ENRC Marketing AG v OJSC “Magnitogorsk Metallurgical Kombinat”

ENRC Marketing AG, a Swiss company involved in the iron ore and steel industry, filed an ex parte application against OJSC "Magnitogorsk Metallurgical Kombinat" (MMK), a Russian steel company, for freezing orders under Article 17J of the UNCITRAL Model Law on Commercial Arbitration. The Model Law, which was given force of law by section 16 of the International Arbitration Act 1974 (Cth), allows the Court to make orders to prevent parties to arbitration agreements from transferring assets that could be used to satisfy any arbitration awards made against them. ENRC was concerned that MMK might transfer its shares in an Australian company, Fortescue Metals Group Ltd, which would place this asset beyond ENRC's reach if it were to be successful in its arbitration proceedings.

The primary legal issue before the Court was whether it should grant the freezing orders without requiring ENRC to provide security for the undertaking as to damages. The Court had to consider whether ENRC's initial undertaking as to damages was sufficiently substantial to provide protection to MMK in the event the freezing orders were discharged. Additionally, the Court had to consider the inherent or implied power it may have to require security for the undertaking as to damages, taking into account market volatility and the potential effect of the order on third parties.

Justice Rares granted the freezing orders in the form sought by ENRC, provided that it made an irrevocable undertaking to pay AUD30 million to its Sydney solicitors' trust account. The Court was satisfied that the undertaking was a real one that could answer in fact to any claim that may be made under it if the order were later discharged. The Court also considered the short period during which the orders would remain in place, namely up to and including Monday 28 November 2011, when the matter could again be reviewed by the Court.

The Court made ex parte freezing and other orders in the form annexed and marked "A". It also granted leave to file and serve subpoenas calling for production of documents evidencing or recording the holding of shares in Fortescue Metals Group Limited for or on behalf of one or both of the respondents. The subpoenas were returnable before the Duty Judge at 10:15 a.m. on Monday, 28 November 2011. The proceedings were stood over to that date for hearing.