In Cruz City Mauritius Holdings v Unitech Ltd & ors [2014] EWHC 3131 (Comm), 2 October 2014, Males J allowed the application of the claimant for the appointment of receivers by way of equitable execution over the foreign assets of two foreign defendants, Unitech Ltd, and its wholly owned subsidiary, Burley Holdings Ltd (together, Unitech). The order was sought to assist Cruz City in enforcing an arbitral award made in its favour against Unitech and now worth over GBP 350 million (the Award).

Background

The application, which was brought under s37 Senior Courts Act 1981, was the latest instalment in long-running proceedings in which Cruz City has repeatedly sought to enforce a London LCIA arbitration award obtained in July 2012. In the words of Males J, Unitech had "made clear by words and conduct that it will do whatever it can to avoid having to meet its liabilities". Cruz City had commenced enforcement proceedings in numerous jurisdictions, including the Isle of Man, Mauritius, Cyprus and India. It had also obtained from the English courts a worldwide disclosure order and an ex parte worldwide freezing order. It was not until the day before the return date of the freezing order that Unitech finally gave disclosure of its assets (a move that Flaux J described as "evidently tactical" [2014] EWHC 1323).

Unitech's disclosure provided only a limited understanding of the manner in which Unitech holds its assets, including their location and value. Cruz City argued that this posed a continued obstacle to its enforcement and asked the court to appoint receivers over Unitech's shareholdings in four companies, two of which were Cypriot, one Indian and the other from the Isle of Man. It also sought ancillary orders requiring Unitech not to impede the receivers from acting.

The appointment of receivers under s37(1) Senior Courts Act

Section 37(1) Senior Courts Act gives the court jurisdiction to appoint a receiver by final or interlocutory order in all cases in which it appears to the court to be just and convenient to do so. The appointment of a receiver does not confer proprietary rights transferring ownership of the assets to the receiver. Rather, it acts in personam, and has effect as an injunction restraining the judgment debtor from receiving any part of the property that it covers.

Males J confirmed that receivers can be appointed to exercise the judgment debtor's rights over its shareholdings (including the sale of shares, exercise of voting powers, appointment of directors and seeking the winding up of subsidiary companies) and that the English court will do what it can to render the appointment of receivers effective. That, Males J held, must include the making of appropriate ancillary orders to assist the receivers in the performance of their functions, including to assist the receivers in the exercise of the judgment debtor's rights as a shareholder of subsidiary companies.

The judgment examines in detail the case law on the exercise of the discretion under s37(1) and provides a useful summary of the English courts' position. The overriding consideration is the demands of justice, which includes promotion of the policy of English law that judgments of the English court and English arbitration awards should be complied with and, if necessary, enforced. While the jurisdiction will not be exercised unless there is some hindrance or difficulty in using the normal processes of execution, there are no rigid rules as to the nature of the hindrance or difficulty required, which may be practical or legal. Further, because equity does not act in vain, a receiver will not be appointed if the court is satisfied that the appointment would be fruitless. However, a real prospect that the appointment will serve a useful purpose is likely to suffice.

The decision

Males J accepted Cruz City's submission that this was a "classic case" for the appointment of receivers. He did so for four primary reasons:

1. Unitech holds its assets through multiple chains of companies located in a variety of jurisdictions, many of which do not afford transparency as to the value of the Unitech shareholdings or how that value could be realised. Without that information, processes of legal execution open to Cruz City would at best be a "blunt and ineffectual instrument".
2. Recovery of the award debt by other processes of execution in the countries where Unitech holds assets would not be practicable in any reasonable timescale (particularly given Unitech had made clear it would do everything it could to frustrate enforcement).
3. The appointment of receivers would not be fruitless. Rather, there was a real prospect that such an order would side-step the multiple obstacles Unitech was determined to place in the way of other means of enforcement.
4. The appointment of receivers would be a valuable support for the freezing order in place and, without such appointment, there would be a real concern given Unitech's previous conduct that it would disobey the freezing order if it thought it could do so undetected.

The Judge then addressed, and dismissed, the four specific arguments advanced by Unitech. First, he held that in circumstances where Unitech was determined to resist enforcement abroad by any means available to it, it was not open to it to argue that ordinary means of enforcement were not impossible or impracticable. Second, a receivership order would not be fruitless just because it would not be recognised by the courts abroad. The sanction of contempt proceedings in the English courts would remain and "[i]n circumstances where directors of the defendants may wish to come to this country on business or for pleasure, the prospect that their next visit may be for a more extended duration and in less comfortable accommodation than anticipated should provide a real incentive to comply with an order".

Unitech's third objection was that the ancillary orders sought went too far and would put Unitech in a position where it was either in contempt or could not resist enforcement in foreign jurisdictions with arguments properly open to them. That, Males J held in dismissing the objection, amounted to an argument that it is unfair to Unitech that it should be faced with sanctions for contempt of court in this country if it acts in ways that would frustrate and render ineffective the appointment of receivers. He accepted Cruz City's submission that the contempt sanction was precisely what was needed to ensure compliance with an order that (ex hypothesi) it was just and convenient to make. Finally, Males J rejected Unitech's submission that the orders should not be made because payment of the Award could infringe Indian exchange control regulations. Unitech's evidence on this point was described as "weak" by the judge, who was not persuaded that a serious effort to obtain permission from the Reserve Bank of India would be refused.

Comment: It is a policy of the English courts that arbitration awards should be satisfied notwithstanding that it may be open to a respondent to resist enforcement in its home state or elsewhere. This judgment confirms and advances that policy by making it plain that the courts will, in appropriate cases, appoint receivers by way of equitable execution to promote the enforcement of outstanding awards. Males J's judgment emphasises that the jurisdiction to do so will be "responsive to the demands of justice in the contemporary context" and that the English courts' contempt jurisdiction provides a powerful means by which to coerce compliance.