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Stop right now - English Court sets aside order granting leave to enforce arbitration award under section 66 Arbitration Act 1996

In A v B the English Court set aside the Court’s order enforcing an arbitration award on the grounds that the full award debt was not currently outstanding. The Court did not dismiss the application to enforce finding that the factual dispute about whether the debt was due and payable could be dealt with at a further hearing under s66 of the Arbitration Act 1996.

A had obtained an order granting permission to enforce an arbitration award arising out of the settlement of arbitration proceedings. It had been awarded US$34.6m plus US$10.2m in interest provided that no interest was payable if the principal was paid in accordance with the payment schedule in the award, namely an initial payment of US$2m had to be paid upfront and US$1.25m per quarter until paid in full.

B missed a payment in October 2019 and A applied to enforce the award arguing that B had taken action in breach of the award which accelerated the payments so that the total damages were due and payable. B claimed that the award had been superceded by an oral agreement entered into at a meeting with A agreeing to allow more time for payment. A denied that any oral agreement was entered into and argued that it was entitled to an accelerated full payment of the outstanding damages due to another breach of the award.

Mrs Justice Moulder’s judgment clarifies that:

  1. It is the party’s responsibility to rely on the correct section of the arbitration act in its application;
  2. An award will not be enforced if the debt is not due and payable;
  3. The test for a defence to an enforcement claim is the summary judgment test – realistic prospect of success at trial;
  4. The summary enforcement procedure under s66 of the Arbitration Act can be used to determine factual issues if the application is challenged on the facts.

Justice Moulder found that the order enforcing the award should be set aside because the application had been made under s101 which related to New York Conventions awards. S101 excludes awards made in the United Kingdom. It is incumbent upon the applicant making an ex parte application to ensure all the relevant points are drawn to the attention of the judge.

Secondly, it was not open to the court to make the order it did where there was a live factual dispute, namely that there had been a failure to pay an instalment and the payment had become due under the award. There was no statement in the award that the entire sum was due but only provision for the sum to become due if certain conditions were satisfied. The October order stated “the sum currently outstanding of USD 39,111,604.18.” This did not reflect the terms of the award. Using the language of West Tankers, the award had not established “the right to payment” of the accelerated sum.

Having decided that the October Order should be set aside the Court had to determine whether the application for leave to enforce should be dismissed. B had shown on the evidence a realistic prospect of establishing a defence to enforcement and factual issues needed to be determined before the court could grant leave to enforce. Section 66 is a summary procedure and the court has discretion whether to grant leave. In Sovarex S.A. v Romero Alvarez S.A., Hamblen J held that “there was no reason why the enforcing party should be compelled to start proceedings all over again by commencing an action on the award thereby potentially wasting both time and costs. There is nothing in s66 itself or the CPR which requires an alternative mode of procedure in the event of the application being challenged on the facts.” Relying on this pragmatic judgment, Justice Moulder found that there was no reason why the factual dispute could not be determined at a further hearing pursuant to the s66 application.

Stop right now - English Court sets aside order granting leave to enforce arbitration award under section 66 Arbitration Act 1996

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