Obtaining a favourable arbitration award often proves to be only half of the battle. Facing obstructive counterparties refusing to honour awards, often based in jurisdictions where enforcement is slow, difficult and uncertain, is a source of regular frustration to those pursuing claims in arbitration. That is why anyone involved in international trade should be familiar with the variety of measures available to enforce their awards.
In this client alert we discuss examples of recent enforcement cases we have pursued and which demonstrate the effectiveness of contempt and committal applications as key weapons in the arsenal of the arbitration award creditor.
Glencore v Vinatex – prison sentence against the director
After Vinatex, a Vietnamese entity, failed to pay the sums awarded to Glencore under an ICA arbitration award, Glencore successfully applied for an enforcement, disclosure and freezing order from the English High Court. The order was validly served on both Vinatex and its general director, Mr Hy, in Vietnam. However, they both breached the order by failing to provide Glencore with information regarding Vinatex’s worldwide assets and an affidavit from Mr Hy verifying that information.
On 23 May 2018, Mr Justice Knowles heard Glencore’s contempt application, accepting that Vinatex was in breach of the disclosure order. Furthermore, it accepted Glencore’s evidence that Mr Hy, as Vinatex’s general director, had deliberately and wilfully caused Vinatex to breach the information disclosure requirements. Accordingly, Mr Justice Knowles held both Vinatex and Mr Hy in contempt of court and sentenced Mr Hy to 12 months’ imprisonment.
Notably, both Vinatex and Mr Hy attempted to obstruct service of the court proceedings and documents on them, but the court allowed valid service by various alternative methods, including by email to Mr Hy’s business email address. Service by email and production of read receipts for the relevant emails were sufficient to satisfy Mr Justice Knowles that Glencore had effected valid service on both Vinatex and Mr Hy.
This adds another helpful precedent to cases such as ADM v CORCOSA1 (see our previous client alert here), which demonstrate the Commercial Court’s growing willingness to find officers of companies, including foreign companies, in contempt of court if they wilfully allow their companies to ignore the court’s orders made in aid of enforcement of unpaid awards.
X v Y – settlement at the steps of the courtroom
Another recent case (referred to in this alert as X v Y to preserve confidentiality) involved a trading company that was owed a significant sum of money under a London arbitration award. As in Glencore v Vinatex, the claimant faced a very defiant debtor based in a jurisdiction with little to no prospects of successful local enforcement.
However, when confronted with a real risk of committal to prison and sequestration of assets, the managing director and sole shareholder of the debtor company entered into a personal settlement with the claimant. The settlement was reached just a day before the contempt hearing against the director and his company. Under the settlement, the claimant was put in a position that was a significant improvement on its prior enforcement options, and already received the first payment instalment.
Conclusions and takeaways
Obtaining a successful international arbitration award often proves only to be the first step in a lengthy and complex recovery process, especially for international traders dealing with foreign companies based in jurisdictions where enforcement can be slow, difficult and uncertain.
International traders who succeed in arbitration under English law should consider all available options. There is a range of effective enforcement tools offered by the English court, including various post-award orders, such as worldwide freezing orders and disclosure orders. Failure to comply with those orders can open the door to powerful sanctions, including, in appropriate cases, personal sanctions against those who might have felt themselves invulnerable.
The above cases show that the court will exercise its powers to ensure orders are complied with and that those powers have a genuine practical application against a defiant debtor rather than merely being of academic interest. This creates a significant pressure point to secure compliance with orders and, hopefully, eventual recovery of the sums due. The X v. Y case, which settled just a day before the contempt hearing, is a powerful example of this.