Neutral Citation Number: [2009] EWHC 725 (Comm)
Claim No: 2009 Folio 392
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 03/04/2009

Before :

THE HON MR JUSTICE BLAIR
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Between :

	BELAIR LLC	Claimant	
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	BASEL LLC	Respondent	

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Mr Robert Howe QC and Ms Victoria Windle (instructed by Mishcon de Reya) for the 
Claimant 
Ms Helen Davies QC (instructed by Skadden, Arps, Slate, Meagher & Flom (UK) LLP) for the Respondent

Hearing date: 26th March 2009
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Judgment

Mr Justice Blair: 

1.	This case concerns the former presidential palace in Tbilisi, the capital of Georgia.  The building was constructed in the Soviet era.  It stands on a hill in some 43 hectares of land overlooking the old city.  If it can be developed to include hotels and residential areas, it is potentially prime real estate.  The dispute between the parties is about an agreement for the sale of the property by the Respondent to the Claimant, which has paid some US$13.75 million towards the price.  Disagreements between them as to whether these sums are forfeit are in the process of being submitted to arbitration in London.  The Claimant applies to the Court under s. 44(3) Arbitration Act 1996 for a freezing injunction and other ancillary relief to preserve the property pending the constitution of the arbitral tribunal, which is the appropriate body to make the ultimate decision.
The facts 
2.	The claimant company was incorporated in Georgia on 5 June 2007 as a special purpose vehicle for the purposes of the acquisition of the former presidential palace, which I shall call the property.  It has no assets of its own, but it is connected with an entity called Salford Partners Inc (a company incorporated in the British Virgin Islands) which I am told is a major investor in Georgia.  It appears that all the shares in the Claimant are held Mr David Shonia, who is also its sole director.  Mr David Vepkhvadze is the General Manager of the Georgian Real Estate division of Salford.
3.	The respondent company was incorporated in Georgia on 22 December 2004.  It was formed to acquire, develop and sell the property, which had been offered for sale by the Government of Georgia in 2004.   The company is mainly owned by Mr Ronald Waldmann, who is also the Respondent’s sole director.
4.	There was at least one other prospective purchaser besides the Claimant.  On 18 May 2007, the Respondent signed a binding Letter of Intent with a potential buyer called Krtsanisi Hills LCC.  However this transaction did not go forward.  Instead, the Respondent was in negotiation with the Claimant, and those negotiations bought fruit on 22 June 2007 when the parties entered into a Preliminary Purchase Agreement. This is the Agreement which gives rise to the present proceedings.  Under Article 8, it is governed by the laws of Georgia.  Disputes are to be referred to arbitration under the UNCITRAL arbitration rules.  In the event of failure to appoint an arbitrator, the appointing authority is the London Court of International Arbitration.  Article 8 also provides that the arbitration proceedings shall be conducted in London.
5.	There is a considerable amount of evidence before the Court as to the negotiations between the parties, and extensive submissions as to the meaning and effect of the Preliminary Purchase Agreement.  The Agreement is one of some complexity.  In summary, the Respondent agreed to sell the Claimant the property (which then comprised all the assets owned by the Respondent, as recorded in Article 3 of the agreement), upon payment of the purchase price of US$39.2 million.  This was to be paid in two instalments, namely (i) a downpayment (called a deposit by the Claimant) of $9 million on the date of execution of the Preliminary Purchase Agreement and (ii) a balancing payment of US$ 30.2 million between 4 January and 14 January 2008.  As the contract is paraphrased by the Claimant, in order for the Claimant to be obliged to pay the balance of the purchase price, the property had to be free of any mortgage or lien and of any tax liability on the part of the Respondent which might affect the ability for the legal title of the property to be transferred.  Confirmation that the property was free of any encumbrance was to be provided by DLA’s Tbilisi office.  On the same date as executing the Preliminary Purchase Agreement, the parties also executed a Sale and Purchase Agreement to be held by a Notary and only to be released to the parties upon compliance (inter alia) with the terms of the Preliminary Purchase Agreement. 
6.	A considerable amount of the evidence has concerned the price and the arrangements made in respect of payment of the price. To anticipate a matter I will have to deal with later, the Claimant places emphasis on this aspect of the case in its submissions as regards the allegation of dissipation of assets.  In brief, it contends that the agreed price was in fact US$ 43 million rather than $39.2 million based on a rough valuation of $100 per sq metres of land.  It says that immediately prior to the execution of the agreement, Mr Waldmann insisted that the proposed $13 million deposit should be split, so that $4 million would be paid to an entity nominated by him.  As a result, the agreement was amended, so that the deposit was reduced to $9 million.  In the event that the Respondent was called upon to repay the deposit, then it would repay not only the $9 million, but also the additional $4 million by way of a “break fee” or agreed damages.  It is not in dispute that these sums totalling $13 million were paid on 22 June 2007.
7.	In summary, the Claimant says that the effect of the agreement was that in order for the transaction to complete, the Respondent was required to ensure that the title to the property was free of any encumbrance (including any encumbrance not registered at the Georgian Land Registry) and that fact was to be reported to the parties by DLA no later than 8 December 2007. Once it had been confirmed, the Claimant became obliged to pay the balance of the purchase funds.  That balancing payment was to take place no later than 14 January 2008.  Should the property not be free of encumbrance, the Claimant could either (at its choice) terminate the Agreement or extend the final date for completion to 31 December 2008. 
8.	Matters however did not proceed smoothly. The Respondent’s case is that Salford was experiencing considerable difficulties in Georgia about this time because of its political connections.  It appears that a new financial backer came on the scene in the form of EastOne, which is an investment group based in Ukraine.  Furthermore, Krtsanisi Hills LCC was claiming that the Respondent had acted in breach of the Letter of Intent.  It commenced proceedings against the Respondent in the Georgian Courts, which resulted in August 2007 in the Court ordering a lien to be placed on part of the property in favour of Krtsanisi Hills LCC pending determination of its claims.  This lien (described by the Respondent as a freezing order) was identified in DLA’s Report on Encumbrances and Encumbrance Debts produced under Preliminary Purchase Agreement on 28 December 2007.  Like the parties, I shall call it the “KH lien”.  This whole matter is the subject of much disagreement between them canvassed in the evidence.
9.	By a letter dated 14 January 2008, the Claimant informed the Respondent that the Preliminary Purchase Agreement had terminated and asked for repayment of the $9 million deposit together with the $4 million "break fee", and contractual interest.  According to the Claimant, further negotiations ensued, and Mr Waldmann said that the transaction would be completed, but that he needed three further months or so in which to deliver the property free of encumbrances.  In any case, the parties agreed an Amendment Agreement executed on 31 January 2008 by which they made significant amendments to the Preliminary Purchase Agreement. 
10.	Under the Amendment Agreement, the Claimant was to pay the Respondent what was described as a further downpayment of $750,000. The total price was increased by $100,000.  As paraphrased by the Respondent, under the Amendment Agreement the date for payment of the second instalment of the purchase price was extended to either 14 or 23 April 2008, depending on precisely when the KH lien was lifted.   In addition, the Amendment Agreement provided that the original Agreement was to be amended to provide that “the Buyer has option to demand extension of this entire transaction till December 31, 2008”.  In the latter case, Article 6.4(c) provides that, “Notwithstanding the maximum extension till December 31, 2008 if extended by the Buyer, in case current lien of KH or any other lien on the Property or a part of it is lifted in any way whatsoever the Buyer shall pay the Final Installment of the Sales Price within thirty (30) days from the date such lifting of the lien.  If the Buyer fails to pay the Final Installment within such 30 (thirty) days cancellation and penalties per 6.3 of the Preliminary Purchase Agreement shall apply”.  Article 6.3 broadly provides for the circumstances in which the seller (in other words the Respondent) can retain what has already been paid.  The parties are in flat disagreement as to the interpretation of these provisions, which will be for the Arbitrators to determine in due time.
11.	According to the Claimant, despite these amended deadlines, in about March 2008, it became apparent that the property would not be delivered free of encumbrance so as to enable payment of the final instalment to be made by the 14 April cut off point.  It claims to have lost faith by this stage in the Respondent’s ability to complete the transaction.  However it says that given that it had invested such a significant amount of time and effort in getting to that point, it decided to give the Respondent “one last chance to make good on its previous failings, despite the political tensions that existed in the country at that time”.   This is not a version of events accepted at all by the Respondent.  What is common ground however is that by letter of 14 April 2008, the Claimant exercised its option under the Agreement and “now demands extension of this entire transaction under the Agreement till December 31, 2008”.
12.	Negotiations appear to have continued between the parties through 2008, though they were interrupted by the Russian invasion of Georgia in September 2008.  There is a dispute between the parties as to the effect on property prices in Georgia, and therefore on the attractiveness of the former presidential palace as an investment opportunity, particularly when taken together with the current international financial crisis.  Mr Waldmann has put in evidence forecasts which suggest that a significant fall in property prices is likely.  Mr Vepkhvadze on the other hand expresses the view that it is highly unlikely that the local market will deteriorate further.  Beyond commenting that the Respondent’s case appears on the face of it to be a reasonable one in this regard, this is one of the many factual issues which cannot be resolved at this stage in the dispute. 
13.	Matters came to a head in December 2008.  The key dispute between the parties is as to whether the property was free from encumbrances within the terms of the contract at this stage.  In brief, the factual position is that on 15 December 2008, the Georgian Court lifted the KH lien. On 19 December 2008, DLA issued a report to the effect that the lien had been lifted.  However the Claimant contends that the property was still encumbered by a mortgage registered in favour of TBC Bank, and a lease granted to the EU Monitoring Mission that had been sent to Georgia following the outbreak of hostilities with Russia.  Further, the Claimant contends that the contractual obligations as amended required that the confirmation from DLA that the property was free of all encumbrances had to be served on it no later than 1 December 2008.
14.	The Respondent takes issue on each of these points.  It submits that on the true construction of the contract, the Claimant had 30 days from the lifting of the KH lien within which to pay the Final Instalment provided that the lien was lifted prior to 31 December 2008. It submits that mortgages and leases do not constitute liens as a matter of Georgian law, and that in any case the Claimant consented to the EU lease.  In summary, on the Claimant’s case it was entitled to terminate the Agreement and have repaid the sums it has already paid, namely $13.75 million. On the Respondent’s case, the down payments that the Claimant made were made in the knowledge that the Claimant would lose them should it not pay on time and complete the transaction.  It is said that Georgian law permits this form of agreement between two parties, and that such agreement will be respected.  In short, it is entitled to keep the money.
15.	The story does not end there, because the Respondent has put in evidence that there was a meeting on 4 January 2009 followed by further meetings between its representative and a representative of the EastOne Group, in which the latter is said to have confirmed that it was badly affected by the financial crisis and had instructed the Claimant to withdraw from the deal. In any case, on 15 January 2009, the Respondent wrote to the Claimant notifying it that the final instalment of the price had not been received, and that there were no further obligations owed to the Claimant including as regards the return of the payments already made.   Following that letter, the Respondent took steps to remove the restrictions that the Claimant had placed over the property in the Georgian Land Registry to protect its interest. 
Relief sought by the Claimant
16.	Without prejudice negotiations then ensued between the parties.  In an exchange of emails on 18 February 2009, the Claimant requested that the Respondent give an undertaking that it would not deal with the property pending any arbitration proceedings.  The Respondent refused to give such an undertaking.  Mr Waldmann explains in his first witness statement that to do so would have severely affected its ability to run its business.  On 9 March 2009, the Claimant issued an application for a worldwide freezing order, and gave the Respondent notice of that application.  The application was listed for hearing on 12 March 2009.  By that time however, the Respondent had just changed solicitors.  They were not in a position to proceed immediately, and the matter was dealt with that day by consent.  The Respondent gave an undertaking that it would not in any way dispose of, deal with, charge or diminish the value of the property until 4.30pm on 27 March 2009 (just after the return date). 
17.	The matter came back for hearing on the return date, which was 26 March 2009.  By then, extensive evidence had been filed by both parties.  By then also, the Claimant had restricted its application to a freezing order in relation to the palace.  It no longer sought a freezing order generally in relation to the Respondent’s assets worldwide, and it no longer sought disclosure as to the Respondent’s assets.
18.	The Respondent’s position at the outset of the hearing was that no relief should be granted to the Claimant, and it remains its submission that the only appropriate course is to dismiss the application.  In particular, it submits that in light of all the material now before the Court, including an offer I shall mention in a moment, it is quite clear that there is no imminent risk of it unjustifiably dissipating the property in the period prior to any application to the arbitral tribunal.  This case is therefore, it is submitted, very far removed from the type of “exceptional” case in which a grant of freezing relief in respect of assets located abroad can be justified, let alone one that can properly be said to fall within the very limited powers of intervention provided to the Court by s 44(3) of the Arbitration Act.  As to the offer, there was a break half way through the hearing during which the parties were in discussion.  In opening the Respondent’s case, Ms Helen Davies QC offered on an open basis an undertaking the effect of which would have been to extend, by way of a consent order, the undertaking currently provided to the Court until a period of two weeks after the Arbitration Tribunal has been constituted (with a long-stop date of 8 May 2009).  
19.	The Claimant made it clear that it could not accept a resolution of the matter on this basis, its concern being that an undertaking cannot be registered in Georgia.  This it says is the best way to ensure that the property is not dealt with until after the arbitrators can hear the matter.  It has however accepted that the order should be time-limited until the arbitrators have considered and ruled upon whether they should order interim relief.  Because of the intermission, it was not possible to conclude argument on 26 March.  The parties put in further submissions in writing on 27 and 30 March 2009, all of which I have found helpful in reaching a decision.  The Respondent’s solicitors’ letter of 27 March 2009 encloses a form of “Consent Order” encapsulating what the Respondent is currently prepared to accept.
20.	The dispute as regards this application has therefore narrowed appreciably, though there are still fundamental areas of disagreement.  The Claimant says in paragraph 1 e of its Reply points that the present choices for the Court are: (i) to make the Order as sought, (ii) to accept the Respondent’s undertaking and, on that basis, make no order (other than as to costs, presumably), or (iii) to refuse the application altogether.  I should however record that by footnote in her further written submissions, Ms Davies QC has said that, “Since the hearing, Basel has given further consideration to the potential use that could be made by Belair of any Order given by this Court.  Its understanding is that any Order of the Court, other than a Consent Order, that recorded the undertaking that it has offered could be used by Belair as a basis for applying to the Georgian court to impose an entry on the Georgian register. The option of the Court now accepting Basel’s undertaking and incorporating it into an Order other than a Consent Order (suggested at para 1(e)(ii) of Belair’s Reply Points) is therefore not available”.  Since consent is not as I understand it forthcoming, the proffered undertaking must be seen as subject to that limitation. 
The progress of the arbitration
21.	Since the Court’s powers at issue in this application are to give relief in support of the arbitration, it is important to note progress in that regard.  The position is as follows.  On 12 March 2009—that is the same day as the order made by this Court—the Claimant’s solicitors (Mishcon de Reya) wrote to the Respondent’s solicitors (Skadden Arps) saying that their client was currently considering a number of potential arbitrators.  On 17 March 2009, Skadden Arps objected that the Claimant was not pursing the arbitration proceedings expeditiously.  The response the following day was to the effect that a potential arbitrator was running conflict checks.  Various suggestions were offered in the letter, including proceeding on the basis of the appointment of a single arbitrator. The Claimant’s choice of arbitrator was in fact notified later that same day.
22.	On 23 March, Skadden Arps declined to give up the right to a three-member arbitral panel on behalf of their client.  Later that day, they pointed out that the UNCITRAL Rules of Arbitration require the party initiating arbitration proceedings to serve a Notice of Arbitration.  Mishcon de Reya then wrote on 24 March 2009 with a formal Notice of Arbitration (as it was put in the letter, for the avoidance of doubt).  Skadden Arps responded on 25 March 2009 to the effect that they would appoint their client’s party-nominated arbitrator within seven days to ensure that the Tribunal could be constituted quickly.  Arbitral proceedings are therefore now underway, though plainly it may take a few weeks before the Tribunal can be fully constituted.  It is the Respondent’s case that if the Claimant had acted promptly, the full arbitral tribunal could have been constituted before now.  That is a central submission so far as the Respondent is concerned, because on this basis it submits that this is not a case of urgency within the meaning of s. 44(3) Arbitration Act 1996 entitling the Court to intervene.
23.	I entirely accept that when a party seeks the assistance of the Court under s. 44(3) Arbitration Act 1996, it should be able to demonstrate that it has done what is required on its part to get the arbitral tribunal in place.  The Claimant could certainly have acted more speedily following the Respondent’s letter of 15 January 2009, but I bear in mind that these parties have been in negotiation on and off for not much short of three years.  Both of them doubtless have regarded recourse to arbitration as a last resort.  I do not accept the Claimant’s suggestion that giving Notice of Arbitration as required by the UNCITRAL Rules was something of a formality.  On the other hand, as the chronology set out above makes clear, well before the Notice of Arbitration was given on 24 March 2009 active steps were being taken to get the arbitration started.  On the facts, I do not consider that that the Respondent’s criticism of the Claimant’s conduct in this respect has a great deal of force.  
The legal tests to be applied
24.	As regards the legal tests to be applied, the first, and in some ways the most important, point to make is that the Claimant’s application arises in the context of an agreement to submit the claim to arbitration.  This is not a case in which the Court has a free-ranging jurisdiction.  The application is made under s.44 Arbitration Act 1996, which sets out certain powers exercisable by the Court in support of arbitral proceedings.  By s.44(3), “If the case is one of urgency, the Court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets”.  As Morison J put it in Econet Wireless Ltd v VEE Networks Ltd [2006] EWHC 1568 (Comm) at [14], “the powers of the court under section 44 are plainly intended to cover over the crack between the moment of the application and the time when the arbitral tribunal can be formed and take its own decisions about preserving the status quo”.
25.	This provision was authoritatively considered by the Court of Appeal in Cetelem SA v Roust Holdings Ltd [2005] 1 WLR 3555.  It was held that the central purpose of the Arbitration Act 1996 is to restrict the role of the Court in the arbitral process, and that the s. 44 powers should be limited to assisting the arbitral process and should not usurp or interfere with it.  On a proper construction of s.44(3), Clarke LJ (with whom Sir Andrew Morritt V-C and Neuberger LJ agreed) held that if the case is one of urgency, the Court has (and only has) jurisdiction to make such orders as it thinks necessary for the purpose of preserving evidence or assets.  The property in Tbilisi is plainly an “asset”—this as I understand it is not in dispute.  However, the Respondent does submit that the case is not one of urgency.
26.	The general principles regarding the grant of worldwide freezing injunctions are not in dispute either.  As was held in Derby & Co Ltd v Weldon (No 1) [1990] 1 Ch 48 (CA), the Court may grant a freezing injunction where (1) there is a good arguable case, (2) the defendant has assets over which the Order can bite (that is not in dispute in this case), and (3) there is a real risk that, if the freezing injunction is not granted, the defendant will deal with or dispose of assets so as to render worthless any award subsequently obtained.  Such extra-territorial relief should only be granted in exceptional cases and on the basis of cogent evidence: Derby & Co Ltd v Weldon (No 1) at pp. 55C and 62A.  The Court is required to scrutinise the question whether the requirements for the grant of relief are met with particular care (per Nicholls LJ at p 62A).  Equally, I bear in mind that there is a connection to this jurisdiction at least to the extent that the parties have chosen to arbitrate here.  To paraphrase what Morison J said in Econet Wireless Ltd v VEE Networks Ltd, ibid, at [19], the English Court may be a natural court for the granting of interim injunctive relief as the court of the country of the seat of the arbitration.
27.	There was no discussion at the hearing as to the relationship between these forms of relief, though Ms Davies QC submits in her written argument that a case cannot be shown to be “one of urgency” if it is not demonstrated that there is an immediate risk of dissipation.  In this case, it is probably right that the two questions may in practical terms be the same.  But in principle (in my view) these two types of relief should be kept distinct.  It may be quite unnecessary to apply for the exceptional relief entailed in a worldwide freezing order where the Court is empowered to make a suitably focused order for the preservation of assets under s. 44(3) pending the constitution of the arbitral tribunal.  But given the arguments in this case, I shall consider both heads of relief.
Urgency
28.	The Court can only exercise its powers under s. 44(3) Arbitration Act 1996 “if the case is one of urgency”.  The Respondent submits that this is not such a case.  It submits that the Claimant’s cause of action accrued in December 2008, and there have been no developments since then which could found an assertion that there is an urgent need to obtain relief from the Court.  So far as this submission is based on the fact that the Arbitral Tribunal is not yet constituted, I repeat what I have said about that above.  Some other points are made in the context of risk of dissipation, and I shall deal with those below. 
29.	In Cetelem, Clarke LJ set out at [36] passages from the Report of the Departmental Advisory Committee on Arbitration Law which has been treated in a number of cases as a valuable aid to the construction of the 1996 Act.  The Report said at para 215 that, “In order to prevent any suggestion that the court might be used to interfere with or usurp the arbitral process, or indeed any attempt to do so, we have stipulated that except in cases of urgency with regard to the preservation of assets or evidence, the court can only act with the agreement of the parties or the permission of the tribunal.  We have excepted cases of urgency, since these often arise before the tribunal has been properly constituted or when in the nature of things it can not act quickly or effectively enough”.  On that basis, Clarke LJ said at [37] that the purpose of s.44 is to give the court powers to be used when the tribunal cannot act effectively.
30.	That being the purpose of the provision, what amounts to a case of urgency will depend on the facts.  As a matter of fact, the tribunal cannot act effectively in this case, because it has not yet been constituted.  For reasons set out in detail elsewhere in this judgment particularly in relation to the risk dissipation, I agree with the Claimant that the present case is one of urgency, in the sense of the risk that the Respondent may deal with the property, namely the palace in Tbilisi which is the only asset in this case, long before the Arbitral Tribunal can be constituted and determine for itself whether steps are required to preserve the property.  That being so, the case in my view falls within s. 44(3) of the Arbitration Act 1996.  I turn therefore to the requirements in respect of freezing orders. 
Good arguable case
31.	The Claimant submits that it has, at the very least, a strongly arguable case that the Respondent failed to render the property free of all encumbrances by 1 December 2008, or by 31 December 2008 (if, which the Claimant does not accept, the latter were to be the final cut-off date). The consequence is that it was entitled to terminate the Agreement, and seek repayment of the sums paid.  The Respondent on the other hand submits that the Claimant has not shown a good arguable case.  It submits that so far as its case depends on the fact that the KH lien was not removed by 1 December 2008, the position is governed by clause 6.4(c) of the Preliminary Purchase Agreement (as inserted by the Amendment Agreement). On the basis of this provision it is submitted that, having exercised its option to extend the transaction, the Claimant had 30 days from the date of lifting the KH lien within which to pay the Final Instalment provided that the lien was lifted to prior to 31 December 2008, failing which the cancellation provisions would apply.  The Claimant on the other hand submits that clause 6.4(c) does not say anything about the interrelationship between the 30 days notice of the removal of the KH Lien which the Respondent had to give, and the final date of 31 December 2008, and that this is the crucial consideration.
32.	As regards the mortgage with TBC Bank, as indicated earlier the Respondent’s expert evidence is to the effect that mortgages and leases do not constitute a lien as a matter of Georgian law.  Reference is also made to clause 5.1 of the Sale and Purchase Agreement (as amended by the Amendment Agreement). But the Claimant disputes this, relying on this as an “encumbrance” as well.  As regards the EU Lease, the Respondent points to an exchange of emails between EastOne Group and Salford (in other words the Claimant for these purposes). An email of 3 December 2008 from Salford copied to Mr Waldmann refers to “permission for Ron [Mr Waldmann] to lease the hotel building to OSCE”.  Taking the last point first, there has in my view been no very convincing answer to the Respondent’s point that the email exchange appears to demonstrate EastOne consenting to a lease to the EU, and the Claimant acknowledging such consent, but this is plainly not a matter to resolve at the present stage.
33.	Moreover, that is only part of the picture as regards the parties’ contentions. I asked both parties to explain in a little more detail their cases as regards their respective interpretations of the contractual provisions, which they did in writing.  It is clear from those written explanations that the construction question is one of some complexity. Furthermore, each party has produced opinions from Georgian lawyers supporting their cases.  I neither can, nor am entitled to, express any views as between the respective cases.  The only issue that I am concerned with is whether the Claimant has shown a “good arguable case” (within the meaning of that phrase in the case law) that its construction is the right one. The arbitrators in due course with the benefit of full argument and time for consideration may reach the conclusion that the Respondent’s construction is the correct one.  But for present purposes only, in my view the Claimant’s submissions as spelled out in a supplementary “Summary of C’s position re the Interpretation of the Agreement” get over this initial hurdle.
Risk of dissipation
34.	As regards the risk of dissipation, the Claimant has said that the Respondent may be preparing to try to sell some or all of the property to a third party, though it is accepted that there is no evidence as to an immediate purchaser.  It says that there is a history of the Respondent and Mr Waldmann not being straight in their dealings. A number of matters are cited in support—what is said to be the initial reneging on the (non binding) letter of intent, the increase in the price of the property, the sale of a substantial part of the property to Krtsanisi Hills LLC shortly before the execution of the Preliminary Purchase Agreement with the Claimant, the payment of $4 million at the direction of Mr Waldmann, and what is said to be the “unsatisfactory history of the subsequent negotiations”.
35.	Each of these allegations has been contested at considerable length in the Respondent’s evidence filed for the hearing, in which it makes counter allegations of its own against the Claimant.  Mr Waldmann has also produced impressive references to counter what he perceives as a slur on his character and that of the Respondent.  He rejects any suggestion that there was a “double selling” of any part of the property to Krtsanisi Hills LLC and the Claimant.  He says that the payment of $4 million was made neither to the Respondent nor to himself personally.  He points out that until now no issue has been made by the Claimant as regards this payment in the time since it was made. 
36.	I cannot and should not decide these points on an application of this nature, and in any event they may not perhaps be conclusive either way.  In the light of the evidence filed by the Respondent, I do not approach this case on the basis that the allegation of want of probity on Mr Waldmann’s part is justified.  But the evidence does at least show that the progress of the contract has been protracted and difficult, and that is the background against which this issue has to be assessed.  There are other factors as well that in my view are important.  As I have mentioned, the Respondent has taken steps to remove the restriction in favour of the Claimant over the property from the Georgian Land Registry. According to Mr Vepkhvadze, an electronic search against the title to the palace has shown that all the restrictions relating to the Claimant which had previously been put in place have been removed. The first such restriction, he says, was removed in January 2009, and the last restriction was removed on 10 February 2009.  He says that the Land Registry records of restrictions made against property in Georgia are publicly accessible and as a result, any person who now examines the title to the palace will not be made aware of the Claimant’s interest.
37.	The Respondent accepts that by 10 February 2009, the “Preliminary Entry on the title to the Properties at the Georgian Land Registry that reflected Belair’s previous interests under the Preliminary Purchase Agreement was removed”.  But it submits that, “The form of this restriction was specified in the Preliminary Purchase Agreement (as amended), which … also specifically anticipated (in clause 6.3) that the Preliminary Entry would be lifted if the transaction did not complete in accordance that agreement’s terms. The removal of this entry was accordingly the contractually specified consequence of Belair’s decision not to complete the transaction”.
38.	The Respondent further submits that the Respondent was entitled to discharge the lien over the property once the Claimant had wrongfully terminated the Preliminary Purchase Agreement, and failed to pay the outstanding purchase price pursuant to it. It makes the point that the Claimant currently has no “interest” in the property owing to its wrongful termination of the Preliminary Purchase Agreement. Rather, the only claim it is asserting is to repayment of sums previously paid in connection with the Agreement.  It says that the lifting of the lien was therefore “a sensible commercial step that any property development company would take and fully within our contractual rights. It was certainly not done to frustrate any arbitration award and such suggestion is wholly unwarranted”.
39.	I can see the force of the point that the Claimant has no basis upon which to protect its interest in the property if its case as regards the construction of the contractual provisions turns out to be incorrect.  That is the question which the arbitration will have to resolve in due course.  But the reality of this case is that the Claimant has already paid nearly one third of the contractual price.  It is unclear what has happened to the money, and although the Respondent says that it has been significantly investing in the property to develop and improve it, and has also been servicing its TBC mortgage and insuring the property, the position as regards what has happened to the funds paid over is not fully addressed in the evidence.  The Respondent is a company with no assets other than the property.  It may be correct, as it has submitted, that the Claimant never acquired any proprietary interest in the property.  But the property is nevertheless the only source from which any award in favour of the Claimant will be satisfied.  In such circumstances, I consider that the removal of the protective restrictions from the register is important in considering the question of dissipation of assets.
40.	Added to that, there is the fact that when approached initially, the Respondent declined to offer an undertaking not to dispose of the property.  It is true that an undertaking to that effect was given pending the return date of the injunction hearing.  But at the outset of the hearing, the Respondent’s position was that no injunction should be granted.  Indeed, that remains its position.  An undertaking has been proffered, but only in the course of the hearing itself, and with the limitation that I have noted in paragraph 20 above.  That makes it clear that no registration of the order in the Georgian Land Registry is acceptable to the Respondent.  I come back to the registration point below, but I consider that there is substance in the Claimant’s submission that such registration is a sure way to hold the position for the time being.  In those circumstances, I do not accept that the absence of dissipation in the period since December 2008 plus the undertaking offered by way of consent order shows (as is submitted) that there is no imminent risk of the Respondent unjustifiably dissipating the property in the period prior to any application to the arbitral tribunal.  On balance my view is that the Claimant has shown the risk of dissipation to a sufficient standard.
Interference with the ordinary course of business
41.	The Respondent correctly points out that the purpose of freezing relief is neither to prevent a defendant carrying on business in the ordinary way, nor to place the Claimant in the position of a secured creditor.  For this reason, it is axiomatic that a defendant must be allowed to continue his normal business.  It is submitted that as the property represents the Respondent’s primary asset and as the business of developing, leasing and selling the property represents its primary business, “any such order (or indeed any order preventing Basel from using the proceeds of any sale or other disposition in the course of its business) would quite simply totally prevent Basel from carrying on its normal business”. So, it is said, on ordinary principles the application ought to be refused for this reason alone. 
42.	In my view, this point lacks force in the present case.  It is said that since acquiring the property the Respondent has sold or leased parts of it, obtained mortgages on it and invested significantly in its development, including the development of a café on the premises.  I do not consider that the proposed order would prevent the carrying on of the business in all these respects, and in any case the Respondent has been prepared to give an undertaking to the same effect as the order sought.  The decision in Perry v Princess International Sales & Services Ltd [2005] EWHC 2042 (Comm) it relies on is in my view distinguishable, because in that case there was evidence that the defendant was a property developer who had a range of properties that he wanted to continue to deal with.  Here, the Respondent has only one substantial asset, namely the former presidential palace.  The right to dispose of it is bound up with this dispute with the Claimant.  
No meaningful cross undertaking
43.	The Respondent submits that the Claimant’s cross undertaking in damages is worthless unless fortified.  This submission is in my view correct, since the Claimant has no asset other than its putative claim against the Respondent. The Respondent suggested that a bank guarantee of $11 million should be provided by the Claimant, this figure being based upon the drop in the market value for the property that the Respondent fears will ensue over the next 12 months.  I accept the Claimant’s submission that fortification of the undertaking in such a sum would be far too high for present purposes.  The reason is that this figure takes no account of the fact that the relief sought in this application is only intended to cover what should be a relatively short period before the arbitral tribunal can determine the issue of interim relief for itself.  The Claimant has offered security in the sum of $250,000.  In my view, this is in the right order of magnitude, though I would accept that it is somewhat low.  I consider that the appropriate figure is $300,000.
Material non-disclosure
44.	The Claimant suggested in argument that the duty of full and frank disclosure was in some way reduced in this case because notice of the application (albeit short notice) was given to the Respondent.  I reject that suggestion.  It is true that the duty to make full and frank disclosure when applying for a freezing order arises in part because the application is normally without notice (on the basis that notice would increase the asserted risk of dissipation of assets).  But as the authorities show, the duty is also of fundamental importance because of the drastic effect that such an order can have on the party against which it is made.  The fact that a few days advance notice may be given does not necessarily make any difference, as illustrated in the present case.  The Respondent (doubtless very concerned about the turn of events) decided to change solicitors.  The new lawyers inevitably took a few days to get to grips with the issues, and I expect that the first hearing was dealt with by way of consent order for that reason. 
45.	So I turn to the detail of the Respondent’s submission as regards non-disclosure, and my views are as follows.  I do not think that the Claimant can be fairly criticised for having failed to deal fully with all the arguments on the construction of the Preliminary Purchase Agreement.  As pointed out above, these are not straightforward, and the impression I formed is that each party is still in the process of finalising its position.  So far as the lack of assets as regards the cross undertaking is concerned, that was (in my view) already manifest from the evidence in support of the application, and the question of non-disclosure in that regard does not arise.
46.	However there is in my opinion more force in the Respondent’s other complaints.  I consider that disclosure as regards the KH lien was incomplete. For reasons explained already, I also consider that it was not acceptable to invoke the EU lease as an example of a failure to remove liens from the title, without disclosing the contemporary email exchanges which appear to demonstrate EastOne consenting to a lease to the EU, and the Claimant acknowledging such consent.  But as I understand it, such non-disclosure is not now said to be a basis for discharge, but to go to the weight to be attached to the Claimant’s evidence.  In any event, the outcome remains within the discretion of the court, and overall I am satisfied that these failures are not sufficient to lead to the withholding of relief in this case.
Balance of convenience
47.	Ordinarily, I would have had no hesitation in holding that the balance of convenience favoured the grant of an interim injunction until the question of interim relief can be determined by the arbitrators.  Unless an order in appropriate form is granted, the risk is that the property, which is the only asset of any substance in this dispute, may be disposed off or otherwise dealt with so as to defeat the arbitration.  The Respondent’s submission that it will suffer large losses if relief is granted at this point in time is not supported by particularised evidence, and lacks commensurate weight.  The Claimant is prepared to offer, and I would require, an undertaking that it will agree to any necessary variation of the injunction in order to permit a sale of the property, provided that suitable arrangements are made to ensure that an appropriate part of the proceeds of sale is secured pending determination by the arbitrators, or further order of the Court.
48.	However there is a further point that arises which is plainly of great importance to the Respondent, and which I must explain.  As I have said, during the hearing the Respondent offered an undertaking not to deal with the property.  Such undertaking was unacceptable to the Claimant, on the basis that an undertaking (as opposed to an order) would not be susceptible of registration against the title to the property in Georgia.  The Respondent’s concern is that its experience with Krtsanisi Hills LCC “amply demonstrates the sort of problems that can arise is Georgia” when entries are made on the register, and strongly opposes any such outcome. 
49.	In support of its submissions, the Respondent points to the standard (and important) undertaking offered to the Court by the Claimant not to seek to enforce the Court’s order in any other jurisdiction without the Court’s permission.  This, it is said, is inconsistent with the Claimant’s avowed intent.  But I accept the Claimant’s answer in this regard, which is that it has always been part of its case on this application that it intends to register any order obtained in Georgia.  The Respondent’s skeleton argument at paragraph 59 says as much.  The Claimant points out that the undertakings in the draft order are qualified by the words, “the Applicant shall have permission to seek any such similar orders, charges, securities or restrictions in respect of the Properties in Georgia”.   In the context of the evidence as a whole, this carve out goes further than just allowing for separate substantive proceedings in Georgia seeking similar relief to that now being sought here.
50.	The Respondent further submits that the Claimant’s evidence does not provide the sort of information that is required by the English Court before it will permit a party to seek to enforce its order abroad.  In particular, it is submitted that the evidence does not address the question of exactly what relief would be sought in Georgia, and whether that relief would in any way extend beyond the scope of the relief anticipated by the English Court.  I agree that the evidence could certainly be fuller in this respect.  On the other hand, as the Claimant points out, Mr Vepkhvadze’s affidavit sworn on 9 March 2009 in support of the application asserts that the “Georgian Court will recognise a Freezing Order issued by the English Court and will, accordingly, provide whatever assistance may be necessary in order to ensure the full effect of such an Order including directing that an appropriate entry be made against the title of the Palace at the Georgian Land Registry”.  This I think does make the position clear.  Further, the Claimant has offered, and must be prepared to give, an undertaking that if the order is discharged in England, whether by the Court or by the Arbitral Tribunal, or otherwise varied so that any registration that has been made is no longer appropriate, the Claimant will take all necessary steps to secure the removal in Georgia of any such registration forthwith. 
Conclusion
51.	In my view, this is a case of urgency in which an Order is necessary for the purpose of preserving assets until the arbitral tribunal is constituted and can determine the question of interim relief for itself.  The reality of the case is that the former presidential palace is the only asset available to meet the Claimant’s claim for the return of the money it has paid in respect of the purchase of the palace, should that claim turn out to be correct.  Unless that asset is preserved over what should only be a short period, I accept the Claimant’s submission as to the risk that the arbitration in which the merits of the claim will be determined may be rendered futile.  In those circumstances, I consider that relief is properly granted by an order made under s. 44(3) Arbitration Act 1996.  In so far as it may be necessary, I consider that the criteria for the grant of a freezing order in limited terms have also been made out.  I will hear the parties as to the precise form of the order, if it cannot be agreed in the light of this judgment.  I accept in principle the Respondent’s objections to an open ended order, and agree that there must be a long-stop date incorporated to make clear the temporary nature of the order and to encourage the parties to proceed expeditiously with the arbitration.  I would hope that this date can be agreed.