Company 1 v Company 2 & Anor [2017] EWHC 2319 (QB) (20 September 2017)

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Cite as: [2017] EWHC 2319 (QB)

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		Neutral Citation Number: [2017] EWHC 2319 (QB)
		Case No: D30LS389

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LEEDS DISTRICT REGISTRY
MERCANTILE LIST
IN THE MATTER OF AN ARBITRATION

The Court House
Oxford Row
Leeds LS1 3BG

20 September 2017

B e f o r e :

His Honour Judge Saffman sitting as a Judge of the High Court
____________________

Between:

	Company 1	Claimant
	- and –
	(1) Company 2 (2) A	Defendants

____________________

Mr Paul Chaisty QC and Mr Jonathan Ward (instructed by Brabners) for the Claimant
Mr Thomas Grant QC (instructed by Gowling WLG) for the Defendants
Hearing date: 13 September 2017
Date draft circulated to the Parties 18 September 2017
Date handed down in private 20 September 2017
____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

Introduction

I am dealing with an application made by Company 1, a company incorporated in the British Virgin Islands against Company 2, a company incorporated in Cyprus and the second defendant, Mr A, who is the ultimate beneficial owner of the first defendant. Mr A is a US citizen currently living in the UK. In this judgment I shall refer to the claimant as Company 1, the first defendant as Company 2 and the second defendant as A. Mr Paul Chaisty QC represents Company 1 and Mr Thomas Grant QC represents Company 2 and Mr A. I am grateful to them both for their very helpful skeleton arguments and skilful submissions.

By the application Company 1 seeks an order requiring the defendants to pay the sum of $596,725 into a joint account in the joint names of the parties' respective solicitors pending determination of an arbitration into disputes between the parties. In the alternative Company 1 applies for an interim freezing order of the same amount. In addition, Company 1 applies for disclosure of various documents viz sales management agreements and bank statements.

As I shall explain below, the parties have agreed that disputes between them must be settled by arbitration. Such an agreement would usually exclude the jurisdiction of the court but this application is made pursuant to the issue of an arbitration claim form by Company 1 on 20 July 2017. It is contended that accordingly the provisions of s2(3) and s44 Arbitration Act 1996 (the 1996 Act) apply and provide the court with the authority to make the orders sought.

In order to understand the nature of the application it is necessary to set out in some detail the background and context in which it is made.

Background

On 20 December 2010 Company 1 and Company 2 entered into a joint venture agreement. Both companies had experience in the promotion, marketing and sales of jet aircraft but their sphere of operations was different. Company 1 tended to operate in the countries of Eastern Europe and the Middle East (referred to in the joint venture agreement as Company 1's Territories) while Company 2 tended to operate in Western Europe, the United States and Canada (referred to in the agreement as a Company 2's Territories). Both companies made their money by matching the seller of aircraft to a buyer and taking a commission on the sale.

By the joint venture agreement the parties agreed to form a limited company in which Company 1 and Company 2 had an equal interest for the purpose of promoting marketing and trading in preowned jet aircraft worldwide ^[1]. The joint venture company that was set up for this purpose was what I will describe as Company 3. As was contemplated by the joint venture agreement, that company was established in the British Virgin Islands. Company 1 and Company 2 each invested $250,000 into Company 3 in exchange for an equal shareholding^[2] and each made an interest-bearing loan to Company 3 of $200,000.

The joint venture agreement provided that all business opportunities for preowned aircraft transactions that came to the knowledge of either Company 1 or Company 2 would be exploited by Company 3. The agreement was initially for a term of 5 years but was subject to automatic extension for consecutive periods of 5 years unless terminated by either party on 6 months' advance notice. No such notice had been given to terminate the agreement in 2015 and so at the time of the events with which I am concerned the agreement was, subject to termination for breach in the interim, due to continue to at least January 2020.

The agreement contains detailed provisions as to the setting up of a bank account in Switzerland in the name of Company 3 and the payment of commissions earned into the bank account to await distribution to Company 1 and Company 2. As would be expected, the joint venture agreement contains detailed provisions as to how Company 3's net profits would be distributed but the essence was that half would be paid as dividend to Company 1 and the other half as dividend to Company 2. That arrangement for equality however was subject to one significant caveat contained in clause 5.3 of the agreement to the effect that for as long as Mr A was the CEO of Company 3

"100% of (Company 3's) net income generated from 5 annually average transactions sold to customers in the Company 2's territory shall be granted and paid to the Company 2".

So far as Company 2 and Mr A are concerned, the effect of clause 5.3 was that where 5 or fewer transactions per year were carried out by Company 2 in Company 2's territory Company 3 would pay the entirety of the net income (less expenses) to Company 2 but where there were 6 or more sales per year carried out in Company 2's territory Company 3 would pay it a sum calculated by taking an average of the commission earned on those transactions multiplied by 5. The remaining net commissions on sales would be split equally. It is not clear whether Company 1 accepts that construction of clause 5.3. Their position for the purposes of this application is that the provisions of clause 5.3 are not engaged because the condition precedent, namely that Mr A was the CEO of Company 3, was not met.

There is some specific interplay between clause 5.3 and clause 3.1 of the agreement which gives Company 2 the right to appoint Mr A as the CEO

"for as long as (Mr A) is the principal and sole beneficial owner of Company 2 and is able and willing to act as CEO of (Company 3) and dedicate 100% of his time and effort to develop the business of Company 3 provided however that Mr A will be able to dedicate time as needed to his non-aviation related interests"

Clause 9 of the agreement deals with confidentiality and non-competition obligations. It is not necessary for the purposes of this application to refer to these save in respect of 2 provisions. First, pursuant to clause 9.4 Company 1 and Company 2 agreed that they will not conduct any sales of preowned aircraft other than through Company 3 and that they would not compete with the business of the other party or establish a business competing directly or indirectly with the business of the other party. Secondly, by clause 9.4.3 the parties acknowledged that a violation of the provisions of article 9.4 of the agreement

"may cause irreparable (sic) loss and harm to the other party which cannot be reasonably or adequately compensated by damages in an action at law, and, accordingly that the non-defaulting party shall be entitled to injunctive and other equitable relief to enforce the said provisions of this agreement and to request and receive (from the defaulting party and/or from its undersigned principle (sic) directly) compensation for liquidated damages in the amount of $500,000 for each event of default conducted by the other party (for the avoidance of doubt each aircraft transaction in breach of the above undertaking is to be considered a separate event of default)"

There is some dispute as to what the average commission that tended to be earned on the sale of aircraft actually is but Company 1 estimates it to be about $511,000. That is not a figure with which Company 2 would agree however. It puts it at something in the region of $377,000 or at most $429,000. Either way, and bearing in mind that each party is entitled to only half of the net commission, the provisions of clause 9.4.3 provide for a payment which at first sight appears to significantly exceed the financial loss that an innocent party would suffer in the event that the other party acted other than in accordance with the terms of the joint venture agreement.

Clause 11 of the joint venture agreement is an arbitration clause by which any dispute arising out of or in connection with the agreement is to be referred to, and resolved by, arbitration. The seat of the arbitration was to be Zürich and the law to govern the arbitration was to be that of England and Wales.

A letter of undertaking was attached to the joint venture agreement by which the respective beneficial owners of Company 1 and Company 2 (an individual whom I shall refer to as Mr B, and Mr A respectively) acknowledged that the terms of clause 9 of the agreement bound them personally. In Mr A's case therefore he attached his signature by way of agreement to the following wording;

"I hereby sign and accept the terms of the JV Agreement and acknowledge that the terms of clause 9 of the agreement bind me personally and that I personally guarantee all the obligations of Company 2 and its affiliates included in this clause".

It seems that both Company 1 and Company 2 took the view that in order for the joint venture agreement to operate efficiently Company 3 needed to be supported by service companies. A company registered in Cyprus (but operating in England) and which I will refer to as Company 4 and one registered in England which I shall refer to as Company 5 were set up for this purpose. These companies were responsible for recruiting and employing research, sales and marketing staff for the benefit of Company 3. Company 3 was responsible for funding the service companies.

Initially relations between Company 1 and Company 2 appeared to be cordial but it seems clear that by 2017 tensions had developed. Mr A was at that stage under the impression that Company 3 owed Company 2 about $10 million which was due predominantly by virtue of the operation of the priority fee structure contained in clause 5.3 of the agreement and to which I refer in paragraph 8 above.

Company 3's bank account was then, and is now, in credit to the tune of over $7.5 million. One of Company 2's complaints was that Company 1 was not prepared to utilise any of that money to pay, or at least substantially reduce, that alleged liability to Company 2 of $10 million on what Mr A says is the spurious ground that Mr A was not the CEO of Company 3 and thus the provisions of clause 5.3 are not engaged. It is clear that Mr A finds this excuse particularly hollow not least because on at least 2 occasions in correspondence the fact that he is CEO has been acknowledged by Company 1 or Mr B.^[3]

The matter to which I refer above concerning the alleged withholding $10 million was only one of the grievances which Company 2 had concerning the operation of the joint venture agreement. I need not recite in any great detail what the other concerns were. They are set out in paragraph 24 of Mr A's affidavit of 25 July 2017. They may perhaps briefly be summarised as a concern that, contrary to the terms of the joint venture agreement;

The interests of Company 2 were underrepresented on the board of Company 3 because Company 1 would not agree to Company 2's proposed appointees^[4]

Company 1 was not contributing towards operating costs of the service companies which were accordingly being starved of funding

Corporate documentation was being withheld from Company 2

Company 1 had refused to authorise a showroom facility in London.

There was clearly also concern that Company 1 was simply not pulling its weight in terms of its obligations under the agreement and that the responsibility for making sales was being borne overwhelmingly by Company 2. This appears to have come to something of a head at a meeting in the Hilton Hotel in Zurich on 7 April 2017. It is alleged by an individual to whom I shall refer as Mr C (a director of Company 1 who has sworn the affidavits in support of the application with which I am concerned and indeed an earlier application to which I shall shortly refer) that Mr A announced at that meeting that, since inception of the joint venture agreement, 70 aircraft had been sold and only a fraction of those sales had been initiated by Company 1. Company 1's evidence, through Mr C is that Company 3 only had a record of 53 aircraft having been sold, the implication being therefore that 17 sales transactions had taken place outside the terms of the joint venture agreement. If, as Company 1 contends, commissions tended to average $511,000 then the resulting loss to Company 3 was in the region of $8.687 million (less expenses) and thus to Company 1 a loss of dividend income of around $4.3 million (less expenses). Furthermore, if the provisions of clause 9.4.3 to which I refer in paragraph 11 above are effective and survive any challenge on the basis that the clause is a penalty then, if Company 2 has breached the agreement 17 times, damages due to Company 1 amount to $8.5 million.

Mr A does not deny that he may have given figures for sales at the meeting which would not accord with the records held by Company 3. He does not necessarily accept that he mentioned 70. It may be that he said it was 65. He does not accept however that he brokered any sales of aircraft outside the provisions of the joint venture agreement. His remark that there had been 70 sales or perhaps 65 was an off-the-cuff exaggeration given in the heat of the moment in a heated meeting in an attempt to draw attention to the huge disparity between sales generated by Company 2 and those generated by Company 1. It was not and was not intended to be a declaration that there had in fact been 70 or 65 sales or any sales over and above those of which Company 3 had a record. The figure was simply cited essentially for dramatic effect.

Just as Company 2 has multiple grievances concerning Company 1's conduct, so too does Company 1 regarding Company 2.

On 11 April 2017 Mr A set up a new company, which I will refer to as Company 6 of which he was the sole director and shareholder. Company 6 figures later in the story because it is the vehicle by which Mr A has recently brokered sales of aircraft and into which commissions on such sales have been paid. Company 1 became aware of the incorporation of Company 6 in late April 2017 and alleges that it was set up for the purpose of competing with Company 3 and/or Company 1 and/or avoiding Company 2's obligations under the joint venture agreement. That contention is refuted by Mr A. He says that it was set up to step into the shoes of Company 4 whose solvency was very much in doubt because of Company 1's refusal to adequately fund it. In fact Company 4 went into liquidation on 31 August 2017, an attempt to put it into administration having failed.

It also came to light that a company by the name of Company 7 had been incorporated in which Mr A had the controlling interest and which Company 1 feared had also been established to engage in aircraft sales in competition with Company 3 and Company 1, both of whom broker sales of helicopters as part of their business operation.

In April 2017 Company 1 says that it became aware that Company 2 had sold a Gulfstream G650 aircraft and had earned a commission of $532,000 and another aircraft, a Legacy 650, by which commission of $214,000 had been earned neither of which had passed through Company 3's account.

Company 1 also had concerns that Mr A appeared to be unilaterally increasing his salary and there were also concerns about Mr A's level of expenses for which he sought reimbursement from Company 3. In addition, Company 1 complained that Company 2 was refusing to facilitate distribution of profits from Company 3's bank account even though, as I have said, it was in credit to excess of $7.5 million.

Because of its concerns on 9 June 2017, pursuant to the procedure of the resolution of disputes laid down in the joint venture agreement, Company 1 brought arbitration proceedings in Switzerland against both defendants in order that the issues referred to above could be arbitrated upon.

In fact, on 12 June 2017 Company 2 itself commenced arbitration proceedings against Company 1 in Switzerland. The core claim in its arbitration proceedings was for the $10 million which Company 2 asserts that it is entitled to under the priority fee structure agreement provided by clause 5.3. At the time that it instituted its arbitration proceedings Company 2 was unaware that arbitration proceedings had in fact been launched 3 days before by Company 1. There are therefore accordingly at present 2 arbitration proceedings running in tandem in Switzerland. An arbitrator has not yet been appointed because the parties have been unable to agree the identity of an arbitrator and the Swiss court has yet to appoint one.

A second litigation front was opened in late June 2017 when Company 2 made an application to the BVI court for urgent ex parte relief. It did so because of its concern that the underrepresentation of Company 2 on Company 3's board to which I refer in paragraph 18 above meant that it may not be able to prevent an alteration in the bank mandate which would then enable funds to be drawn from Company 3's account at the behest of Company 1. The relief sought therefore was to restrain Company 1 via its nominated directors or otherwise from removing any funds from Company 3's account or from making any changes to the bank mandate without Mr A's authority in writing pending the determination of the arbitration proceedings.

On 23 June 2017 that relief was granted and the order to that effect was extended at the return date of 13 July 2017, Company 1 says, on the basis of an assurance by Mr A that he would not use his veto to preclude Company 3 from operating in the normal course of business. It is a complaint of Company 1 that that is exactly what Mr A has done.

Perhaps the most fundamental development however is the one that occurred on 26 June 2017 when Company 2 gave notice that it considered Company 1 to be in repudiatory breach of the joint venture agreement and that it had accepted such repudiation and that accordingly the joint venture agreement was at an end. The basis upon which it was contended by Company 2 that Company 1 was in repudiatory breach are essentially set out in Mr A's affidavit of 25 July 2017 paragraphs 17 and 24. The basis was essentially the matters to which I have referred in paragraph 18 above and a further complaint revolving around the cancellation of Mr A's company credit card thus preventing him from fulfilling his duties as CEO. The cancellation of his credit card in fact only came to Mr A's attention when it was embarrassingly declined in front of potential customers.

Company 1 denies that its conduct has given rise to any grounds which justify Company 2 in regarding the agreement as having been repudiated and that is a fundamental basis of dispute between the parties. In short, Company 1 contends that the agreement continues and it seeks to hold Company 2 and Mr A to their contractual obligations. On the other hand, the defendants assert that the agreement is at an end.

The issue of whether Company 1 was in repudiatory breach of contract thus providing Company 2 with lawful grounds to terminate the contract is one which ultimately will have to be resolved by the arbitrator.

On 20 July 2017, a third litigation front was opened by the issue of the arbitration claim form to which I have already referred. This claim form was issued to found an application for an £8 million freezing order pursuant to s44 of the 1996 Act. This application was supported by an affidavit from Mr C and was fundamentally based on two grounds. The first was the allegation to which I have already referred namely that there had been 17 sales transactions which had not been accounted for by Company 2. (It will be remembered that the suspicion that that had happened arose as a result of remarks by Mr A at the meeting in the Hilton Hotel, Zürich on 7 April 2017 – some 3 ½ months previously). The second was concern surrounding the commissions of $532,000 and $214,000 to which I refer in paragraph 24 above. Company 1 asserted these were clearly due to Company 3. These commissions resided in an escrow account to which neither Company 3 or Company 1 had access. It was asserted that these sums belonged to Company 3 and should be protected pending the outcome of the arbitration.

In fact neither Company 2 nor Mr A dispute that Company 3 is entitled to the commissions amounting to $746,000 earned by these sales. Nor does it dispute that that amount was received by a company which I will refer to as Company 8. The position of Mr A is that they were paid into an escrow account on trust for Company 3. Mr A asserts that that was done rather than putting the money into Company 3's bank account because he was concerned about the delays in Company 1 approving profit distributions and also approving certain expenses. He argues that he was entirely open about that, it was communicated by his solicitors to Company 1 solicitors by letter.

The application for the freezing order came before me on 27 July 2017 in a hearing in which Company 1 was represented by Mr Chaisty QC and the defendants by Mr Christopher Parker QC. Mr Parker trenchantly disputed the merits of the application on the basis that the court had no jurisdiction to make such an order but, even if it did, it was inappropriate to make such a draconian order in any event ^[5]. Having said that, Mr Parker made it clear from the outset that there was no objection to $746,000 being paid into an account in the joint names of the parties' solicitors. While that did not immediately cause the application to be compromised it was clear that discussions took place over the short adjournment because when the court resumed after lunch it was told that agreement had been reached and a consent order was subsequently filed. By the consent order Company 1's application was adjourned generally with liberty to apply on the basis of certain undertakings given by the parties. It is as well to set out those undertakings.

"1 (Company 2 and Mr A) shall forthwith pay the sums currently held by their escrow agents being the sums of approximately $532,000 and $214,000 (or in the event that the said $214,000 cannot be paid, an equivalent sum from (Mr A's) own resources) into a client account held by Gowling WLG solicitors, to be transferred thereafter (less the finder's fee, a sum not exceeding $75,000 upon documentary evidence that the said fee is due) as soon as practicable into either an account in the joint names of the respective solicitors or a 3^rd party escrow agent to be agreed or determined by the court, pending determination of the arbitration.

2 (Company 2 and Mr A) shall by 5 PM on 1 August 2017 provide to (Company 1) copies of all bank statements showing the previous and current whereabouts of the said $746,000 (approximately) held by the (Company 2 and Mr A) escrow agents.

3 Each of (Company 1 and Company 2 and Mr A) shall, within 7 days, confirm to the other side all transactions, up to today, falling within the terms of the Joint Venture Agreement (including the letter of undertaking and for the avoidance of doubt clause 9.4.1 of the Joint Venture Agreement), notification of which has not already been given. Such confirmation shall be given in the form of an affidavit sworn, in the case of (Company 1) a director, in the case of (Company 2 and Mr A), Mr A.

4 Thereafter each of (Company 1) and Company 2 and Mr A shall notify the other side of any transaction falling within the terms of the Joint Venture Agreement (including the letter of undertaking and for the avoidance of doubt clause 9.4.1 of the Joint Venture Agreement) providing the amount of commission earned, together with the model and registration details of the relevant aircraft. The first notification shall be given on 27 September 2017, to cover any and all transactions taking place after today, and further such notifications shall be given at 2 monthly intervals thereafter, until the determination of the arbitration or further order. The parties shall keep full and proper records of such transactions."

The $746,000 referred to in the consent order is in the process of being remitted to an account operated by both parties' solicitors.

The current application

Having set that scene I can now progress to the basis of the current application which was made by application notice dated 6 September 2017. The terms of the application are:

1. That the defendants shall forthwith pay the sums of $236,725 and $360,000 relating to the aircraft Falcon FX and Legacy 500 into an account in the joint names of the parties' respective solicitors pending determination of the arbitration, or in the alternative, for interim freezing order to be granted against the defendants as per the enclosed draft order.

2. That the defendants shall on or before 4 PM on 15 September 2017 provide the claimant the following documents:

2.1 Copies of all sales management agreements, or similar agreements, entered into by or in the name of Company 3 or Company 5 or Company 4 relating to sale of any aircraft

2.2 Copies of all sales management agreements, or similar agreements, entered into by or in the name of the defendants or their agents or associated companies in which either of the defendants has an interest since 20 December 2010 relating to the sale of aircraft falling within the terms of the joint venture agreement dated 20 December 2010

3. That the defendants do not before 4 PM on 15 September 2017 provide to the claimant copies of all bank statements showing whereabouts as at 27 July 2017 and previously of the $746,000 held by the defendants' escrow agents as referred to in paragraph 2 of the order and undertakings dated 27 July 2017.

In accordance with the obligations imposed by undertaking 3 recited above, Mr A swore an affidavit on 31 July 2017 in which he described 2 transactions carried out by Company 2 which would, if the joint venture agreement is in place, be covered by that agreement. The first was the sale of a Falcon 7X aircraft for which the commission earned was $236,725 and the second was the sale of a Legacy 500 aircraft for which the commission earned was $360,000. It is the defendants' case that since the agreement has terminated no sums are due to Company 3 because the commissions were earned on deals which occurred after the date of the termination of the agreement on 26 June 2017. That is a contention with which Company 1 fundamentally disagrees. It is its desire to protect this money for the benefit of Company 3/Company 1 that has largely prompted this application.

Mr A sets out his position in his affidavit dated 11 September 2017 sworn in opposition to the current application. At paragraph 40 he states that the Falcon was sold by Company 6 on 28 June 2017

"without any formal agreement being in place and on a pure broker relationship with no payment being due to Company 3".

The reference to "formal agreement" is, I think, a reference to sales management agreement. It seems clear that these were used by Company 3. These agreements are in effect a contract between the seller of an aircraft and the agent by which the agent is contracted to find a buyer for the aircraft and earns commission as result. It will be noted that part of Company 1's application is for an order that Company 2 and/or Mr A produce sales management agreements entered into by Company 3, Company 6, Company 4 and both the defendants, their agents or associated companies.

In fact, a sales management agreement had been completed by Company 3 in relation to this Falcon aircraft on 29 February 2016. However, the exclusive rights to manage the sale of the aircraft expired on 6 September 2016 and so when the aircraft was sold on 28 June 2017 it is asserted by Mr A that there was no formal agreement in place.

Mr A goes on to say, at paragraph 45 of his most recent affidavit, that the Legacy 500 was sold as a result of a personal relationship which he had with the owner of the aircraft. There was no written agreement and all the work in relation to it occurred after 26 June 2017. That aircraft sold on 25 July 2017. The commission earned was spent on operating and marketing expenses and capital expenditure relating to a showroom in Park Lane, London which Company 6 had taken by a lease dated 4 July 2017. It will be recalled that one of the complaints that Mr A had about the conduct of Company 1 was that it failed to authorise expenditure on a showroom in London.

One cannot overlook the proximity of the sales to the date of the alleged termination of the contract. One was a sale completed within 2 days and the other within a calendar month. It is argued on behalf of Company 1 that it is clear that sales of aircraft such as this do not happen overnight but as a result of a long drawn out process and that thus the assertion that the sales occurred from a standing start after 26 June 2017 is simply not credible. Nevertheless, that is the evidence of Mr A.

The first aspect therefore of the application is whether I should indeed make an order which treats these latter 2 commissions in the same way as the earlier 2 commissions or alternatively make a freezing order against both defendants in the aggregate sum of those commissions namely $596,725.

The second aspect of the applications raises the question of whether it is appropriate to order:

a) disclosure of other sales management agreements, if any, entered into by Company 3, Company 5^[6] and Company 4 relating to the sale of any aircraft and

b) sales management agreements relating to the sales of aircraft falling within the terms of the joint venture agreement entered into since the inception of the joint venture agreement by any other companies in which Company 2 or Mr A have an interest, either directly or indirectly.

The third aspect of the application revolves around the fact that Company 1 are not satisfied that there has been compliance with undertaking number 2 referred to in paragraph 35 above. All that has been supplied by the defendants is a letter from the escrow agent followed by some internal escrow statements from the escrow agent and then followed later by some very heavily redacted bank statements in respect of the account held by the escrow agent. Company 1 argues that the statements are so heavily redacted that they provide little real information and such information as they do provide reveals some discrepancies which leave transactions amounting to $2 million unexplained. Company 1 requires compliance with the undertaking in order to satisfy itself that nothing is being concealed.

It is perhaps inevitable that the greater focus of the hearing was directed to the first aspect of the application but the law relating to the jurisdiction of the court when arbitral proceedings are in place is relevant to all aspects.

The law

The court's power to make an order in circumstances where there are arbitral proceedings is contained in s2(3) and s 44 of the 1996 Act.

The relevant parts of section 2(3) provide as follows:

"the powers conferred by the following sections apply even if the seat of the arbitration is outside England and Wales or Northern Ireland or no seat has been designated or determined-

……

(b) section 44 (court powers exercise will in support of arbitral proceedings);

but the court may refuse to exercise any such power if, in the opinion of the court, the fact that the seat of the arbitration is outside England and Wales or Northern Ireland or that when designated or determined the seat is likely to be outside England and Wales or Northern Ireland, makes it inappropriate to do so.

The relevant provisions of s44 are as follows:

(1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings.

(2) Those matters are-

(a) …..

(b) The preservation of evidence

(c) …..

(d) …..

(e) The granting of an interim injunction or the appointment of a receiver

(3) If the case is one of urgency, the court may on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence and assets.

(4) If the case is not one of urgency the court shall act only on the application of a party to the arbitral proceedings (upon notice to the other party and to the tribunal) made with permission of the tribunal or the agreement in writing of the other parties.

(5) In any case the court shall act only if or to the extent that the arbitral tribunal, and any arbitral or other institution or person invested by the parties with power in that regard, has no power or is unable for the time being to act effectively.

Mr Grant argues that s44(3) requires a consideration of three separate elements. First, that the case is one of urgency, secondly, that it is necessary to make an order and thirdly that it is necessary to make an order for preserving evidence or assets. He argues that Company 1 fall at each hurdle. In my judgment, for the reasons I set out below, the subsection imposes 2 hurdles, first that the case is one of urgency and secondly that an order is necessary for the specific purpose of preserving assets or evidence.

The parties are at odds on the issue of whether this matter is "urgent" within the meaning of s44(3). If it is not urgent then the court does not have jurisdiction. The court only has jurisdiction for non-urgent applications if that is conferred by the consent of the parties or the tribunal.

Furthermore, it is argued by the defendants that the documents sought by Company 1 amount to no more than an application for disclosure. The assertion is that section 44 does not extend the court's jurisdiction to dealing with disclosure. Mr Chaisty does not, I think, demur from that proposition but argues that the documents are required as a matter of preserving evidence and/or assets.

Even if the court does have jurisdiction, it is argued by Mr Grant that it should refuse to exercise it on the basis that it is inappropriate to do so. It will be recalled that, pursuant to s2(3), the court has power to refuse to exercise any power granted by section 44 if the fact that the seat of the arbitration is outside England and Wales (as is the case here) makes it inappropriate to do so.

Further, Mr Grant argues that on general principles there is no basis for making the order sought in respect of payment of commissions into a joint account nor is there a basis for a freezing order because the application is in fact no more than an application to give Company 1 advance security for its claim or, even more impermissible, an interim payment analogous to those envisaged by CPR 25.6. That, he argues, is not the purpose of a freezing order, much less an order requiring payment to be made into a joint account. Indeed, Mr Grant makes the point that this latter relief is even more draconian than a freezing order because it requires the defendant to actually make a payment whereas even the "nuclear weapon" of a freezing order does not have that effect.

Mr Grant also asserts a fundamental difficulty so far as Company 1 is concerned namely that the evidence of A is that the commissions belong to a third party namely Company 6. He argues that the court has no power to make an order against a non-party. Equally he asks rhetorically what locus Company 1 has to require the defendants to pay a sum of money into a joint account. The appropriate party to require that is Company 3 to whom allegedly it is owed. In essence Company 1 has embarked upon a derivative action for which he has not obtained the consent required by the rules.

Mr Grant further raises issues relating to the fact that the application requires the payment of the sums of $236,725 and $360,000 into a joint account or alternatively a freezing order to secure them. He attaches importance to the use of the definite article on the basis, as I understand it, that the evidence is that some of that money has been spent and any order therefore would simply be incapable of performance.

Finally, it is argued that there is no procedural basis for making this application. The court's power to make an order pursuant to s44 arises from the issue of an arbitration claim form. That was done on 20 July 2017 but that claim was compromised by the consent order of 27 July. Mr Grant argues that what is now sought is a fresh raft of new relief purportedly pursuant to the "liberty to apply" provision. He argues in his skeleton argument at paragraph 57.1, that "a liberty to apply provision does not provide a general passport to a litigant to just issue an application notice seeking new relief as he thinks fit."

The arguments

Urgency

Mr Grant argues that Company 1 has known about the relevant facts concerning these latter 2 commissions since it received A's affidavit dated 31 July 2017. It has waited until 6 September 2017 to make this application. He argues that if, as seems clear, Company 1 does not regard the application as urgent then that is irrefutable evidence that the application is not urgent.

Mr Chaisty argues that this is a misapplication of the use of the word "urgent" in the context of applications under the 1996 Act. He cites Starlight Shipping Company v Tai Ping Insurance Company [2007] EWHC 1893 and Gerald Metals SA v Timis [2016] EWHC 2327 as authority of the proposition that the test for urgency is to be assessed by reference to whether the arbitral tribunal has the power and the practical ability to grant effective relief within the relevant time scale.

His argument is that the arbitration is in its earliest stages and no arbitrator has been appointed. There is no basis upon which relief can therefore be obtained in the arbitral proceedings. "Urgency" in this case simply covers the hiatus that exists before the appointment of an arbitrator.

He also cites Cetelem v Roust [2005] 1 WLR 3555 paragraph 71 in support of this proposition:

"The whole purpose of giving the court power to make such orders is to assist the arbitral tribunal in cases of urgency or before there is an arbitration on foot. Otherwise it is all too easy for a party who is bent on a policy of non-cooperation to frustrate the arbitral process".

He argues that this is an urgent application because there is risk of dissipation. Indeed, the fact that the commissions are disappearing comes from Mr A's own mouth when he says that much of it has been spent (by Company 6 to whom Mr A says it belongs) on operating and marketing expenses and capital expenditure relating to a showroom in Park Lane.

Mr Grant argues that the observations of the courts in Starlight and Gerald Metals do not have the effect for which Mr Chaisty contends. He argues that Mr Chaisty fails to give proper accord to the question of the "relevant time scale" which is an important component of the test for urgency. The effect of the relevant time scale is that if by the time the tribunal is convened the relief sought would have been rendered nugatory because, for example, the subject matter of the arbitration was perishable goods then that would be a basis for applying for relief as a matter of urgency under section 44. Mr Grant argues that that is not the case here. Mr A, the guarantor of the obligations of Company 2, is a man of substance and if an application is made to the arbitrator in respect of securing these commissions and such an application is successful then Mr A is in a position to satisfy the order. It is right to say that in Gerald Metals the court took the view that the necessity for urgency precluded it from making an order under s44 even though Leggatt J took the view that "relevant time scale" in the context of that case was the time which it would otherwise take to form an arbitral tribunal.^[7]

Furthermore, on the question of urgency, Mr Grant draws my attention to an email from Company 1's solicitors dated 1 September 2017 in which they give the clear impression that they believe that an arbitrator can be appointed "within a short timeframe".

As for the apparent delay between learning of the existence of these 2 commissions and the institution of proceedings, Mr Chaisty argues that it does not suggest that this application lacks urgency. Immediately the affidavit disclosing the existence of these commissions was received questions were asked about them, time had then to be allowed for answers to be received and it was only when those answers were unsatisfactory that it was appropriate to institute proceedings. Inevitably, in the light of the nature of this matter, it took time to collate the necessary evidence to support the application.

As a general rule, there is inevitably a significant element of urgency in relation to a freezing order. It is, after all, designed to preclude a debtor or potential judgment debtor from committing the abuse of dissipating or hiding assets that the judgment creditor might lawfully attach for the purpose of satisfying a judgment given or likely to be given in his favour. It is an interim remedy granted to protect the efficacy of court proceedings, in particular to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment ^[8].

It is clear that currently there is no mechanism by which such relief could be obtained in the arbitral proceedings. In my judgment under the circumstances it would only be in unusual circumstances, bearing in mind the nature of an application for a freezing order, that such an application would not meet the test of urgency. I recognise that Company 1's solicitors have suggested that there may be a short timeframe for the appointment of an arbitrator but the reality is that the parties are in the hands of the Swiss courts in that connection and there is the additional issue as to whether Mr A agrees to be a party to the arbitration process. At the moment he does not. All these issues can be a cause of delay which feeds into the issue of "the relevant time scale".

Equally, the delay between learning of the existence of these commissions and institution of proceedings does not strike me as a basis for taking the view that the application does not meet the test of urgency. I recognise that this application may possibly have been made earlier but I also recognise that attempts were made to obtain information and to obtain comfort concerning these commissions before this application was made. The delay in bringing the application may be relevant in terms of general principles in relation to freezing orders but I do not think that in this case it serves to oust the jurisdiction of the court to consider such an order.

Necessity to preserve evidence or assets

Mr Grant argues that even if the application meets the test of urgency, an order in the terms sought by Company 1 is not necessary for the purpose of preserving evidence or assets. As regards preservation of assets, even if, in the event of a judgment adverse to Company 2 in connection with these commissions, Company 2 is not good for the money Mr A has guaranteed the performance by Company 2 of its obligations in respect of accounting for these commissions and Mr A is good for the money. He has sworn an affidavit in which he makes it clear, on oath, that he has assets exceeding $7 million. Moreover, if timescales for the appointment of an arbitrator are short, as at least Company 1's solicitors think is the case where, asks Mr Grant rhetorically, is the necessity for this court to make an order now?

Mr Chaisty on the other hand argues that an order is necessary because the defendants' own evidence, to the effect that much of the commission about which this application is concerned have already been spent, leads to the conclusion that an order is necessary to prevent these monies being further dissipated.

If Mr Grant was right that s44(3) created 3 hurdles rather than 2 then there would in my view be something of a circularity in the requirement for necessity. If the court took the view that an order securing the commission in a joint account or alternatively a freezing order was appropriate to prevent dissipation, then it might be thought that such an order was ex hypothesi necessary. On the other hand, if the court concluded that such an order was not appropriate then, by the same token, it would be unnecessary.

In my judgment the manner in which the subsection is phrased it intended simply to place limits on the extent of the court's jurisdiction in cases of urgency. Essentially the court only has jurisdiction where an order is necessary to preserve evidence or assets and has no jurisdiction for no other reason. Indeed, I note that that view is supported by the editors of Russell paragraph 7 – 194 in which it is said that

"some caution is however necessary: s44(3) is intended to be limiting provision and does not extend to making any kind of interim injunction but only those to preserve evidence or assets"

It is clear that the application in respect of securing the commission in a joint account or alternatively for a freezing order in the sum to cover the commission is seen by Company 1 as a necessary step to preserve assets. It seems to me to be undeniable that if the order was made then those assets would indeed be preserved. Accordingly, in my judgment the court does have jurisdiction to consider the application in respect of the commissions on the basis that is it necessary.

I am therefore persuaded that the application in respect of the commissions is one that the court has power to entertain pursuant to s44 on the basis that it meets the test of urgency and relevant necessity. Before however the application can be considered on its merits it still has to meet the test of appropriateness under s2(3) to which I shall come below.

It seems to me that Mr Chaisty is on thinner ice on the issue of whether the application for the production of sales management agreements or bank statements can properly be characterised as orders necessary for the purpose of preserving evidence or assets. Mr Chaisty argues that they can because this is evidence that will be necessary in order to establish the extent, if any, of breaches of the agreement by Company 2 and/or Mr A. Furthermore, Mr Chaisty argues that these documents can be properly construed as assets on the basis that that term is not limited to tangible assets but includes choses in action, including contractual rights. He refers me to Russell paragraph 7 – 194 which makes that point and which goes on to say that as a result of that broad interpretation of the meaning of assets:

"a party may be able to justify an urgent application under section 44 to protect his contractual rights even if no other more tangible assets can be identified"

Mr Grant on the other hand argues that this application is no more than an application for disclosure. He refers me to Russell paragraph 7 – 185 which makes it clear that the court no longer has power to make orders for disclosure of documents. The same point is made in Russell at paragraph 7 – 199 which says:

"The subsection cannot ordinarily be used to compel disclosure from a party to the arbitration as this is a matter for the tribunal save in exceptional circumstances where, for example, critical evidence was about to be lost forever or that was a risk that it would be destroyed or tampered with. On the face of it, it should not be used in the standard case where, once arbitration proceedings started, the tribunal could make a precisely the same order for disclosure as the court in accordance with its express powers under s44 (2)"

In my view, the application for the production of sales management agreements and bank statements is more akin to an application for disclosure rather than an application for the preservation of assets or evidence. In so far as the documents sought pertain to the parties to the arbitration they are just the sort of documents that one would expect to find in a list of documents prepared in accordance with the requirements of CPR 31.5.

Additionally, there is no evidence that Company 2 or Mr A are likely to destroy or otherwise withhold these documents. That in itself militates against any finding that an application in respect of the documents is urgent. In any event, it is the evidence of Mr A that he has none and it is right to say that Mr A has no more control over the sales management agreements entered into by Company 3 than does Company 1. Indeed, arguably he has less control bearing in mind that the board of Company 3 is currently slanted in favour of Company 1's interests since Company 1's appointees to the board outnumber those of Company 2.

That finding inevitably results in a dismissal of Company 1's claim contained in paragraphs 2 and 3 of the application viz for disclosure of the various sales management agreements and bank statements but I shall however consider those aspects of the application on their merits in the event that my finding to the effect that I lack the jurisdiction to make any order other than one dismissing those aspects of the application is wrong.

Appropriateness (s2(3)1996 Act)

Mr Grant argues that to assume jurisdiction in the circumstances of this case would be inappropriate in the sense envisaged by s2(3) of the 1996 Act not least because the general tenor of the Act is for the court's intervention to be kept to a minimum because the autonomy of the parties, who have after all agreed to resolve their disputes by arbitration, should be respected. He too refers me to Cetelem paragraph 71 where the court said immediately after the observation upon which Mr Chaisty relies, and which I have reproduced in paragraph 61 above, that:

"Of course in any case where the court is called upon to exercise the power, it must take great care not to usurp the arbitral process and to ensure, by exacting appropriate undertakings from the claimant, that the substantive questions are reserved for the arbitrator"

Indeed, he draws my attention to paragraph 7 – 189 of Russell in the context of cases where the seat of the arbitration is abroad. Russell cites Econet Wireless Ltd v Vee Networks Ltd [2006] EWHC 1568 at paragraph 19 where the court made the following observation:

"As counsel submitted on behalf of the respondents, "the natural court for the granting of interim injunctive relief must be the court of the country of the seat of arbitration, especially where the curial law is that of the same country". I agree"^[9].

In further support of his contention that it is inappropriate for the court to exercise its s44 powers Mr Grant suggests that the link with England is tenuous in the extreme. The claim centres upon an assertion by Company 1 (a BVI company) of an alleged failure by Company 2 (a Cypriot company) and Mr A (a US citizen) to do business through Company 3 (a BVI company) whose bank account is held in a Swiss bank. The joint venture agreement specifies the seat of arbitration as Switzerland. There are extant proceedings between the parties in Switzerland and indeed in the BVI. The only connection with England appears to be that Mr A resides here, both sets of solicitors operate here and Company 6 is incorporated and operates in England.

Mr Grant also draws my attention to an email from Company 1's solicitors of 1 September 2017 which seems to suggest that they may agree with the proposition that England would not be an appropriate forum for litigation. He recites the relevant extract at paragraph 53 of his skeleton argument:

"Moreover, it was the understanding of the parties at the time when they entered into the JVA that in choosing Zürich as the seat of arbitration, they would ensure that any future proceedings would have no connection with a country in which the JV company was to have offices, in particular not with the United Kingdom. For all those reasons, our client could not agree to the appointment of a barrister or solicitor based in London who has no knowledge of Swiss lex arbitri, as is the case for the individuals proposed by your client in previous correspondence".

Once again, in the context of appropriateness, Mr Grant reminds me of the observations of Company 1's solicitors to which I refer in paragraph 64 above that the timescales for the appointment of an arbitrator can be short. If that is so, it makes it less appropriate for this court to exercise its s44 powers.

Furthermore, in support of his contention that it is inappropriate for the court to exercise its s44 powers, Mr Grant argues that Company 1 had ample opportunity to raise just these matters in the BVI proceedings. The parties were before the BVI court on 13 July 2017 on Company 2's application for relief in respect of the monies held by Company 3 in its Swiss bank account. That, he argues, was the opportunity to raise these matters in front of the court which at that stage was seized of the dispute. That opportunity was simply not taken. Rather, a matter of 7 days later, Company 1 decides to open this third front of litigation in the English courts ^[10].

Mr Chaisty however points out that in addition to Mr A being resident in England, Company 2 as well as Company 6 conducts business here and the joint venture agreement specifies English law as the lex curia. He points out that it was the defendants' solicitors' suggestion that the arbitrators should be English leading counsel.^[11] There is, he says, a material connection with this country which makes it appropriate for an English court to exercise its s44 powers.

As regards the suggestion that Company 1 could have raised these matters in the BVI proceedings, he suggests that it is somewhat audacious for Company 2 to complain about a failure by Company 1 to take that opportunity when the fact is that Company 2 purported to terminate the joint venture agreement a matter of a mere 3 days after its application to that court on 23 June 2017 for its ex parte injunction. He argues that it is inconceivable that it was not in the mind of Mr A at the date that Company 2 appeared ex parte before the BVI court that Company 2 was going to purport to terminate the agreement shortly thereafter.

I am concerned that the disputes between the parties are being litigated on 3 fronts in 3 different countries. It seems to me, although I will be corrected if I am wrong, that the proceedings in the BVI are not at an end. The last order of the BVI court in the hearing bundle appears to be that of Wallbank J on 13 July 2017 and that clearly envisages a further hearing before that court for the purpose of determining the amount and type of fortification to be provided by Company 2, and possibly Mr A, in support of the injunction from which Company 2 currently benefits. I struggle to understand why proceedings were ever brought in England when the BVI court is seized of this matter and is perfectly able to apply the law of England as is required by the joint venture agreement.

Even if the BVI court was unable to grant relief, I am exercised by the observations made in Econet to which I refer above to the effect that the natural court for granting interim injunctive relief is the court of the country of the seat of arbitration. I acknowledge that the learned judge on that occasion also observed that that was particularly so where the curial law is that of the same country but, as I have already said, in my view all that means is that, if that is the case, the hurdle which the applicant has to negotiate is even higher. It does not detract from the proposition that the general principle is that for interim relief one goes to the court of the country of the seat of arbitration. The natural corollary to that is that, as a general principle, an application to an alternative court such as this court is inappropriate. In this case the matter is obviously compounded somewhat by the fact that there is already another court seized of the matter namely the courts of the BVI.

In addition, I am concerned about the somewhat tenuous link that this dispute has to England and Wales. None of the dramatis personae have any link with England other than the fact that Mr A resides here and Company 6 (a non party) operates out of London and Company 2 did some business here. The fact that the joint venture agreement specifies English law as the law to govern the arbitration is possibly a factor but nevertheless when all the matters to which Mr Chaisty asked me to have regard are weighed in the scales against those to which Mr Grant asked me to have regard in reaching a conclusion as to the link that this dispute has with England I am satisfied that those of Mr Grant prevail.

This is especially so when, as I have mentioned above, the BVI court is already seized of this dispute. I simply do not think that it is appropriate for litigation on the same subject matter to be conducted simultaneously in England and in the BVI to say nothing of the involvement of Switzerland.

Mr Chaisty has referred me to various passages in Russell in support of his contention that it is appropriate for the court to exercise jurisdiction under s44. Paragraph 7 – 188 refers to the court's observations in Cetelem, to which I refer in paragraph 61 above, to the effect that it is appropriate for the court to exercise its powers in order to prevent frustration of the arbitral process. Leaving aside the issue of whether Company 1 have established that the arbitral process may be frustrated if no order is made, the fact is that the court in the BVI, already seized of this matter, could have been asked to make orders to avoid that eventuality.

As regards Mr Grant's argument that an order is inappropriate because some of the money has been spent and the application seeks the payment of "the" sums of that $236,725 and $360,000, Mr Chaisty's point is that this is not a proprietary claim. Company 1 are not seeking an order that the specific monies received in respect of these 2 commissions is secured rather it seeks an order that monies equivalent to the commissions are secured. I would not be minded to dismiss this application merely because the application contains the definite article. It seems to me that that would be much too an inflexible approach.

Having said that, for the reasons I set out above, I have concluded that it is not appropriate for the court to exercise its s44 powers albeit that, at least in connection with issues relating to the protecting of the commission (or a sum equivalent to it) I am satisfied that it has those powers.

I go on however to consider the application in the event that my conclusion as to appropriateness is wrong.

Before I do so however I shall deal with the other jurisdictional points that Mr Grant raises and which I refer to in paragraphs 55 and 57 above.

The commissions belong to Company 6

Of course, Company 1 does not accept the proposition that these commissions belong to Company 6. Mr Chaisty's point is that Company 1 are not in repudiatory breach of the contract and that Company 2's purported termination of the contract is of no effect. In that event these commissions are due to Company 3. Furthermore, even if the agreement was terminated with effect from 26 June it is argued that it is inconceivable that these commissions were earned after that date bearing in mind the usual timescales for brokering the sale of an aircraft. The inevitable conclusion has to be that these commissions reflected work done in brokering the sales before the purported termination of the agreement.

Mr Chaisty also took me to Mr A's third affidavit paragraph 41. That sets out the purpose of the service companies to which I have already referred. It makes clear that Company 4 was only set up to support the activities of Company 3 and that commissions earned would be paid to Company 3. Company 4 would be paid by Company 3 for the services it provided. Mr A makes it clear in the same paragraph that Company 6 was set up merely to:

"step into the shoes of Company 4 if it turned out that through Company 1's delay in making payments to Company 4 there was another service company which could pay the salaries (of the people formerly employed by Company 4)"

Mr Chaisty draws attention to the rest of paragraph 41 which it is worth citing to the extent relevant:

"At this point I should like briefly to explain Company 6's position. As part of the way Company 3 did business, Company 4 was set up to be the marketing company for Company 3, that is, it would employ the staff who would promote the sales of aircraft and undertake the other tasks necessary to run the business. The resulting commissions would be paid to Company 3. Under the service agreement between Company 3 and Company 4, the latter would be reimbursed for its services which fee would include a margin of 7%. Recently Company 1 had become late in processing payments due from Company 3 to Company 4 and on occasion had refused to process payments. As a result, Company 6 was formed by me to step into the shoes of Company 4 if it turned out that through Company 1's delay in making payments to Company 4 there was another service company who could pay the salaries. Now that the (joint venture agreement) has been terminated Company 6 will perform the same services as Company 4 but for another company which I have not yet determined"

The point made by Mr Chaisty is that it is Mr A's own evidence that Company 6 is merely a service company and is not the recipient of commissions.

Mr Grant draws my attention to paragraph 42 of Mr A's affidavit in which Mr A strongly disputes Company 3's entitlement to the commissions on the basis that the money was due to Company 6 and was received by Company 6.

There is clearly an inconsistency. Paragraph 41 contends that it was not part of the function of Company 6 to receive commissions but paragraph 42 says the opposite.

Not least in the light of those inconsistencies I would not have been minded to dismiss this application in so far as it relates to commissions on the basis that the monies were owned by a non-party when the defendant's own evidence in connection with this is inconsistent.

As regards the question as to the locus of Company 1 in this litigation and the suggestion to which I refer in paragraph 55 above that Company 1 has embarked upon a derivative action without consent, I have to say that I do not accept that Company 1 lacks status. The joint venture agreement was an agreement to which it was a party. The application is in respect of alleged breach of the agreement to which it was a party.

Finally, on the issue of jurisdiction, I am not satisfied that there is no procedural basis for making this application. Mr Grant argument in this connection is set out in paragraph 57.1 of the skeleton argument:

"The way that an application is made under s44 is by an arbitration claim form. That was done on 20 July 2017. That claim was compromised by the 27 July 2017 order. That order contained a liberty to apply. What has now happened is that a fresh raft of new relief is sought purportedly pursuant to the "liberty to apply" a liberty to apply provision does not provide a general passport to a litigant to just issue an application notice seeking new relief as he thinks fit"

In my view the claim form already issued covers this application because it seeks an order restraining the defendants from removing from England and Wales or otherwise disposing or dealing with or diminishing the value of any of their assets below a specified level whether they are in or outside England and Wales and it also requires an account of all relevant transactions.

In any event if the relief sought by Company 1 was appropriate but the only obstacle to it was the fact that it was not covered by the existing arbitration claim form then the overriding objective would clearly favour permitting an amendment of the claim form rather than putting the claimant to the unnecessary expense of issuing a further arbitration claim form.

Should relief be granted on general principles?

Mr Chaisty argues that there is no sensible basis for treating the commissions earned on these last 2 deals on any basis other than that by which the commissions covered by the consent order were dealt with.

Mr Chaisty's position is that the agreement has not been terminated and the status quo demands that commissions that would be payable into Company 3's account pursuant to the terms of the joint venture agreement should be protected in the manner contemplated by the application. He argues that it is unacceptable that Company 2 and Mr A should simply continue as if the agreement has terminated when that contention is vehemently denied especially where, as here, the contract breaker is using monies which belong to Company 3 to compete with the activities of Company 3 and/or Company 1.

He argues that position is particularly unsatisfactory in the circumstances of the 2 commissions with which I am concerned bearing in mind that, in the light of the proximity of the dates on which they were earned and the date of alleged termination, it is overwhelmingly likely that the work undertaken in earning these commissions was undertaken during the currency of the joint venture agreement, even if it was terminated on 26 June. The circumstances he says far exceed the question of it being a good arguable case.

Mr Grant argues that there is $7.5 million in Company 3's Swiss bank account. There is also some $746,000 in a joint account pursuant to the consent order of 27 July. In broad terms half of all that would be due to Company 2 in dividends. If the arbitrator should find that the priority fee structure set up by clause 5.3 is binding then even more of the funds in the bank and in the joint account belong to Company 2 and so would be available to satisfy any arbitration award in favour of Company 1. There is therefore, he contends, simply no need for the order that Company 1 seeks in respect of commission.

Mr Chaisty however contends that there is at the very least a good arguable case that the priority fee structure does not apply. He prays in aid the contention that Mr A was not the CEO which was a prerequisite for this priority fee structure to apply and asserts that clearly he has not dedicated 100% of his time and effort to develop the business of the company, as required by clause 3.1, when he has set up an operation in competition.

He also prays in aid the provisions of clause 9.4.3 which provides for liquidated damages of $500,000 for each event of default. On that basis, and bearing in mind the allegation of a least 17 incidents of default, the potential arbitration award is at least $8.5 million, even if no other unlawful transactions come to light. He reminds me that Mr Parker QC on 27 July conceded, albeit only for the purposes of the application before the court on that day, that there was a good arguable case in respect of these 17 transactions. On top of the liquidated damages arising by virtue of clause 9.4.3 Mr Chaisty asserts that there are further claims arising by virtue of the fact that Company 3 is suffering further losses because of the decision of Mr A to veto any withdrawals from Company 3's bank account. In paragraph 9 of the skeleton argument Mr Chaisty argues that the conduct of Mr A in this connection has caused Company 1 to lose out on its entitlement to what should have been profits calculated at over $11 million and ongoing.

Furthermore, he argues that damages are not an adequate remedy because they may not be paid and insofar as Mr A is liable for them, the majority of his assets are outside the jurisdiction. Indeed, he argues that by clause 9.4.3 the parties have accepted that damages are not an adequate remedy. He draws my attention to the wording of clause 9.4.3 which I quote above in paragraph 11. The parties say in terms that violation of the agreement may cause loss which cannot be reasonably or adequately compensated by damages.

He argues that the risk of dissipation is clearly made out from Mr A's own mouth. He is using these commissions to fund an operation in competition to Company 3 and in total disregard of his continuing obligations under the joint venture agreement. That is unacceptable, particularly where Mr A's evidence is that he is a man of means and thus with resources to fund his activities without recourse to funds which belong to Company 3.

In conclusion, Mr Chaisty refers me to paragraph 15 – 83 of the White Book which deals with the relevant factors in respect of worldwide freezing injunctions. It records that the following factors are to be established before the court is likely to exercise its discretion in favour of granting such an order:

the claimant has a good arguable case

the claimant to satisfy the court-

that there are no assets or insufficient assets within the jurisdiction to satisfy the claim

that there are assets without the jurisdiction; and

there is a real risk of dissipation or secretion of those assets so surrender any judgment which the claimant may obtain nugatory.

He argues, for the reasons set out above, that all these conditions are met.

Mr Grant argues that there has rarely been an application of this nature with less merit. He argues that the "nuclear weapon" of a freezing order is only the alternative. The primary application for an order for payments of the 2 commissions into a joint account is even more draconian. At least a freezing order does not require the defendant to dip his hand into his pocket. The order sought by Company 1 on the other hand requires just that.

As regards the contention that all Company 1 seeks is that money which belongs to Company 3 is protected, Mr Grant's contention is that this money does not belong to Company 3. So far as Company 2 and Mr A are concerned the agreement has been lawfully terminated and these commissions arose after termination. Whether that is so or not is a matter for the arbitrator but it is not appropriate to assume that these monies are monies belonging to Company 3.

As regards the proximity between the dates upon which they were earned and the date of termination of the agreement, the fact is that it is Mr A's evidence that they were earned after the termination of the agreement and it is not the function of the court at this stage to go behind that evidence. No doubt it will be tested in the course of the arbitration.

As regards the contention that the monies currently held in Company 3's account and in the joint account of the parties' respective solicitors will be exhausted by the claims made by Company 1, Mr Grant argues that, on the basis that the joint venture agreement is construed in accordance with English law, clause 9.4.3 may well be struck down as a penalty and the argument that Mr A was not the CEO is egregious when that status has been acknowledged by at least 2 senior people associated with Company 1.

He argues that there is no evidence of dissipation. The fact that some of these commissions may have been spent in the course of business does not mean that they have been dissipated. Dissipation involves the spending of assets in a manner designed to frustrate enforcement of a prospective judgment. The evidence is that these monies have been spent in the course of business. There is, argues Mr Grant, no evidence that they have been spent for the purpose of frustrating enforcement of a prospective judgment. It is as well to keep in mind the observations of Clark J in TTMI Ltd of England v ASM Shipping Ltd of India [2005] EWHC 2666 to the effect that:

"A defendant may be likely to make perfectly normal dispositions, such as the payment of ordinary trading debts, the effect of which may be that, when any award is made, it is in whole or in part, unsatisfied when, absent those payments, it might have been satisfied or satisfied to a greater extent"

Mr Grant argues that it is unlikely in the extreme that any efforts will be made by Mr A to frustrate enforcement of a judgment debt in the manner feared by Company 1. He is a man who is extremely well-established in this industry, he has an enviable reputation in the aviation world. He has been upfront in the litigation particularly in the sense that he has not been dragged to the court. He did, after all, initiate arbitration proceedings ^[12] in order to pursue his contention that in fact Company 3 is indebted to Company 2 in the sum of about $10 million. Added to that, it was Company 2 that initiated the proceedings in the BVI.

Mr Grant points out that the standard of proof in relation to establishing the risk of dissipation is said to be relatively high. He draws my attention to the observations of Mann J in Mezhdunarodniy Promyshlenniy Bank v Pugachev [2014] EWHC 4336 (Ch) at paragraph 221:

"What one has to do is to acknowledge the seriousness of the consequences of a freezing order, and the invasion of liberty that it involves (especially bearing in mind it is usually sought on without notice application) and to reflect that in requiring proof to an appropriately high standard. Orders are not to be lightly sought and will not be granted on flimsy evidence. The requirement to demonstrate a risk of dissipation is a lot more than formal"

Furthermore, on the issue of dissipation I am referred by Mr Grant to the issue of delay. I have touched on this in relation to the consideration of principles of urgency under s44. I took the view that delay did not preclude me from concluding that this was an urgent application. However, in the context of whether in the end an injunction should be granted considerations of urgency once again fall to be considered.

In paragraph 62.7 of his skeleton argument Mr Grant cites Holyoake v Candy [2017] EWCA Civ 92 at paragraph 62 to the effect that delay was:

"A powerful factor militating against any conclusion of a risk of dissipation"

The information about these 2 commissions came to the attention of Company 1 on 31 July as a result of Mr A's affidavit. The application was not made until 6 September. I accept that Company 1's solicitors lost no time in raising questions about the matter disclosed in the affidavit but nonetheless delay of about 6 weeks is a long one if there is a risk that the monies are going to be dissipated. In my view the delay is a factor militating against concluding that there will be dissipation albeit that it is only one factor.

As I have said, Mr Grant argues that on any true analysis what Company 1 is really seeking is advance security for its claim. That is not a permissible basis for the order sought. Alternatively Company 1 is seeking something akin to an interim payment as envisaged by CPR 25.6 when quite clearly that is no more appropriate than an order giving advanced security.

Mr Grant draws attention to one of the submissions made by Mr Chaisty to the effect that the order is needed to ensure that in the event that in the fullness of time there are any other calls on the assets of Company 2 and Mr A at least Company 1 is covered to some extent and is not simply in the queue. He argues that itself demonstrates that what is actually sought is security and that thus this is a misconceived application.

Mr Grant points out that a worldwide freezing order is sought. As he says in paragraph 62.2 of his skeleton, neither Company 2 nor Mr A have any assets in England to speak of. He draws my attention to Gee on Commercial Injunctions 6^th addition paragraph 6 – 043 which cites Mobil Cerro Negro Ltd v Petroleos de Venezuela SA [2008] 1 Lloyds Reports 684. That was a case where a worldwide injunction was sought but was refused on the grounds that there was not a sufficient risk of dissipation. There was no evidence of assets within the jurisdiction and it was held to be inappropriate under s2(3) to grant relief in aid of the arbitration which did not have its seat in England. The judge said that:

"Worldwide freezing orders are only made sparingly. In cases where they are made there is usually compelling evidence of serious international fraud"

Mr Grant made it clear that he was not suggesting that such orders could only be made where there was evidence of serious international fraud but that the extract is nevertheless instructive in drawing attention to the limited circumstances in which a worldwide freezing order is made.^[13]

Additionally, there is the balance of convenience. Of course, Mr Chaisty argues that the balance of convenience favours the order which he seeks. He points out that Mr A has indicated in his affidavit of means that he is a man of substance and it is well within his capabilities to make this payment. He also points out that there has been a failure on the part of Company 2 and Mr A to give details of what loss they might suffer as a result of this order being made.

Mr Grant argues the opposite. At paragraph 77 of his 3^rd affidavit dated 11 September 2017 Mr A sets out the effect that an order of the nature sought would have on him bearing in mind that monies are being spent at the moment in supporting a new business which, so far as he is concerned, he is perfectly entitled to operate.

It has to be said that he appears to be man of some substance, it is not immediately clear why he would not be able to function even if he was obliged to pay $596,725 into a joint account but I do accept that that is a significant sum and it will have some effect upon his ability to operate effectively. Additionally, it is not by any means clear how long these restrictions would apply bearing in mind that it cannot at this stage be known how long it will be before the arbitration is concluded.

On the other hand the monies are not needed in order for Company 3 to continue to operate, so far as it can, and they would not be available to it in any event since the intention is simply that the monies are held jointly by the parties' respective solicitors or otherwise frozen.

Finally, Mr Grant takes issue with the cross undertaking in damages. Mr Grant quotes back at Mr Chaisty his own observations in his skeleton argument in the BVI proceedings where Mr Chaisty cites Staines v Walsh [2003] EWHC 1486 paragraphs 30 – 35:

"Where a party applies for a freezing order one of the requirements is that he must address the issue of the cross undertaking in damages and his ability to service that cross undertaking in damages. For that reason, save in the most exceptional circumstances, the claimant must put in a statement indicating his wealth or at least, indicating that he has sufficient adequately to cover the cross undertaking."

Mr Grant points out that nothing is said of Company 1's means in this application.

Conclusion in regard to paragraph 1 of the application

Even if I had concluded that it was appropriate to exercise s44 powers I would not have acceded to paragraph 1 of the application. In my view the arguments marshalled by Mr Grant in favour of dismissing that application are far more convincing.

Mr Chaisty himself has referred me to the White Book paragraph 5 – 83. That itself makes it clear that the court will only be prepared to exercise its discretion to grant a worldwide freezing order if the respondent or the dispute has a sufficiently strong link with England and Wales. Mobil Verro Negro to which I have referred above is said to be authority for the proposition. I have already concluded that the link with this country is very tenuous.

I recognise that the first limb of paragraph 1 of the application which requires an order that an amount equivalent to the two relevant commissions and totalling $596,725 is not actually an application for a freezing order but I accept Mr Grant's point that in reality such an order would be far more onerous even than a freezing order.

Even if there was a strong link with England and Wales I simply do not accept that Company 1 has established that there is a real risk of dissipation. I do not accept that the admission by Mr A that some of these monies have been spent by Company 6 on operational costs and the refurbishment of property at Park Lane is evidence of dissipation. It is merely evidence of spending in the ordinary course of business. There is no evidence that this money has been spent with a view to frustrating satisfaction of a potential judgment debt.

I accept Mr Chaisty's point that, if it is spending in the ordinary course of business, it is being spent in the ordinary course of a business which Mr A is not entitled to operate bearing in mind the terms of the joint venture agreement, which Company 1 asserts is still extant. But of course that is not accepted. The defendants' position is that the joint venture agreement has been validly terminated and they are at liberty to operate independently of it. That is a matter for the arbitrator to decide ^[14].

In any event, in the end I accept Mr Grant's contention that in reality what Company 1 seeks by this order is advance security for its claim.

I fully recognise that it is Company 1's position that these commissions belong to it and that Company 2's assertion to the contrary has to be treated with the greatest scepticism when one considers the dates when these commissions were earned and the date when the contract was allegedly terminated. But it would not, in my view, be right to treat the evidence of Mr A to the effect that these commissions were genuinely earned after termination of the agreement as being so incredible as to be discounted at this stage. It will be a matter for the arbitrator to consider what is made of that assertion having heard evidence.

Having said that, I have no hesitation in accepting that Company 1 has made out a good arguable case that Company 3 is entitled to these commissions. Furthermore, I accept that Company 1 has some grounds for scepticism generally as to the commitment of Company 2 to the joint venture agreement when Company 6 was incorporated on 11 April 2017 and it turns out that this is the company into which the commissions have been paid. But a good arguable case is only one of the hurdles that Company 1 must negotiate. A good arguable case does not assist an applicant unless it has cogent evidence supporting the risk of dissipation.

Paragraphs 2 and 3 of the application (disclosure of sales management agreements and bank statements)

I believe that I can deal with this aspect the application briefly. I have already made the point in paragraph 77 above that, in my view, the application in respect of the documents referred to in paragraph 2.1 and 2.2 of the application is in fact an application for disclosure.

True it is that it is an application for disclosure of evidence but there is no evidence that any documents over which Company 2 or Mr A have control or custody will be destroyed or otherwise lost forever ^[15]. It is to be noted that in paragraph 20 of his skeleton argument in support of this application Mr Chaisty deals with these service management agreements but does not assert that these documents will be lost forever. He merely asserts that Company 1 want the documents because they would be relevant to the consideration of whether Company 2 and Mr A are fulfilling their obligations.

In my view the fact that this is in reality a disclosure application not only renders it inappropriate to grant it when there are arbitral proceedings on foot but in my view, on general principles, it makes it inappropriate to make such an order at this stage. Absent arbitration proceedings and absent any evidence that these documents will be lost forever the matter would be dealt with as part of the ordinary disclosure process. Since there are arbitral proceedings and if Company 1 wants specific or advance disclosure of these documents then that seems to me to be an application to be made to the arbitrator once appointed.

In any event, as I have said in paragraph 78 above, it is Mr A's contention that neither he nor any company in which is directly or indirectly interested nor Company 5 nor Company 4 have any sales management agreements other than the one he has actually produced and those that were concluded by Company 3 will be in the possession of Company 3.

Mr Chaisty suggests that if Mr A has had one sales management agreement then he must have others. But that is not Mr A's evidence. Generally, in the litigation process the way that conundrum is resolved is for an affidavit to be sworn as to the existence or otherwise of documents on the basis that woe betide a dishonest deponent whose dishonesty later comes to light ^[16]. Mr Grant argues that, for the purposes of this application, even if an order were otherwise appropriate, it would be wrong to make one which Company 2 and Mr A say cannot be complied with.

Had I not taken the view that an order in the terms applied for in paragraph 2 of the application was not appropriate because of the existence of the arbitral proceedings I would therefore have dismissed this application on general principles.

As regards the bank statements, they are no less documents to which the principles of disclosure apply than the sales management agreements and so, in terms of the order sought, what I have said with regard to the sales management agreements applies equally in respect of these statements.

There is however a further nuance in respect of these bank statements. Unlike the sales management agreements, by the undertakings attached to the order of 27 July 2017, Company 2 and Mr A have already undertaken to supply these.

The difficulty so far as the defendants are concerned is that in fact it is not actually within the power of Company 2 and Mr A to produce these documents. The bank accounts concerned are those of the escrow agents. They have ultimately produced bank accounts but have done so on such a heavily redacted basis that they are virtually meaningless save that Company 1 suggests that they reveal a discrepancy of around $2 million ^[17]

In my view, the fact that the defendants have agreed to supply these documents does not provide the basis for an order. As I have made clear in paragraph 79 above, it does not do so on the basis of s2(3) of the 1996 Act, nor is it do so on the basis of general principles even absent the existence of the arbitral proceedings. The fact that the defendants may have consented to the production of documents does not confer upon the court jurisdiction to make an order for the production of those documents if the jurisdiction does not otherwise exist. These bank statements are actually third party documents and would therefore usually be the subject matter of third party disclosure proceedings. It would not, in my view, be appropriate to make this order, even if it were urgent and appropriate to exercise the jurisdiction, without giving the escrow agents the opportunity to have some input into the application.

If Company 1 believes there has been a failure to comply with an undertaking then the recourse is to launch contempt proceedings. It is a matter for Company 1 as to whether it wishes to take that step and my reference to it should not be seen either as encouragement to, or discouragement from, doing so.

In the circumstances even had I thought that it was appropriate to exercise section 44 powers I would have rejected the application for the production of these bank statements.

Summary

For the reasons given, I propose to dismiss the application.

Final Remarks

As I have already said, I am grateful to counsel for their very able assistance in this matter.

HHJ Saffman

Note 1   It is suggested by Company 1 that this included sales of helicopters    [Back]

Note 2   In fact 100% of the issued share capital is held by Company 1 but it is accepted that of that, 50% is held by the claimant on trust for the 1st defendant.    [Back]

Note 3   letter from Mr C to Mr A on 21 April 2017 and email from Mr B to a 3rd party dated 17 January 2017    [Back]

Note 4   this gave rise to concerns by Company 2 and Mr A that ultimately control of Company 3's bank account vested in a Board of Directors that was biased in favour of claimant.    [Back]

Note 5   This was so albeit that he accepted for the purposes of that hearing alone that there was a good arguable case that Company 2 or Mr A had conducted 17 transactions outside the joint venture agreement. It is right to say that it would appear that Mr Grant QC would not have made that concession and did not do so for the purpose of this current hearing.    [Back]

Note 6   To whom I have referred in paragraph 15 above    [Back]

Note 7   paragraph 54 of the judgment    [Back]

Note 8   White Book vol 2 para 15-55    [Back]

Note 9   Of course in this case the curial law to be applied is that of England Wales but that does not undermine the general applicability of the observation. It just means that an applicant applying to an English court to exercise powers under s44 where the curial law is that of another country has an even harder task.    [Back]

Note 10   I do not overlook that on 13 July Company 1 were not in possession of any information relating to the sales of aircraft generating commission which is the subject matter of this application. The point made by Mr Grant is that certainly at that stage Company 1 was suspicious that 17 transactions had been undertaken by Company 2 and/or Mr A other than through the joint venture agreement. It had suspected that since the meeting at the Hilton Hotel in Zürich on 7 April.    [Back]

Note 11   letter from defendant solicitors dated 17 August 2017    [Back]

Note 12   even though arbitration had already been commenced by Company 1, Mr A was unaware of that.    [Back]

Note 13   this case is of course also apposite in the context of the discussion of the appropriateness of exercising s44 powers in this case under s2(3)    [Back]

Note 14   I remind myself that there was in any event some discussion as to whether in fact on any view the joint venture agreement continues. I expressed the view that if a party terminates a contract then it is terminated and if the termination is unlawful then, subject to any application for specific performance (and, understandably, no such application is made here), that simply gives rise to a claim for damages for unlawful termination. Those damages would be assessed on the basis of what the innocent party would have earned had the contract not been terminated unlawfully. That was not a proposition that Mr Chaisty was prepared to accept.    [Back]

Note 15   See the extract from Russell to which I refer in paragraph 76 above    [Back]

Note 16   I would have thought that the sphere of operations involving the sale and purchase of small jet aircraft is a fairly rarefied one with relatively limited sellers and buyers. I would have thought therefore that the pool of potential sellers therefore who Company 1 may be minded to approach and who may be in a position to produce any counterpart sales management agreements that may exist, contrary to the assertions of Mr A, is a relatively small one.    [Back]

Note 17   Which the defendant solicitors have sought to explain in a witness statement of Mr D, a partner in those solicitors, dated 13 September 2017    [Back]

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