Keywords

ENGLAND; INTERIM MEASURES; EMERGENCY ARBITRATOR; STATE COURTS

Background

In 2014, Gerald Metals S.A., a Swiss company engaged in commodities trading, andTimis Mining Corp. (SL) Limitedentered into an offtake contract, whereby Gerald Metals agreed to advance USD 50 million to finance the development of a new mine in Sierra Leone in return for monthly shipments of iron ore extracted from the mine and the repayment, with interest, of the advance financing. Timis Mining’s obligations under the contract were guaranteed by SafeguardManagement Corp., the trustee of a trust benefitting, among others, Timis Mining's beneficial owner, Mr Timis. Timis Mining defaulted. Following negotiations, a share transfer deed was executed, providing for the transfer of 75% of the shares in Timis Mining to Gerald Metals and recordingGerald Metal's agreement not to take any enforcement action under the guarantee, provided that certain conditions were met.

In August 2016, Gerald Metalscommenced an LCIA arbitration against Safeguard, complaining that the conditions specified in the deed had not been met.Gerald Metals applied to the LCIA for the appointment of an emergency arbitrator to issuean order preventing Safeguard from disposing of the trust’s assets. Safeguard responded by giving undertakings that it would not dispose of any of the trust's assets other than for full market value and at arm's length, and that it would give advance notice before disposing of substantial assets of the trust. The LCIA denied the application, whereupon Gerald Metals applied to the Commercial Court for a freezing order against the trust and the disclosure of certain information concerning the trust's assets. A matter of particular interest was the ownership of a valuable stake in a Senegalese oil block, which had been an asset of the trust. Gerald Metals also applied to the Commercial Court for a worldwide freezing order against Mr Timis and an order for disclosure of information about Mr Timis' assets.

Decision

Gerald Metals’ application to the Commercial Court was made pursuant to section 44 of the English Arbitration Act 1996 relating to court powers exercisable in support of arbitral proceedings. Denying the application inGerald Metals SA v The Trustees of the Timis Trust & others[2016] EWHC 2327 (22 September 2016), Leggatt J noted that whilst section 44 authorises courts, in urgent cases, to make orders necessary for the preservation of assets, section 44(5) limits that authority to instances where the arbitral tribunal or arbitral institution lacks the power to grant the requested relief within the relevant timescale, here being the time it would take to form the arbitral tribunal. The court held that the LCIA had the power to grant the requested relief by operation of Article 9.4 of the LCIA Rules, which authorises the LCIA, prior to the formation of an arbitral tribunal, to appoint a temporary sole arbitrator to conduct emergency proceedings,in which it was possible that a freezing order could be issued. Leggatt J rejected the applicant’sargument that the LCIA's powers were more narrow than those foreseen in section 44 (as Articles 9A and 9B of the LCIA Rules refer to cases of ‘exceptional urgency’ and ‘emergency’, rather than ‘urgency’) and commented that siding with the applicant’s position would be ‘uncommercial and unreasonable’.

Leggatt J thus deferred to the judgment exercised by the LCIA in denying Gerald Metals’ application for the appointment of an emergency arbitrator. He nevertheless noted that, even if the Commercial Court did have authority to consider Gerald Metals’section 44 application, it would not have been appropriate to grant the orders sought, as Safeguard had already given undertakings to the LCIA that it would not dissipate the trust's assets.

In a separate ruling, Leggatt J also denied Gerald Metals’ application for a worldwide freezing order, as it had failed to demonstrate that there was sufficient likelihood that it would obtain a money judgment in the arbitration.

Comment

The ruling in Gerald Metals shows that a party to an arbitration agreement seekinginterim injunctive relief before the constitution of the arbitral tribunal may be expected to apply to the arbitral institution for the appointment of an emergency arbitrator. It also makes clear that section 44 is not a route to appeal a refusal by the LCIA to appoint an emergency arbitrator.