had obtained a number of awards following arbitrations conducted by the Grain and Feed Traders Association (GAFTA), based in London.  The respondent was a Nicaraguan company (CORCOSA). Following the making of the awards, it refused to engage or communicate with the claimant.

The claimant registered the award as a judgment in the England and Wales High Court.  CORCOSA failed to satisfy the judgment.  The claimant then commenced court proceedings in the same court against CORCOSA seeking to enforce the judgment.

As part of the proceedings, freezing orders were made against CORCOSA which prevented it from disposing of its assets that could be used to pay the judgment.  CORCOSA was also required to provide a sworn list of its assets worldwide within 14 days of service of the freezing orders.  The operation of the freezing order, and the time to provide the sworn list of assets, were extended for further periods of time as CORCOSA continued to ignore the orders made against it. All of the court’s orders permitted service on CORCOSA and its directors by email.

The orders were served on CORCOSA and its directors by email.  The claimant adduced evidence that the respondents received, read and deleted the documents received.  Copies of the orders were also personally served on the directors. The court found that CORCOSA’s failure to comply with the orders was “wilful and contumacious”.  The claimant also brought contempt proceedings against the directors for the non-compliance.  For the failure to comply with the court’s orders, the court went on to sentence the two directors to 18 months imprisonment each.

In relation to CORCOSA, the court refused to make any orders regarding CORCOSA’s property, as there would be little utility in doing so because the court was not satisfied that there were any assets in the jurisdiction. Despite this, an indemnity costs order was made in favour of the claimant.

Lessons from the case

This case provides a useful demonstration of the issues that can arise on enforcement of an arbitral award.

While some may view arbitral awards as being less powerful than a court order, care must be taken to comply with them, because the award may be registered as a judgment in Australia and enforced against the judgment debtor in the same way as any other judgment of the court. The award is able to be enforced in any jurisdiction where the debtor holds assets and which is a signatory to the Convention.

Further, and leaving aside extradition issues, failure to comply with orders of the court can give rise to serious ramifications, such as allegations of contempt, which can result in monetary penalties or imprisonment for those involved in the contempt.  This could easily include directors and officers of a judgment debtor company.

 [1] ADM Rice Inc v Corporacion Comercializadora De Granos Basicos SA & Ors [2015] EWHC B1 (Admlty)

Authors: Gavin Stuart and Ben Hardy