The Commercial Court considered an application to continue a worldwide freezing order (WFO) in support of an award in an arbitration seated in England and Wales and reviewed the applying party’s duty of ‘full and frank’ disclosure.
This is the latest judgment to emerge from the ongoing dispute between U&M Mining Zambia Ltd (U&M) and Konkola Copper Mines Plc (KCM). In June 2014, U&M applied for – and was granted - a WFO in support of sums awarded by a tribunal in a London arbitration. U&M then applied to continue the WFO.
The court granted the continuation. In doing so, it looked at KCM’s conduct during the arbitration: in particular, KCM’s reliance - on two occasions - upon untrue evidence, and its apparent willingness to cause unnecessary harm to U&M. None of that conduct amounted, in itself, to a breach of the existing WFO. Nevertheless, the court held that an entity whose employees are willing to give untrue evidence, cause unnecessary harm, obstruct the arbitration process and take untenable points with a view to delaying enforcement might well also seek to deal with its assets other than in the ordinary course of business with a view to making enforcement of arbitration awards more difficult.
The court noted that the majority of KCM’s assets were located in Zambia, that enforcement would take place in Zambia, and that the Zambian court also had the power to grant WFOs. Nevertheless, where the seat of arbitration is in England, it will ordinarily (and subject always to the court’s discretion) be appropriate for the English court to make orders, such as WFOs, in support of the arbitration. The mere fact that enforcement of an award will take place overseas was not, by itself, sufficient to make it inappropriate for the English court to grant a WFO.
This case also provides useful guidance on the applicant’s duty to give ’full and frank’ disclosure when seeking a WFO. Applications for WFOs are typically made without notice to the affected party and the applicant is accordingly under a duty to show utmost good faith, to disclose his case fully and fairly, to identify the crucial points for and against the application, and to disclose all facts which the court might reasonably take into account. Failure to give this ’full and frank‘ disclosure can result in the WFO being discharged - even if the court later finds that the order would properly have been granted had full disclosure been made.
In this case, the court found that U&M had committed ’serious and numerous‘ breaches of its duty to give full and frank disclosure – but that it was, nevertheless, just and convenient to continue the WFO. In coming to this decision, the court noted that:
- UCM’s failure to comply with its duty of full and frank disclosure related to matters involving the finances of KCM. It did not relate to the conduct of KCM in the arbitration or subsequently, and it was that conduct from which the court inferred the risk that KCM would – if not restrained by a WFO - seek to deal with its assets so as to make enforcement of the awards more difficult.
- The failures to comply were ’innocent‘ in the sense that they were not deliberate. The material submitted by UCM with its original application indicated an intention to put all matters thought to be relevant before the court. The court was satisfied, on the facts, that UCM’s failure to put certain matters before the court may have arisen from a failure to appreciate the relevance of those matters.
- The court must emphasise the importance of complying with the duty of full and frank disclosure, and ensure applicants discharge that duty. It was not, however, necessary to discharge the WFO to meet that purpose: it could be satisfactorily achieved, in an appropriate case, by an order as to costs.
This case confirms the English court’s readiness to look at the parties’ conduct in deciding whether to grant or continue a WFO, and to issue WFOs even where the assets are located outside of the jurisdiction. The case also indicates that an innocent failure to give full and frank disclosure may not be fatal to an application to continue a WFO, and that the courts accordingly recognise the balance between the applicant’s duty to give full and frank disclosure, and the harm they might suffer if a WFO were to be prematurely discharged.