Belair LLC v Basel LLC

Under Arbitration Act 1996, section 44(3), the court may preserve assets in support of arbitration where the tribunal cannot yet act effectively and the case is urgent. Urgency is fact-sensitive and may arise from the risk that assets will be dealt with before the tribunal is constituted. The court must assist, rather than usurp or interfere with, the arbitral process.

A freezing injunction requires a good arguable case, assets against which it can operate, and a real risk of dissipation defeating a future award. Extra-territorial relief is exceptional and requires cogent evidence. The court must also consider ordinary business activity, the adequacy of any cross-undertaking, disclosure, and the balance of convenience. Relief should be focused and time-limited.

The claimant had paid substantial sums under an agreement for the purchase of a former presidential palace in Tbilisi. The agreement was governed by Georgian law and required disputes to be arbitrated in London under the UNCITRAL Rules.

The claimant alleged that the respondent had failed to provide the property free of encumbrances and sought repayment. Pending constitution of the arbitral tribunal, it applied under section 44(3) of the Arbitration Act 1996 for a freezing injunction over the property and ancillary relief. The respondent disputed the contractual claim, denied any imminent dissipation, and offered a time-limited undertaking.

The central issues were whether the application was urgent, whether the claimant had a good arguable case and whether there was a sufficient risk that the property would be dealt with so as to defeat a future arbitral award.

1. The application was granted in principle. The court held that the case was urgent within section 44(3) of the Arbitration Act 1996. The tribunal had not yet been constituted and could not act effectively to preserve the property. The claimant had taken sufficient steps to commence the arbitration, although it could have acted more quickly.

2. The court accepted the statutory constraint identified in Cetelem SA v Roust Holdings Ltd [2005] 1 WLR 3555: the court’s role was to support, not usurp or interfere with, the arbitral process. Section 44(3) permitted only orders necessary to preserve assets or evidence in an urgent case.

3. The claimant had shown a good arguable case on the construction of the agreement. The contractual issues were complex and would ultimately be decided by the arbitrators; the court was not required to determine the competing Georgian-law arguments at the interim stage.

4. The requirements for freezing relief stated in Derby & Co Ltd v Weldon (No 1) [1990] 1 Ch 48 (CA) were satisfied. There was a good arguable case, an asset against which relief could operate, and a sufficient real risk of dissipation. The respondent owned no substantial asset other than the property, the claimant’s protective restrictions had been removed, and the respondent had declined an undertaking until the hearing. The absence of earlier dissipation did not eliminate the risk.

5. The proposed order would not improperly prevent ordinary business activity or place the claimant in the position of a secured creditor. Perry v Princess International Sales & Services Ltd [2005] EWHC 2042 (Comm) was distinguishable because that case concerned a property developer with a range of properties, whereas this respondent had one substantial asset closely connected with the dispute.

6. The claimant’s cross-undertaking was insufficient without security, but fortification of $11 million was excessive. Security of $300,000 was appropriate. The duty of full and frank disclosure remained applicable despite notice of the application. The claimant’s deficiencies concerning the KH lien and EU lease affected the weight of its evidence but did not justify withholding relief.

7. The order was to preserve the property only until the arbitral tribunal could determine interim relief. It was to be focused, subject to a long-stop date, and capable of permitting a sale if suitable arrangements secured an appropriate part of the proceeds. The claimant was required to take steps to remove any Georgian registration if the order was discharged or varied.