Can You Apply For A Freezing Injunction When The Claim Is Subject To FOSFA Arbitration?

B v S [2001] EWCH 691 (Comm)

In the recent case of B v S, the court considered the nature and effect of Scott v Avery clauses, which provide that an arbitration award is a condition precedent to the right to bring any court action. Such clauses are commonly included in commodity associations' standard forms, including FOSFA and GAFTA. The sale contracts in this case were on the FOSFA 54 form, clause 29 (arbitration clause) of which contains a Scott v Avery clause. The Commercial Court judge held that a freezing injunction obtained by the Buyer over the Seller's assets was in breach of this clause.

Background facts

The applicant, B, obtained a worldwide freezing injunction from the English court, on a 'without notice' application, over S's assets in support of its claims against S in FOSFA arbitration. S then applied to set aside the injunction on the grounds that Clause 29 (Arbitration Clause) of the FOSFA 54 Form operated so as to prevent the parties from bringing any court proceedings unless and until an arbitration award had been issued.

B argued that, on a true construction of the clause, ancillary proceedings, such as an application for a freezing injunction, which invite the court to exercise its powers under section 44 of the Arbitration Act 1996 ("the 1996 Act"), were not in breach of this form of arbitration clause.

Clause 29 provided for FOSFA arbitration in respect of "any disputes arising out of this contract" and continued as follows:

Neither party hereto, nor any persons claiming under either of them, shall bring any action or other legal proceedings against the other of them in respect of any such dispute until such dispute shall first have been heard and determined by the arbitrators, umpire or Board of Appeal (as the case may be) in accordance with the Rules of Arbitration and Appeal of the Federation, and it is hereby expressly agreed and declared that the obtaining of an Award from the arbitrators, umpire or Board of Appeal (as the case may be), shall be a condition precedent to the right of either party hereto or of any person claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute".

Section 44 of the 1996 Act provides among other things as follows:

"Court powers exercisable in support of arbitral proceedings

(1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of...