Clifford Chance

Is the "natural world" an asset that the Court can preserve under s.44 of the Arbitration Act 1996?

In Environment Agency v High Speed Two (HS2) Limited [2024] EWHC 1560 (TCC), the Environment Agency applied unsuccessfully for an injunction to prevent HS2 carrying out certain works. The court considered whether those works would have an environmental impact for the purposes of assessing urgency and a novel question of whether the "natural world" constitutes an "asset" under s44 of the Arbitration Act 1996.

Background to the dispute

Under Schedule 33 of the High Speed Rail (London – West Midlands) Act 2017 ("the HS2 Act"), High Speed Two (HS2) Limited ("HS2") must submit plans in relation to certain specified work to the Environment Agency ("EA") for approval. If the parties agree, disputes are required to be resolved by arbitration under s64 (and Schedule 33) of the HS2 Act.

As part of railway expansion plans, HS2 proposed to carry out groundworks in two phases: a "dry dig" and a "wet dig". HS2's view was that the dry dig did not constitute specified work under Schedule 33 of the HS2 Act which required EA approval and started work in May 2024. The EA, however, considered that the dry dig and wet dig were interdependent and could not therefore be disaggregated, meaning that the EA's approval was required in order for any of the work to be started.

Following unsuccessful negotiations with HS2, the EA applied to the English High Court for an injunction under s44 of the Arbitration Act 1996 ("the Arbitration Act") to prohibit HS2 from carrying out the work. The application was made on 21 May and the work paused pursuant to undertakings given by HS2 when the High Court ("the Court") considered the matter on 7 June, until the Court's judgment was rendered on 21 June. The EA commenced arbitral proceedings against HS2 on 6 June.

The Decision

Injunctions under the Arbitration Act

S44(3) provides that in cases of "urgency, the court may … make such order as it thinks is necessary for the purpose of preserving … assets", with s44(2) providing that such order may include an interim injunction. In Cetelem v Roust Holdings [2005] 1 WLR 3555, the Court of Appeal warned however that "the whole purpose of the Act is to make provision for consensual resolution of disputes and to provide only a very limited role for the court" and that the court "must take great care not to usurp the arbitration process". In HS2, the High Court noted that it was "extremely unfortunate that that these two bodies, both ultimately funded by the taxpayer, have been unable to resolve the issues".

HS2 and the EA had been negotiating on the relevant works for around a year and the EA had been aware of plans for the dry dig since at least mid-March. The EA applied for the injunction on 21 May, shortly after HS2 actually started the dry dig, and commenced arbitration on 6 June. The Court still accepted that the EA's application was "urgent" in the sense in that it was to stop action which had just started This alone however did not take the application over the jurisdictional hurdle which also requires urgency in the context of an injunction being "necessary" to preserve "assets", particularly in light of Cetelem.

"Assets"

While ultimately the Court did not come to a conclusion on the issue, it suggested that it was "unlikely" that the "asset" in question was "the natural world" or "at-risk water". The Court was "inclined" to accept however that the "asset" could include the EA's interests identified in the Water Environment (Water Framework Directive) (England and Wales) Regulations 2017/407 and protected by the HS2 Act. This was particularly so in light of Clarke LJ's conclusion in Cetelem that "assets" should not be construed narrowly and consequently were not limited to tangible assets or one individual party's assets, but could include contractual rights and choses in action, for example.

"Necessary"

In the Court's assessment, the EA's evidence was that the overall works "can" or "may" cause deterioration to the water bodies below the two groundworks sites, but not that the dry dig alone was "likely" to cause such deterioration, considering the controls put in place by HS2 to mitigate the effect of the works. The Court was therefore not satisfied that there was a case of urgency or that it was necessary to issue the injunction sought so as to preserve assets and as such declined jurisdiction.

Comment

The case serves as an illustration of the speed with which the English Courts will consider and decide urgent applications for interim injunctions but, at the same time, shows that the Court will still require cogent evidence on the issue of necessity before it will order an injunction. Parties seeking injunctions must ensure they can satisfy the Court that the consequences arising from the other party's immediate conduct will likely arise and not just that an overall planned course of action may lead to the loss of evidence or assets.

The judgment also demonstrates the importance of an applicant acting swiftly. The Court did not accept HS2's arguments that the EA had delayed making the application and accepted that the EA was "justified in "sitting tight"" during the several months of negotiations in the hope that it could avoid an escalation of the dispute. But the Court emphasised that the EA had moved very swiftly once negotiations broke down.

The case is also an interesting insight into the dispute resolution systems that are generally used for the UK's largest railway-related infrastructure projects (HS2, HS1/CTRL, Crossrail amongst others). The HS2 Act requires a range of disputes that may arise under it, during both the construction and operational phase, to be referred to ad hoc arbitration. The HS2 Act provides for a single arbitrator to be agreed by the parties or, in the absence of agreement, to be appointed by the President of the Institution of Civil Engineers and, residually, the Office of Rail and Road. The Secretary of State for Levelling Up, Housing and Communities and the Secretary of State for Transport can issue procedural rules (by way of statutory instrument), although has not yet done so.

While not relevant to this dispute, "arbitration" under s43 ("Co-operation") of the HS2 Act also has some interesting features. It provides that where "a matter affects the construction, maintenance or operation" of Phase One of HS2 or another "railway asset or other railway facility", HS2 and the "controller" of the asset or facility may "require" the other to enter into an agreement "about how the matter is to be dealt with". Absent agreement the terms are "determined" by arbitration under s64 and Schedule 30 of the HS2 Act. Amongst other things, s30 enables the Secretary of State to require the arbitrator to achieve a particular outcome, which the statutory guidance says is to "protect against the arbitration … hamper[ing]" HS2. The Secretary of State also has the power to consolidate multiple disputes, which appears to anticipate the need for a number of agreements between HS2 and any other "controller" of railway assets or facilities affected by or affecting the project.