English Court of Appeal Rules English Courts Can Order Non-Parties to Give Evidence in Support of Foreign-Seated Arbitral Proceedings

The Facts

A and B were party to two agreements with C and D respectively, relating to the development of an oil field in Central Asia pursuant to which they were entitled to a percentage of the sale proceeds when C and D sold their interests (which they did in 2002). A and B subsequently brought arbitration proceedings in New York alleging that “signature bonuses” paid by C and D to government authorities were in fact bribes and should not therefore have been deducted as costs from the amounts owed to them under the agreements. 

In support of their case in the arbitration, the appellants relied on the fact that another third party, G, who negotiated on behalf of the government, was indicted in the U.S. for Foreign Corrupt Practices Act violations. As the third respondent E, who is resident in England, negotiated the deal with G on behalf of C and D, the appellants sought his testimony. When the third respondent refused to testify in the New York arbitration, the arbitral tribunal granted permission to the appellants to apply to the English court for an order to take his evidence.

The Court’s Decision 

The Court’s jurisdiction to grant an order

Against a backdrop of conflicting authorities on whether the English courts can make Section 44 orders in support of arbitral proceedings against non-parties, the Court of Appeal examined the construction of Section 44(2)(a) of the Act. In particular, the court noted the following:

• Section 44(1) provides that unless otherwise agreed by the parties, for the purposes of arbitral proceedings the court has the same power to make orders about the matters listed in Section 44(2) — including the taking of evidence of a witness in subparagraph (a) — as it has for the purposes of legal proceedings
• The definition of “legal proceedings” in Section 82(1) includes civil proceedings in England and Wales in the High Court
• Section 2(3) provides that the power conferred by Section 44 applies even if the arbitration is seated abroad

Taken together, the Court of Appeal considered that the key question was therefore what power the court would have in relation to the taking of evidence from witnesses in civil proceedings in the High Court. As the court had the power to order non-parties to litigation to give evidence by deposition under CPR 34.8, it followed that court also had the power to do so in support of a foreign-seated arbitration. 

In addition, the court highlighted that other sections of the Act, in particular Sections 38(5) and 43(1), supported its construction of Section 44(2)(a). Those provisions clearly distinguished between a party and a witness such that there was no basis to suggest that “witness” in Section 44(2)(a) was synonymous with “parties.” Moreover, if the court could not order a non-party to give evidence, Section 44(2)(a) would have little or no content in the context of foreign arbitrations, as the circumstances in which a party would require an order that another party give evidence were limited. 

The Court of Appeal recognized that its construction of Section 44(2)(a) created an anomaly in that the court could order a deposition in support of foreign arbitration, but could not make an equivalent order in support of foreign court proceedings without first receiving a letter of request from the foreign court. In the case of an inward letter of request, the witness would also have the protections set out in the Evidence (Proceedings in Other Jurisdictions) Act 1975 (the 1975 Act). However, the Court of Appeal highlighted that in non-urgent cases, Section 44(4) requires a party to obtain the permission of the arbitral tribunal (or the other party’s agreement) before the court can act on an application under Section 44(2). Further, the court has discretion as to whether to grant the order. On balance, therefore, the Act provided sufficient protection against misuse, and these factors alone did not justify a narrow interpretation of Section 44(2)(a). 

The Court’s discretion to grant an order

Regarding the test to apply in exercising its discretion to grant an order (and despite the respondents’ argument to the contrary), the Court of Appeal agreed with the High Court that the test set out in Commerce & Industry Insurance v Certain Underwriters at Lloyd’s² was correct, namely that “The greater the likely inconvenience to the witness, the greater the need to satisfy the court that he can give evidence which is necessary for the just determination of the dispute.” 

The terms of the order

It was unnecessary for the Court of Appeal to consider in detail the terms of the order to be made because the parties were in agreement as to its general form. The judges determined that the evidence should be given by way of a deposition before an examiner of the High Court.  Notably, Males LJ appeared to approve Foxton J.’s approach to the specific terms of the order at first instance.³  Foxton J. considered the initial list of topics on which A and B sought evidence to be too broad and stated that it was clear from Commerce & Industry Insurance that the English courts would not allow Section 44(2)(a) to be used to conduct a U.S.-style deposition.⁴ He noted that if he had concluded that the court had jurisdiction to make an order, he would have made it on terms similar to an offer made by the third respondent before the hearing. The terms of the offer were that the third respondent would: (i) be provided with various documents relating to the New York arbitration, (ii) produce a witness statement addressing the permitted topic of inquiry (the signature bonuses issue) and (iii) give evidence by video-link to the arbitral tribunal or (if the tribunal did not agree) before an examiner of the English court. 

Conclusion 

The Court of Appeal’s ruling provides welcome clarity regarding the scope of Section 44(2)(a), which had been the subject of some controversy and conflicting first-instance decisions for several years. In light of the decision, parties to any foreign-seated arbitration should consider at an early stage in the proceedings whether there may be third parties resident in England who could provide evidence and whether that evidence may be necessary for the just determination of the dispute. In such cases, parties will have to weigh the costs and benefits of making an application to the English court (or indeed, resisting a potential application) and should seek advice from English counsel as soon as practicable. It is worth noting that the first instance decision of Foxton J. sets out helpful guidance as to types of factors the court may consider persuasive in deciding whether to exercise its discretion to grant an order under Section 44(2)(a).⁵

The judgment now firmly establishes the correct approach when seeking to take evidence from a non-party in England and also provides a useful reminder that a foreign-seated arbitral tribunal cannot issue a letter of request to the English courts for the taking of evidence under Section 1 of the 1975 Act. ⁶ Accordingly, following the Court of Appeal’s ruling, a party to a foreign-seated arbitration should first obtain the tribunal’s permission (or the other party’s agreement) to take evidence of a witness in England and then make an application to the court under Section 44(2)(a) of the Act. In light of Foxton J.’s approach at first instance, parties should ensure that the scope of their proposed order is narrow, confining the topics on which they seek evidence from a non-party to the issues actually in dispute in the arbitration.