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Securing a claim in international arbitration. Seizure of the debtor’s assets

An effective mechanism to enforce an arbitration judgment is to bring proceedings in rem to secure the initial claim, i.e. an actual attachment of the respondent’s assets. Regulations of most of the arbitration institutions do not envisage any procedural options for the arbitrators to ensure security for costs involved in the arbitration outcome. Therefore, alternative and effective remedies for claims security in international arbitration practices are currently as follows:

  1. Engish worldwide freezing order (WFO); and
  2. Swiss attachment.

English worldwide freezing order (WFO).

WFO is a unique means and one of the most effective methods of securing a claim. English courts even named it «nuclear weapon» among the means of seizure/impounding and discovery of the assets of respondents.

WFO is a provisional judgment (injunction) of an English court restricting the right of the respondent to dispose of his assets located anywhere in the world. WFO may be applied before and after the arbitration court delivers its decision in the dispute on merits.

However, a WFO is not so easy to obtain. The requirements to be met by the claimant wishing to have the respondent’s assets seized are quite tough:

Firstly, as of the date of claim lodged with a court of arbitration, there must already exist legal grounds for this request, i.е. arbitration proceedings pending (which means that a potential suit is insufficient);

Secondly, an English court is to have jurisdiction to adjudicate the case (English courts have such jurisdiction is all cases, when the parties to the dispute have included English law arbitration in their contract proviso);

Thirdly, there should be well grounded claims for a specific amount of compensation provided;

Fourthly, the respondent’s assets should be available (not necessarily within the court’s jurisdiction);

Fifthly, there should be present actual risk of disposal of the assets owned by the respondent following the arbitration court’s judgment delivery on merits of the dispute; and

Lastly, and importantly, the claimant must give consent to compensate to the respondent potential costs caused by WFO.

In real practice, a court issues the WFO without notifying the respondent, which, in a way, springs a certain «surprise» for the latter. Accordingly, the claimant lodging a court suit, is to ensure a complete and fair description of all circumstance of his case, so that the court is fully informed of all pertinent details. If, however, the claimant fails to meet the above requirements, such circumstances may result in a subsequent cancellation of the WFO and the respondent’s expense being recompensed at the claimant’s cost.

A WFO is also unique in that it obligates the respondent to disclose information about all of his assets located all around the world. If so, the WFO may be used to discover the respondent’s assets for a potential subsequent seizure, for instance, seizure of his bank accounts, or to apply the mechanism of attachment under the jurisdiction of the respondent’s assets location.

Swiss attachment.

The principal feature of a Swiss attachment is that it is applied to the debtor’s assets, and not to the debtor himself. This is extremely important to understand, so as to differentiate this type of seizure from the English law interlocutory injunction.

Therefore, the claimant is to be prepared for court proceedings, having identified and furnished to the court the numbers of the respondent’s accounts in advance to filing the suit. This is a mandatory requirement to be met without fail, since under the Swiss legislation, no investigation of the debtor’s financial situation (the so-called «fishing expedition») is permitted. However, all the creditor needs to do is to show the accounts, without the need to prove that there are any assets on such accounts.

The key characteristics of the Swiss attachment:

-          seizure is possible without the arbitration delivering judgment in the dispute on merits. Neither it is necessary to initiate arbitration proceedings (for instance, prior to the initiation of GAFTA arbitration proceedings);

-          Swiss attachment is mandatory to third parties holding the debtor’s assets, в том числе для банков, including banks, and such banks cannot claim any bank secrets in this situation. This is one of the numerous reasons that show why Swiss attachment is so efficient;

-          Swiss attachment order may be obtained under an ex-part procedure, i.e. without notification of the debtor. Yet the debtor’s bank may be notified of the fact within 24 hours of receipt of the order.

-           In addition to all of the above, any country that does not comply with the Swiss attachment requirements, is criminally liable, and this legal violation carries penalties up to three years of imprisonment (article 169 of the Federal Criminal Code of Switzerland).

Additional arguments in favor of said Swiss attachment are relatively low requirements for its obtainment. In fact, the claimant is required to provide the following documents:

-          confirmation of the fact that the respondent (debtor) has outstanding and unpaid debt to the claimant (creditor);

-          confirmation of the fact that there exists no other security of claim ,i.e. other than attachment of the assets of the respondent (debtor);

-          proof that the creditor has been authorized to demand this attachment; and

-          proof that the respondent (debtor) has assets in Switzerland or, to put it simpler, provide the numbers of his accounts in Swiss banks.

If the claimant is sure about the legality of his claim, and the amount claimed is sufficiently large, there is a possibility of applying two remedies simultaneously, namely: the initial discovery of assets on the basis of the WFO and the subsequent Swiss attachment in the form of seizure of such assets held by the debtor in Swiss banks. Making use of such means of securing claims as WFO and/or Swiss attachment is the correct tactics to secure a subsequent arbitration judgment, which may help to settle the case even before arbitration proceedings are set in motion. For example, if the debtor is aware of the weakness of his position in arbitration and is prepared to sign an out-of-court settlement agreement, the dispute may be resolved vent without the initiation of arbitration proceedings.

The significance of the wording of arbitration agreement

It should be noted that the likelihood of applying the aforementioned remedies to secure a claim may, in some instances, be restricted by an arbitration clause incorporated in the contract. For instance, arbitration agreements limiting the claim security through the moment arbitration proceedings initiation have been included in a majority of the standard forms of FOSFA contracts (known as the «Scott v Avery clause»). In the recent case B v. S [2011] EWHC 691 (Comm) adjudicated by an English court, the court found that the arbitration agreement in the standard form of FOSFA contract 54 hinders the parties in making use of measures to secure their claim and in initiating proceedings other than arbitration proceedings to consider the case. Making use of standard forms of such contracts, parties to such contracts need to be very careful and formulate an arbitration agreement with a specific proviso entitling one of the parties to resort to provisional remedies so as to ensure seizure under legal process. Unlike FOSFA contracts, the effective forms of GAFTA contracts guarantee the right of parties to request measures of securing their claim.

11.01.12