Putting the “force” into enforcement: the Commercial Court sentences arbitration award defaulters to 18 months in prison
A recent decision demonstrates the English courts’ resolve in the enforcement of arbitration awards and court orders. It is a useful reminder to those facing obstructive counterparties of the measures available to enforce arbitration awards.
In ADM v CORCOSA, the Commercial Court found that a Nicaraguan company and its officers were in contempt of court after the company failed to comply with two freezing orders pertaining to six unpaid arbitration awards. The court imposed 18-month prison sentences on two of the company’s directors/officers, sending a clear signal that the court is willing to take a hard line with those who deliberately flout its orders.
Facts The claimant company, ADM Rice Ltd, won six GAFTA (Grain and Feed Trade Association) arbitrations against the defendant, CORCOSA. Despite participating in the proceedings, CORCOSA completely ignored the adverse awards and ADM’s attempts to enforce them. As a result, ADM obtained and validly served on CORCOSA two consecutive freezing orders with ancillary disclosure provisions. As is usual, the freezing orders contained ‘penal notices’ explaining that non-compliance with the orders may amount to contempt of court and result in criminal prosecution of the company’s officers. CORCOSA ignored the orders despite those notices.
Commentary Freezing orders can be a powerful aid to enforcement. While they do not confer security on a claimant, they can be effective to prevent the respondent party from avoiding its liability by dissipating assets. In some cases, the court will make an injunction on worldwide terms, which may allow its enforcement in other countries where permitted by local law and procedure. This is important where assets lie beyond the reach of the English court.
The two most noteworthy points arising out of this decision are:
The Commercial Court demonstrated welcome flexibility in relation to the requirements for valid service of court documents, accepting as valid:
- service of the freezing orders via email, where there was evidence that the relevant messages were delivered, read and in some instances deleted; and
- service of the committal proceedings by courier.
The willingness of the court to accept service by these alternative means is beneficial to the enforcing party: often, those seeking to avoid enforcement use obstructive techniques to prevent the service of court documents on them, leading to delay, additional cost and sometimes the failure of the enforcement effort.
The court considered a sentence of 18 months imprisonment to be fitting when dealing with “a blatant case of a complete blanket refusal to comply with court orders”.
The refusal of some parties to honour awards is a source of considerable frustration to those pursuing claims in arbitrations. This decision will therefore be well received, as it confirms that English courts will not allow those who wilfully defy their orders to go unpunished. The decision will serve as a stark warning to those who plan to avoid payment by breaching court orders: it should deter non-compliance among parties who might previously have believed that the court can do little to uphold arbitration awards or its own orders.
This decision underlines the fact that post-award freezing orders and committal applications can be useful weapons in the enforcement arsenal, in some cases even where the targeted assets are beyond the jurisdiction of the English court.
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