The English Courts' powers to order the taking of evidence of third parties in support of arbitration proceedings: Court of Appeal stops short of setting a broader principle

In its recent decision in A and B v C, D and E [2020] EWCA Civ 409, the Court of Appeal concluded that English Courts have the power under section 44(2)(a) of the Arbitration Act to order a non-party witness to give evidence, including evidence in aid of foreign arbitration proceedings (seated outside of England and Wales). 

The Court of Appeal limited its decision to s.44(2)(a) only, and not to the full list of powers available under s.44(2). Consequently, the decision did not disturb (but nor did it endorse) the previous decisions in Cruz City Mauritius Holdings v Unitech Limited and DTEK Trading SA and Morozov¹ where the Courts' powers under s.44(2)(e) (to grant an interim injunction or appoint a receiver) and s.44(2)(b) (to make an order for the preservation of evidence) were held not to extend to non-parties to the arbitration proceedings.

The reasoning of Males J. (as he then was) in Cruz City (followed in DTEK Trading) was based on a view that s.44 as a whole is not applicable against non-parties to the arbitration. With this rationale now placed in doubt by the Court of Appeal's recent decision in A v C,² clarification by the English Courts as to the position in relation to the remainder of s.44 would be welcomed.

Background

A v C concerned an application (made by the Appellants, A and B) to the English Courts for an order under s.44(2)(a) to take the evidence, by way of deposition, of a non-party to arbitration proceedings seated in New York. The application came before the English Courts, with the permission of the arbitral tribunal, because the non-party was resident in England.

The Appellants and the first and second Respondents (C and D) were parties to the arbitration, with the Appellants' claims in the arbitration relating to, amongst other things, the calculation of the net proceeds of sale of interests in a Central Asian oil field. The Appellants disputed the deduction of certain payments made by the first and second Respondents from the net proceeds due to them. The Respondents contended that the payments were legitimate bonuses properly deducted from the net proceeds, while the Appellants contended that the payments were bribes and should be discounted.

The third Respondent (E) acted as lead negotiator for the first and second Respondents in connection with the disputed payments. However, the third Respondent was not a party to the arbitration proceedings and did not consent to give evidence; the Appellants therefore sought an order from the English Courts compelling him to do so. The third Respondent opposed the application.

The First Instance Decision

Foxton J dismissed the application, concluding that the existing first instance authority (inter alia, Cruz City and DTEK) required him to do so. Both of these had concerned applications to serve proceedings outside the jurisdiction on non-parties to arbitration proceedings.

In Cruz City, the applicant sought an order for service out of the jurisdiction of a freezing order in aid of enforcement of an arbitration award on a non-party. Males J (as he then was) held that the Court did not have jurisdiction to make such an order for service. While this conclusion was based on the scope of CPR 62.5(1)(c),³ and the relevant s.44 power in question was s.44(2)(e),⁴ Males J went on to express in broad terms a view that s.44 did not in any event include any power to grant an injunction against a non-party to the arbitration because:

1. the phrasing and effect of s.44 showed that it was not concerned with applications against non-parties;
2. given that s.44 was one of the few provisions of the Arbitration Act which applied to arbitrations seated outside of the jurisdiction, it was unlikely that Parliament had intended to give the English Courts jurisdiction against third parties anywhere in the world; and
3. there was nothing in the Departmental Advisory Committee Report⁵ which explained the background and purpose of s.44 to suggest that it had been intended to confer jurisdiction on the Courts to make orders against non-parties.

Similarly in DTEK, a party applied for permission for service out of the jurisdiction against a non-party in respect of an application under s.44(2)(b) for an order preserving evidence. Foxton J, considering the judgment in Cruz City, agreed with Males J's conclusions and declined to grant the application.

Foxton J was clear that but for these prior authorities he would have granted the application in A v C,⁶ and granted leave to appeal.

The Court of Appeal's Decision

The Court of Appeal panel was made up of Lord Justices Flaux, Newey and Males. The inclusion of Males LJ is notable given his prior decision in Cruz City.

Flaux LJ and Males LJ, giving judgment, confirmed that s.44(2)(a) provides the English court with the power to make an order for the taking of evidence in respect of a non-party and in connection with an arbitration seated outside England and Wales. Their rationale largely turned on the language of s.44, summarised as follows:

1. s.44(2)(a) is applicable to the taking of witness evidence. Males LJ held that the subsection "is clearly directed towards obtaining the evidence of individuals who are not parties to the arbitration." ⁷ In the majority of commercial arbitrations, a witness giving evidence is typically not a party to the arbitration and s.44(2)(a) does not distinguish between witnesses who are under the control of a party (for example, employees of that party) and those who are not. As such, Males LJ determined that the drafting of s.44(2)(a) was "apt as a matter of language to cover all witnesses, not just those who are a party to the arbitration".⁸ If the latter had been intended, the language would refer to a ‘party' not a ‘witness'.
2. s.44(1) must be read in light of the other provisions of the Arbitration Act 1996, most notably: (i) s.2(3), which confirms that the court's powers under s.44 "apply even if the seat of the arbitration is outside England and Wales"; and (ii) s.82, which includes within the definition of "legal proceedings", "civil proceedings in England and Wales in the High Court or the county court…".⁹ In circumstances where the English court has the power to order a deposition in respect of proceedings in the High Court, there is no good reason why it should not have the same power under s.44(2)(a).

The Court of Appeal expressed a reluctance to overturn the decisions in Cruz City and DTEK, which did not feature a prominent discussion of s.44(2)(a). Rather, they preferred to take a narrow approach to their decision and only decide the scope of s.44(2)(a).

The judges recognised that this created an obvious tension between their decision that s.44(2)(a) permits the court to make orders against non-parties to a foreign arbitration, and the previous decisions in Cruz City and DTEK in respect of other subsections of s.44(2). The Court of Appeal suggested, however, that the scope of each subsection may differ, with Males LJ commenting that "[t]here are… strong arguments either way and it may be that the position varies as between the various paragraphs of subsection (2)." ¹⁰

Comment

Ultimately, the question of whether the remainder of the powers given to the English Courts under s.44(2) are available against non-parties to the arbitration has been left for another court to decide. For the moment, the position in relation to s.44(2)(e) and (b) remains as it was set by Cruz City and DTEK respectively; the Courts' powers under those sub-sections are not available against third parties.

While the Court of Appeal's judgment represents a step forward in terms of clarifying the current position under s.44(2)(a), the limited basis of its determination means that we are likely to see future litigation on the scope of the English courts' powers to support arbitral proceedings seated outside of the England and Wales.

Whether the eventual result will be a widening of the scope of the Courts' powers under s.44 in their entirety remains to be seen. From the limited indications given it seems that the Court of Appeal panel in A v C favoured a more piecemeal approach, under which each limb of s.44(2) could have a different scope, meaning that the position may well turn out to be that some powers are available against third parties, while others are not.

Regardless of the eventual position in respect of the remainder of s.44, the Court of Appeal recognised that the effect of its judgment is to extend its jurisdiction to order the taking of evidence from a witness in foreign arbitration proceedings beyond its jurisdiction to order the same in respect of foreign court proceedings.¹¹ This in itself is significant.

Nevertheless, it is important to bear in mind that there are limits to prevent misuse of the Court's powers.¹² S.44(4) requires the party making an application first to seek permission of the Tribunal. Provided that permission is granted and a party makes the application, the English Court retains a discretion to refrain from exercising its powers under s.44 in circumstances where the fact that the arbitration is seated abroad may make it inappropriate to do so.¹³

_{1 Cruz City Mauritius Holdings v Unitech Limited [2014] EWHC 3704; DTEK Trading SA v Morozov [2017] EWHC 1704.
2 A and B v C, D and E [2020] EWCA Civ 409.
3 Providing that the court may give permission to serve an arbitration claim form out of the jurisdiction if the claimant: (i) seeks some other remedy or requires a question to be decided by the court affecting an arbitration (whether started or not), an arbitration agreement or an arbitration award; and (ii) the seat of the arbitration is or will be within the jurisdiction or the conditions in s.2(4) of the 1996 Act are satisfied. 
4 Providing that 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 granting an interim injunction or the appointment of a receiver as it has for the purposes of and in relation to legal proceedings.
5 The Departmental Advisory Committee Report on Arbitration Law contains an explanation of the rationale of s.44 and was considered by the court in Cruz City at [50] and by Foxton J in his first instance decision at [18].
6 A and B v C, D and E [2020] EWHC 258, at [18] and [19].
7 At [59].
8 At [37]. 9 At [60]. 10 At [57].
11 At [69].
12 At [69].
13 s.2(3) Arbitration Act 1996.}

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