Worldwide freezing orders in support of international arbitration

Out-Law Analysis | 05 Nov 2019 | 4:37 pm | 4 min. read

Modern global banking has raised the risk of parties frustrating the effectiveness of international commercial arbitration by moving funds from one country to another in order to resist enforcement.

Where this is a risk, courts can 'freeze' assets in order to preserve the status quo pending enforcement proceedings. This can take the form of an extra-territorial freezing order, where the order applies to assets located outside the territorial jurisdiction of the court granting it; or a worldwide freezing order (WFO) where it applies to all foreign jurisdictions. These orders are also known as 'Mareva injunctions', named for a 1980 decision by the English Court of Appeal.

Two leading courts in the international arbitration field, the High Court in London and the High Court of the Republic of Singapore, possess similar powers to issue a WFO in support of international commercial arbitration. However, in practice, the Singapore courts are more likely to act where the seat of the arbitration is outside of the jurisdiction of the court from which the order is sought.

WFOs in international commercial arbitration in England

Section 44 of the 1996 Arbitration Act (AA) gives the High Court in England the same powers to issue a WFO in relation to international commercial arbitration as it has in respect of litigation. Its powers to issue WFOs in support of international litigation are well established by case law.

In practice, the Singapore courts are more likely to act where the seat of the arbitration is outside of the jurisdiction of the court from which the order is sought.

The powers conferred on the court by section 44 of the AA apply even if the seat of the arbitration was outside of England or the arbitration has no seat, as confirmed by the English Court of Appeal in 2008, in the case of ETI Euro Telecom International NV v Republic of Bolivia and another. However, the court may refuse to exercise these powers if the fact that the seat is outside England – or is likely to be outside England when designated or determined – makes it inappropriate to do so.

In a 2008 case, Mobil Cerro Negro Ltd v Petroleos de Venezuela SA, the High Court set aside a WFO granted without notice under section 44 on the basis that it was inappropriate to grant the order in circumstances where:

  • the applicant failed to show a real risk of dissipation of assets or that the case was one of urgency;
  • there was no sufficient link with England as a jurisdiction in the form of substantial assets within the jurisdiction; and
  • the seat of the arbitration was abroad.

It would appear that international judicial comity was at the forefront of the court's concern. The judge said that an English court "must exercise at least the same degree of caution as it would in relation to an order in aid of foreign litigation" when seeking to grant an order which by its nature "involves assuming jurisdiction over assets not located here".

In summary, while the courts in England may issue an order to preserve the status quo pending the issuance or enforcement of a final arbitral award (provided it has jurisdiction over the party against whom the order is sought), it would appear that a freezing order over foreign assets in such scenarios would only be granted if the respondent or the dispute has a sufficiently strong link here or there is some other factor of sufficient strength to justify proceeding in the absence of such a link.

WFOs in international commercial arbitration in Singapore

The power of the Singapore court to grant a WFO is set out in section 12A of the International Arbitration Act (IAA). Broadly, the IAA empowers the court to, among other things:

  • secure the amount in dispute;
  • ensure that any award which may be made in the arbitral proceedings is not rendered ineffectual by the dissipation of assets by a party; and
  • ·order an interim injunction or other interim measure.

The IAA also extends the court's power to order interim measures extraterritorially "in relation to an arbitration ... irrespective of whether the place of arbitration is in the territory of Singapore". Like in the case of England, the Singapore court may refuse to make an order if, in the opinion of the judge, "the fact that the place of arbitration is outside Singapore or likely to be outside Singapore when it is designated or determined makes it inappropriate to make such an order".

However, one notable point of difference between the Singapore and English regimes is that, while there is not yet any definitive guidance so far on when it would be "inappropriate" to grant interim relief on the basis that the place of arbitration is outside Singapore, it would appear that the Singapore court will not consider it inappropriate simply by the mere fact that the seat of arbitration is not in Singapore. This is in stark contrast to the position adopted by the English courts in the Mobil Cerro Negro case, above.

The Singapore Court of Appeal has noted in Bouvier and another v Accent Delight International Ltd and others (63-page / 428KB PDF) that: "Worldwide Mareva injunctions have rightly been said to be exceptional, but the same rationale and test informs the grant of a Mareva injunction, whether over assets within the jurisdiction or over assets without".

However, the Court of Appeal went on to warn that while the legal test may be the same, "the circumstances that will have to be established in order to cross the threshold of necessity will likely be more exacting where a worldwide Mareva injunction is concerned". It remains to be seen whether this criterion of "more exacting substance" is more in form, rather than substance.

Nicholas Brown and Hai Song Tan are international arbitration experts at Pinsent Masons, the law firm behind Out-Law.