Award - Enforcement - Freezing order - Claimant appealing

Mobile Telesystems Finance SA v Nomihold Securities Inc: CA (Civ Div) (Lord Justices Ward, Tomlinson): 1 September 2011

The claimant company, incorporated in Luxembourg, was part of a wider group of companies providing telecommunication services.

M, the claimant’s parent company, was set up purely to secure tax benefits to the claimant. The defendant company entered into a sale and purchase agreement with the claimant. A dispute arose between the parties and in January 2007, following arbitration proceedings, an award was made in favour of the defendant.

Under section 66 of the Arbitration Act 1996 (the act) an arbitration award could be enforced by a court order in the same manner as a judgment or order of the court. The procedure under section 66 of the act was governed by Civil Procedure Rule 62.18. On 26 January 2011, the defendant applied at a without-notice hearing for registration of the award as a judgment pursuant to section 66(2) of the act and also for a worldwide freezing order to be made in relation to the assets of the claimant.

It was ordered that judgment be entered in terms of the award and that the defendant be at liberty to enforce the award in the same manner as a judgment of the High Court. The judge also granted, until the return date, the freezing order sought which contained the usual exception not prohibiting the claimant from dealing with or disposing of any of its assets in the ‘ordinary and proper course of business’.

On the return date, 28 January 2011, the defendant successfully applied to remove the exception. In the meantime, the claimant applied to set aside the order giving permission to enforce the award as a judgment, it was common ground that the award could not be enforced until that application had been finally disposed of. The claimant also applied to deal with publicly listed ‘notes’ which it had issued as part of a fundraising exercise by M.

On that occasion, the judge acceded to the request to deal with the notes and continued the freezing order pending determination of the application to set aside the leave to enforce the award as a judgment. Almost six months later, on 4 July 2011, the claimant applied to vary the freezing order so as to permit it to make a payment representing interest due to the noteholders. It sought reinstatement of the ordinary course of business exception for that purpose.

The defendant opposed the application on the central basis that at a time when its solvency was in doubt the claimant was seeking to prefer one class of creditor over the defendant. The judge declined to vary the freezing order to that effect. His reasons for that conclusion were, inter alia, that the claimant was a ‘judgment debtor’ and where a defendant was a judgment debtor, an exception in a freezing order to permit payments in the ordinary course of business was not generally appropriate.

In assessing the balance of convenience, the judge found in favour of the defendant on the basis that, inter alia, there was no merit to the challenge to enforcement, there would be more prejudice to the defendant than to the claimant and the status quo tilted in favour of preserving in the hands of the claimant the money it would receive from M with a view to that fund being available against which execution in respect of the unpaid award could in due course be levied. Further, the judge was unimpressed by the delay of the claimant to apply for a variation. The claimant appealed.

The two main issues were: (i) whether the judge was correct in principle to refuse to reinstate the exception; and (ii) whether the judge had exercised his discretion correctly when considering the balance of convenience. The appeal would be allowed.

(1) The purpose for which an injunction had been granted or was being maintained was an essential consideration in the exercise of a discretion as to whether that injunction should be varied or discharged so as to release assets to be dealt with by the enjoined party. As a matter of principle and of authority, a freezing order granted in aid of an arbitration award ought ordinarily to contain an ordinary course of business exception.

There was no basis upon which one contractual claimant should be able to prevent the satisfaction of the claims of others in a similar position (see [34], [37] of the judgment). A party, who had in its favour an unchallenged arbitration award, was not a ‘judgment creditor’ and the losing party could not be called a judgment debtor because as yet there was no enforceable judgment and therefore execution was unavailable. While a freezing order could be said to be granted in aid of execution, it could not be said to be a remedy designed to effect execution, since execution was unavailable.

The nature of a freezing order was to prevent the dissipation of assets with the purpose of maintaining the status quo. Whether in that period payments in the ordinary course of business should be permitted depended on the impact it would have on a party’s continuing business (see [35] of the judgment).

In the instant case, the treatment by the judge of the position of the claimant as being analogous to that of an ordinary judgment debtor was the wrong approach. Further, the instant case was one where the ordinary course of business exception would usually be appropriate (see [40] of the judgment). The judge had exercised his discretion on a flawed basis and the matter had to be considered afresh (see [40] of the judgment).

(2) In the instant case, there was limited room for an examination of the balance of convenience. As a matter of first principle, the claimant should be permitted to meet obligations falling due in the ordinary course of its business and the defendant had not come close to demonstrating that there was some exceptional circumstances which should lead to the court adopting a different course.

When the discretionary considerations were considered, the judge had been wrong to have considered the challenge to enforcement to have had a limited prospect of success. Further, the delay in bringing the appeal to remove the exception was not relevant and the non-payment of interest might have had serious consequences for the claimant (see [42]-[44] of the judgment).

Vernon Flynn QC and Tom Smith (instructed by Latham & Watkins) for the claimant; Simon Salzedo QC and Tony Singla (instructed by Simmons & Simmons) for the defendant.