Mobile Telesystems Finance SA v Nomihold Securities Inc

A freezing order granted in aid of enforcing an arbitration award should ordinarily permit payments made in the ordinary course of business while execution of the award remains unavailable. Although leave to enforce may give the award creditor the status of a judgment creditor, that status does not make the debtor a judgment debtor for every purpose.

The jurisdiction preserves assets against dissipation intended or effective to defeat enforcement. It does not give one contractual creditor priority over comparable creditors or enable commercial pressure to be placed on a debtor’s parent. Payment of a genuine obligation falling due in the ordinary course is not, without more, a relevant dissipation.

An arbitral tribunal awarded Nomihold Securities Inc approximately US$208 million against Mobile Telesystems Finance SA (MTSF). The award was unchallenged, and Nomihold obtained an order under section 66 of the Arbitration Act 1996 permitting enforcement in the manner of a judgment. MTSF applied within the prescribed period to set that order aside, so execution remained stayed.

A worldwide freezing order was made without an ordinary-course-of-business exception. David Steel J refused to vary it to permit MTSF to pay US$16 million interest due to its publicly traded noteholders. MTSF sought permission to appeal and appealed that refusal.

The central issue was whether an award debtor, against whom leave to enforce had been granted but execution remained unavailable, should ordinarily be allowed to discharge obligations falling due in the ordinary course of business.

1. Permission to appeal was granted and the appeal was allowed. Tomlinson LJ held, with Ward LJ agreeing, that David Steel J had proceeded on the flawed basis that MTSF was analogous for present purposes to an ordinary judgment debtor. The Court therefore exercised the discretion afresh.

2. Leave to enforce the award gave Nomihold the status of a judgment creditor, notwithstanding the stay and the possibility that the leave might be set aside. Nevertheless, MTSF should not be treated as a judgment debtor for every purpose. The relevant touchstone was the availability of enforcement. Execution was presently unavailable under rule 62.18 of the Civil Procedure Rules 1998.

3. A freezing order made in aid of enforcement remains a measure against dissipation; it is not itself execution. While execution is stayed, the effect of the order on the debtor’s continuing business is material. As a matter of principle and authority, an order supporting enforcement of an arbitration award should ordinarily contain an exception for transactions in the ordinary course of business.

4. The omission of such an exception may sometimes, and perhaps usually, be appropriate in a post-judgment asset-freezing order. That proposition is contextual rather than absolute. Earlier statements suggesting that an ordinary-course exception is always inappropriate for bank balances in the post-judgment environment were too sweeping.

5. Payment of the interest was an ordinary-course obligation. It was not a dissipation having the object or effect of denying Nomihold satisfaction, nor was it undertaken to avoid execution. A freezing order does not confer a preference on one creditor, including where insolvency is alleged. Nomihold had shown no exceptional circumstance justifying restraint, and the court should not use the order to exert commercial pressure on MTSF’s parent to fund payment or security for the award.

6. Once MTSF’s challenge to enforcement had been permitted to proceed, the principled approach to the variation application was to assume that it had a worthwhile prospect of success. The perceived weakness of that challenge, the absence of an earlier appeal against removal of the exception, and the timing of the variation application did not justify continued restraint.

1. Court of Appeal (Civil Division): Permission to appeal was granted and the appeal was allowed in [2011] EWCA Civ 1040. The court held that the freezing order should permit payment of the interest obligation incurred in the ordinary course of business.

2. Commercial Court, David Steel J: The judge refused to vary the freezing order to permit payment of US$16 million interest due to MTSF’s noteholders. No neutral citation for that decision is stated in the judgment.