Rirratjingu Parties v Galpu Parties & Anor [2019] NTSC 77

SUPREME COURT OF THE NORTHERN TERRITORY

RIRRATJINGU ABORIGINAL CORPORATION AS REPRESENTATIVE OF THE RIRRATJINGU PARTIES
(Plaintiff)

V

DJALU GURRUWIWI AS REPRESENTATIVE OF THE GALPU PARTIES
(First Defendant)

&

GUMATJ CORPORATION LIMITED AS REPRESENTATIVE OF THE GUMATJ PARTIES
(Second Defendant)

 

FILE NO: 100 of 2019 (21934059)
DELIVERED ON: 25 September 2019
HEARING DATE: 25 September 2019
JUDGMENT OF: Grant CJ
CATCHWORDS: COMMERCIAL ARBITRATION – Composition of arbitral tribunal – Appointment of arbitrators – Consequences of failure of agreement on procedure for appointment of arbitrator
Agreements provided for the appointment of a retired superior court judge to arbitrate claims – No agreement between the parties on a procedure for appointing an arbitrator – Order made appointing an arbitrator.

 

REASONS FOR JUDGMENT

(Delivered ex tempore on 25 September 2019)

[1] This is an application made by the plaintiff by Originating Motion dated 11 September 2019 seeking an order pursuant to s 11(4) of the Commercial Arbitration (National Uniform Legislation) Act 2011 (NT) appointing the Honourable Robert French AC as arbitrator on the terms set out in an arbitration agreement received into evidence during the course of the proceedings.

[2] The factual context and circumstances in which that order is sought may be summarised as follows.

[3] The representatives of the plaintiff and the defendants are parties to an agreement known as the Gove Agreement relating to mining operations on the Gove Peninsula conducted under leases held by Rio Tinto Alcan Inc. The land covered by those leases is “Aboriginal land” within the meaning of the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth).

[4] The representatives of the plaintiff and the defendants were parties to proceedings in the Federal Court of Australia which involved a dispute concerning the apportionment of royalty payments received by the Northern Land Council in respect of the land covered by the leases.

[5] On 11 October 2018, in the context of a court-annexed mediation, the representatives of the plaintiff and the defendants in this proceeding agreed to compromise the Federal Court proceedings on terms recorded in an agreement styled “Terms of Settlement – RTA Leases Land”. Further, the representatives of the plaintiff and the defendants agreed to take steps to resolve another dispute concerning the township of Yirrkala on terms recorded in an agreement styled “Terms of Settlement – Yirrkala”. Both agreements provided for the appointment of a retired superior court judge to arbitrate their respective claims to be traditional owners of the land in Yirrkala. Under the agreements, the arbitration was to be conducted in accordance with the Commercial Arbitration (National Uniform Legislation) Act.

[6] After that time, the parties’ legal representatives agreed to approach Mr French to determine his availability to accept appointment as an arbitrator, and Mr French confirmed that availability. The parties’ legal representatives also exchanged correspondence in relation to the listing of the arbitration for a directions hearing and the terms of the arbitration agreement.

[7] On 29 March 2019, the first defendant’s legal representative advised that he did not have instructions to sign the draft arbitration agreement.

[8] On 1 April 2019, the first defendant’s legal representative attended a teleconference conducted by Mr French and attended by the legal representatives for the other parties. During the course of that teleconference, the first defendant’s legal representative advised that he was attending as an observer only, and was not retained as a legal representative for the first defendant.

[9] On 2 April 2019, the first defendant’s former legal representative sought written support from the plaintiff and the second defendant for the first defendant’s application for funding assistance for legal representation in the arbitration.

[10] In June 2019, the arbitration agreement was signed by the representatives of the plaintiff and the second defendant. Mr French had been consulted in relation to the terms of the arbitration agreement before that was done.

[11] On 29 June 2019, the first defendant’s former legal representative advised the legal representatives for the other parties that they should communicate directly with Djalu Gurruwiwi on behalf of the Galpu parties.

[12] On 1 July 2019, a solicitor acting for the plaintiff attended personally on Mr Gurruwiwi and provided him with a copy of the arbitration agreement which had been signed by the other parties. No substantive discussion concerning the content of the agreement took place at that time. To this date, neither Mr Gurruwiwi nor any other person acting on behalf of the Galpu parties has provided an executed copy of the arbitration agreement.

[13] On 9 September 2019, the first defendant’s former legal representative advised the solicitor acting for the plaintiff that he was not acting for the Galpu parties because they did not have funding, that the Northern Land Council had made a recommendation to the Commonwealth for funding for the Galpu parties, and that he would advise if funding was provided. The solicitor acting for the plaintiff advised the first defendant’s former legal representative that the plaintiff would be making an application to this Court for orders confirming the arbitration agreement and appointing Mr French as the arbitrator.

[14] On 11 September 2019, Mr Gurruwiwi was served with a copy of the Originating Motion, the Summons on Originating Motion and the affidavit material which had been filed. Neither Mr Gurruwiwi nor any other person acting on behalf of the Galpu parties has filed an appearance in these proceedings.

[15] There is a preliminary issue concerning the status of the parties named to this proceeding. As presently named, the parties do not have legal personality. It is no doubt for this reason that the parties to the agreements reached in the course of the mediation were the Rirratjingu Aboriginal Corporation as representative of the local descent group of that name, Mr Gurruwiwi as representative of the local descent group of Aborigines known as the Galpu, and the Gumatj Corporation Limited as representative of the local descent group of that name.

[16] While it is understandable that not all members of the three descent groups have been named as parties to the proceedings, the primary practical difficulty with the conduct of proceedings by parties with no legal personality relates to the enforcement of orders made. In recognition of that potential difficulty, the solicitors acting for the presently named plaintiff and second defendant consent to the substitution of those respective corporations as plaintiff and second defendant. While Mr Gurruwiwi has not appeared in this proceeding, he has been served with the originating process and affidavit material and his joinder is necessary as representative of the Galpu parties. Accordingly, I will be making orders in those terms to regularise the proceedings.

[17] I turn then to consider the principal relief sought. Section 11(3) of the Commercial Arbitration (National Uniform Legislation) Act provides relevantly that failing an agreement between the parties on a procedure for appointing an arbitrator, an arbitrator is to be appointed by the Court.

[18] Section 11(4) of the Act relevantly provides that where under an appointment procedure agreed on by the parties a party fails to act as required under the procedure, or the parties are unable to reach an agreement expected of them under the procedure, any party may request the Court to take the necessary measure unless the agreement on the appointment procedure provides other means for securing the appointment.

[19] I note in that respect that the agreements to compromise provide that if the parties to the arbitration are unable to agree on the appointment of an arbitrator the parties shall ask the President of the Law Council of Australia to nominate an arbitrator. Two observations may be made concerning that provision – one practical and one technical.

[20] The practical consideration is that the President of the Law Council of Australia is briefed to appear on behalf of the second defendant both in this proceeding and in the proposed arbitration. While that difficulty is not insurmountable, in that it might be implied that the President may deputise another member of the Council to nominate an arbitrator, the technical consideration makes that unnecessary.

[21] That is, while the agreement permits the parties to ask the President of the Law Council to nominate an arbitrator in the absence of agreement, it does not in its terms provide any means for making the appointment. For that reason, the exception under s 11(4) has no application in the circumstances. Moreover, as the parties have not agreed on a procedure for appointing the arbitrator, the relief sought by the appointment of an arbitrator is properly considered to be a matter arising under s 11(3)(b) of the Act.

[22] In this case I am satisfied that the agreements reached by the parties during the course of the mediation are “arbitration agreements” within the meaning of s 7 of the Commercial Arbitration (National Uniform Legislation) Act. The agreements expressly provide so. By those agreements, the parties have agreed to submit to arbitration on certain disputes which have arisen between them in respect of a defined legal relationship. The content of those agreements are recorded in writing. I am further satisfied that the parties have failed to agree on the appointment of an arbitrator. That failure is not due to a lack of concurrence concerning the arbitrator proposed, but due to the fact that the procedure has been stultified by the withdrawal of the first defendant’s legal representative due to an absence of funding. That situation should not be permitted to delay the appointment of an arbitrator in accordance with the agreements reached at the court-annexed mediation. Thereafter, the question of how to proceed will be a matter for the arbitrator.

[23] Accordingly, I make the following orders:

  1. Pursuant to rule 9.06 of the Supreme Court Rules 1987 (NT) the “Rirratjingu Aboriginal Corporation as representative of the Rirratjingu Parties” is substituted as plaintiff.
  2. Pursuant to rule 9.06 of the Supreme Court Rules 1987 (NT) “Djalu Gurruwiwi as representative of the Galpu Parties” is substituted as first defendant.
  3. Pursuant to rule 9.06 of the Supreme Court Rules 1987 (NT) the “Gumatj Corporation Limited as representative of the Gumatj Parties” is substituted as second defendant.
  4. Pursuant to s 11(3) of the Commercial Arbitration (National Uniform Legislation) Act 2011 (NT), the Honourable Robert French AC is appointed as arbitrator for the purpose and on the terms set out in the arbitration agreement annexed to the affidavit of Sarah Grace Pringle sworn on 11 September 2019 and marked “SGP-C1”.
  5. I make no order as to costs.

Obrascon Huarte Lain SA (t/a OHL Internacional) & Anor v Qatar Foundation for Education, Science & Community Development [2019] EWHC 2539 (Comm)

Neutral Citation Number: [2019] EWHC 2539 (Comm)
Case No: CL-2018-000806

IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF AN ARBITRATION
AND IN THE MATTER OF A CHALLENGE UNDER S. 68 OF THE ARBITRATION ACT 1996

Royal Courts of Justice
Strand, London, WC2A 2LL
02/10/2019

B e f o r e :

THE HONOURABLE MRS JUSTICE CARR
____________________

Between:

OBRASCON HUARTE LAIN SA (trading as OHL INTERNACIONAL)
CONTRACK (CYPRUS) LIMITED

Claimants

– and –
 

QATAR FOUNDATION FOR EDUCATION, SCIENCE AND COMMUNITY DEVELOPMENT

Defendant

____________________

Mr Joe Smouha QC, Mr Roger ter Haar QC and Mr Siddharth Dhar (instructed by Shearman & Sterling LLP) for the Claimants
Mr Simon Lofthouse QC and Mr Zulfikar Khayum (instructed by Quinn Emanuel Urquhart & Sullivan LLP) for the Defendant
Hearing dates: 16 and 17 July 2019

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

Mrs Justice Carr :

Introduction

    1. This is a challenge by the Claimants (“the JV”) under s. 68(2)(a) of the Arbitration Act 1996 (“the Act”) in respect of a Fourth Partial ICC Award dated 21 November 2018 (“the Award”) issued by a tribunal consisting of the Right Honourable Sir Stanley Burnton (as President), Mr Richard Wilmot-Smith QC and Mr Richard Fernyhough QC (as party appointees) (“the Tribunal”).
    2. The challenge relates to the Tribunal’s finding that the Defendant (“QF”) had validly terminated (by notice) a contract for the design and construction of a substantial hospital complex in Doha, Qatar (“the Contract”). The JV has very recently abandoned other challenges to the Award (under s. 68(2)(d) and (f)) of the Act), but a separate challenge to an Addendum to the Award dated 5 March 2019 remains outstanding and is to be heard at a separate hearing on a later date.
    3. Following some refinement of its position, the JV seeks remission of the issue of whether QF had validly terminated the Contract in circumstances where termination was effected by service of a notice and not court (or arbitral) order (“the Termination Issue”) on the basis of serious irregularity. It is said that the Tribunal decided the Termination Issue (in QF’s favour) on the basis of a legal analysis which was not explored fairly or properly with the parties.

Background

    1. The JV entered into the Contract with QF in 2009 for the construction of a state-of-the-art hospital complex in Doha. The original Contract Price was approximately £1.9billion. The Contract was governed exclusively by Qatari law and provided for disputes to be resolved via arbitration under the Rules of Arbitration of the International Chamber of Commerce (“ICC”).
    2. Clause 19 of the Contract (“Clause 19”) provided materially as follows:

“ARTICLE 19 – TERMINATION

19.1 QF shall have the right, by giving notice to CONTRACTOR, to terminate the CONTRACT or all or any part of the WORK at such time or times as QF may consider necessary for any or all of the following reasons:

19.1.1 to suit the convenience of QF;

19.1.2 subject only to Article 19.2, in the event of any default on the part of CONTRACTOR; or …

19.2 In the event of default on the part of CONTRACTOR:

19.2.1 under provisions of Article 33 (Conflict of Interest and Business Ethics), QF shall have the right to issue a notice of termination in accordance with the provisions of Article 19.1, without the need for issuance of a notice of default.

19.2.2 under the CONTRACT other than the provision of Article 33 (Conflict of Interest and Business Ethics), before the issue by QF of a notice of termination QF shall give notice of default to CONTRACTOR giving the details of such default. If CONTRACTOR upon receipt of such notice does not diligently commence and thereafter continuously proceed with action satisfactory to QF to remedy such default, QF may issue a notice of termination in accordance with the provisions of Article 19.1.”

    1. In July 2014, following service of Notice of Default in May 2014, QF (through ASTAD, its project manager,) served Notice of Termination of the Contract under Clause 19.2.2 on the basis of default by the JV under Clause 19.1.2. QF went on to call on a performance and advance guarantee, together worth some £190million, both of which have since been drawn down.

The Qatari Civil Code (“the QCC”)

    1. Using the translation adopted by the Tribunal, relevant provisions in the QCC include the following:

“Article 171(1): The contract is the law of the parties. It is not permissible to breach or amend the contract unless there is agreement between the parties or a good reason determined by law….

Article 172(1): A contract shall be enforced in accordance with its provisions and in such manner consistent with the requirements of good faith.

Article 172 (2): A contractual (sic) not be limited only to binding a party to its provisions but shall also cover whatever is required by law, customary practice and justice in accordance with the nature of the obligations.

Article 183(1): In contracts binding on both parties and imposing reciprocal obligations (synallagmatic contracts), where one of the parties fails to perform his obligation, the other party may, upon formal notice to the former, demand performance of the contract or its rescission, and may claim damage caused by such failure to perform.

Article 183(2): The judge may, mutatis mutandis, determine a period of grace within which the obligator shall perform his obligation. The judge may also reject the application for rescission if the obligation not performed was insignificant compared with the obligations considered in their entirety.

Article 184(1): It is permissible to agree that the contract be considered terminated, automatically, without need for a court judgment when failing to perform the obligations arising from it.

Article 184(2): Such condition and the agreement would not be applicable to limit the authority of the Judge for the termination, unless the expression of the contract is clear to indicate that this is the intention of the parties to that.”

    1. Article 184(3) does not appear in terms in the Award itself (though it was referred to by QF’s Qatari law expert, Mr Abu Shaikha, and Mr Lofthouse QC for QF in submission) but provides:

“(3): Other than in commercial matters, the clause considering the contract to be automatically terminated does not exempt from serving notice. Any contrary agreement by the parties shall not be considered.”

    1. References below to Articles 171, 183 and 184 are references to those Articles in the QCC. Both parties have referred to Article 184(1) as “the Automatic Termination Condition” (even though they differ as to what it means or requires) and Article 184(2) as “the Contracting Out Condition”.
    2. It was common ground at all material times that under Qatari law the Contract could only be terminated by QF for breach by application to a court (or tribunal) unless Clause 19 met the requirements of Article 184.

The arbitral proceedings and the Award

The arbitral proceedings in overview

    1. QF commenced arbitral proceedings against the JV in July 2014 claiming damages estimated at over £1billion on the basis that it had validly terminated the Contract when Notice of Termination was served. In response, amongst other things, the JV disputed the validity of QF’s termination of the Contract. Albeit late in the day, the JV contended that Clause 19 did not satisfy either the Automatic Termination Condition or the Contracting Out Condition in Article 184. This was an argument not aired by the JV until November 2016 (and then only as a footnote), more than two years after the JV’s Answer and Counterclaim to the Notice of Arbitration. At no stage prior to this (on the many occasions when addressing the lawfulness of QF’s termination of the Contract) had the JV taken this objection, including in 2014 at the time of Notice of Default and then Notice of Termination. Indeed, and as the Tribunal pointed out in paragraph 113 of the Award, the suggestion that there could not be valid termination of the Contract under Clause 19 without recourse to court (or tribunal) was directly at odds with the position taken by the JV in correspondence in June 2014 with one of its major subcontractors, Kentz-Voltas Consortium, by reference to a materially identical contractual clause. There the JV had positively asserted that Article 183 and 184 of the QCC did not require the contractor to apply to the court before exercising its rights under (the equivalent of) Clause 19.
    2. The relevant procedural chronology can be summarised as follows. Notice of Arbitration was served in July 2014. The JV filed an Answer and Counterclaim in October 2014, to which QF responded with a Reply in November 2014.
    3. Terms of Reference signed on 12 November 2014 provided that the issues to be determined by the Tribunal should be “those resulting from the parties’ submissions” and that “…those issues included …[w]as the termination of the Contract by [QF] lawful and valid?”
    4. In May 2015 the JV submitted a Defence and Counterclaim, including its then case on the (un)lawfulness of QF’s termination of the Contract. In the light of that Defence, a preliminary issue hearing was held in October 2015 to determine whether or not the parties had reached a binding agreement to settle some of their claims prior to termination. The Tribunal issued its First Partial Award in December 2015, concluding that they had not.
    5. In May 2016 QF requested a preliminary issue hearing on the question of the validity of its termination, an application which the JV successfully resisted. In July and November 2016 the JV issued supplemental and amended supplemental pleadings on delay. Footnote 6 of the Amended Supplemental Pleading on Delay stated:

“This is without prejudice to the various other legal arguments that the [JV] rel[ies] on that are relevant to the legitimacy of the QF’s purported termination, such as the requirement under Qatari law that termination be sanctioned in advance by a court of arbitral Tribunal in order to be lawful (Article 184 of the [QCC]).”

    1. Further, in December 2016 the JV filed a submission entitled the JV’s “Consolidated Pleading on Delay”. Footnote 306 in that document, referring to wrongful termination on the basis of delay the responsibility of QF, again stated:

“This is without prejudice to the various other legal arguments that the [JV] reli[es] on that are relevant to the legitimacy of the QF’s purported termination, such as the requirement under Qatari law that termination be sanctioned in advance by a court or arbitral Tribunal in order to be lawful (Article 184 of the [QCC]).”

    1. In February 2017 QF served its Reply and Defence to Counterclaim. It responded to Footnote 306 at paragraph 143 by highlighting that the alleged requirement for sanction by a court or arbitral tribunal was not something said to invalidate termination in the JV’s Defence and Counterclaim. It went on to state:

“143.2 Article 19 of the Contract provides that “QF shall have the right by giving notice to the Contractor, to terminate the Contract or all or any part of the WORK at such times as QF may consider necessary for any or all of the following reasons”. Article 171(1) provides that the Contract is the law of the parties, and as such, the mechanism for termination is as agreed under Article 19 of the Contract.

143.3 Article 184(1) permits the parties to agree a mechanism for termination without recourse to the Courts. In any event, Article 184 does not require a Court order to validate a party’s termination of a contract, however Article 184 does reserve powers for the Qatari courts to order termination of a contract, whether or not the parties have provided for termination under the contract….”

    1. The JV submitted its Reply to QF’s Defence to Counterclaim in May 2017.
    2. Following various procedural orders, the Tribunal issued two further Partial Awards (in May 2017 and February 2018) relating, amongst other things, to defects and potential variation claims.
    3. In April 2017 the parties exchanged lists of issues to be considered by the experts, including Qatari law experts. The JV recorded that the latter would consider the extent to which QF’s entitlement to issue a notice under Clause 19.2.2 was affected by any “statutory principles under Qatari law relevant to the issuance of a notice such as that provided for in Article 19.2.2”.
    4. In May 2017 the JV filed a submission of “Further Particulars of [JV’s] case as to Unlawfulness of Termination”. It asserted:

“19. QF was not entitled to unilaterally terminate the Contract without a prior order from the court or tribunal. It is clear that Article 19.1 of the Contract does not provide for automatic termination (as regulated under Article 184 of the [QCC].

20. Article 184 only allows for automatic termination, without recourse to the court/tribunal, if there is express wording in the termination clause clearly stating that the parties need not have recourse to a tribunal. There is no such wording in Article 19.1. Article 19.1 simply provides for a right to termination (ie not automatic termination) with notice, which necessitated QF requesting termination from the court or Tribunal..

144. Qatari law required that QF request and obtain a judgment ordering termination from the court of Tribunal in order to terminate its Contract with the JV. Having failed to do so, QF’s termination remains invalid and unenforceable.”

    1. In May 2017 the Qatari law experts signed a joint statement setting out areas of agreement and disagreement (in advance of their reports, in the usual way). Professor Dr Wahab for the JV opined that the Contract did not appear to provide for automatic termination without recourse to a court or arbitral tribunal. Unilateral termination without a court order or arbitral tribunal decision would not be consistent with Qatari law.
    2. In July 2017 the Tribunal directed that the question of whether or not QF had been entitled to terminate the Contract would be determined at an evidentiary hearing in April and May 2018.
    3. In November 2017 the JV filed a further submission setting out its “Consolidated Case as to Unlawfulness of Termination”. It repeated that, absent a court or tribunal order, QF’s termination of the Contract was unlawful.
    4. In December 2018 Professor Dr Wahab (for the JV) served his third expert report and Mr Abu Shaikha (for QF) served his fourth. In February 2018 Mr Abu Shaikha served a fifth report.
    5. Written openings for the April/May 2018 hearing were served on 26 March 2018. QF set out its case on the Termination Issue at paragraphs 396 to 399 of its skeleton, supplemented by oral submissions by Mr Lofthouse for QF on day one.
    6. The hearing then took place between 9 April and 11 May 2018. All issues of Qatari law were treated as questions of fact based on the expert evidence. Professor Dr Wahab gave evidence on day 15, Mr Abu Shaikha on day 24.
    7. The JV and QF lodged written closing submissions on 4 and 5 June 2018 respectively. QF addressed the Termination Issue in its written closing submissions at paragraphs 609 to 611 (and orally). The JV’s written closing included submissions that Clause 19 was not an “express termination clause” amongst other things because it did not provide for automatic termination of the Contract upon the occurrence of a breach. It submitted that there would be automatic termination upon some obligation or obligations not being performed:

“The significance of this point is illustrated by Qatari Court of Cassation decision 219 of 2011. This is an important case for present purposes as it was one of two Qatari cases referred to by Mr Abu Shaikha on this topic…”

    1. Oral closings were delivered between 12 and 14 June 2018 (and, not unusually, under pressure of time).
    2. The Award, running to 285 pages (plus an appendix), was then published on 21 November 2018. The JV issued 21 applications for clarification of the Award (pursuant to Article 35 of the ICC Rules) some 3 days after the commencement of these proceedings, though none are relevant for present purposes.
    3. By the time of the Award, the Tribunal had sat for some 89 days of hearing in total (including case management conferences).

The Award

    1. In broad terms, the Tribunal found that the JV was entitled to certain (but not all claimed) extensions of time; that the JV had acted in default in many respects and on occasion in bad faith; (centrally for present purposes) that QF had lawfully exercised the termination provisions for default under the Contract; that QF had been entitled to make its calls on performance and advance payment guarantees. For the purpose of making its findings, the Tribunal expressly preferred the evidence of Mr Abu Shaikha over that of Professor Dr Wahab.
    2. In section 5 of the Award the Tribunal identified the principal issues between the parties, the first of which was whether QF was entitled to terminate the Contract for fault.
    3. Section 11 of the Award contains the Tribunal’s findings that are directly relevant for present purposes. The Tribunal considered the law of Qatar, and specifically the question of whether QF’s termination of the Contract was lawful by reason of its failure to obtain a court order as required by Article 184 of the QCC. Having recorded the experts’ agreement that the QCC is largely derived from the Civil Code of Egypt and the importance of the writing of Abd el-Razzak el-Sanhuri (“Sanhuri”), an Egyptian jurist and academic, the Tribunal went on to make the following findings:

“82. As was the case in relation to the First Partial Award, there was no conflict between Mr Abu Shaikha and Professor Dr Wahab as to the relevant provisions of the law of Qatar. Their differences were in the application of those provisions. Where they differed, we preferred the opinions of Mr Abu Shaikha. As we stated in the First Partial Award, he is highly qualified and was a member of the committee that drafted Law 22 of 2004 regarding promulgating the Civil Code (“the QCC”). His opinions were consistent with the sensible and practical application of the terms of the Contract. On the other hand, we found it impossible to reconcile some of Professor Dr Wahab’s opinions with the clear terms of the Contract, as appears below.”

    1. The Tribunal then considered the nature of the Qatari civil law jurisdiction, noting that there is no doctrine of binding precedent under Qatari law, before turning to the principal legal issues relating to the termination of the Contract. The first of those issues was whether, assuming the contractual requirements for termination by QF were satisfied, QF could lawfully terminate the Contract without obtaining an order of the arbitral tribunal terminating the Contract or authorising its termination. The Tribunal rehearsed the relevant provisions of the QCC (including Articles 172, 183 and 184(1) and (2)) and recorded that there was very little difference between the experts in relation to the interpretation of the Contract. But where there was, the Tribunal generally preferred the evidence of Mr Abu Shaikha.
    2. The Tribunal then moved to address the first legal issue on termination under the heading “Was QF’s termination of the Contract unlawful by reason of its failure to obtain a Court order as required by Article 184 of the QCC?”. Having recited Clause 19, the Tribunal went on (at paragraphs 96 to 106) to prefer Mr Abu Shaikha’s evidence as to the translation of Article 184(2) and the application of Articles 184 and 171(1). The experts were agreed that Article 184 was not mandatory and could be excluded by an appropriate contractual provision. They differed as to what was required. Professor Dr Wahab translated Article 184 as requiring an express provision to exclude the compulsory jurisdiction of the court. The Tribunal accepted Mr Abu Shaikha’s evidence that it was sufficient if the contractual provision was sufficiently clear so as to be inconsistent with the requirement of an application to and order of the court; and that Clause 19 of the Contract was sufficiently clear (as set out in paragraph 3.10 of his Fourth Report). In addition to its general preference for the evidence of Mr Abu Shaikha, the Tribunal relied on the following matters:

i) It was difficult to reconcile Professor Dr Wahab’s conclusion with his statement that it was not necessary for the parties to use specific wording in the termination clause;ii) Most importantly, the provisions of Clause 19 were “unequivocally and unambiguously” inconsistent with a requirement to obtain a court or arbitral order;

iii) The JV’s contention would be quite impractical; for example, a tribunal would not be able to determine if QF was entitled to terminate without an exhaustive investigation of the facts. Faced with such practical difficulties, Professor Dr Wahab’s position changed significantly to a position which effectively reflected the position under the Contract as the Tribunal construed it.

    1. The Tribunal also identified Professor Dr Wahab’s view that the application which he said was mandatory had to be made to the arbitral tribunal (by reference to the arbitration agreement in Article 29 of the Contract). Yet Article 184 refers to a court application. The Tribunal commented that he thus accepted a significant departure from the application of Article 184 based on the provisions of the Contract which did not in terms exclude recourse to the courts. The JV suggests that here the Tribunal either forgot or overlooked the experts’ agreement that there was no inconsistency between the reference in Article 184 to a court, which would read as a reference to a tribunal, and Article 29. That is not accepted by QF: the Tribunal was correctly noting that what the experts had agreed was different to what Professor Dr Wahab had said was a mandatory term in Article 184, consistent with the Chairman’s remarks in the course of the JV’s oral opening submissions.
    2. Having disposed of this argument for the JV, the Tribunal went on to deal with the further matters relied upon by the JV to support its case of unlawful termination by reason of a failure on the part of the QF to obtain a court (or arbitral) order. Given the nature of the issues raised on this challenge, it is necessary to set out in terms the relevant passages in the Award (from [107] to [114]):

“107. The JV relied on the judgment of the Qatari Court of Cassation in Challenge number 219 for the year 2011. In that case the termination clause of the contract provided that “If the second party breaches any of the terms of this contract, the first party (the petitioner) may terminate the contract after warning the second party without the need for judicial order and the two contracting parties shall return to their status before the contract was concluded”. The petitioner had claimed the termination of the contract in its application to the court. The judgment is translated as stating that the termination clause of the contract:

“…does not lead to the necessary and automatic termination of the contract inevitably upon the failure of the first respondent to perform its obligations, as its wording specifically granted the petitioner the right to terminate the contract, which is the same right that it has under the law in bilateral contracts, which means that is merely a restatement of the implicit termination clause. The confirmation of the petitioner’s right to terminate does not exempt it from resorting to the courts to request a termination under order constitutive thereof, which is possible in the cases of both termination by agreement or by judgement.”

108. We wonder whether the word “exempt” is a mistranslation of the original Arabic, and should read “exclude”, since in fact the petitioner had applied to the Court for termination, and the argument for the respondent seems to have been that termination by the court was itself excluded. This would be consistent with the principle stated by the Court:

“It is established that even though the Civil Code in its Article 184 granting the contracting parties the freedom to agree that termination is to take place by virtue of the agreement upon the occurrence of the breach without the need to resort to the courts to obtain a termination order. For the intention of the contracting parties to result in termination taking place by virtue of the agreement, the wording of the clause must clearly and categorically indicate that termination necessarily and automatically takes place upon the occurrence of the breach requiring it.”

109. We note that the Court may well have been referring to a provision to the effect that on a breach the contract automatically terminates, without any decision required of the innocent party. Be that as it may, in the present case the operation of Article 19 of the GCC does “clearly and categorically” and unequivocally provide that the termination is effected by service by QF of a termination notice, provided the contractual requirements have been satisfied. The requirement of Article 184 is satisfied.

110. Some of the other judgments to which we were taken, as well as the extract from Sanhuri’s commentary, referred to contract provisions providing for automatic termination on breach, i.e., without any decision or action by the innocent party. We do not think that these authorities are helpful or applicable to provisions such as those in Article 19, which do not provide for automatic termination, but require service of notices by QF (and implicitly a decision by QF) if the contract is to be lawfully terminated for breach. Some of these authorities refer to the termination provision in question as being “merely a restatement of the implicit termination clause provided by law”: see e.g. Dubai Court of Cassation Challenge No. 92 of 2008. Article 19 of the GCC cannot be so described.

111. The JV also rely on the judgment of the Court of Cassation number 110 of 2007. That case concerned a lease contract in which the termination clause was: “In the event the Lessee defaults in payment of the rent for three consecutive months, the Lessor shall be entitled to terminate the Contract without any need for serving a notice or obtaining a court ruling.” The Court held that this provision was effective. It does not however follow that a clause that does not specifically exclude a court ruling would be ineffective. The Court simply referred to the wording of the termination clause in this case as “straightforward”, as indeed it clearly was.

112. The JV also contended that the need to apply to the Court (or Arbitral Tribunal) could be excluded if the contract provided for automatic termination on breach, but not if the innocent party was given an option whether or not to terminate it. That suggestion implies an irrational distinction in the law of Qatar, and is inconsistent with the opinion of Professor Dr Wahab. We reject the JV’s contention.

113. Lastly, we point out that the JV’s contention that an order of the Tribunal is required for the Contract to be lawfully terminated is a recent suggestion. The same contention was raised by KVC, a subcontractor of the JV, in the course of the Work. Article 19 of the subcontract between the JV and KVC was, mutatis mutandis, identical to Article 19 of the GCC of the Contract. In its letter to KVC dated 1 June 2014 [H/15.631] Mr Martinez, on behalf of the JV, stated:

“The Contractor would also advise the Subcontractor that its contentions of unlawful termination are also unsupported. Articles 183 and 184 of the Qatar Civil Code do not require the Contractor to apply to the court before exercising its rights under Article 19 of the Subcontract.

Article 184 permits the operation of termination clauses, and stipulates that a contract may be considered terminated for breach without the need for a court order if the wording of the contract clearly evidences the parties’ intentions. By reference to the wording of Article 19 of the Subcontract… It is clear that the Parties have expressly agreed that the Contractor has the right to terminate on the grounds of breach, and it is also noted that this right extends to any breach.”

114. It is also noteworthy that the JV’s contention did not appear in their original Answer and Counterclaim drafted by leading and junior counsel, although the JV were aware of the argument, having rejected it earlier in the year when it was put forward by KVC.”

    1. The Tribunal then considered the further legal issues arising on the question of lawful termination, including as to the meaning of “default” in Article 19 and whether or not any conduct on the part of QF precluded lawful termination of the Contract. As already indicated, the Tribunal’s overall conclusion was that QF had lawfully terminated the Contract for default under Clause 19.2.

Future progress in the Arbitration

    1. As matters currently stand, the future arbitral programme envisages a hearing in mid-October 2019 to address Qatari law issues in connection with QF’s claim for liquidated damages, a two week hearing commencing in February 2020 to deal with the merits and quantum of that claim, alongside the JV’s prolongation costs claim, and a three week hearing commencing in October 2020 to deal with the merits of QF’s cost to complete claim.

The Law

    1. S. 68 of the Act provides materially as follows:

“(1) A party to arbitral proceedings may… apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award….

(2) Serious irregularity means an irregularity of one of the following kinds which the court considers has caused or will cause substantial injustice to the applicant-

(a) failure by the tribunal to comply with section 33 (general duty of tribunal);

….

(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may-

(a) remit the award to the tribunal, in whole or in part, for reconsideration,

(b) set the award aside in whole or in part, or

(c) declare the award to be of no effect, in whole or in part.”

The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.”

    1. S.33 sets out the general duty of the tribunal:

“(1) The tribunal shall:

(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters failing to be determined.

(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.”

    1. Thus, in order to make out a case for the court’s intervention under s. 68(2)(a) the applying party must show a breach of s. 33 of the Act which has given or will give rise to substantial injustice.
    2. S. 68 imposes a high threshold for a successful challenge, reflecting the purpose of the Act which is to reduce the extent of court intervention in the arbitral process. It is not to be used simply because one of the parties is dissatisfied with the result, but rather as a longstop in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice “calls out for it to be corrected” (see Lawrence Collins LJ in Bandwidth Shipping Corporation v. Intaari [2007] EWCA Civ 998 (The Magdalena Oldendorrf) at [46]). As a matter of general approach, the courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults. The approach is to read an award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault (see Zermalt Holdings SA v Nu Life Upholstery Repairs Ltd [1985] 2 EGLR 14 at p. 14F; Latvian Shipping Company v The People’s Insurance Company OEJSC [2012] EWHC 1412 (Comm) at [30] to [34]).
    3. Determining whether or not the duty of fairness has been breached will always be a question of fact and sometimes degree. However, the relevant broad legal principles are uncontroversial and can be summarised for present purposes as follows:

i) There will generally be a breach of s. 33 of the Act where a tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. It is not right that a decision should be based on specific matters which the parties have never had the chance to deal with, nor is it right that a party should first learn of adverse points in the decision against him;ii) If a tribunal considers that the parties have missed the point and/or contemplates a completely different basis for a decision, the parties need to be given notice and a proper opportunity to consider the position and respond. This does not mean that every nuance or inference which the tribunal wishes to draw needs to be put to the parties if it differs from that which has been precisely contended for in the arbitration;

iii) A tribunal does not have to set out each step by which they reach their conclusion or deal with each point made by a party to an arbitration and a tribunal can deal with a number of issues in a composite disposal rather than address each issue seriatim;

iv) (Save possibly in exceptional cases) s. 68(2)(a) in referring to the general duty of fairness in s. 33 does not allow a party to contend that the tribunal has disregarded or overlooked a particular piece of evidence since that amounts to an assertion that the arbitrators made mistakes in their findings of primary fact or drew unsustainable inferences from the primary facts;

v) In determining whether there has been substantial injustice, the applicant does not need to show that the result would necessarily or even probably have been different. He simply has to show that the tribunal might well have reached a different view and produced a significantly different outcome. It is enough for the applicant to show that the arbitrator reached a conclusion unfavourable to him which, but for the irregularity, he might well never have reached, provided always that the opposite conclusion is reasonably arguable.

(See Terna Bahrain Holding Co v Al Shamsi [2013] 1 Lloyd’s Rep 86 at [85]; Zermalt Holdings SA v Nu Life Upholstery Repairs Ltd (supra) at p. 15M; RJ v HB [2018] EWHC 2833 (Comm) at [27]; Vee Networks v Econet [2005] 1 Lloyd’s Rep 192 at [90]; Northern Shipping v Remol [2007] EWHC 1821 at [25]-[26]; K v A [2019] EWHC 1118 (Comm) at [37]; ZCCM Investments Holdings Plc v Kansanshi Holdings plc [2019] EWHC 185 (Comm) at [49] to [63]; Petrochemical Industries Company (K.S.C.) v The Dow Chemical Company [2012] EWHC 2739 (Comm) at [27]); Sonatrach v Staoil [2014] EWHC 875 at [13] to [18].)

    1. For the sake of completeness on the question of fairness, I record the JV’s submission that the comments relied on for proposition (iii) above are to be found in a part of the judgment in Petrochemical Industries Company (KSC) v The Dow Chemical Company (supra) dealing not with s. 68(2)(a) but rather s. 68(2)(d) of the Act, and so not applicable. However, I can see no good reason as a matter of logic or principle why the proposition should not be sound in both contexts.

The JV’s challenge

The JV’s pleaded case

    1. In the summary of its claim the JV pleaded as follows:

“4(5) The Tribunal did not decide the question of whether clause 19 was an automatic termination provision satisfying the Automatic Termination Condition; but appears to have decided that there is no such requirement under Qatari law. In that conclusion the Tribunal acted in breach of its duty under s. 33 of the ..Act; and deprived the [JV] of a reasonable opportunity of putting its case on the Automatic Termination Condition. In particular:

(a) In its Award, the Tribunal asked itself the question: “Was QF’s termination of the Contract unlawful by reason of its failure to obtain a Court order as required by Article 184 of the QCC?” The Tribunal answered that question by addressing the Contracting Out Condition as if it were the only requirement, but then appears to address the Automatic Termination Condition in a later single paragraph of the Award, which appears to reject the [JV’s] case by rejecting the existence of the Automatic Termination Condition…”

    1. By way of remedy the JV sought the setting aside and/or variation of those parts of the Award by which the Tribunal declared and/or found that QF had lawfully terminated the Contract for default and had been entitled to make its calls on performance and advance payment guarantees.
    2. Later, in relation to paragraph 112 of the Award, the JV pleaded:

“23(1) The Tribunal appears to reject the existence of the Automatic Termination Condition, despite having set out the… wording of Article 184(1); or, at least, appears to reject the [JV’s] case as to what satisfied the Automatic Termination Condition. (However, if that is wrong, and this paragraph was intended to address a different point, it follows that the Tribunal has failed to deal with the Automatic Termination Condition question at all.)”

The JV’s case as crystallised at hearing

    1. The JV now seeks only remission, a request made “strictly without prejudice” to the separate question of whether the issue ought to be remitted to the Tribunal as presently constituted or to a different tribunal. That question is not before me, but for the JV to progress (if so advised) before the ICC (see s. 24(2) of the Act). However, QF makes the point that it appears from materials previously lodged by the JV that, if remission is secured, the JV has every intention of seeking the recusal of the Tribunal if successful in this challenge.
    2. The JV’s case is that the Tribunal rejected the existence of the Automatic Termination Condition without having put that suggestion (which was not advanced by QF) to the parties and:

i) Without discussion of Article 184(1);ii) By approaching a key passage in the principal Qatari law authority relied upon by the JV in support of its case on the Automatic Termination Condition on the basis that it had been mistranslated without having given the JV the opportunity to address such a suggestion;

iii) By asserting that the consequences of the existence of the Automatic Termination Condition would be to introduce an irrational distinction under Qatari law which was not supported by the JV’s own expert. It reached this conclusion without the points having been raised with the JV’s expert.

    1. The net result is said to be that the JV has been unjustly deprived of a proper opportunity to put its case on the validity of QF’s termination of this high value contract, in breach of the Tribunal’s general duty under s. 33 of the Act. In circumstances where the consequences of the finding of termination are so drastic, the JV is entitled to have these key issues swiftly remitted so that they can be addressed fairly.
    2. The JV emphasises that the court should have no reservations about making such a finding, despite the quality of the Tribunal. This was multi-layered, highly complex litigation involving 1000s pages of submissions and only short oral closings resulting in a huge award itself running to almost 300 pages. It is readily understandable how such an error could have been made. It points to the schedule of cases summarised in RJ v HB (supra) and other further recent examples of successful remission applications (such as Fleetwood Wanderers v AFC Fylde Ltd [2018] EWHC 3318; K v A [2019] EWHC 1118 (Comm) and P v D [2019] EWHC 1277 (Comm)).
    3. In more detail, Mr Smouha QC for the JV identifies the following key steps for the purpose of the JV’s challenge: to identify the parties’ position on the issue; to look at the decision; and then to ask if the basis of the decision was one advanced by the parties or new.
    4. It was common ground that the issue was whether under Qatari law QF could validly terminate the Contract without making an application to the court or tribunal for a determination that the contract be terminated, and that such an order was required unless Clause 19 met the requirements of Article 184. Furthermore, relying amongst other things on QF’s responses to a Request for Information under CPR 18 in these proceedings, the JV submits that it was common ground that Article 184 was presented and addressed as having two separate conditions, namely the Automatic Termination and the Contracting out Conditions. The JV’s case that an option to terminate would not meet the requirements of the Automatic Termination Condition was an issue in the arbitration with which the Tribunal had to deal.
    5. Thus, whether or not the point was raised late, it was clearly in play by the time of the hearing in April and May 2018, and accepted as such by QF. This can be seen clearly from the JV’s written opening and closing submissions (in particular at paragraph 5 and Section II Part A of its closing submissions). In closing the JV devoted 10 pages of submissions as to why Clause 19 did not satisfy the Automatic Termination Condition. Those submissions identified the Qatari Court of Cassation decision of 219 or 2011 (“Decision 219”) as an important case, since it was an authority referred to by Mr Abu Shaikha. The relevant clause in Decision 219 provided:

“If the second party breaches any of the terms of this contract, the first party may terminate the contract after warning the second party without the need for a judicial order and the two contracting parties shall return their status before the contract was concluded…”

The court decided that this clause did not comply with Article 184:

“The stipulation in clause (11) of the contract…does not lead to the necessary and automatic termination of the contract inevitably upon the failure of the first respondent to perform its obligations, as its wording specifically granted the petitioner the right to terminate the contract, which is the same right it has under the law in bilateral contracts, which means that it is merely a restatement of the implicit termination clause.

The confirmation of the petitioner’s right to terminate does not exempt it from resorting to the courts to request a termination order constitutive thereof, which is possible in the cases of both termination by agreement or by judgment and does not apply to one without the other. Therefore, whereas the judgment characterised the clause included in the contract as an implicit termination clause, it has properly applied the law, which renders its challenge on this ground baseless.”

    1. The JV suggested that Mr Abu Shaikha had no explanation as to how this decision fitted in with his position on Clause 19, which he had accepted was in materially similar terms. The JV also relied on a series of authorities and Sanhuri commentary said to be consistent with Decision 219. It pointed to the fact that QF had not taken the opportunity to provide any further material in response to these submissions.
    2. These written submissions were supplemented by the oral submissions of Mr ter Haar QC for the JV which emphasised that, to comply with Article 184, two conditions had to be satisfied. Moreover, the JV repeatedly made the point that QF had not articulated its case on the validity of termination fully or properly. QF’s written (and oral) closing submissions addressed only the Contracting Out Condition (save where it addressed the Automatic Termination Condition in oral submissions in reply).
    3. In short, the JV submits that it was never suggested that the Automatic Termination Condition did not exist; QF made no submissions on Decision 219 (which provided unequivocal support for the JV’s position on Article 184) or the other authorities referred to in that context; and there was no suggestion of any mistranslation of Decision 219.
    4. Against this background, the JV turns to the Award. It submits that paragraphs 96 to 106 of the Award can only have been addressing the Contracting Out Condition. Then at paragraphs 107 to 109 the Tribunal addressed Decision 219. There the Tribunal effectively rejected the JV’s case by reference to an asserted mistranslation of the original Arabic; it suggested that the word “exempt” in the relevant paragraph of Decision 219 should read “exclude”. This was not something proposed by either party or raised for comment with the parties by the Tribunal at any stage. The JV contends that this has a compounding effect on what is said to be the fundamentally unfair rejection of the existence of the Automatic Termination Condition to be found in paragraph 112 and considered further below.
    5. As for paragraph 110, the JV submits that the Tribunal there made the outright finding that Clause 19 did not provide for automatic termination. From this it follows that, but for a finding that the Automatic Termination Condition did not exist, the Tribunal would have been bound to find that Article 184(1) was not satisfied. In paragraph 111 the Tribunal was focussing again on the Contracting Out Condition.
    6. The JV describes paragraph 112 as the “key” paragraph for its purposes. It makes six points:

i) The word “also” shows that the Tribunal appreciated that it was dealing with a separate issue;ii) The reference to “automatic termination on breach” shows that the Tribunal can only have been referring to the Automatic Termination Condition issue;

iii) The only fair reading of the second and third sentences is that the Tribunal was rejecting the existence of any such requirement;

iv) The suggestion that the existence of the requirement was inconsistent with the opinion of Professor Dr Wahab is not referenced or explained;

v) There is no reference to Mr Abu Shaikha’s evidence or any submissions by QF;

vi) The only ground identified for the rejection of the existence of the Automatic Termination Condition is that it would produce an irrational distinction in the law of Qatar.

    1. In summary, the JV submits that this is a simple case of procedural irregularity where something has gone seriously wrong. The Tribunal rejected the JV’s position on a basis which does not fit or reflect the issues or argument on the Automatic Termination Condition. It came to a conclusion that ran counter to the parties’ common position (that there were two separate conditions in Article 184) and which was not ventilated with the parties. In doing so it relied on reasoning which the parties were not given an opportunity to consider or comment on. This irregularity was compounded by the Tribunal’s re-interpretation of Decision 219 by reference to a suggested mistranslation which was never advanced by either party. The JV was therefore deprived of the opportunity of addressing the Tribunal’s view.
    2. The JV rejects what it says is an entirely new suggestion by QF to the effect that the two conditions in Article 184 can be “rolled up” into one. QF puts it thus in its skeleton argument in these proceedings:

“16. In understanding the JV’s application it is therefore essential to appreciate that neither QF nor its experts ever agreed that the word “automatic” in Article 184(1) meant “without the need to serve a notice of termination”. That was an issue which divided the parties. This appear to be accepted by the JV at [5] of its skeleton recording that QF’s expert merely accepted that Article 184 contained 2 conditions both of which had to be satisfied in order for termination to be valid. That is no more than the Article states at 184(1) and (2). Article 184(1) requires the parties to have agreed that the contract be terminated automatically without the need for a Court order. Article 184(2) of the QCC then sets out what “[s]uch condition” requires. It follows that whilst there are 2 conditions, answering…the second in QF’s favour necessarily determines the first in the same way because Article 184(2) defines what is required by “[s]uch condition”, namely that referred to in Article 184(1). This is why QF’s case has been consistent throughout that it is a matter of construction as to whether the expression of the contract is sufficiently clear to indicate the intention of the parties is to terminate without need for a court judgment.”

    1. The JV submits that this is not what was argued before the Tribunal. It is not an argument supported by any evidence, nor is there any evidence to show that it was considered by the Tribunal.
    2. As for substantial injustice, Mr ter Haar for the JV submits that upon remission the JV would have at the very least a real prospect of persuading the Tribunal that Clause 19 did not meet the Automatic Termination Condition and that QF’s termination of the Contract was therefore invalid. The financial consequences for the JV of the Tribunal’s finding that the termination was valid are said to be huge. In particular, QF’s cost to complete claim – valued at about US$1billion – is premised on lawful termination. That claim would fall away. Further, QF’s calls on the JV’s bonds would (at least arguably) be shown to have been unfounded. There would also be further potential consequences to liquidated damages claims.
    3. As for the suggestion by QF that, even if the Tribunal was wrong in its conclusion on Article 184, the only effect would be that the Tribunal would have to consider whether or not termination was justified as at 2014, then again the JV submits that it is at least arguable that under Article 183 the application for immediate termination would have been rejected as a matter of discretion and/or proportionality (for example because the JV’s works were 95% complete at the time of termination). Further, because termination only takes effect only at the time or court or arbitral order, QF had no right to eject the JV from site, to move in and complete the works itself. It would be limited to a claim for cost to complete after the date of order.

Analysis

Irregularity

    1. I bear in mind at the outset the scope and nature of this challenge which is limited to s. 68(2)(a) of the Act. This is not a primary challenge under s. 68(2)(d) of the Act (where it is said that a tribunal has failed to deal with all the issues that were put to it); nor was any alternative case for remission advanced on that basis. Nor is it the function of this court to engage in an analysis of whether the Tribunal’s conclusions were right or wrong.
    2. I am not assisted one way or the other by the submission that the sheer size and complexity of the arbitration, involving very lengthy written (and only compressed oral) arguments, make it more (as the JV submitted) or less (as QF submitted) likely for a procedural irregularity of the type alleged to occur. What is clear from the transcripts and the Award itself is that the Tribunal approached its task with care and diligence, fully engaged with the issues.
    3. Despite the skilful and determined manner in which the JV’s case has been advanced, I am unable to accept it. The position both in the evidence, submissions and the Award on Article 184 was more nuanced than the JV’s stark presentation of the issues suggests.
    4. A useful starting point is a precise identification of the relevant issue on Article 184: the parties were divided on whether or not the Automatic Termination Condition precluded lawful termination if termination was by way of service of a notice (as provided for in Clause 19). The JV’s position was that it did, supported by Professor Dr Wahab. QF’s position, advanced through Mr Abu Shaikha, was that it did not. Whilst QF (and Mr Abu Shaikha) accepted that Article 184(1) required a provision for automatic termination, it was not accepted (and Mr Abu Shaikha never accepted) that a contractual requirement for termination by notice meant that the contract could not be terminated without a court order. As the Tribunal made clear, it preferred Mr Abu Shaikha’s evidence to that of Professor Dr Wahab, an unimpeachable conclusion for present purposes.
    5. I do not accept the crux of the JV’s case, namely that in paragraph 112 of the Award the Tribunal made the outright finding that the Automatic Termination Condition did not exist. As the JV’s submissions themselves highlight, the existence of the Automatic Termination Condition (and the JV’s reliance on it) was squarely before the Tribunal. The issue of whether the parties needed to obtain a court or arbitral order before termination was the subject of detailed consideration, including in the parties’ written and oral submissions. It is apparent, including from exchanges during the hearing itself, that the Tribunal understood that there were two conditions in Article 184, with all three members contributing to issues and debate surrounding the Automatic Termination Condition. Thus the Tribunal had very well in mind the question of whether Article 184(1) operated so as to preclude termination based on notice.
    6. In those circumstances it would have been extraordinary for the Tribunal to reject the existence of the Automatic Termination Condition in anything but the clearest and most explicit of terms (and without giving the parties the opportunity to comment on its intention to do so).
    7. Paragraph 112 of the Award is no such rejection. Rather, and as paragraph 23 of the JV’s Grounds of Claim admits at least as a possibility, the Tribunal was there rejecting the JV’s construction of the Automatic Termination Condition, namely that the Automatic Termination Condition precluded lawful termination without recourse to the court where there is a requirement for notice. The parties are agreed that the first sentence of paragraph 112 accurately reflected the JV’s case (though the word “only” could usefully have been added after the word (“could”)). The Tribunal rejected that case, holding that the existence of a requirement for notice, as contained in Clause 19, did not preclude lawful termination of the Contract without recourse to the court. That this was what was being considered and rejected by the Tribunal in paragraph 112 (as opposed to the rejection of the existence of any requirement in Article 184(1)) is supported by the next immediate paragraph (113) of the Award where the Tribunal referred to “the JV’s contention that an order of the Tribunal is required for the Contract to be lawfully terminated”.
    8. The Tribunal did not find that the Automatic Termination Condition did not exist. Rather it found that that the Automatic Termination Condition as defined by the JV did not exist. It was rejecting the submission that, where termination requires a notice, the terminating party must seek a court or arbitral order. Rather, Article 184(1) permits termination without recourse to a court or tribunal where a notice is to be served, as confirmed by the Tribunal in paragraph 109 of the Award where it held that Clause 19 clearly, categorically and unequivocally provided that termination is effected by service by QF of a termination notice, provided that the contractual requirements have been satisfied. This, found the Tribunal, satisfied Article 184.
    9. Any complaint about a lack of clarity in paragraph 112 falls far short of the type of irregularity required for a successful challenge under s. 68 of the Act. QF also points to the fact that it would have been open to the JV to make an application for interpretation under Article 35 of the ICC Rules (as it was doing on other matters at the very same time as it issued these proceedings).
    10. Absent a finding by the Tribunal that the Automatic Termination Condition did not exist at all, the gravamen of the JV’s challenge under s. 68(2)(a) of the Act falls away.
    11. For the avoidance of doubt, I do not consider that the JV can find any useful support for its construction of paragraph 112 in the comment in paragraph 110 of the Award. There the Tribunal was addressing the further Egyptian authorities and Sanhuri’s commentary relied on by the JV in relation to the Automatic Termination Condition. The Tribunal indicated that it did not find that additional material helpful or applicable to provisions such as those in Clause 19 “which do not provide for automatic termination”. In context, and by reference to the immediately ensuing phrase (“but require service of notices by QF…if the contract is to be lawfully terminated for breach”), that can fairly be read as a comment to the effect that Clause 19 did not provide for automatic termination as contended for by the JV ie without notice. The distinction being drawn between automatic termination with and without notices.
    12. Thus, there is no basis for saying that the Tribunal reached the conclusion that it did on the issue of lawful termination on an unheralded basis that was not argued.
    13. That the Tribunal did not reject the existence (but rather the JV’s construction) of the Automatic Termination Condition is consistent with its approach during the hearing itself, where the Tribunal clearly acknowledged its presence: for example, in its questions during the evidence of Professor Dr Wahab on day 15 (transcript pp. 18 to 21 and 80 to 81).
    14. It is important to remember, as already indicated, that Mr Abu Shaikha never agreed that “automatic” in Article 184 meant “without the need to serve a notice of termination”. QF’s case (namely that “automatic” in the context of Article 184 meant no more than “without the need for a court order”) was offered for comment by the Tribunal to Mr ter Haar during the course of Professor Dr Wahab’s evidence in re-examination and raised with Professor Dr Wahab. Professor Dr Wahab’s oral evidence was that service of a notice precluded termination being “automatic”. (In his third report (at paragraphs 65 and 66) he appeared to accept that automatic termination with notice was possible). In his oral evidence in re-examination Professor Dr Wahab stated:

“So “automatic” under the doctrine and the precedents means that upon materialisation of a certain event, the contract comes to an end or is rescinded or terminated. And that is the meaning of the levels mentioned by Al Sanhuri, and that is quite distinct for a situation where a party has the right to exercise and how he procedurally exercises that right by virtue of a notice or not, and when is the notice effective, it’s a different situation.”

QF points to the fact that a consideration of Sanhuri’s different levels of termination (set out in material before the Tribunal) in fact demonstrates that automatic termination is contemplated both with and without service of a notice. But whatever the merits of the argument, it can be seen that the possibility of automatic termination in circumstances where notice is to be served was explored in the evidence and argument.

    1. The JV’s case relies heavily on the proposition that whenever the parties or the Tribunal addressed the question of clarity of language, only the Contracting Out Condition was under consideration. I do not consider this to be a fair reading of the position when set against the background identified above. Whilst the Automatic Termination and Contracting Out Conditions were always accepted as being separate questions, they overlapped: the Contracting Out Condition specified the content of (i.e. the need for clarity in) the Automatic Termination Condition. The Contracting Out Condition referred expressly back to the Automatic Termination Condition. The conditions were always the subject of the single overarching question of whether or not Clause 19 satisfied Article 184. This is reflected in the intermingling by the Tribunal of its consideration of the two conditions, for example in paragraph 110 (dealing with automatic termination) and paragraph 111 (dealing with contracting out) and in its analysis in paragraphs 101 to 104 of the Award (which considered, amongst other things, the consequences of a requirement for a court order for termination in the context of the need for clarity in contracting out).
    2. Whilst it is possible that the parties’ English lawyers were at cross-purposes on QF’s position, perhaps due to the late evidential development of the “notice” point by the JV, I do not accept that the taking of a composite (or as the JV puts it, a “rolled up”) approach to Article 184 in this way is some bright new argument, as the JV submits. It is right to say that QF never put its case in this way in explicit terms; it is how QF, including through Mr Abu Shaikha, approached it.
    3. As the JV itself points out, Mr Abu Shaikha always accepted the existence of the Automatic Termination and the Contracting Out Conditions in Article 184. Thus, in cross-examination, he gave the following evidence:

“Q. …Can you agree with me that in cases to which article 184 applies it will only apply if two conditions are satisfied? Firstly there must be a provision of the contract which provides for automatic or ipso facto termination. Do you agree with that?

A. Yes.

Q. Secondly, there must be a sufficiently clear or express or categorical exclusion of the court’s jurisdiction to exclude that of the court’s intervention?

A. Yes.”

    1. Yet time and again, he stated that Clause 19 satisfied Article 184. By way of example:

i) In his fourth report under the heading “Termination” he stated:

“3.5 In the joint statement, in relation to QF’s Notice of Termination dated 22 July 2014, and termination of contract more generally, Dr Wahab and I agreed that Article 184(1) of the QCC provides that: “the parties may agree that, in the case of a failure to perform the obligation arising from the contract, such contract shall be deemed to have been rescinded without a court order”.

3.6 In the joint statement I said that: “the parties are free to agree a mechanism for termination of a contract. Following Article 171(1), the Contract is the law of the parties. This includes any provisions which deal with termination of the Contract. Where there is an agreed mechanism under the Contract for termination, Qatari law does not place any specific requirements on the parties in order to exercise their rights and obligations under such provisions.” I also said that: “[u]nder Article 184(1), parties are not required to obtain a Court order permitting termination of a contract, where termination is provided for under the Contract”

3.8 Further Dr Wahab said that: “the Contract does not appear to provide for automatic termination [rescission] without recourse to a court or an arbitral tribunal. Thus, any unilateral termination or recission of the Contract absent a court or arbitral tribunal decision would not be consistent with Qatari law.” I disagree with Dr Wahab’s view. In my opinion this Contract provides for termination without recourse to a court or arbitral tribunal….”

ii) In his fifth report under the heading “A court order” he stated:

“4.23 In summary…Article 184(1) permits the parties to “agree that the contract be considered terminated, ipso facto, without need for a court judgment”. Article 184 allows the parties to provide for termination under their contract, without any need for an order by the applicable court or tribunal. Article 184 does not require the parties to expressly say that the provision[s] excludes the court or tribunal. It is sufficient if the contract provides a clear and straightforward mechanism for termination. Article 19 is sufficiently clear and straightforward in that it provides a mechanism for termination of the contract. There is no requirement for an order of a court or tribunal under Article 19 and the QCC does not otherwise impose this requirement. Provisions such as Article 19 are commonplace and enforceable in construction contracts in Qatar.”

    1. This last sentence (that provisions such as Clause 19 are commonplace and enforceable in construction contracts in Qatar) was never challenged.
    2. Given Mr Abu Shaikha’s recognition of the presence of the two conditions it is not possible to read that evidence as evidence that Clause 19 satisfied only Article 184(2) but not Article 184(1). Indeed, Mr Abu Shaikha expressly referred to Article 184(1). For example, paragraph 4.23 of Mr Abu Shaikha’s fifth report expressly referred to Article 184(1) in the context of a section dealing with the necessity or otherwise of a court order. Mr Abu Shaikha confirmed his reports to be accurate in his oral evidence and at no stage resiled from his position, even in the context of the JV’s case on the Automatic Termination Condition being fully developed.
    3. Professor Dr Wahab also appears to have understood this presentation: thus in cross-examination, having been taken through a translation of Article 184(1) and (2), he gave the following evidence:

“Q. “I am suggesting that what divides you and my clients is whether the construction of the contract that we have just been going through is sufficiently clear to indicate that it is the intention of the parties that the contract can be terminated without needing to go to court first. That is what divides us, isn’t it?

A. Yes.”

    1. In similar vein, QF’s position that the question was whether Clause 19 was sufficiently clear to preclude the need to go to court was expressly put to Professor Dr Wahab in cross-examination, specifically in the context of the Automatic Termination Condition. He agreed that in order to determine whether the parties had agreed in the case of non-performance that a court order was unnecessary, one needs to ask whether that is clear from how it was expressed in the contract.
    2. It is also not right to say that QF at no stage addressed the Automatic Termination Condition directly in its submissions. Thus in oral closing in reply Mr Lofthouse addressed it by reference to Mr Fernyhough’s interventions during the evidence of Professor Dr Wahab already referred to above. Mr Fernyhough had identified that the word “automatically” could be used in two different senses in two different situations: a) once the breach takes place, the parties by their agreement had agreed that breach would automatically terminate the contract without an action by either party and b) the agreement provides that one party may terminate the contract by, for example, serving a notice, then that automatically terminates the contract without having to go to court. Professor Dr Wahab tended to the first situation. Mr Lofthouse submitted that the position in Article 184 (because of Article 184(3)) was that service of notice was contemplated (other than in commercial matters). (Indeed, it is only in commercial matters that service of notice could be dispensed with). It anticipated the provision of a notice in circumstances of automatic termination (ie the second situation postulated by Mr Fernyhough). Mr Lofthouse went on to confirm, prompted by the Chairman, that QF’s case in any event was that Professor Dr Wahab had accepted that a sufficiently clear provision would obviate the need to go to court. Mr ter Haar then intervened to add that Professor Dr Wahab did not accept that it would be sufficiently clear if it did not provide for automatic termination.
    3. Perhaps pertinently for present purposes, the Chairman closed this particular debate with the words: “…we’ll address it. Can we move on….”
    4. Put bluntly, there were two differing views on whether or not Clause 19 satisfied (both conditions in) Article 184; the Tribunal preferred that of Mr Abu Shaikha. Whether it was right to do so is not a matter for this court.
    5. The reasons that the Tribunal gave in paragraph 112 of the Award are the subject of criticism. Again, this is not the place for any substantive critique of its analysis. I do not identify any procedural irregularity in terms of unfairness either in the Tribunal’s statement that the JV’s case implied an irrational distinction in the law of Qatar or that it was inconsistent with the opinion of Professor Dr Wahab. The first observation as to irrationality flows from the parties’ submissions, for example echoing paragraphs 606 to 608 of QF’s written closing submissions and the Tribunal’s concerns on the rationality of JV’s case on automatic termination as put to Mr ter Haar in his oral closing submissions (day 2 transcript pp. 16 to 22). The Tribunal was troubled by the entitlement to terminate without court or arbitral order turning on whether not a notice of termination was required. And it cannot be said that the JV did not have an opportunity to address those concerns.
    6. Whilst the Tribunal did not particularise its comment as to inconsistency with the opinion of Professor Dr Wahab, there was ample material on which it could have reached such a conclusion fairly in the light of the evidence and arguments advanced before it. It was an evaluative assessment properly open to the Tribunal on the materials before it. QF can point for example a) to Professor Dr Wahab’s acceptance in cross-examination that Clause 19 was clear in saying that by issuing the notice of termination, QF could terminate the Contract and b) to Professor Dr Wahab’s evidence that termination for convenience did not require a court order even though it did require a notice, whilst termination for breach did. Despite this apparent difference in treatment Professor Dr Wahab at the same time opined that Article 184 applied to all termination provisions. Equally, as set out above, Professor Dr Wahab’s third report did not take any point to the effect that service of notice precluded automatic termination. In that report he countenanced automatic termination that involved service of notice. The JV had the opportunity to deal fully with Professor Dr Wahab’s evidence before the Tribunal.
    7. I turn next to the Tribunal’s treatment of Decision 219, noting in passing only that the JV is not right to suggest that Mr Abu Shaikha did not have a position in response to his cross-examination on Decision 219 by the JV. In fact he gave the following evidence:

“…even if we depend on this judgment, we still having to see that article 171 is the law of the parties. Our – the contract of the claimant is – which is signed with the respondent put a mechanism for termination. Even if all these judgments comes and say something differently, which I still insist that the contract the Tribunal discussing is completely different than those. It has a provision making a mechanism how to terminate.”

He also did not state that the relevant contractual clause in Decision 219 was materially identical to Clause 19, something he was not in fact asked.

    1. Turning to the relevant issue on Decision 219, I am not satisfied that that there was any compounding procedural irregularity arising out of the Tribunal’s speculation in paragraph 108 of the Award as to a possible mistranslation of the judgment in Decision 219 which was never put to the parties. It would be most surprising for the Tribunal not to have given the parties the opportunity to comment on such a possibility had it been material to its decision. On a fair reading of the Award, the Tribunal was not relying on any finding that the word “exempt” should read “exclude”. First, on the face of the Award, it made no such finding – it merely “wonder[ed]” whether the word “exempt” was a mistranslation. Secondly, the passage in Decision 219 containing the principle relied upon in paragraph 109 (as quoted by the Tribunal in paragraph 108) did not contain the mooted mistranslation, an issue expressly put to one side by the Tribunal’s use of the phrase “[b]e that as it may”. Whether or not the Tribunal was right to extract or apply the test as it did is again not the issue before the court.
    2. The parties’ submissions on both sides have involved a substantial amount of detail which I have duly considered in what are on any view complex and substantial proceedings with an already lengthy procedural history. I remind myself of the general approach of the courts to an arbitral challenge such as this and of the need to avoid an unduly legalistic or minute textual analysis of the Award.
    3. My conclusion in summary is that the Tribunal did not dismiss the existence of the Automatic Termination Condition as the JV alleges; rather it rejected the JV’s construction of Article 184 in a manner which reflected the evidence and arguments canvassed at the hearing in April/May 2018. There has been no irregularity for the purpose of s. 68(2)(a) of the Act.

Substantial injustice

    1. In these circumstances, the question of substantial injustice does not arise. Had I found that there had been a failure by the Tribunal to comply with s. 33 of the Act, it would have been difficult to say that the JV’s argument on Article 184 and lawful termination was hopeless, just as it would have been to conclude, as Mr Lofthouse seeks to persuade me for QF, that the JV would ultimately have suffered no substantial injustice as a result of the Tribunal’s finding on lawful termination either because of the power to award compensation for wrongful termination or because there would be no prospect of the Tribunal finding (on proportionality grounds or otherwise) that termination was not justified, given its findings elsewhere in the Award on delay, defects and bad faith. Mr Lofthouse also submits that, even if the JV were correct that the costs to complete claim could only arise at the time of the arbitral decision on termination, QF’s delay costs and costs to complete costs would then be higher, not lower. Nor, submits QF, could it sensibly be suggested that the JV would have completed the works. Equally, QF’s call of the bond and guarantee did not depend on the finding of unlawful termination.
    2. These may be powerful points on the merits. But, as I indicated at the hearing, I have my doubts as to the appropriateness of speculation as to the outcome of remission of the issue in question – see the remarks of Colman J in Vee Networks (supra) at [90]:

“Above all, it is not normally appropriate for the court to try the material issue in order to ascertain whether substantial injustice has been caused. To do so would be an entirely inappropriate inroad into the autonomy of the arbitral process.”

and of Goff LJ in The Vimeira [1984] 2 Lloyds Rep 66 at 76:

“Where there is a breach of natural justice, as a general proposition it is not for the Courts to speculate what would have been the result if the principles of fairness had been applied….”

    1. Even if it were legitimate to consider in any detail possible outcomes, an outright finding that there was no substantial injustice for the reasons identified by QF would involve an exercise far beyond the scope of this challenge and an evaluation of matters both factual and legal either too speculative and/or insufficiently explored before me.

Conclusion

  1. For these reasons, the JV’s challenge on the basis of serious irregularity falls to be dismissed. I recognise the potentially significant financial consequences for the JV of its defeat on the Termination Issue. However, I am unable to accept that this eminent and highly experienced Tribunal made a fundamental error of unfairness in breach of s. 33 of the Act as suggested. This is not a question of undue deference; I would have had no hesitation in remitting the matter had I been persuaded that there had been a breach of the Tribunal’s duty under s. 33 of the Act causing substantial injustice. But I have not been so persuaded on a fair and proper reading of the Award. In summary, the JV has failed to overcome the high threshold for a successful s. 68(2)(a) challenge.
  2. I invite the parties to reach agreement on all consequential matters, including costs, so far as possible. I conclude by thanking all counsel for the quality of their submissions and able assistance throughout this matter.

Sterling v Rand & Anor [2019] EWHC 2560 (Ch) (1 October 2019)

Neutral Citation Number: [2019] EWHC 2560 (Ch)
No: BL-2018-001435

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Rolls Building
Fetter Lane
London, EC4A 1NL

B e f o r e :

MS CLARE AMBROSE sitting as a Deputy High Court Judge
____________________

MR DAVID STERLING Claimant
– and –
MRS MIRIAM RAND
MR MORRIS RAND Defendants

____________________

MR H. BOR (instructed by Waller Pollins Goldstein) appeared on behalf of the Claimant.
MR J. HOLMES-MILNER (instructed by DPA) appeared on behalf of the Defendants.

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

MS AMBROSE:

    1. This is the adjourned hearing of the Claimant’s application by an arbitration claim form dated 26 June 2018 for summary enforcement of an arbitration award dated 25 January 2015 (“the Award”). An initial hearing in this matter took place on 10 April 2019 and I repeat parts of the judgment given at that stage so that matters are covered as a whole in this judgment.
    2. The Award was made by a tribunal consisting of Dayan Gelley, Dayan Abraham, and Dayan Simons. They were acting as dayanim (judges) of the London Beth Din (Court of the Chief Rabbi). I refer to the tribunal as “the Beth Din”. The Award arises out of a dispute between the parties relating to a property at 4, Dunsmure Road in Stoke Newington (“the Property”).
    3. The dispute before me raises issues as to the powers available under the Arbitration Act 1996 (“the 1996 Act”) to a Beth Din tribunal to order specific performance of a contract relating to land. It also raises issues as to the proper exercise of the court’s discretion to refuse to make an order enforcing a domestic arbitration award under section 66 of the 1996 Act.

The Procedural Background

    1. There were two previous sets of proceedings relating to enforcement of the Award. Proceedings were issued in the Commercial Court by the Claimant on the 16 December 2016, and a second set of proceedings was issued in 2017.
    2. By an order dated 3 May 2018, made following an oral hearing on the 13 April 2018 at which both parties were represented, Popplewell J made an order that both claims be struck out, and that any further proceedings to enforce the Award be issued in the Chancery Division. There were some administrative errors on the court’s part regarding the first set of proceedings. Following that order of 3 May 2018 these proceedings were issued in June 2018. Following a directions hearing on 5 December 2018, at which both sides were represented by counsel, Deputy Master Bartlett made an order listing this matter for a one-day hearing. He refused the Defendants’ request to serve further witness evidence, but allowed the Defendants to serve further documents, and the Claimant was allowed to serve documents in addition following the Defendants’ disclosure. The Defendants at that hearing confirmed that their grounds for objection would be limited to those they had put forward in their skeleton argument of 11 April 2018.
    3. The matter was listed before me on 10 April and I gave permission to file and serve further evidence including expert evidence as to Jewish law. I dealt with a number of the Defendants’ objections but left open those relating to section 48(5)(b) of the 1996 Act, the workability of the Award, and more generally the exercise of discretion under section 66. The evidence before this court was as follows:

a) A copy of the arbitration agreement that both sides signed in October 2014;

b) The Award;

c) The Heskem dated 19 March 2008, and a translation;

d) The Claimant’s First and Second statements;

e) Witness statement of Mr Shimon Stern dated 14 June 2019;

f) Witness statement of Mr Shlomo Davidovits (the Claimant’s rabbinical advocate at the hearing before the Beth Din);

g) A report from Dayan Hool, instructed on behalf of the Claimant to give expert evidence of Jewish law;

h) Mr Rand’s witness statement;

i) Three witness statements from Mrs Rand;

j) Documents disclosed by the Defendants in January 2019;

k) Witness statement of Mr Alexander Strom (the Defendants’ rabbinical advocate before the Beth Din); and

l) A report from Dayan Schmahl, instructed on behalf of the Defendants to give expert evidence of Jewish law.

    1. The relief that the Claimant is seeking in this application are orders under s.66 and/or s.66(2) of the 1996 Act for:

“(1) permission to enforce an arbitration Award of the London Beth Din dated the 25th January 2015 (“the Award”), which has not been complied with, in the same manner as a judgment or order of the court to the same effect; and/or (2) for judgment to be entered in terms of the Award and other orders as set out in the draft order attached. In the alternative, the Claimant seeks an action on the Award.”

    1. The Claimant put forward a draft order requiring the Defendants to transfer the Property to him or his nominee Mr Shimon Stern.

The issues to be decided

    1. The overall question I have to decide is whether to make an order that the Defendants transfer the legal title to the Property to the Claimant or his nominee, Shimon Stern upon discharge of the existing mortgage. Effectively, I have to decide whether to give judgment in terms of the Award.
    2. The legal issues that require consideration are:

a) Did the Beth Din have power to order the transfer of the Property? This raises a question as to the application of section 48(5) of the 1996 Act and whether it is too late to raise the objection to their powers;b) Even if the Beth Din lacked power to make such an order, does the Court have such power?

c) Should the Court exercise its discretion under s66 to make the requested order? This includes questions going to workability, arbitrability and also new evidence served since the hearing.

    1. Factual issues have arisen in the application and there are questions of Jewish law upon which expert evidence has been served. Both parties have served considerable evidence but neither asked for the opportunity to have cross-examination of witnesses. I made clear in my decision on 10 April 2019 that I could decide factual issues on a s66 application.

The Factual Background

    1. The Property is a house that is currently split into three flats. The Claimant currently lives at the property, and has lived there since around late 1995. The Defendants are married and live on the same street in a different property. They are the current freeholders of the property.
    2. The property was originally purchased by Mrs Rand’s father as a gift to her on her marriage, and was transferred into Mr and Mrs Rand’s joint names in around 1985 or 1986. At that stage the house was in two flats, but was split into three flats in 2010. At the date of the Award, a relative of Mr Rand’s was said to be occupying the downstairs flat. A different tenant is said to occupy the top flat currently as a tenant of the Defendants. On 10 July 2007 the Defendants mortgaged the property for around £640,000. The mortgage was later transferred to another lender by a charge dated 19 May 2016. This is on the Land Register.
    3. On around 19 March 2008 Mr Rand entered into a signed agreement with the Claimant. It was handwritten on a single side of paper in Hebrew. Both sides recognised that such an agreement is known as a Heskem and I have referred to it as such. It referred to a deed of trust through a solicitor. Mrs Rand did not sign the Heskem. The Defendants produced a manuscript translation of the agreement, and that translation was not disputed. It provided as follows:

“1) Shared ownership house2) [Interest calculations]

3) The above refers to a sale of the house by deed of trust through a solicitor

4) After approximately 2 years [C] will take out a mortgage and [C] will repay [D1] the remaining money that [C owes] him on condition that [D1] closes the mortgage on the house

5) In the event that the above conditions are not met by either party there is a possibility that the sale is cancelled. But [C] will try if [he is] able to arrange a new mortgage for a new owner.

6) The £20,000 loan will remain until the shared ownership land is sorted out (either by selling or receiving planning permission) whereby the profits will be split and the loan will be repaid.

7) During these two years I [C] have the option of doing what I like with the house.”

    1. The terms of the Heskem as found by the Award were for the Claimant to purchase the property for £745,000. The Beth Din concluded that, “With regard to the aforementioned mortgage of £640,000 because there would be a penalty on redeeming the mortgage within the first two years, it was agreed that title to the property would not pass formally to Mr Sterling but that instead he would take over responsibility for paying the mortgage, which he duly did. As for the shortfall of £105,000 between the sale price and the mortgage it was agreed to deal with this in the following manner (a) Mr Sterling paid the sum of £40,000 to Mr Rand and (b) having previously lent Mr Rand £45,000 to pay for wedding expenses, it was agreed that instead of repaying the loan, this sum could be retained by Mr Rand as part-payment for the Property“. The balance of £20,000 was effectively considered as part of the purchase price on the basis that the Claimant would be paying higher interest under the existing mortgage than he would have paid if he had taken out his own mortgage. As part of the Heskem it was agreed that although title was not being transferred to the Claimant immediately, Mr Rand would sign a declaration of trust stating that they held the property beneficially for the Claimant. It was also agreed that after two years the Claimant would raise a new mortgage, thereby discharging the Defendants’ liability under the mortgage.
    2. Some three months after the Heskem the Defendants entered into a signed deed of trust relating to the property. The deed was signed and witnessed. It was undated but referred to a transfer dated 25 March 1986 by which Mr Shimon Stern acquired the property for consideration and the Defendants held the property on trust for Mr Stern. Mr Stern is the Claimant’s relative.
    3. In the Award the Beth Din made findings that Mr Rand had not pressed the Claimant to redeem the mortgage after two years, and instead both parties had initially been willing to leave the situation as it had been following the Heskem.
    4. In 2010, the Claimant carried out building works to the property spending a cost of approximately £50,000. In March 2014 Mr Stern made an application to register a restriction relating to his interest in the Property. The First Tier Tribunal ruled that he had registered a caution against the Property in order to protect his interest. He had not taken the application further, and it appears that the reason for this was the parties’ agreement to arbitrate later in 2014. Mr Stern withdrew the application in March 2015, after the Award was made.
    5. On 10 July 2014 the Claimant wrote to the London Beth Din asking them to arrange a Din Torah (a Beth Din hearing of a dispute) concerning ownership of the Property referring to civil procedures initiated by the Defendants. At that stage Mr Stern was named as an interested party.
    6. The parties on both sides signed an arbitration agreement (signed on around 23 and 29 October 2014 respectively) under which they agreed that their dispute over ownership of the Property be referred to the Judicial Division of the London Beth Din (Court of the Chief Rabbi) for a binding arbitration under the Arbitration Act 1996.

“Re: Dispute over ownership of 4 Dunsmure Road N16 5PW I agree to the submission of this matter, including all claims and counterclaims arising in respect of it, to the Beth Din for a binding arbitration under the Arbitration Acts for the time being in force and under the following terms:(1) The Beth Din will consist of three dayanim unless the parties agree to the substitute of a single dayan.

(2) The Beth Din’s rules of procedures are those of Jewish law.

(3) Each party to this matter shall have, by signing this document, indicated his assent to an arbitration under these terms. The Beth Din may continue the arbitration and conclude it ex parte if any party fails after receiving reasonable notice to attend any hearing.

(4) In the event that a vacancy arises in the Beth Din on account of the inability or refusal of any of its members to determine the arbitration, the Beth Din may appoint one or more of its own members to fill the vacancy, and may at its own discretion determine how the arbitration shall continue to be conducted. The Beth Din may determine that a single dayan may hear and receive evidence on behalf of the full Beth Din.

(6)The Beth Din has the power to make both inter partes and ex parte orders from the day upon which all parties are sent the terms of this agreement until such time as the Beth Din is functus officio under Jewish law. The Beth Din has the power to make orders under Jewish law both as to its own costs, and as to the costs incurred by any party in participating, bringing or defending any claim or counterclaim. The Beth Din may make orders as to security for costs, and in respect of claims.

(9)The Beth Din shall decide the matter under Jewish law incorporating such other laws as Jewish law deems appropriate.”

    1. The Beth Din was appointed, and a hearing took place before it on 29 October 2014. The parties were not represented by lawyers but they did have representatives. The main area of argument was as to the validity of the Heskem, in part on grounds that Mrs Rand had not agreed. The Beth Din held that the Heskem was binding, and that Mr Stern was the Claimant’s nominee. I referred above to the tribunal’s findings as to the nature of the Heskem. The Beth Din’s conclusion was as follows:

For all the above reasons we believe that Mr Sterling is entitled to have the property transferred to him or to his nominee Mr Stern immediately on his discharge of the existing mortgage on the property, and it is ordered that: (1) the Defendants do transfer the title of 4 Dunsmure Road London N16 5PW to Mr Sterling or any nominee appointed by him provided that the existing mortgage on the property is discharged by Mr Sterling or his nominee.”

    1. Registered title to the property was not passed to the Claimant following the Heskem or the Award. The Defendants’ mortgage remained in place; indeed the Defendants re-mortgaged in 2016 after the date of the Award. There was documentary evidence from the Claimant that the bank had in the last year or so attempted to take possession proceedings regarding the property. This suggested that mortgage payments were not being made in full.

Evidence on housing benefit

    1. Mrs Rand’s evidence was that she granted the Claimant a tenancy of the maisonette on the first and second floors of the Property under the terms of a tenancy agreement and his rent has been paid in full by Hackney LBC from when he started living there in 1995 until April 2019. She produced several housing benefit applications pre-dating the Heskem which required applicants to keep the council updated on any relevant change in circumstances and contained the question “Are you a joint tenant or joint owner?”, “Are you an owner occupier?”. She did not have any of the applications post-dating the Heskem and these were not produced by the Claimant.
    2. In 2009 a fresh tenancy agreement was entered into under which the rent was £400 per week. The benefits payments received by Mrs Rand from Hackney in respect of the flat occupied by the Claimant were between £300 and £400 per week. The exhibited documents suggest that she has also been receiving housing benefit (since July 2018 on the documents) in respect of the two other flats in the Property being let to two other tenants (one in the basement flat and the other in the ground floor flat). Shortly after the last hearing housing benefit payments for the Claimant were suspended.
    3. Mr Rand’s evidence was that when he asked the housing benefit department why the benefit had been suspended in April 2019, he was told that the Claimant had asked the council to withhold it and notified the council (via his solicitors) that the ownership of the property had been transferred to Dunsmure Estates Ltd and that there was a dispute about ownership in court.

Evidence on financial arrangements (including evidence given following the April 2019 hearing)

    1. The financial arrangements both before and after the Heskem was entered into were unclear. In the Award it was said that, “Immediately after the signing of the contract for sale and the aforementioned payments being made, Mr Sterling stopped paying rent to the Defendants and Yisrael Rand [the tenant of the basement flat, a relative of the Defendants] paid rent to Mr Sterling.” In his First Statement the Claimant said that after signing the Heskem he had taken over the mortgage and also that, “I stopped paying rent, and the First Defendant started paying me rent. This was paid by the Defendants towards the mortgage.” In his second statement he says that, “the rental payments went towards the mortgage”.
    2. The Claimant’s first statement was that he had arranged for a new mortgage of the property and had three mortgage offers but was unable to go ahead with them due to the Defendants’ refusal to cooperate. At that stage he named Dunsmure Estates Ltd as his nominee. He also referred to his interest in the property. His solicitors in correspondence to the Land Registry on 25 June 2018 also referred to his interest in the property stating, “our client retains the interest in the Property as awarded”. At the hearing in April 2019 his counsel indicated that it was absolutely clear from the Award that the property belonged to Mr Sterling.
    3. The Claimant’s second statement now says he was appointed to act as Mr Stern’s agent in all dealings with the transaction until the Property was transferred to Mr Stern. He says that when the First Defendant started denying the validity of the Heskem Mr Stern had no interest in dealing with the dispute and wanted him to handle the matter. It was said that Mr Stern granted Mr Sterling a power of attorney to appear in his name before the Beth Din.
    4. As to the events around the Heskem he says that he approached Mr Stern not long before the Heskem was concluded in 2008 to ask him whether he wanted to purchase the Property. He said:

I mentioned that I thought that this would be a good investment, due to the rise in value in the area, a purchase would also provide a way for the Rands to repay the money that had been lent to them, which as stated came from Mr Stern in the first place. Mr Stern agreed but wanted me to deal with everything until the Property was transferred to him in the future. I was the one who had the idea and was familiar with the Rands, not him. However, to secure his investment, we agreed that I would have the Rands enter into a deed of trust to secure his interest. I then negotiated the deal with the Rands for the Property, as is known. The deal was to take place over a period of time for Mr Rand’s convenience. During this time, the rental payments went towards the mortgage. Around 2 years after the sale, Mr Rand started denying the validity of the sale and the dispute was bought to arbitration before the Beth Din. Mr Stern had no interest in dealing with the dispute. I had arranged and entered into the deal and he wanted me to handle the matter.”

    1. In Mr Stern’s statement he says, “I can confirm that I am the true owner of the Property purchased on my behalf by Mr Sterling”. He says that the arrangement is as explained by the Claimant. He indicated that he is a director of Dunsmure Estates Limited, and that company has already received three mortgage offers in relation to the property.
    2. Mr Davidovit’s evidence is that he understood that Mr Sterling was acting as an undisclosed agent for Mr Stern in purchasing the Property and the Defendants raised no objection before the Beth Din to Mr Stern’s involvement in the transaction or his non-involvement in the Beth Din.
    3. Mr Strom’s evidence was that at the hearing before the Beth Din, Mr Stern was only mentioned as Mr Sterling’s nominee and not as someone who was the purchaser of the Property or the provider of the loans.
    4. Mr Rand says he was unaware of any interest of Mr Stern until Mr Sterling’s solicitors produced the draft trust deed in 2008. He was not aware that Mr Stern had been named as an interested party before the Beth Din.
    5. Mrs Rand says that the first time she heard of Mr Stern was when she was notified by the Land Register in 2014 that he had registered a restriction against the title of the Property.

Comments on the factual evidence

    1. As mentioned above, there was no oral evidence and I refrain from making final findings on most of the witness evidence for that reason, and because there are some potentially serious issues arising from the financial arrangements that would not be for me to decide. However, I accept Mrs Rand’s evidence regarding the receipt of housing benefit payments, the tenancy agreements and the housing benefit applications that she produced. It was unchallenged and consistent throughout these proceedings. Also, most significantly, it was supported by contemporaneous documents including some coming from Hackney LBC.
    2. Mr Sterling’s second statement is inconsistent with his first statement, and also the position he took at the hearing before me on 10 April 2019 and before the Beth Din on 29 October 2014. His second statement, and that of Mr Stern, has limited support from the contemporaneous documents. It is surprising that this significant explanation as to the true identity of the parties to the Heskem, and its legal and practical purpose, has only emerged more than 11 years after it was concluded and Mr Stern was named as a beneficiary in a trust deed, and 5 years after litigation began relating to the enforcement of the Heskem.

Evidence of Jewish law

    1. There was little issue between the parties on the question of Jewish law as to whether a Beth Din would have power to grant an order for specific performance of a contract relating to land. The Claimant’s evidence from Dayan Yohanassan Hool was summarised as follows:

a. A Beth Din has the power to order a party to transfer real property to another party under Jewish law.b. Under Jewish law, a deed, payment of money and physically taking possession of real estate can each, in themselves alone, effect the transfer of real property, regardless of local secular law requiring registration. Such deed is not a mere agreement to transfer.

c. The effect of the Award as a matter of Jewish law is that the parties have not merely contracted to sell the Property, but that an actual transfer of title has actually taken place.

d. Once a Beth Din has ruled that a property belongs to a purchaser, it will, if necessary, instruct the seller to transfer the title in the Lands Registry.

e. Orthodox Jewish litigants that have committed to the application of Jewish law in a property dispute would also have agreed to abide by orders for transfer of real property.

    1. Dayan Hool’s evidence on this last point was supported by a letter from the Registrar of the Office of the Rabbinate of the Union of Orthodox Hebrew Congregations, which suggests that it is normal practice for a Beth Din to order a seller to formalise a transfer of a Property by registering the same in the Lands Register.
    2. I accept that this evidence shows that under Jewish law the Beth Din has power to order specific performance of a contract relating to land. This was not seriously challenged since the Defendant’s expert evidence addressed different questions.

Did the Beth Din have power to order a transfer of the Property?

    1. The Defendants contended that the Beth Din did not have jurisdiction because of s.48(5)(b) of the 1996 Act. That is a provision regarding remedies available in an arbitration governed by the Act, and it provides:

“(1) The parties are free to agree on the powers exercisable by the tribunal as regards remedies.(2) Unless otherwise agreed by the parties the tribunal has the following powers.

(3) The tribunal may make a declaration as to any matter to be determined in the proceedings.

(4) The tribunal may order the payment of a sum of money in any currency.

(5) The tribunal has the same powers as the court

(a) to order a party to do or refrain from doing anything;

(b) to order specific performance of a contract other than a contract relating to land; and

(c) to order the rectification, setting aside or cancellation of a deed or other document.”

    1. The Defendants’ position was that there had been no agreement regarding specific performance of land and accordingly the Beth Din had no power to make their award. They also argued that the specific performance of the Heskem could not have involved transfer of the Property and the Award was not an order for specific performance of the Heskem. This argument could possibly have been raised before the Beth Din (the Heskem did not on its face appear to be a simple sale of land) but it was too late to raise it now (any appeal on this basis would have been unlikely to succeed), and in any event the argument was governed by Jewish law (of which there was no evidence in support of it).
    2. The Claimant’s primary position was that the point was now barred because the Defendants have never challenged the Award on this ground or otherwise. By taking part in the arbitration the Defendants were now barred under s.73 of the 1996 Act from taking a point on the tribunal’s jurisdiction, and that under s.66 of the 1996 Act the right to resist enforcement on the basis of a lack of substantive jurisdiction is expressly made subject to s.73.
    3. Its alternative position was that the Beth Din had jurisdiction as the Defendants had agreed in writing that the Beth Din would decide the dispute according to Jewish law and procedure. The Claimant argued that s.48(5)(b) is subject to the parties’ agreement under s.48(1), and here there was no dispute that under Jewish law the Beth Din had power to order transfer of a property in a dispute concerning ownership. By agreeing Jewish law, the parties were agreeing Jewish law to the full extent permitted by the 1996 Act.

Is it too late to raise the point on section 48(5)?

    1. Section 66 of the 1996 Act provides that:

“(1) That an award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.(2) Where leave is so given, judgment may be entered in terms of the award.

(3) Leave to enforce an award shall not be given where or to the extent that the person against whom it is enforced shows that the tribunal lacks substantive jurisdiction to make the Award. The right to raise such an objection may have been lost: see s.73.”

    1. Section 73 provides that:

(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection—

(a) that the tribunal lacks substantive jurisdiction,

(b) that the proceedings have been improperly conducted,

(c) that there has been a failure to comply with the arbitration agreement or with any provision of this Part, or

(d) that there has been any other irregularity affecting the tribunal or the proceedings,

he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.

(2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling—

(a) by any available arbitral process of appeal or review, or

(b) by challenging the award, does not do so, or does not do so within the time allowed by the arbitration agreement or any provision of this Part, he may not object later to the tribunal’s substantive jurisdiction on any ground which was the subject of that ruling.

    1. I initially took the view that the Defendants had not lost the right to take the point regarding s.48(5) by reason of waiver under s.73 because the question under s.48 as to the tribunal’s powers to make an order for specific performance was not a question of substantive jurisdiction as defined in s.30 of the 1996 Act (because it did not go to the validity or scope of the arbitration agreement, the reference or the constitution of the tribunal). Any decision to make such an order would not be challengeable for lack of substantive jurisdiction but as a serious irregularity on grounds of excess of power under s.68(2)(b). My initial view was based on the wording of s.66, which only refers to objections that the tribunal lacked substantive jurisdiction. This construction leads to uneven protection against late challenges and this was probably not intended. This uneven result can be avoided by looking to the wording of section 73 which covers challenges on grounds that the proceedings have been improperly conducted. This would include the current objection that the tribunal exceeded its powers. I prefer to adopt the wider approach based on the wording of section 73 and accordingly I conclude that the objection is precluded under section 73 because it could have been taken before the Beth Din or under s.68.

Conclusions on s48(5)

    1. If I am wrong in concluding that the objection based on section 48(5) is barred then an issue arises as to the powers of the Beth Din. The Heskem is clearly a contract relating to land (indeed, neither party suggested otherwise). Accordingly, if s.48 applies, the Beth Din would only have power to order specific performance of that contract if the parties had so agreed in writing (as any reference to “agreed” is a reference to an agreement in writing as set out in s.5 of the 1996 Act).
    2. The effect of s.48(5)(b) is dealt with in detail by Etherton J in Telia Sonera AB v Hilcourt [2003] EWHC 3540 (Ch). He notes that there has been a long-held statutory preference for such orders not to be made by arbitrators, and suggests that the rule was related to a policy in favour of conveyancing matters being decided in court where there was expertise on their complexity. He refers to an acknowledgement in the legislative history that the court could lawfully deal with the remedy if the tribunal could not. There are further, related policy reasons for such a restriction. Firstly, an order for specific performance of land may require the court’s coercive powers, and indeed may require an officer of the court to execute a conveyance. Secondly, ownership and transfers of land should be transparent rather than being carried out in a private arbitration. As the Defendants pointed out, a tribunal could not order rectification of the Land Register. Thirdly, and linked to that point, third parties would be affected by transfers of land, and there is a public policy interest in such decisions being made by courts rather than private tribunals (this is linked to the preference that such matters be dealt with by those who have expertise in a system of registered title). Fourthly, there is a question as to the arbitrability of questions as to the ownership of land (dealt with below).
    3. The Claimant pointed to The Arbitration Act 1996 (5th Ed) by Merkin & Flannery, suggesting that the exclusion of contracts “relating to land” no longer had any justification given the availability of quick registration and enforcement of awards. In my view the complications that have arisen in this case provide firm support for the exclusion. Certainty of ownership of land is a matter of public interest. There is good reason to ensure that decisions requiring transfer of land are only made by arbitrators when the parties have clearly chosen this. The availability of summary enforcement from a court is consistent with maintaining the exclusion since it provides safeguards for the appropriate enforcement of decisions that may have far reaching effects on third parties. In the usual case those safeguards can be applied summarily.
    4. In light of the policy reasons for the restriction in section 48(5) and its express wording there is a strong argument that if parties want to confer jurisdiction on a tribunal to order specific performance of a contract relating to land, they must use clear terms. Merely incorporating a different governing law should not be sufficient to amount to an agreement in writing to contract out of section 48(5)(b).
    5. This case involves the choice of a Beth Din. While choosing London arbitration, the parties agree for Jewish law to cover the procedure of their dispute, not merely the substance. A Beth Din is frequently used as a forum where family and community disputes are resolved. These will often involve the transfer of real property, typically family property. I am told that it is common for a Beth Din to make orders for transfer of property. It would be surprising if a Beth Din were acting without power in doing so.
    6. I have come to the conclusion that the Claimant was correct to argue that by agreeing to the application of Jewish law to the procedure of the arbitration the Beth Din has power to order the transfer of the Property because Jewish law gives the Beth Din power to make such an order. However, I do not accept the route by which the Claimant reached that conclusion.
    7. The Claimant relied on the decision of Lightman J in Kastner v Jason [2004] EWHC 592 regarding whether a Beth Din had power to grant a freezing order. Powers of arbitrators to grant such relief are subject to section 39 of the 1996 Act. It is somewhat differently worded to section 48 but carries the same intention to confer powers where parties agree (but not otherwise). In addressing that question Lightman J considered that “the critical issue is accordingly whether the grant of such a power is implicit in the provision of the Arbitration Agreement that the Beth Din shall apply Jewish procedural and substantive law.” On the Jewish law before him he was satisfied that there was such a power and concluded that the Beth Din had jurisdiction to grant the freezing order.
    8. The matter went to the Court of Appeal ([2004] EWCA Civ 1599) and Rix LJ summarised the position as follows:

“15.  The judge therefore held that, in the absence of parties agreeing to confer such power on arbitrators, there would normally be no jurisdiction in an arbitration held under English law for the arbitrators to make a freezing order at an interim stage prior to a final award. In the instant case, however, Mr Kastner and Mr Jason had agreed that the Beth Din should apply Jewish procedural and substantive law. If therefore Jewish law permitted a Jewish court to grant an interim freezing order, then the arbitration agreement vested the Beth Din in this case with the necessary jurisdiction.”

    1. Rix LJ commented that no issue had been taken on this analysis, pointed to debate on the area and emphasised that the Court of Appeal had not taken any particular view on the above analysis taken at first instance.
    2. It was critical in Kastner v Jason that the court was dealing with an agreement on the application of the procedural law of another legal system. The mere choice of a foreign law (or religious system of law) as the governing law would not be sufficient to amount to an agreement conferring powers for the purpose of section 39. In that case it was clear that section 39 concerned provisional relief which was a matter of procedure. Section 48 is less obvious since remedies are not wholly a matter of procedure.
    3. The further significant reason why a choice of foreign law would not establish an agreement to confer powers for the purpose of section 48 is that it would not meet the express requirement that the agreement must be made in writing. This reflects an important policy in the interests of certainty. The meaning of “writing” is defined in firm terms in section 5 of the Act. It does not cover an implied agreement and, to that extent, there is perhaps doubt as to Lightman J’s approach in looking for an “implicit” agreement.
    4. I am cautious to depart from the route of Lightman J (and that put forward by the Claimant) and the point is technical but the statutory limitations on powers require careful application. I consider that the agreement on Jewish procedural law does not amount to an agreement to confer powers for the purpose of the proviso to s48(5) but it means that section 48 simply does not apply since Jewish law is the curial law and it provides for remedies available to a Beth Din.

a) The parties chose London as the seat of the arbitration and for the 1996 Act to apply. English law allows parties to choose a different curial law, even if the seat is London. This is unusual and requires clear agreement since it can give rise to legal complications and uncertainty, for example in identifying the regime applicable to any challenge.b) English law gives effect to a choice to refer disputes to arbitration in London in accordance with religious systems of law, subject to the mandatory provisions of the 1996 Act.

c) Section 4(5) of the 1996 Act provides that “the choice of a law other than the law of England and Wales or Northern England as the applicable law in respect of a matter provided for by a non-mandatory provision of this Part is equivalent to an agreement making provision about this matter”.

d) Rather than asking whether the parties were agreeing powers for the purpose of the proviso to section 48(5) the better analysis is to ask whether section 48 has any application, and whether the choice of Jewish law as the procedural law of the arbitration amounted to an agreement on all the non-mandatory provisions of the Act covered by Jewish law.

e) The parties expressly agreed on arbitration in accordance with the 1996 Act and a discretion for the Beth Din to apply other laws where appropriate under Jewish law. This probably means that the 1996 Act will apply as a residual framework to fill gaps, as well as by reason of mandatory provisions.

f) Section 48 is not a mandatory provision. Jewish law covers the matter of remedies including the Beth Din’s powers to order specific performance of a contract relating to land. Section 48 accordingly does not apply.

Accordingly, I conclude that the Beth Din had power to order specific performance of a contract relating to land.

Even if the Beth Din lacked power to make such an order, does the Court have such power?

    1. The Claimant argued that the court has power to make an order for specific performance even if the Beth Din lacks such power relying on Vertex Data Science Limited v Powergen Retail Limited [2006] EWHC 1340 (Comm) and the court’s wide powers as described by Russell on Arbitration (8-023). The Defendants objected (raising their underlying objection on specific performance) and also suggesting that Vertex was not authority for the proposition because it covered a different question as to the scope of the court’s primary jurisdiction on the merits.
    2. It was not necessary for me to decide this question and the authorities put forward were not decisive. The court’s discretion on enforcement is unfettered and it will have wide power to give effect to an award. However, it can only enforce the award: the power to order something different is limited. In this case I would have been willing to find that the court had jurisdiction under section 66 to make an order transferring the Property even if the Beth Din lacked powers to make such an order. More generally this would be a somewhat unusual situation since (on the presumed basis) the award would be open to challenge on grounds of the tribunal’s lack of power and the absence of power may give rise to other good reasons for refusing enforcement as a matter of discretion.

Should the Court exercise its discretion under section 66 to order a transfer of the Property?

    1. The Claimant’s position was a strong one, namely that an unchallenged award must be regarded as valid, and the court should recognise and enforce it. He relied on s.66 of the Arbitration Act 1996 and on the Court of Appeal’s decision in Middlemiss & Gould v Hartlepool [1972] 1 WLR 1643, and also Hamblen J in Sovarex v Romero [2011] EWHC 1661.
    2. He accepted that the court has a discretion on an application under s.66 but contended that the court must presume that an award is valid, and it is for the party resisting enforcement to prove otherwise. The Claimant alleged that there are only three grounds of challenge to the enforcement of an arbitration Award in England under part 1 of the 1996 Act: first, a challenge to substantive jurisdiction; secondly, a challenge for serious irregularity and thirdly, an appeal on point of law.
    3. The Claimant argued forcefully that the Award was made nearly 5 years ago and it has been unchallenged. The Claimant were entitled to the benefits of that Award. Substantial sums of money had been advanced to the Defendants (and loans waived) on the basis of his agreement to sell the Property. The Claimant had asked the Defendants to agree to remission of the Award on specific terms and contended that they had failed to cooperate. Enforcement was required as a matter of fairness and to reflect the statutory policy that awards should be given effect.
    4. The Defendants’ starting point was that they would simply prefer that the enforcement application be dismissed. When pressed, they indicated a preference to start again wholly afresh with a new tribunal or for the Claimant to issue a new action on the Award. I indicated that these were unacceptable proposals, not least since no challenge had been made to the Award. On reconsideration the Defendants (through their counsel) made clear that they would be willing to agree to ask the Beth Din to reopen the matter on grounds of new evidence and would not oppose the joinder of Mr Stern.

Conclusions on discretion

    1. Any arbitration award that has not been challenged is final and is treated as binding. It should ordinarily be enforceable, and s.66 should be a straightforward remedy for achieving that. The provisions of the 1996 Act are firmly in favour of giving effect to arbitration awards and enabling them to be enforced. The starting point is the statutory policy in favour of giving effect to an unchallenged award.
    2. However, the Court has a wide discretion in deciding whether to enforce and domestic awards are not subject to the mandatory rules of the New York Convention. Section 66 is never a rubber-stamping exercise. While monetary awards will not automatically raise an investigation as to whether they are properly to be enforced, the enforcement of an award in the form of a declaration or a mandatory injunction is more likely to generate specific consideration. These are always regarded as discretionary remedies whenever granted, and the court’s order in similar terms will only be granted if appropriate. The Court of Appeal in West Tankers v Allianz [2012] EWCA Civ 27 commented in respect of the question whether to enforce a declaratory award:

The purpose of section 66 is to provide a simpler alternative route to bringing an action on the award….The language of the section is permissive. It does not involve an administrative rubber stamping exercise. The court has to make a judicial determination whether it is appropriate to enter a judgment in the terms of the Award. There might be some serious question raised as to the validity of the Award or for some other reason the court might not be persuaded that the interests of justice favoured the order being made, for example because it thought it unnecessary.”

    1. The Claimant’s analysis of the grounds of challenge to enforcement covers the common grounds of challenge but it fails to address the broader discretion to decline enforcement where it would be contrary to the interests of justice. It is also clear from the express wording of sections 66 and 81 of the 1996 Act, and its legislative history, that the court has a wide discretion to decline to enforce an Award.
    2. The court remains entitled to decline to enforce an Award on public policy grounds, and also where third parties’ rights would be prejudiced or where there are issues as to the arbitrability of the dispute. This is apparent from the comments of the DAC Report on the effect of s.66:

“373. In our view the way we have drafted Clause 66 sufficed to cover all the cases where enforcement should be refused. However, since the Bill was published it has been suggested to us that it would be advisable to spell out in more detail two particular cases, namely those where the arbitral tribunal has purported to decide matters which are simply not capable of resolution by arbitration, whatever the parties might have agreed (e.g. custody of a child) and those where the tribunal has made an Award which (if enforced) would improperly affect the rights and obligations of those who were not parties to the arbitration agreement.374 On the present wording, it does not follow that the Clause somehow sanctions enforcement in those cases. The reason for this is that the Clause does not require the Court to order enforcement, but only gives it a discretion to do so. That discretion is only fettered in a negative way, i.e. by setting out certain cases where leave to enforce an Award may be refused.”

It later decided against an express reference to these categories of cases but stated in the DAC Supplementary Report in relation to section 66:

“33 However, on further reflection we concluded that it would be preferable, instead of having a list which would have to be expressed as not closed, to have no list at all instead relying on the fact that the opening words of the provision to not require the Court to order enforcement, but only give it a discretion to do so. …However, it will be noted that in what is now section 82 it is made clear (by an amendment to the Bill as introduced) that any rule of law relating in particular to matters which are not capable of settlement by arbitration or…on the grounds of public policy continues to operate.”

    1. Section 81 gives effect to this by providing:

“81 Saving for certain matters governed by common law.(1) Nothing in this Part shall be construed as excluding the operation of any rule of law consistent with the provisions of this Part, in particular, any rule of law as to—

(a) matters which are not capable of settlement by arbitration;

(b) the effect of an oral arbitration agreement; or

(c) the refusal of recognition or enforcement of an arbitral award on grounds of public policy.”

    1. In exercising discretion as to enforcement of an order requiring a party to transfer real property relevant considerations will include the practicality and usefulness of enforcing the order (see West Tankers). The order of a court, unlike that of an arbitral tribunal, may be binding on third parties, and will ordinarily be public so the court may take into account different considerations to those that influenced the tribunal, especially where ownership of real property is in issue. I took these matters into account and also the new evidence of the parties’ financial arrangements subsequent to the Award, workability, arbitrability, issues of public policy, the interests of third parties, as well as the overall interest in giving effect to a final arbitration award.

Arbitrability and workability

    1. I raised the issue of arbitrability as to questions as to ownership of land, especially where there is a firm policy in this jurisdiction in favour of public registers of land ownership. An arbitration award determining ownership of real property could only bind the parties to the award, and a dispute as to a person’s absolute ownership rights against all others may not be arbitrable. Arbitrability was not seriously challenged by the Defendants. I accept the Claimant’s argument that there is a discernible trend towards expanding the range of disputes that are arbitrable, and that ownership of land does not fall within the normal categories such as crime and matters of public policy
    2. However, determination of land ownership has strong aspects of public policy in all jurisdictions. A special value of property ownership is that it will bind third parties. A determination by an arbitral tribunal may have limited weight and that may affect decisions on enforcement. I accept the point put forward from the Court of Appeal’s decision in Fulham Football Club (1987) Ltd v Richards [2012] Ch 333 [84] stating that:

jurisdictional limitations on what an arbitration can achieve are not themselves decisive of the question whether the subject-matter in dispute is arbitrable.”

    1. This comment suggests that limits on the usefulness of arbitration may influence arbitrability (or at least flag it up) as well as public policy considerations. It also suggests that it may be difficult to identify a hard line between what is arbitrable and not, and this will be a question of discretion.
    2. Overall, I conclude that the dispute before the Beth Din was arbitrable, not least because some of the public policy considerations can be addressed on enforcement. However, the arbitrability of disputes on land ownership may depend on the context. If this Award related to title to land in another jurisdiction, or it was a foreign award (subject to the New York Convention) then questions of arbitrability and public policy could entail different considerations.
    3. The Defendants maintained an objection that the Award was unworkable. There were difficulties with the strict terms of the Award because the Claimant has no means to discharge the mortgage since he is not a party to it, and the mortgagee cannot be ordered by a tribunal to accept the funds of the Claimant or his nominee. There were also potential difficulties in taking account of the position of the existing interests on the title to the Property. However, I accept the Claimant’s submission that the Award would require the Defendants to cooperate to achieve the redemption of the mortgage, and this would resolve the main uncertainty arising. Appropriate wording could also address the existing interests on the title. Accordingly I conclude that the Award is not unworkable on its face.

The significance of the new evidence

    1. One of the reasons I adjourned the hearing in April 2019 was because I was not satisfied that the Beth Din had been given the whole story. Ordinarily this would make no difference at the enforcement stage. However, here there was an unusual lack of consistency between what the Claimant was putting forward to justify enforcement and what he had told the Beth Din. This was relevant to my discretion because if the Beth Din was misled or there was underlying illegality this could go to whether there were public policy grounds for refusing enforcement. A material change in circumstances then could also affect whether enforcement is in the interests of justice.
    2. Taking account of the findings in the Award and the new evidence, I am satisfied that the Beth Din may not have been given the full relevant information regarding who was party to the Heskem, the financial arrangements surrounding it and the parties’ subsequent performance, including the matters that have now been put before me, in particular that:

a) Mr Sterling was acting as undisclosed agent for Mr Shimon Stern in all matters relating to the transaction, including the conclusion of the Heskem and commencing and pursuing the arbitration;b) Mr Stern was purchasing the Property in 2008 as the principal contracting party and Mr Sterling was only an agent;

c) Mr Stern was the true owner of the Property;

d) Since the date of the Heskem the Claimant had been claiming and receiving benefits to the value of around £400 per week on the basis that he had no ownership in the property and was obliged to pay rent to the Defendants.

    1. The Defendants had objected to enforcement on grounds that the Claimant entered into the Heskem as agent for Mr Stern and was not competent to sue on it. At the hearing on 10 April 2019 the Claimant denied this allegation and maintained that the Claimant was the true owner of the Property and the contracting party and, “Mr Stern was not a disclosed principal, but Mr Sterling’s nominee, as the Award makes clear.”
    2. In April I rejected the Defendants’ objection as one that could have been made earlier. However, the Claimant has now raised new evidence putting forward a different case as to the role of Mr Stern and the Claimant. The Claimant’s counsel properly accepted that on the basis of the case previously put forward the Defendants (and the Beth Din) may have assumed Mr Sterling was the true purchaser of this property. This might have led me to conclude that a jurisdictional objection was still available by reason of the change in case. However, the Defendants’ counsel made clear that it had always been part of their case that Mr Stern was principal and that Mr Sterling was acting as agent and was not competent to sue on the Heskem. On this basis I remain of the view that the Defendants could always have objected at a much earlier stage to the Beth Din’s jurisdiction on grounds that the Claimant was only an agent. However, it failed to do so and accordingly I maintain my decision that such objection was not a ground to resist enforcement of the Award. It may, however, remain open to the Beth Din to raise its own jurisdictional questions in the future.

The interests of third parties

    1. Specific performance is an equitable remedy and will not be granted by an English court if it interferes with the rights of third parties or a party has not come to court with clean hands (see Snell’s Equity, 33rd Ed at 17-039 & 044). This principle would apply even if the tribunal had powers under Jewish law to give similar relief. However, at the enforcement stage the court must be alert to avoid substituting its own views for that of the tribunal on the merits of the claim for relief awarded.
    2. Here, the interests of several third parties were engaged. Firstly, Mr Stern who had applied to enter a caution on the Land Register in 2014, and who was named as the Claimant’s nominee in the Award. He has now made a statement in these proceedings and is not objecting to Property being transferred to Dunsmure Estates Ltd. He has not expressly given evidence of willingness to take title although at the hearing this was indicated. Further relevant parties are the mortgagees who contracted with the Defendants. They may not be willing to discharge the mortgage against funds from a third party. However, this could be overcome by requiring the Defendants to provide the necessary consents to enable the mortgage to be discharged. The other parties listed on the title to the Property must be taken into consideration although this can probably be resolved by a suitable wording. Hackney BC was the further party that I considered had an interest.
    3. The Claimant suggests that Hackney BC is not a matter of concern as this is a matter that can be taken up by Hackney BC. He also suggests that the issue of housing benefit is not directly relevant to matters that were in dispute before the Beth Din and should not impact on the enforceability of the Award as there has been no suggestion of an unlawful scheme with respect to housing benefit. I do not accept that these submissions justify me making an order for enforcement.

a) The Claimant’s receipt of housing benefit is directly relevant to the matters in dispute because it was the Beth Din’s finding that the Claimant had taken responsibility under the Heskem to pay the mortgage. It was his evidence in these proceedings that he had taken over the mortgage, and that following the Heskem he had stopped paying rent, the First Defendant started paying him rent (and the Award stated that the Claimant had also been paid rent by the basement tenant Mr Israel Rand), and that “rent” was used to pay the mortgage. He put forward no supporting evidence of having paid the mortgage from his own funds or having received rent from the Defendants or Mr Israel Rand (and indeed the evidence suggested that the mortgage had not been fully paid). It appears likely that his housing benefit payments (and those of other tenants) were used to fulfil his obligation to pay the mortgage on what he told the Beth Din was his own property, or what he is now telling the court is the property of Mr Stern. This is directly relevant to his request for specific performance and would clearly be a matter concerning the rights of Hackney LBC.b) His current evidence suggests that he failed to update Hackney LBC on important changes in circumstances following the Heskem. In particular, that the Property was owned by himself (the position he put to the Beth Din and also the Land Register) or Mr Stern (the position he now puts to the Court), and the Defendants were liable to pay him rent (the position he put to the Beth Din). He also had £50,000 to spend on the Property in 2010.

c) If I were to order the transfer of the Property to Mr Stern then Hackney would be prejudiced by that order since it would have no recourse against the Property as security for any claim if it chose to take up the matter as suggested.

d) The court has its own duty to inquire into the propriety of making any order and may raise its own concerns that housing benefit has been claimed on an incomplete or false basis.

Conclusions on discretion

  1. It is a serious and unusual case where an unchallenged award is not enforced by the court. I have taken account of the arguments in favour of enforcement. I am acutely conscious that the parties agreed on arbitration to resolve their dispute in 2014 and the Beth Din gave a prompt decision after hearing both sides. However, I am not satisfied that it would be in the interests of justice to make an order that the Property be transferred into the name of Mr Stern or the Claimant. The new evidence put forward to justify this order is directly inconsistent with the case that was put before the Beth Din regarding the contracting party to the Heskem and the person to whom ownership of the Property was to be transferred. The new evidence regarding housing benefit also suggests that relevant information was not made available to the Beth Din showing that performance of the Heskem may have involved the wrongful claim and receipt of housing benefit from Hackney BC (both before and after the hearing before the Beth Din). In these circumstances an order for specific performance would not be in the interests of justice, it could be contrary to public policy and it could damage the integrity (and reputation) of the Beth Din system.
  2. Accordingly I decline to make the order sought. I do not dismiss the application because it remains open to the parties to address the matters that have given rise to serious concern and resolve them in their chosen tribunal (or for Hackney to take up the matter separately if it chooses). The simplest measure would be to ask the Beth Din to reopen their award on grounds of the new factual evidence before me. There is evidence (including correspondence from the Beth Din) that they have powers to reopen a matter on grounds of new evidence. In any event the parties could agree to remit matters back to them. As matters stand, I am not satisfied that I would have any power under the 1996 Act to order that the Award be remitted.
  3. It is a matter for the Beth Din as to whether it will allow new evidence to be admitted or Mr Stern to be joined. It can decide the significance of the evidence. If the Defendants were unwilling to remit the matter to allow these concerns to be addressed or if the Beth Din decides that its Award remains unchanged then finality should prevail and it remains open to the Claimant to restore this application.

In the Matter of the Insurance (Vehicle) Act and the Commercial Arbitration Act and S.A, 2019 BCSC 1655

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation: In the Matter of the Insurance (Vehicle) Act and the Commercial Arbitration Act and S.A.,
  2019 BCSC 1655

Date: 20190927

Docket: S191689

Registry: Vancouver

In the Matter of the Insurance (Vehicle) Act, R.S.B.C. 1996 c.231
and The Commercial Arbitration Act, R.S.B.C. 1996 c.55 and
Amendments thereto

and

In the Matter of S.A.

Before: The Honourable Madam Justice Dillon

Reasons for Judgment

Counsel for the Petitioner: Quinlan, D., Q.C.
Counsel for S.A. and WorkSafe BC: Murphy, J., Q.C.
Place and Date of Trial/Hearing: Vancouver, B.C.

July 5, 2019

Place and Date of Judgment: Vancouver, B.C.

September 27, 2019

Introduction

[1]           The petitioner, The Insurance Corporation of British Columbia (“ICBC”), seeks leave to appeal the decision of arbitrator, Donald W. Yule, Q.C., pronounced on December 18, 2018 (the decision”). The sole issue in the arbitration was whether Workers Compensation Board (“WCB”) benefits to be paid to the claimant, S.A., were a deductible amount from his Underinsured Motorist Protection (“UMP”) compensation arising from a 2004 motor vehicle accident. The arbitrator decided that the claimant’s WCB benefits were not deductible from his UMP compensation.

[2]           The respondent did not consent to an appeal to this court. In that circumstance, leave to appeal the decision of the arbitrator is required by s. 31(1)(b) Arbitration Act, R.S.B.C. 1996, c. 55.

Background Facts

[3]           The arbitration proceeded by way of an agreed statement of facts that are similarly not in issue here.

[4]           On November 8, 2004, S.A. was the occupant of a parked truck owned by his employer when the truck was struck by a vehicle that itself had been struck by an oncoming vehicle driven by an uninsured motorist in a high speed police chase. The uninsured motorist was killed. S.A. was seriously injured and became permanently disabled. The parties agreed that the value of S.A.’s claim exceeded $1 million.

[5]           S.A. was an insured person for purposes of UMP under his owner employer’s insurance policy that had been purchased on March 14, 2004. S.A. was required to share the $200,000 uninsured motorist limit with two others who were injured in the accident.

[6]           In April 2005, S.A. submitted an application for WCB benefits but elected to pursue his tort claim. ICBC advised that the at fault motorist was uninsured and that any amount received from WCB would be a deductible amount under the UMP. S.A. commenced an action against the uninsured driver and others in October 2006.

[7]           On June 1, 2007, the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231 (“old legislation”) was repealed and replaced with the Insurance (Vehicle) Act, R.S.B.C. 1996 c. 231 (“new legislation”) (Insurance (Motor Vehicle) Amendment Act, S.B.C. 2003, c. 94). New regulations were also enacted: particularly, s. 148.1 Insurance (Vehicle) Regulation, B.C. Reg.447/83 (“old regulation”) was revised with s. 148.1 Insurance Motor Vehicle Regulation, B.C. Reg. 166/2006 (“new regulation”). It is common ground that, under the old regulation, ICBC deducted WCB benefits received where the insured elected not to claim compensation or WCB pursued its right of subrogation. Under the new regulation, ICBC was precluded from deducting WCB benefits. Thus, at the time of the accident, ICBC was entitled to deduct from the UMP award any workers’ compensation benefits to which an insured was entitled.

[8]           Through a series of court proceedings, S.A.’s action against the defendants other than the uninsured motorist was dismissed by the British Columbia Court of Appeal in June 2013. In February 2017, the trial against the uninsured motorist was adjourned and the parties agreed to proceed to an UMP arbitration on the basis that S.A.’s claim exceeded $1 million.

[9]           On February 7, 2018, S.A. re-elected to claim WCB benefits rather than proceed with his claim. Worksafe BC became subrogated to S.A.’s tort and UMP claims. The value of the WCB benefits at issue is between $500,000 to $600,000.

[10]        On February 18, 2018, ICBC and Worksafe BC, pursuant to its right of subrogation, participated in the UMP arbitration pursuant to Part 10, Division 2 of the new legislation and the Commercial Arbitration Act, R.S.B.C. 1996, c. 55.

[11]        This case, and possibly one other, are the only outstanding UMP claims that pre-date June 1, 2007.

The Decision

[12]        The arbitration proceeded under an agreed statement of facts, particulars of which are set out above. The sole question for decision was whether the WCB benefits paid to S.A. were deductible from his UMP compensation. The answer depended upon whether the 2007 change to the new legislation applied to his claim (decision para.1).

[13]        The arbitrator began by setting out the applicable legislation, old and new. The statutory scheme required compensation to be calculated and then reduced by the sum of applicable deduction amounts. Under the old provision, the WCB benefit was deductible without exception. Under the new legislation, the benefit was deductible unless the Workers Compensation Board pursued its right of subrogation, as here (s. 148.1(1)(f)(ii) new regulation). He also set out the transitional provision, s. 81(1) of the Insurance (Motor Vehicle) Amendment Act as follows:

81(1) The Insurance (Motor Vehicle) Act and the regulations under that Act as they read before the coming into force if this Act apply to

(a)  Insurance under that Act that took effect before the coming into force of this Act,

(b)  claims under that insurance, and

(c)  insureds and the corporation in relation to that insurance.

[14]        Other transitional provisions were also detailed (decision paras.9-16). The arbitrator noted that these transitional provisions applied across the whole range of legislative changes and were not specific to the problem addressed in new regulation s. 148.1 (decision para.74).

[15]        The arbitrator then set out the provisions of the Interpretation Act, R.S.B.C. 1996, c. 238 that applied where an Act is repealed and another Act substituted for it, the situation relevant to the old and new legislation here. Particularly, the arbitrator cited s. 36(1)(b) Interpretation Act wherein every proceeding commenced under the former enactment must be continued under and in conformity with the new enactment so far as may be done consistently with the new enactment (decision paras. 17-18). S.8 Interpretation Act, that requires every enactment to be construed as being remedial and that mandates a fair, large, and liberal interpretation to best ensure attainment of its objects, was also cited (decision para. 19).

[16]        The arbitrator then noted the parallel change to hit and run or unidentified motorist claims as to uninsured motorist claims in the new legislation, so opening the door to case law comparison later (decision paras. 20-21).

[17]        In summarising the positions of both parties, the arbitrator detailed the claimant’s third submission, that the overall purpose of the universal compulsory auto insurance scheme is far more important than the wording of the statutory auto insurance contract and that the transitional provisions of the Insurance (Motor Vehicle) Amendment Act must be applied in a manner consistent with the overall statutory scheme (decision para. 27). The petitioner says that the arbitrator erred in accepting this submission. Significantly, both parties agree with the arbitrator’s analysis until the point that he embarked upon and accepted this submission.

[18]        The arbitrator then reviewed relevant case law including Buxton v. Tang, 2007 BCSC 1101 (CanLII) (an uninsured motorist claim), Ayres v. John Doe, 2008 BCSC 48 (CanLII), 2009 BCCA 552 (a hit and run claim), Hicks v. Bieberbach Estate, 2011 BCSC 226 (CanLII) (an uninsured motorist claim), and Kovacs v. ICBC, No.924468 Vancouver Registry, January 7, 1994 (an underinsured motorist claim). The arbitrator distinguished Kovacs from the other cases on the basis that the other cases were not claims included in a statutory contract of insurance with ICBC but had rested upon statutory claims (decision paras. 42, 43, 53-55, 70-73). Using that distinction, the court in Kovacs was able to determine that a new deductible amount that came into effect after the contract of insurance was entered into but before the accident date was not applicable to the claimant.

[19]        The arbitrator also reviewed the cases central to the claimant’s third submission, Niedermeyer v. Charlton, 2014 BCCA 165 (CanLII), Felix v. ICBC, 2015 BCCA 394 (CanLII), and Symons v. ICBC, 2016 BCCA 207 (CanLII), before beginning his discussion and analysis.

[20]        The arbitrator began his analysis by noting that the onus of proving the deductible amount lay with ICBC (decision para. 65). The changes to the legislation were remedial in nature, intended to eliminate the double deduction of benefits to the detriment of an injured insured (decision para. 66). The transitional provisions applied to a statutory contract of insurance and the claim here was brought under a pre-existing contract of insurance (decision paras. 68 and 72).

[21]        The arbitrator concluded that the legislative changes were prospective in nature: but, he went on to say that where a statutory contract of insurance was in effect prior to the change, “…the contract would not be altered to the detriment of the insured without specific language in the legislation indicating a retroactive effect” (decision paras. 74-75). The petitioner agreed with this analysis so far, except for the words “to the detriment of the insured”. The arbitrator went on to follow the decision in Kovacs to conclude that in the case of a pre-existing contract of insurance, the old regulation requiring deduction of benefits remains part of the contract (decision para. 77). So far so good for the petitioner here.

[22]        The arbitrator then stated that the application of Kovacs did not end the matter and there was the further consideration of the claimant’s third submission, “that the context of the legislative scheme to provide a universal compulsory insurance program and access to compensation for those who suffer losses from motor vehicle accidents must be taken into account both in interpreting the transitional legislative provisions and in considering the enforceability of a contractual term” (decision para. 77). The decision shifts here to the statutory interpretation established in Rizzo and Rizzo Shoes Ltd. (Re), (1998) 1998 CanLII 837 (SCC), 1 S.C.R. 27: that a plain language alone interpretation of legislation is not sufficient. On this basis, the clear literal meaning of the transitional provisions had to be considered within the context of the benefit that the legislation was intended to confer, the problem that it was trying to correct. After further considering Rizzo and Niedermeyer and Symonsthe arbitrator concluded:

[88]      In the present case a similar absurdity occurs. An insured who took out a contract of automobile insurance on June 1, 2007 would not have WCB benefits deducted from their UMP claim. An insured who took out a contract of automobile insurance on May 31, 2007 would have WCB benefits deducted from their UMP claim notwithstanding the legislative change removing the deduction because of its acknowledged unfairness.

[89]      To adopt the language of Rizzo, it would be extremely inequitable and hence an absurd consequence to apply a deduction that the legislation has just removed as being unfair to injured UMP claimants.

[90]      What distinguishes the present case from Kovacs is that the amending legislation in Kovacs was detrimental to the interests of the insured because it added an additional deductible amount. In the present case, the legislative change was conferring a benefit on insureds by relieving them of the inequity of a double deduction of WCB entitlement in UMP claims.

[91]      … In my view, applying the Kovacs analysis and the transitional Section 81(1), that change would not apply to claims under contracts of insurance in existence prior to June 1, 2007.

[92]      In my view, to require the deduction of WCB entitlement in this case under the Old Regulation would be inconsistent with the overall scheme of providing universal compulsory automobile insurance and in particular the purpose of deductible amounts in calculating UMP compensation; it would be contrary to the principles of statutory interpretation requiring a broad and generous manner of interpreting benefits conferring legislation; and it would be unfair and unjust to this Claimant to saddle him with a deduction that the legislature has abolished for other UMP claims.

Positions of the Parties

[23]        The petitioner says that the arbitrator correctly concluded that S.A.’s UMP claim was governed by the terms of the 2004 statutory contract of insurance, that the change to the legislation was prospective, and that the transitional provisions made it clear that the legislation was not to apply retrospectively. The error occurred when the arbitrator went further than statutory interpretation of the transitional provision and found that it was unfair and unjust to this claimant to saddle him with a deduction that the legislature had abolished, based upon the Risso, NiedermeyerFelixand Symons decisions that required a principled approach to interpretation based upon the overall legislative scheme. The petitioner argued that the intention of the legislative was clear in the transitional provisions and the arbitrator should have followed the clear wording of the provision. “To ignore the statutory presumption and transitional provision because the arbitrator was of the view that it would be unfair to the claimant is wrong”.

[24]        The petitioner argued that the legal question at issue had arguable merit within the meaning of s. 31(2)(a) Arbitration Act and was therefore appropriate for appellate review. The amount of benefits in issue ($500,000 – $600,000) and the principle involved justified court intervention under s. 31(2)(b) and (c). The uncertainty introduced to the interpretation of any given benefit conferring piece of legislation justified intervention because of the importance to that class of persons of which the claimant and ICBC are members. There was no basis upon which to exercise overriding discretion.

[25]        The respondent argued that the decision was correct – end of story. The arbitrator was correct to interpret the legislation, realize that the claimant did not get the benefit of the new legislation, realize that this created an absurdity, and then apply public policy. The respondent said that the arbitrator did not go on a tangent but applied the process in Symons and Niedermeyer to give the claimant the benefit of the change, as was done in most of the cases, one way or the other. The key to the respondent’s position was to look not at only the transition provision but the whole of the legislative automobile insurance scheme or intent to determine the meaning of the provision.

[26]        The respondent said that the requirement of s. 31(2)(a)(b)(c) Arbitration Act were not met because this was a one only case of its kind and there is no general or public importance because the issue pertains to only this single claimant. Also, the residual discretion of the court should be exercised because the deferential standard of review, reasonableness, was met when the arbitrator reached a decision consistent with case law and consistent with the universal compulsory scheme of auto insurance in this province. The double deduction result without the favourable interpretation would be inconsistent with the overall scheme of the legislation and unfair and unjust to S.A.

The Test for Leave to Appeal: s. 31 Arbitration Act

[27]        A party to an arbitration may appeal to the court on a question of law arising out of an award if the court grants leave to appeal, the parties here not having consented to an appeal (s. 31(1) Arbitration Act). The test for leave to appeal is set out in s. 31 (2) Arbitration Act as follows:

31 (2)   In an application for leave under subsection (1)(b), the court may grant leave if it determines that

(a)  the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice,

(b)  the point of law is of importance to some class or body of persons of which the applicant is a member, or

(c)  the point of law is of general or public importance.

(3)        If the court grants leave to appeal under subsection (2), it may attach conditions to the order granting leave that it considers just.

[28]        The availability of s. 31 depends upon identification of a question of law for which leave is sought (Satvva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII) at para. 42). Limiting appeals to questions of law limits intervention of appellate courts to cases where the results have an impact beyond the parties to the particular dispute (Sattva at para. 51).

[29]        Once a question of law has been identified, the court may grant leave if one of the statutory conditions set out in s. 31(2)(a)(b) or (c) are met (BCIT (Student Association) v. BCIT, 2000 BCCA 496 (CanLII) at para. 9). Thus, one of the requirements of s. 31(2) (a), (b), or (c) must be met and, even if met, there is residual discretion to deny leave (Satvva at paras. 39 and 85; BCIT (Student Association) at para. 9).

A Question of Law

[30]        The legal issue here is whether, after having found that the new legislation was prospective and the transition provisions clear, the arbitrator fell into error by going further and finding that it would be unfair and unjust to deny this claimant the benefit of the new legislation, based upon the principled approach adopted in Rizzoand then applying an interpretation of the overall scheme of the legislation and a broad interpretation of benefits conferring legislation nothwithstanding a clear transition provision. The petitioner argued that the arbitrator ignored the intention of parliament, part of the principled approach established in Rizzo at para. 21. The arbitrator also went beyond his mandate by embarking on his own inquiry into fairness without a legal framework.

[31]        A strict interpretation of prospective benefits conferring legislation was made in the Buxton v. Tang line of cases. Transitional provisions provide express guidance as to whether amendments that affect substantive rights are to apply retrospectively (R. v. Dineley, 2012 SCC 58 (CanLII) at para. 3). It is only when there are no such provisions that resort must be had to general principles (Dineley at paras. 3 and 10). There must be clear legislative intent that new legislation that affects substantive rights is to be applied retrospectively (Dineley at para. 10). There appears to have been no discussion of the effect of a transitional provision in the NiedermeyerFelixand Symons line of cases.

Section 31(2)(a)

[32]        Section 31(2)(a) requires that the result of an arbitration must be sufficiently important in terms of principle or money to the parties to justify the expense and time of court proceedings (Sattva at para. 41).

[33]        Section 31(2)(a) also requires that the determination of the question of law may prevent a miscarriage of justice. The applicant must demonstrate that the point of law on appeal is material to the final result and has arguable merit (Sattva at para. 79). The alleged error must pertain to a material issue in the dispute which, if decided differently, would affect the result of the case (Sattva at para. 70). This could only be established if the appeal has some possibility of succeeding (Sattva at para. 71). The full merits of the case are not to be considered but only whether there is a potential to succeed and so change the results of the case (Sattva at para. 72). The threshold is establishment of arguable merit (Sattva at paras. 73-74). Assessment of whether the issue raised has arguable merit asks whether there is any arguable merit to the position that the arbitrator’s decision is unreasonable (Sattva at para. 75; The New Forest Woodland Inc. v. The Nature Trust of British Columbia, 2015 BCSC 111 (CanLII) at para. 43). This is not the time to determine whether the decision was actually unreasonable: it is the time to determine whether the petitioner has an arguable case that it was.

[34]        Although retrospective application of the new legislation affects a very few, the amount involved is not insignificant. However, it is the principle involved that attracts the most attention of s. 31(2)(a) here. Whether application of an interpretation of the purpose of a universal scheme of legislation as benefit conferring can be used to retrospectively apply substantive rights conferring legislation in the face of clear statutory intention to the contrary is a significant issue of importance to justify intervention of the court. There is scope here to find the arbitrator’s award to be unreasonable in the face of the Dineley assertion of the importance of a transition provision (at para. 10) within the Rizzo statement of statutory interpretation based not only upon the scheme and object of the act but also upon the intention of parliament as expressed in the wording of the legislation. Whether a policy interpretation broadly favouring the conferral of benefits can trump clear legislative intent expressed in a transition provision is an open issue when the question is not purely one of statutory interpretation but a question of whether certain legislation should apply. There is also the question of the application of Rizzo to the transition provision itself and not only to the statutory language conferring benefits. If the transition provision were applied here, the result would have been entirely different.

Sections 31(2)(b) and (c)

[35]        The parties did not focus on these sections and in view of my decision under section 31(2)(a), it is not necessary to further consider these sections.

Residual Discretion to Deny Leave

[36]        The considerations that apply in the exercise of the residual discretion to deny leave are non-exhaustive and include the conduct of the parties, the existence of alternative remedies, undue delay, and the urgent need for a final answer (Sattva at para. 91). The denial is to be exercised with caution, carefully weighing the discretionary factors (Sattva at para. 92).

[37]        There is no basis upon which to deny leave here.

Conclusion

[38]        Leave is granted for the petitioner to bring an appeal of the arbitrator’s decision on the issue of whether the arbitrator erred on the following issues:

  1. in declining to apply s. 148.1 of the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231 (the “Old Regulation”) to the contract of insurance under which the respondent, S.A. was an insured;
  2. in applying the statutory interpretation principles set out in Rizzo v. Rizzo Shoes Ltd., 1998 CanLII 837 (S.C.C.), to the incorrect piece of legislation; and
  3. in making an inquiry into “fairness” and ignoring the applicable legislation in the absence of a legal framework in which to do so.

[39]        Costs are in the cause of the appeal.

“Dillon J.”

Pokeno Village Holdings Limited v Pokeno Nine Limited [2019] NZHC 2358 (18 September 2019)

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-649
[2019] NZHC 2358
BETWEEN
POKENO VILLAGE HOLDINGS LIMITED
First Plaintiff
JOHN PATRICK NOBLE and PATRICIA MARY NOBLE
Second Plaintiffs
AND
POKENO NINE LIMITED
First Defendant
POKENO ELEVEN LIMITED
Second Defendant
PEL HOLDINGS LIMITED
Third Defendant
Hearing:
On the papers
Appearances:
C R Andrews and K T O’Halloran for the Plaintiffs S J Tee for the First and Second Defendants
B Stewart for the Third Defendant
Judgment:
18 September 2019

JUDGMENT OF GAULT J

This judgment was delivered by me on 18 September 2019 at 4.00 p.m. pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………………

Solicitors:

Mr C R Andrews and Mr K T O’Halloran, McVeagh Fleming, Auckland Mr S J Tee, Morton Tee Ltd, Takapuna

Mr B M Stewart, Simpson Western, Auckland

POKENO VILLAGE HOLDINGS LTD v POKENO NINE LTD & ORS [2019] NZHC 2358 [18 September 2019]

[1] The plaintiffs seek summary judgment on their claim for specific enforcement and liquidated damages in relation to alleged breach of covenants relating to the Gateway Business Park in Pokeno.

[2] The defendants filed appearances protesting jurisdiction on the basis of an arbitration clause in the relevant covenants. The plaintiffs have applied for orders setting aside the appearances under protest. The parties agree that the protests need to be resolved before the summary judgment application can proceed.

Issue

[3] The issue for determination is whether steps taken by the defendants in the proceeding prior to filing their notices of appearance under protest amount to submission to the jurisdiction of the Court. The parties agree that the issue is confined to submission to jurisdiction, waiver and estoppel – not the merits of the dispute – and can be dealt with on the papers.

Steps taken by the defendants in the proceeding

[4] The steps taken by the defendants prior to filing their notices of appearance under protest are not in dispute:

(a) On 23 May 2019 the first and second defendants filed a memorandum of counsel (unsigned) informing the Court of their position that they considered they were entitled to respond against the claim filed against them in a final form and, in view of the first plaintiff’s pending application to seek leave to amend, that they proposed to do so after determination of the application for leave to amend and therefore filed that memorandum to preserve their position in the interim.

(b) On 24 May 2019 the first plaintiff and third defendant filed a joint memorandum seeking directions by consent adjourning the summary judgment application against the third defendant, extending time for the third defendant to file any intended notice of opposition and affidavit
in support, timetabling reply affidavits, and recording the third defendant’s consent to leave to join the second plaintiffs.

(c) On 27 May 2019 by email to the registry, counsel for the first plaintiff and the first and second defendants requested a one week adjournment to enable counsel for the first defendant to obtain instructions from his client, whose principal was travelling abroad at the time.

(d) On 31 May 2019 counsel for the first plaintiff and the first and second defendants filed a joint memorandum on similar terms to the joint memorandum filed by the first plaintiff and third defendant on 24 May 2019.

Legal principles

Article 8 of Schedule 1 of the Arbitration Act 1996 (the Act)

[5] Article 8 corresponds in all relevant respects to the Model Law on International Commercial Arbitration adopted by UNCITRAL. It states:

8 Arbitration agreement and substantive claim before court

(1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.

(2) Where proceedings referred to in paragraph (1) have been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

[6] Article 8 is mandatory. If it is determined that article 8 applies, the Court shall stay the proceeding and refer the parties to arbitration.

[7] In determining whether there has been a statement on the substance of the dispute this Court should focus on whether a particular party has elected to submit the substantive dispute to the jurisdiction of the Court.

[8] A party may make a first statement on the substance of the dispute in a variety of ways, some of which vary depending on whether the party seeking the stay is the plaintiff or defendant. There can be no general prescription.

Rule 5.49 of the High Court Rules 2016

[9] Rule 5.49(1) provides that a defendant who objects to the jurisdiction of the Court to hear and determine the proceeding may, within the time allowed for filing a statement of defence and instead of so doing, file and serve an appearance stating the defendant’s objection and the grounds for it.

Waiver

[10] The plaintiffs rely on, and the defendants do not dispute, the classic description of waiver by Lord Denning MR in W J Alan & Co Ltd v El Nasr Export and Import Co:

The principle of waiver is simply this: If one party, by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so.

Promissory estoppel

[11] In relation to promissory estoppel, the plaintiffs rely on the statement in Laws of New Zealand, of which it is sufficient to state only part:

When one party has made a clear and unequivocal promise or assurance by words or by conduct to another party which was intended to affect the legal relations between the parties and to be acted on accordingly, then once the promisee has taken the promisor at his or her word and acted on the promise, the promisor is bound by it.

Submissions

[12] Mr Andrews for the plaintiffs submits that the defendants cannot rely upon article 8 because:

(a) they have already submitted to the jurisdiction of the Court and their notices of appearance came too late as a result of prior steps taken and/or statements made by them in this Court; and/or

(b) by virtue of their prior actions and/or statements and actions consequently taken by the plaintiffs in reliance on those, each of the defendants has waived its entitlement to rely on the arbitration agreement in confronting the plaintiffs’ claims or are estopped from doing so.

[13] Mr Andrews submits that, in order to give effect to r 5.49’s broader scope to capture all grounds of jurisdictional objection while recognising the superior legislative effect of article 8, where a defendant takes steps in a Court proceeding intimating some intention to oppose or defend the claim on the merits without first or contemporaneously filing an appearance under protest to jurisdiction, this should be treated as a submission to the Court’s jurisdiction or a waiver of that party’s entitlement to rely upon any applicable arbitration agreement – particularly where the opposing party has taken steps in the proceeding in reliance upon the indication given by the first party.

[14] Mr Andrews submits that the defendants could hardly have conveyed a more clear intention to fight in this Court than when they each signed respective consent memoranda agreeing to the Court allowing the second plaintiffs to join the fight as additional parties, and for all plaintiffs then to continue to pursue summary judgment application on an amended statement of claim directly against all three defendants. Further, the defendants also joined in seeking directions by consent setting out a
timetable for them to file respect of notices of opposition and affidavits in answer to the plaintiffs’ summary judgment application. The defendant’s actions in this regard can only sensibly be interpreted as an expression by them of an intention to oppose the plaintiffs’ claim in this proceeding on the merits. If defendants take steps that are necessary or useful only if jurisdiction is conceded, then by those steps the defendants submit to the jurisdiction.

[15] The defendants submit that their memoranda filed in this proceeding did not constitute a “statement on the substance of the dispute” in terms of article 8, nor involve any representation giving rise to waiver or any representation and reliance giving rise to estoppel.

Discussion

[16] For the purposes of the application to set aside, the plaintiffs accept that:

(a) there is an otherwise valid and enforceable arbitration agreement between the parties; and

(b) notwithstanding that the defendants have not yet set out or provided any particulars of grounds on which they purport to dispute the plaintiffs’ claims, the defendants have raised a qualifying dispute for the purposes of article 8 of Schedule 1 of the Act.

[17] I do not consider that the defendants’ participation in initial case management in this proceeding amounted to a statement on the substance of the dispute in terms of article 8. Giving effect to r 5.49 does not justify a departure from this Court’s usual approach to determining whether there has been a statement on the substance of the dispute in terms of article 8, namely whether a party has elected to submit the substantive dispute to the jurisdiction of the Court. It would be inconsistent with one of the purposes of the Act, namely encouraging the use of arbitration as an agreed method of resolving commercial and other disputes, to give “statement on the substance of the dispute” a broader interpretation. Also, in interpreting article 8, it is important not to undermine its purpose by concentrating on the particular manner in which court proceedings are conducted and case managed in New Zealand.

[18] This case does not involve an application for interim relief, where the cases show that the position may depend on whether the application for interim relief is in anticipation or in aid of arbitral proceedings.

[19] The plaintiffs rely on the judgment of Associate Judge Doogue in Stockco Ltd v Denize, which cited a passage from McGechan on Procedure:

If a defendant takes a step that is necessary or useful only if jurisdiction is conceded, then by that step a defendant submits to the New Zealand jurisdiction: Equiticorp Industries Group Ltd (in stat man) v Hawkins (No 2) [1991] 3 NZLR 700 (HC), at 715-717. This includes taking a step in response to a summary judgment application…

[20] In Stockco the defendants had filed a notice of opposition to an application for summary judgment. “Necessary or useful only if jurisdiction is conceded” needs to be understood in context. Here the defendants have not filed any notice of opposition.

[21] Participation in case management steps may or may not involve a statement on the substance of the dispute for the purposes of article 8. Here, I consider it did not. The defendants did no more than an address timetabling and consent to joinder of the second plaintiffs. Consenting to an adjournment of an initial call of a summary judgment application was hardly a substantive step. While consenting to a timetable for notices of opposition may have suggested the defendants intended to oppose, I do not consider in the circumstances of this case that it amounted to an election to submit the substantive dispute to the jurisdiction of the Court so as to be a “statement on the substance of the dispute”. It was agreeing the timeframe for their substantive response. The delay was only a month. Nor did consenting to joinder of the second plaintiffs and an amended statement of claim amount to such an election in the circumstances.

The defendants were entitled to receive the amended statement of claim before taking a substantive step.

[22] For essentially the same reasons, I do not consider that waiver or promissory estoppel are made out. The defendants did not make a representation electing to submit to the jurisdiction. Nor was there particular reliance beyond extending time and paying a filing fee for the amended statement of claim. The need for joinder and an amended statement of claim reflected the plaintiffs’ view that it would simplify the claims under the Property Law Act 2007. It was signalled before the first call of the summary judgment application.

[23] The plaintiffs’ desire for prompt resolution is understandable. However, I do not consider the defendants’ cooperative approach to initial consent orders should be treated suspiciously. The plaintiffs could have referred the dispute to arbitration at the outset. As it is accepted there is a qualifying dispute for the purposes of article 8, I expect the parties will be able to proceed as expeditiously in an arbitration as they could by way of summary judgment in this Court. Also, insofar as the plaintiffs incurred wasted costs in the proceeding as a result of the timing of the defendants’ protests, that may be considered under r 14.7.

[24] The defendants submit that if the Court finds they have not submitted to the jurisdiction, the proceedings must not only be stayed in terms of article 8 but must also be dismissed in terms of r 5.49. I consider the reference to stay in article 8 is effectively implemented in the High Court Rules by dismissal in terms of r 5.49 (6)(a).

Result

[25] The application is dismissed.

[26] The proceeding is dismissed under r 5.49 (6)(a) in favour of arbitration.

[27] The defendants are entitled to costs subject to considering whether r 14.7 applies. If costs cannot be agreed, I will receive brief memoranda within 14 days.

Gault J

Tsareva & Ors v Ananyev & Ors [2019] EWHC 2414 (Comm) (16 September 2019)

Neutral Citation Number: [2019] EWHC 2414 (Comm)
Case No: CL-2018-000477 & CL-2018-000544

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

 

Royal Courts of Justice
Rolls Building, Fetter Lane,
London EC4A 1NL
16 September 2019

B e f o r e :
MR JUSTICE ANDREW BAKER
____________________

Between:

ELENA NIKOLAEVNA TSAREVA and 8 others in Claim 477
VLADIMIR IVANOVICH GALAGAEV and 6 others in Claim 544

Claimants
– and –
 
(1) DMITRI ANANYEV
(2) ALEXEI ANANYEV
(3) ANTRACITE INVESTMENT LIMITED
(4) URGULA PLATINUM LIMITED
(5) MENRELA LIMITED
(6) PROMSVYAZ CAPITAL B.V.
(7) PETERS INTERNATIONAL (CAYMAN) LIMITED
(8) PETERS INTERNATIONAL INVESTMENT NV
(9) POSTSCRIPTUM CAPITAL LIMITED (Claim 544 only)
(10) FINTAILOR INVESTMENTS LIMITED
 

Defendants

____________________


Charles Samek QC and Adam Cloherty (instructed by Lipman Karas LLP) for the Claimants in Claim 477 (‘the Tsareva claimants’)
David Lord QC and Sebastian Kokelaar (instructed by Withers LLP) for the Claimants in Claim 544 (‘the Galagaev claimants’)
Alain Choo Choy QC, Marcos Dracos and Saul Lemer (instructed by Skadden Arps Slate Meagher & Flom (UK) LLP) for the First Defendant
Neil Kitchener QC and Henry Hoskins (instructed by Clifford Chance LLP) for the Second Defendant
Thomas Sprange QC and Ruth Byrne (instructed by King & Spalding International LLP) for the Third to Fifth Defendants
David Foxton QC and Sam O’Leary (instructed by Osborne Clarke LLP) for the Sixth to Ninth Defendants
Alexander Brown (instructed by Reed Smith LLP) for the Tenth Defendant

Hearing dates: 25, 26, 27, 28 February, 1 March 2019
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

Mr Justice Andrew Baker :

Introduction

    1. The claimants are Russian nationals, domiciled and resident in Russia. They were all customers in 2017 of Promsvyaz Bank (‘PSB’) with substantial funds there on interest-bearing deposits. All invested in Notes issued in 2017 by the seventh defendant (‘Peters Cayman’ or ‘the Issuer’), guaranteed by the sixth and eighth defendants (‘Promsvyaz’ and ‘Peters International’, together ‘the Guarantors’). What is meant exactly by the statement that the claimants ‘invested in’ the Notes is not necessarily straightforward; the Notes were not issued to them and each claimant’s investment will have been constituted by entries in a securities account in his or her name at PSB.
    2. There were four Note issues, two in April 2017 and two in July 2017. The April issues were 2-year Notes with semi-annual coupons payable in arrears, one denominated in US$ and one in €; the July issues were 3-year Notes, also with semi-annual coupons payable in arrears, again one denominated in US$ and one in €. The Notes were materially similar to five previous series of Notes that had been marketed by PSB. At the time the Notes were issued, the prior series had all performed satisfactorily (and three of them had therefore matured and been fully repaid). The total face value of the Notes was US$170 million and €60 million. To put those figures into their immediate context, PSB had assets as at September 2017 of RUB 1.2 trillion, then equivalent to c.US$21 billion, and in July 2017 the Central Bank of Russia (‘the CBR’) had authorised PSB to issue bonds for US$500 million.
    3. After PSB was put into administration by the CBR at the end of 2017, as I mention further below, the Issuer and the Guarantors defaulted on their obligations under or in respect of the Notes. (The first semi-annual coupon under the April Notes was duly paid in October 2017, but nothing further was paid.) The claimants, according to the evidence put before the court at this stage, were all individuals of at least comfortable means and some were, by ordinary standards, quite wealthy. All invested in the Notes and as a result lost, they say, at least a significant proportion of their life savings.
    4. Nothing in this judgment should be taken as underestimating the significance to the claimants of the failure of the Notes to perform. A desire on the part of the claimants to obtain compensation, if they can, in respect of their decision to invest is understandable. But the question for this judgment is not the legitimacy or reasonableness of that desire. It is whether the jurisdiction of this court is available to the claimants for the pursuit of that desire and, if so, whether there should be interim relief by way of freezing orders in support.
    5. From the evidence at this stage, I infer that the choice of this jurisdiction as a venue for the claimants’ claims has been led by the lawyers (Russian and English) who have engaged themselves in assisting the claimants as disappointed investors. Indeed, I think it unlikely it would have occurred to the claimants, unless so led, to try to sue here. The most natural targets for any claim are PSB and (possibly) the first defendant, so the most natural venues for any litigation (all things being equal) are Russia and (perhaps) Cyprus. But none of that means that this court does not have jurisdiction.
    6. There are two action groups of claimants, each separately represented in this jurisdiction. In Claim CL-2018-000477 (‘the Tsareva Claim’), Ms Tsareva is the firstnamed of 9 claimants and there is an application to join a further 24 claimants. In Claim CL-2018-000544 (‘the Galagaev Claim’), Mr Galagaev is the first-named of 7 claimants and there is an application for 72 more to join. The joinder applications do not give rise to any separate controversy. If and to the extent that the Claims survive the primary applications dealt with by this judgment, it will be appropriate for the additional claimants to be joined. If the Claims do not survive those primary applications there will be nothing for the additional claimants to join, and their proposed claims have no independent basis for proceeding, so the joinder applications will fall away.
    7. In 2017, Promsvyaz owned a majority stake in PSB. In turn, Promsvyaz was owned as to 49.9975% each by the third and fourth defendants (‘the English companies’) and as to the remaining 0.005% by the fifth defendant (‘Menrela’). The third defendant was wholly owned by the second defendant, Alexei Ananyev, the fourth defendant was wholly owned by the first defendant, Dmitri Ananyev, and Menrela was owned 50:50 between them. Dmitri and Alexei Ananyev are brothers. I shall refer to them by their first names when distinguishing between them and as ‘the Ananyevs’ when not doing so. The English companies and Menrela were intermediate asset-holding companies with no trading activities of any kind.
    8. The Ananyevs are Russian nationals who were domiciled and resident in Russia in 2017. Alexei is still domiciled and resident in Russia. Dmitri is now, and was when the Claims were commenced in 2018, domiciled and resident in Cyprus, where he has had a dual citizenship since June 2017. They are, or at all events they were in 2017, well-known in Russia as successful and very wealthy businessmen. They were the ultimate beneficial owners together of a number of businesses and assets, including (as above) PSB.
    9. The core allegation underlying the claimants’ claims is that they were induced to invest in the Notes by mis-selling on the part of PSB employees to the effect that the Notes were personally guaranteed by the Ananyevs and/or that they were safe investments. It is alleged that PSB was in a parlous financial condition rendering it highly likely the Notes would default, as in due course they did; and that the misselling was directed by the Ananyevs in a conspiracy to enrich themselves and/or their businesses at the expense of the claimants.
    10. Since January 2018, the Ananyevs have separated their business interests. In an interview with Vedomosti reported on 26 February 2018 Alexei described the separation in this way: “We exchanged stakes in the [business] assets. It was a nonmonetary transaction. The assets were apportioned based on who had been managing them historically. I have sole ownership and control of the Technoserv group of companies and everything relating to information technology. I quit as a shareholder of [Promsvyaz], transferring my stake to my brother, and my brother quit as a shareholder of Technoserv. Now 100% of Technoserv is mine, and 100% of [Promsvyaz] is my brother’s.” There is no basis in any evidence I have been shown for supposing that this description is wrong to state that the division of interests was based on who had been managing what, with Promsvyaz (and therefore PSB) going to Dmitri because it was his domain, not Alexei’s. Technoserv was and still is a major Russian IT business. Strictly, but presumably not relevant to Vedomosti, Alexei was not personally a shareholder in Promsvyaz, rather his ownership was indirect via his English company and his half of Menrela, and what was transferred to Dmitri, so far as Promsvyaz is concerned, was those shareholdings, so that now both English companies and Menrela are wholly owned by Dmitri.
    11. PSB is not now indirectly owned by the Ananyevs or either of them, however. It has effectively been nationalised following a short period in administration into which it was placed by the CBR in December 2017 amid allegations of mismanagement unconnected to the Notes.
    12. The Issuer was in 2017 and is still a wholly-owned subsidiary of Peters International. In 2017, Peters International was in turn owned 50:50 by the Ananyevs. As a result of the separation of the Ananyevs’ interests to which I have just referred, Peters International is now wholly owned by Dmitri.
    13. The English companies are English companies, although ‘tax-resident’ in Ireland in 2017, in Cyprus from some time later (and still now). Promsvyaz is a Dutch company, the Issuer is a Cayman Islands company, and Peters International is a Dutch Antilles company.
    14. Finally, the ninth and tenth defendants (‘Postscriptum’ and ‘Fintailor’) are both Cypriot companies. Fintailor and Postscriptum play only a very minor role and do not need to be introduced further at this stage, save to note that Postscriptum is party only to the Galagaev claim, having been removed as a co-defendant in the Tsareva claim by consent, and is sued only as a so-called ‘non cause of action defendant’ under the Chabra jurisdiction. Its position therefore gives rise to different considerations, although it is domiciled in an EU state. To complicate matters, the Galagaev claimants assert a claim for Chabra relief against Fintailor as well as asserting a substantive cause of action against it.
    15. I shall therefore refer to Dmitri, Menrela, Promsvyaz and Fintailor (as defendant to an alleged substantive cause of action) as ‘the EU defendants’; I shall refer to Alexei, Peters Cayman and Peters International as ‘the non-EU defendants’; and I shall refer to Postscriptum and Fintailor (as non cause of action defendants sued only by the Galagaev claimants, under the Chabra jurisdiction) as ‘the Chabra defendants’.
    16. The primary applications dealt with by this judgment are:

i) Applications by most of the defendants challenging the jurisdiction of the court over them in respect of the claimants’ proposed claims herein. At the time of the hearing, Alexei had not yet been served with the proceedings and so he had not made any such application; and the English companies cannot and do not challenge jurisdiction, although they do say under CPR Part 11 that the court should stay proceedings against them if they are not struck out, contending that they have only been sued as a device to enable the claimants to seek to found jurisdiction here over other defendants.

ii) Applications by the English companies and by Menrela to strike out the Claims against them under CPR 3.4(2)(a). In Menrela’s case, that is an application strictly in the alternative to its challenge to jurisdiction. The claimants say that making the strike-out application nonetheless involves a submission to the jurisdiction defeating that challenge.

iii) Applications by the additional Tsareva claimants and by all the Galagaev claimants for interim relief by way of freezing orders against all the defendants, and a cross-application by Dmitri for the release of funds he paid into court under a freezing order obtained ex parte by the existing Tsareva claimants, contending that that order should not have been granted. The existing Galagaev claimants also obtained a freezing order ex parte, but that was discharged on the return date, with no fresh injunction being granted, because of material non-disclosure on the ex parte application.

    1. Alexei participated in the interlocutory battle leading to this judgment, and appeared by counsel and solicitors at the hearing (for the whole of the hearing), but did so only to resist the freezing order applications made against him and without prejudice to his right in due course to challenge jurisdiction. In the particular circumstances of these applications, and the way they were argued together at a single hearing with all parties represented, that was to my mind somewhat artificial. In the freezing order applications against Alexei, the claimants must persuade me that there is at least a seriously arguable case that the court has jurisdiction over the claims against him, else there will be no foundation for the interim injunctive relief sought. But I shall inevitably decide that issue as to jurisdiction in the light of the evidence and argument on the co-defendants’ challenges to jurisdiction.
    2. If the claimants do not persuade me, then, that there is even a seriously arguable case for the court having jurisdiction over the claims against Alexei, it would be fair to no one merely to dismiss the freezing order application and not also to set aside the proceedings against him. On the other hand, if upon the co-defendants’ challenges I found jurisdiction to be established on grounds that would apply equally to Alexei, it would be at any rate unattractive (even if it might be strictly permissible) for Alexei to argue those grounds afresh. That is not to say I have any particular reason to suppose Alexei would adopt that approach. It might be that he would choose to follow the result of his co-defendants’ challenges, or restrict any challenge to jurisdiction of his own to points (if any) not dealt with in either the co-defendants’ challenges or the freezing order applications.
    3. I shall consider the question of jurisdiction first, that is to say the jurisdiction challenges brought by the defendants other than Alexei and the English companies, plus the question as to jurisdiction over Alexei raised by the freezing order applications against him. In doing that, in effect I shall also deal with the strike-out application by the English companies and Menrela since the question of jurisdiction involves the question whether the claims against the English companies or Menrela raise any real issue to be tried.

The Claim

    1. At its heart, the claimants’ case is that each of them was induced to invest in the Notes by misrepresentations made to them by PSB relationship managers about the nature or riskiness of an investment (although in some instances there may also have been direct contact between the investor and Dmitri). For example, most of the claimants say that a marketing presentation they were shown led them to misunderstand that payments under the Notes were guaranteed by the Ananyevs personally. Or, again by way of example only, there are allegations that the Notes were described as having risk similar to that of a deposit of funds with PSB (but with a better return). The claimants say they were induced thereby to invest in the Notes, which involved them transferring their funds on deposit with PSB to cover the purchase of the investment. Factually speaking, the claimants’ basic complaint, therefore, is that as clients with funds on deposit, they were mis-sold the Notes by PSB.
    2. The claimants say, however, that this was not just mis-selling by PSB, giving rise to whatever remedies, if any, might be available to them as clients of PSB under Russian law, and PSB has not been sued. Rather, the claimants say, this was mis-selling as a means contrived by the Ananyevs for getting hold of PSB deposit-holders’ funds because (so the claimants allege) their businesses were, or at least PSB was, in a parlous financial state. The Ananyevs are alleged, therefore, to have directed the misselling, or to have conspired with each other and/or with the corporate vehicles involved in the Notes to injure the claimants by it.

Jurisdiction – Gateways

    1. Both sets of claimants say there is jurisdiction here under the co-defendant gateways in the Brussels Regulation (Recast) or CPR PD 6B, as the case may be, that is to say:

i) Both sets of claimants say the claims against the English companies result in jurisdiction over the EU defendants under Article 8(1) of Brussels (Recast). (A possible argument by the Galagaev claimants that Article 8(1) could also be invoked against the Chabra defendants was not pursued.)

ii) Both sets of claimants say the claims against the English companies (and the claim against Menrela, if it has submitted to the jurisdiction) bring the claims against the non-EU defendants within CPR PD 6B para.3.1(3) (the ‘necessary or proper party’ gateway).

    1. The Galagaev claimants, but not the Tsareva claimants, say there is jurisdiction here under the tort gateways, i.e. Article 7(2) of Brussels (Recast) for the EU defendants and CPR PD 6B para.3.1(9) for the non-EU defendants. In both respects, the issue is whether on the tort claims, as alleged, the damage to the claimants was suffered in London (because if the Notes had performed, payments thereunder would have been made to Citibank, London, under the terms of the Notes and the Trust Deed entered into with Citibank in relation to the Notes) or in Russia (because the claimants were induced to part with their savings held on deposit at PSB in Russia so as to invest in the Notes).
    2. Finally, as regards substantive claims, the Galagaev claimants say their claims against the non-EU defendants fall within CPR PD 6B para.3.1(6) (the main English contract gateway), alleging a contract with the Issuer governed by English law, and that all of their claims (including their claims in tort against non-parties to that alleged contract) relate to that contract. They did not pursue a further argument that para.3.1(8) of CPR 6B might apply.
    3. As regards the Chabra defendants, the Galagaev claimants say their claims against the

English companies (and their claims against any of the other defendants that are wellfounded as to jurisdiction) bring the Chabra defendants within CPR PD 6B para.3.1(3), which, those claimants say, applies to claims for Chabra relief irrespective of the domicile of the Chabra defendant.

    1. Where reliance is placed on CPR PD 6B as the basis for jurisdiction, there is of course the normal requirement of showing that it is a proper case for service out, principally that there is a serious issue to be tried on the merits against the defendant in question and that the English court is distinctly the appropriate forum in which to bring the claim. It will not be necessary to consider those elements given the conclusions I have reached on the threshold question whether the claims brought fall within the gateways relied on.
    2. That threshold question does involve some limited consideration of the merits, however, because the question whether the claimants’ claims pass through the codefendant gateways (EU and non-EU) requires provisional consideration of the merits of the claim against the English companies.

Co-Defendant Gateways – Part 1

General

    1. For both the EU and non-EU defendants, the co-defendant gateway involves a merits test in relation to the claim asserted against the anchor defendant(s). For the non-EU defendants, that merits test is expressly stated in CPR PD 6B para.3.1(3): there must be between claimants and anchor defendant(s) “a real issue which it is reasonable for the court to try“; and it is the necessity or appropriateness of having the co-defendant before the court as an additional party to that claim that creates a sufficient connecting factor to this jurisdiction to justify granting permission for service on the co-defendant abroad (subject to the other usual considerations).
    2. For the EU defendants, there is no express reference to the merits of the claim against the anchor defendant(s) in the language of Article 8(1) of Brussels (Recast). It requires claims against the anchor defendant(s) and the co-defendant that are “so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings“. Although that does not state in terms a merits test in relation to the anchor claim(s):

i) The CJEU has made clear that a claimant cannot rely on Article 8(1) where the sole purpose of suing the anchor defendant(s) was to remove the co-defendant against whom Article 8(1) is invoked from the courts of his domicile: see Reisch Montage v Kiesel Baumaschinen Handels GmbH (Case C-103/05) [2006] ECR I-6827 at [32]; Cartel Damages Claims SA v Akzo Nobel BV (Case C-352/13) [2015] QB 906 at [27].

ii) Applying or extending that doctrine, the majority view of the Court of Appeal in Sabbagh v Khoury [2017] EWCA Civ 1120, obiter at [66]-[69], was that a hopeless claim against an anchor defendant, or one that does not raise a serious issue to be tried, does not found jurisdiction under Article 8(1). The claimants accepted that view before me, reserving the right to argue against it if this matter goes further.

    1. In Privatbank v Kolomoisky [2018] EWHC Ch 3308, Fancourt J took the logic of the CJEU doctrine further, holding that Article 8(1) was being abused for the sole purpose of removing a co-defendant from the courts of his domicile even though the claim against the anchor defendants was a properly arguable claim on the merits. It will not be necessary to consider whether to follow that approach in the present case, although there are certainly similarities on the facts. Thus, I have no doubt that the only reason the English companies have been sued is so that the claimants can say they have anchor defendants for the purpose of the co-defendant gateways; and there was some element of exaggeration or artificiality in descriptions on the claimants’ behalf of the English companies being at the heart of the Ananyevs’ banking business when in reality they are just off-shore holding vehicles for Promsvyaz and therefore, indirectly, for PSB.
    2. The practical upshot for the purposes of this judgment is that as against both EU and non-EU defendants, if the claims against the English companies are hopeless, then the applicable co-defendant gateway does not apply by reference to those claims, i.e. the English companies cannot then be used as jurisdictional anchors. It is convenient then to mention briefly Menrela. There is no possible basis for a claim against Menrela if there is none against the English companies. Even if, therefore, Menrela somehow submitted to the jurisdiction by seeking to strike the claim out in the alternative to its challenge to jurisdiction, that will not affect the outcome overall. Menrela cannot give the claimants a jurisdictional anchor if the English companies do not do so.
    3. There is this point of difference between the co-defendant gateways. For the EU defendants, only the English companies can be anchor defendants, since Article 8(1) requires the proceedings to be in the Member State where the anchor defendant is domiciled. For the non-EU defendants, however, any defendant properly here (as a matter of jurisdiction) can be an anchor defendant. Bearing that in mind, on the facts of this case:

i) There is only an issue about the co-defendant gateway for the non-EU defendants if the EU defendants are not properly here. The EU defendants include Dmitri and Promsvyaz. The claims against them raise a serious issue to be tried on the merits, whatever the position as regards the English companies (and Menrela); the non-EU defendants are appropriate parties to be joined to the claims against Dmitri and Promsvyaz, if they are being pursued here; and those claims cannot be stayed on an argument of forum non conveniens, so they could and would be pursued here if properly brought here at all under Brussels (Recast). It follows that if the claims against the English companies are not hopeless and the EU defendants are therefore properly sued here under Article 8(1), then the non-EU defendants are properly sued here under CPR PD 6B.

ii) If the claim against the English companies is hopeless, then the EU defendants are not properly sued here under the co-defendant gateway. That conclusion as to the claim against the English companies prevents Article 8(1) from being capable of applying. However, it does not on its own dispose of the codefendant gateway under CPR PD 6B. For example, if the EU defendants are properly sued here under the tort gateway (Article 7(2) of Brussels (Recast)), that will suffice for them to be anchor defendants under CPR PD 6B para.3.1(3).

    1. As is well established, to make good an argument that this court has jurisdiction over a particular claim against a particular defendant, the claimant must persuade the court that there is a ‘good arguable case’ that the claim passes through an applicable jurisdictional gateway. In this context, what is meant by a ‘good arguable case’ is one in which, on disputed points of fact or law, the claimant appears to have the better of the argument, on the material available to the court at the necessarily preliminary stage at which jurisdiction is considered.
    2. At the risk of over-complicating the initial analysis, I note this means that the question on the jurisdiction challenges, as regards the merit or lack of merit of the claims against the English companies, is whether there is a good arguable case, in that ‘better of the argument’ sense, that there is a real issue against the English companies. By contrast, in the claim against Alexei the issue at this stage is strictly whether there is a strong arguable case (in the sense used for freezing orders) that there is jurisdiction, thus a strong arguable case that there is a good arguable case that there is a real issue to be tried against the English companies. However, the conclusions I have reached mean that such subtleties do not affect the outcome.

The claim against the English companies

    1. I have identified already where the English companies fit into the ownership structure sitting on top of PSB at the material time. Speaking in broad terms, a majority stake in PSB was one of the Ananyevs’ joint investment assets. That investment asset was not owned by them directly, however. It was owned by Promsvyaz, which was owned by the English companies and Menrela, and in turn the Ananyevs owned one of the English companies each and Menrela jointly. There is neither allegation nor reason to suspect, let alone evidence, that this ownership structure was put in place for anything other than proper purposes. In fact, there is good evidence of the lawful tax-planning motivation, under advice from PwC, that led to its introduction. In particular, the English companies and Menrela were not put in as intermediate holding companies for the purposes of, or in any way in connection with, the Notes. This judgment is not concerned with the possible liabilities, if any, of corporate vehicles created by (alleged) tortfeasors, or introduced into asset-holding structures, for the purpose of carrying out the (alleged) torts.
    2. There are no doubt many ways in which the Ananyevs might have chosen to hold their interest in PSB. By the standards of many cases the court sees, the Ananyevs’ chosen structure was not complex or opaque, even if it was less simple than just having direct personal shareholdings in PSB. What matters for this judgment is that:

i) it is at least well arguable (a) that the wrongdoing alleged required investors to know (being told, if they did not know it already) that the Ananyevs were the ultimate majority owners of PSB and/or (b) that an important element of how the wrongdoing was in fact achieved, as alleged, was that investors knew as much (being told if necessary); and

ii) the Ananyevs’ ultimate majority ownership of PSB was in fact held, as described above, via the English companies (and Menrela); but

iii) at the same time, the English companies (and Menrela) were present at the material time in the ownership structure ‘above’ PSB only because an ownership structure involving such companies happened at that time to be, on tax advice, the Ananyevs’ preferred ownership structure. The Ananyevs did not require them in order to be the ultimate beneficial owners of ‘their’ majority stake in PSB, that ownership having long pre-existed; and if at any time it had suited them, on advice, to structure their ownership differently they could no doubt have done so. Thus, the Ananyevs only needed to own the English companies (and Menrela) in order to be ultimate indirect majority owners of PSB so long as they chose to hold their majority interest in PSB, as an investment asset, in a holding structure that included those companies.

    1. In the development of the claimants’ arguments at the hearing, Mr Samek QC for the Tsareva claimants, who took the lead on this part of the argument with Mr Lord QC for the Galagaev claimants adopting his submissions, contended if necessary that what I have just stated is sufficient for liability to attach to the English companies (and Menrela). I do not accept that contention. Their existence as intermediate holding companies in the structure of the Ananyevs’ majority ownership of PSB does not render them liable for the Ananyevs’ wrongdoing (if any), even if (as is arguable) there is a sense in which the wrongdoing took advantage of the fact of that ownership. On the evidence, that is also the position under Russian law: to quote from Prof Asoskov’s report, in this respect undisputed, “the legal status of the parent (holding) company per se does not provide any basis for holding such company liable in tort as a party that caused harm together with others, unless such company has itself committed an unlawful act or omission“. Russian law may or may not be precisely similar to English law as regards when, if used by its owner in order to implement a conspiracy, a parent company will be liable; but on any view it must have been used, i.e. it must have done something, before any question of possible liability might arise. For the avoidance of doubt, agreeing is doing something and so where I refer to a need, in any conspiracy claim, for the English companies (or Menrela) to have done something, or to there being (or not) a real issue whether the English companies (or Menrela) did anything, that is said with that understanding.
    2. Thus, for there to be even a question of possible liability on the part of the English companies, they must have done something more than merely exist as corporate shareholders in Promsvyaz and thereby indirect majority owners of PSB. The claimants presented no evidence that the English companies did anything, however. The pleaded case is that the Ananyevs conceived and implemented a plan to raise funds to ‘prop up’ their businesses by getting PSB clients such as the claimants to give up funds deposited with PSB in return for the Notes, allegedly known to the Ananyevs to be worthless or at least highly likely to default. It is said that this necessarily involved the Ananyevs acting in combination with inter alia the English companies and Menrela. If this allegation of necessity were arguable, for present purposes that might overcome the claimants’ inability to point by way of evidence to anything done by the English companies or Menrela. The arguable necessity would mean it was arguable that they must have done something even if at this stage the claimants could not put a finger on what exactly. As Mr Choo Choy QC put it in argument for Dmitri, “[the claimants] … are … saying: the facts of this case were such that necessarily D3 and D4 had to be used. That’s how they put it because they don’t have any facts to rely on …“. But the necessity alleged is not arguable. There is in truth no reason at all why the English companies or Menrela had to have any involvement of any kind in order for the Notes to be put together, marketed and sold as they were.
    3. Dmitri was PSB’s CEO at all material times; Alexei was Chairman of its (nonexecutive) Supervisory Board. Their foundation and ownership of PSB pre-dated the existence of the English companies and Menrela, who came along later as part of a preferred ownership structure. If, as alleged, Dmitri adopted a plan to trick PSB depositors out of their money, directing a mis-selling operation by PSB relationship managers to that end, and whether or not, as further alleged, Alexei was in any way privy to any of that, neither of the English companies, nor Menrela, needed to be involved at all. It is at least well arguable that Dmitri was CEO (and, if relevant, Alexei was on the Supervisory Board) only because he was an ultimate beneficial owner of the business; and at the time in question the English companies (and Menrela) were links in the corporate chain through which that ultimate beneficial ownership was held. But that just takes one back to the prior question whether their presence in the ownership structure ‘above’ PSB is sufficient in law to fix the English companies and Menrela with liability; and it is not (whether under English law or, if relevant, under Russian law).
    4. The Notes were guaranteed by Promsvyaz. One can see the potential for that guarantee to be important to investors like the claimants: the Notes were not obligations of PSB, with whom they had trusted their deposited funds; but they were guaranteed by PSB’s (majority) parent company, Promsvyaz. In the abstract, an enquiring mind might perhaps have wondered whether Promsvyaz in turn required shareholder approval before issuing such a guarantee, i.e. approval by the English companies and Menrela; although in the absence of some positive evidence suggesting such approval was required, that would be an exercise in speculation. However, even if shareholder approval had been required, that would not make it arguably necessary for the English companies (or Menrela) to be privy to any misselling of the Notes or agreement to mis-sell the Notes. In any event, and although there was thus no case calling for an answer on the point, the evidence served by the defendants, including relevant contemporaneous documentary evidence, shows clearly that shareholder approval was not required or sought.
    5. Indeed, and overall, on the evidence it is quite plain that the English companies had no involvement at all in the issuance, sale or marketing of the Notes or the receipt or use of their proceeds. There is no basis for a contention that the English companies were privy to any mis-selling of the Notes at PSB or any wrongdoing in relation to that mis-selling on the part of PSB employees or the Ananyevs.
    6. The claimants relied on the Court of Appeal decision in VTB v Nutritek [2012] EWCA Civ 808, esp. at [122]-[127], as an example of a case in which it was considered that a holding company might be found to be liable as a conspirator through the actions of its ultimate beneficial owner. But that was a case where there was evidence to support a future finding that the beneficial owner, Mr Malofeev, was acting for the holding company, Marcap BVI, in respect of various relevant conduct, including the making of alleged misrepresentations upon which claims were founded. There is nothing similar here.
    7. Consistent with all of that, the pleaded case does not in fact allege any particular act on the part of the English companies (or Menrela). Taking the Tsareva claimants’ Particulars of Claim to illustrate (the Galagaev claimants’ draft Particulars of Claim do not take the matter any further):

i) It is alleged at para.44 that the mis-selling of the Notes “involved, and necessarily involved, concerted action between the Ananyev Brothers and the Notes Defendants” (i.e. the Issuer, the Guarantors, the English companies and Menrela).

ii) That allegation is purportedly explained and justified at para.45. As thus particularised, in fact the only allegation is that the Ananyevs needed to be the ultimate beneficial owners of PSB, the Issuer and the Guarantors, in order to carry out their wrongful scheme (as alleged); and that they were in fact such owners via the English companies (and Menrela).

iii) The pleaded suggestion that the English companies (and Menrela) owned Peters International, one of the Guarantors, and thereby owned indirectly the Issuer, Peters Cayman, is plainly wrong on the facts. The fact that they owned Promsvyaz (and thereby, indirectly, a majority share in PSB) does not arguably mean they must have had any involvement in or knowledge of the wrongdoing alleged.

    1. The submissions proposing that there is or might be a claim in tort against the English companies nonetheless were something of a jumble and underwent a transformation over the adjournment that fell part way through Mr Samek QC’s submissions. The critical elements of the argument were these:

i) A submission that since the English companies existed as intermediate holding companies between the Ananyevs personally and PSB, they were part of the means by which the Ananyevs (if they did) “were able to ‘access’ customers of PSB Bank and instruct bank staff to market the Notes to the Investors on the basis of the Representations [and] were able to procure that Promsvyaz acted as guarantor of the Notes“.

ii) A submission that the commission of the torts, as alleged against the Ananyevs, must have involved the taking of particular steps by the English companies, so that the case against them was not merely that by existing as intermediate holding companies they were somehow exposed to liability for the Ananyevs’ alleged wrongdoing. This was the submission that underwent overnight transformation. Mr Samek QC was clear on Day 3, consistent with his pleading, that the claimants did not allege that the English companies did anything at all, rather the claimants’ case was that they could (at least arguably) be regarded as parties to the conspiracy because through the Ananyevs (said to be their directing minds and wills) they knew of it and did nothing. By contrast, on Day 4, the argument presented was very different, namely that it was arguable that Promsvyaz must have received some kind of instruction or request to issue its guarantee of the Notes, or some other sort of communication to give it comfort to do so, from a person or persons purporting to act on behalf of its shareholders; and that it was arguable, if so, that any such communication would have come from the Ananyevs, or at the very least Dmitri, via Alexei’s son, Nikolai, who was a director of Antracite Investment Limited (Alexei’s English company), and/or a Ms Ioshpa or her alternate, a Mr Zhukov, as director of Urgula Platinum Limited (Dmitri’s English company), without the knowledge of their respective (Irish) codirectors. This late development of the claimants’ case was one reason (though not the only one) why the argument could not be concluded in the time available. The claimants therefore provided their final reply submissions in writing on 8 March 2019, to which (with my permission) there was a brief written rejoinder from the English companies and Menrela on 28 March 2019. Both final reply submissions and rejoinder submissions relied in part on additional evidence for which again I gave permission.

iii) A submission that the Ananyevs were the directing minds and wills of the English companies. In conjunction with the transformation of the claimants’ case in respect of the second submission, in the claimants’ reply submissions this became an argument that the Ananyevs ‘controlled’ the English companies via Nikolai and/or Ms Ioshpa/Mr Zhukhov in respect of matters pertinent to the case. That argument accepts that the directors of the English companies, not the Ananyevs, were the directing minds and wills of the English companies; the focus would therefore be on their (the directors’) conduct and state of mind.

    1. All of these submissions were overlain by a general observation that the issue arises at an early stage, prior to disclosure, when, so it was said, the claimants have “limited visibility on what happened and what has happened to their monies” and so “can only point to those facts which are presently available and the inferences that can be drawn“. This is a familiar refrain in cases said to involve dishonest wrongdoing. But it cannot be taken too far. In particular, it does not entitle the claimants to pursue allegations that have no evidential foundation in the hope that one will emerge. The claimants properly accepted as much, for example submitting in reply (but with my emphasis added) that “it is important to keep in mind that, unless the initial evidence does not even raise a prima facie case, [claims of conspiracy or joint tortfeasance] can typically only be established at trial“.
    2. The first submission – that the English companies were part of the means by which any wrongdoing was made possible – adds nothing of factual substance to the summary I stated in paragraph 36 above. If there was wrongdoing as alleged by the claimants at all, then (at least arguably) it was important that the Ananyevs could be and were portrayed as the ultimate owners of PSB; and the English companies were in fact part of the ownership structure by which that was so. But that does not render the English companies liable for the actions of others; nor does it mean the English companies did anything themselves or entered into any combination with anyone for anything to be done.
    3. The second submission I have mostly addressed in paragraphs 38-43 above. The unpleaded and speculative development of it on Day 4 has no basis in evidence and would require, if it were a serious case for liability on the part of the English companies, an arguable case of guilty knowledge on the part of Nikolai Ananyev, Ms Ioshpa or Mr Zhukov, which does not exist.
    4. The third submission flies in the face of the comprehensive evidence provided by the English companies as to their corporate governance. In short, there is no basis – and, so far as I can see, there has never been any basis – for the pleaded assertion that the Ananyevs directed or controlled the conduct of the English companies or were their directing minds or wills. The claimants have been unable to point to a single instance of any decision or action required of the English companies being made or taken purportedly on their behalf by the Ananyevs or either of them. The evidence demonstrates in my view beyond sensible argument that the English companies (and Menrela) were passive asset-holding companies whose limited necessary functions were carried out by their directors.
    5. In any event, even were the Ananyevs capable of being regarded as directing minds or wills of their respective English companies, that does not arguably fix those companies with liability as a co-conspirator (if there was some conspiracy). Mr Samek QC relied on The Dolphina [2012] 1 Lloyds Rep 304 (a decision of the High Court of Singapore), but that does not assist the claimants. There, the decision by a company not to enforce rights in relation to what was supposed to be a spent bill of lading and take it back out of circulation, was conduct capable of amounting to action in combination, or joining in, so as to give rise to liability as co-conspirator if done with guilty knowledge. The question therefore was whose knowledge was the company’s knowledge in respect of that conduct. Here, the claimants’ insuperable difficulty is that there is no arguable case of conduct of any kind on the part of (or purportedly on the part of or on behalf of) the English companies (or Menrela).
    6. My conclusion is that there is no basis at all for the suggestion that the English companies might be liable to the claimants. The claim against them is without foundation and should be struck out. The same would be true of the claim against Menrela, if there were jurisdiction over it. As a result, neither the English companies nor Menrela can be used as anchor defendants to found jurisdiction under the codefendant gateways. That disposes of Article 8(1) – there is no co-defendant jurisdiction over the EU defendants – since that requires a viable claim against the English companies. It does not dispose of CPR PD 6B para.3.1(3), as noted above, because that does not require the anchor defendant to be domiciled here.

Tort Gateways

    1. As I indicated in my initial summary (paragraph 23 above), the submission by Mr Lord QC for the Galagaev claimants was that they suffered damage within the jurisdiction because the payment obligations under the Notes on which the Issuer defaulted were obligations to make payments to Citibank in London. I do not accept that submission. The claimants’ claims are in tort for having been wrongfully induced to invest in Notes that were not as had been described to them and ultimately defaulted; they suffered loss by parting with their funds deposited with PSB in Russia (or, perhaps, by contracting with PSB in Russia to do so), as in Lober v Barclays Bank, Case C-304/17 (CJEU), Domicrest Ltd v Swiss Bank Corp [1999] QB 548 (Rix J, as he was then) and Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWHC 257 (Comm) (Andrew Smith J). In any event, the claimants were never due to receive any payment in London. If the Notes had performed, the claimants would have received gain in Russia by credits to their accounts at PSB. If they are to be regarded as having suffered loss by not receiving gain when the Notes defaulted, still their loss was suffered in Russia.

English Contract Gateway

    1. I found it entirely elusive to identify any basis for the suggestion that the claimants’ investment in the Notes involved them in entering into any contract with the Issuer (or either of the Guarantors). So far as I can see, the only Noteholder having contractual privity with the Issuer (or the Guarantors) was Citibank NA, which held the Notes pursuant to the terms of a deed of trust (the ‘Trust Deed’), of which possibly (though this itself was obscure) PSB may have been the beneficiary. The claimants as individual investors only ever acquired (if that is the right word to use) credit entries on security accounts at PSB by which PSB credited them with an entitlement to the benefit of the Notes. Thus, though the Notes (and the Guarantors’ guarantees) were by nature contracts governed by English law, the claimants’ claims do not fall within CPR PD 6B para.3.1(6) by reference to those contracts. The claimants’ only arguable claims (if any) are non-contractual claims against defendants with whom they have no contract. Such claims do not fall within the English contract gateway.
    2. The Galagaev claimants also pleaded a purported claim to ‘rescind’ the Notes. A claim by a contracting party to rescind a contract governed by English law, and for financial remedies consequent upon rescission, would by nature fall within the English contract gateway. However, the ‘good arguable case’ test applies and the claimant must have the better of the argument, on the materials available when jurisdiction is being considered, as to the existence of the contract. Here, as I have said, I can in fact see no basis at all for the argument that the claimants were privy to any contract with the Issuer.
    3. There might be an argument that a different contract came into existence for each claimant, namely a contract with PSB when the claimant placed an order to invest, but that contract could not found jurisdiction here for claims against parties other than PSB; and in any event it would not arguably be governed by English law, being a contract between a Russian bank customer and his or her Russian bank, made in Russia and performed on the customer’s side in Russia, for the bank to acquire Notes to be issued by the Issuer, crediting them to a security account as held by the bank for the customer. In the absence of any express choice, any such contract would plainly be governed by Russian law.

Co-Defendant Gateways – Part 2

    1. The conclusion follows that there is no jurisdiction against any of the EU or non-EU defendants under the tort gateways or the English contract gateway, as relied on by the Galagaev claimants. In turn, therefore, none of the EU or non-EU defendants can be used as anchor defendants for the purpose of founding jurisdiction against any of the (other) non-EU defendants under CPR PD 6B para.3.1(3).

Menrela – Submission?

    1. If Menrela did not submit to the jurisdiction, then it is in the same position as the other EU defendants. That is to say, there is no jurisdiction over it because: (a) there is no proper claim against the English companies and so Article 8(1) of Brussels (Recast) does not apply; and (b) Article 7(2) does not apply (relevant only in the Galagaev Claim). The proceedings against Menrela would therefore fall to be set aside.
    2. If Menrela did submit to the jurisdiction, nonetheless there is no proper claim against it (as with the English companies, but a fortiori given Menrela’s de minimis shareholding in Promsvyaz). Proceedings against Menrela would therefore fall to be struck out and the purported claim against it could not be used to found jurisdiction against any of the non-EU defendants under CPR PD 6B para.3.1(3).
    3. It makes no practical difference, therefore, whether Menrela somehow lost the right to object to jurisdiction by applying, strictly in the alternative to its application objecting to jurisdiction, for the claim against it to be struck out. For completeness, however, it seems to me that Menrela did not do so. It filed a timely acknowledgment of service indicating an intention to challenge jurisdiction. It issued its application under CPR Part 11 in proper time. At no stage did it communicate unequivocally that, contrary to that statement of intention and proper application, it accepted that this court had jurisdiction in respect of the claim against it.
    4. Furthermore, on the facts it would be highly artificial and inconvenient if it were impossible – as the claimants had to contend – for Menrela to join in, but strictly in the alternative, the English companies’ application to have the claim against them struck out. The principal argument as to jurisdiction concerned the viability, if any, of the claim against the English companies, and it was obviously helpful and convenient to consider the position of Menrela in connection with that argument. Conversely, it would have been highly inconvenient and wasteful to require Menrela to await the outcome of the jurisdiction arguments and only then to apply to strike out the claim against it, if it won under Article 8(1) of Brussels (Recast) but lost under Article 7. Indeed, I strongly suspect the claimants would have objected, if Menrela had done so, that the proper stage at which to seek the striking out of the claim against it, were that the outcome, was this present interlocutory stage, by making precisely the application in the alternative it actually made.
    5. Mr Samek QC in his Skeleton Argument cited Briggs, “Civil Jurisdiction and Judgments” (6th Ed.) at para.5.30, for the proposition that applying to strike out a claim or for its summary dismissal as hopeless, in the alternative to a challenge to jurisdiction, “is fatal to [a defendant’s] ability to pursue jurisdictional challenges“. I agree with Prof. Briggs that a defendant should always consider carefully what it does and says in response to proceedings if it wishes or may wish to challenge jurisdiction and so needs to avoid doing or saying anything that might be taken as a submission. However, with respect to Mr Samek’s argument, it simply does not follow that a defendant submits who (a) objects to jurisdiction, but also (b) indicates that if there were jurisdiction over it the claim should properly be struck out as hopeless anyway. Such a defendant does not submit to the jurisdiction, so as to defeat its primary application challenging jurisdiction, by making the alternative application (strike-out). There may be a more subtle point, namely whether making the alternative application is a conditional submission, exercising in advance (if that be possible) the right of election that would otherwise not fall to be exercised until after the disposal of the jurisdiction application, namely to participate or not on the merits if the court should find that it has jurisdiction (cf CPR Part 11(7)). But any such point does not affect the outcome here.
    6. There will also be interlocutory case management considerations to consider, depending on the nature of the issues involved in the jurisdiction challenge and the strike-out application. There may be cases in which it is convenient to consider those issues separately, and sequentially, taking the jurisdiction challenge first and staying the strike-out application pending the outcome. This was plainly not such a case and quite rightly (as it seems to me) no party suggested that Menrela’s strike-out application should be stayed.
    7. Likewise, there was no suggestion that a contingent application by the Issuer and Guarantors for a stay in favour of arbitration, if jurisdiction were established, should itself be stayed in the present case on some argument that to pursue it, strictly in the alternative, would somehow defeat the primary application challenging jurisdiction. The claimants, rightly in my view, did not suggest that the Issuer and Guarantors had somehow submitted to the jurisdiction, so as to defeat their primary application, by invoking arbitration in the alternative. In the event, in the course of Mr Foxton QC’s submissions a question did arise whether I was in a position on the evidence to determine the arbitration application if the challenge to jurisdiction failed or whether it would need to be adjourned for further consideration after all, but that is a different point. As it is, the arbitration application is simply not reached as the proceedings against the Issuer and Guarantors will be set aside for want of jurisdiction.

The Chabra Defendants

    1. The Galagaev claimants, but not the Tsareva claimants, seek to pursue freezing order and proprietary relief against Fintailor and Postscriptum as non-cause of action defendants under the Chabra jurisdiction although neither is domiciled here and there is no suggestion that any assets that might be frozen or the subject of proprietary relief are located here. The premise upon which it was proposed that the court can and should assume jurisdiction over them as Chabra defendants is that the court has jurisdiction over the substantive claims sought to be pursued.
    2. On that basis, it was contended by Mr Lord QC that:

i) Article 35 of Brussels (Recast) did not apply, so that the Galagaev claimants did not have to satisfy its additional requirement that there be a real connecting link between the subject matter of the interim measures sought and the territorial jurisdiction of the court.

ii) There was nothing in Brussels (Recast) to prevent the court from making any ancillary orders in support of the substantive claims that were otherwise available under national law.

iii) CPR PD 6B para.3.1(3) could therefore be invoked to found jurisdiction over the Chabra defendants as necessary or proper parties; and with substantive proceedings on foot here, this court would be the most appropriate forum for Chabra-type relief to be considered against Fintailor and/or Postscriptum.

    1. It is not necessary to consider the correctness of any of those steps in Mr Lord QC’s argument, or its overall conclusion that if substantive claims are to proceed here then the court has and should exercise jurisdiction over Fintailor and Postscriptum as Chabra defendants. There are not to be substantive claims here. The premise for joining Chabra defendants has not been established.

Conclusions – Jurisdiction / Strike-Out

    1. For the reasons given above, I find that there is no proper basis for any claim against the English companies. The proceedings against them will be struck out.
    2. In the Galagaev Claim, I find further that there is no jurisdiction over the EU defendants under Article 7 of Brussels (Recast) and there is no jurisdiction over the non-EU defendants under CPR PD 6B para.3.1(6) or para.3.1(9).
    3. My preferred analysis in relation to Menrela is that it never submitted to the jurisdiction and so falls to be treated for these purposes in the same way as the other EU defendants.
    4. There is therefore no available anchor defendant for the claims against the EU defendants (for the purpose of Article 8(1) of Brussels (Recast)), for the claims against the non-EU defendants (for the purpose of CPR PD 6B, para.3.1(3)), or for the claims against the Chabra defendants (also for the purpose of CPR PD 6B, para.3.1(3)). The claims against the EU defendants, the non-EU defendants and the Chabra defendants, therefore, will all be set aside.
    5. If, contrary to my preferred analysis, Menrela submitted to the jurisdiction, nonetheless there is no proper basis for any claim against it (as with the English companies). The proceedings against Menrela would on that basis fall to be struck out. The posited submission to the jurisdiction therefore would not affect the conclusions as regards jurisdiction in respect of the claims against the other EU defendants, the non-EU defendants or the Chabra defendants. They would still have no anchor defendant for the purpose of the co-defendant gateways; and paragraph 67 above would still hold for the Galagaev Claim as regards those other defendants.

Freezing Orders

    1. Since the court has no jurisdiction over any of the claims sought to be pursued by the claimants, the foundation for seeking or maintaining freezing orders falls away. In those circumstances, I shall deal only briefly with the main points that would have arisen if the possibility of granting or maintaining freezing order relief had been live.

Alexei

    1. As regards Alexei, I have to this point largely been guilty of failing to distinguish his position from Dmitri’s, something of which Mr Kitchener QC for Alexei was critical in relation to the claimants’ pleadings, evidence and submissions. Alexei is one of the non-EU defendants and I have found there to be no jurisdiction in respect of the claims against those defendants for reasons that did not require a distinction to be drawn between him and his brother.
    2. In my judgment, Mr Kitchener QC’s criticisms of the claimants’ case were wellfounded when it came to the merits and issues of risk of dissipation, the matters he was addressing in the context of whether freezing orders should be granted. I mentioned at the outset Dmitri’s and Alexei’s different interests and areas of responsibility within what had been their jointly-owned business empire (see paragraph 10 above). In particular, on the evidence: Dmitri at all material times had a senior executive role and responsibilities at PSB (from February 2016 until the CBR put PSB into administration, Dmitri was Chairman of the Management Board, i.e. CEO); Alexei on the other hand had no executive or managerial role or responsibility at PSB at any time, although he did have a non-executive role on PSB’s Supervisory Board; Alexei’s full-time occupation was CEO of Technoserv and no allegations of wrongdoing arise out of that business or its management; in short, though ultimately both were jointly owned at the time, PSB was Dmitri’s business, Technoserv was Alexei’s. Such evidence as there is possibly suggestive of misconduct within PSB, or relating to PSB’s financial position, may perhaps implicate Dmitri (if indeed there was untoward behaviour at all) but does not implicate Alexei in any way.
    3. There is, on the evidence, no basis for a contention that Alexei had any involvement at all in respect of the Notes, or any relevant knowledge in relation to them, save for a formality in signing shareholders’ resolutions authorising the giving of Peters International’s guarantees. The claimants’ allegations against Alexei amount in my judgment to no more than assertions that if what they say against Dmitri is true, the same might be true in respect of Alexei because he is Dmitri’s brother and they were both, through the corporate structures I have described, ultimate beneficial owners of the underlying businesses. That is a non sequitur and the reality is the claimants have not shown that they have any properly arguable claim against Alexei at all, but have sued him entirely speculatively.
    4. Furthermore, Alexei has remained in Russia, owning and running Technoserv, which continues to be an important and very substantial IT services business. There is no evidence at all suggesting a risk that Alexei might involve himself in any unjustifiable dissipation of assets rendering a future judgment futile or more difficult to enforce. It is true that he and Dmitri have taken steps to change significantly their respective assets, by their separation of interests in early 2018. But that was before any suggestion that the present allegations might be raised, was done perfectly openly and on the face of things for proper reasons, and (if anything) rendered Alexei a better prospect, freeing him from PSB and its difficulties and giving him sole ownership of Technoserv.
    5. If there were jurisdiction here in respect of the claims against Alexei, they would not have come close to justifying interim relief by way of freezing order against him.

Fintailor

    1. I would also have concluded that there was no basis for the grant of any freezing order against Fintailor. It is a Cypriot brokerage firm owned by Mr Kirill Lyushinsky, licensed by the Cyprus Securities and Exchange Commission and controlled by a Board of Directors. Mr Lyushinsky is one of the Directors and he has two coDirectors who are not said to have any involvement or connection that might be material to the claimants’ claims. The substantive claims against Fintailor are speculative. Essentially, all the claimants have is the fact that Fintailor contacted some investors with an offer to buy out their investment in the Notes, and at least some evidence suggesting that Fintailor may have been doing so for the account of the Issuer itself, i.e. Fintailor may have been engaged by the Issuer to offer a buy-back. The claimants built onto that basic fact a convoluted suggestion that the buy-back offers were in some sense not ‘genuine’ and that Fintailor could therefore be said to have had or acquired guilty knowledge and to have joined in the conspiracy.
    2. In my judgment, there is in reality no arguable case that Fintailor was or became a coconspirator. There is, as a first step, no reason for supposing that the buy-back offers might not have been genuine offers. Indeed, in the case of one of the claimants, Ms Milova, who accepted the offer made to her, two buy-back contracts resulted and Fintailor went to significant lengths, including litigation, to seek to procure payment to Ms Milova. There is in any event no basis for any allegation that anyone responsible for Fintailor’s conduct had any knowledge of any wrongdoing, if there had been any. Furthermore, Fintailor is only even alleged to have become involved in any sense at all after PSB had fallen into administration and it is not arguable that anything it did resulted in or aggravated any loss.
    3. Unsupported assertions are made that Fintailor is in fact a creature of the Ananyevs, but there is no evidence to support them and indeed no basis in any evidence not to accept the documentary and witness evidence Fintailor has provided showing that it was incorporated in 2007 and purchased by Mr Lyushinsky in 2010, that it has had some arms-length dealings as broker with some of the defendants and with PSB, that Dmitri and Mr Lyushinsky are known to each other, although they do not know each other particularly well and could not be described as associates, and that the Ananyevs do not have any ownership interest in or exercise any form of direction or control over Fintailor or its business.
    4. Nor finally, as regards Fintailor, is there any evidence at all that it presents a risk of dissipation of assets such as might justify the imposition of a freezing order against it. If there were substantial evidence suggesting that Fintailor was in receipt of, and still holding, funds that in equity might be said to belong to the claimants, the grant of interim relief in support of that proprietary interest might be justified on a different basis. But there is no such evidence, and I regard as speculation the claimants’ suggestion that Fintailor might have received or might now be holding proceeds derived from their investments in the Notes.

Ananyev Companies

    1. As regards the Issuer, the Guarantors, the English companies and Menrela, I was not persuaded by the claimants that they present any real or substantial risk of dissipation of assets such as could justify the grant of freezing orders against them:

i) There is no evidence that the Issuer or the Guarantors has at any time sought to dissipate assets. Nor is there evidence of substantial assets susceptible to dissipation anyway. I agree with the submission of Mr Foxton QC on their behalf that in truth the claimants made no real attempt to demonstrate by evidence that the Issuer or either Guarantor represented a judgment-frustration risk of the sort at which alone relief by way of freezing order might properly be directed.

ii) In relation to the English companies, the comprehensive evidence (for this stage of proceedings) generated by the jurisdiction challenge and the claimants’ response to it justifies Mr Sprange QC’s submission that they have provided “a fulsome account of their purpose, activities and financial position” and that there is no solid evidence upon which a finding could be made that there is any real risk of assets being dealt with otherwise than properly in the ordinary course of their business (such as it is). Menrela meanwhile plays, in truth, a de minimis role in all of this; but again the conclusion is that there is no basis for a fear that Menrela has, but will deal improperly with, any substantial assets.

Dmitri

    1. I turn, finally, to Dmitri. On balance, I am prepared to proceed on an assumption, without finding, that the claimants have a good arguable case on the merits against Dmitri that the Notes were missold to them at his behest and with his knowledge so that he might have a personal liability. That said, it seems to me there are many difficulties with the claimants’ case. It is a long way from a clear (prima facie) case of fraud or dishonesty against Dmitri; and it is not a case where the nature of the substantive case against him provides any significant basis for a suggestion that he might now deal with his assets otherwise than in an ordinary and proper fashion such that enforcement of any judgment would be rendered impossible or more difficult.
    2. I do not accept two particular submissions of Mr Choo Choy QC’s, however, as follows:

i) Firstly, it was submitted that Dmitri’s payments into court of US$15.6 million and €11 million, in response to the freezing order in the Tsareva Claim, told decisively or at least substantially against there being any relevant risk. But in my judgment, they indicate no more than that Dmitri must be very wealthy indeed. If there were otherwise solid evidence of risk of dissipation, as required before a freezing order could properly be granted, the fact that Dmitri is so wealthy as to have been able to make such large sums available at short notice, when doing so was the only way to avoid (a) his assets being frozen and (b) an obligation to give disclosure as to his assets, would not undermine that evidence. If there were not such evidence, then there would not be any basis for any freezing order in the first place. In that case, of course Dmitri’s preference to pay into court rather than give disclosure about his assets to the claimants (given his ability to do so) could not be held against him (see, e.g., Holyoake v Candy [2018] Ch 297, per Gloster LJ at [50]-[53]). The conclusion is that Dmitri’s payments into court are a neutral fact.

ii) Secondly, a particular point was taken against the Tsareva claimants that because (or so it seems) they may have assigned the benefit of their claims to PV Group, a Delaware corporation, either (a) there will be a complete defence to their claims come what may or (b) they are guilty of material non-disclosure in obtaining their freezing order (and no further order should be granted). On investigation, however, it appeared that the possible assignment to the PV Group is just part and parcel of the Tsareva claimants coming together collectively to pursue their claims; they are not, on the evidence, being pursued ultimately for the benefit of other parties. I prefer not to take a final view whether in those circumstances the involvement of PV Group ‘behind the scenes’ as part of the Tsareva claimants’ litigation logistics ought to have been disclosed to the court at all. I would not have set aside the original freezing order, or refused to grant any further order, because of this point.

    1. More generally, then, the question would be whether indeed there is solid evidence that Dmitri, unless restrained, will or may dissipate or deal with his assets in such a way as to frustrate any future enforcement. In my judgment, there is not:

i) The claims against Dmitri extend well beyond the amounts ‘caught’ by the existing freezing order in the Tsareva Claim, given that (a) there is presently no freezing order in place in the Galagaev Claim and (b) there are 24 proposed additional Tsareva claimants. Yet there is no evidence of any actual dissipation of assets by Dmitri in what is now over a year since these proceedings have been on foot. Before that some 6 months or so passed between the administration of PSB and subsequent Note defaults and the commencement of proceedings; and (subject to one point, dealt with below) there is no evidence of any ‘judgment-proofing’ activity during that period either.

ii) I observed earlier in this judgment that the ownership structure under which Dmitri’s banking interests were held was neither opaque nor particularly complex. It involved Promsvyaz, a Dutch company, as the primary group company, held in turn via two English companies and Menrela, a Cypriot company, as a means of structuring 50:50 ultimate ownership between Dmitri and Alexei. Defendants having a mind to dissipate, or hide, assets, do not often do so by having simple holding structures in enforcement-friendly jurisdictions.

iii) As I observed in relation to Alexei, the one significant alteration, namely the separation of the Ananyevs’ respective interests, was done and explained entirely openly. As explained, it was done for proper reasons; and the claimants have no basis at all upon which to challenge the explanation given.

iv) There have been allegations in Russia that some transactions of PSB’s in December 2017, just before it was put into administration, were improper or not at arms’ length. No proceedings have been brought against Dmitri in relation to those allegations, and in any event no findings have been made about them. For this court’s purposes on an application against Dmitri for a freezing order they carry no more weight than rumour or speculation.

v) There was some evidence that PSB itself has brought a claim against Dmitri that includes allegations echoing the claimants’ substantive allegations in this court. That is not itself any evidence in support even of those substantive allegations, let alone solid evidence in support of the different allegation that there is a real risk of asset dissipation.

vi) There was an allegation that Dmitri owned or controlled other Russian businesses that it was suggested may have been put into a ‘controlled bankruptcy’ (in effect, a sham bankruptcy that those behind the subject company are able to control in such a way as to siphon off assets to the detriment of creditors). But there was no actual evidence to support such a case.

    1. Finally – and this is the point I passed over in paragraph 84(i) above – there was evidence that Dmitri transferred his interest in a business known as PSN Group to his wife, who transferred just over 50% of that interest to a third party. Dmitri acknowledged and gave an explanation for this transfer, which he decided upon in January 2018 and which was completed before any intimation of possible English proceedings or freezing orders. Standing alone as it does as any even arguable evidence for a possible risk of dissipation, I would not have been prepared to find that there was any serious basis for doubting Dmitri’s explanation that he wanted to avoid obstacles being placed in PSN Group’s way by the Russian authorities, in view of their then recent (as Dmitri contends, unjustified) interference in PSB’s affairs; and there does not appear to be any basis to doubt his case that his wife’s onward transfer was a sale on arm’s length terms. (It may also be observed, as Mr Choo Choy QC indeed did, that if this were an attempt to dissipate assets via his wife, it is odd that she sold only 50% or so of the interest.)
    2. A considerable period of time has passed since these proceedings were instituted and freezing orders were first sought. Nonetheless, this hearing represented the first full inter partes consideration of the position. With the benefit of all that brought with it by way of evidence and argument, I am not satisfied that the claimants have demonstrated any real risk that Dmitri would, if not restrained by a freezing order, deal with his assets in such a way as might render enforcement of any future monetary judgment impossible or more difficult.

Final Conclusions

  1. The result is a conclusion that the claims against the English companies have no foundation and a conclusion that the court has no jurisdiction against any of the other defendants. The claims against the English companies will be struck out and the proceedings against the other defendants will be set aside.
  2. The funds paid into court by Dmitri so as to avoid (for all defendants) the burden of the freezing order initially granted to the Tsareva claimants must be paid out of court to him or to his order. I shall invite counsel to address me on whether, given the terms on which Dmitri made that payment and the conclusions I have now reached as to jurisdiction, there needs to be or should be any order setting aside that initial freezing order or whether it is sufficient now just to ensure that the funds paid into court are returned to him.
  3. The applications for freezing orders are dismissed. No claim against any defendant has survived that is capable of supporting any such application; but I would have refused the applications in any event.
  4. The applications for joinder of additional claimants are also dismissed; and it would seem to me to follow from my conclusions in relation to the English contract gateway that the application by the Issuer and Guarantors for a stay in favour of arbitration also stands to be dismissed.
  5. I am conscious that the evidence and arguments of the parties covered a range of other matters that it has not been necessary to mention because of conclusions I have reached that are sufficient to determine the matters now before the court. I mean no discourtesy to the efforts of all involved in preparing and presenting those other points that I have decided not to lengthen or delay this judgment further by dealing with them as well.

BSG Resources Ltd v Vale SA & Ors [2019] EWHC 2456 (Comm)

Neutral Citation Number: [2019] EWHC 2456 (Comm)
Case No: CL-2019-262 and 269

IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
20/09/2019

B e f o r e :

MRS JUSTICE MOULDER
____________________

Between:

BSG RESOURCES LIMITED
Claimant

– and –

 
(1) VALE S.A.
(2) FILIP DE LY
(3) DAVID A.R. WILLIAMS
(4) MICHAEL HWANG
Defendants

____________________

Jeffrey Gruder QC and Iain Quirk (instructed by Mishcon de Reya LLP) for the Claimant
David Foxton QC and James Willan (instructed by Cleary Gottlieb Steen & Hamilton LLP) for Vale S.A.
Mr Hooker of for the third and fourth Defendants
Boies Schiller Flexner UK LLP

Hearing date: 4 September 2019
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

 

Mrs Justice Moulder :

    1. The matters in this judgment arise out of an arbitration award dated 4 April 2019 (the “Award”) following an arbitration between Vale S.A. (“Vale”) and BSG Resources Limited (“BSGR”) which resulted in an order for BSGR to pay damages of US$1.247 billion. BSGR has challenged the Award under sections 24 and 68 of the Arbitration Act 1996 (the “Act”) and such challenge (the “Challenge Application”) is due to be heard over two days in November 2019.
    2. This judgment deals with the following applications:

i) application by Vale under Section 70 of the Act for security for the amount payable under the Award;

ii) application by Vale for security for its costs in respect of the Challenge Application;

iii) application by BSGR to set aside the order of Bryan J dated 4 April 2019 granting permission to enforce the Award or to stay the enforcement thereof (the “Set Aside Application”);

iv) application by BSGR to amend its claim form in respect of the Challenge Application (the “Amendment Application”);

v) application by Vale to impose a condition of pursuing the Challenge Application that BSGR pay the outstanding costs order of Mr Justice Popplewell.

Hearing

    1. The hearing of the various applications referred to above was in public for the reasons given in the ruling made at the commencement of the hearing.
    2. The third and fourth defendants, two of the three arbitrators, were represented by Mr Hooker at the hearing. Mr Hooker largely adopted the submissions of Mr Foxton QC for Vale but did make submissions on the Amendment Application.

Background

    1. It is not necessary for the purpose of determining the applications to consider the detailed background but in summary BSGR and Vale were parties to a joint venture in Guinea to exploit iron ore deposits. The government of Guinea changed and in April 2014 the mining rights were revoked following allegations of bribery and misconduct on the part of BSGR.
    2. This resulted in two sets of arbitration proceedings: one brought by Vale in April 2014 against BSGR under the LCIA rules and one brought by BSGR against Guinea under ICSID. BSGR challenged the appointment of the three arbitrators and as a result of that challenge, the Chairman (but not the other arbitrators) was obliged to stand down and was replaced. This affected the timing of the hearing of the arbitration which was moved. The date of the final hearing was fixed notwithstanding the fact that BSGR said that its leading counsel was not available at such time. As a consequence, BSGR did not attend the hearing and did not cross examine witnesses. It did however participate in the ICSID proceedings and did cross examine witnesses, certain of whom were also called in the LCIA proceedings. Initially it was agreed between the parties that there would be record sharing so that the evidence in the ICSID arbitration would be available to the arbitrators in the LCIA arbitration. However after the proceedings in the LCIA arbitration had closed, BSGR applied to adduce the evidence of the transcripts of the ICSID proceedings (which included the cross examination of the witnesses) and the post hearing briefs which was refused by the arbitrators in the LCIA arbitration.
    3. In the Award the arbitrators found that BSGR had made fraudulent misrepresentations to Vale to enter into the joint venture. It did not have to decide the bribery allegations in order to determine the arbitration claim although it did make findings on the issue.
    4. BSGR has brought the Challenge Application on the grounds that the arbitrators displayed apparent bias. Currently BSGR relies on four matters but by its Amendment Application, it seeks to rely on the sole ground that the refusal to admit the transcripts of the ICSID proceedings demonstrates apparent bias, having regard to the context of certain other decisions made by the arbitrators in the course of the arbitration.
    5. BSGR went into administration in March 2018 and Mr Malcolm Cohen, a partner of BDO LLP and Mr William Callewaert of BDO Ltd of Guernsey were appointed the administrators by order of the Royal Court of Guernsey.

Evidence

    1. The evidence before the court in respect of the applications was witness statements from Mr Jonathan Kelly, a partner of Cleary Gottlieb Steen & Hamilton LLP, solicitors for Vale, and for BSGR, evidence from Mr Malcolm Cohen, one of the joint administrators of BSGR, and from Mr Libson of Mishcon de Reya LLP.
    2. At the outset it is necessary to say something about the evidence of Mr Cohen. As stated in his witness statement Mr Cohen has been a partner for over 30 years of BDO LLP. BDO LLP is the UK member of BDO International, the world’s fifth largest accounting firm. Mr Cohen is the head of BDO’s contentious insolvency team. He has served as a member of R3 which collectively represents the U.K.’s insolvency, restructuring, advisory and turnaround professionals. It is against that background of an experienced insolvency practitioner at a leading accountancy firm that I approach his evidence and consider the assertions made by Vale against the joint administrators and Mr Cohen.
    3. In written submissions counsel for Vale referred to the statement in Mr Cohen’s witness statement describing Vale as a “single, unsecured creditor with an axe to grind” or having “their own agenda” (paragraph 49 and 51). It was submitted for Vale that the “dismissive language and approach” is not what would be expected from professional officeholder acting independently in the interests of creditors.
    4. It is clear from Mr Kelly’s witness statements and Mr Cohen’s witness statement the nature of the exchanges that have taken place between those representing Vale and the administrators. Whilst (perhaps understandably) in oral submissions counsel for Vale chose not to repeat some of the assertions made in the witness statements of Mr Kelly against the administrators, it is in my view unsurprising that Mr Cohen (correctly in my view in the context) described Vale as having an axe to grind. What is surprising on the evidence in my view, are the assertions in the witness statements of Mr Kelly against Mr Cohen, a professional and experienced administrator, that they were guilty of a “lack of supervision and care” or that the administrators are not in a position to approach explanations and information provided to them with “scepticism and circumspection”. Mr Kelly referred at paragraph 10 of his third witness statement to “serious concerns” about the steps which have been taken by the joint administrators. These included the attempt to stay the arbitration process, the alleged hostile stance towards Vale, the manner of the challenge to the Award, the role of Nysco and the management of BSGR. All of the matters raised in this regard by Mr Kelly are dealt with by Mr Cohen in his witness statement (as more particularly discussed below) and on the evidence before me the “serious concerns” are not made out.

I Application by Vale under Section 70 of the Act for security for the amount payable under the Award

    1. The relevant provisions of Section 70 of the Act state:

“(1) The following provisions apply to an application or appeal under section 67, 68 or 69.

(7) The court may order that any money payable under the award shall be brought into court or otherwise secured pending the determination of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with.”

    1. The legal principles to be applied by the court were said in oral submissions for Vale to be common ground and although some differences were notable in the written submissions, I proceed on the basis that for present purposes the law is as stated by Picken J in Progas v Pakistan [2018] EWHC 209 (Comm) that it is necessary (in relation to a challenge under section 68 or 69) to show that the challenge in some way prejudices the ability of the defendant to enforce the award or diminishes the claimant’s ability to honour the award and that, at [64]:

“… in order to show that the ability to enforce an award has been prejudiced or the ability of the applicant to honour it has been diminished, it is “effectively necessary to satisfy a similar requirement to that of a freezing injunction, namely the risk of dissipation of assets” between the time of the section 68 application and its final disposal…”

    1. It was accepted by both parties that unlike the position in relation to a section 67 challenge (challenge to substantive jurisdiction) and as stated by Picken J in Progas, there is no threshold or additional requirement that the party seeking security should show that the challenge to the award is flimsy or otherwise lacks substance.
    2. I bear in mind however the observations of Teare J in X v Y [2013] EWHC 1104 (Comm), cited by Picken J at [53], that:

“… the jurisdiction conferred on the court by section 70 should not be used a means of assisting a party to enforce an award which has been made in its favour.”

    1. It was submitted for Vale that there is a risk of dissipation for the following reasons:

i) BSGR is using the pending Challenge Application to resist enforcement of the Award in the United States and the existence of the Challenge Application means that Vale cannot apply to wind up BSGR;

ii) BSGR’s management (excluding the administrators) and owners are the sort of people who will do everything in their power to prevent Vale obtaining the sums awarded to it by the tribunal: the tribunal found that BSGR had committed a serious fraud; the beneficial owner of BSGR, Mr Steinmetz, has been indicted in Switzerland on charges of corruption and forgery; in 2010 BSGR dissipated US$500 million paid to it by Vale through a Lichtenstein foundation almost immediately after receipt; the tactics adopted in the arbitration suggests that BSGR will do whatever it can to avoid meeting its liabilities (including the failure to pay the costs order of £180,000 ordered by Popplewell J);

iii) there are serious concerns that the benefit of BSGR’s claims in the ICSID arbitration is in the course of being dissipated or diminished in value: in February 2019 Nysco (BSGR’s parent) and Guinea announced the settlement of their dispute over mining concessions and licenses in the Republic of Guinea and that a new group of investors including Mr Steinmetz will exploit the Zogota deposit; that settlement was negotiated without the involvement of the administrators who were presented with the agreement which had already been negotiated; the new company, Niron Metals plc (“Niron”) is represented by Mr Steinmetz who appears to receive a personal benefit from the settlement of the arbitration and although the administrators have stated that BSGR intends to enter into a revenue sharing agreement with Niron, there is currently no such agreement. It was therefore submitted that the reality is that administrators are being bypassed and the settlement is being implemented: in July 2019 Nyron announced that it was proceeding with a feasibility study and the government of Guinea launched a tender for the award of the mining rights.

iv) BSGR cannot point to the administrators providing effective protection against the ability to enforce being prejudiced: the funding arrangements for the administration are such that Nysco is providing funding but with control afforded to Nysco: the administrators are required to submit a budget for agreement and drawdown requests must be sent to Mr Steinmetz’s personal lawyer specifying the purposes for which funds will be used.

    1. In my view for the reasons set out below Vale have not established a risk of dissipation or diminution of assets and are seeking by this application to use it as a means to assist in the enforcement of the Award.
    2. Firstly, although the directors remain directors of BSGR they no longer have the power to manage the affairs of the company. The power of management lies solely with the joint administrators who have a duty to act in the interests of creditors. The administrators are officers of the Court of Guernsey. The position of the directors and the administrators respectively is clearly stated at paragraphs 20 and 25 of Mr Cohen’s witness statement:

“the authority to manage the affairs, business and property of BSGR lies solely with the joint administrators. The joint administrators act as agents of BSGR – and hence act firstly in the interests of BSGR’s creditors. This duty manifests itself (a) in the joint administrators taking reasonable care to obtain the best realisations that the circumstances permit for BSGR’s assets and (b) to ensure that those assets are held to be distributed in accordance with the relevant pari passu priority. The joint administrators are officers of the Royal Court. We have at all relevant times been clear with BSGR’s directors, management etc that they are precluded from taking any actions in such a way as to interfere with the performance by the joint administrators of their functions without the joint administrators’ express consent.”

    1. Mr Cohen acknowledged that the joint administrators have consulted the directors in relation to matters which are relevant to the administration. Although Vale complains about the number of hours that the administrators have involved the directors in the company’s affairs, the evidence of Mr Cohen was that it is:

“standard practice in administrations not to cut loose the company’s management, particularly where members of the management possess knowledge or information which could benefit the conduct of the administration (and hence creditors).”

    1. Secondly, as to the funding of the administration through Nysco and the control exercised by Nysco by virtue of its control of the funding, the evidence of Mr Cohen is (paragraph 26) that this:

“…does not change the fact that we do not act in accordance with the instructions of any third party or the company’s directors etc … Nysco offered commercially reasonable terms to meet the costs and expenses of the Guernsey administration. The fact that Nysco is connected to BSGR is irrelevant provided that those conditions are met…”

On that evidence, which I accept, the administrators are in control of the assets of BSGR notwithstanding the need for funding to take positive action.

    1. Thirdly it was submitted for Vale that “the administrators appeared not to be exercising the degree of critical scrutiny which is required in the exceptional circumstances of the present case” and that this “casts further doubt on their ability to prevent those behind BSGR taking steps which will prejudice Vale’s ability to enforce”.
    2. This criticism is not borne out by the evidence: Mr Cohen explained (paragraph 34 of his witness statement) that when the merits of the challenge application were questioned by Vale as “hopeless and plainly inappropriate”, the administrators listened to Vale’s position and sought further advice on whether the challenge application was a hopeless claim. Having received legal advice to the contrary the administrators have decided to continue with the Challenge Application.
    3. As to the request for a stay of the arbitral proceedings following the appointment of the administrators, the evidence of Mr Cohen (paragraph 16) was that this was not done for the purpose of delaying the arbitration but:

“is a common step taken by administrators when appointed to companies which are subject to ongoing legal proceedings in order to provide administrators with time to review and gain an understanding of such proceedings.”

    1. Fourthly the complaint by Vale that the administrators are not taking action in respect of past misconduct in my view does not go to the risk of dissipation but goes to the ability of Vale to enforce. It was submitted for Vale that the assets are being diminished by reason of the challenge because no action is being taken against assets which are now in the hands of recipients and could be traced but there is no evidence before the court to support this assertion. The assets were transferred in 2010 and there is no evidence as to what may currently be happening to the fruits of those assets. The inferences to be drawn from the transfer in 2010 are disputed by the parties but given that the transfer occurred some nine years ago, and prior to the administration it has no relevance in my view to the issue of the current risk of dissipation.
    2. Fifthly as to Niron, the evidence of Mr Cohen (paragraph 42) is that no binding deal had been reached and

“none would be reached without the joint administrators being satisfied that such a deal is, overall, in the best interests of BSGR and its creditors. We have therefore taken every step necessary to ensure that BSGR’s rights under the ICSID arbitration are protected, while we are exploring whether an arrangement which monetises BSGR’s claim in the ICSID arbitration and produces an outcome which is in the interests of BSGR and its creditors could be reached with the Republic of Guinea.”

    1. It was submitted for Vale that whatever the legal position, Vale is being prejudiced by events on the ground making restoration of the mining concession more difficult or impossible. However, the asset in question is the claim in the ICSID arbitration and the concession has already been revoked thus leading to the ICSID arbitration. The value of the asset is therefore the value of the claim in arbitration. The evidence of Mr Cohen, which I accept, is that the joint arbitrators are seeking to monetise the value of that claim. In my view the events concerning the mining rights have no direct bearing on the risk of dissipation of BSGR’s asset, being the claim in the ICSID arbitration.
    2. Sixthly as to the prejudice allegedly suffered by its inability to wind up BSGR, I do not accept that this prejudice, if it exists, diminishes the assets. The evidence is that administrators’ duty (as referred to above) is to take reasonable care to obtain the best realisation that the circumstances permit for the assets of BSGR and to ensure that those assets are held to be distributed in accordance with the relevant pari passu priority. The submission that enforcement in the United States is being hampered by the challenge goes to the ability of Vale to enforce the award and an order under Section 70(7) should not be used as a means of assisting a party to enforce an award.
    3. Seventhly, as to past behaviour Vale relies on the conduct of the arbitration, the 2010 transfer, the circumstances in which BSGR went into administration and the failure to comply with court orders. Given the evidence that the administrators are now managing the company and not the directors, evidence which I accept, the past conduct of the directors is irrelevant to the present risk of dissipation. It would be relevant if the administrators were as alleged being influenced by the directors. However for the reasons discussed above, I do not accept that Mr Cohen (together with his joint administrator) is not acting independently and in accordance with his duties as administrator acting in the best interests of the company and the creditors as a whole. In relation to the manner in which the company was placed in administration I note that Mr Kelly accepts that the “secrecy” which he complains about is in accordance nevertheless with the laws of Guernsey (paragraph 10a of his third witness statement).
    4. For all these reasons the application by Vale for security for the Award is dismissed.

II Application by Vale for security for its costs in respect of the Challenge Application

    1. The principle that Vale should receive an amount by way of security for its costs pursuant to Section 70(6) of the Act is not disputed and the only issue for the court is quantum. The estimated costs of the Challenge Application on the part of Vale are US$880,00 and Vale seeks the sum of US$710,000 by way of security.
    2. BSGR have proposed a payment of approximately US$510,000.
    3. The principles as to quantum were not in dispute: the court should award the sum which the applicant would be likely to recover in a detailed assessment if awarded costs on the standard basis having regard to the factors set out in CPR 44.5 (Popplewell J in Bluewaters Communications Holdings LLC v Bayerische Landesbank [2018] EWHC 78 (Comm) at [30]).
    4. Vale say that there is a real possibility that costs would be awarded on the indemnity basis given the weakness of the challenge and the history of without merit applications.
    5. The first issue is therefore whether there is a real possibility that costs will be awarded on the indemnity basis: (Danilina v Chenukhin [2018] EWHC 2503 (Comm)). As noted by Teare J in that case, this does not involve a consideration of the merits of the claim but assumes that BSGR loses its Challenge Application. BSGR’s claim is primarily one of apparent bias on the part of the arbitrators. It is not a claim of actual bias and in my view, failure on the part of BSGR will not necessarily mean that BSGR will be found to have any improper motive in bringing the Challenge Application such as to delay enforcement of the Award. In this regard I note that there is the unusual feature that when it was put to the administrators by Vale that the Challenge Application was “hopeless and plainly inappropriate”, the evidence is that the administrators sought further advice on the pending litigation and having taken legal advice on the merits, which Mr Cohen stated was “to the contrary”, decided to proceed with it as being “clearly in line with the court approved objective of the administration”. This in my view suggests that on the evidence before this court, Vale would be unlikely to succeed in any argument that the administrators had improperly pursued the Challenge Application such as to warrant an order for indemnity costs.
    6. I am not therefore persuaded that Vale has shown a real possibility of costs being awarded on an indemnity basis. Accordingly, I seek to determine a sum which in my view would be likely to be recovered in a detailed assessment on the standard basis.
    7. I was referred by BSGR to other cases by way of comparison but in my view these cases provide little assistance since the amount that would be recoverable in this case has to be determined having regard to the circumstances of this case. The factors in the CPR which the court takes into account in determining whether or not costs are proportionate include whether they bear a reasonable relationship to the amount at stake, the importance of the matter to all the parties and the complexity of the matter. Having regard to these factors, the amount at stake here is clearly very significant even by the standards of the Commercial Court; the importance of the matter is not only the value of the Award but extends to the reputational issues inherent within the findings in the Award; the Award itself is lengthy reflecting the complexity of the underlying issues. The nature of the Challenge Application relates to the refusal of the arbitral panel to admit evidence and submissions from the ICSID arbitration and therefore the documentation potentially extends beyond the conduct of the LCIA arbitration.
    8. Notwithstanding these factors, the starting point is that in my view the total amount of the estimated costs of US$ 880,000 for a two-day hearing does not appear to be reasonable and proportionate, being well in excess of what the court would expect to see in such a case. Whilst the volume of material in the two arbitrations is substantial, the issue which the court will have to determine is primarily the issue of apparent bias which would appear to turn on the reasons why the material was not admitted rather than the detailed content of the material itself. Although a challenge under Section 68 requires the applicant to demonstrate substantial injustice, it is not required to show that the determination will substantially affect its rights (as is the position under Section 69) and therefore this also limits the work which will need to be undertaken in relation to the detail of the evidence which was not admitted ,in order to meet the Challenge Application.
    9. Looking at the breakdown of the total figure, it seems to me that the estimated number of hours for the solicitors (a further 530 hours) appears high and the resultant charges of both solicitors and counsel cannot be said to be reasonable and proportionate. Whilst the charge out rates are not necessarily out of line with other City firms, the overall figure is in my view unlikely to be recoverable on a detailed assessment without a very significant reduction.
    10. For all these reasons I therefore determine that the amount to be provided by way of security for costs is the sum of US$510,000.

III Application by BSGR to set aside the order of Bryan J dated 4 April 2019 granting permission to enforce the Award (the “Set Aside Application”)

    1. By order of Bryan J Vale was given permission under section 66 of the Act to enforce the Award in the same manner as a judgment or order of the High Court.
    2. That order was made on an ex parte basis (as is usual) and BSGR has the right pursuant to CPR 62.18(9)(a) to apply to set it aside which it has done.
    3. CPR 62.18 (9) provides:

“Within 14 days after service of the order or, if the order is to be served out of the jurisdiction, within such other period as the court may set –”

(a) the defendant may apply to set aside the order; and

(b) the award must not be enforced until after –

(i) the end of that period; or

(ii) any application made by the defendant within that period has been finally disposed of.”

    1. It was submitted for BSGR that the meaning of CPR 62.18 (9)(b) and the words “the award must not be enforced until …any application made by the defendant within that period has been finally disposed of” means that any award is provisional until any challenge to the award has been finally disposed and that the order to permit enforcement must stand or fall with the determination of the challenge to the Award. It was submitted that the order for enforcement has no independent existence if the Award is set aside. It was also submitted (although not pursued in the oral submissions) that section 66 was subject to section 81 and a public policy defence given that what is being alleged is a breach of the rules of natural justice.
    2. It was accepted for Vale that if the Challenge Application were to succeed the order for enforcement would be set aside. However pending the determination of the Challenge Application, it was submitted that the Award was valid and the order for enforcement should not be set aside. If in the alternative, a stay on enforcement were to be granted it was submitted that it should be granted in accordance with CPR 83.7 and conditions should be imposed on any such grant of a stay.
    3. It seems to me that as a matter of construction of the language of CPR 62.18(9), the words “any application” in subparagraph (ii) of paragraph (b) refer back to any application to set aside under paragraph (a) and not to any other application such as a challenge under Section 68. This is consistent with the authority that an Award has a “presumptive validity” once made unless and until set aside: Peterson Farms Inc v C&M Farming [2003] EWHC 2298 (Comm) at [25]. Accordingly I do not accept that the final disposal of the Application to Set Aside can only be determined once the Challenge Application has been determined. As to the other grounds advanced as to why the order should be set aside, BSGR have not shown that this challenge falls within the scope of any public policy defence to enforcement and I note that no reliance is placed on the express provision in section 68(2)(g) namely that the way in which the award was procured was contrary to public policy.
    4. The issue for this court is therefore not whether the order should be set aside but whether a stay on enforcement should be granted. As to whether a stay should be ordered, Vale submitted that CPR 83.7 applied. CPR 83.7 (1) provides:

“At the time that a judgment or order for payment of money is made or granted, or at any time thereafter, the debtor or other party liable to execution of a writ of control or a warrant may apply to the court for a stay of execution.”

    1. BSGR submitted that CPR 83.7 did not apply as there was no judgment of the court.
    2. That interpretation is not supported by the textbook Merkin on Arbitration which at paragraph 19.16 states that the enforcement of an award under section 66 is subject to the general discretion of the court to stay execution of a judgment or order set out in CPR 83.7 and relies on the authority of Far Eastern Shipping v AKP Sovcomflot [1995] 1 Lloyds Rep 520. In that case Potter J considered whether the court had jurisdiction to stay enforcement of a New York Convention award once it has been converted into an English judgment for the purposes of execution. The judge held that having elected to convert an award into an English judgment, the plaintiff ought in principle to be subject to the same procedural rules and conditions as generally apply to the enforcement of such judgements. The application in that case was made pursuant to the forerunner of CPR 83.7 which provided that the court may order a stay where there were special circumstances which rendered it inexpedient to enforce the judgment or order.
    3. CPR 83.7 (4) now provides that:

“If the court is satisfied that—”

(a) there are special circumstances which render it inexpedient to enforce the judgment or order; or

…the court may by order stay the execution of the judgment or order, either absolutely or for such period and subject to such conditions as the court thinks fit”

    1. Merkin also makes reference to the decision in Socadec SA v Pan Afric Impex Co [2003] EWHC 2086 (Comm) where an order had been made under section 66 and the defendant then lodged an appeal against the award and applied to the court to suspend the order for enforcement. The judge held that the principles which he should apply were firstly the strength of the argument that the award was invalid, assessed on a “brief consideration” and not a mini trial, and secondly the ease or difficulty of the enforcement of the award and whether if enforcement was withheld or delayed it could become more difficult by the movement of assets, problems of trading, disappearance of the defendant.
    2. I note that Russell on Arbitration at 8–010 also states that where the court grants permission to enforce an award, it may stay the execution of that order for a limited period. Russell states that a party wanting to suspend enforcement should apply to set aside the order to enforce and combine that application with his challenge of the award. It states (relying on Socadec) that the court will consider the prospects of success of the challenge and whether enforcement might become more or less easy if it is delayed.
    3. I accept that there is a distinction between subsection (1) which provides for an award to be enforced “in the same manner as a judgment or order of the court” and subsection (2) which enables a party to obtain a judgment of the court in terms of the award. Even if BSGR is correct that the application for a stay does not fall within the terms of CPR 83.7, it is in my view clear on the authorities before me that the court has the power to grant a stay on enforcement.
    4. There is in my view no general rule that a stay should be granted pending the determination of the Section 68 challenge. This would be contrary to the principle that an award has a presumptive validity and would be inconsistent with the approach of the courts on an appeal where there is no automatic stay merely because an appeal against an order is pending. In determining whether or not the court should exercise such discretion in this particular case, it seems to me that the outcome is likely to be the same whether one applies CPR 83.7 by analogy (as in Far Eastern Shipping) or the principles identified in Socadec.
    5. Assessing first the strength of the claimant’s case, this is not a case where, on a brief assessment of the Challenge Application, it can be said that it is of such strength that it is obvious that BSGR will succeed such that a stay should be granted. A challenge of apparent bias against experienced arbitrators is not a challenge which will be easy to establish.
    6. Secondly there is no evidence before the court which suggests that Vale would be unable to repay any amount obtained through enforcement should enforcement be permitted prior to the determination of the Challenge Application.
    7. Thirdly unlike the position in Socadec, there is no evidence of any other particular concerns in relation to Vale which might militate against allowing Vale to pursue enforcement action pending the determination of the Challenge Application.
    8. For all these reasons therefore I am not persuaded that in the circumstances the order of Bryan J should be set aside or that the court should exercise its discretion to order a stay on enforcement. I therefore refuse the Set Aside Application.

IV Application by BSGR to amend its claim form in respect the Challenge Application

    1. The Amendment Application requires the permission of the court pursuant to CPR 17.1(2). The proposed amendments reduce the instances alleged of apparent bias from four to one but rather than refer to a “pattern of conduct” now seek to rely on the other instances as “context”.
    2. The Amendment Application is opposed by Vale because the matters are said to be irrelevant if only relied upon as context. (Vale also objected to the pleading in paragraph 41 that “the tribunal’s refusal to admit the ICSID material is inexplicable on any other basis” but that amendment is no longer sought by BSGR: following the hearing it has been confirmed by counsel for BSGR that such amendment is no longer being sought by BSGR).
    3. There is nothing in the way in which BSGR formulates the amendments which would result in a claim which is not maintainable at law. There is no identified prejudice to Vale in granting the application to amend, it has not been argued that it should be refused as having no prospect of success and it is not opposed by the third and fourth defendants. In these circumstances in my view in order for the matter to be dealt with justly, BSGR should be permitted to amend its application. If upon determination of the Challenge Application (as amended) it is shown that the case has been pursued in a manner which was not reasonable, then this is a matter which can be taken into account, as appropriate, when determining the issue of costs.
    4. The Amendment Application is therefore granted.

V Application by Vale to impose a condition of pursuing the Challenge Application that BSGR pay the outstanding costs order of Popplewell J.

  1. Vale applies to the court for an order that the court impose as a condition of BSGR pursuing the Challenge Application that BSGR pay the outstanding costs order of Mr Justice Popplewell.
  2. The evidence of Mr Cohen (paragraph 23) is that this is a debt which arose prior to the company entering into administration and therefore cannot be paid in priority to other creditors but will need to be proved as a debt. The joint administrators have no power to distribute the assets of BSGR to creditors: once the assets are realised, the joint administrators must apply to the Royal Court of Guernsey to discharge the administration order to enable either BSGR or a subsequently appointed liquidator to effect the relevant distribution to creditors.
  3. It was submitted for Vale that the administration has not been recognised in England and therefore its status is not a reason not to order the payment of the costs order. In the alternative it was submitted that payment should come from those who stand behind BSGR.
  4. Assuming that there is a power to impose such a condition, in my view it is not appropriate to impose such a condition in circumstances where the company is in administration, irrespective of the fact that the administration has not been recognised in England. I cannot see that the court could make an order which compels those who stand behind BSGR to make the payment. In relation to the administrators there appears to be no power for them to make such a payment and if it were paid at this time it would be contrary to the principle of pari passu distribution. Accordingly I am not satisfied that such an order could be complied with and if I am wrong on that, it seems to me that as a matter of comity and public policy, the court should not exercise its discretion and require the company to act in a way which is contrary to the principle of pari passu distribution.
  5. For all these reasons the application by Vale for an order in relation to the outstanding costs is refused.