Setting Aside Enforcement of an Arbitration Award in A v B

The High Court has recently provided clarity on the applicability of Sections 66 and 101 of the Arbitration Act 1996 in the context of an application to enforce an arbitral award made in the UK.

1. The Factual Position

On 7 November 2019 the Defendant, B, made an application (the “Application”) to set aside an order of 17 October 2019 (the “October Order”). The October Order had granted leave to the Claimant, A, to enforce an arbitration award that had been made on 4 December 2018 against B (the “Award”).

The Award arose out of a dispute between the parties over a settlement agreement entered into in 2015. The dispute had been referred to arbitration and was settled by consent in 2018, with the arbitrator making the Award to reflect the settlement. The Award provided for B to pay A US$34.6 million plus interest of US$10.2 million. However, no interest was to be payable if this principal sum was paid back in accordance with a payment schedule set out in the Award.

An instalment that was payable on 1 October 2019 was not paid to A until 16 October 2019. The Defendant’s position was that, on 4 October 2019, at a meeting between both parties, the Claimant had agreed not to enforce the Award and, therefore, the Award had been superseded by this oral agreement. In the alternative, the Defendant argued that the Claimant was estopped from relying on the Award. According to the Defendant it did not make the payment until 16 October 2019 because the Claimant had been informed at this meeting that there would be a delay in paying the instalment, the Claimant had raised no objection to this and had agreed not to take any action over this delay. The Claimant disputed this version of events and/or that a binding oral agreement had ever been reached.

On 8 October 2019 the Claimant wrote to the Defendant notifying a breach of the Award for failure to make the payment on 1 October 2019 and that the full amount was therefore due under clause 3.3 of the Award.

Clause 3.3 of the Award states:

‘In the event that the Respondent fails to pay… the Instalments or any part thereof on or before the requisite date, the sums referred to in clauses 2.1.1 and 2.1.2 above …will become due and owing in full and payable immediately.’

On 14 October 2019 the Claimant issued a claim form seeking leave to enforce the Award and, on 17 October 2019, the October Order was made ex parte granting permission ‘under sections 101(2) and 66(1) of the Arbitration Act 1996 to enforce the operative part of the Award.’

The claim was heard by Mrs Justice Moulder, who delivered judgment on 22 April 2020.

1. The Defendant’s Set Aside Application

The Defendant advanced the following grounds to set aside the October Order:

1. the application for leave to enforce the Award had been made under section 101(2) of the Arbitration Act 1996 (the “Act”). However, the Award had been made in the United Kingdom and therefore was not a “New York Convention Award” as set out in section 100 of the Act;
2. there was no power under section 66(1) of the Act to order judgment in the terms made; and
3. the court should exercise its discretion under section 66 of the Act and refuse leave for the Claimant to enforce the Award.

1. Section 101 of the Act

In respect of the Defendant’s first ground, Section 101 of the Act provides:

‘(1) A New York Convention award shall be recognised as binding on the persons as between whom it was made, and may accordingly be relied on by those persons by way of defence, set-off or otherwise in any legal proceedings in England and Wales or Northern Ireland.

(2) A New York Convention award may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.’

However, section 100 defines a “New York Convention award” as:

‘an award made, in pursuance of an arbitration agreement, in the territory of a state (other than the United Kingdom) which is a party to the New York Convention.’

The Defendant submitted that, as the Award was not within the scope of section 101 (having been made in the United Kingdom) the Claimant could not excise the reference in the October Order to section 101 and, consequently, the October Order should be set aside.

The court held that, although the Claimant’s ex parte application had been made in the alternative under section 66, the claim form clearly relied on section 101 and had also stated that none of the grounds for resisting enforcement under section 103 of the Act existed. Consequently, the judge may have been led to make an order he might not otherwise have made.

1. Section 66 of the Act

In respect of ground two of the Application, Section 66(1) of the Act states:

‘(1) An award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.’

The Defendant argued that an order under section 66(1) could only enforce rights which a judgment or award had established – with the circumstances of the acceleration of the debt under clause 3.3 not being established in the Award. In contrast, the Claimant argued that there was no need for a determination by the court as to whether the circumstances under clause 3.3 had arisen, as it was common ground that B had failed to pay the sum due on 1 October 2019.

It was held that it was not open to the court to make an order under section 66 to enforce the outstanding sum in a situation that required further adjudication, namely that there had been a failure to pay an instalment and that payment had fallen due under clause 3.3 of the Award. The Award had not established a right to payment of the accelerated sum as there was no statement in the Award that the entire sum was due under clause 3.3. Rather, there was a provision in the Award for payment to become due on the fulfilment of certain conditions; conditions which may or may not have been fulfilled.

Accordingly, the October Order stating that: ‘the defendant shall pay to the claimant the sum currently outstanding of USD $ 39,111,604.18’ did not reflect the terms of the Award and the arbitrator had not decided the point as to whether clause 3.3 had been triggered. It was not open to the Claimant to obtain the October Order pursuant to section 66 to enforce the accelerated sum, and, consequently, it would have to be set aside on this basis.

1. Dismissing the Claimant’s Enforcement Application

Having set aside the October Order the court also had to decide whether the Claimant’s application for leave to enforce the Award should be dismissed. The Claimant submitted that there was no real prospect of the Defendant succeeding in defeating enforcement of the Award. It made several arguments including that:

1. The parties would not have entered into a binding oral agreement that took precedent over the Award given the inclusion of “no oral variation” clauses in the original settlement agreements;
2. There had been no good consideration provided by the Defendant for any oral agreement; and
3. The payment had already been accelerated before the 4 October 2019 meeting due to the missed 1 October payment.

However, the court held that the Defendant did in fact have a realistic prospect of establishing a defence to enforcement of the Award. For example, there would need to be a further examination of the consideration given by the Defendant to determine whether, in fact, an oral agreement not to enforce payment had been made. Consequently, this factual dispute would need to be resolved at a further hearing before the court could determine whether to make an enforcement order.

1. Conclusions

This judgment provides some important clarity on the circumstances in which section 66 of the Act can be used to enforce arbitral awards and emphasises the scope of applicability of Section 101. It also makes clear the importance of ensuring the correct basis for enforcement is pleaded, particularly in ex parte applications. It remains to be seen whether the court decides that the Claimant is able to enforce the Award or, whether the Defendant is able to establish that an oral agreement had been made to supersede the Award, such as to prevent its enforcement.

Further reading: A v B [2020] EWHC 952 (Comm).