One of the most effective and draconian powers of the English courts is the freezing order. These orders are injuncƟons that prevent the party against whom they are ordered from dealing with or disposing of its assets, usually up to a specified amount or value. The purpose behind a freezing order is to ensure that the assets in quesƟon remain available unƟl an arbitral award or a court judgment can be enforced against the party in quesƟon. Because of the harm that such an order can cause, even a successful applicant must give an undertaking that it will be responsible in damages if, ulƟmately, it is found that the applicant was not enƟtled to the interim relief granted. The High Court’s power to grant a freezing injuncƟon is remarkably wide. In principle, these interim remedies can be deployed not just against assets outside of the jurisdicƟon, but also against third parƟes who are not the defendant in the underlying claim, who own assets that are in fact beneficially owned by the defendant. Those third parƟes may again 2 THE ARBITER WINTER 2014 be resident outside of the jurisdicƟon, and have liƩle or no connec- Ɵon with England. Even then, they may find that they are within the reach of the long arm of the English Courts. This arƟcle looks at recent decisions that highlight when and how freezing orders may be granted against parƟes or assets that are based abroad. Freezing orders are an excepƟonal interim remedy
Freezing orders are not easily granted. Even though such an injuncƟon is only an interim order, it will have real, and potenƟally drasƟc, impact on the party at the receiving end. As with any injuncƟon, as an equitable remedy, granƟng a freezing order is always within the discreƟon of the High Court. The key quesƟon is whether making the order would be ‘just and convenient’ in the parƟcular circumstances, as required by SecƟon 37(1) of the Senior Courts Act 1981. A freezing injuncƟon is not a free-standing remedy. It must support a cause of acƟon over which (either) the English court has jurisdicƟon itself, or which falls within the provisions empowering the English court to make orders in support of foreign liƟgaƟon (found in SecƟon 25 of the Civil JurisdicƟon and Judgments Act 1982). The late Lord Bingham summarised the principles governing freezing orders in Fourie v. Le Roux & Ors Rev 1  UKHL 1: “Mareva (or freezing) injuncƟons were from the beginning, and conƟnue to be, granted for an important but limited purpose: to prevent a defendant dissipaƟng his assets with the intenƟon or effect of frustraƟng enforcement of a prospecƟve judgment. They are not a proprietary remedy. They are not granted to give a claimant advance security for his claim, although they may have that effect. They are not an end in themselves. They are a supplementary remedy, granted to protect the efficacy of court proceedings, domesƟc or foreign … In recogniƟon of the severe effect which such an injuncƟon may have on a defendant, the procedure for seeking and making Mareva injuncƟons has over the last three decades become closely regulated. I regard that regulaƟon as benefi- cial and would not wish to weaken it in any way. The procedure incorporates important safeguards for the defendant. One of those safeguards, by no means the least important, is that the claimant should idenƟfy the prospecƟve judgment whose enforcement the defendant is not to be permiƩed, by dissipaƟng his assets, to frustrate. The claimant cannot of course guarantee that he will recover judgment, nor what the terms of the judgment will be. But he must at least point to proceedings already brought, or proceedings about to be brought, so as to show where and on what basis he expects to recover judgment against the defendant.” The applicant has to show ‘a good arguable case’ The need to idenƟfy a prospecƟve judgment (or award) which any freezing order would support puts the onus on the applicant to show that there is a ‘good arguable case’ against the defendant. A ‘good arguable case’ does not, however, mean ‘having much the beƩer of the argument’. The threshold that the applicant has to cross is not ‘a 51% of winning’. The Court of Appeal recently had occasion to review the approach that should be taken in this regard, in Kazakhstan Kagazy Plc v Arip  EWCA Civ 381. The claimants alleged a large-scale fraud and claimed damages of around $135 million. They obtained a freezing injuncƟon against Mr Arip, the director of a company on whose watch the monies apparently disappeared, and who the claimants asserted must have been complicit. At the material Ɵme, Mr Arip was a director of the claimant company and of a subsidiary. These companies were alleged to have contracted with a purportedly independent construc- Ɵon company, for the development of two sites near Almaty. A total of $167.5 million was paid to the construcƟon company, but only one site was ever developed. The one development that was built was valued at $25.32 million. The rest of the monies appeared to have been channelled to enƟƟes which the claimants believed were effecƟvely controlled by the defendants, including Mr Arip, or their associates. The claimants also alleged fraud as regards the acquisiƟon of a company for $39 million more than it was actually worth, with the purchase price having again been channelled into the hands of the defendants. AŌer a three-day hearing before the judge at first instance, the order was granted. The respondent then appealed. Mr Arip challenged the freezing injuncƟon, aŌer it had (in the usual manner) been granted in a without-noƟce applicaƟon made by the claimants.
For the purposes of challenging the injuncƟon, Mr Arip did not set out to explain what had happened, or how all of this might have been a misunderstanding. Instead, he accepted that, on its face, there was a good arguable case that the claimants had been defrauded in the manner that they alleged. He did, however, argue that he had a limitaƟon defence under Kazakh law which defeated the claimants’ case. To pursue this point, Mr Arip had to make the unaƩracƟve argument that, even if the fraud had occurred, the claimant companies ought to have been aware that they had been defrauded a lot sooner, and done something about - by pursuing Mr Arip within the three year period that Kazakh law allowed. The Court of Appeal felt that the applicaƟon had taken up much more Ɵme than it should have done, and warned against applica- Ɵons for freezing injuncƟons becoming mini-trials. UlƟmately, the Court of Appeal was not willing to interfere with the judge’s assessment of the (voluminous) material before him, and his conclusion that the claimants had overall shown a good arguable case despite the limitaƟon point. Jackson LJ commented as follows: THE ARBITER WINTER 2014 3 “Having said that, I regard the [… limitaƟon arguments …] as formidable. There is a very real possibility that the Defendants’ limitaƟon defence will prevail at trial on the basis of Kazakh law (the effect of which is agreed between the par- Ɵes). It is only by a narrow margin that KK’s case is strong enough to support their enƟtlement to a freezing injuncƟon.” This decision reinforces the point that a good arguable case does not have to be a ‘slam dunk’, and that even a defence with a very real prospect of success is not an unsurmountable obstacle to obtaining a freezing injuncƟon. The risk of dissipaƟon and the foreign element Establishing a good arguable case is, however, just the first hurdle that the applicant must overcome. In addiƟon, it must also be proven that assets in fact exist and that there is a risk that the assets might be dissipated. Such assets do not necessarily have to be located in the jurisdic- Ɵon, but the English court must have a basis on which it can act, and a good reason for making the freezing order. This is illustrated by the latest decision in U&M Mining Zambia Ltd v Konkola Copper Mines Plc  EWHC 3250 (Comm), long-running liƟgaƟon concerning the exclusion of the claimant mining company from the defendant’s copper mine in Zambia. The parƟes eventually reached a commercial agreement, which was set out in a seƩlement agreement dated 26 October 2012. The defendants, however, then alleged that they had been induced to enter into the seƩlement agreement by various fraudulent misrepresentaƟons on the part of the claimants. The claimants commenced arbitraƟon proceedings, seated in London, to enforce the seƩlement agreement, and were successful. By an award of 7 November 2013, a tribunal ordered the defendants to pay $13 million. They also awarded the claimants their legal costs on the indemnity basis. Faced with the defendant’s refusal to make any payments, the claimants commenced enforcement proceedings and sought a freezing order. All of the defendant’s assets were located in Zambia, and neither parƟes nor the subject maƩer of the dispute had any material connecƟon with England. To succeed in their applicaƟon, the claimants had to persuade the English court that it had jurisdicƟon to make the order, and that there was a risk that the defendants would take steps to move their Zambian assets beyond the reach of the claimants. Teare J’s decision provides a good illustraƟon of how the English courts will approach the quesƟon of whether there is a risk of dissipaƟon. The claimants’ case on that point heavily relied on the defendants’ conduct in the wider dispute and in the arbitraƟon proceedings. Teare J was not persuaded by alleged threats that the defendants had made prior to entering into the seƩlement agreement, and by allegedly dishonest applicaƟons for urgent interim relief in the Zambian High Court. The judge was, however, influenced by the fact that the defendants could be shown to have relied on dishonest, or untrue, evidence in the arbitraƟon on two occasions. In one instance, the defendants had procured an undertaking from the claimants that the claimants would not remove their mining equipment from the site, and that this equipment would provide security for the defendants’ claims. The basis on which the tribunal ordered the claimants to give that undertaking was that the defendants had every intenƟon of conƟnuing to operate the mine - which turned out to be untrue. The defendants’ allegaƟons of fraud in respect of the seƩlement agreement, based on which they applied for urgent relief in the Zambian High Court, also turned out to be unwarranted. Teare J found that it was striking for the defendants to have relied on untrue evidence on two occasions, and that the defendants’ conduct both in the arbitraƟon and in the Zambian High Court showed a willingness to cause harm to the claimants. He then turned to whether that conduct was such as to warrant an inference that the defendants might be willing to move their assets out of the reach of the claimants: “It is necessary to consider whether the court can infer from the totality of KCM’s conduct (rather than from each piece of conduct separately) a risk that KCM will deal with its assets other than in the ordinary course of business in such a way as to make enforcement of the arbitraƟon awards more diffi- cult. U&M has adduced evidence that personnel employed by KCM are willing to give untrue evidence, are willing to cause unnecessary harm to U&M and are willing to take untenable points with a view to delaying the Ɵme when the second award can be enforced. Further, the arbitraƟon tribunal found that KCM had been obstrucƟve in resisƟng the applica- Ɵon for the determinaƟon of the validity of the SeƩlement Agreement as a preliminary issue. In my judgment such conduct is solid evidence from which it can be inferred that there is a risk that KCM, unless restrained by an order of this court, will deal with its assets other than in the ordinary course of business with a view to making enforcement of the arbitraƟon awards more diffi- cult.” None of the conduct that the judge took into account in reaching the conclusion that there was a risk of dissipaƟon in fact amounted to any dealings by the defendants with their assets. Nonetheless, the defendants (and their employees) having proven themselves as obstrucƟve in the arbitral process, taking untenable points and delaying the proceedings, as well as having lied in their evidence, Teare J had no difficulƟes in finding that such a company would also be willing to hide its assets to endeavour to frustrate enforcement of the arbitral award against it. The defendants argued that they were anything but an offshore enƟty and had many capital assets (some of which were mortgaged) that were being used to operate copper mines on a daily 4 THE ARBITER WINTER 2014 basis. The judge however found that it was the company’s liquid assets, cash in bank accounts in Zambia, that were at risk of being dissipated. The claimants had mounted a second aƩack in their aƩempt to establish that there was a risk of assets being dissipated. They relied on how they said the defendants were treaƟng their unsecured creditors. The claimants had goƩen hold of a report by the Zambian Government’s Technical Audit Commission, which they submiƩed showed that the defendants had deliberately structured its affairs in such a way as to make it more difficult for unsecured creditors to aƩach any assets. It was alleged that cash was being channeled to another company (Vedanta), and that cash was being spent on new capital projects in preference to discharging exisƟng debts. The key issue was whether Vedanta had invested $2.8 billion into the defendants (or whether the money had come from returns generated by the defendants and bank loans), and whether sales of copper by the defendants to Vedanta or its associates were at an undervalue. The evidence was not sufficiently clear in favour of the claimants, and the defendants had provided some plausible explanaƟons for their relaƟonship with Vedanta. Teare J concluded that: “The evidence of course gives rise to a risk that U&M may not be paid because KCM appears to lack the resources to pay all its debts. But that, by itself, does not establish a risk that its assets may be dissipated other than in the ordinary course of business. It is no part of the purpose of a freezing order to pressurise a defendant into discharging the claimant’s debt in preference to the debts of others: see Camdex InternaƟonal v Bank of Zambia  1 WLR 632 at p.640 per Phillips LJ.” This case shows just how important it is for a defendant to avoid giving the impression that they are out to frustrate the arbitral process - during, as well as aŌer, the conclusion of that process, when the successful party moves on to enforcement. One might have thought that without some concrete evidence that the defendants were actually in the habit of transferring assets away by some lessthan-transparent means, or were about to make a major disposal knowing that the claimants were coming aŌer them, it would be difficult to establish the necessary risk of dissipaƟon without which no freezing order ought to be granted. However, as the defendants had shown a history of deplorable and obstrucƟve conduct in the arbitraƟon, they were effecƟvely tainted in the eyes of the English court. Teare J’s decision also provides a reminder that a lack of available assets is no reason for granƟng a freezing order. It has to be recalled that the claimants here had an exisƟng award, and were an unsecured debtor, rather than someone relying on a good arguable case at the interim stage. SƟll, they were in the same boat as all the other unsecured creditors, and could not expect preferenƟal treatment by having assets frozen. Having established that there was a risk of dissipaƟon, the claimants sƟll to show that it was just and convenient for the English court to make the order. The defendants argued that since all the assets were in Zambia (and there were none in England), the appropriate forum for any enforcement acƟon was plainly the High Court of Zambia, which could also make freezing orders with a wideranging effect. They derived support from a statement made by the Court of Appeal in Credit Suisse Trust v Cuoghi  QB 818, that: “… where a defendant and his assets are located outside the jurisdicƟon of the court seised of the substanƟve proceedings, it is in my opinion most appropriate that protecƟve measures should be granted by those courts best able to make their orders effecƟve.” Teare J was not persuaded by this. His starƟng point was that there had to be some real uƟlity or purpose in granƟng the order, otherwise it would not be just and convenient. The basis on which the English court had jurisdicƟon over the defendants was found in the arbitraƟon agreement, by which they had agreed to arbitrate in London, under the ArbitraƟon Act 1996 and subject to the English court’s supervisory powers. SecƟon 44 of the 1996 Act gives the English court the power to grant interim relief in support of an arbitraƟon, and that power includes world-wide freezing orders. That power is discreƟonary - even where England is the seat of the arbitral proceedings. While the English courts might not be willing to grant an injuncƟon in support of an arbitraƟon seated abroad, where the substanƟve law of that foreign jurisdicƟon applies (as was the case in Econet Wireless Limited v Vee Networks  EWHC 1568 (Comm), where Nigerian law applied), they may readily grant world-wide freezing orders where England is the seat of the arbitraƟon: a good illustraƟon is Belair v Basel  EWHC 725 (Comm), where the English courts granted a freezing order over the former presidenƟal palace in Tbilisi, the capital of Georgia. In the case before him, Teare J concluded that while the Zambian courts were also capable of granƟng the relief sought, that was no reason for dismissing the claimants’ applicaƟon: “This is a case where it is appropriate for two courts to grant a freezing order against KCM; this court because of the London arbitraƟon clause, and the court of Zambia because that is where KCM is resident. However, I do not accept that the fact that it may be appropriate for another court to grant a freezing order means that it is inappropriate for this court to do so where this court’s in personam jurisdicƟon over KCM derives from the London arbitraƟon clause to which KCM agreed. Nor do I consider that it is more appropriate for the Zambian court to issue a freezing order given that the seat of the arbitraƟon was London.” Freezing injuncƟons against third parƟes Another facet of the English court’s power to grant freezing orders is that they are, in principle, available against third parƟes, who are not defendants in any underlying arbitraƟon or liƟgaƟon. This is usually referred to as the “Chabra” jurisdicƟon, based on the deci-THE ARBITER WINTER 2014 5 sion in TSB Private Bank InternaƟonal SA v Chabra  1 WLR 231 which established that such orders could be granted. In Cruz City 1 MauriƟus Holdings v Unitech Ltd  EWHC 3704 (Comm), the Commercial Court recently considered the Chabra jurisdicƟon in the context of enforcement of an arbitraƟon award for more than $330 million. An LCIA tribunal had found in favour of the claimants, Cruz City, a special purpose vehicle incorporated in MauriƟus. The dispute concerned a slum clearance project in Mumbai, with extensive development of the area planned following clearance (the ‘Santa Cruz’ project). Unitech is one of India’s largest real estate and development companies. Other judgments given by the English courts in this long-running saga record that the consolidated balance sheet of the Unitech group had a surplus of around $1.8 billion. Following delays to the project, Cruz City exercised a put opƟon, required Unitech and other defendant enƟƟes to acquire Cruz City’s 50% shareholding in the project. Unitech and the other defendants refused to comply. Cruz City then brought its claim in the arbitraƟon, and was awarded the very substanƟal sums against delivery of its shares. Unitech sƟll refused to pay, and sought to challenge the awards in a number of ways - none of which were successful. Cruz City then embarked on a series of applicaƟons to the Commercial Court all aimed at enforcing the award against Unitech’s assets, and assets held by a number of Unitech’s group companies incorporated in a range of jurisdicƟon. By October 2014, a number of orders had been made, including freezing orders and the appointment of receivers by the English courts over assets located abroad. In that context, Males J remarked that (Cruz City 1 MauriƟus Holdings v Unitech Ltd  EWHC 3131 (Comm)): “… recovery of the award debt by other processes of execu- Ɵon in the countries where the defendants have assets is not pracƟcable, at least in any reasonable Ɵmescale. The defendants have made clear that they will do everything they can to frustrate such enforcement. The evidence shows that they are likely to be able to delay enforcement (depending on the jurisdicƟon concerned) for months or even years. If their posi- Ɵon in the various proceedings abroad is correct, the award cannot be enforced in those jurisdicƟons at all. In such circumstances the need for the appointment of receivers goes well beyond mere convenience …” Cruz City then applied for a further freezing order against five Unitech group companies, all of which were incorporated outside of England, and had no assets or any other presence in England. The basis of this applicaƟon was that, nonetheless, the English courts had jurisdicƟon over these companies as they fell within the Chabra principle, as subsequently developed. Males J explained the scope of the Chabra jurisdicƟon as follows:
• It enables the grant of freezing orders against third parƟes where there is a good arguable case that assets which are apparently owned by a third party (for instance, where legal Ɵtle vests in the third party) are nonetheless beneficially owned by the defendant. Of course, beneficial or equitable ownership by the defendant would make such assets available for the purposes of enforcement. • If a Chabra order is granted, the legal owner of the assets is prevented from disposing of them pending a final decision in the underlying claim against the defendant, and a further final determinaƟon of whether the assets are in fact beneficially owned by the defendant. • The Chabra jurisdicƟon goes beyond beneficial ownership, and extends to assets that could be made available to a creditor of the defendant by the appointment of a liquidator or receiver, who might have the power to make third parƟes disgorge assets, or require them to make contribuƟons to the fund out of which creditors would be saƟsfied. This was what Cruz City was really seeking: if the five companies were, in the final instance, unwilling to hand over any assets that might have been frozen by an (interim) injuncƟon, then a receiver would have to be appointed over them. That receiver could only compel the companies to give up the assets by going through the competent, local courts of the place where they were incorporated. • At its widest, therefore, the Chabra jurisdicƟon allows the court to control the dealings of assets where the third party has both legal and beneficial ownership, and where there is no direct cause of acƟon by the applicant / claimant against the third party. Because the jurisdicƟon is so wide and unusual, cauƟon is required before any freezing order will be made pursuant to it. That need for cauƟon made is parƟcularly important to be clear that not only was there a connecƟon between Unitech and the five companies and the relevant assets, but Cruz City also had to show that there was basis on which these five enƟrely foreign companies were within the reach of the English courts. There had to be basis on which the Commercial Court could assume jurisdicƟon and permit service of proceedings on the (alleged) Chabra defendants. In the maƩer before him, Males J noted that Cruz City had led seemingly compelling and uncontradicted evidence that Unitech freely moved its assets (and debts) around these offshore companies at will, on whatever basis suited it best. That alone was not, however, a sufficient basis on which the court could intervene. The companies remained: “… separate corporate persons. So far as the law is concerned, there is nothing inherently wrong in such a group structure and no quesƟon of piercing the corporate veil. (Indeed the claimant is itself a special purpose vehicle established for the purpose of the transacƟon which gave rise to the parƟes’ dispute). While Unitech has agreed to arbitrate in England and must therefore be taken to have submiƩed to the supervisory jurisdicƟon of the English court, there is no basis in English law for suggesƟng that its subsidiaries who 6 THE ARBITER WINTER 2014 are not parƟes to any arbitraƟon agreement have done likewise. They cannot be treated as having done so merely by virtue of their status as subsidiaries, regardless of the degree of control exercised over them by Unitech as their parent company: cf. Peterson Farms Inc v C&M Farming Ltd  EWHC 121 (Comm),  1 Lloyd’s Rep 603.” That above caveat proved fatal to Cruz City’s applicaƟon: none of the Chabra defendants had themselves submiƩed to the jurisdic- Ɵon of the English courts (unlike Unitech, which had agreed to arbitrate in London, subject to the ArbitraƟon Act 1996 and the supervisory funcƟon of the English court). Males J found that there was simply no basis in the Civil Procedure Rules (“CPR”) or the PracƟce DirecƟon (“PD”) governing service out of the jurisdicƟon that allowed the Commercial Court to assume jurisdicƟon. CPR 62.5(1)(c) permits the court to grant permission to serve an arbitraƟon claim form out of the jurisdicƟon if the claimant “seeks some other remedy or requires a quesƟon to be decided ... affecƟng an arbitraƟon ..., an arbitraƟon agreement or an arbitraƟon award”. The judge found that Cruz City could not rely on the gateway in CPR 62.5(1)(c), because it simply did not apply to anyone who had was not a party to the arbitraƟon agreement or the arbitral proceedings. PD 6B, paragraph 3.1(3) provides a jurisdicƟonal gateway where a claim is made against a party on whom the claim form has been served (the anchor defendant), there is real issue to be tried between the claimant and the anchor defendant, and the claimant wishes to serve the claim form on another person who is a necessary or proper party to the claim. That did not apply either, because there was no substanƟve claim by Cruz City against the anchor defendant, Unitech. The claim against Unitech had already been decided in the arbitraƟon. This finding may seem a liƩle harsh on Cruz City, because the claim that it was seeking to make was to enforce the LCIA awards against the assets of Unitech, something that Unitech was plainly resisƟng. Nonetheless, Males J found that the way in which the jurisdicƟonal gateway had been draŌed leŌ no room for Cruz City’s arguments. The decision in this case might seem to go against the policy that arbitraƟon awards should be enforced, and that the English courts should do everything in their power to assist with that. Males J plainly accepted that this was a strong policy consideraƟon, but he also noted the cardinal rule in interpreƟng jurisdicƟonal gateways narrowly, and resolving any doubt in favour of the (prospecƟve) foreign defendant. He found that: “… that policy [to enable effecƟve enforcement of English arbitral awards], important as it is, does not mean that the jurisdicƟonal gateways should be approached with a predisposiƟon to find that service out of the jurisdicƟon is permiƩed against a Chabra defendant. [Counsel for Cruz City] submits that if such service is not permiƩed in aid of enforcement of an English arbitraƟon award even in a case where the merits are strong, that would drasƟcally reduce the scope and uƟlity of the Chabra jurisdicƟon and would undermine the policy of upholding the effecƟveness of arbitraƟon awards. In my judgment, however, to say that the scope of the jurisdicƟon would be reduced begs the quesƟon whether the jurisdicƟon should be available against a foreign defendant with no presence or assets here who has not agreed to submit to the jurisdicƟon of this court. The policy of supporƟng arbitraƟon cannot jusƟ- fy construing the jurisdicƟonal gateways in a way which extends their scope beyond their proper bounds.” In this parƟcular case, the Commercial Court had gone as far as it could in assisƟng Cruz City. UlƟmately, realising any assets held by the Chabra defendants would have to depend on effecƟve local enforcement acƟon in the jurisdicƟons where they were incorporated, so there was limited uƟlity in granƟng the order. Conclusion The English courts’ power in relaƟon to freezing injuncƟons is wide and impressive. However, difficult legal issues can easily arise and these applicaƟons will frequently be hard fought: obtaining such an order will not come cheap. There is also the quid pro quo of the damages undertaking, which means that in complex cases, a careful analysis of the merits should always be the place to start. The Very Naughty List: What Happens if Arbitrators Suspect Criminal Ac- Ɵvity by the ParƟes by Robert BlackeƩ What should an arbitrator in an Englishseated arbitraƟon do (legally and/or ethically) when they suspect one or both parƟes to the arbitraƟon has commiƩed, is commiƫng or intends to commit a criminal offence? The issues an arbitrator might face There are various ways in which an issue as to a criminal offence might arise in the context of an arbitraƟon. Sham arbitraƟons. Is an arbitrator who grants the award sought in the following scenarios guilty of any offence? Is the arbitrator under any obligaƟon to report the maƩer?: • Sham arbitraƟon as a means of laundering money. The dispute has been fabricated as a means of obtaining an award to jusƟfy the payment of money, which represents the proceeds of crime, THE ARBITER WINTER 2014 7 from one party to another, typically through the client accounts of the respecƟve parƟes’ law firms. • Sham arbitraƟon as a means of re-characterising a payment. There might also be cases where the money or property in issue is not the proceeds of any criminal acƟvity. For example a deal between the parƟes whereby one is to pay the other certain monies or transfer certain property. AlternaƟvely, one party simply wishes to giŌ money or other property to the other. Simply giŌing the money, or paying the money or transferring the property in seƩlement of an obligaƟon, would give rise to some tax liability (e.g. inheritance tax, VAT, a capital gain) which the parƟes wish to avoid. The parƟes fabricate a completely different claim (e.g. a claim in libel) refer it to ad hoc arbitraƟon, seƩle it for the same amount as the ‘real’ payment, have the seƩlement recorded in an award, and then use the award as the pretext for paying the money. • Sham arbitraƟon as an instrument of fraud. There may be even more elaborate schemes, where a fraudster makes a fabricated arbitraƟon claim against a party, and the fraudster’s accomplice, who is an employee or director of the respondent, uses his authority to seƩle the unwarranted claim contrary to his employer’s interests, or otherwise ensures that the claim succeeds. Should the arbitrator render an award giving effect to the contract in the following scenarios?: • Contract obtained by criminal means. It comes to light in the course of the arbitraƟon that the contract which is sought to be enforced in the arbitraƟon was obtained by way of bribery or the threat or use of violence, such as to consƟtute a crime. Neither party takes the point that the contract is void for bribery or duress.
• Contract is illegal. It comes to light in the course of the arbitra- Ɵon that the contract which is sought to be enforced is void for illegality (e.g. a price fixing agreement). Neither party takes the point that the contract is void for illegality. Should the arbitrator render an award giving effect to the contract? • Evidence of incidental wrongdoing. In the course of the arbitra- Ɵon, evidence emerges of some wrongdoing having been commiƩed, or as being planned, by a party, witness, counsel or someone else. Is the arbitrator ever under a posiƟve legal duty to pass the informaƟon to the authoriƟes? If the arbitrator has no such duty, and elects to report the maƩer anyway, are they in breach of any duty of confidenƟality owed to the parƟes? Obviously evidence of all sorts of things might come to light in an arbitraƟon: • Evidence of conduct which consƟtutes a criminal offence as a maƩer of English law. • Evidence of conduct which consƟtutes a criminal offence in some other jurisdicƟon, and which would, had it been commiƩed in England, also have consƟtuted a criminal offence as a maƩer of English law. • Evidence of conduct amounƟng to a criminal offence in some other jurisdicƟon, which would not, had it occurred in England, consƟtute a criminal offence as a maƩer of English law. • Breach of a professional or industry regulatory requirement. It comes to light in the course of the arbitraƟon that a party operaƟng in a regulated industry or profession (e.g. financial services, power, medicine) has commiƩed or will commit a breach of the regulaƟons imposed by the regulator. • Breach by lawyer of a professional obligaƟon. In the course of the arbitraƟon, the lawyer acƟng for a party acts in breach of a relevant professional obligaƟon. • Evidence of unpaid tax. In the course of the arbitraƟon, evidence emerges to show that a party has not paid the correct amount of tax (such that, as well as being liable to pay the tax and interest, they would also be liable to pay a fine). • A threat to public health or the environment. • A breach of planning law. For example, that a building was constructed without the necessary planning permission. SecƟon 33 duty and duty not to resign without reasonable cause The only duƟes to the parƟes which are imposed on the arbitrator by the ArbitraƟon Act 1996 (the “1996 Act”) are: • The general duty in secƟon 33 (act fairly and imparƟally, give each party a reasonable opportunity of puƫng its case, adopt suitable procedures). The effect of ArƟcle 29 is that, even if the arbitrator breaches this duty, provided the arbitrator was in good faith, an affected party will have no recourse against the arbitrator. The affected party’s only remedy for breach of this duty is to have the award set aside under secƟon 68(2)(a), and then only if the arbitrator’s breach of secƟon 33 has caused the party substanƟal injusƟce. • A duty not to resign? SecƟon 25 provides that the arbitrator and the parƟes may agree what is to happen if the arbitrator resigns. Absent such agreement, the Act seems to contemplate that the arbitrator who withdraws might be liable for breach of some duty owed to the parƟes - presumably the contractual duty to provide the services of an arbitrator. SecƟon 25(3) and (4) seem to contemplate that it will be a defence to such a claim to show that it was “reasonable” to have resigned. In pracƟce, the insƟtuƟonal rules generally seek to exclude any liability which might otherwise arise out of an arbitrator’s decision to resign. The ICC Rules provide: “ArƟcle 40: LimitaƟon of Liability The arbitrators, any person appointed by the arbitral tribunal, the emergency arbitrator, the Court and its members, the ICC and its employees, and the ICC NaƟonal CommiƩees and Groups and their employees and representaƟves shall not be liable to any person for any act or omission in connecƟon with 8 THE ARBITER WINTER 2014 the arbitraƟon, except to the extent such limitaƟon of liability is prohibited by applicable law.” The LCIA Rules provide: “ArƟcle 31 LimitaƟon of Liability 31.1 None of the LCIA (including its officers, members and employees), the LCIA Court (including its President, VicePresidents, Honorary Vice-Presidents and members), the Registrar (including any deputy Registrar), any arbitrator, any Emergency Arbitrator and any expert to the Arbitral Tribunal shall be liable to any party howsoever for any act or omission in connecƟon with any arbitraƟon, save: (i) where the act or omission is shown by that party to consƟtute conscious and deliberate wrongdoing commiƩed by the body or person alleged to be liable to that party; or (ii) to the extent that any part of this provision is shown to be prohibited by any applicable law.” An implied duty of care owed to the parƟes? Does an arbitrator owe the parƟes a duty to exercise reasonable care and skill? Arguably the answer is yes. SecƟon 13 of the Supply of Goods and Services Act 1982 provides:
“In a contract for the supply of a service where the supplier is acƟng in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill.” Arbitrators undoubtedly supply a service to the parƟes. There might be some instances where arbitrators do not act in the course of a business (for example, when religious or community leaders act as arbitrators on a not-for-profit basis). There might also be some instances where the parƟes have no direct contractual nexus with the arbitrators (for example, in an ICC arbitraƟon, is there a contractual nexus between the parƟes and the arbitrators, or is the only contract with the insƟtuƟon?). It seems sensible to assume that an arbitrator does owe the parƟes a duty to exercise reasonable care and skill. It might be that such a duty is implied into a contract between the parƟes and the tribunal, either under secƟon 13 of the 1982 Act or at law. It might be that there is no contractual nexus between parƟes and arbitrators, but such a duty nonetheless arises because of an ‘assumpƟon of responsibility’ by the arbitrator. Any such duty would, however, be covered by the immunity in secƟon 29 of the 1996 Act, with no liability flowing from a breach of the duty unless the arbitrator acted in bad faith. Arbitrator’s contractual duty of confidence to the parƟes The 1996 Act does not contain any express provision about the confidenƟality of arbitraƟon proceedings. In EmmoƩ v Michael Wilson & Partners  EWCA Civ 184 Collins LJ held: “81. … there is … an implied obligaƟon (arising out of the nature of arbitraƟon itself) on both parƟes not to disclose or use for any other purpose any documents prepared for and used in the arbitraƟon, or disclosed or produced in the course of the arbitraƟon, or transcripts or notes of the evidence in the arbitraƟon or the award, and not to disclose in any other way what evidence has been given by any witness in the arbitraƟon, save with the consent of the other party, or pursuant to an order or leave of the court. 84. The implied agreement is really a rule of substanƟve law masquerading as an implied term. … 88. The English courts have been strongly influenced in the development of excepƟons to the basic rule of confidenƟality in arbitraƟon by the principles of banking confidenƟality in Tournier v NaƟonal Provincial and Union Bank of England  1 KB 461 (CA), where in a famous passage, Bankes LJ said: “In my opinion it is necessary in a case like the present to direct the jury what are the limits and what are the qualifica- Ɵons of the contractual duty of secrecy implied in the relaƟon of banker and customer. There appears to be no authority on the point. On principle I think that the qualificaƟons can be classified under four heads: (a) where disclosure is under compulsion by law; (b) where there is a duty to the public to disclose; …”” There does not appear to be any direct authority as to whether an arbitrator owes a similar implied obligaƟon to the parƟes. But since the parƟes’ duty is said to “arise out of the nature of arbitra- Ɵon itself”, it seems very likely that the arbitrator also owes such a duty. In pracƟce, an arbitrator will oŌen make an express confidenƟality agreement with the parƟes. For example, under the ICC Rules, the parƟes and arbitrators are all required to sign “Terms of Reference”, which typically set out such a duty expressly. Contractual duty to render an enforceable award if it is possible to do so? The preamble to the ICC Rules provides that: “In all maƩers that are not expressly provided for in the ICC Rules, the Court and Arbitral Tribunal act in the spirit of the Rules and make every effort to have an enforceable Award.” The LCIA Rules provide: “32.2 For all maƩers not expressly provided in the Arbitra- Ɵon Agreement, the LCIA Court, the LCIA, the Registrar, the THE ARBITER WINTER 2014 9 Arbitral Tribunal and each of the parƟes shall act at all Ɵmes in good faith, respecƟng the spirit of the ArbitraƟon Agreement, and shall make every reasonable effort to ensure that any award is legally recognised and enforceable at the arbitral seat.” Whether these provisions are purely aspiraƟonal, or instead actually impose any kind of acƟonable duty on the arbitrators is debatable, and in any case (as previously noted) both sets of rules seek to exclude liability for any breach to the maximum degree permissible. No duty to report knowledge or suspicion of offences by others - the basic posiƟon in English criminal law Historically, there was an offence at common law called “misprision of felony”, which made it a crime for D, having knowledge of a felony, to fail to report it to an appropriate authority.
The offence was abolished by the Criminal Law Act 1967, which also abolished the disƟncƟon between misdemeanours and felonies.
The result is that, at common law, it is not a crime for an arbitrator, who knows or suspects that a party (or witness or lawyer) has commiƩed, is commiƫng or intends to commit a crime, simply to fail to report his knowledge or suspicion to the authoriƟes on his own iniƟaƟve. Only if he is called as a witness in court proceedings and declines to answer quesƟons put to him is he guilty of an offence (namely contempt). “Arrangements” under the Proceeds of Crime Act 2002 The basic posiƟon at common law was been modified to some extent by the Proceeds of Crime Act 2002 (“POCA”). SecƟon 328 provides: “Arrangements (1) A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisiƟon, retenƟon, use or control of criminal property by or on behalf of another person. (2) But a person does not commit such an offence if:- (a) he makes an authorised disclosure under secƟon 338 and (if the disclosure is made before he does the act menƟoned in subsecƟon (1)) he has the appropriate consent (b) he intended to make such a disclosure but had a reasonable excuse for not doing so; …” Property is “criminal property” if it consƟtutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and the alleged offender knows or suspects that it consƟtutes or represents such a benefit. “Criminal conduct” is conduct which consƟtutes an offence in any part of the United Kingdom, or would consƟtute an offence in any part of the United Kingdom if it occurred there. A person who might otherwise commit the offence in secƟon 328 can avoid doing so if “before he does the act menƟoned in subsecƟon (1)” he makes an authorised disclosure to the NaƟonal Crime Agency, asking for consent to do the prohibited act, and “he has the appropriate consent”. This is defined in secƟon 335. Essen- Ɵally, upon making an authorised disclosure, there follows a 7 day “noƟce period”. The authority then has 7 working days in which to give noƟce refusing consent. If no such noƟce is received, the person making the authorised disclosure is treated as having the appropriate consent. If consent is refused within the 7 day period, there follows a further 31 day “moratorium”. Once that moratorium expires, the person making the authorised disclosure is then treated as having the appropriate consent. SOCA provides (secƟon 338(4) that “an authorised disclosure is not to be taken to breach any restricƟon on the disclosure of informaƟon (however imposed)”. How might an arbitrator commit an offence under secƟon 328 POCA? An arbitrator will commit an offence if he “becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisiƟon, retenƟon, use or control of criminal property by or on behalf of another person”. The issue is whether an arbitrator might, by issuing an award, bring himself within this definiƟon. SecƟon 29 of the 1996 Act provides that “an arbitrator is not liable for anything done or omiƩed in the discharge or purported discharge of his funcƟons as arbitrator unless the act or omission is shown to have been in bad faith”. The natural assumpƟon is that this concerns only civil liability. English law does, however, use the word “liable” to refer both to civil liability and liability to a criminal penalty. For example, secƟon 334 of POCA provides: “(1) A person guilty of an offence under secƟon … 328 … is liable - (a) on summary convicƟon, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both, or (b) on convicƟon on indictment, to imprisonment for a term not exceeding 14 years or to a fine or to both.” The issue of whether secƟon 29 immunity extends to a criminal liability appears never to have been considered and we assume, for present purposes, that it does not. 10 THE ARBITER WINTER 2014 Reference has already been made to sham arbitraƟons where the award was being sought as a cover for moving criminal funds, or to commit a sophisƟcated fraud, with an insider fabricaƟng and then seƩling an arbitraƟon claim against (for example) his employer.
There is then the situaƟon where a fabricated cause of acƟon is used to obtain an arbitraƟon award so that a payment which would have been made in any event can be characterised as having been made for a different reason, so as to avoid a tax liability. It seems unlikely that parƟes to such a sham arbitraƟon (who are, in reality, the same person or very closely connected) would go so far as to fight their fabricated dispute all the way to a hearing, with the tribunal being asked to make a detailed award on the merits. Rather, the case would ‘seƩle’ at an early stage, and the tribunal would be asked to issue a consent award. From the point of view of the tribunal, such sham arbitraƟons would generally be difficult or impossible to differenƟate from genuine arbitraƟons. We all have experience of disputes which seƩle very shortly aŌer an arbitraƟon is commenced, with the tribunal then being asked to record the seƩlement agreement in an award, having never considered the detail of what is alleged. In such cases, the people who are best placed to detect a sham are not the arbitrators, but the lawyers involved. In these cases, it is hard to see how the necessary “knowledge or suspicion” would ever arise on the part of the arbitrator. An arbitrator who did know or suspect that an arbitraƟon was a sham of the kind described above would seem to have two opƟons: • Object under s.51(2) of the 1996 Act, refuse to issue the award and resign. ResignaƟon under such circumstances is very likely “reasonable” for the purposes of secƟon 25 of the 1996 Act, and so will give rise to no liability, even if the arbitrator is not protected by an express exclusion of liability in the arbitraƟon agreement / insƟtuƟonal rules. • Report the maƩer to the NCA and ask for consent to issue the award (perhaps mindful of an obligaƟon imposed by insƟtuƟonal rules to render an enforceable award if it is possible to do so). If “the appropriate consent” is obtained within the meaning of secƟon 335, proceed to issue the award. Where, however, the award is being sought as a means of commiƫng a fraud (whether on the respondent or the revenue) there is a further problem. The arbitrator who issues such an award having obtained “the appropriate consent” will not be guilty of any offence under secƟon 328, but they could sƟll be guilty of aiding and abeƫng criminal fraud or a revenue offence. The safest course is undoubtedly not to issue an award and to resign. Reference has also been made to the situaƟon where an arbitra- Ɵon claim is brought on a contract which was either obtained by way of a crime (e.g. bribery, duress) or where performance of the contract itself consƟtutes a crime (e.g. a contract for payment of a bribe, a contract for the sale of stolen goods, a contract for the distribuƟon of the proceeds of a crime). In either case, any payment which the arbitrator ordered a party to make under the contract would meet the definiƟon of criminal property. In such a case, the arbitrator’s opƟons would be the same - refuse to issue an award or report the maƩer to the NCA and ask for consent before doing so. Such a claim sounds inherently unlikely, and one might assume that where the contract is void for illegality/duress/bribery this will usually be raised as an issue in the arbitraƟon. Nonetheless, it is possible that an arbitrator might be faced with a modern day EvereƩ v Williams (1725). That is the case where EvereƩ sought to bring a claim in the English courts against Williams claiming an account of the profits of a partnership between himself and Williams. His claim stated that he and Williams were “skilled in dealing in several sorts of commodiƟes” and that they “proceeded jointly in the said dealings with good success on Hounslow Heath, where they dealt with a gentleman for a gold watch”, adding that Hounslow Heath “was a good and convenient place to deal in, and that the said commodiƟes were very plenty at Finchley aforesaid” and that they had “dealt with several gentlemen for divers watches, rings, swords, canes, hats, cloaks, horses, bridles, saddles, and other things to the value of ₤200 and upwards”. EvereƩ’s claim was evidently for his share of the proceeds of a string of robberies which the pair had carried out, and was dismissed as being both “scandalous and imperƟnent”. EvereƩ’s solicitors were arrested and fined, and EvereƩ and Williams were ulƟmately hanged. A modern-day EvereƩ Inc and Williams Limited might conceivably refer to arbitraƟon a dispute about a subtler agreement to do something unlawful, in circumstances where neither wants to raise an illegality defence, because they want the contract to remain in place for the long term, and do not want to expose their own historical conduct. An example might be an illegal cartel agreement between manufacturers - something like the Phoebus cartel in the 1920s and 30s where most of the world’s manufacturers of lightbulbs agreed not to make lightbulbs which lasted more the 1,000 hours. Sample bulbs made by all the members of the cartel were selected and tested periodically. There was a detailed agreement about the fines that a member had to pay to the other members if its bulbs were found to exceed that limit, and according to how much the limit was exceeded by. One can easily imagine a modern cartel to limit laptop baƩery life, or the robustness of mobile phone touch screens. The ‘failure to disclose’ offence in POCA does not apply to arbitrators Part 7 of the Proceeds of Crime Act 2002 creates other criminal offences related to money laundering. These fall into two categories: those of general applicaƟon and those which apply only to the “regulated sector”. One of the offences which only applies to those in the regulated sector is that in secƟon 330. That offence is commiƩed: (i) when someone knows or suspects that another person is engaged in THE ARBITER WINTER 2014 11 money laundering; (ii) the maƩer or informaƟon on which his knowledge or belief is based, or which gives reasonable grounds for such knowledge or suspicion, comes to him in the course of business in the regulated sector; and (iii) he does not make a disclosure as soon as reasonably pracƟcable aŌer the informaƟon comes to him. The regulated sector is defined in the Proceeds of Crime Act 2012 (Business in the Regulated Sector and Supervisory AuthoriƟes) Order 2007. The definiƟon is not such as to include a member of an arbitral tribunal. Can an arbitrator be called as a witness in court proceedings notwithstanding the parƟes' agreement to the contrary? The fact that parƟes agree something is to be confidenƟal does not, in itself, prevent a party from giving evidence of such maƩers in court or the court from ordering evidence of such maƩers to be disclosed. The court will only compel such disclosure if it considers it necessary for the fair disposal of the case (BriƟsh Steel Corpora- Ɵon v Granada Television Ltd  AC 1096). No special rule applies to arbitrators - they can be called, and compelled to appear, as witnesses and give evidence in English court proceedings as to confidenƟal maƩers in exactly the same way as any other witness. They can also be called as witnesses and compelled to aƩend court and give evidence in support of arbitra- Ɵon proceedings, under the power in secƟon 44(2)(a) of the 1996 Act. If so called, it would not be open to an arbitrator to refuse to answer quesƟons about informaƟon he received in the course of the arbitraƟon. No privilege aƩaches to such informaƟon. It is common for parƟes to agree that they will not call arbitrators as witnesses. For example, the LCIA Rules provide: “31.2 AŌer the award has been made and all possibiliƟes of any memorandum or addiƟonal award under ArƟcle 27 have lapsed or been exhausted, neither the LCIA (including its officers, members and employees), the LCIA Court (including its President, Vice-Presidents, Honorary Vice-Presidents and members), the Registrar (including any deputy Registrar), any arbitrator, any Emergency Arbitrator or any expert to the Arbitral Tribunal shall be under any legal obligaƟon to make any statement to any person about any maƩer concerning the arbitraƟon; nor shall any party seek to make any of these bodies or persons a witness in any legal or other proceedings arising out of the arbitraƟon.” Such an agreement is unlikely to be held to be effecƟve to prevent a party calling an arbitrator as a witness. In Farm Assist v Secretary of State for Environment Food and Rural Affairs  EWHC 1102 (TCC), Farm Assist sought to argue that a seƩlement agreement which it had entered following a mediaƟon should be set aside as having been obtain by economic duress. DEFRA sought to call the mediator as a witness. The mediaƟon had been conducted on a “without prejudice” basis, and so communicaƟons in the course of that mediaƟon were privileged. No such privilege would aƩach to communicaƟons in an arbitraƟon. In the Farm Assist case, the parƟes were prepared to waive that privilege. The mediator, however, resisted being called to give evidence, and applied to have the witness summons set aside, poinƟng to a term in the mediaƟon agreement: “13. None of the parƟes to the MediaƟon Agreement will call the Mediator as a witness, … in any liƟgaƟon or arbitraƟon in relaƟon to the Dispute and the Mediator will not voluntarily act in any such capacity without the wriƩen agreement of all the ParƟes.” Ramsey J held: “Does that provision mean that DEFRA should not be enƟtled to call the Mediator as a witness in these proceedings so that the court should set aside the witness summons? In my judgment, it does not. First, I consider that the parƟes’ agreement not to call the Mediator as a witness “in relaƟon to the Dispute” is limited to liƟgaƟon or arbitraƟon in relaƟon to the underlying dispute as defined in the preamble. There the Dispute is defined as the dispute which “relates to work performed by [FAL] on behalf of [DEFRA] during the foot and mouth epidemic in 2001”. The dispute with which I am concerned is not that dispute but the dispute whether the seƩlement agreement was entered into under duress. In this context, I consider that the phrase “in relaƟon to the Dispute” has been chosen to be narrow and some limited support may be derived from contrasƟng it with the use of the phrase “connected with the Dispute” used in paragraph 12 of the MediaƟon Procedure. However, even if the wording of paragraph 13 of the Media- Ɵon Procedure did apply to this case; I do not consider that it would in itself lead to the witness summons being set aside. Rather, it would be a factor for the court to take into account in deciding whether, in the interests of jusƟce, a mediator should be called as a witness.” Disclosing informaƟon other than by way of a POCA authorised disclosure or if called as a witness
As noted above, disclosing informaƟon in order to avoid liability for breach of secƟon 328 of POCA “is not to be taken to breach any restricƟon on the disclosure of informaƟon (however imposed)”. Similarly an arbitrator will not be in breach of any confidenƟality obligaƟon if compelled to give evidence as a witness in court proceedings or in support of another arbitraƟon. There are, however, situaƟons where an arbitrator is not compelled to give evidence, and is in no danger of commiƫng an 12 THE ARBITER WINTER 2014 offence under secƟon 328 but nonetheless learns of some wrongdoing in the course of the arbitraƟon. Can the arbitrator report that wrongdoing, or is doing so a breach of confidence? SecƟon 29 immunity does not apply to a breach of confidence An arbitrator who discloses confidenƟal informaƟon cannot claim immunity under secƟon 29 of the 1996 Act on the grounds that he made the disclosure in good faith. SecƟon 29 provides that the arbitrator “is not liable for anything done or omiƩed in the discharge or purported discharge of his funcƟons as arbitrator unless the act or omission is shown to have been in bad faith”. ReporƟng something he learns in the course of the arbitraƟon to the relevant authority is no part of the arbitrator’s funcƟon. Statutory “whistleblower” protecƟons do not apply to arbitrators The Public Interest Disclosure Act 1998 (as amended by the Enterprise and Regulatory Reform Act 2013) applies to “workers” who make “protected disclosures”. The Act provides that a confidenƟality agreement which purports to preclude a worker from making a protected disclosure is void, as well as giving workers who make such disclosures protecƟon against dismissal. Protected disclosures are permiƩed in respect of a very wide range of wrongdoing: criminal offences, breach of any legal obligaƟon, miscarriages of jusƟce, danger to health and safety, damage to the environment or the deliberate concealment of informaƟon about any of these things. To enjoy the protecƟons of the Act, the worker must reasonably believe that their disclosure is in the public interest. Arbitrators are not “workers” for the purposes of the Public Interest Disclosure Act 1998. ExcepƟons for iniquity An arbitrator who wished to disclose confidenƟal informaƟon could not rely either on the immunity in secƟon 29 of the Arbitra- Ɵon Act 1996 or on the “whistleblower” protecƟon which applies to “workers” under the Public Interest Disclosure Act 1998. An arbitrator who disclosed confidenƟal informaƟon would, instead, have to try and rely on the common law “iniquity” excep- Ɵon to duƟes of confidence. In Gartside v Outram  26 LJ Ch (NS) 113) it was held that: “... there is no confidence as to the disclosure of an iniquity. You cannot make me the confidant of a crime or fraud, and be enƟtled to close up my lips upon any secret which you have the audacity to disclose to me relaƟng to any fraudulent intenƟon on your part.” Iniquity is just a facet of a broader public interest defence Lion Laboratories Limited v Evans  2 All ER 417 concerned the manufacturer of a ‘breathalyser’ (device used by the police to determine whether drivers were intoxicated whilst driving such as to have commiƩed a crime). Two former employees of the manufacturer took with them confidenƟal internal memoranda which cast doubt on the accuracy of the instrument. The employees passed the informaƟon to a newspaper. The manufacturer sought an injuncƟon against the paper and the former employees to restrain publicaƟon. The manufacturer argued that it was not alleged to have commiƩed a “crime or fraud” or to have had any “fraudulent intenƟon”, as in Gartside and so that there was no “iniquity”. Stephenson LJ held: “The problem before the judge and before this court is how best to resolve, before trial, a conflict of two compeƟng public interests. The first public interest is the preservaƟon of the right of organisaƟons, as of individuals, to keep secret confi- denƟal informaƟon. The courts will restrain breaches of confi- dence, and breaches of copyright, unless there is just cause or excuse for breaking confidence or infringing copyright. The just cause or excuse with which this case is concerned is the public interest in admiƩedly confidenƟal informaƟon. There is confidenƟal informaƟon which the public may have a right to receive and others, in parƟcular the press, now extended to the media, may have a right and even a duty to publish, even if the informaƟon has been unlawfully obtained in flagrant breach of confidence and irrespecƟve of the moƟve of the informer. I nowhere find any authority for the proposiƟon … that some modern form of iniquity on the part of the plainƟffs is the only thing which can be disclosed in the public interest; and I agree with the judge in rejecƟng the “no iniquity, no public interest” rule; and in respecƞully adopƟng what Lord Denning M.R. said in Fraser v. Evans  1 Q.B. 349, 362, that some things are required to be disclosed in the public interest, in which case no confidence can be prayed in aid to keep them secret, and “[iniquity] is merely an instance of just cause or excuse for breaking confidence.”” The need for reasonable credibility A party which breaches a duty of confidenƟality would seem to have a defence provided that there is a sufficient public interest in the informaƟon being disclosed to outweigh the public interest in the right of people and organisaƟons to keep confidenƟal informaƟon secret. Such a defence arises provided that the informaƟon is reasonably credible. In AƩorney General v Guardian Newspapers  UKHL 6 at (at page 545) Lord Keith of Kinkel said: “a mere allegaƟon of iniquity is not of itself sufficient to jusƟ- fy disclosure in the public interest. Such an allegaƟon will only do so if, following such invesƟgaƟons as are reasonably THE ARBITER WINTER 2014 13 open to the recipient, and having regard to all the circumstances of the case, the allegaƟon in quesƟon can reasonably be regarded as being a credible allegaƟon from an apparently reliable source.” Wrongdoing need not be on the part of the con- fiding party When the informaƟon concerns wrongdoing, it makes no difference whether the wrongdoing was on the part of the person to whom the duty of confidence is owed or someone else. In Lion Laboratories Limited v Evans  2 All ER 417, Griffiths LJ said: “I can see no sensible reason why this defence should be limited to cases in which there has been a wrongdoing on the part of the PlainƟffs.” An arbitrator’s duty of confidence is to the parƟes. But the arbitrator might obtain credible evidence of wrongdoing by a party, a witness, a lawyer or someone else enƟrely. An arbitrator who discloses such informaƟon might, in theory, enjoy a public interest defence. Provided, of course, that the public interest in the disclosure of the informaƟon was such as to outweigh the public interest in the confidenƟality of arbitral proceedings. ConfidenƟality of arbitraƟon and conflicƟng public interests How is one to assess the relaƟve ‘public interest’ in keeping arbitraƟon proceedings confidenƟal versus the relaƟve public interest in the parƟcular informaƟon in issue being disclosed? There undoubtedly is a public interest in parƟes being able to have their disputes dealt with in confidence. The confidenƟality and private nature of arbitraƟon is cited as one of its main aƩrac- Ɵons, and arbitraƟon is an important export, with foreign parƟes coming to England, and paying English lawyers, arbitrators and experts, to assist in resolving their disputes. It is conducive to the success of businesses and their ability to compete that they should be able to enforce obligaƟons they are owed without risking trade secrets or sensiƟve commercial informaƟon which might be useful to their rivals, from becoming public. It is also important to recognise that disputes will tend to arise only when something has gone wrong. In seeking to apporƟon blame, individual employees and managers on both sides may be heavily criƟcised, all sorts of accusaƟons may be made, and embarrassing failures may come to light. These might be the kind of things which some members of the public would find interesƟng, but it could not be said that there was a public interest in them being made public, sufficient to override the public interest in preserving the confidenƟality of arbitraƟon. At the other end of a spectrum, there is evidence of a past, intended or ongoing crime. There is no direct authority on the point, but it seems very likely indeed that an arbitrator who receives credible evidence of something which would amount to a crime as a maƩer of English law may report it to the police without thereby commiƫng an acƟonable breach of their duty of confidenƟality. It is hard to imagine that a court would grant the criminal in such a case an injuncƟon to prevent the arbitrator reporƟng the crime, or that the criminal could recover damages for such a breach of confi- dence aŌer the fact. But arbitrators may also receive informaƟon about: • conduct which occurred outside England, and which English law does not deem a crime unless it occurs in England; • conduct which consƟtuted a crime in the place it was commiƩed, but would not have consƟtuted a crime if it had occurred in England. In those cases (parƟcularly the second) the posiƟon is less clear. The arbitrator who reports such informaƟon has commiƩed a breach of confidence, unless there was a sufficient public interest in the informaƟon being disclosed. As a maƩer of English law, the conduct which has been disclosed is not sufficiently contrary to the public interest to amount to a crime in England. At the same Ɵme, it is necessary to recognise that a public interest defence to a breach of confidenƟality has been recognised in respect of maƩers which fall short of criminality. Re A Company’s ApplicaƟon  3 WLR 265 concerned a company which provided financial advice and managed investments for its clients. Its business was subject to regulaƟon by FIMBRA (a predecessor of the Financial Conduct Authority, and whose authority to make regula- Ɵons and impose sancƟons for the breach of those regulaƟons derived from statute). The company sought an interim injuncƟon to prevent an employee disclosing confidenƟal informaƟon to FIMBRA and to the Inland Revenue. The injuncƟon was refused. With respect to FIMBRA it was said that: “I doubt whether an employee of a financial services company such as the plainƟff owes a duty of confidence which extends to an obligaƟon not to disclose informaƟon to the regulatory authority F.I.M.B.R.A.” This would seem to suggest that the iniquity excepƟon extends beyond criminal offences to include breaches of rules imposed by a regulator whose power is derived from statute. All sorts of industries and professions are subject to such regulaƟon, with regulators able to impose fines or suspend licences for failures to comply with the rules they propagate. Obviously parƟes operaƟng in the financial services industries will be subject to such regulaƟon, but so will gas, water and power companies, medical professionals, accountants, pharmacists and - of course - the lawyers who represent such people in arbitraƟons. Suppose that, in the course of an arbitraƟon, a solicitor instructed by a party appeared to have commiƩed some breach of the rules imposed by the SRA, or that a barrister appeared to have commiƩed a breach of the rules imposed by the Bar Standards Board. It is at least arguable that the iniquity excepƟon would ap-14 THE ARBITER WINTER 2014 ply, and that an arbitrator who reported such conduct would not be in breach of any duty of confidence. In Re A Company’s ApplicaƟon, it was said with respect to the threatened disclosure to the Inland Revenue: “if what is disclosed to the Inland Revenue relates to fiscal maƩers that are the concern of the Inland Revenue, I find it difficult to accept that the disclosure would be in breach of a duty of confidenƟality.” A fraud on the revenue, of course, is a crime and so falls within the iniquity excepƟon. But Re A Company’s applicaƟon suggests that the iniquity excepƟon extends beyond actual criminality - the deliberate evasion of tax - to cover “fiscal maƩers that are the concern of the Inland Revenue”. That would potenƟally include maƩers falling short of deliberate tax evasion, such as the accidental misreporƟng of earnings or failure to disclose a (lawful) tax avoidance scheme. The iniquity excepƟon has also succeeded in cases where what has been disclosed falls short of a crime or regulatory breach. For example, there was held to be no duty to keep confidenƟal the fact that someone had acted so as to mislead the public in IniƟal Services Limited v PuƩerill  1 QB 396, and Church of Scientology of California v Calthman  RPC 635). There was no confi- dence in the fact that there was a danger to public health in X v Y  All ER 648. Conclusion Whenever an arbitrator knows or suspects that an arbitraƟon is a sham, the safest course is to decline to issue an award and to resign. In such circumstances the arbitrator is free to report the maƩer to the NCA or the police, but is under no criminal liability if he fails to do so. Where an arbitraƟon is a sham and an award is sought as the pretext for transferring criminal funds, an arbitrator could instead make an authorised disclosure to the NCA seeking consent to issue the award. If “the appropriate consent” is provided, or is deemed to have been provided, the arbitrator may issue the award. Where an arbitraƟon is a sham and an award is being sought as an instrument of a fraud, the arbitrator’s only opƟon is to refuse to issue an award and to resign. Making an authorised disclosure to the NCA and obtaining consent would not protect the arbitrator from accessory liability for fraud. Where an arbitrator in an English seated arbitraƟon whose duty of confidenƟality to the parƟes arises under the law of England receives credible informaƟon in the course of an arbitraƟon that a party, witness, lawyer or any other person has commiƩed, is commiƫng or intends to commit a crime contrary to English law, he may report that maƩer to the police without commiƫng any ac- Ɵonable breach of his duty of confidence. He is under no legal obligaƟon to make such report. Where such an arbitrator receives credible informaƟon in the course of an arbitraƟon as to other wrongdoing, he may disclose that maƩer provided there is a sufficient public interest in his doing so. ‘Elf Me Choose a Place (or Two) to Sue by Ryan Deane ArƟcle 5(1) of EC RegulaƟon 44/2001 (the “RegulaƟon”) allows a person domiciled in a member state of the EU to be sued in another member state “in maƩers relaƟng to a contract, in the courts for the place of performance of the obligaƟon in quesƟon”, in addi- Ɵon to the courts of his or her domicile. This arƟcle examines the approach that the English courts take when no single place of performance can be idenƟ- fied, as occurred in the recent case of Canyon Offshore Ltd v GDF Suez E&P Nederland BV  EWHC 3810 (Comm). What happened in Canyon v GDF Suez? The Canyon case concerned the development of oil and gas fields in the Dutch sector of the Orca, Sierra and Amstel fields in the North Sea. The operator of these fields, a company incorporated in the Netherlands (“GDF”), wished to develop the fields by the erecƟon of further plaƞorms. That in turn required the installaƟon of subsea pipelines. In order to achieve this, GDF entered into contracts with another Dutch company (“Cecon”) for the transportaƟon and installaƟon of these pipelines (“the Project Agreements”). Cecon sub-contracted part of this work to the claimant (“Canyon”), a Scoƫsh company with its registered office in Aberdeen. This contract (“the Trenching Contract”) was governed by English law and was subject to arbitraƟon in RoƩerdam. Subsequently Cecon fell behind in payments to its subcontractors. GDF became worried that the sub-contractors, including Canyon, would cease work because they weren’t being paid. It therefore made a proposal to Cecon that GDF would pay the subcontractors directly on the condiƟon that GDF’s associated payment obligaƟons to Cecon under the Project Agreements would be discharged. Cecon passed the details of this offer onto Canyon. Canyon later claimed this had the effect that a contract was made between it and GDF, with GDF promising to pay Canyon’s invoices directly in return for a promise that Canyon would not cease work. Canyon argued that an offer had been made by GDF to Canyon, with Cecon acƟng as GDF’s agent, which Canyon accepted. In the alternaƟve, it argued that the agreement between GDF and Cecon conferred a benefit on Canyon which it could enforce under the Contracts (Rights of Third ParƟes) Act 1999. THE ARBITER WINTER 2014 15 Canyon conƟnued performing the Trenching Contract, and carried out a further £3.4m of work. It then claimed this amount from GDF, in addiƟon to £2.1m of previous work which remained unpaid. GDF failed to pay Canyon, dispuƟng the existence of the alleged contract and denying any obligaƟon to pay Canyon directly. Canyon commenced proceedings in England. The preliminary issue that HHJ Mackie had to decide was whether the English courts had jurisdic- Ɵon to resolve the dispute. Could the English courts hear the claim under the RegulaƟon? It was common ground between the parƟes that English law applied to the alleged contract between Canyon and GDF. At common law, this would have been sufficient to vest the English courts with jurisdicƟon. However, because GDF was domiciled in the Netherlands, the RegulaƟon applied to decide the iniƟal jurisdic- Ɵonal quesƟon between the parƟes. ArƟcle 2 of the RegulaƟon provides that “persons domiciled in a Member State shall … be sued in the courts of that Member State”. This default rule is subject to certain excepƟons found in Chapter II of the RegulaƟon. The most important of these excepƟons is ArƟcle 5(1), which allows a defendant to be sued: “ArƟcle 5(1) (a) in maƩers relaƟng to a contract, in the courts for the place of performance of the obligaƟon in quesƟon; (b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligaƟon in quesƟon shall be: - in the case of the sale of good, the place in a Member State where, under the contract, the goods were delivered or should have been delivered, - in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided, (c) if subparagraph (b) does not apply then subparagraph (a) applies.” In order to establish jurisdicƟon under ArƟcle 5(1) Canyon had to show it had a good arguable case that the alleged contract existed. HHJ Mackie examined the factual background and agreed with Canyon that it had the beƩer argument that a contract did exist between Canyon and GDF. He therefore proceeded to apply the test in ArƟcle 5(1) of the RegulaƟon. ArƟcle 5(1)(b) - Was there a contract for the sale of goods or supply of services? The first quesƟon for the court was whether the alleged contract was for the sale of goods or provision of services so as to fall under ArƟcle 5(1)(b). If it was such a contract, GDF could only be sued in the place the goods were delivered or the services provided, which would be the Netherlands. GDF argued that under the alleged contract Canyon was to perform the same obligaƟons it had under the Trenching Contract, and those obligaƟons were to carry out work on the Dutch conƟnental shelf. None of the services were to be provided in England and Wales, and so the English court could not have jurisdicƟon. Against this Canyon argued that the characterisƟc obligaƟon of the alleged contract, the “obligaƟon in quesƟon”, was in fact GDF’s promise to pay Canyon, not the provision of trenching services. GDF was not stepping into Cecon’s shoes in relaƟon to the Trenching Contract generally, but only in relaƟon to the obligaƟon to pay. It followed, Canyon argued, that the alleged contract was not one for the provision of services within the meaning of ArƟcle 5(1)(b). The court agreed with Canyon, holding that the characterisƟc obligaƟon of the alleged contract was the assumpƟon by GDF of the obligaƟon to pay what Canyon was owed under the Trenching Contract. No-one would sensibly call an assumpƟon of an obligaƟon to pay a contract for the provision of goods or services. ArƟcle 5(1)(b) was inapplicable. ArƟcle 5(1)(a) was instead engaged. ArƟcle 5(1)(a) - What was the place of performance?
The case therefore turned on what the “place of performance” of the characterisƟc payment obligaƟon under ArƟcle 5(1)(a) was. This expression does not have an autonomous meaning under European law. It therefore fell to be determined in accordance with the con- flict rules of the court before which proceedings had been brought, in this case, English law. No place of performance for payment had been expressed in the alleged contract, but the invoices sent from Canyon to Cecon under the Trenching Contract provided for payment either by bank transfer to London or by other means to Canyon’s registered office in Aberdeen. HHJ Mackie held that because GDF was taking over this payment obligaƟon from Cecon, the place of performance of the payment obligaƟons under the alleged contract was equally England or Scotland. This finding gave rise to an immediate problem. Although the contract provided equally for two places of performance of the relevant obligaƟon, the operaƟon of the RegulaƟon seemed dependant on the idenƟficaƟon of a single place of performance. The vital quesƟon therefore was did the fact that there was a dual place of performance would prevent Canyon from suing GDF in England? ArƟcle 5(1)(a) - Did a dual place of performance mean the only competent courts were those of the defendant’s domicile? GDF’s argument was that because the terms of the invoice did not sƟpulate a single place of performance, ArƟcle 5(1)(a) could not apply. It relied on the seemingly straighƞorward observaƟon by the 16 THE ARBITER WINTER 2014 ECJ in Besix v Wasserreinigungsbau Alfred Kretzschmar  1 WLR 1113 that “a single place of performance for the obligaƟon in quesƟon must be idenƟfied”. In Besix the parƟes entered into an exclusivity agreement whereby they agreed that they would act exclusively with each other and not commit themselves to other partners. As this obliga- Ɵon took effect globally, every member state would have been a place of performance. The ECJ held that allowing a defendant to be sued using ArƟcle 5(1)(a) in these circumstances would offend against the principle of legal certainty, and that the only opƟon was to sue the defendant in its domicile pursuant to ArƟcle 2. Although this ruling was made in relaƟon to ArƟcle 5(1) in the earlier Brussels ConvenƟon, the ECJ had made clear in Falco PrivatstuŌung v Weller-Lindhorst  Bus LR 210 that ArƟcle 5 (1) of the RegulaƟon should be construed consistently with previous interpretaƟons of the ConvenƟon. HHJ Mackie accepted this principle and proceeded on that basis. Canyon in turn argued that several recent cases under ArƟcle 5 (1)(b) of the RegulaƟon had made clear that more than one place of performance was not a bar to the applicability of the RegulaƟon. It said that the general trend of recent European cases was for a more expansive interpretaƟon of the RegulaƟon. HHJ Mackie reviewed the three most important of these cases before coming to his decision. Three leading cases on place of performance In Color Drack v Lexx InternaƟonal  1 WLR 1909 goods were to be delivered to mulƟple locaƟons within the same member state. The ECJ held that in such circumstances a defendant could be sued in the principal place of delivery or, if such place could not be determined, in the court for the place of delivery of the claimant’s choice. The court reasoned that this decision met the objec- Ɵve of proximity to the dispute and allowed the defendant reasonably to foresee before which court it may be sued. The court relied on the fact that the defendant knew it could only be sued under ArƟcle 5 in the courts of a single member state. In Rehder v Air BalƟc Corpn  Bus LR 549, a passenger bought a Ɵcket for a flight from Germany to Lithuania. The flight was cancelled and the passenger sought compensaƟon. The court examined in which state the service was to be performed for the purposes of ArƟcle 5(1)(b). The ECJ cited the twin objecƟves of proximity and predictability and held that the airline could be sued in either the place where the aircraŌ took off or where it landed, both having a sufficient connecƟon with the dispute. Finally, in Wood Floor SoluƟons v Silva Trade  1 WLR 1900, a commercial agency contract had been terminated under which agents had provided services in several Member States. The ECJ held that a mulƟplicity of places of performance was no bar to the applicability of ArƟcle 5(1)(b). The place of the main provision of services must be ascertained from the contract or, failing that, the place where in fact the services for the most part have been carried out. The importance of the objecƟves of proximity and predictability was repeatedly stressed by the court. No binding precedent, but ‘proximity and predictability’ must be respected Having reviewed these authoriƟes, HHJ Mackie accepted that none was directly applicable to ArƟcle 5(1)(a). However, taking into account the reasoning behind the decisions, he concluded that there had been an ‘evoluƟon’ towards permiƫng claimants to have a choice within ArƟcle 5 of where to sue provided the two criteria of proximity and predictability are saƟsfied. He disƟnguished Besix on the grounds that it was “characterised by a mulƟplicity of places of performance”. No jurisdicƟon selected pursuant to ArƟcle 5(1) had sufficient proximity in that case, because there were no real connecƟng factors between the contract and the various member states. Further, the defendant could not reasonably foresee in which jurisdicƟon it would have to defend itself if proceedings could be commenced in any member state of the claimant’s choosing. Applying the concepts of proximity and predictability to the case before him, HHJ Mackie held that at the Ɵme of assuming the payment obligaƟon, GDF could readily have discovered that payment was due in Scotland or England; it could have looked at Canyon’s invoices. GDF could reasonably have foreseen that if it failed to pay it might be sued in the Netherlands where it is domiciled or in Scotland or England, where payment was to be made. The twin pillars of proximity and predictability were saƟsfied. The judge therefore dismissed GDF’s objecƟons to the English courts’ jurisdic- Ɵon. Comment This decision is a good first step in clarifying how the English courts will apply ArƟcle 5(1) in cases where there are mulƟple places of performance of the obligaƟon in quesƟon. It is now clear that there is no relevant disƟncƟon between ArƟcle 5(1)(a) and ArƟcle 5 (1)(b) in the test to be applied. There is no automaƟc bar to the applicaƟon of ArƟcle 5(1) simply because there are mulƟple places of performance; the relevant test is always whether there is suffi- cient proximity and predictability. Precisely what these two concepts mean is, however, less clear. HHJ Mackie admiƩed that their scope had “not as yet been much worked out”. His applicaƟon of both concepts to the facts is contained in a single paragraph in his judgment. While making clear that there must be both sufficient proximity and predictability, the two concepts are seemingly applied simultaneously without dis- ƟncƟon, in one fell swoop. In his short discussion of proximity and predictability, HHJ Mackie twice emphasises that the normally well informed defendant in GDF’s posiƟon would reasonably have been able to foresee that it might be sued in either of the places where payment was required to be made under the alleged contract. Because the payment obli-THE ARBITER WINTER 2014 17 gaƟon was “the essence of what [GDF] was required to do under the alleged contract” this was, without more, sufficient to fulfil both criteria. The brevity of this conclusion is perhaps a result of the unusual nature of the alleged contract in this case: an assumpƟon, by A, of B’s obligaƟon to pay C, in exchange for C’s promise not to stop performing its contract with B. By examining the ECJ’s interpretaƟon of proximity and predictability it becomes clearer why HHJ Mackie applied the concepts in the way he did. The ECJ in Color Drack stated that proximity must relate “to the material elements of the dispute”. Because the court found that this was not a contract for the provision of services, the payment obliga- Ɵon itself became the essence of the contract. Factors relaƟng to the payment obligaƟon would therefore suffice to fulfil the proximity requirement; the method of payment stated in Canyon’s invoices was a material element, and indeed one of the few material elements, in the dispute. This conclusion is unusual, because the courts are normally loathe to classify payment as the characterisƟc obligaƟon of a contract. Payments under contracts are ubiquitous. What is received in exchange for payment is what characterises a contract. The manner or method of payment will not usually consƟtute valid proximate factors. HHJ Mackie implicitly acknowledged this, staƟng in his judgment that cases falling under ArƟcle 5(1)(b) for the provision of goods or services will necessarily involve a degree of proximity that is likely to be greater than under ArƟcle 5(1)(a). The place of delivery of goods or provision of services will have a natural proximity to the contract because this is the place in which the characterisƟc obligaƟons, as we naturally understand them, are performed. In contrast, an obligaƟon under ArƟcle 5(1)(a) may have liƩle connecƟon with the underlying substance of the dispute between the parƟes or with the parƟes themselves, as in the current case. England had no connecƟon with the work that Canyon had been contracted to carry out. Neither had it any connecƟon with the domicile of the parƟes. The English courts ended up with jurisdic- Ɵon because the transfer of money into a London bank account was chosen as one method by which payment could be made. The English courts therefore seem willing to stretch the concept of proximity in cases where payment under a contract is the characterisƟc obligaƟon. It remains to be seen how this concept will develop in more usual circumstances where there are mulƟple places of performance of delivery of goods or provision of services. The ECJ in Color Drack held that the predictability criterion is met when the parƟes to the contract “can easily and reasonably foresee before which member states courts they can bring their dispute”. The use of the language of reasonable foreseeability is reflected in HHJ Mackie’s judgment. He found that GDF should reasonably have foreseen that if it failed to pay under the alleged contract it could be sued in either of the places where payment was required to be made. The fact that there were only two places of performance, Scotland or England, seems to have weighed heavily in the judge’s mind when considering what was reasonably foreseeable by GDF. He states that the Besix case, in which every member state was a place of performance, was “far removed from the facts of this case”, and the consideraƟons contained within it applied only “to a degree”. The number of places of performance is likely to remain the key factor in deciding whether the place of performance is sufficiently predictable for the purposes of ArƟcle 5(1). The more possible jurisdicƟons that a defendant might be sued in, the less likely it is it will be able to predict in which courts it will have to defend itself. Conclusion HHJ Mackie concluded his judgment by warning that the issues he had examined were neither straighƞorward nor based on principles that have been established beyond doubt. He took the prudent step of granƟng GDF permission to appeal. 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