Eastern European Engineering Ltd v Vijay Construction (Proprietary) Ltd

Factual and Procedural Background

This opinion concerns an application by the Claimant, Company A, for a worldwide freezing order against the Defendant, Company B. The underlying dispute arises from six construction contracts between the parties governed by foreign law and subject to arbitration seated in a foreign jurisdiction. Company A commenced arbitration proceedings after Company B's alleged breaches led to termination of the contracts. The arbitrator issued a final award in favor of Company A, ordering Company B to pay damages, interest, and costs, which Company B has not paid.

Multiple enforcement and challenge proceedings have been initiated in three jurisdictions: the seat of arbitration, the jurisdiction of incorporation of the parties, and England. In the seat of arbitration, the award was recognized and declared enforceable, with appeals by Company B dismissed for procedural reasons. In the jurisdiction of incorporation, several sets of proceedings have been commenced, including attempts to set aside the award, breach of contract claims, and recognition and enforcement actions. The local courts have issued and later discharged various interim and protective orders related to the dispute.

In England, Company A obtained judgment for enforcement of the award. Company B applied to set aside this judgment, with proceedings pending. The present application for a worldwide freezing order was initially made without notice but was adjourned and later heard on notice and inter partes.

Legal Issues Presented

1. Whether the English court has jurisdiction to grant a worldwide freezing order in aid of enforcement of a foreign arbitration award where the arbitration seat is outside England and Wales and service out is effected under the Arbitration Act 1996.
2. Whether the court should exercise its discretion to grant a worldwide freezing order against the Defendant given the circumstances of the case and principles of comity with foreign courts.
3. Whether a domestic freezing order limited to assets within England and Wales is appropriate.

Arguments of the Parties

Appellant's Arguments (Company A)

• The English court has jurisdiction over Company B, which has acknowledged service and taken substantive steps in the enforcement proceedings, thus submitting to the court's jurisdiction.
• Section 37(1) of the Senior Courts Act 1981 empowers the court to grant injunctions, including worldwide freezing orders, where just and convenient.
• The power to grant freezing orders extends to arbitral awards enforceable as judgments, even if not yet reduced to judgment.
• The policy supports enforcement of arbitration awards and judgments.
• There is a good arguable case on the merits and solid evidence of a real risk that the award will go unsatisfied, including substantial transfers of funds by Company B to personal accounts abroad, evidence of asset transfers out of England, and inaccurate evidence regarding asset location.
• No material delay has occurred in seeking the order.
• The links with England and Wales are sufficient to justify the order, and the English court is currently the only court able to grant such relief.

Respondent's Arguments (Company B)

• The English court lacks jurisdiction to grant a worldwide freezing order as the claim form only seeks enforcement of the award and does not include such relief, and service out was effected under a rule limiting jurisdiction to enforcement claims.
• There is no jurisdictional gateway for worldwide freezing relief in these circumstances, and relevant procedural rules and statutes limit such relief.
• Even if jurisdiction existed, the court should exercise discretion against granting worldwide relief, particularly as the primary courts in the jurisdiction of incorporation are empowered to grant injunctive relief and have recently discharged relevant undertakings and injunctions.
• Granting worldwide relief risks disharmony, confusion, and conflicting orders, undermining comity between courts.
• There is no sufficient link with England to justify worldwide relief.
• No cogent evidence shows a real risk of dissipation justifying the order.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed the jurisdictional question, rejecting the Defendant's argument that the English court lacked jurisdiction to grant a worldwide freezing order in support of enforcement of a foreign arbitration award where the arbitration seat was outside England and Wales. The court found that a claim for ancillary relief such as a freezing order did not need to be included in the Arbitration Claim Form for the court to have jurisdiction under the relevant statutory provisions and procedural rules.

The court then considered the exercise of discretion, guided by established authority that English courts should generally confine freezing orders to their territorial jurisdiction when acting as enforcement agencies for foreign awards, except in exceptional cases. The court cited the leading authority that enforcement courts should avoid making orders that extend beyond their territorial jurisdiction to prevent confusion, conflicting orders, and to respect comity with foreign courts.

Applying these principles, the court noted the limited connection of the dispute and parties to England, the extensive proceedings and injunctive relief already undertaken in the jurisdiction of incorporation, and the recent discharge by that court of undertakings and injunctions relating to the Defendant's assets. The court also recognized the risk of conflicting orders and the importance of comity.

Accordingly, the court concluded that the present case was not exceptional and declined to grant a worldwide freezing order. However, the court found sufficient evidence of a real risk that any judgment might go unsatisfied within England and Wales, including evidence of asset transfers and statements by the Defendant's managing director. Thus, the court determined it was appropriate to grant a domestic freezing order limited to assets within England and Wales.

The court included standard exceptions for payments in the ordinary course of business and legal expenses, and ordered the Defendant to provide information about assets within the jurisdiction. The court declined to require a fortified cross-undertaking in damages, considering the risk of loss to the Defendant to be limited.

Holding and Implications

The court REFUSED TO GRANT A WORLDWIDE FREEZING ORDER against the Defendant, Company B, on the basis that the circumstances did not constitute an exceptional case warranting such relief. The court emphasized the importance of respecting the jurisdiction and orders of the primary foreign courts and avoiding conflicting injunctions.

However, the court GRANTED A DOMESTIC FREEZING ORDER limited to assets within England and Wales, finding sufficient evidence of a real risk of dissipation and that such an order was appropriate to aid enforcement of the arbitration award and judgment.

The direct effect is that the Defendant is restrained from disposing of or diminishing the value of its assets in England and Wales up to the amount of the award, subject to usual exceptions. No new precedent was established beyond reaffirmation of established principles on jurisdiction, discretion, and comity in the enforcement of foreign arbitration awards.