Probate and Will, Trust & Estate Disputes

Publish date

5 September 2016

Arbitration – Worldwide Freezing Orders

A number of recent decisions of the English High Court serve as a stark warning to defaulters that a refusal to comply with Arbitration Awards and Court Orders will not be tolerated and that the Court will seek to facilitate the enforcement process wherever possible.

ADM Rice Ltd -v- Corporacion Comercializadora De Granos Basicos SA and others [2015] All ER (D) came before the Court last year. ADM obtained 6 GAFTA awards against Corcosa who took a full part in the arbitration proceedings. Corcosa failed to pay. ADM took enforcement action. The English Court granted two freezing orders (which it permitted to be served by email) which contained the usual penal notice warning the debtor that non-compliance with the order may amount to contempt of court. Contempt of court is a criminal offence which may attract a sentence of imprisonment for the officers of the debtor company. The threat of this may be enough in most cases to encourage a party to settle however Corcosa continued to fail to comply with the orders and subsequent committal proceedings (which the Court permitted to be served by courier). The English Court accordingly imposed 18 month prison sentences on two of the company’s directors.

That decision was cited by the Commercial Court in the case of Alfa-Bank v Reznik [2016] EWHC B21 (Comm). Alfa-Bank lent funds to a company owned by the Respondent, a Russian businessman. The Respondent provided a personal guarantee governed by English law which was subject to LCIA Arbitration. The Bank demanded repayment and made an application to the Court pursuant to s.44 of the Arbitration Act 1996 for a worldwide freezing order (“WFO”) in support of the LCIA arbitration (which was commenced shortly afterwards). The WFO was in standard Commercial Court terms containing the relevant penal notice. The terms of the WFO required the Respondent to take immediate steps to disclose assets worldwide exceeding USD 10,000 with an affidavit being required confirming the position within 5 days. The Court allowed the WFO to be served, with the arbitration claim form, out of the jurisdiction by way of personal service. No response was received from Mr Reznik which led to the bank issuing committal proceedings. The application was served personally on Mr Reznik in a car park in Russia. The Respondent failed to attend the committal hearing which was adjourned. The Court directed that the Bank serve a letter on Mr Reznik confirming that they were now seeking his imprisonment. The Court further directed that a video link facility be set up so that Mr Reznik need not leave Moscow to attend the re-fixed committal hearing. Mr Reznik was again served with the documentation personally. Again the Respondent failed to attend the hearing.

The Judge found that Mr Reznik’s absence was deliberate and in defiance of the Court. The Judge was sure, to the criminal standard of proof (ie beyond reasonable doubt) that Mr Reznik was in contempt of court. The Judge, applying Asia Islamic Finance v Drum Risk Mananagement Ltd & Others [2015] EWHC 3748, took the view an immediate custodial sentence was fully justified in the circumstances. In passing a custodial sentence of 18 months the Judge made clear that belated compliance with the Order would result in a significant reduction of the sentence.

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