PBO v DONPRO [2021] EWHC 1951 (Comm) (16 June 2021)

 

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

COMMERCIAL COURT (QBD)

 

PBO v DONPRO [2021] EWHC 1951 (Comm) (16 June 2021)

FILE NUMBER: CL-2020-000383
JUDGE: The Honourable Mr Justice Bryan
REGISTRY: Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

DATE OF HEARING:
DATE OF JUDGMENT: 16 June 2021
CASE MAY BE CITED AS: PBO v DONPRO [2021] EWHC 1951 (Comm) (16 June 2021)
MEDIUM NEUTRAL CITATION: [2021] EWHC 1951 (Comm)
DIVISION: BUSINESS AND PROPERTY COURTS

OF ENGLAND AND WALES

LIST ARBITRATION CLAIM
PARTIES: (AS ANONYMISED)

Claimant:

PBO 

AND

 

Respondents:

(1) DONPRO
(2) 2DON
(3) CODON

REPRESENTATION: Liisa Lahti (instructed by Teacher Stern LLP) for the Claimant

 

And

 

Fiona Whiteside (instructed by Walker Morris LLP) for the Respondents

 

 

JUDGMENT
 

MR JUSTICE BRYAN:

  1. INTRODUCTION
  2. The parties appear before me today on the hearing of the Arbitration Claims of PBO whereby PBO advances challenges under sections 67 and 68 (and if necessary under section 69 of the Arbitration Act 1996 (the “Act”) in respect of appeal proceedings brought before the Federation of Cocoa Commerce (“FCC”) Board of Appeal (the “Board”) which were determined on the basis of the parties’ written submissions and without an oral hearing. More specifically five challenges are brought before me three pursuant to section 68 of the Arbitration Act 1996 and two pursuant to section 67 of the Act, as follows:-

(1) Pursuant to section 68, and in relation to the Respondents’ claim (the “Claim”), a refusal of the Board to allow PBO to amend its statement of case on appeal which it is said amounted to serious irregularity that has caused PBO substantial injustice. It is said that such refusal prevented PBO from advancing its full defence to the Claim including arguments that were potentially determinative of the Claim and in circumstances where it is said that (a) there would have been no (or minimal) prejudice to the Defendants and (b) the Tribunal gave no consideration to the balance of prejudice between the parties and misunderstood the requirement of “necessity” in section 33(1)(b) of the Act.

(2) Pursuant to section 68, and in relation to PBO’s counterclaim, that there was a serious irregularity that has caused PBO substantial injustice because the Board of Appeal departed from the way in which the case was presented by the parties and did so without warning such that PBO was not afforded a reasonable (or any) opportunity of putting its case in circumstances where the Board found that PBO had displayed an intention not to perform 11 contracts between PBO and CODON within the meaning of Rule 19.5 of the FCC Rules such that CODON was justified in “cancelling” them, in circumstances where the Respondents had not relied upon Rule 19.5, and the parties had not been given any opportunity to address the Board in relation thereto.

(3) Pursuant to section 68, and in relation to PBO’s counterclaim, that there was a serious irregularity that has caused PBO substantial injustice because the Board departed from the way in which the case was presented by the parties and did so without warning such that PBO was not afforded a reasonable (or any) opportunity of putting its case in circumstances where the Board found that it did not have jurisdiction to deal with PBO’s claim for “Jute Bag Losses” where there had been no jurisdictional challenge, and the parties had not been given any opportunity to address the Board in relation thereto.

(4) Pursuant to section 67, that the Tribunal did not have jurisdiction over the Second Defendant (“2DON”).

(5) Pursuant to section 67, that the Tribunal did have jurisdiction to consider the Jute Bag Losses.

  1. PBO seeks an order that the entire Appeal Award be set aside and the dispute between PBO and the Defendants be heard by a new tribunal (alternatively that the Appeal Award be remitted to the Board of Appeal for reconsideration). PBO submits that this is appropriate even if the Court accepts PBO’s section 68 arguments in relation to the Counterclaim but not the Claim.
  2. The orders sought under sections 67 and 69 of the Act are only required if the Tribunal does not make the aforesaid orders under section 68. There is also a pending application for permission to appeal against the relevant award under section 69 of the Act. However, as contemplated in the order of Mr Justice Waksman dated 23 December 2020, whether or not it will ever be necessary for the Court to rule upon the section 69 application hereafter depends on the outcome of the current applications.
  3. The dispute between the parties arose out of a series of agreements for the sale and purchase of cocoa beans. Arbitration proceedings were commenced by the First and Second Defendants (“DONPRO” and “2DON”) pursuant to three contracts that DONPRO had with PBO (the “Claim”). A counterclaim was brought by PBO against the Third Defendant (“CODON”) pursuant to eleven contracts that it had entered into with CODON) (the “Counterclaim”).
  4. A feature of the arbitration proceedings is that PBO argued that the losses suffered by each party under the claim and the counterclaim should be compared and the difference awarded to the party showing the greater loss. CODON was joined to the arbitration proceedings. There was an initial arbitration (the “Arbitration”, the “Tribunal” and the “Award”) and a second tier or “appeal” arbitration (that permitted new submissions to be made) (the “Appeal Arbitration”, the Board and the “Appeal Award”). Both arbitrations were conducted on written submission and documents alone, as I have already noted. All PBO’s applications relate to the Appeal Award. I am told the amount in dispute is approximately €500k on the Claim, and it is said £2.7m on the Counterclaim. I do not know whether or not that is so, and I have not been addressed in relation to such matters.
  5. CODON was not in fact represented in the arbitration proceedings. However it was joined to the arbitration and the submissions filed by the lawyers representing DONPRO and 2DON contained arguments that it was apparent were made on behalf of CODON.

B: BACKGROUND AND THE DISPUTES BETWEEN THE PARTIES

  1. PBO, a company engaged in the business of trading cocoa beans, purchased cocoa beans from DONPRO, a company engaged in the business of selling cocoa beans. A number of contracts were entered into between PBO and DONPRO in 2017 (the “2017 DONPRO Contracts”). The claim related to three of those contracts (the “Three DONPRO Contracts” and/or the “Three DONPRO Invoices”). 2DON is an entity to which DONPRO said it had assigned these debts to. There were also, certainly as per PBO, eleven contracts entered into between PBO and the Third Defendant (CODON) in 2018 (the “2018 CODON Contracts”). PBO’s case is that the eleven 2018 CODON Contracts were replacement contracts entered into to replace the remaining 2017 DONPRO Contracts after DONPRO became unable to contract with PBO due to a tax investigation into DONPRO and frozen bank accounts.
  2. Each of these aforesaid contracts were governed by English law and incorporated the Federation of Cocoa Commerce Contract Rules for Cocoa Beans (the “FCC Contract Rules”). The FCC Contract Rules in turn provide (at Rule 20) that any dispute arising out of the Contract Rules for Cocoa Beans must be referred to FCC Arbitration to be settled in accordance with the FCC Arbitration and Appeal Rules (“FCC Arbitration Rules”) applicable on the date of the contract in question. The FCC Contract Rules are standard form contract terms used in the cocoa bean trade.
  3. As I have noted, DONPRO and 2DON claimed against PBO pursuant to the Three DONPRO Invoices. PBO successfully applied to have CODON joined as a party to the arbitration and counterclaimed against CODON arguing that CODON was in breach of the eleven 2018 CODON Contracts by wrongfully seeking to cancel those contracts and in failing to perform the contracts. PBO claimed that as a result of these breaches it had suffered pecuniary loss that exceeded the amounts claimed by DONPRO and 2DON. PBO further claimed that there had been a “wash-out” between the DONPRO Contracts and the eleven 2018 CODON Contracts. Per paragraph 18 of Mr Rabinowicz’s first statement in support of the applications a “wash-out” means “a situation where an old contract (or contracts) are replaced with a new contract (or contracts) between the same or other entities“. PBO argued that there had been a wash-out and that therefore the losses suffered by each party under the claim and the counterclaim should be compared and the difference awarded to the party showing the greater loss. In the event – and for reasons which will become apparent – the Board did not at that stage have to rule upon that point
  4. Turning first to the Award, the Award is dated 12 December 2019. The Tribunal found (in summary) that sums were due under the Three DONPRO Invoices. PBO was ordered to pay two amounts to DONPRO and one amount to 2DON, The Tribunal accepted the validity of the assignment between DONPRO and 2DON, and PBO says it is accordingly unclear why some payments were said to be due to DONPRO and others to 2DON. As to the Counterclaim PBO’s request to join CODON to the proceedings was accepted. The Tribunal found that the eleven 2018 CODON Contracts were a replacement of the relevant 2017 DONPRO Contracts.
  5. The Tribunal also found that PBO had “never declared the Claimants in default” and therefore pursuant to FCC Rule 19.1.1 the shipment periods of the 2018 CODON Contracts were implicitly extended beyond the original shipment periods such that all of the 2018 CODON Contracts “remain in force”, and PBO’s counterclaim was rejected. Given that finding, following receipt of the Award and in order to comply with the provisions of FCC Rule 19.1.1 referred to in the Award, PBO sent CODON two notices of default, one dated 31 December 2019 and another dated 17 January 2020.
  6. In the Appeal Arbitration PBO argued that as CODON had not attempted to make any deliveries since receiving the December 2019 notice of default CODON was officially in default of the 2018 CODON Contracts on 15 January 2020 and the Board should ascertain the relevant compensation for non-performance. PBO relied on Rules 19.2 and 19.2.1 of the FCC Arbitration Rules which set out a procedure for “closing out” a contract in the event of a default and for calculating loss (by reference to the difference between the contract price and the market price). PBO argued that (i) the losses calculated by reference to FCC Rule 19.2.1 totalled GBP 2,652,793, (ii) which far exceeded the amounts payable pursuant to the Three DONPRO Invoices (plus interest) and (iii) therefore the Tribunal should “declare a ‘wash’ of the Invoice amounts plus interest” and order DONPRO, 2DON and CODON to pay (on a joint and several basis) the balance to PBO. PBO also identified further losses of €77,802.30 for jute bags and dry bags. PBO alleged that these losses were recoverable pursuant to Rule 19.2.3 of the FCC Contract Rules (“Additional Loss”). As explained further below, there is a dispute between the parties about the nature of the claim for Jute Bag Losses which is relevant to one of the section 68 challenges.
  7. The Defendants responded by arguing (in summary) that they had not received the 31 December 2019 Notice of Default, that the Tribunal should have relied on Rule 19.1.2 of the FCC Rules rather than rule 19.1.1 but that in any event the eleven 2018 CODON Contracts had been “cancelled” and therefore no damages were due to PBO. The precise nature of the last of these arguments is at the heart of one of PBO’s section 68 challenges, namely that relating to Rule 19.5.
  8. Prior to the close of the Appeal Arbitration proceedings PBO changed legal representatives and its new lawyers submitted an application to amend PBO’s statement of case because they had identified what they considered to be a number of new grounds of appeal, including an argument that the Claim was time barred and that the assignment from DONPRO to 2DON did not bind PBO because (in relation to both arguments) the relevant FCC Rules had not been followed by the Defendants. The Tribunal refused the amendments, and that refusal is the subject of another challenge under section 68 of the Act.
  9. The Appeal Award (dated 25 May 2020) found that the CODON Contracts were “rightfully cancelled” by the Respondent/Seller because PBO had displayed an intention not to perform within the meaning of Rule 19.5 of the FCC Rules. In relation to the Jute Bag Losses the Board of Appeal did not consider itself to have jurisdiction over these losses. The Board of Appeal therefore ordered PBO (1) to pay DONPRO €214,059 plus interest in relation to two of the Three DONPRO Invoices, and (2) to pay 2DON €283,085 plus interest in relation to the third DONPRO Invoice.
  10. APPLICABLE LEGAL PRINCIPLES

C.1 SECTION 68

  1. Section 68 of the Arbitration Act 1996 provides in relevant part:

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

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

(2) Serious irregularity means an irregularity of one or more 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); …”

  1. It follows from the wording of section 68(2) that a successful appellant under section 68 must show not only that there has been a serious irregularity falling within one of the categories listed at section 62(2), but also that the irregularity has caused or will cause substantial injustice to the appellant.
  2. Substantial injustice is not defined in the Act, but the Defendants refer to what is said in paragraph 280 of the DAC Report:

“…The test of substantial injustice is intended to be applied by way of support for the arbitral process, not by way of interference with that process. Thus it is only in those cases where it can be said that what happened is so far removed from what could reasonably be expected of the arbitral process that we would expect the court to take action. The test is not what would have happened had the matter been litigated. To apply such a test would be to ignore the fact that the parties have agreed to arbitrate, not litigate. Having chosen arbitration, the parties cannot validly complain of substantial injustice unless what has happened simply cannot on any view be defended as an acceptable consequence of that choice. In short, [section] 68 is really designed to be a long stop, only available in extreme cases when the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected.”

(emphasis from the Judicial Committee of the Privy Council in RAV Bahamas Ltd v Therapy Beach Club Inc [2021] UKPC 8 (“RAV Bahamas“), per Lord Hamblen and Lord Burrows at paragraphs [30] to [34] as to the statutory purpose of section 68).

  1. The words “what happened is so far removed from what could reasonably be expected of the arbitral process that we would expect the Court to take action”and “Section 68 being really designed as a long stop only available 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”was emphasised by the Judicial Committee of the Privy Council in RAV Bahamas, supra, per Lord Hamblen and Lord Burrows at [30-34], where they set out the statutory purpose of Section 68, in particular Lord Hamblen at [30]
  2. The Respondents also refer to what was said by the editors of Russell on Arbitration(24th 2015) at 8-085 to 8-087, that the “high threshold” of section 68 means that many challenges brought under section 68 fail.
  3. In reference to what was said by the DAC, PBO also draws my attention to the decision of Bandwidth Shipping v Intaari[2006] EWHC 2532 (Comm), a decision of Christopher Clarke J who at paragraph 61 says this by reference to DAC paragraph 280:

“Valuable though that paragraph is as an indication of the draftsman’s envisaged purpose, I remind myself that Parliament has enacted what appears in Section 68 of the Act and not what appears in paragraph 280 of the Report. The power to intervene arises if there has been a failure to comply with Section 33 that causes substantial injustice. Some of the phraseology of paragraph 280 (“so far removed from what could reasonably be expected’, “cannot on any view be defended as an acceptable consequence’, “only available in extreme cases’) seems to add something of a gloss on the words of the statute. I do not intend by these observations to imply that the Courts should readily intervene in cases of asserted irregularity (the reverse is true); only to sound a note of caution on treating paragraph 280 of the Report as if it was the statute itself”.

  1. For her part, Ms Whiteside, on behalf of the Respondents, accepts that what has to be construed is Section 68, but she prays in aid the statutory purpose as identified by Lord Hamblen in the RAV Bahamascase, which I bear well in mind.
  2. Each of the section 68 challenges in this case is brought under section 68(2)(a), i.e. a breach of the general duty of fairness (partiality is not in issue).
  3. Section 33 (general duty of the tribunal) provides:

“(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 falling 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. Section 33(1) is replicated in the FCC Arbitration and Appeal Rules at rule 1.7. The duty at subsection 33(1)(b) to adopt procedures which avoid unnecessary delay or expense reflects the general principle at section 1(a) of the Act:

“The provisions of this Part are founded on the following principles, and shall be construed accordingly—

(a) the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;”

  1. In deciding what procedure to adopt in accordance with its general duty under section 33, a tribunal must have regard to cost-efficiency and the need to avoid unnecessary delay. The Respondents rely upon what was said by Colman J in Kalmneft JSC v Glencore International AG[2002] 1 All E.R. 7 per Colman J. at [83]:

“…In deciding what procedure is suitable so as to provide for a fair resolution of the dispute [the arbitrator] must have regard to cost-efficiency and the need to avoid unnecessary delay.”

  1. Section 33 obliges a tribunal to give each party a reasonable opportunity of putting his case and dealing with that of his opponent. Whether that opportunity was afforded to a party will be a question of fact and degree.
  2. The applicable legal principles in relation to section 68 are not controversial and were largely common ground before me. For its part PBO refer to the recent decision of Sir William Blair in Grindrod Shipping Pte Ltd v Hyundai Merchant Marine Co Ltd[2018] 2 Lloyd’s Rep. 121 referring also to previous decisions of Popplewell J (as he then was), at paragraphs [35]-[40]. I am satisfied that these paragraphs provide a convenient summary of the applicable principles, supplemented by other authorities to which I was referred by the Respondents, and to which I will also refer.
  3. At [35]-[40] Sir William Blair stated as follows:

“The applicable legal principles

  1. There is no dispute as to the applicable legal principles, which I can take largely from the submissions of counsel for IVS.
  2. Under s. 68(2)(a) of the Arbitration Act 1996, a failure by the tribunal to comply with s. 33 (the “general duty of the tribunal”) may constitute a serious irregularity.
  3. Section 33(1) imposes obligations on the tribunal to “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 to “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 falling to be determined”.
  4. An important element of these duties is that the parties have the right to be given a reasonable opportunity to deal with any issue that will be relied on by the tribunal when writing its award.As it is put by the editors of Russell on Arbitration (24th edition, 2015), at para. 5-050:

“To comply with its duty to act fairly under s. 33(1) of the Arbitration Act 1996 , the tribunal should give the parties an opportunity to deal with any issue which will be relied on by it as the basis for its findings. The parties are entitled to assume that the tribunal will base its decision solely on the evidence and argument presented by them prior to the making of the award. If the tribunal is minded to decide the dispute on some other basis, the tribunal must give notice of it to the parties to enable them to address the point. Particular care is needed where the arbitration is proceeding on a documents-only basis or where the opportunity for oral submissions is limited. That said, a tribunal does not have to refer back to the parties its analysis or findings based on the evidence or argument before it, so long as the parties have had an opportunity to address all [of the] essential building blocks in the tribunal’s conclusion. Indeed, the tribunal is entitled to derive an alternative case from the parties’ submissions as the basis for its award, so long as an opportunity is given to address the essential issues which led the tribunal to those conclusions…”

  1. In Zermalt Holdings SA v. Nu-Life Upto/srey Repairs J/d [1985] 2 EGLR 14 at 15, Bingham J put this principle as follows:

If an arbitrator is impressed by a point that has never been raised by either side, then it is his duty to put it to them so that they have an opportunity to comment. If he feels that the proper approach is one that has not been explored or advanced in evidence or submission, then again it is his duty to give the parties a chance to comment…It is not right that his 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 a decision against him. That is contrary both to the substance of justice and to its appearance.”

That was a decision under the previous arbitration legislation but it remains good law for the purposes of sections 33 and 68(2)(a) of the 1996 Act.

  1. An analysis of the leading authorities and the legal principles to be derived from them is to be found in the recent judgments of Popplewell J in Terna Bahrain Holding Co. YJJ v. Bin Kamel Al Shamzi [2013] 1 Lloyd’s Rep 86 , at [85] and Reliance Industries Ltd and another v. The Union of India[2018] EWHC 822 (Comm) , at [12]—[15]):

“(1) In order to make out a case for the Court’s intervention under section 68(2)(a) , the applicant must show:

(a) a breach of s. 33 of the Act; i.e. that the tribunal has failed to act fairly and impartially between the parties, giving each a reasonable opportunity of putting his case and dealing with that of his opponent, adopting procedures so as to provide a fair means for the resolution of the matters falling to be determined;

(b) amounting to a serious irregularity;

(c) giving rise to substantial injustice.

(2) The test of a serious irregularity giving rise to substantial injustice involves a high threshold. The threshold is deliberately high because a major purpose of the 1996 Act was to reduce drastically the extent of intervention by the courts in the arbitral process.

(3) A balance has to be drawn between the need for finality of the award and the need to protect parties against the unfair conduct of the arbitration. m striking tins balance, only an extreme case will justify the Court’s intervention. Relief under section 68 will only be appropriate where the tribunal has gone so wrong in its conduct of the arbitration, and where its conduct is so far removed from what could be reasonably be expected from the arbitral process, that justice calls out for it to be corrected.

(4) There will generally be a breach of section 33 where a tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. If the tribunal thinks that the parties have missed the real point, which has not been raised as an issue, it must warn the parties and give them an opportunity to address the point.

(5) There is, however, an important distinction between, on the one hand, a party having no opportunity to address a point, or his opponent’s case, and, on the other hand, a party failing to recognise or take the opportunity which exists. The latter will not involve a breach of section 33 or a serious irregularity.

(6) The requirement of substantial injustice is additional to that of a serious irregularity, and the applicant must establish both.

(7) In determining whether there has been substantial injustice, the court is not required to decide for itself what would have happened in the arbitration had there been no irregularity. The applicant does not need to show that the result would necessarily or even probably have been different. What the applicant is required to show is that had he had an opportunity to address the point, the tribunal might well have reached a different view and produced a significantly different outcome.”

(emphasis added)

  1. PBO also refer to what was said by Ackner LJ in Interbulk Ltd v Aiden Shipping Co Ltd (The Vimeira) (No 1)[1984] 2 Lloyd’s Rep 66 at [76]:

“If an arbitrator considers that the parties or their experts have missed the real point …then it is not only a matter of obvious prudence, but the arbitrator is obliged, in common fairness or, as it is sometimes described, as a matter of natural justice, to put the point to them so that they have an opportunity of dealing with it.”

  1. For their part the Respondents also refer me to what was said at paragraphs [44], [45], [83] and [87] in Grindrod, which I bear well in mind. In particular what was said at paragraph [87] that “An issue as to prejudice is not a technical one, and standing back, the question is whether fairness required the tribunal to indicate to the parties that it wished to be addressed on the matters”before an award was issued.
  2. The Respondents also place reliance upon what was said by Popplewell J in Reliance Industries Ltd, supra, in particular at paragraphs [14] and [32]:

“14. Both sides accepted that the principles governing the application of Section 68(2)(a) included those which I endeavoured to summarise in Terna Bahrain Holding Co WLL v Bin Kamel Al Shamzi & Others [2013] 2 CLC 1 at [85] as follows:

(1) “In order to make out a case for the Court’s intervention under Section 68(2)(a), the applicant must show:

(a) a breach of Section 33 of the Act; i.e. that the Tribunal has failed to act fairly and impartially between the parties, giving each a reasonable opportunity of putting his case and dealing with that of his opponent, adopting procedures so as to provide a fair means for the resolution of the matters falling to be determined;

(b) amounting to a serious irregularity;

(c) giving rise to substantial injustice.

(2) The test of a serious irregularity giving rise to substantial injustice involves a high threshold. The threshold is deliberately high because a major purpose of the 1996 Act was to reduce drastically the extent of intervention by the Courts in the arbitral process.

(3) A balance has to be drawn between the need for finality of the award and the need to protect parties against the unfair conduct of the arbitration. In striking this balance, only an extreme case will justify the Court’s intervention. Relief under Section 68 will only be appropriate where the Tribunal has gone so wrong in its conduct of the arbitration, and where its conduct is so far removed from what could be reasonably be expected from the arbitral process, that justice calls out for it to be corrected.

(4) There will generally be a breach of Section 33 where a tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. If the Tribunal thinks that the parties have missed the real point, which has not been raised as an issue, it must warn the parties and give them an opportunity to address the point.

(5) There is, however, an important distinction between, on the one hand, a party having no opportunity to address a point, or his opponent’s case, and, on the other hand, a party failing to recognise or take the opportunity which exists. The latter will not involve a breach of Section 33 or a serious irregularity.

(6) The requirement of substantial injustice is additional to that of a serious irregularity, and the applicant must establish both.

(7) In determining whether there has been substantial injustice, the court is not required to decide for itself what would have happened in the arbitration had there been no irregularity. The applicant does not need to show that the result would necessarily or even probably have been different. What the applicant is required to show is that had he had an opportunity to address the point, the tribunal might well have reached a different view and produced a significantly different outcome”.

  1. However where a point of construction is squarely in play and addressed by both parties, the Tribunal is not obliged to put to the parties all aspects of the analysis in support of its conclusion in order to fulfil the Section 33 duty of fairness. As is well known, construction is an iterative process involving consideration of the particular wording in question, the other provisions of the contract taken as a whole, and the commercial consequences which follow from the rival constructions. The relevant provisions may be lengthy and admit of many nuances in the analytical argument. If provisions are relevant, and have been adverted to and addressed in argument, it is not necessarily unfair for the tribunal to use them to support its reasoning, even where the other party has not done so in the same way as the tribunal. It is always important to keep in mind the distinction between a lack of opportunity to deal with a case and a failure to recognise or take such opportunity. It is commonplace in judicial decisions on points of construction that a judge may fashion his or her reasoning and analysis from the material upon which argument has been addressed without it necessarily being in terms which reflect those fully expressed by the winning party. There is not perceived to be, and is not, anything which is unfair in taking such a course. It is enough if the point is “in play” or “in the arena” in the proceedings, even if it is not precisely articulated. To use the language of Tomlinson J, as he then was, in ABB AG v Hochtief Airport[2006] 2 Lloyd’s Rep 1 at [72], a party will usually have had a sufficient opportunity if the “essential building blocks” of the tribunal’s analysis and reasoning were in play in relation to an issue, even where the argument was not articulated in the way adopted by the tribunal. Ultimately the question which arises under s. 33(a), whether there has been a reasonable opportunity to present or meet a case, is one of fairness and will always be one of fact and degree which is sensitive to the specific circumstances of each individual case. That applies to points of construction as much as to other points in dispute.”
  2. This test of whether a point was “in play” or “in the arena” in the proceedings, was recently cited with approval by Lord Hamblen and Lord Burrows in RAV Bahamas, supra, at [49], and applied at [82].
  3. Examples of cases where the tribunal has been found to have decided an issue without giving the parties (or one of them) a reasonable opportunity of putting its case include Vee Networks Ltd v Econet Wireless International Ltd[2005] 1 All ER (Comm) 303 (where an arbitrator decided a point of construction by reference to certain amendments to the Bermudian Companies Act which were not addressed in the proceedings and the Court held that this constituted a serious irregularity such that the award was remitted to the tribunal); Cameroon Airlines v Transnet Ltd[2004] EWHC 1829 (where the tribunal decided an issue of quantum in a way other than the way in which it was put by either party and the Court held that doing so amounted to a serious irregularity) and K v A [2020] 1 Lloyd’s Rep. 28 (where, in relation to a GAFTA Award the serious irregularity arose because the tribunal had relied on a clause in the relevant contract which the parties had not relied on in their arguments).
  4. Ms Whiteside reminds me that each case turns on its own facts, and it is a rare and extreme case where Section 68 challenges have succeeded in this Court.
  5. In the context of the challenging of a procedural decision of a tribunal, the Respondents also refer to what was said by Colman J in Kalmneft(which was a case in which an arbitrator’s discretion to deal with jurisdiction by way of a preliminary award was challenged under section 62(2)(a) as a breach of the general duty of fairness) at [84] and [85]:

“Further, intervention under s 68 should be invoked only in a clear case of serious irregularity. The court’s powers to interfere with an arbitrator’s discretionary decision…should not be engaged unless it is clear that in exercising his discretion he has failed to have regard to the relevant facts and to his duty under s 33. Unless he has arrived at a conclusion which no reasonable arbitrator could have arrived at in the case in question having regard to his duties under s 33, it cannot be said that his decision is capable of being characterised as a serious irregularity. This threshold for intervention by the court has long been recognised as appropriately preserving the finality of awards and party autonomy…Where the matter in issue is the exercise of an arbitrator’s discretion as to how to exercise his jurisdiction under section 30(1) there is obviously an even stronger case for the irrationality test.”

See also what is said at [50]-[51] of that judgment.

  1. The Respondents also refer to what is said by the editors of Russell on Arbitrationat 8-096:

“Subject to agreements between the parties, the tribunal is the master of its own procedure. It is highly unlikely that a challenge would be sustained under this ground [section 67(2)(a)] on the basis of the tribunal’s procedural decisions, including for example relating to the decision of a tribunal to refuse a disclosure application… In relation to a complaint about the tribunal’s decision on costs, the Court of Appeal when considering an application for an extension of time to bring a s.68 application said that unless the tribunal’s reasons were “silly or illegal” there would not be a breach of the duty under s.33.” (referring to Peel v Coln Park LLP [2010] EWCA Civ 1062, per Longmore L.J. at [18]).”

C.2 SECTION 67

  1. Section 67(1) of the Arbitration Act 1996 provides:

“(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court—

(a) challenging any award of the arbitral tribunal as to its substantive jurisdiction; or

(b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction.

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).”

  1. Section 67(1) is expressly subject to section 73 (Loss of right to object), which provides in part:

“(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. It is well established that an application under section 67 of the Act is by way of a re-hearing rather than a review – see, for example, Azov Shipping Co v Baltic Shipping Co (No. 1)[1999] 1 All ER 476. In relation to the operation of section 67 in the context of a “trade arbitration” PBO refer to the case of Black Sea Commodities Ltd v Lemarc Agromond PTE Ltd[2021] EWHC 287 (Comm) (a GAFTA arbitration).
  2. THE S.68 APPLICATIONS

D.1 BOARD OF APPEAL’S DECISION UNDER FCC CONTRACT RULE 19.5

  1. It is convenient to address first the three section 68 applications, starting with the two substantive section 68 challenges in relation to the counterclaim, before addressing the section 68 challenge in relation to the Board’s refusal to allow PBO’s amended case to be advanced on the claim.
  2. Rule 19.5 of the FCC Contract Rules (“Rule 19.5“) allows a party to a contract governed by the FCC Rules to close out that contract if its contractual counterparty “displays an intention not to perform or an inability to perform“. A notice is required and a specific procedure for the close out is set out at Rule 19.5, including a formula for calculating the sum due (if any) to the innocent party. In certain scenarios, an arbitration is also contemplated.
  3. The Board found that CODON was entitled to (and had) cancelled the eleven 2018 CODON Contracts because PBO had displayed an intention not to perform them within the meaning of Rule 19.5.
  4. After setting out the history matter on the preceding page and at the top of the next page, which I bear well in mind, the relevant conclusions of the Board in the Appeal Award are as follows:-

“The Board of Appeal finds it sufficiently proven that the Respondent [presumably a reference to CODON as CODON is the contractual counter-party to PBO] has shipped 150MT against one of the CODON Contracts, M200A, and that it has presented documents representing this shipment and those documents have not been taken up by the Appellant, nor did the Appellant pay the invoice in relation to this shipment.

According to the FCC Rules for Cocoa Beans, Rule 19.5, the tribunal then set out the rule as follows:
“Rule 19.5 Intention of non-performance: Notwithstanding any other provision in these Contract Rules for Cocoa Beans, if before the fulfilment of their respective contractual obligations either party displays an intention not to perform or an inability to perform, the counterparty may, by notice in writing to the party, declare the party to be in default and call for the contract to be closed out.

“If the party receiving the notice disputes its validity or if the parties cannot agree upon the terms at which to settle the close out then the dispute shall be referred to arbitration subject to the FCC Arbitration and Appeal Rules. If the Arbitrators decide that a default has occurred they shall declare the contract to be closed out and determine the market price at the date of default. The following procedure shall be adopted-“” and then at (a) to (d) that procedure is set out.

The Board then continues as follows: As a consequence of this non-payment, combined with the previous experience of non-payments by the Appellant to the Respondent’s associated companies DONPRO and 2DON (all considered to be one and the same by the Appellant), as well as the lengthy history of the conflict without resolution, the Board of Appeal finds that there was an intention not to perform on the part of the Appellant.

Consequently the Board of Appeal validates the fact that the Respondent declared the Appellant in default and subsequently cancelled the contracts.”

(emphasis added)

  1. I am satisfied that the ordinary and natural reading of the highlighted passage is that (contrary to the Defendants submission before me) the Board of Appeal relied on a “combination” of three matters, namely

(a) a failure to pay one invoice issued under one of the eleven 2018 CODON Contracts, (b) a failure to pay the Three DONPRO Invoices and

(c) the “lengthy history of conflict”.

to reach the conclusion it did relying upon Rule 19.5.

  1. This was the only basis on which the Board found against PBO (save for in relation to the Jute Bag Losses which is the subject of the second section 68 challenge).
  2. PBO says, rightly I am satisfied, that in doing so the Board departed from the way in which the case had been presented by both parties and did so without warning. None of the “central issues”, “essential issues” or “essential building blocks” in the Board’s conclusion were in issue or “in play” before the Board.
  3. Firstly, whether PBO evidenced an intention not to perform (each of) the 2018 CODON Contracts within the meaning of rule 19.5 of the FCC Ruleswas not in issue before the Board for the simple reason that the Defendants did not rely on Rule 19.5 of the FCC Rules in their arguments before the Board .
  4. The only reference to Rule 19.5 was in fact made by PBO not before the Appeal Board but in the underlying arbitration and in a different context. This did not result in Rule 19.5 being in play before the Appeal Board in a different context. On the contrary – before the Appeal Board PBO had no need to rely upon Rule 19.5, and Rule 19.5 was not in play, because it had served notices of default.
  5. I am satisfied PBO’s deployment in the arbitration below did not put anything “in play” before the Board. In any event it plainly did not put “in play” whether PBO displayed an intention not to perform the eleven 2018 CODON Contractswithin the meaning of Rule 19.5 (or otherwise).
  6. PBO did not know that it was facing an argument relying on Rule 19.5. Therefore PBO was not given the opportunity to make submissions in relation to the meaning and effect of rule 19.5. I am satisfied that the construction of rule 19.5 is itself an “essential issue” or “building block” and informs what the other “essential issues” or “building blocks” in the Tribunal’s conclusion are.
  7. This can be illustrated by reference to the Board’s reliance on PBO’s failure to pay one invoice issued under one of the eleven 2018 CODON Contracts. This inevitably raises a question as to the proper construction of rule 19.5.
  8. In this context, PBO argues before me (as can be seen by reference to PBO’s application under s. 69 of the Act) that on a true construction of Rule 19.5 it is impermissible when analysing whether a party to a contract (governed by the FCC Contract Rules) has “displayed an intention not to perform” to take into account whether that party has displayed an intention not to perform a contract other than the one which is being closed out. Indeed, it appears to be accepted by the Respondents that that is correct. (See paragraph five of the Respondents’ section 69 skeleton argument).
  9. However, whether that is so or not – and the Respondents do not accept that that is the case – does not seem to me to be in point. The point is that PBO says that on the true construction of Rule 19.5 it is impermissible when analysing whether a party to a contract governed by the FCC Contract Rules has “displayed an intention not to perform” to take into account whether that party has displayed an intention not to perform a contract other than the one which is being closed out.
  10. Thus, certainly says PBO, prima facie, a failure to pay one of the eleven 2018 CODON Contracts is only relevant to whether a party has displayed an intention not to perform that contract. The Respondents submit that the Tribunal treated the eleven 2018 CODON Contracts as “a single transaction” and that for this reason the Tribunal found that a failure to pay one invoice issued pursuant to one of these contracts justified cancelling all eleven (see what is said by Mr McQueen at paragraphs 52.4 & 52.5 of his statement) which leads on to Mr McQueen’s submission that this is permitted by Rule 19.5 which “does not limit the termination right to a single contract and does appear capable of applying to a single transaction comprising multiple contracts“.
  11. But the difficulty with all of this is that if the Respondents are right as to the Tribunal’s reasoning then it follows, I am satisfied, that there were two findings made by the Tribunal which were “essential building blocks” in its conclusion namely (1) that the 2018 CODON Contracts were to be treated as one “transaction” for the purposes of Rule 19.5, such that (2) as a matter of fact and/or on the true construction of Rule 19.5 a failure to pay pursuant to one of the contracts within the “transaction” justifies cancelling all of the contracts within that transaction.
  12. The vice, however, is that neither of these issues were relied on by the Respondents or “in play” before the Board and PBO had no opportunity to address the Tribunal on such points (each of which, says, PBO, is wrong, as they would have submitted to the Board had they been given the opportunity to address the Board).
  13. In this regard, I was taken to a number of pages of the bundle by Ms Whiteside, including in particular pages 319, 321, 325 and 327. I am not satisfied that in any of those passages Rule 19.5 was put in issue or, indeed, that any of those paragraphs put in play the points which are now under consideration.
  14. In this regard, and secondly,though the Defendants relied on PBO’s failure to pay “invoices” issued (it is now accepted by the Respondents, and the Board in any event that only oneinvoice was issued) under the 2018 CODON Contracts, they did not, I am satisfied, do so in aid of an argument that by failing to pay that one invoice PBO had displayed an intention not to perform any/all of the eleven 2018 CODON Contracts which justified a cancellation (or termination) of those contracts (i.e. repudiatory breach). Instead the Defendants simply relied on an alleged failure by PBO to perform those contracts.
  15. See, for example, the Response to the Statement of Case on Appeal: “following the conclusion of the contracts with CODON in October 2018, the goods were loaded onto the ships and the documentspresented to the bank for collection. PBO however did not pay the invoices…” and that “The contracts concluded with CODON were finally cancelled as PBO did not settle its debts, nor pay the invoicesthat CODON had instructed its bank to bring PBO’s bank in Geneva” (emphasis added). The legal relevance of the failure to pay the (alleged) “invoices” issued in relation to the 2018 CODON Contracts is set out at Part III of the Response to Statement of Case on Appeal at Part C “non-payment of its debts by PBO” and is as follows:

“CODON prepared the documents and brought them to the “National Financial Credit Bank” in Douala; these documents included the necessary invoices. However PBO did not pay the invoices as provided for in the contract; therefore obliging CODON to make the decision to cancel these contracts, applying the principle of ordinary law “exception non adimpleti contractus”.

As PBO clearly did not respect its obligations, CODON could not have expected to deliver the goods for the benefit of PBO’s (sic) and then, as DONPRO and 2DON, have to pursue the appellant to enforce its debt obligation.

Since PBO did not respect the contract entered into with CODON, the latter is perfectly entitled to cancel”

  1. The principle of “exception non adimpleti contractus” (i.e. no performance is due to one who has not performed) is a civil law principle (derived from Roman law) which allows a party to a bilateral contract to suspend performance where its counterparty fails to perform. Therefore the Respondents’ argument and the alleged relevance of PBO’s (alleged) failure to pay “the invoices” despite CODON’s preparation of “the documents” was based on an (alleged) failure by PBO to performits contractual obligations. The Defendants were not advancing an argument that CODON was entitled to terminate the eleven 2018 CODON Contracts because PBO had displayed an intention not to performany of the eleven contracts by not paying the “invoices”.
  2. Thirdly, I am satisfied as PBO submitted before me, that even if it was part of the Respondents’ case that PBO’s failure to pay “the invoices” (plural) evidenced an intention not to perform eleven 2018 CODON Contracts (which PBO denies), the Respondents’ submissions referred to an (alleged) failure to pay the “invoices” (plural) despite the “documents” (plural) being presented to the relevant bank. It was therefore not part of the Respondents’ argument that the failure to pay one invoice evidenced an intention by PBO not to perform all eleven 2018 CODON Contracts.
  3. Fourthly, I am satisfied that though the Respondents relied on PBO’s failure to pay the three DONPRO Invoices, they did not do so in aid of an argument that PBO had by doing so displayed an intention not to perform any of the eleven 2018 CODON Contracts which justified a cancellation of those contracts. Instead the Respondents argued that payment of the Three DONPRO Invoices was a pre-condition to the eleven 2018 CODON Contracts coming into force (or possibly a pre-condition to performance).
  4. The non-payment of the Three DONPRO Invoices is referred to in the Respondents’ Response to the Statement of Case on Appeal in the Introduction “… the contracts concluded with the company CODON were cancelled due to the fact that PBO had not settled its debts vis-à-vis the respondents…”. This is relied on as part of an argument (denied by PBO and which was not addressed or accepted by the Tribunal) that the 2018 CODON Contracts were executed under the condition that PBO pay the entirety of the debts to DONPRO and 2DON (see paragraph 35 and 38 of the Response to the Statement of Case on Appeal). See also Defence to Counterclaim at pages 22-23 and Mr Poux’s statement “theconclusionof contracts between PBO and CODON was subject to the condition that PBO had previously discharged all of its debts vis-à-vis the companies … DONPRO and… 2DON” (emphasis added) and the Response to Statement of Case on Appeal at [35].
  5. Therefore, the argument being advanced concerned an alleged contractual pre-condition to the eleven 2018 CODON Contracts coming into force (or possibly a condition to performance). It was not an argument about whether PBO’s failure to pay the Three DONPRO Invoices evidenced an intention by PBO not to perform the eleven 2018 CODON Contracts which justified “cancelling” all eleven contracts.
  6. PBO points out that even on the Respondents’ own case, payment under the 2017 DONPRO Contracts fell due many months before the eleven 2018 CODON Contracts were entered into (see Appeal Award at internal pages 1 and 4). PBO says that as such (and even if one ignores the fact that DONPRO and CODON are separate legal entities) the non-payment of the Three DONPRO Invoices cannot (on a true construction of Rule 19.5) amount to or evidence an intention not to perform the eleven 2018 CODON Contracts which were entered into in the knowledge that PBO had failed to pay the Three DONPRO Invoices. PBO’s stance seems perfectly arguable, and in any event PBO was not provided with the opportunity to advance such argument.
  7. Fifthly, the third matter relied on by the Board, namely the “lengthy history of conflict” was not relied on by the Respondents.
  8. I am satisfied that in the above circumstances, and taking into full account the matters raised by Ms Whiteside by reference to pages 319, 321, 325 and 327 of the bundle and what she characterised as the “building blocks” that she identified both in relation to conduct, intention not to perform, declaration of cancellation and all 11 contracts being terminated, the “essential issues”or “essential building blocks”leading to the Board’s conclusion were not in issue or “in play” or “in the arena” before the Board, and as such PBO was not given a reasonable opportunity of putting its case on these points. I consider that this was, indeed, a classic example of the situation envisaged in Zermalt Holdings and The Vimeira (referred to above), namely where the Board appears to have considered that the parties have “missed the real point”.
  9. This was one of those occasions where, as Sir William Blair expressed it in Grindrod at [87], standing back, fairness required the tribunal to indicate to the parties that it wished to be addressed on the matters before an award was issued. It was therefore incumbent on the Board to “warn the parties and give them an opportunity to address the point“. It failed to do so.
  10. As set out above, in determining whether there has been substantial injustice, “[w]hat the applicant is required to show is that had he had an opportunity to address the point, the tribunal might well have reached a different view and produced a significantly different outcome” (Grindrod at [40]). See also Vee Networksat [90] which refers to showing that “the opposite conclusion was at least reasonably arguable.”
  11. The Respondents submit that there is no injustice to PBO by the Board’s reliance on Rule 19.5 (and associated reasoning of the Board) since such reasoning was correct based on the matters set out by Mr McQueen at paragraph 41 of his first statement. However these assume that the Board’s reasoning was correct. I am also invited to bear in mind the high hurdle that section 68 imposes on an appellant, and it is submitted that this is not one of those “extreme cases” in which it would be appropriate to set aside the Board’s decision.
  12. It would not be appropriate for me to express any concluded view on the merits as to any of the following arguments that are advanced by LIT. Indeed, I am not concerned with the merits, but with due process. It suffices for me to conclude, as I do, that each of the following arguments is “at least reasonably arguable” and any one of them “might well have” resulted in the Board reaching a different conclusion and produced a significantly different outcome. This approach was also recognised by Popplewell J in K v A , supra at [37].
  13. The arguments are as follows:-

(1) Failure to pay the (one) invoice issued pursuant to the eleven 2018 CODON Contracts did not in fact evidence an intention not to perform that contract still less all eleven 2018 CODON Contracts. PBO says that it was refusing to take up the documents representing the shipment (and therefore not paying the invoice) because CODON was setting the price incorrectly (by reference to the terms of the 2017 DONPRO Contracts and not the 2018 CODON Contracts) and were therefore demanding payment of a price that was not the contractually agreed price (see Rabinowicz 1 at [42(g)] and email dated 26 November 2018). PBO therefore says that its failure to take up the documents and pay the invoice was therefore justified.

(2) Failure to pay the one invoice did not, in any event, evidence an intention not to perform all eleven (individual) contracts.

(3) Non-payment of the three DONPRO Invoices does not amount to or evidence an intention not to perform the eleven 2018 CODON Contracts because those contracts were entered into in the knowledge that PBO had failed to pay the Three DONPRO Invoices.

(4) The non-payment of the Three DONPRO Invoices does not amount to or evidence an intention not to perform the eleven 2018 CODON Contracts because those contracts were entered into between CODON and PBO rather than DONPRO and PBO.

(5) The points raised in PBO’s Skeleton Arguments in the section 69 Appeal (which PBO say would have been raised before the Board had they been given the opportunity). and the arguments contained therein.

  1. I would only add that if, as I consider the Board should have done, it had raised with the parties the question of Rule 19.5, it is an unreal submission to suggest that PBO would have remained supine and would not have made the points that I have just identified in circumstances where a Tribunal draws the parties’ intention to a point which it considers important. I infer that the inevitable consequence is that such matters would have been aired and would have seen the light of day.
  2. There is, therefore, substantial injustice in circumstances where PBO did not have an opportunity to raise those points before the Tribunal in response to an express invitation by the Tribunal to address them upon Clause 19.5.
  3. In the above circumstances, I am satisfied that there has been a serious irregularity by reason of the Board’s failure to comply with section 33 of the Act as PBO was not provided with a fair opportunity to address Rule 19.5 and the other points relied upon by the Board in order to reach the conclusion it did, and I am satisfied that such serious irregularity has caused substantial injustice to PBO in the circumstances also identified above. LIT’s application under section 68 in this regard accordingly succeeds. I address the question of appropriate relief in due course below.

D.2 BOARD OF APPEAL’S DECISION IN RELATION TO THE JUTE BAG LOSSES

  1. In the Appeal Arbitration PBO alleged that it was entitled to claim €77,802 for breach, wrongful termination and failure to deliver the shipments, of the 2018 CODON Contracts as “Additional Loss” at Rule 19.2.3 in addition to the amounts awarded under Rule 19.2.1. Rule 19.2.3 (“Additional Losses”) provides that “In addition to the amounts awarded under 19.2.1 and 19.2., arbitrators may, at their discretion, award such amount(s) as they see fit in respect of any proven further loss and/or expenses incurred by a Party.”
  2. PBO argued that it was entitled to recover this amount as losses arising out of the provision of jute bags by PBO and intended for use in relation to the delivery of cocoa beans to it (the “Jute Bag Losses”).
  3. In the Appeal Award the Board concluded as follows : “The Board of Appeal finds that the agreement to supply and receive any form of services other than those as specified in the FCC Contracts cannot be considered by the Board of Appeal” – i.e. the Jute Bag Losses fell outside of the scope of the disputes within the jurisdiction of the Board.
  4. PBO contends that in reaching the above conclusion on the Jute Bag Losses the Board departed from the way in which the case had been presented by both parties without warning and that this constituted a serious irregularity causing PBO substantial injustice because PBO was not given a reasonable (or any) opportunity of putting its case on the point.
  5. Whilst the decision concerned the Board’s jurisdiction, I am satisfied that it is open to argue that the manner in which that decision was reached was in breach of section 33 of the Act: see by analogy Alfred Uwe Maass v Musion Events Limited and Others[2016] 1 All E.R. (Comm) 292 at [39]. In that case the arbitrator had decided a jurisdictional challenge without giving notice to the parties – the court found that it was not in dispute, “and it could not be disputed” that doing so was in breach of s.33 as it denied the parties an opportunity to present their case on the challenge.
  6. The Respondents address this application at paragraphs 42 to 49 of the statement of Mr McQueen. In those paragraphs it is not suggested that the Tribunal decided in their favour on the Jute Bag Losses on the basis of an argument advanced by the Respondents.
  7. It is right that the Respondents did challenge the Board of Appeal’s ability to consider the Jute Bag Losses, but this was on a different basis, namely that the point had not been raised before the first instance Tribunal and had not been raised within the time period said to apply to such claims pursuant to rule 2.1 of the FCC Rules: see the Respondents’ Reply Submissions at paragraph 44 (middle of page).
  8. I do not accept the submission that it was implicit within those submissions that it was being said that there had been no reference of such matters, nor do I consider that what was there set out were the building blocks for the Tribunal’s conclusion. Nowhere in that material that was referred to me by Ms Whiteside was there any language of, or express reference to, jurisdiction.
  9. Nevertheless, the Respondents argue that by doing so they put “in play” “whether or not the alleged jute bag losses could be considered by the Board of Appeal at all” (see McQueen [46]-[47]). It is conceded in the Respondents’ Skeleton argument put before me that they “did not elaborate”but the Respondents submit that “the Board’s jurisdiction to determine the Jute Bags Claim [was put] squarely in play”.However, as I have noted, there was in that material no reference to jurisdiction, or a lack of jurisdiction.
  10. Equally, I am satisfied that if the Tribunal had gone so far as to say, as I consider they should have said, that they were considering of their own motion that they had no jurisdiction, I am satisfied that PBO would again not have remained supine, but would have responded given the important nature of a matter relating to jurisdiction to say what it considered were the reasons why there was jurisdiction.
  11. I do not consider that the Respondents have made good their argument that, by what they said, they put in play whether or not the alleged jute bag losses could be considered by the Board of Appeal at all, essentially for the reasons that are given by PBO.
  12. First, section 33 of the Act requires the “essential building blocks in the tribunal’s conclusion”to be in issue or in play. Arguing that the Jute Bag Losses should have been referred to earlier plainly does not put “in play”whether the Board was right to conclude that arguments about the Jute Bag Losses fell outside of the scope of the matters which the Board was entitled to decide.
  13. Secondly, I consider that there is force in what Mr Rabinowicz states at paragraph [35] of his third statement that “If [the Respondents’ argument was] correct, it would mean that as long as a party raises an argument (however bad) relating to the board of appeal’s lack of jurisdiction over a particular matter, it is then incumbent on the other party to point out other possible arguments which may have been (but were not) raised as to the board’s lack of jurisdiction and then explain why each of those arguments (which were not in fact raised by the other side) is not correct.
  14. I do not consider (as alleged by the Respondents) that the Board’s jurisdiction was squarely in issue. Rather it was (if anything) a situation where the Board, of its own motion, considered that it might not have jurisdiction. Mr McQueen submits as follows at paragraph 49 of his statement in this regard, “In any event, it must be correct as a matter of principle that, if an arbitral tribunal considers it may not have jurisdiction to decide a matter but that the parties have not raised that point, it must be determined by the Board on its own motion”.Certainly a tribunal should raise the matter with the parties in such a situation, but what a tribunal cannot do, consistent with its duty under section 33, is to proceed to determine jurisdiction (a fortiori in an arbitration based on written submissions alone) without giving the parties any opportunity, still less a fair opportunity, to address the tribunal on the bases on which the tribunal is considering that it may not have jurisdiction.
  15. It again appears that the Board, as with its decision on Rule 19.5, considered that the parties had “missed the real point”.It was therefore incumbent on the Board to “warn the parties and give them an opportunity to address the point”. It failed to do so, and I am satisfied that there was, in such circumstances, a serious irregularity.
  16. The next question is whether such irregularity gave rise to substantial injustice. The Respondents argue that there was no substantial injustice because PBO’s claim for the Jute Bag Losses claim was time barred and/or PBO was precluded from raising it before the Board because the point had not been raised before the (first instance) Tribunal (see McQueen at [49]). This argument, I am satisfied, is interlinked with a further argument that the claim for Jute Bag Losses was a claim for damages for breaches of the DONPRO In summary the Respondents’ case appears to be that because no claim for losses caused by the DONPRO Contracts (as opposed to the eleven 2018 CODON Contracts) was before the (first instance) Tribunal PBO was precluded from claiming the Jute Bag Losses at the appeal stage of the arbitration and/or had waived its entitlement to do so (Rules 2.3 and 5.7 of the FCC Arbitration Rules are relied on by the Respondents in this regard).
  17. Whilst it would not be appropriate for me to express any concluded view I consider there is substance in the three reasons given by PBO as to why the Respondents’ argument is incorrect.
  18. First, it appears that the Jute Bag Losses were being claimed as losses for breach of the eleven 2018 CODON Contracts for the reasons given by Mr Rabinowicz at paragraphs 33 and 34 of his third statement. The relevant plea can be found at paragraphs 24, 29, 30, 32 and 34(c) of the Statement of Case on Appeal. Jute bags were provided in anticipation of the deliveries to be made under the DONPRO Contracts. These deliveries were never made. PBO was the buyer under these contracts and therefore had the deliveries been made PBO say that it would have received the jute bags / the jute bags would have been returned to PBO when the cocoa beans were delivered to it – whilst this is not expressly pleaded PBO says that this would have been obvious to the parties. The 2018 CODON Contracts were on materially similar terms as the remaining 2017 DONPRO Contracts (subject to differences in price), the reason being that the 2018 CODON Contracts were replacement contracts entered into to replace the remaining 2017 DONPRO Contracts after DONPRO became unable to contract with PBO due to a tax investigation and frozen bank accounts. The fact that the 2018 CODON Contracts were replacement contracts was accepted by the Board which stated that “The Board of Appeal… agrees that the CODON Contracts were a replacement of the DONPRO Contracts“. Therefore, had the 2018 CODON Contracts been performed PBO, as the buyer, would have received the jute bags on delivery. However, as the 2018 CODON Contracts were (PBO says wrongfully) terminated by CODON, the deliveries were never made and the jute bags were never delivered to PBO. PBO says this resulted in a loss to it.
  19. At paragraph 24 of the Statement of Case on Appeal PBO expressly states that it is claiming “damages as a result of CODON’s failure to deliver the shipments“. The losses claimed are set out at paragraphs 28 and 29 of PBO’s Statement of Case on Appeal. Paragraph 29 expressly states that, in addition to the losses calculated by reference to FCC Rule 19.2.1, PBO is claiming “Additional Losses” pursuant to FCC Rule 19.2.3. The fact that the Jute Bag Losses are claimed as “Additional Losses” on top of the losses calculated by reference to FCC Rule 19.2.1 is expressly stated at paragraph 34(c).
  20. Secondly, PBO says that it clearly counterclaimed for losses arising out of breaches of the eleven 2018 CODON Contracts at “first instance”, and at the Appeal stage of the arbitration. PBO acknowledges that it did not specifically raise the Jute Bag Losses until the Appeal Award stage, but PBO submits that this does not matter because whether loss had been suffered as a result of the breaches of the 2018 CODON Contracts alleged (by PBO) was clearly in issue before the Tribunal and the Board of Appeal – the manner in which PBO quantified its loss changed following, and responsive to, the findings made in the Award – which was something it was entitled to do.
  21. In this regard, and thirdly, PBO is entitled to raise new issues at the appeal stage because the FCC Arbitration Rules provide that “appeal proceedings are new proceedings in which fresh submissions and evidence may be submitted” (FCC Arbitration Rule 3.15).
  22. As for the merits of the claim itself, and whilst again it would be inappropriate for me to express a concluded view on the merits, I am satisfied that each of the following arguments raised by FIT is “at least reasonably arguable” and any one of them “might well have” resulted in the Board reaching a different conclusion and producing a significantly different outcome.
  23. PBO claimed the Jute Bag Losses as “Additional Loss” under Rule 19.2.3. PBO submits that the dispute about whether the Jute Bag Losses are recoverable as “Additional Losses” is clearly within the scope of the Board of Appeal’s jurisdiction.
  24. Rules 19.2.1 and 19.2.2 provide for payment to the Buyer or Seller (as appropriate, depending on who is in default) on a “close out for non-fulfilment” of a contract for the sale and purchase of cocoa beans governed by the FCC Contract Rules. The quantum of that payment is calculated by reference to a comparison between the contract price and the market value of the cocoa beans at the date of default. The difference is paid to the buyer or seller (as appropriate).
  25. Rule 19.2.3 then states“[i]n addition to any amounts awarded under 19.2.1 or 19.2.2, arbitrators may, at their discretion, award such amount(s) as they see fit in respect of any proven further loss and/or expense incurred by a Party.” Rule 19.2.3 is widely drafted. PBO submits that by its terms, when read in the context of Rule 19.2 as a whole, it is intended to allow the tribunal to compensate the innocent party for any losses it has in fact suffered beyond (“additional to”) the difference between the market price and the contract price.
  26. PBO submits that obvious examples of such potential additional losses include loss of profits suffered by an innocent buyer as a result of a lucrative contract for the on-sale of cocoa beans to a third party, wasted expenses incurred by an innocent seller in organising for cocoa beans to be delivered to the buyer and wasted expenses incurred by an innocent buyer in organising for the purchase and receipt of cocoa beans from the Seller. PBO points out that all of these examples require (or potentially require) the tribunal to consider contracts between one of the parties to the arbitration (the buyer and/or seller) and the other party or third parties regardless of whether those other contracts are also covered by the FCC Contract Rules.
  27. Finally, PBO submits that the Board of Appeal was in any event not being asked to consider a dispute arising out of “an agreement to supply and receive a service other than those specified in the FCC Contracts” divorced from the FCC Contract in question. It was being asked to consider and quantify the loss suffered by a party to the relevant FCC Contract but doing so may (quite often) require the tribunal to evaluate a contract not governed by the FCC Contract Rule.
  28. Again, I am satisfied that if PBO had been given an opportunity to address the Tribunal in relation to the Tribunal’s concerns about jurisdiction, it would not have been supine and not responded or addressed the points, rather it would have raised, on such an important issue, the points which it now identifies.
  29. In the above circumstances, I am satisfied that there has been a serious irregularity by reason of the Board’s failure to comply with section 33 of the Act as PBO was not provided with a fair opportunity to address the Board’s view on jurisdiction on the Jute Bag Losses (and all the associated points that PBO would have wished to advance as addressed above), and I am satisfied that such serious irregularity has caused substantial injustice to PBO in the circumstances also identified above because I consider it would not have remained supine and would have taken up the opportunity to raise the points it now wishes to raise. PBO’s application under section 68 in this regard accordingly succeeds. I address the question of appropriate relief in due course below.

D.3 THE BOARD OF APPEAL’S DECISION IN REFUSING PERMISSION FOR AN AMENDED STATEMENT OF CASE

  1. PBO contends that the Board of Appeal failed to comply with its duty under section 33 of the Act (also set out at Rule 1.7 of the FCC Arbitration Rules), as required by section 68(2)(a) of the Act, and this has and/or will cause substantial injustice to PBO by refusing permission for PBO to put in an amended Statement of Case on Appeal.
  2. This is, therefore, a section 68 challenge to a discretionary procedural decision of the Board. Section 33 imposes a general duty on the tribunal to 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 to 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 falling to be determined. The tribunal is required to comply with that general duty in conducting the arbitration proceedings, in its decisions on matters of procedure and evidence.
  3. In Brake v Patley Wood Farm LLP[2014] EWHC 1439 (Ch) it was recognised that a case management decision can be so unfair as to amount to a serious irregularity causing substantial injustice (see at [141]: “[a] case management decision could, in principle, be so unfair as to amount to a serious irregularity causing substantial injustice to a party in an arbitration…”).
  4. PBO rightly acknowledges that it is rare for a case management decision to have that quality and effect, and the Respondents also highlight what was said in Klamneft, supra at [85] and Russell on Arbitrationat para 8-096, which I bear well in mind.
  5. It is to be borne in mind, however, that there is a wide range of case management decisions that a tribunal can make ranging from matters such as timetabling directions to a hearing, or discrete points such as costs, through to matters that may well be determinative of the outcome of the arbitration itself (which may be the effect of a successful or unsuccessful amendment application). In the case of the former, and general case management decisions, it is highly unlikely that a challenge will be sustained whilst in relation to the latter the duty in section 33 is in sharp focus. It is easier to conceive of a situation where section 68 could apply in the latter case if a tribunal made a decision which was so unfair as to amount to a serious irregularity causing substantial injustice to a party in the arbitration – that would be so if they reached a conclusion that no reasonable arbitrator could have reached again by reference to the authorities that I have already quoted.
  6. PBO submits that this is just such a case in that in deciding to refuse permission to make the Amendments the Board failed to take into account relevant considerations, took into account irrelevant considerations and failed to carry out any (or any real) analysis of the balance of prejudice. In consequence, it is said, not only was the Tribunals’ conclusion unfair but the Board approached the question in entirely the wrong way and reached a decision that no reasonable arbitrator could have reached.
  7. In particular PBO make the following points:-

(1) PBO submits that the Amendments were limited in scope and primarily of a legal nature, namely (a) that the Claim was time barred due to Rule 20.2.1 of the FCC Contract Rules, which required a claim to have been brought within one year of the “Final Day of Landing” and (b) that the alleged assignment of debts arising out of the Three DONPRO Invoices did not bind PBO because (among other things) Rule 4 of the FCC Contract Rules required written consent from PBO which had not been requested or obtained from PBO (which PBO refers to as the “Time Bar Amendment” and the “Assignment Amendment”).

(2) Secondly, PBO submits that the balance of prejudice was clearly in favour of allowing the Amendments. PBO submits that the Arguments had (at least) a real prospect of success and were potentially determinative of the Claim. The Amendments would have primarily required legal argument and would have required only minimal (if any) further factual evidence. Given the limited nature of the Amendments the delay caused to the proceedings would have been a matter of a few weeks and as such insignificant. Further, they rely on the fact that interest would continue to run on the Award, and the Board of Appeal could have ameliorated any additional expense with an award of costs. Therefore there would have been no (or very limited) prejudice to 2DON and DONPRO if the Amendments had been allowed.

(3) Thirdly, no consideration was given to the substance of the Arguments, whether they had a reasonable prospect of success, what the likely length of delay caused by the Amendments would be or whether any delay and further expense could be ameliorated by an award of interest or costs or otherwise.

(4) Fourthly, in refusing permission to make the Amendments, the Board of Appeal concluded that the delay and expense caused by the Amendments was unnecessary because it could have been avoided if PBO had changed its lawyers earlier stating “That delay and expenses would be unnecessary since it could have been avoided if the Appellant had changed its lawyers at a much earlier stage“. PBO submits that the fact that the Amendments were being suggested by PBO’s new legal representatives is irrelevant. The Board’s reasons for refusing the Amendments should apply regardless of whether the Amendments are being proposed by PBO’s old or new legal representatives. It is said that this reasoning also shows that the Board of Appeal misunderstood what “necessary” means in the context of section 33 of the Act. Whether delay is “necessary” falls to be construed within the context of section 33(1)(b) of the Act which imposes an obligation on the Tribunal to provide a fair means for the resolution of the matters falling to be determined. When amendments to a statement of case are being considered fairness must involve consideration of the balance of prejudice. However instead of doing so the Tribunal appears to have applied a blanket rule whereby amendments to statements of case are not to be permitted if they relate to matters that could have been argued earlier (at least where they are being proposed by a party’s new legal representatives). PBO submits that such a blanket rule is clearly unfair.

  1. There is no substitute for considering the reasons given by the Board when assessing the validity and weight to be attached to each of these points and when considering whether no reasonable arbitrator could have reached the conclusion which was reached.
  2. After setting out the background to the appellant’s application, and noting the fact that on 1 April 2020 the appellant requested permission to submit an amended statement of case (a draft of which the Board had received before it made its decision on 9 April), the Board noted that it appeared that that draft contained substantial amendments to the original version. This means that the Tribunal must have considered that draft, and it noted that the respondent had objected to the application on grounds set out in a letter on 2 April.
  3. After setting out the background to the application, the Tribunal said the following:

“The timetable for the presentation of written submissions is laid down in Arbitration Appeal Rules 3.8, 3.8.2. The last paragraph of Rule 3.8 provides that the timetable may be varied by the Board of Appeal in accordance with its general duty under Rule 1.7 and the first sentence of Rule 3.9 makes it clear that we may allow the exchange of additional submissions pursuant to Rule 3.8. The question which we have to determine therefore is whether we should allow the appellant to submit an amended statement of case in accordance with our duty under Rule 1.7. That rule requires the Board of Appeal to act fairly and impartially as between the parties, giving each a reasonable opportunity of putting its case and dealing with that of its opponent, and also to 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 falling to be determined. The appellant has not suggested that it has not had a reasonable opportunity of putting its case or dealing with that of the respondent and we consider that it has had such an opportunity.

The appellant’s application has arisen because it has changed its legal representatives at a very late stage, and its new representatives take a different view from its original lawyers as to how its appeal should be presented. It is obviously open to the appellant to change its lawyers, but we do not consider that that should be allowed to interfere with the progress of the appeal, having regard to the requirement that disputes be resolved without unnecessary delay or expense. If we were to allow the appellant’s application, then this would no doubt require consequential amendments to the other submissions, all of which would involve additional delay and expense. That delay and expense would be unnecessary since it could have been avoided if the appellant had changed its lawyers at a much earlier stage. In all the circumstances, given that the appellant has already had a reasonable opportunity of presenting its case, we do not consider that it would be right to allow it a second opportunity at this very late stage given the unnecessary expense and delay which would arise as a result. The appellant’s application is therefore refused”.

  1. For their part the Respondents submit that after expressly reminding itself of the general duty of fairness, the requirement to give each party a reasonable opportunity of putting its case and dealing with that of its opponent, and the need to avoid unnecessary delay or expense, the Board concluded that PBO had been afforded such an opportunity. The Respondents submit that in circumstances where the Claimant had submitted two statements of case on appeal, that reasoning is unimpeachable.
  2. Regrettably I cannot agree, and I consider that the reasons given do demonstrate the very failings that PBO identify, and that the Board has not complied with its duty to act fairly under section 33 of the Act in relation to the amendment application:-

(1) First, the Board makes no attempt whatsoever to identify the amendments themselves still less grapple with their perceived merits (or the relatively low requirement of reasonable prospect of success) – the content and substance of the proposed amendments are clearly material facts which have to be considered as part of the requirement to act fairly.

(2) Secondly, there is no attempt whatsoever to address the applicable principles in relation to whether amendments should be allowed – which involve a consideration of the points raised and their merits, why they are raised now, and whether the Respondents would be prejudiced by the amendments (and if so whether such prejudice could be ameliorated).

(3) Thirdly, there is no attempt to consider, still less grapple with, the potential prejudice to PBO if the amendments are not allowed.

(4) Fourthly, there does appear to be substance in the criticism that the Board seems to have focussed unduly, upon whether any delay could have avoided if the change of representation had occurred earlier, and failed to identify that the change of representation could itself be a good reason why the amendments were only being made at this stage and, it appears from Mr Rabinowicz’s latest statement, certainly in terms of the final version of the amended statement very soon after new solicitors had been instructed, albeit it appears that there may have been some form of draft in play before the new solicitors were formally instructed.

(5) Fifthly, the Tribunal failed to focus on the fact that little if any delay would result, that disputes are best determined on their true merits, and that there would be little if any prejudice to the Respondents (in a relevant sense) other than a very short delay, that interest would be running in the meantime, and that if necessary any prejudice to the Respondents could ameliorated by an appropriate costs order, whereas if the amendment was refused there was the potential for very great prejudice to PBO if it was shut out from making the proposed amendments.

  1. I consider that this is one of those rare cases where the tribunal has failed to apply the applicable principles, failed to grapple with the merits of the application, and reached a decision that no reasonable tribunal would have reached. In reaching this conclusion I should make clear that I do not consider that the Board would not have been capable of acting fairly had it applied the applicable principles to the facts before it. I have no doubt that had the Board applied the applicable principles to the facts, the Board, like any tribunal applying the applicable principles to such facts, would have granted the amendment.
  2. In such circumstances I am satisfied that the refusal to grant the amendment was so unfair as to amount to a serious irregularity in the arbitration. So far as substantial injustice is concerned, and as was said in Brake, supra, at [96] “The injustice is substantial if a party is “unfairly deprived of an opportunity to present its case or make a case which had that not occurred might realistically have led to a significantly different outcome”
  3. I am satisfied that if the Amendments had been allowed they could clearly “realistically have led to a significantly different outcome“. I do not understand the Respondents to be submitting that the Arguments would not have had real prospects of success. If they are suggesting that, I do not agree. Furthermore I am satisfied that the Arguments could realistically have led to a “significantly different” outcome. PBO’s time bar argument (if successful) would have been a complete answer to the Claim. The argument that the alleged assignment between DONPRO and 2DON did not bind PBO is also an important one. As matters stand PBO has been ordered to pay significant sums to DONPRO though the Board of Appeal found that DONPRO has assigned the relevant debts to 2DON.
  4. Again, it would not be appropriate to express any concluded views on the merits of the Amendments given that the points raised in the Amendments will have to be considered by the Board on their merits in due course. It suffices to say not only that the amendments stand a real prospect of success (the low threshold that is required for the purpose of an amendment) but also those amendments could “realistically have led to a significantly different outcome“. Out of courtesy to the parties, I will briefly refer to the respective arguments.
  5. The Respondents’ arguments relate to procedural matters (which were not raised by or relied on by the Board of Appeal in their reasons for refusing the Amendments). As to the Time Bar Amendments, the Defendants contend that this was no longer open to PBO at the time when the permission for the Amendments was sought because even though the Respondents accept that limitation / time bar was a live issue before the first instance Tribunal, the point was not raised in the Appeal Arbitration until the Amendment Application was made and it is said this was precluded by the FCC Rules. The Defendants rely on the Rule 3.1(b) of the FCC Arbitration Rules which sets out time limits for when a notification of appeal is to be lodged.
  6. PBO’s risposte, as recounted at paragraph 10 of Mr Rabinowicz’s third statement is as follows:

“Rule 3.1(b) provides that “The Appellant’s Notice of Appeal shall reach the Secretary not later than 12 noon on the 21st consecutive day after the date of the Arbitration Award”. The document sent by PBO in this case is attached… It simply states that PBO had decided to appeal the Award. It did not contain (nor was it required to contain) reasons or grounds for appealing the Award. Thereafter Rule 3.8 sets out “time limits for submitting evidence” which includes submissions. Rule 3.8 provides for a standard timetable which “may be varied by the Board of Appeal in accordance with its general duty under Rule 1.7” [Rule 1.7 requires the Board of Appeal to act fairly, impartially etc]. The possibility of further statements and evidence is referred to again at Rule 3.9 of the FCC Arbitration Rules. The Tribunal was therefore not precluded or prevented from allowing the Amendments (including the amendment pleading a time bar defence to the claim) by Rule 3.1(b) or otherwise, nor did the Tribunal (in this respect rightly) suggest that it was so prevented in its letter dated 9 April 2020.”

  1. At one point, it was thought that the Respondents were arguing that PBO had made a relevant admission. I do not think this is pursued in the light of the oral submissions before me today but, if that point had been pursued, it is well established that even if admissions have been made they can be withdrawn.
  2. I am satisfied that the balance of prejudice would clearly be in favour of allowing the Time Bar Amendments. As to the Assignment Amendment, there are two aspects to this: the first is whether PBO had submitted to the Tribunal’s jurisdiction in relation to Section 73(2) of the Act. Section 73(2) of the Act requires an objection to Tribunal’s jurisdiction to be made “within such time as is allowed by the arbitration agreement or the Tribunal…”and that, pursuant to the FCC Arbitration Rules, the Tribunal is entitled to allow late objections to its jurisdiction (see FCC Arbitration Rules 4.2 and 4.1.12 in particular).
  3. I say no more about that jurisdictional point, as it may end up being canvassed before the Board and I consider that this Court should not opine upon such point when it is arguably still a live issue before the Board.
  4. However, for present purposes, even if PBO is no longer able to challenge the Board of Appeal’s jurisdiction over 2DON – and that will be a matter for the Board – it can still argue, as PBO did in the amended statement of case, that 2DON cannot claim against PBO because no notice of the (purported) assignment was given to PBO pursuant to requirements to do so at Rule 4 of the FCC Rules.

D.3 RELIEF UNDER SECTION 68

  1. The three applications under section 68 have succeeded. PBO urges me to set aside the entire Appeal Award and direct that the dispute between PBO and the Respondents be heard by a new tribunal alternatively that the Appeal Award should be remitted to the Board for reconsideration. For their part the Respondents urge upon me that the appropriate relief is to remit the points in relation to which PBO has been successful to the Board for reconsideration.
  2. There has been no challenge to the impartiality of the Board, and I am satisfied that it is unnecessary, and inappropriate, to set aside the Appeal Award in its entirety. Quite apart from the fact that to set aside the Appeal Award in its entirety would be inconsistent with the policy of striving to uphold arbitration awards, to set aside the Award would also lead to unnecessary costs, and the rearguing of matters afresh which have already been determined. I make clear, however, that in remitting the Appeal Award to the Board such reconsideration should include reconsideration by the Board after receiving submissions from both parties on all the matters raised in relation to each section 68 challenge, including on the basis that the defences the subject matter of the amendments are live before the Board for determination
  3. One matter that was canvassed before me was whether or not it was appropriate for me to leave the question of whether the amendments should be allowed to the Tribunal. In circumstances where I have found that no reasonable Tribunal could have refused the amendments, I do not consider that to be the right approach. The right approach, I am satisfied, is that the defences which were the subject matter of the amendments are live before the Board for determination, and therefore all available points that could arise in relation to those alleged defences are available to PBO and to the Respondents by way of rebuttal.
  4. I have chosen remission in order to save unnecessary costs being incurred. I anticipate that the Board (and this Court if called upon hereafter) would not look favourably upon any attempt by the Respondents to construe narrowly such remission for reconsideration.
  5. I accordingly order that the Appeal Award be remitted to the Board for reconsideration of the points raised in each section 68 challenge which has succeeded. For the avoidance of doubt, I make clear that may involve the Board considering matters which it did not have to consider previously in the light of its previous findings. One example – but it is only an example – was given by the appellants, which would be in relation to the washout point, a point which it was not necessary for the Board to consider but – depending on the outcome of the points which arise for reconsideration – could arise for consideration.
  6. The appellants were understandably keen to ensure it was apparent from the face of the judgment, which I trust it is, that such points would still be available and would still need to be determined by the Board if they arose.
  7. THE JURISDICTIONAL APPLICATIONS UNDER SECTION 67 OF THE ACT
  8. There were also two applications under section 67, the first to the effect that the Board does not have jurisdiction over 2DON, the second that the Board does have jurisdiction over the Jute Bag Loses. Those applications now have to be viewed in the light of the success of the applications under section 68 of the Act and the relief that I have granted in that regard. In such circumstances, it was accepted before me that it was inappropriate to rule upon the Section 67 applications at this time.
  9. That applies to both of those jurisdictional challenges, not least in the case of the Section 68 relief that was granted in relation to the Jute Bag Losses because that does relate to jurisdiction and will, no doubt, be considered before the Board.
  10. It would be inappropriate to express any views at this stage on jurisdiction when there will be, no doubt, an award from the Tribunal in relation to jurisdiction matters. It would be, I consider, inappropriate to rule upon section 67 applications at this stage when the outcome of that award from the Tribunal could resolve the disputes between the parties and either party may not wish to pursue jurisdiction any further.
  11. Of course, if either party wish to pursue jurisdiction further, then there would be the right – as there always is – to make an application under Section 67 and have the matter reheard afresh in front of the Court.
  12. In the light of the outcome of the Section 68 challenges, the Section 69 application for permission to appeal falls away addressing, as it does, the Appeal Award which has now been remitted and, accordingly, no order is made on that Section 69 application.
  13. The further award or awards of the Board hereafter will, of course, carry their own time limits for any application to seek permission to appeal by any party.

 

Tugushev v Orlov & Ors [2021] EWHC 926

 

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

Tugushev v Orlov & Ors [2021] EWHC 926

 

FILE NUMBER: CL-2018-000498
JUDGE: SIR NIGEL TEARE
REGISTRY: Strand, London, WC2A 2LL
DATE OF HEARING:
DATE OF JUDGMENT: 16/04/2021
CASE MAY BE CITED AS: Tugushev v Orlov & Ors [2021] EWHC 926
MEDIUM NEUTRAL CITATION: [2021] EWHC 926 (Comm)
DIVISION: QUEEN’S BENCH DIVISION
LIST COMMERCIAL COURT
PARTIES: Alexander Tugushev

Claimant

 

AND:

 

Vitaly Orlov

Defendant

 

&

 

Magnus Roth

Second Defendant

 

&

 

Andrey Petrik

Third Defendant

REPRESENTATION: Christopher Pymont QC, Benjamin John and Fiona Dewar (instructed by Macfarlanes LLP) for the First Defendant/Respondent

 

Daniel Toledano QC, Emily Wood, Joshua Crow and Lorraine Aboagye (instructed by Covington & Burling LLP) for the Second Defendant/Applicant

 

 

 

JUDGMENT
 

 Sir Nigel Teare :

  1. This is an application by the Second Defendant, Mr. Roth, for permission to bring three Part 20 claims against the First Defendant, Mr. Orlov. The application is opposed by Mr. Orlov on the grounds that two of the claims are the subject of an arbitration agreement and the third is the subject of an estoppel arising from proceedings in Hong Kong.

Mr. Tugushev’s claim in this jurisdiction

  1. Roth’s application is made in proceedings which were commenced by the Claimant, Mr. Tugushev, in July 2018. They concern the ownership of a fishing business. In short, Mr. Tugushev claims that in 1997 he, Mr. Orlov and Mr. Roth agreed a 3-Way Joint Venture Agreement (the “3-Way JVA”) pursuant to which each would hold a one-third interest in the business but that Mr. Orlov and Mr. Roth have since conspired to keep Mr. Tugushev’s interest from him.
  2. The relief sought by Mr. Tugushev was initially an account in respect of dividends and a declaration as to his one-third interest. In May 2020 the relief sought was amended to include restitution in damages and an order that shares in certain companies (to be identified) be transferred to him.
  3. The Defences of Mr. Orlov and Mr. Roth to this claim are long and complex. I have not been taken though them in any detail. I shall seek to summarise the bare outline of the Defences.
  4. Orlov’s case in response to Mr. Tugushev’s claim is that there was no 3-Way JVA and that Mr. Tugushev is not entitled to the relief he seeks. He says that there was a 2-Way Partnership Agreement (“the Partnership Agreement”), also in 1997, between himself and Mr. Roth pursuant to which the fishing business was to be owned 50/50 between them. The business was run on that basis until 2007 when Mr. Orlov and Mr. Roth entered into the 2007 Understanding pursuant to which Mr. Orlov’s interest in the business was increased to two thirds and Mr. Roth’s interest was reduced to one third. However, one part of the business, TTC, was owned and operated 50/50. Following the lead of counsel I shall describe the former business as the Russian Business and the latter as the Hong Kong Business.
  5. Orlov says that in 2008 he and Mr. Roth entered into the 2008 Agreement pursuant to which Mr. Orlov was to hold Mr. Roth’s one-third share on trust for him. The 2008 Agreement contained a London arbitration clause.
  6. Roth’s case in response to Mr. Tugushev’s claim is that there was a 2-Way Partnership Agreement in 1997 between himself and Mr. Orlov but that it was quickly superseded by the 3-Way JVA. He therefore accepts that Mr. Tugushev is entitled to one third of the Russian Business but says that Mr. Tugushev must pay Mr. Roth and Mr. Orlov an amount reflecting his lack of contribution to the business when he was imprisoned and to reflect harm he has caused the business. So Mr. Roth accepts that in 2007 he had a one-third interest in the Russian Business but on his case that emanated from the 3-Way JVA whereas on Mr. Orlov’s case it emanated from the 2007 Understanding and the 2008 Agreement.
  7. Between 2011 and 2013 one third of the shares in the Russian business was transferred to Mr. Roth including 23% of the shareholdings in certain companies held by third parties (“the Transferred Alex Bundle Shares”).
  8. In 2016 Mr. Orlov, Mr. Roth and a number of companies entered into the Framework Agreement pursuant to which Mr. Roth agreed to sell his one-third interest in the Russian Business to Mr. Orlov and the companies for the sum of US$200 million. The Framework Agreement also included a London arbitration clause.
  9. In addition to his claim based upon the 3-Way JVA Mr. Tugushev has alleged a trust claim in respect of one third of certain parts of the Russian Business which trust was said to have arisen in 2008. It is said that the transfers made in 2011-2013 to Mr. Roth were made in breach of that trust. Mr. Orlov and Mr. Roth deny there was any such trust.
  10. Orlov and Mr. Roth have served contribution notices on each other.

The proceedings in Hong Kong

  1. Since 2017 Mr. Orlov and Mr. Roth have been litigating in Hong Kong with regard to TTC, the company which was the holding company for the Hong Kong Business. Mr. Orlov issued an unfair prejudice petition as a registered shareholder in TTC and Mr. Roth counterclaimed with his own unfair prejudice petition as a registered shareholder in TTC. At the time they were the only registered shareholders in TTC. Judgment was given in 2019. Unfair prejudicial conduct was found on both sides. Mr. Roth was ordered to buy out Mr. Orlov’s shareholding in TTC. The value of TTC has now been assessed.

The Part 20 claims in this jurisdiction

  1. Draft Particulars of Mr. Roth’s Part 20 claims against Mr. Orlov have been provided. They consist of three claims; the Partnership Claim, the TTC claim and the Alex Bundle Claim.

The Partnership Claim

  1. This is based upon the premise that this court holds that the 3-Way JVA was never entered into or is void and not binding. On that basis Mr. Roth claims that the 1997 Partnership Agreement remains binding, that there was never a 2007 Understanding and that it was never agreed that Mr. Orlov would be entitled to a greater share of the Russian Business than Mr. Roth. Mr. Roth therefore claims from Mr. Orlov one sixth of the Russian Business currently owned by Mr. Orlov.

The TTC Claim

  1. This is based upon the premise that this court holds that the 3-Way JVA was entered into and remains binding so that Mr. Tugushev is entitled to one third of TTC. Mr. Roth expects that his purchase of Mr. Orlov’s interest in TTC (pursuant to the order of the Hong Kong Court) will have been completed before judgment is given in England. Mr. Orlov will therefore have received from Mr. Roth payment in respect of a greater number of shares (50%) than that to which he was entitled (33.3%). Mr Roth refers to the difference as the “Excess Shares”. Mr. Roth therefore seeks a payment from Mr. Orlov equal to the purchase price paid for the Excess Shares.

The Alex Bundle Claim

  1. This is based upon the premise that Mr. Tugushev succeeds in his trust claim. On that basis it is said that the Alex Bundle shares which were transferred to Mr. Roth were beneficially owned by Mr. Tugushev and that Mr. Roth is liable to Mr. Tugushev in respect of them. Thus, so it is claimed by Mr. Roth, Mr. Roth will not have received the 23% shareholding in the Russian Business to which he was entitled under the 1997 3-Way JVA and Mr. Orlov will hold a 23% shareholding in the Russian Business to which he was not entitled under that Agreement. Mr. Roth therefore claims to be entitled to that 23% shareholding or its value.

The arbitration agreements and the Partnership and Alex Bundle Part 20 claims

  1. The 2008 Agreement refers to arbitration in London “any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof.”
  2. The 2016 Framework Agreement refers to arbitration in London under the LCIA Rules “any dispute arising out or in connection with this Agreement, including any question regarding its existence, validity or termination.”
  3. It is common ground that Mr. Roth’s application to bring the Partnership and Alex Bundle Claims should be determined as if Mr. Orlov were seeking a stay of those claims pursuant to section 9 of the Arbitration Act 1996. (It is not suggested that the TTC Claim is to be referred to arbitration.)
  4. Section 9(1) of the Arbitration Act 1996 provides:

“A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings had been brought to stay the proceedings so far as they concern that matter.”

  1. Section 9(4) provides that the court

“shall grant a stay unless satisfied that the arbitration is null and void, inoperative, or incapable of being performed.”

  1. The manner in which section 9 is applied by the court has been the subject of recent decisions by the Commercial Court and the Court of Appeal. Both decisions have drawn upon a decision by the Chief Justice of Singapore dealing with the equivalent section in the law of Singapore; see Sodzawiczny v Ruhan and others[2018] EWHC 1908 (Comm), The Republic of Mozambique v Credit Suisse and others[2021] EWCA Civ 329 and Tomolugen Holdings v Silica Investors [2015] SGCA 57.
  2. The guidance from those decisions most material to the present case is as follows. Where there is an arbitration agreement the parties have agreed not only that the matters within the agreement should be arbitrated but also that they should not be decided by a court. The grant of a stay is mandatory; the court has no discretion. A “matter” referred to arbitration includes any issue capable of constituting a dispute under the arbitration agreement. There may be some disputes between the parties which are within the arbitration agreement and others which are not. In such a case the stay will apply only to the former. This may lead to fragmentation of forum but, as Popplewell J observed in Sodzawicznyat paragraph 44 “the desideratum of unification of process must give way to the sanctity of contract, as the mandatory terms of section 9(4) intend.”
  3. Section 9 envisages a two-stage process. First, the court must identify the matters in respect of which proceedings have been brought. Second, the court must decide which of those matters the parties have agreed to refer to arbitration.
  4. At the first stage of the process the court may have regard to issues which it is reasonably foreseeable may arise. This should be a “common-sense enquiry in relation to any reasonably foreseeable substantial issue that is not merely peripherally or tangentially connected to the dispute in the court proceedings.” The search is not for the main issue but for any and all issues which may be the subject matter of the arbitration agreement.
  5. At the second stage of the process the court will have regard to the presumption in favour of one-stop adjudication as explained by Lord Hoffman in Fiona Trust & Holdings v Privalov & others[2008] 1 Lloyd’s Reports 254. Thus the construction of an arbitration clause should start from the assumption that the parties as rational businessmen intended any dispute arising out of their relationship to be determined in the same forum and that such presumption can only be displaced by clear words.
  6. The present case involves more than one contract; the 1997 agreements (whether the 3-Way JVA or the 2-Way Partnership Agreement), the 2008 Agreement and the 2016 Framework Agreement. It is therefore important to note that the Fiona Trustprinciple has been extended to cases where a claim is brought not under the contract which contains the arbitration clause (“Contract A”) but under another contract between the parties (“Contract B”). This has been described by Bryan J in Terre Neuve SARL and others v Yewdale Limited and others[2020] EWHC 772 (Comm) at paragraph 30 as the “extended Fiona Trust principle”. Bryan J analysed the scope of this principle at paragraph 31. He noted that the wording of the arbitration clause in Contract A must be fairly capable of applying to disputes under Contract B. He also noted that the principle normally applies where the parties to Contract A and Contract B are the same and where Contract A and Contract B are interdependent or have been concluded at the same time as part of a single package or deal with the same subject-matter.
  7. In deciding whether an arbitration clause applies to claims arising under a different contract the court is engaged in an exercise of construction. Thus the underlying principle is that the arbitration clause should be given the meaning which a reasonable person, with the background reasonably available to both parties, would give it. The considerations described in Fiona Trustassist the court in applying that underlying principle and are consistent with it, as noted by Popplewell J in Sodzawicznyat paragraph 52.
  8. In TomulgenChief Justice Menon, after a wide ranging review of the common law authorities and other materials (see paragraphs 25-70), concluded that the court was not required to determine the scope of the arbitration clause but only to undertake a prima facie review of its scope. One of his reasons for so concluding was that such an approach ensured that the court did not encroach upon the arbitral tribunal’s power to determine its own jurisdiction. I was not referred to any passages in Sodzawiczny or The Republic of Mozambiquewhich adopted this view. Indeed, the language used by Popplewell J and the Court of Appeal in those cases is consistent with the courts having determined the scope of the arbitration clause; see paragraph 61 of Popplewell J’s judgment and paragraphs 90 and 124 of Carr LJ’s judgment. I heard no detailed submissions on this matter. Counsel for Mr. Orlov submitted in writing (see paragraph 50 of Mr. Orlov’s Skeleton Argument) that the court should decide the matter on the balance of probabilities. Counsel for Mr. Roth told me, orally, that that was accepted. In Albon v Naza Motor Trading [2007] EWHC 665 (Ch) Lightman J held that the court had to determine the scope of the arbitration clause; see paragraphs 19 and 20. In Joint Stock Company Aeroflot-Russian Airlines v Berzosky and others [2013] EWCA Civ 784 Aikens LJ also appeared to be of that view; see paragraph 73. Although Counsel for Mr. Orlov in his reply said that he need only establish a prima facie case (basing himself, I presume, on the view of Chief Justice Menon) it seems to me that I should determine the scope of the arbitration agreement. That is what the Commercial Court and the Court of Appeal appear to have done in Sodzawiczny and in The Republic of Mozambique and is supported by Albon and by Joint Stock Company Aeroflot-Russian Airlines v Berzosky. Whilst Chief Justice Menon (at paragraph 69 of his judgment in Tomulgen) expressed his disagreement with the approach of Aikens LJ in Joint Stock Company Aeroflot-Russian Airlines v Berzosky that approach is not open to me.

The matters in respect of which the Partnership and Alex Bundle Claims have been brought

  1. The Partnership Claim has been pleaded in the draft Part 20 Claim. The Claim is based upon the 1997 Partnership Agreement (in the sense that it assumes that Mr. Tugushev fails in his claim based upon the 1997 3-Way JVA) and Mr. Roth seeks the transfer of one sixth of the business or its value to Mr. Roth. It specifically raises the issue whether Mr. Roth had entered the alleged 2007 Understanding. Counsel for Mr. Roth identified the disputed issues as being:
  2. i) Did Mr. Orlov and Mr. Roth enter the 2007 Understanding?
  3. ii) If no, as of 2007 did Mr. Orlov and Mr. Roth continue to be entitled to call for the assets of the Russian Business in equal shares?

iii) If yes, does clause 11.1.1 of the 2016 Framework Agreement provide a defence to Mr. Roth’s claim for an additional sixth of the shares?

  1. Counsel for Mr. Orlov did not list the disputes in that way. Rather, he identified as “the real issue” or “the core of this dispute” (see paragraphs 45 and 60 of Mr. Orlov’s skeleton argument) the impact of the 2008 Agreement and the Framework Agreement upon the Partnership Claim. This approach is contrary to the guidance in the recent cases to which I have referred.
  2. Counsel for Mr. Roth accepted that the Partnership Claim will foreseeably give rise to a defence based upon clause 11.1.1 of the 2016 Framework Agreement. Clause 11.1.1 contains a warranty by Mr. Roth that the shares being sold “represent the entire interest and rights of the Seller in the Companies, and that Seller has no Encumbrance or right of any kind that would entitle him to acquire or be granted any further shares…….in the Companies.” Counsel for Mr. Orlov explained the defence by reference to the doctrine of contractual estoppel.
  3. The Alex Bundle Claim has also been pleaded in the draft Part 20 Claim. The Claim is based upon the 1997 3-Way JVA (in the sense that it assumes that Mr. Tugushev succeeds in his claim under that Agreement) and Mr. Roth seeks transfer of 23% of the shares in certain companies or their value. It is again accepted that it will foreseeably give rise to a defence based upon clause 11.1.1 of the 2016 Framework Agreement. Thus the disputes are, according to counsel for Mr. Roth:
  4. i) Is Mr. Roth entitled to call for 23% of the shares in the Russian Business?
  5. ii) If yes, does clause 11.1.1 of the 2016 Framework Agreement provide a defence to that claim?
  6. Again, counsel for Mr. Orlov described “the central dispute” or “core of the dispute” (see paragraphs 64 and 66 of Mr. Orlov’s skeleton argument) as the impact of the 2008 Agreement and the 2016 Framework Agreement upon the Alex Bundle Claim.
  7. It is unnecessary to consider the TTC Claim because a stay is not sought in respect of that claim.

The scope of the arbitration clauses

  1. Although there are arbitration clauses in both the 2008 Agreement and the 2016 Framework Agreement, particular reliance was placed upon the latter by counsel for Mr. Orlov in his oral submissions.
  2. Clause 28.2 of the 2016 Framework Agreement refers to arbitration “any dispute arising out of in connection with this Agreement, including any question regarding its existence, validity, or termination.”
  3. Counsel for Mr. Orlov submitted that the Partnership and Alex Bundle Claims were within the arbitration agreement. He developed, orally, an argument upon the following lines. The 2016 Framework Agreement was an agreement by which the relationship between Mr. Orlov and Mr. Roth was ended. In this regard reliance was placed upon the circumstance that Mr. Roth was selling for US$200 million shares which he warranted in clause 11.1.1 were his “entire interest ……in the Companies” and upon his further warranty that he had no “right of any kind that would entitle him to acquire or be granted any further shares….in the Companies.” Counsel also drew attention to clause 19.1 which provided that “this agreement supersedes any and all previous agreements or understandings (whether oral or written) relating to the subject-matter of the Transaction Documents, which shall cease to have any further force or effect”. Counsel compared this agreement with a settlement agreement. In SodzawicznyPopplewell J had noted in paragraph 51 that where a settlement agreement contained an arbitration clause the presumption in favour of one stop adjudication had particular potency. Where a person seeks to bring a claim based upon a right which had arguably been settled then, unless the arbitration agreement is construed as extending to a dispute as to the validity of that right, there will be two tribunals determining related disputes; the arbitral tribunal will address the validity or efficacy of the settlement whilst the court will address the validity of the pre-existing right. That is a situation which rational businessmen are unlikely to intend. Thus it was submitted that just as an arbitration clause in a settlement agreement can properly be construed as extending to the determination of claims alleged to have been settled, so the arbitration clause in the 2016 Framework Agreement can properly be construed as extending to the determination of claims brought under the 1997 3-Way JVA or the 1997 2-Way Partnership Agreement which have now been superseded by the 2016 Framework Agreement.
  4. Counsel for Mr. Roth accepted that any defence to Mr. Roth’s Partnership or Alex Bundle Claims based upon clause 11.1.1 of the 2016 Framework Agreement was a matter referred to arbitration but submitted that Mr. Roth’s claim based upon the 1997 Agreements was not a matter referred to arbitration. The defence would have to be resolved in arbitration and then, depending upon the outcome of that arbitration, the court would determine the claims brought under the 1997 Agreements. In this regard, counsel relied upon the circumstance that the arbitration clause referred to arbitration disputes arising out of or in connection with “this Agreement”. The Partnership and Alex Bundle Claims did not arise out of or in connection with the 2016 Framework Agreement but arose out of or in connection with agreements made almost 20 years earlier. Further, he noted that the parties to the 1997 and 2016 Agreements were not the same. There were three companies party to the 2016 Agreement who were not party to the 1997 Agreements. Whereas Mr. Tugushev was party to the 1997 3-Way JVA, he was not party to the 2016 Agreement. Counsel submitted that the 2016 Framework Agreement was neither a settlement agreement nor an agreement which brought the relationship of Mr. Orlov and Mr. Roth to an end. Rather, it was simply an agreement for the sale and purchase of certain shares owned by Mr. Roth. The arbitration agreement which referred to arbitration claims arising under or in connection with “this agreement” was intended by the parties to refer to arbitration claims arising out of or connected with the sale and purchase of shares, rather than to claims arising out of or connected with the overarching or umbrella 1997 Agreements. In this regard reliance was placed upon the approach of Foxton J in Albion Energy Limited v Energy Investments Global[2020] EWHC 301 (Comm) where it was accepted that an arbitration clause can be regarded as applying only to the specific agreement in which it is found rather than to a more general agreement between the parties; see paragraph 24 per Foxton J. With regard to clause 19.1 of the 2016 Agreement it was observed that the 2016 Agreement was to supersede all previous agreements “relating to the subject-matter of the Transaction Documents”, that is, the sale and purchase of certain shares. That was not an apt description of the 1997 Agreements and so it was not superseded.
  5. In resolving this dispute as to the scope of the arbitration clause it is necessary to bear in mind the underlying principle of contractual construction, namely, that the court is seeking to find that meaning which a reasonable man, with all the background knowledge reasonably available to both parties, would give to the arbitration clause. The background knowledge available to Mr. Orlov and Mr. Roth when they entered the 2016 Framework Agreement (along with 3 companies) was that their involvement with the Russian fishing business went back to 1997 and had found expression in one of two 1997 Agreements and in the 2008 Agreement.
  6. There is no dispute that there is a reasonably foreseeable defence to the Partnership Claim and the Alex Bundle Claim derived from clause 11.1.1 which must be referred to arbitration. The question is whether the parties intended that the validity of the claims said to derive from the 1997 Agreements was also a matter referred to arbitration, in addition to the particular defence provided by clause 11.1.1.
  7. In reaching a conclusion on this question I have taken care not to say anything about the cogency or otherwise of the defence based upon clause 11.1.1 because that is a matter which, on any view, must be determined in arbitration.
  8. The presumption in favour of one-stop adjudication would suggest that the parties, with the background knowledge to which I have referred, intended that the validity of the claims said to derive from the 1997 Agreements should be referred to arbitration in addition to the validity of the defence to such claims provided by clause 11.1.1.
  9. Against that must be borne in mind the fact that the parties to the 2016 Framework Agreement are not the same as the parties to the 1997 Agreements and the fact that a distance of almost 20 years separated the 1997 Agreements from the 2016 Framework Agreement. However, the 2016 Agreement and the 1997 Agreements are connected with each other because they both concern the same subject matter, namely, the Russian Business.
  10. Clause 19.1 of the 2016 Agreement provides that the 2016 Agreement “superseded any and all previous agreements or understandings (whether oral or written) relating to the subject-matter of the Transaction Documents.” That clause, having regard to its inclusion in a contract which provides for the sale of Mr. Roth’s share in the Russian Business, tends to support the suggestion that the 2016 Agreement was “a parting of the ways” (a phrase used by counsel for Mr. Orlov). Counsel for Mr. Roth submitted that the reference to the “subject-matter of the Transaction Documents” militates against this conclusion because “Transaction Documents” was a defined term which did not include the 1997 Agreement or Agreements. But the subject matter of the Transaction Documents was the shares in certain companies which formed part of the fishing business. The fishing business was of course the subject-matter of the 1997 Agreements, though the particular companies whose shares were being sold in 2016 may not have been in existence at that time. I therefore think there is force in the suggestion that the 2016 Agreement was “a parting of the ways”.
  11. That the 2016 Agreement was in the nature of a “parting of the ways” suggests that the presumption in favour of one-stop adjudication has “particular potency” (the phase used by Popplewell J) just as it has in the context of a settlement agreement. Rational businessmen would surely expect that if, after the 2016 Agreement, Mr. Roth were to make a claim for more shares, not only would a defence to that claim based upon clause 11.1.1 be referred to arbitration but also the validity of the claim would be referred to arbitration.
  12. Of course, the language of the arbitration clause must be apt to apply, or fairly capable of applying, to such a claim. The arbitration clause applies to any dispute “in connection with” the Framework Agreement. Sufficiency of connection is “a nuanced concept in respect of which there is scope for reasonable disagreement”; per Carr LJ in The Republic of Singaporeat paragraph 84. In the present case the phrase is used in the 2016 Framework Agreement which is closely connected with the 1997 Agreements since they both concern the same subject matter, namely, the Russian Business. In that context a claim which arises out of the 1997 Agreements is, in my judgment, fairly to be regarded as a dispute in connection with the 2016 Framework Agreement.
  13. For these reasons I have concluded that the matters in respect of which the Partnership Claim is brought by Mr. Roth (for one sixth of the shares in the Russian Business or damages in the amount of their value), and the matters in respect of which the Alex Bundle Claim is brought by Mr. Roth (for 23% of the shares in the Russian Business or damages in the amount of their value) are matters which under the arbitration agreement in the 2016 Framework Agreement are to be referred to arbitration.
  14. It follows that the Partnership and Alex Bundle Claims must be stayed pursuant to section 9 of the Arbitration Act 1996.
  15. There are three further, related, matters with which I must deal.
  16. Counsel for Mr. Roth emphasised that the matters in dispute on the Partnership Claim included the existence or otherwise of the 2007 Understanding and the entitlement of Mr. Roth and Mr. Orlov to equal shares in the business at that time. Counsel submitted that Mr. Roth’s denial of the 2007 Understanding was an important part of his case to which he had not pleaded by way of defence because it is not part of Mr. Tugushev’s claim. The existence of the 2007 Understanding was not, it was said, a matter referred to arbitration. Therefore, it should not be stayed.
  17. If, as seems likely, Mr. Orlov raises the 2007 Understanding as part of his defence to the claim of Mr. Tugushev, I do not see why Mr. Roth cannot, in the course of the hearing of Mr. Tugushev’s claim, deny the existence of the 2007 Understanding and make such submissions as he wishes to about its alleged existence. Mr. Roth does not have to have pleaded his case on such matters by way of a Part 20 Claim in order to be able to do so. Counsel for Mr. Roth submitted that Mr. Roth has sought to answer Mr. Orlov’s defence to Mr. Tugushev’s claim “by the declarations he seeks in the Partnership Claim”. It may be said that it is helpful for him to have done so in circumstances where the CPR does not require a defendant to reply to what a co-defendant has said in response to the claim of the claimant. But I am unable to accept that he was required to do so. Mr. Roth could have made his position clear by letter or perhaps by way of an amendment to his contribution notice.
  18. Orlov may also raise the 2007 Understanding as part of his case in response to the Partnership Claim. If he does so then Mr. Roth is likely to respond by advancing his case that there was no 2007 Understanding in support of his Partnership Claim against Mr. Orlov. Indeed, I have noted from the Fourth Witness Statement of Mr. Pollack (served in support of Mr. Roth’s application for permission to bring the Partnership Claim) at paragraph 16 that it is the allegation that there was the 2007 Understanding which has “given rise” to the Partnership Claim. Any such case of Mr. Roth (that there was no 2007 Understanding), being part of the Partnership Claim, is a matter which is referred to arbitration by the 2016 Framework Agreement and therefore must be stayed. It is or would be a dispute “in connection with” the 2016 Framework Agreement because both the 2016 Framework Agreement and the 2007 Understanding concern the same subject matter, namely, the Russian Business.
  19. Of course, it is undesirable that the same factual issue might be determined by the court and by the arbitral tribunal. There is a risk of inconsistent decisions. That is, at the very least, most unfortunate and has the potential to cause great difficulty but the court has no discretion in this matter. As noted by Popplewell J in Sodzawicznyat paragraph 44 the court can only use its case management powers to ameliorate the adverse consequences of a mandatory stay.
  20. Counsel for Mr. Roth also submitted that Mr. Roth’s claim for a declaration that Mr. Orlov and Mr. Roth did not enter the alleged 2007 Understanding and his claim for a declaration that, since there was no 2007 Understanding, Mr. Orlov and Mr. Roth continued to be entitled to call for the Joint Venture Assets in equal shares at that time should not be stayed. This was essentially the same point as that with which I have just dealt.
  21. The two declarations are to be found in paragraphs 1 and 2 of Mr. Roth’s prayer for relief. Whilst, as explained above, their subject-matter may have a relevance in connection with Mr. Tugushev’s claim they are, in the context of the Partnership Claim, steps on the way to the principal relief sought in paragraphs 3-8 of the prayer, namely, a transfer of shares or damages, interest and costs. That being so paragraphs 1 and 2 must be stayed just as paragraphs 3-8 must be stayed. They are all caught by the arbitration clause.
  22. Counsel for Mr. Roth finally submitted that Mr. Orlov has invoked the court’s jurisdiction by pleading, by way of defence to Mr. Tugushev’s claim, (i) the 2007 Understanding, (ii) the consequence being that the 1997 Partnership Agreement no longer applied and (iii) that the alleged 2007 Understanding was reflected in the 2008 Agreement. It was said that having done that it was now too late to seek a stay of the Part 20 Partnership Claim.
  23. It was accepted that in order for there to be a waiver of the right to seek a stay there must be an unequivocal act which invokes the jurisdiction of the court to deal with the substance of the claim which would otherwise have been arbitrated; see Jurisdiction and Arbitration Agreements and their Enforcement3rd.ed. by David Joseph QC at paragraph 11.44.
  24. In circumstances where what Mr. Orlov did was to plead his defence to Mr. Tugushev’s claim in December 2019, some months before the Partnership Claim had been articulated, I am unable to accept that there was, as against Mr. Roth, an unequivocal invocation of the court’s jurisdiction to deal with one or more of the matters referred to arbitration. Mr. Orlov was merely defending the claim brought against him by Mr. Tugushev. I am therefore unable to accept the submission that Mr. Orlov has waived the right to insist on arbitration in respect of the dispute as to the 2007 Understanding as between himself and Mr. Roth.
  25. Counsel for Mr. Roth accepted that the facts of this case were “unusual” in that Mr. Orlov’s allegations were made in his defence to Mr. Tugushev’s claim, rather than directly against Mr. Roth. But he submitted that Mr. Orlov was aware that what he was saying as against Mr. Tugushev was a matter of controversy between Mr. Orlov and Mr. Roth and that the controversy as to the 2007 Understanding would have to be determined by the court in order to decide Mr. Tugushev’s claim with the result that the decision would be binding on Mr. Roth. Counsel said that Mr. Orlov “nevertheless elected to put these matters in issue without any reservation or suggestion that as between Mr. Orlov and Mr. Roth the questions of whether there was a 2007 Understanding or whether the Orlov/Roth Partnership Agreement continued to govern could only be decided in arbitration”. This conduct was said to be “an unequivocal invocation of the Court’s jurisdiction in respect of these matters”. The difficulty with this carefully constructed argument is that when Mr. Orlov pleaded the alleged 2007 Understanding in response to Mr. Tugushev’s claim the Partnership Claim as now advanced by Mr. Roth had not been articulated. In those circumstances I am unable to accept that Mr. Orlov’s conduct was “an unequivocal act which invoked the jurisdiction of the court to deal with the substance of the claim which would otherwise have been arbitrated”. Mr. Orlov cannot be expected to have reserved the right to say that as between Mr. Orlov and Mr. Roth the question of whether there was a 2007 Understanding could only be decided in arbitration in circumstances where Mr. Roth had not brought any claim against Mr. Orlov which was arguably within the arbitration clause.

Estoppel

  1. TTC was incorporated in December 2006 when, I was told, Mr. Tugushev was in prison. According to Mr. Orlov and Mr. Roth TTC was at all material times owned by Mr. Orlov and Mr. Roth in equal shares. As joint shareholders they were responsible for the operation and management of TTC. Mr. Tugushev had never had any material involvement with the operation and management of TTC.
  2. Roth’s Part 20 TTC Claim is based upon the premise that this court holds that the 3-Way JVA was entered into and remains binding so that Mr. Tugushev is entitled to one third of TTC. Mr. Roth expects that his purchase of Mr. Orlov’s interest in TTC (pursuant to the order of the Hong Kong Court) will have been completed before judgment is given in England. Mr. Orlov will therefore have received from Mr. Roth payment in respect of a greater number of shares (50%) than that to which he was entitled (33.3%), the “Excess Shares”. Mr. Roth therefore seeks a payment from Mr. Orlov equal to the purchase price of the Excess Shares.
  3. Orlov submits that permission should not be granted to advance this claim because Mr. Roth is estopped from doing so by the decision of the Hong Kong Court in the “unfair prejudice” litigation between Mr. Orlov and Mr. Roth. It is common ground that Mr. Roth’s application should be determined as if Mr. Orlov were applying for reverse summary judgment in, and/or strike out of, the TTC Claim.
  4. Both Mr. Orlov and Mr. Roth consider that the court has all the evidential materials necessary for this point to be determined on this hearing, including expert evidence of Hong Kong law. Neither party suggests that there will be any further evidence at trial, save perhaps, cross-examination of the experts on Hong Kong law. Since (a) the only dispute between the experts is not as to Hong Kong law but as to the application of Hong Kong law to the facts of this case, (b) the Hong Kong law of issue estoppel is derived from the English law of issue estoppel and (c) the Hong Kong Court is a common law court whose judgment is in English I accept that this court is able to decide the question of issue estoppel on this application without the need to hear cross-examination of the experts on Hong Kong law.

The elements of issue estoppel

  1. It is common ground between the parties that an issue estoppel may arise from earlier proceedings in a foreign court if:
  2. i) the foreign court is a court of competent jurisdiction;
  3. ii) the decision of the foreign court has clearly or necessarily decided the issue finally and on the merits and with preclusive effect as a matter of the local law;

iii) the decision is about the same issue which is sought to be raised in England; and

  1. iv) the decision is made in proceedings between the same parties or their privies.
  2. There is no dispute as to requirements i) and iv) or that the decision of the Hong Kong Court was final and on the merits.
  3. There is, however, a fifth requirement as counsel for Mr. Roth was keen to stress, namely, that the purpose of estoppel is to work justice. In Carl Zeiss Stiftung v Rayner & Keeler [1967] AC 853 Lord Upjohn said at p. 947 E that estoppels “must be so applied as to work justice and not injustice and ….the principle of issue estoppel must be applied to the circumstances of the subsequent case with this overriding consideration in mind.” In Arnold v National Westminster Bank[1991] 2 AC 93 at p.109 B. Lord Keith said that in special circumstances inflexible application of estoppel may work injustice. In the latter case it was held that a party to an earlier decision was not bound by it in circumstances where it had later been declared to be wrong in law. In The Good Challenger[2004] 1 Lloyd’s Reports 67 Clarke LJ at paragraph 54 said that “the application of the principles of issue estoppel is subject to the overriding consideration that it must work justice and not injustice.” The matter was further discussed at paragraphs 75-79 where Clarke LJ said, at paragraph 79, that “the correct approach is to apply the principles set out above unless there are special circumstances such that it would be unjust to do so. Whether there are such special circumstances or not will of course depend upon the facts of the particular case.”

The Hong Kong proceedings

  1. I must first describe the Hong Kong proceedings in a little more detail.
  2. Orlov and Mr. Roth fell out and lost trust in each other. On 8 June 2017 Mr. Orlov issued an unfair prejudice petition in Hong Kong against Mr. Roth. On 22 December 2017 Mr. Roth issued an unfair prejudice cross-petition against Mr. Orlov. Each sought an order that Mr. Roth buy-out Mr. Orlov. It was common ground in those petitions that Mr. Orlov and Mr. Roth were the each direct or indirect owner of 50% of the shares in TTC, that TTC had been set up and was to be operated in accordance with their Mutual Understanding pursuant to which each was to contribute to the share capital, share expenses and share profits on an equal 50/50 basis and that all decisions would be taken by mutual agreement. Each alleged that the other had breached the Mutual Understanding.
  3. It is to be noted that Mr. Tugushev brought his claim against Mr. Orlov and Mr. Roth in England in July 2018.
  4. On 29 January 2019 Mr. Roth applied for a stay of the Hong Kong proceedings pending the outcome of the proceedings before this court in which Mr. Tugushev claimed one-third of TTC. The application was dismissed on 21 March 2019 by a deputy judge (not the trial judge) for three reasons:
  5. i) Mr. Tugushev’s claim to the shares in TTC had been known since July 2018 and Mr. Roth had participated in setting the petitions down for trial in August 2018.
  6. ii) There was no dispute between Mr. Orlov and Mr. Roth as to the size of their respective shareholdings.

iii) Mr. Tugushev had not sought to participate in the Hong Kong proceedings.

  1. Over 11 days in July and August 2019 the petitions were tried before Coleman J. Judgment was given on 28 August 2019. Unfair prejudice was found on both sides and the Court ordered a buyout by Mr. Roth of Mr. Orlov’s shareholding. The following observations in the judgment have been relied upon as being of particular relevance to the present dispute.
  2. i) At paragraph 27 the Judge referred to the proceedings in England.

“27. As an aside, it might be mentioned that there is a dispute between Tugushev and Orlov and Roth about the one third share originally held on trust for Tugushev, which has led to proceedings brought by Tugushev against Orlov and Roth in England…………….Orlov now holds the shares, but Tugushev alleges they were misappropriated as a result of joint activity by Orlov and Roth. But that dispute and those proceedings have not really figured in these proceedings, and this case has proceeded on the basis that the only relevant shareholders are Orlov and Roth. Therefore, other than possibly in the context of the precise terms of relief which might be granted in these proceedings, I do not think the Tugushev dispute and proceedings require further consideration for present purposes.”

  1. ii) Counsel for Mr. Roth invited the Hong Kong Court to have regard to the possibility that Mr. Tugushev might obtain an order from this Court that he is entitled to ownership of one third of the shares in TTC and that any buyout order might unfairly prejudice Mr. Roth. The Judge noted at paragraph 393 that counsel had offered no specific suggestions for a mechanism to deal with this situation. At paragraphs 394-5 he said:

“394. In any event, I am not persuaded that any such mechanism is necessary or appropriate. Orlov and Roth have chosen to fight these proceedings on the basis that they, and they alone, are the equal shareholders of TTC. That they so assert is a necessary corollary of the whole basis of their cross-claims upon the alleged MU. It seems to me to be a bit late in the day to suggest at the end of the trial that the fundamental basis asserted by both parties as underpinning these proceedings might not actually be correct, and that my order ought somehow to take that into account.

  1. In any event, from my reading of Tugushev’s claim, if it is made good he can be suitably compensated by a financial award, and any financial award against Orlov and Roth as co-conspirators or co-tortfeasors is likely to give rise to duties and obligations between them as a result. I do not think my order for buyout in these proceedings need be unnecessarily complicated by anticipation of matters which appear, at this point, to be entirely speculative and somewhat remote.”
  2. In December 2019 Mr. Orlov and Mr. Roth served their Defences to Mr. Tugushev’s claim in England.
  3. On 31 December 2019 there was fixed before the Hong Kong Court a hearing to finalise the terms of the Court’s order. Shortly before that on 24 December 2019 Mr. Tugushev applied to be heard. That application was heard on 31 December 2019. In support of his application Mr. Tugushev relied upon Mr. Roth’s defence in the English action in which he accepted that Mr. Tugushev was entitled to one third of the business which included TTC. It was said that “the English Court will have to make some determination for which the buyout order potentially has some effect, because it potentially involves shares which in fact belong to Tugushev”. Counsel for Mr. Orlov said that it was not open to Mr. Roth to adopt in the Hong Kong proceedings a stance which was diametrically inconsistent with his previous position in these proceedings. The Judge thought there was force in that point but did not rely on it for the purposes of resolving Mr. Tugushev’s application; see paragraph 21. He gave his decision on that application at paragraph 22:

“22. At bottom, I am not persuaded that it is necessary for Tugushev to be allowed to intervene in these proceedings to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, nor is it my opinion that it would be just and convenient to determine as between Tugushev and Orlov and Roth in these proceedings, those matters which he says are common issues in the other proceedings.”

  1. The Judge then gave three reasons. The valuation process was likely to be different in the two jurisdictions. There was a difference of some months in the valuation date. Mr. Tugushev would not be bound by the valuation in Hong Kong.
  2. On 23 January 2020 the Judge made an order for an interim payment. Mr. Tugushev’s claim was again mentioned. At paragraph 46 the Judge said:

“46. Mr. McLeish [counsel for Mr. Roth] also submitted that a further complication is Tugushev’s claim to a one third interest in the TTC Group. As indicated, I have dismissed Tugushev’s application to intervene in these proceedings, I do not think it is necessary or appropriate to speculate as to what might happen on his claim in the English proceedings. But, if the express concern is that Roth could find himself in a position of having overpaid Orlov even by way of an interim payment based on an “irreducible minimum” possible valuation of the shares registered in Orlov’s name, when one third of those shares might be found to be beneficially owned by Tugushev, that seems to me to be a litigation risk which Roth voluntarily assumed when he conducted the litigation in Hong Kong on the basis that he and Orlov, and only he and Orlov, were equal beneficial shareholders of TTC. Therefore, and though I have in mind that any such claim might be met by an award of damages, I take no account of Tugushev’s claim for the purposes of considering Orlov’s interim payment application.”

The alleged issue estoppels

  1. An issue estoppel is said to arise in relation to 5 issues:
  2. i) The fact that Mr. Orlov is entitled to be paid by Mr. Roth 50% of the value of TTC on transferring to Mr. Roth his 120,000 shares.
  3. ii) The fact that Mr. Roth and Mr. Orlov (and they alone) were equal shareholders in TTC.

iii) The fact that TTC was set up and operated pursuant to the Mutual Understanding (that is, an understanding as to how TTC was to be managed) as opposed to any other agreement.

  1. iv) The fact that the Hong Kong Order gave appropriate effect to, and was consistent with, the Mutual Understanding.
  2. v) The fact that Mr. Tugushev did not have any interest in TTC shares.
  3. Counsel for Mr. Roth submitted that this was an over-elaborate structure to debate and in reality there were only two issues to debate:
  4. i) Is the TTC Claim an impermissible attempt to rewrite or undermine the Buy-Out Order; and
  5. ii) Did the Hong Kong Court determine, clearly and as a necessary and fundamental part of its reasoning that Mr. Roth and Mr. Orlov (and they alone) were the only persons with any interest or rights to TTC’s shares and, if so, does Mr. Roth’s TTC Claim put this matter in issue?
  6. I consider that the important question is whether the Hong Kong Court found clearly or necessarily that Mr. Roth and Mr. Orlov (and they alone) were the only persons with any interest in TTC. If there was such a decision then there is no dispute that it would be preclusive in Hong Kong law. It was common ground that in Hong Kong there was a doctrine of issue estoppel which applied to a decision which was final and on the merits. The parties to such a decision were not able to challenge that decision in later litigation. There did not appear to be any material distinction between English and Hong Kong law on this subject.

The decision in Hong Kong

  1. What the Hong Kong Court decided has been addressed by the experts on Hong Kong law and on that they have expressed different opinions.
  2. Rachel Lam SC expressed the opinion that the parties’ “agreed position” was that they were equal shareholders in TTC and that that was necessary and fundamental to the decision of the Hong Kong Court; see paragraph 63 of her report. She said that the Court proceeded on the fundamental basis that no one other than Mr. Orlov or Mr. Roth had any interest in or rights to TTC’s shares, that is, that Mr. Tugushev had no such entitlement; see paragraph 70 of her report.
  3. Abraham Chan SC expressed a different opinion. He drew attention to paragraph 27 of the judgment (which I have quoted above) and concluded that the question of Mr. Tugushev’s potential interest in TTC was simply not material to – and still less was it foundational or dispositive of – the dispute before him other than (possibly) for the specific terms of relief to be granted. This was because the unfair prejudice proceedings were conducted on the basis that the only relevant shareholders were Mr. Orlov and Mr. Roth; see paragraph 72 of his report. Mr. Chan explained that whilst the decisions of the court as to mismanagement gave rise to an issue estoppel the judge’s observations at paragraphs 393-5 of the judgment showed that he was not refusing to take account of Mr. Tugushev’s possible interest in TTC on the grounds of issue estoppel but on case management grounds and that his possible interest should best be left to the English court; see paragraphs 74-82 of his report. There were further elements in Mr. Chan’s sustained argument. The Hong Kong Court was concerned with an issue between the only two registered shareholders in TTC. That was quite a different issue from whether or not Mr. Tugushev had rights beyond the register; see paragraphs 96-102. Mr. Tugushev’s possible interest was “no more than background matter in the Hong Kong Proceedings and was deliberately left untouched by Coleman J. There was certainly no “distinct determination of the court” on the issue of Mr. Tugushev’s interest “in sufficiently clear and precise terms” “; see paragraph 105(3) of his report. It followed that Mr. Roth would be precluded from asserting that there were more than two registered shareholders but not from asserting that there were other unregistered shareholders (and a fortioriother people with contractual claims to TTC shares); see paragraph 112(b) and (c) of his report.
  4. Rachel Lam SC responded to this opinion at length; see paragraphs 20-46 of her supplementary report. But her fundamental objection is that, in her opinion “the fundamental basis on which the Hong Kong court proceeded was that only Mr. Orlov and Mr. Roth, and no one else, had any interest in or rights to TTC’s shares”. This opinion had been explained and supported at paragraphs 70-74 of her first report.
  5. I have considered carefully the expert evidence of the two Hong Kong leading counsel but ultimately I have to form my view assisted by their views. It is to be noted that when the Judge referred in his judgment to the possible interest of Mr. Tugushev in the TTC shares he did not say that Mr. Tugushev’s possible interest was irrelevant on the ground that he was concerned only with registered shareholders. Rather, the Judge appears to have recognised that Mr. Tugushev’s suggested interest might be relevant to the precise terms of the relief granted; see paragraph 27 of the judgment. That suggests that he had in mind that the interest of a third party to the proceedings could potentially be relevant to the relief granted even though Mr. Tugushev was not a registered shareholder. When, at the end of the hearing, he was invited to have regard to Mr. Tugushev’s possible interest as a third party he decided not to do so. Again, he did not say that Mr. Tugushev’s possible interest was irrelevant because he was not a registered shareholder. Instead he said that it was not necessary or appropriate to take that possible interest into account because the fundamental basis upon which the parties had conducted the proceedings was that “they, and they alone, are the equal shareholders of TTC”. The Judge considered that Mr. Tugushev’s “claim, if it is made good” could be compensated by a financial award in England. That claim was “at this point …… entirely speculative and entirely remote”. As I read the judgment the Judge appreciated that Mr. Tugushev’s claim was not that he was a registered shareholder (it must have been obvious that he was not) but that he had a claim to ownership of one third of the shares in TTC. Thus, when the Judge referred to the fundamental basis upon which the parties had conducted the proceedings as being that they and they alone were equal shareholders in TTC he was saying that the parties had conducted the proceedings on the basis that the only persons with an interest in the shares were Mr. Orlov and Mr. Roth who held them equally. Had the Judge considered that Mr. Tugushev’s claim, whatever it was, was irrelevant to the proceedings because he was not a registered shareholder I think it likely that he would have said so.
  6. When the Judge dealt with the question of an interim payment in a later ruling he referred to Mr. Roth’s concern that he “could find himself in a position of having overpaid Orlov even by way of an interim payment based on an “irreducible minimum” possible valuation of the shares registeredin Orlov’s name, when one third of those shares might be found to be beneficially ownedby Tugushev…” (my emphasis added). That language confirms that the Judge appreciated that Mr. Tugushev’s claim was to a beneficial interest in the shares and that he was not a registered shareholder. The Judge said that Mr. Roth took a “litigation risk” when he “conducted the litigation in Hong Kong on the basis that he and Orlov, and only he and Orlov, were equal beneficial shareholders of TTC” (again, my emphasis added).
  7. These passages in my view support the opinion of Rachel Lam SC that “the fundamental basis on which the Hong Kong Court proceeded was that only Mr. Orlov and Mr. Roth, and no one else, had any interest in or rights to TTC’s shares”. Counsel for Mr. Roth said that these passages were irrelevant because Mr. Tugushev does not claim a beneficial interest but “a contractual claim to call for one-third of the shares”. But in my view the Judge in Hong Kong clearly regarded Mr. Tugushev’s claim as a claim to beneficial ownership.
  8. Reliance was placed by counsel for Mr. Roth on submissions made in Hong Kong by counsel for Mr. Orlov, when opposing Mr. Roth’s stay application, to the effect that it was irrelevant that someone other than Messrs. Orlov and Roth was claiming a beneficial interest in the shares of TTC, not being a registered shareholder. Whilst that submission was made the Judge does not appear to have accepted it. He did not dismiss the claim of Mr. Tugushev as being irrelevant on the grounds that he was not a registered shareholder.
  9. It is true that the Judge remarked, at paragraph 395 of his judgment, that if a financial award were made in England against Mr. Orlov and Mr. Roth as co-conspirators or co-tortfeasors that was “likely to give rise to duties and obligations between them as a result”. It was suggested that this indicated that the Judge had in mind that the financial position between Mr. Orlov and Mr. Roth could be adjusted in England, which would suggest that he did not envisage that Mr. Roth would be estopped from claiming such an adjustment. That is possible, but not obvious. The Judge was not addressing the issue of any possible estoppel in England. He was addressing the question whether his order should have regard to Mr. Tugushev’s possible interest. I do not consider it realistic to suggest that the Judge considered the question of issue estoppel in England. (It also appears from the transcript of the closing submissions on 19 August 2019 at p.151 that counsel for Mr. Orlov also did not have the question of an issue estoppel in mind.)
  10. I therefore agree with Rachel Lam SC that “the fundamental basis on which the Hong Kong Court proceeded was that only Mr. Orlov and Mr. Roth, and no one else, had any interest in or rights to TTC’s shares”.
  11. I now return to the question whether the Hong Kong Court “found clearly or necessarily that Mr. Roth and Mr. Orlov (and they alone) were the only persons with any interest in TTC.”
  12. There was no argument about this question before the Hong Kong Court. It was accepted by Mr. Roth that he and Mr. Orlov were each beneficial owners of 50% of TTC. That is why there is no discussion of the question of share ownership, legal or beneficial, in the judgment. It was not the subject of argument because it was the fundamental basis upon which all parties and the court proceeded. However, that Mr. Orlov beneficially owned 50% of TTC was a necessary part of the Court’s conclusion that Mr. Roth should buy out the 50% of the shares owned by Mr. Orlov and registered in his name. Such a conclusion could only be reached on the basis that Mr. Orlov owned legally and beneficially 50% of TTC.
  13. It has long been established that an assumption or concession which founds the basis for a decision can give rise to an estoppel. In Hoystead v Commissioner of Taxation[1926] AC 155 Lord Shaw said at p.165:

“…………it is settled, first, that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and fresh litigation started, with a view of obtaining another judgment upon a different assumption of fact, secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact…………..Thirdly, the same principle – namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed.”

  1. This approach to the law of issue estoppel was not challenged. I have noted that in Carl Zeiss Stiftung v Rayner and Keeler Limited[1967] AC 853 Lord Wilberforce applied the principle of issue estoppel where there had been “careful consideration and a clear decision on an issue” (see p. 967 E). That phrase might suggest that a mere assumption was insufficient. However, the question did not arise in Carl Zeissbecause, as noted by Lord Reid (at p. 916 C) the issues in that case were “fully litigated in the West German court”. In that same passage Lord Reid referred to comments which had been made about the approach in Hoystead and observed that “there may well be a difference between a case where an issue was in fact decided because the earlier judgment went by default or was founded on an assumption.” However, in the present case Mr. Orlov’s petition did not go by default.
  2. It must follow that in the present case the Hong Kong Court necessarily found that Mr. Roth and Mr. Orlov (and they alone) were the only persons with any interest in TTC. That decision was final and on the merits.

The issue sought to be raised in England

  1. The next question is whether that decision, which has preclusive effect in Hong Kong, is about the same issue which is sought to be raised in England in the Part 20 Claim.
  2. Counsel for Mr. Orlov said that the same issue is raised in the Part 20 Claim because the TTC Claim is based upon the proposition that Mr. Tugushev had a one third interest in TTC.
  3. Counsel for Mr. Roth said that that approach was fundamentally misconceived. Mr. Roth’s claim does not depend upon an allegation made by Mr. Roth that Mr. Tugushev is actually entitled to or has any rights in TTC shares. The TTC Claim starts at the point at which the English Court has already determined Mr. Tugushev’s entitlement to call for shares in TTC. Mr. Roth accordingly does not need to, and does not, make any allegation in the TTC Claim that Mr. Tugushev is actually entitled to shares in TTC. Mr. Roth’s claim is merely a consequence of the potential outcome of the issue raised by Mr. Tugushev in his claim before this court.
  4. I do not consider that the argument advanced on behalf of Mr. Roth is correct, notwithstanding its ingenuity. It is true that the claim is based upon an assumed finding by the court in Mr. Tugushev’s claim that he has a right to one third of TTC. But once that finding is adopted by Mr. Roth in support of his TTC Claim against Mr. Orlov Mr. Roth is making a claim against Mr. Orlov that Mr. Tugushev is and always was entitled to one third of TTC. That claim is contrary to the foundation of the decision of the Hong Kong Court which was that Mr. Tugushev had no such right.
  5. Thus the four conditions necessary for an estoppel arising from the decision of a foreign court are met. But there remains the question whether to hold that Mr. Roth is estopped from advancing the TTC Claim works an injustice on the special facts of this case.

Justice

  1. Counsel for Mr. Roth submitted that the suggested issue estoppel, if applied, would work an injustice because, if Mr. Roth is ordered to transfer one third of the shares in TTC to Mr. Tugushev, he will have paid Mr. Orlov a sum in respect of a greater number of shares than those to which he was in fact entitled and so Mr. Orlov will get a windfall at Mr. Roth’s expense.
  2. Counsel for Mr. Orlov submitted that to hold that Mr. Roth was estopped from advancing the TTC Claim worked in favour of justice because it will avoid Mr. Orlov being harassed by the same claim twice.
  3. The submission made on behalf of Mr. Orlov reflects the justice implicit in the doctrine of issue estoppel; see for example The Good Challengerat paragraph 58 per Clarke LJ. However, there can be cases where special circumstances make it unjust that a person cannot advance an issue already decided against him. Arnold v Natwest Bank is an example of such a case. In that case Sir Nicholas Browne-Wilkinson V-C said at first instance that injustice can lie in a successful party to the first action being held to have rights which he does not in fact possess; see the quotation from his judgment in The Good Challenger at paragraph 77. Whether that is unjust must depend upon the circumstances of each case.
  4. In support of the argument advanced on behalf of Mr. Orlov it was said that there is nothing unjust in holding Mr. Roth to the decision of the Hong Kong Court because Mr. Roth could have contended before the Hong Kong Court that Mr. Tugushev was entitled to a one third interest by reason of the 3-Way JVA which, in Mr. Tugushev’s claim in this court, he accepts existed. But he chose not to do so. Mr. Roth sought a stay on account of Mr. Tugushev’s claim and submitted that the court’s order following the trial should in some way reflect that claim but he never submitted that Mr. Orlov’s interest in TTC was one third rather than one half. The first time he made that submission was in December 2019 in his Defence to the claim in England brought by Mr. Tugushev. Thus it would not be possible to bring the present case within the circumstances accepted by the House of Lords in Arnold v Natwestas being an exception to the doctrine of issue estoppel, namely, where further material is available relevant to the correct determination of a point involved in earlier proceedings, being material “which could not by reasonable diligence have been adduced in those proceedings”; see [1991] 2 AC at p.109 B per Lord Keith.
  5. In support of the argument advanced on behalf of Mr. Roth it was suggested that if Mr. Tugushev only obtains an order for the payment of damages there can be an appropriate adjustment of the state of account between Mr. Orlov and Mr. Roth pursuant to the contribution notices that each has served on the other. If Mr. Tugushev obtains an order for the transfer of shares (which he only claimed by amendment in May 2020 after the Hong Kong judgment) it would be unjust if an appropriate adjustment to the state of account between Mr. Orlov and Mr. Roth could not be made. I was not persuaded by this particular point. Although I was told that there has been no application to strike out Mr. Roth’s contribution notice it does not follow that Mr. Orlov cannot rely upon the suggested issue estoppel at trial.[1]
  6. It was also suggested that it was significant that Mr. Tugushev only claimed an order for the transfer of shares in May 2020 after the Hong Kong judgment. However, the claim being made by Mr. Tugushev in 2018-19 was understood to be a claim to ownership of one third of the shares in TTC; see the Skeleton Argument filed by Mr. Roth in support of his stay application at paragraphs 7, 26, 45, 59 and 62 and his Closing Submissions at the trial, paragraphs 278 and 283. Thus the form of relief sought by Mr. Tugushev does not appear to have prevented Mr. Roth from appreciating the nature of the rights asserted by Mr. Tugushev.
  7. However, Counsel for Mr. Roth correctly noted that Mr. Orlov cannot prevent Mr. Tugushev from pursuing his claim that he was entitled to one third of the TTC shares. Thus Mr. Orlov must face that claim in any event. In my judgment this circumstance reduces significantly the injustice to Mr. Orlov in having to face a claim by Mr. Roth, based upon an assumed finding by this court in favour of Mr. Tugushev’s claim, that Mr. Tugushev was entitled to one third of the TTC shares. It is a special circumstance of this case.
  8. Counsel for Mr. Roth also relied upon the principle noted in Spencer Bower and Handley on Res Judicataat paragraph 8.17 that issue estoppel will not prevent a party from litigating an issue founded on “any new or later state of circumstances”. If this court holds that Mr. Tugushev is entitled to one third of TTC it will do so in proceedings to which Mr. Tugushev, Mr. Orlov and Mr. Roth are party. It will be a decision binding upon each of them. That would appear to be a new or later state of circumstances which did not exist at the date of the Hong Kong judgment. Moreover, it would, it seems to me, be an event capable of causing injustice if the court were able to give effect to that holding in Mr. Tugushev’s claim but not able to do so in Mr. Roth’s Part 20 Claim. The court would be saying one thing in the main action and another thing in the Part 20 Claim. Whilst giving effect to the principle of issue estoppel would prevent the risk of inconsistent decisions between London and Hong Kong, giving effect to that principle would create a risk of inconsistent findings by the same court in London. Whilst issue estoppel is not primarily concerned with avoiding the risk of inconsistent decisions but with avoiding a party being harassed twice in respect of the same claim, this is another special circumstance of this case. Inconsistent findings by the same court are not the hallmark of justice.
  9. In the present case the particular result of inconsistent findings would be that Mr. Orlov would be able to keep the amount paid by Mr. Roth equal to “the Excess Shares”, a right which this court would have held he did not have.
  10. These considerations appear to me of such weight and significance that if ignored, as they would be were the doctrine of issue estoppel to be operated inflexibly, they would work an injustice. I have taken into account the circumstance that Mr. Roth could have adopted the same stance in Hong Kong as he adopted in this court but I remain of the view that the operation of the doctrine of estoppel in the circumstances of this particular case will work an injustice.
  11. I have therefore concluded that there are special circumstances in this case which would make it unjust to apply the principle of issue estoppel.

Abuse of process

  1. Orlov said that if the principle of issue estoppel did not apply then Mr. Roth should still be denied permission to advance the TTC Claim because it is an abuse of the process of this court for Mr. Roth to take a point here which he could and should have taken in Hong Kong. That involves a “broad merits based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focussing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before”; see Johnson v Gore Wood & Co.[2002] 2 AC 1 per Lord Bingham. I have sought to take account of the public and private interests involved when considering whether it would work an injustice to apply the doctrine of issue estoppel in this case. I concluded that it would. For the very same reasons I do not consider that it can be said to be abusive of the process of this court for Mr. Roth to advance the TTC Claim in the event that this court holds that Mr. Tugushev is entitled to one third of TTC.

Conclusion

  1. Roth’s application for permission to bring the Partnership and Alex Bundle Claims as Part 20 claims is refused because they have been referred to arbitration by the 2016 Framework Agreement. Mr. Roth’s application for permission to bring the TTC Claim as a Part 20 claim is granted. It would work an injustice were Mr. Roth to be estopped from advancing that claim.

Note 1:   This final sentence, when seen in draft, caused counsel for Mr. Roth to be concerned that it “could be read as suggesting that Mr Orlov would be free to raise the same estoppel points as he has raised on this application in response to Mr Roth’s existing contribution claim in respect of TTC. “ Counsel suggested that since “the draft judgment, and in particular paragraph 110, resolves the estoppel issues in Mr Roth’s favour, it follows that the same estoppel defence to the existing contribution claim would no longer be available, because that defence has already been resolved”. A form of words making that clear was suggested. Counsel for Mr. Orlov objected, saying that “the question of the availability of any estoppel as a defence to the contribution claims not having been an issue before the Court on this application….the Court has accordingly not heard submissions on, nor considered, whether the elements of an estoppel are made out in relation to any aspects of the possible contribution claims or whether or how any considerations of justice such as those considered in paras 100 to 110 of the draft judgment might apply to such claims.” The final sentence was not intended by me to enable Mr. Orlov to pursue an estoppel argument which was not open to him in the light of my judgment. I was merely responding to (and rejecting) the particular argument on “justice” raised by Mr. Roth. However, if there are additional estoppel arguments which can only arise in the context of the contribution claim and which in consequence I have not rejected I was not intending to decide them.

 

 

CC/DEVAS (Mauritius) Ltd v Republic of India [2021] FCA 975

CC/DEVAS (Mauritius) Ltd v Republic of India [2021] FCA 975  

FEDERAL COURT OF AUSTRALIA
FILE NUMBER: NSD 347 of 2021
JUDGE: STEWART J
REGISTRY: New South Wales
DATE OF HEARING: 13 August 2021
DATE OF JUDGMENT: 13 August 2021
CASE MAY BE CITED AS: CC/DEVAS (Mauritius) Ltd v Republic of India [2021] FCA 975
MEDIUM NEUTRAL CITATION: [2021] FCA 975
DIVISION: General
NATIONAL PRACTICE AREA: Commercial and Corporations
SUB PRACTICE AREA: International Commercial Arbitration
CATCHWORDS ARBITRATION – international arbitration – where applicants seek to enforce an award under s 8(3) of the International Arbitration Act 1974 (Cth) – where respondent is a foreign State – where respondent appeared conditionally to require service and claim immunity under the Foreign States Immunities Act 1985 (Cth) – where applicants now apply for leave to serve outside of Australia – consideration of requirements
LEGISLATION CITED: Federal Court of Australia Act 1976 (Cth) s 19(1)

Foreign States Immunities Act 1985 (Cth) ss 10(7), 23, 24, 25

International Arbitration Act 1974 (Cth) ss 3(1), 8(3)

Judiciary Act 1903 (Cth) s 39B(1A)

Federal Court Rules 2011 (Cth) rr 10.42, 10.43, 13.01, 28.44(3)

Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Opened for signature 10 June 1958. 330 UNTS 3 (entered into force 7 June 1959)

CASES CITED: Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157; 142 ACSR 616

Republic of Ecuador v Occidental Exploration and Production Co [2005] EWCA Civ 1116; [2006] QB 432

PARTIES: CC/DEVAS (MAURITIUS) LTD

First Applicant

 

DEVAS EMPLOYEES MAURITIUS PRIVATE LTD

Second Applicant

 

TELECOM DEVAS MAURITIUS LTD

Third Applicant

 

AND:

 

THE REPUBLIC OF INDIA

Respondent

SOLICITORS: For the Applicants

Norton Rose Fulbright

COUNSEL: For the Applicants

J Hogan-Doran SC

 

 

JUDGMENT
 

THE COURT ORDERS THAT:

 

  1. The applicants have leave to amend the originating application filed on 21 April 2021 in the form annexed to their interlocutory application filed on 6 August 2021 save that the return day shall be two months and seven days after the date of service.
  2. Pursuant to r 10.43 of the Federal Court Rules 2011(Cth) and s 24(5) of the Foreign States Immunities Act 1985 (Cth) (FSIA), the applicants have leave to serve the amended originating application on the respondent in India by means of diplomatic service, in accordance with s 24 of the FSIA.
  3. The proceedings be returnable on the earlier of:

(a)          9:15 am Australian Eastern Standard Time or Australian Eastern Daylight Time (as applicable) on the date being two months and seven days after the date that service of the amended originating application is effected on the respondent by delivery by the Department of Foreign Affairs and Trade to the department or organ of the Republic of India that is equivalent to that department, or to some other person on behalf of and with the authority of the Republic of India (not including that day of service). If the date two months and seven days after such service is a day on which the registry of this Court is not open for business, that date shall be next the day on which the registry is open for business; or

(b)          9:15 am on Wednesday, 27 April 2022.

  1. The applicants shall notify the Court of the actual return date in accordance with order 3(a) upon being notified of the date of service for the purpose of listing the proceeding before the docket judge or a duty judge or registrar.
  2. The applicants shall have liberty to apply ex parte by arrangement in writing with the Court.
  3. Costs of this application be reserved.

 

 

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

 

 

REASONS FOR JUDGMENT

STEWART J:

  1. Introduction and background
  2. These are my reasons for granting the applicants leave to serve the respondent, the Republic of India, outside Australia in accordance with s 24 of the Foreign States Immunities Act1985 (Cth). The applicants sought such leave in circumstances where the respondent has already filed a conditional notice of address for service in the proceeding. Why the applicant takes that course requires some explanation.
  3. The proceeding was commenced by originating application in April 2021. The originating application sought an order pursuant to s 8(3) of the International Arbitration Act 1974(Cth) (IAA) that the award on quantum of the Permanent Court of Arbitration in Case No. 2013-09 dated 13 October 2020 against India (the Award) be enforced as if it were a judgment of the Court. Further orders for payment of, or judgment for, the following sums were sought:

(1)          US$50,497,600 plus interest thereon in favour of the first applicant, CC/Devas (Mauritius) Ltd;

(2)          US$10,300,800 plus interest thereon in favour of the second applicant, Devas Employees Mauritius Pte Ltd;

(3)          US$50,497,600 plus interest thereon in favour of the third applicant, Telecom Devas Mauritius Ltd; and

(4)          US$10 million plus interest thereon in favour of the applicants.

  1. In short, the applicants seek enforcement of an arbitral award and judgment in sums that together exceed US$120 million.
  2. The originating application indicated that it was not intended to serve the application on the respondent. That was in reliance on r 28.44(3) of the Federal Court Rules2011 (Cth) which provides that an application to enforce a foreign award under s 8(3) of the IAA may be made without notice to any person. Nevertheless, the applicants gave informal notice of the application to the respondent by hand delivering a copy of the originating application and supporting affidavit to the High Commission of India in Canberra on 6 May 2021. Further notice was given on 7 May 2021 by sending the originating application and supporting affidavit by email to legal counsel for the respondent in the arbitration conducted under the auspices of the Permanent Court of Arbitration in the arbitration proceeding that led to the Award that the applicants seek to enforce.
  3. The matter came before me for case management in the arbitration list for the first case management hearing on 19 May 2021. The respondent appeared, “subject to jurisdiction”, by counsel who explained that his appearance was a limited appearance pursuant to s 10(7) of the Immunities Act. That subsection provides that a foreign State shall not be taken to have submitted to the jurisdiction in a proceeding by reason only that it has intervened, or has taken a step, in the proceeding for the purpose or in the course of asserting immunity. It was thus clearly a conditional appearance.
  4. Expressly without prejudice to any claim the respondent may make to foreign state immunity, or any objection to the Court’s jurisdiction, or any conditional appearance, orders were made by consent that:

(1)          the respondent file and serve any notice of appearance on or before 3 June 2021; and

(2)          the respondent notify the applicants in writing on or before 15 June 2021 (subsequently extended to 21 June 2021) as to the issues which it would propose to contend against the relief sought in the originating application, including any claim for immunity under the Immunities Act and any stay of the application.

  1. The stated purpose of the respondent producing the document referred to in the second subparagraph above, as it was explained by senior counsel for the applicants, was for case management purposes so that the Court and the parties would be informed “as to the lay of the land on what issues are likely to arise in these proceedings.” It was said to be “purely an informative document for case management purposes.” Those characterisations were accepted by counsel for the respondent.
  2. On the designated day of 3 June 2021, the respondent filed a notice of address for service under the Rules which states the following:

The Republic of India, the Respondent, asserts its immunity as a foreign State to the jurisdiction of the courts of Australia in respect of these proceedings and does not submit to the jurisdiction.

Pursuant to r 13.01 of the Federal Court Rules 2011 (Cth), this Notice is accompanied by an application and affidavit seeking (1) an order that the originating application of CC/Devas (Mauritius) Ltd & Ors be set aside, (2) a declaration that the originating application has not been duly served on the Respondent and (3) a stay of the proceedings. The application also seeks, (3) in the alternative to order (2), and to the extent service has been validly effected (which is denied), an order setting aside that service.

Subject to the above, the Respondent gives notice of its address for service for the limited purpose of appearing conditionally to assert its immunity and have the originating application set aside and, as part of that assertion, to seek a declaration that the Applicants have failed to serve the initiating process on the Respondent in accordance with Part III of the Foreign States Immunities Act 1985 (Cth):

[Place]: [Australian solicitors’ address and email address]

  1. At the same time, the respondent filed an interlocutory application in which it sought the orders referred to in the notice of address for service. It also filed an affidavit which attached inter-solicitor correspondence in which the following contentions were put on behalf of the respondent:

(1)          The effect of s 25 of the Immunities Act is that the applicants are required to effect service of any application in a manner contemplated by ss 23 and 24 of the Immunities Act.

(2)          The requirements as to service under the Immunities Act have not been met.

  1. The respondent subsequently furnished a document purportedly in compliance with the order at [6(2)] above, which it titled “Statement of Issues”. I say “purportedly” because the document goes way beyond the case management purposes expressly identified at the hearing and is more in the nature of a detailed pleading. The document is more than five pages and raises the following matters:

(1)          Reservation of rights: The respondent “formerly protests and objects” to any requirement that, prior to determination of issues of service, it be required to indicate any other issues which it would propose to contend against the relief sought in the originating application, and that insofar as the document sets out issues other than in relation to service it is made under protest.

(2)          Service: The respondent contends that the Immunities Act requires that a foreign State be served with an application pursuant to s 8 of the IAA in order that it can effectively assert its claim to immunity. Service of the originating process was required to be effected pursuant to s 24 of the Immunities Act through the diplomatic channel, and absent such service, and by reason of s 25 of the Immunities Act, the applicants have failed to serve the initiating process as required.

(3)          Stay: The proceeding should be stayed pending determination of (a) a proceeding pending before the Supreme Court of the Netherlands concerning the respondent’s application to set aside an award on jurisdiction and merits issued in the arbitration proceeding on 25 July 2016, and (b) a proceeding before pending before the District Court of The Hague concerning the respondent’s application to set aside the Award issued in the arbitration proceeding on 13 October 2020.

(4)          Foreign State Immunity: The respondent “protests and objects” to any requirement that it state the issues relating to immunity which it would propose to contend against the relief sought in the originating application in advance of the applicants identifying their contentions as to the bases upon which they contend that the respondent is not immune.

(5)          If service and immunity determined adverse to the respondent: Under protest and as a matter of courtesy only, the respondent indicates that if service and immunity are determined adversely to it and the proceeding is not stayed, the issues that might arise include a list of matters impugning the Award or the applicants’ ability to enforce the Award.

  1. The applicants’ response to the respondent’s contention that there had been no proper service on the respondent, and that the proceeding could not proceed without such service, was to file an interlocutory application for leave to serve the originating application outside Australia.
  2. There was debate thereafter between the parties in correspondence, and at one stage also with me in a case management hearing, as to the proper course for the proceeding. The most obvious course would have been to first decide the respondent’s contention that service was required. If that contention was upheld, then the applicants’ application for leave to serve out of the jurisdiction would be dealt with next. If the result on service was the other way, then the proceeding could progress to deal with the other matters and the need for the application for leave to serve outside Australia would fall away. The respondent pressed its application with respect to service even though it had entered an appearance and was before me, albeit conditionally.
  3. Ultimately the parties agreed that there should be an order by consent setting aside all previous orders in the proceeding. Such an order was made by me on 29 July 2021. The applicants then filed an interlocutory application for ex parte relief to amend their originating application and for leave to serve the amended originating application out of the jurisdiction.
  4. In short, as the applicants explained by senior counsel at the case management hearing on 15 July 2021, the applicants wished to avoid the risk that they were successful on the service issue at first instance with the result that the proceeding then progressed to determination on the other issues and for their success on the service issue to be later reversed at one or other level of appeal. That would result in them having to start again. The safe course was therefore for them to start again now.
  5. The application for service outside Australia
  6. Rule 10.43(4) of the Rules provides that a party applying for leave to serve an originating application on a person outside Australia must satisfy the court that:

(1)          the court has jurisdiction in the proceeding; and

(2)          the proceeding is of a kind mentioned in r 10.42; and

(3)          the party has a prima facie case for all or any of the relief claimed in the proceeding.

  1. I am satisfied that the Court has jurisdiction in the proceeding, as it is an application for relief under s 8(3) of the IAA; it is a matter arising under a law made by the Parliament and is thus a matter in respect of which jurisdiction is conferred on this Court: Judiciary Act 1903(Cth), s 39B(1A); Federal Court of Australia Act 1976 (Cth), s 19(1).
  2. I am satisfied that the application is for relief contemplated by item 10 of r 10.42 of the Rules, namely a proceeding for an order under Div 28.5 of the Rules in relation to an arbitration under the IAA.
  3. Insofar as the applicants having a prima facie case is concerned, as indicated, the application is for orders under s 8(3) of the IAA that the Award be enforced as if it were a judgment or order of the Court. The Award was apparently rendered by the Tribunal pursuant to Art 8 of the Agreement between the Government of the Republic of India and The Government of the Republic of Mauritius for the Promotion and Protection of Investments, signed on 4 September 1998 and entered into force on 20 June 2000. That agreement is in the nature of a bilateral investment treaty, or BIT.
  4. Article 8 of the BIT provides that if a dispute between an investor of one Contracting Party and the other Contracting Party in relation to an investment of the former under the BIT cannot be settled amicably through negotiations between the parties to the dispute within six months from the date of request for settlement, the investor may, amongst other options, submit the dispute to an ad hoc arbitral tribunal set up in accordance with the Arbitration Rules of the United Nation’s Commission on International Trade Law, 1976. Such a provision has been characterised as an open offer to investors to arbitrate in accordance with its terms: Republic of Ecuador v Occidental Exploration and Production Co[2005] EWCA Civ 1116; [2006] QB 432 at [32]; Eiser Infrastructure Ltd v Kingdom of Spain [2020] FCA 157; 142 ACSR 616 at [179].
  5. In addition to the Award, the applicants tendered the terms of the appointment of the Tribunal and an earlier award on jurisdiction and merits. In the circumstances, at least at a prima facie level, the applicants have established that they have an award in their favour pursuant to the agreement between the parties to arbitrate.
  6. In terms of s 3(1) of the IAA, a “foreign award” is an arbitral award made, in pursuance of an arbitration agreement, in a country other than Australia, being an arbitral award in relation to which the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Opened for signature 10 June 1958. 330 UNTS 3 (entered into force 7 June 1959) (commonly referred to as the New York Convention) applies. The Award is a foreign award.
  7. As a foreign award, the Award is entitled to recognition and enforcement under s 8(3), subject to Pt II of the IAA.
  8. The method of service proposed by the applicants is by the diplomatic channel as provided for in s 24 of the Immunities Act.
  9. The applicants brought to my attention a number of matters which they described as being in accordance with their obligations of full and frank disclosure in an ex parte application. Each of those matters is something that might be raised by the respondent in due course, but none is such as to cause me to doubt that the applicants have established a prima facie case at this stage.
  10. Conclusion
  11. For the above reasons, I was satisfied to grant the applicants the leave that they sought. I also granted the applicants leave to amend the originating application in respects that do not call for reasons or explanation.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.

 

 

Associate:

Dated:       17 August 2021

 

 

ACN 112 594 902 Pty Ltd (ACN 112 594 902) formerly L & M Traffic Signals Pty Ltd v Decmil Southern Pty Ltd (ACN 005 412 466) [2021] VCC 1074

ACN 112 594 902 Pty Ltd (ACN 112 594 902) formerly L & M Traffic Signals Pty Ltd v Decmil Southern Pty Ltd (ACN 005 412 466) [2021] VCC 1074

Court: IN THE COUNTY COURT OF VICTORIA
Case No: CI-21-01087
Parties ACN 112 594 902 Pty Ltd (ACN 112 594 902)

formerly L & M Traffic Signals Pty Ltd      Plaintiff

 

v

 

Decmil Southern Pty Ltd (ACN 005 412 466)          Defendant

DIVISION: Commercial Division
List: Arbitration List
JUDGE: Her Honour Judge Brimer
WHERE HELD: Melbourne
DATE OF HEARING: 21 July 2021
DATE OF JUDGMENT: 6 August 2021
CASE MAY BE CITED AS: ACN 112 594 902 Pty Ltd v Decmil Southern Pty Ltd
MEDIUM NEUTRAL CITATION: [2021] VCC 1074
Catchwords: Commercial arbitration – Application for stay of proceeding – Application to refer the parties to arbitration – Arbitration agreement – Whether proceedings brought in ‘a matter which is the subject of an arbitration agreement’ – Where arbitration clause ‘does not prevent either party from instituting proceedings to enforce payment due’ –Whether proceedings brought fall within carve out clause – Whether proceedings brought are capable of summary judgment
Judgment: Stay granted and parties referred to arbitration
Legislation Cited: Commercial Arbitration Act 2011 (Vic) ss 7, 8
Cases Cited: Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3) [2013] VSC 435; Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547; Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 3; Rinehart v Rinehart (No 3) (2016) 257 FCR 310; Tianqi Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd (No 2) [2020] WASCA 201
Representation: Counsel

Mr M Black

For the Plaintiff

&

Mr B Mason

For the Defendant

Solicitors

Willerby’s Solicitors & Conveyancers

For the Plaintiff

 

&

Logie-Smith Lanyon Lawyers / Tottle Partners Lawyers For the Defendant

 

 

 

JUDGMENT

 

1

This is an application by Decmil Southern Pty Ltd (Decmil)[1] for an order under

 

s 8(1) of the Commercial Arbitration Act 2011 (Vic) (the Act) that the proceeding instituted by L & M Traffic Signals Pty Ltd (L&M)[2] be stayed and the parties referred to arbitration (Decmil’s application).[3]

[1]        By Summons dated 15 April 2021.

[2]        Now known as ACN 112 594 902 Pty Ltd.

[3]        Summons dated 15 April 2021.

Background

2            Decmil was the principal contractor for the Plenty Road Upgrade. On 13 June 2018, Decmil entered into Subcontract Number 9458 with L&M (the Subcontract). The Subcontract governed traffic signal and associated works to be performed by L&M and permitted L&M to engage its own subcontractors.

3            Pursuant to the Subcontract, Decmil was to pay L&M the sum of $778,081 plus GST for the works, subject to agreed variations.[4] By Statement of Claim filed 19 March 2021, L&M claims that Decmil has “wrongfully and in breach of the Subcontract… withheld and refused to pay… the sum of $320,312 being part of the price due to [L&M] under the Subcontract”.[5] It claims that as a result of the breach of the Subcontract, L&M has suffered loss and damage in the sum of the amount wrongfully withheld.

[4]        Statement of Claim dated 19 March 2021, [4].

[5] Ibid [5].

4            Decmil submits that the sum of $320,312 “represents the losses Decmil suffered by reason of [L&M]’s failure to comply with its obligations under the Subcontract”,[6] including its obligations under the Subcontract in relation to occupational health and safety.[7]

[6]        Defendant’s Outline of Submissions dated 1 July 2021, [4] (Defendant’s Submissions). No defence in

the proceeding has been filed.

[7]        The Affidavit of Paul Visvardis dated 15 April 2021 identifies cls 10 (Protection of people, property

and environment) and 29 (Occupational Health and Safety) of the Subcontract as relevant to its position.

5            On 15 March 2019, an excavator operated by L&M’s subcontractor contacted overhead powerlines and triggered a suppression protection system, causing electricity supply to the local area to be disconnected.[8] Decmil alleges this resulted in its own works being wholly suspended from 15 March to 19 March 2019, and partially suspended from 21 March to 3 April 2019, causing it to suffer loss and damage (the set-off dispute).[9]

[8]        Defendant’s Submissions, [3]. Plaintiff’s Outline of Submissions dated 7 July 2021, [3] (Plaintiff’s

Submissions).

[9]        Defendant’s Submissions, [3].

The Act

6            The following provisions of the Act are relevant to this application:

(a) section 7(1):

“An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”

(b) section 7(2):

“An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.”

(c) section 8(1):

“A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

The Subcontract

7           Clause 33 of the Subcontract reads:

33     Dispute resolution

33.1         Differences or disputes between the parties arising out of or related to the Subcontract or its subject matter (a Dispute) shall be resolved as follows.

(1)          A party claiming that a Dispute has arisen must give written notice to the other party specifying the issue or issues said to be in Dispute.

(2)          Within 10 Business Days of receipt of the notice specified in clause 33.1(1), the parties to a Dispute shall seek to resolve the Dispute by referring the matter to the people specified in Schedule 1 to attend the dispute resolution meeting.

33.2         If the matter is not resolved within 15 Business Days of referral under clause 33.1(2), the parties shall refer the Dispute to mediation …

33.3         If the Dispute is not resolved within 20 Business Days after the appointment of the mediator, the dispute is by this clause referred to arbitration. The arbitration must be conducted in the capital city of the State or Territory specified in Schedule 1 by a single arbitrator, and the following applies:

(1)          If the parties have not agreed upon the arbitrator within 5 Business Days after the expiry of the period referred to in clause 33.3, the arbitrator is the person appointed by the person specified in Schedule 1 or their nominee, acting on the request of any party to the dispute.

(2)          After accepting the appointment and during the arbitration the arbitrator may:

(a)          require the parties to lodge security or further security towards the arbitrator’s fees and expenses; and

(b)          apply any security towards those fees and expenses;

but the arbitrator may not direct a party to the dispute to provide security for the costs of the arbitration to be incurred by any other party.

(3)          The arbitration must be conducted in accordance with the Commercial Arbitration Act of the governing law specified in Schedule 1 except that:

(a)          the arbitrator must only accept evidence which would be accepted in a court of law;

(b)          a party may be represented by a qualified legal practitioner or other representative;

(c)          the arbitrator must include in the arbitration award the findings on material questions of law and of fact, including references to the evidence on which the findings of fact were based; and

(d)          the parties consent to an appeal to the Supreme Court of the governing law on any question of law arising in the course of the arbitration or out of an arbitration award

 

33.4         Clause 33.1 does not prevent either party from instituting proceedings to enforce payment due under clause 25 or to seek urgent injunctive or declaratory relief in respect of a dispute or difference arising under this Subcontract …”[10] (the carve out)

[10]        Emphasis added.

8            Clause 25 of the Subcontract provides:

25    Payment

25.1         At the times for payment stated in Schedule 1, the Subcontractor shall submit to the Contractor a payment claim in a form acceptable to the Contractor. The payment claim must include details and evidence, to the Contractor’s Representative’s satisfaction, of:

(1)          all work done to the date of the payment claim and the corresponding amount of the Subcontract Price which the Subcontractor considers is payable by the Contractor;

(2)          evidence, including a completed statutory declaration in the form contained in Schedule 5 executed by a director of the Subcontractor, the Subcontractors Representative or some other authorised representative as approved in writing by the Contractor;

(3)          in the case of the final payment claims following achievement of Practical Completion and the expiry of the Defects Liability Period only, all Claims the Subcontractor then has against the Contractor and all monies which the Subcontractor considers to be due to it from the Contractor in connection with this Subcontract and the Works; and

(4)          any other requirements for payment claims specified in Schedule 1.

25.2         An early payment claim will be deemed to have been made on the date for submission of the payment claim under clause 25.1. A late payment claim will be deemed to have been made on the date in the following month for making a payment claim.

25.3         The Subcontractor is not entitled to payment for any item of unfixed plant or materials not incorporated into the Works.

25.4         Within 10 Business Days of receiving the Subcontractor’s payment claim, the Contractor will issue to the Subcontractor a payment schedule setting out the amount payable to the Subcontractor including details of any adjustments to the amount set out in the Subcontractor’s payment claim to take into account the Contractor’s determination of the value of Works completed, the value of Works included in previous progress payments and any other additions or deductions.

 

 

25.5         Subject to clause 25.7, the Contractor shall pay to the Subcontractor or vice versa (as applicable), the amount set out in the payment schedule issued to the Subcontractor or if no payment schedule is issued the amount of the Contractor’s assessment of the value of the Works completed, by the later of: (1) the expiry of the time period specified in Schedule 1 ; and (2) the date when the Subcontractor has complied with all pre-conditions to payment set out in this Subcontract, including compliance with clauses 5.1, 11.1, 11.2, 11.3 and 25.6, and has provided an original executed copy of the Subcontract to the Contractor.

25.6         The party entitled to receive payment must issue the other party with a valid tax invoice before the due date for payment.

25.7        Despite any other provision of this Subcontract and without limiting the Contractor’s other rights and remedies, the Contractor may, at any time, and from time to time, deduct or set-off from either or both of any money payable by the Contractor to the Subcontractor under this Subcontract or otherwise any money due or claimed to be due from the Subcontractor to the Contractor whether under or in connection with this Subcontract or otherwise, including the amount of any claims or liens that the Contractor has reasonable grounds for believing may be made against the Subcontractor …”

The issue to be determined

9            The issue to be determined is whether the proceeding instituted by L&M is a proceeding “to enforce payment due under clause 25” and therefore falls within the cl 33.4 carve out from the requirement that disputes be resolved in accordance with cls 33.1-33.3 of the Subcontract.

10          At the hearing of Decmil’s application, L&M:

(a)   conceded that if the Court finds the proceeding does not fall within the carve out, the set-off dispute is a dispute between the parties arising out of or related to the Subcontract and the parties must be referred to arbitration in accordance with cl 33.3; and

(b)   took no issue with any failure to comply with cls 33.1 and 33.2 of the Subcontract.[11]

[11]        Mr Black submitted that L&M could not rely on any failure to comply with cls 33.1 and 33.2 to say

that the arbitration agreement was not enlivened and relied on: Lysyght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3) [2013] VSC 435, [154]–[156] (Vickery J) (Lysaght).

Submissions

11          Decmil submitted that cl 33.3 of the Subcontract constitutes an ‘arbitration agreement’ for the purpose of s 7 of the Act. L&M’s pleaded case is not captured by the carve out at cl 33.4. The Statement of Claim makes no reference to enforcing payment due under cl 25 of the Subcontract, instead L&M alleges that Decmil breached the Subcontract by withholding / refusing to pay the amount claimed. There is no evidence before the Court from which it could be said that the underlying facts bring the proceeding within the carve out. As such, the Court must refer the parties to arbitration pursuant to s 8(1) of the Act.

12          L&M submitted that the proceeding falls within the carve out. Although the Statement of Claim does not reference cl 25 of the Subcontract, L&M’s claim is for non-payment of invoices rendered to Decmil pursuant to the provisions of cl 25.[12] There is no evidence that any payment schedule was provided by Decmil under cl 25; it is open to the Court to infer that a payment schedule was provided and deem no deductions leading to an amount payable under cl 25.4.

[12]        Thirteen invoices were rendered by L&M between 31 December 2019 and 5 September 2019 and are

set out in a table in paragraph 23 of the Affidavit of Paul Visvardis dated 15 April 2021. The first seven invoices were paid, whilst payment of L&M’s last six invoices has been withheld by Decmil.

13          Decmil withheld payment of the sum of $320,312[13] in reliance upon cl 25.7 of the Subcontract, which provides that Decmil may deduct or set-off sums it is owed from payment to L&M. Mr Black contended the set-off dispute is a separate claim from L&M’s claim for payment. The proceeding is not the subject of an arbitration agreement, no stay should be granted, and the parties ought not be referred to arbitration under s 8(1) of the Act.

[13]        Affidavit of Paul Visvardis dated 15 April 2021, exhibit 52–53.

14          Mr Black sought leave to amend the Statement of Claim, if necessary, to make it clear that the proceeding falls within the carve out.

 

Material to be considered

15          Both parties agreed that in construing cl 33 for the purpose of considering whether the action is brought in a matter the subject of an arbitration agreement under s 8(1) of the Act or falls within the scope of the carve out, the Court ought have regard to the material before it, including the Statement of Claim.[14]

[14]        “The boundaries of the dispute may be unclear, but it will have to be characterised on the material

available to be assessed as to whether it can be seen to be the ‘subject of’ the arbitration agreement. That latter assessment will require some stability or clarity as to the meaning of the arbitration agreement.”: Tianqi Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd (No 2) [2020] WASCA 201, [78] (Tianqi) citing Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 3, [146] (Reinhart v Hancock).

16          Decmil has the burden to show that the action is brought in a matter which is the subject of an arbitration agreement

“… the correct approach is to decide on the balance of probabilities whether, on the proper interpretation of the relevant arbitration agreement, a matter arising in the proceeding falls within the scope of the agreement.”[15]

[15]        Rinehart v Rinehart (No 3) (2016) 257 FCR 310, [115].

Legal principles and analysis

17          The usual principles regarding the interpretation of commercial contracts apply to the construction of arbitration agreements.[16] These principles require that contracts are interpreted objectively by reference to the contract’s text, context and purpose.[17] However, the courts have taken a ‘liberal approach’ to the construction of arbitration clauses by “giving meaning to the words chosen by the parties and giving liberal width and flexibility to elastic and general words of the contractual submission to arbitration.”[18]

[16]        Rinehart v Hancock, [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ).

[17]        Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, [35] (French CJ, Hayne,

Crennan and Kiefel JJ), which was cited in this context in Rinehart v Hancock, footnote 25 (Kiefel CJ, Gageler, Nettle and Gordon JJ).

[18]        Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45, [164] (Allsop J, with

whom Finn and Finkelstein JJ agreed).

18          For the following reasons, I do not consider the proceeding is “to enforce payment due under clause 25” and accordingly, it does not fall within the carve out.

19          The following, almost identical ‘carve out’ clause was considered in the Western Australian Supreme Court of Appeal case of Tianqi Lithium Kwinana Pty Ltd v MSP Engineering Pty Ltd (No 2) (Tianqi):[19]

42.4 Summary relief

Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief.”

[19] [2020] WASCA 201.

20          The Court considered three constructional choices in respect of the carve out clause:

“(a)         A party may institute proceedings to enforce payment due under cl 37.2 only so long as the obligation to make the payment is undisputed, irrespective of the merits (or lack thereof) on which the obligation to make the payment is disputed. On this construction, proceedings may not be instituted where the defendant disputes the obligation to make the payment, even if the defendant does not raise an objectively triable issue by way of defence…

(b)          A party may institute proceedings to enforce payment due under cl 37.2 irrespective of whether the obligation to make the payment is disputed or the grounds on which the existence of the payment obligation is disputed. On this construction, proceedings may be instituted even where the defendant does raise an objectively triable issue by way of defence.

(c)          The reference to ‘proceedings to enforce payment due’ under the contract is to proceedings which are capable of summary determination: ie, proceedings in which there is no objectively triable issue which would form a proper basis for defending a summary judgment application.”

21          The Court found that the third constructional option is to be preferred:

“In other words, it is a remedy which does not require the forum to undertake an assessment (often time-consuming and complex, particularly in construction disputes) of the consequences of the relevant breach in terms of damages. These considerations tend to indicate that cl 42.4 is not designed to refer the resolution of complex money claims and damages to the court.”[20]

[20]        Tianqi, [100].

22          This interpretation fits with the commercial purpose, which is to enable the party expeditiously to obtain judgment on the sum due, at least typically by summary judgment.

23          The Court found that the relevant clause operated to preserve rights to curial relief in the circumstances addressed in the ‘carve out’ notwithstanding the width of the disputes otherwise referable to arbitration. The parties had not ‘submitted to arbitration’ within the meaning of s 7(1) of the Act the three matters in cl 42.4 to which they had reserved their rights of recourse to the Court.[21]

[21]        Ibid [107].

24          In Tianqi, the effect of the payment process provided for in cl 37.2 was, in summary:

“… that a net payment in favour of one party, derived from the operation of the certification process under cl 37.2 and any exercise by the principal of its contractual right of set-off thereunder, is a payment on account which is due and payable without recourse by the other party to equitable set-off. That net payment (which for convenience may be referred to as a ‘certified progress payment’) is, at least in the ordinary course, amenable to enforcement by summary judgment.”

25          Any counterclaim sought to be raised by the other party was taken into account when the Superintendent issued a final certificate pursuant to cl 37.4, evidencing the moneys finally due and payable between the contractor and the principal.

26          In that case, the amount certified by the Superintendent was a net payment which was due and payable:[22]

“The payment for which it provides is not only due and payable, but it is due and payable without set-off or deduction.”[23]

 

 

[22] Ibid [91].

[23] Ibid [105].

27          The Court in Tianqi held that “the word ‘due’ in this context meant ‘due and payable’. There could be no institution of proceedings to ‘enforce’ a payment which was due, but not payable.”[24] In those circumstances, the payment that was due and payable without set-off or deduction was readily amenable to curial enforcement.

[24] Ibid [103].

28          Clause 25 of the Subcontract sets out the process involved in L&M submitting payment claims to Decmil for work performed, including the paperwork required and what Decmil must be satisfied of before payment is made.

29          Under cl 25.4, within 10 days of receiving the Subcontractor’s claim, “the Contractor will issue to the Subcontractor a payment schedule setting out the amount payable to the Subcontractor…”. There is no evidence before the Court as to whether any payment schedule was provided.[25]

[25]        Mr Black contended that in Tianqi, there was an ‘independent supervisor’ who issued the certificate.

Here, Decmil issues that payment schedule. Insofar as the defendant has failed to do what it should have done, equity deems that which ought to have been done as having been done. The Court ought infer that the payment schedule “had been effectively provided by the defendant”. For the reasons set out below, I reject that submission.

30          Clause 25.5 is the provision which requires the Contractor to pay the amount set out in the payment schedule[26]. It is subject to cl 25.7, a broad clause which provides for deduction or set-off by the Contractor from any money payable to the Subcontractor under the Subcontract or otherwise “…any money due or claimed to be due from the Subcontractor to the Contractor whether under or in connection with this Subcontract or otherwise, including the amount of any claims or liens that the Contractor has reasonable grounds for believing may be made against the Subcontractor.”

 

[26]        Or if no payment schedule is issued the amount of the Contractor’s assessment of the value of the

Works completed.

31          In a letter from Decmil to L&M dated 19 August 2020,[27] Decmil stated “… in accordance with Clause 25.7 of the Subcontract, Decmil will be deducting and setting-off the amount of $320,312.00 (excluding GST) from any money which is or may be due to L&M.”[28] Consistent with that position, Mr Black submitted that “The Defendant has withheld payment of the sum of $320,312 in reliance upon clause 25.7…”[29]

[27]        Affidavit of Paul Visvardis dated 15 April 2021, exhibit 52–53.

[28]        Emphasis added.

[29]        Plaintiff’s Submissions, [12].

32          L&M’s lawyers, Willerby’s, in a letter to Decmil dated 7 October 2020,[30] stated in respect of the set-off dispute: “Decmil have withheld a sum of $320,312 from payments due to L&M under its contract with Decmil claiming that L&M is responsible for the incident and claiming that the sum of $320,312 represents losses incurred by Decmil from the incident… L&M disputes the quantum of Decmil’s claim on two grounds… L&M denies liability to Decmil for the losses Decmil claims to have incurred.”[31]

[30]        Affidavit of Jason Coppard dated 23 April 2021, exhibit JC1.

[31]        Affidavit of Paul Visvardis dated 15 April 2021, exhibit 56–57.

33          The material before the Court, including the Statement of Claim, does not provide a basis for a finding that the proceeding is to enforce a payment due and payable without set-off or deduction that is readily amendable to summary judgment. Mr Black asserted that Decmil failed to comply with cl 25 and submitted that in the absence of evidence one way or the other, I ought to infer a failure to comply with cl 25.4, order that a payment schedule has effectively been provided by Decmil, deem no deductions under cl 25.4[32] leading to an amount payable under cl 25.5.  I do not accept that submission. There is no factual basis for that inference in the material before the court.[33]

[32]        Due to an asserted failure to identify deductions in accordance with cl 25.4.

[33]        For example, in his Affidavit of 23 April 2021, Jason Coppard deposed to the circumstances of the

outage incident  and the parties likely to be joined to the proceedings, the quantum of the set-off dispute,

the inappropriateness of arbitration due to the complexity of the dispute, the terms of the subcontract and the defendant’s summons. No factual basis for the contention that it is a proceeding to enforce a payment due under cl 25 is deposed to.

34          Mr Black contended that the set-off dispute is a separate and distinct claim.  I do not agree. Clause 25.5 is, as Mr Black submitted ‘where the money becomes payable.’ It is subject to cl 25.7 which provides for the Contractor to deduct or set-off from any money payable to the Subcontractor, any money due or claimed in accordance with the clause.

35          Mr Black submitted that “we don’t appear to have any deduction under cl 25.4, we seem to have a set-off under 25.7.” Even if the amount of the deduction or set-off claimed under cl 25.7 is picked up by the words “… any other additions or deductions” in cl 25.4 to arrive at an ‘amount payable’, L&M’s claim is for the sum of $320,312.00 being part of the price due to the plaintiff under the Subcontract  which, wrongfully and in breach of the Subcontract, the defendant withheld and has refused to pay. It is an amount before deduction or set-off, not a ‘certified’ net position. The dispute raised by this proceeding is the wrongfulness or otherwise of the deduction or set-off under cl 25.7.

36          Mr Black submitted that “The live issue is determining what is due, or which amount can be offset.”[34] That requires resolution of the set-off dispute which Mr Black accepted is amenable to arbitration.

[34]        “…look at what is the dispute between the parties. You can look at the background circumstances, look

at the contract. We say, what that leads to, the real dispute is whether or not the defendant has this offsetting claim. That is the aspect that is the only portion which could be referred off to arbitration, because that is the matter.”

37          This circumstance is distinguishable from that in Tianqi where the only permissible set-off against the amount of the progress claim was the amount certified by the Superintendent under the relevant clause.[35] In that case, there was no dispute as to the validity of certification and no available set-off for any damages claim.[36] The net amount due and payable to the subcontractor was ascertained.

[35]        Tianqi, [134]. The claim for equitable set-off could not deprive the progress certificate of having

crystallised the amount due and payable.

[36]        Tianqi, [145].

38          Mr Black relied on Vickery J in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (No 3) (Lysaght)[37] in support of his submission that the plaintiff’s claim ought be considered a proceeding “to enforce payment due” and remain in the Court. He contended that the dispute can be split into that part capable of being heard by the Court, and that which must be referred to arbitration, as occurred in Lysaght. Decmil would be free to initiate arbitration proceedings in respect of the set-off dispute.

[37] [2013] VSC 435.

39          In Lysaght, the contractor sought summary judgment in respect of three progress payments.[38] The principal filed a defence denying liability and a counterclaim which, amongst other things, sought summary judgment on an alleged certified payment sum due to it.[39] The principal “sought payment of a debt in the sum of $1,984,880.71 relying on a certificate purportedly issue by the Superintendent on 2 January 2013.”[40] The principal also alleged waiver by and an estoppel against the contractor in relation to the principal’s claimed entitlement to payment under the alleged payment certificate.[41] The contractor sought to stay the principal’s claims on the basis that they were required to go to arbitration.[42] The relevant arbitration agreement was subject to the following carve out clause:

“Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under the Contract or to seek injunctive or urgent declaratory relief in respect of a dispute under clause 47 of any matter arising under the Contract.”[43]

 

 

[38]        Lysaght, [5].

[39]        Ibid [6].

[40]        Ibid [6(c)].

[41] Ibid [169]. The principal also had claims involving damages for breach of contract which Vickery J held

were required to be referred to arbitration.

[42] Ibid [8].

[43] Ibid [121].

40          Vickery J held that the payment sought by the principal fell within the carve out clause because it was a proceeding to enforce payment due under the contract.[44] His Honour appears to have found that once the court was seized of a progress payment claim in accordance with the relevant ‘carve out’ provision, the parties objectively intended that any triable issue in relation to certification would be determined by the court and was not a matter required to be submitted to arbitration.[45]

[44] Ibid [113]. Paragraph 67 of the Counterclaim was identified as “a debt in respect of the January

Certificate.”

[45]        As discussed in Tianqi, [125].

41          Lysaght is distinguishable from the present case.  In Lysaght, the relevant question was the validity of the payment certificate that was issued; whether the Superintendent was entitled to issue the payment certificate.[46] The relevant payment clause provided for calculations to be done and allowances to be made for amounts including amounts due from the contractor to the principal or the principal to the contractor. The process resulted in the balance that was ‘due’ to the contractor or to the principal, as the case may be, as stated in the certificate.[47]

[46]        And whether it failed to set out the matters it was required to in the certificate.

[47]        Clause 42.1 of the relevant contract set out in Lysaght, [21].

42          For the reasons set out above, on the material before the Court, there is no pleading or evidence of a payment ‘due and payable’ under cl 25 capable of summary determination. Accordingly, the plaintiff’s proceeding is not a proceeding “to enforce payment due under clause 25” within the relevant ‘carve out’ provision.

43          Mr Black contended that if Decmil’s argument takes the dispute outside the exclusion in cl 33.4, then all Decmil would have to do to circumvent cl 33.4 would be to deduct a single dollar from any amount claimed by L&M and assert that, but for that one dollar deduction, L&M could have taken the dispute to Court. Having regard to the interpretation of the equivalent clause in Tianqi; that the words such as those found in clause 33.4 refer to “proceedings which are capable of summary determination: ie, proceedings in which there is no triable issue which would form a proper basis for defending a summary judgment application”, should such a spurious attempt to circumvent the payment provision be made, the Court would likely conclude that the postulated defence raises no objectively triable issue. Such an attempt would not prevent the matter from being amenable to summary judgment.

44          Mr Black sought leave to amend the pleading if the Statement of Claim, as drafted, does not capture “the essence of the dispute”, so that it is “brought within the auspices of clause 25.” Mr Mason opposed leave to amend and submitted that no amendment would assist as the substance of the dispute lies outside cl 25.  It would be a triumph of procedure over substance.

45          I consider that the Statement of Claim reflects the substance of the dispute being the wrongfulness or otherwise of Decmil withholding and refusing to pay part of the price L&M claims is due. No draft amended statement of claim was provided to show how the claim would be pleaded to ‘fit’ within the carve out.

46          Given the proper construction of the Subcontract, and the issues raised by Decmil in support of its application, I find that the proceeding is not captured by the carve out in cl 33.4.

47          As set out above, there is no issue that the set-off dispute is a dispute between the parties arising out of or related to the Subcontract and is captured by the arbitration agreement. The material before the Court establishes that the action is brought in a matter which ‘is the subject of an arbitration agreement’ for the purposes of s 8 of the Arbitration Act.[48]

 

[48]        In Recyclers of Australia Pty Ltd v Hettinga Equipment Inc [2000] FCA 547, Merkel J referred (at [18])

to authorities, regarding Tanning Research as “authority for the view that, for the purposes of s 7(2), the ‘matter’ to be determined in a proceeding is to be ascertained by reference to the subject matter of the dispute in the proceeding and the substantive, although not necessarily the ultimate, questions for determination in the proceeding.”

Conclusion

48          I find for the applicant.

49          The proceeding is transferred to the Arbitration List of the Commercial Division.

50          Pursuant to s 8(1) of the Commercial Arbitration Act 2011 (Vic), the parties are referred to arbitration and the proceeding in this Court is stayed on the basis that the matter is the subject of a valid and binding arbitration agreement.

51          Subject to any matters the parties seek to draw to my attention, I propose to order the respondent pay the applicant’s costs of and incidental to the application under s 8(1) of the Commercial Arbitration Act 2011 (Vic) on a standard basis, to be taxed in default of agreement.

52          Costs of the proceeding be reserved for determination by the arbitrator or if no such arbitration is commenced within a reasonable period, upon application to the County Court.

53          In the event that the arbitrator is unable to, or refuses to, determine the costs of the proceeding in the County Court, the County Court will determine those costs on application.

54          I invite the parties to prepare draft orders to give effect to these reasons.

55          If the parties are unable to agree upon the form of order, those minutes of order should be accompanied by short submissions directed to the matters remaining in issue.

 

 

– – –

Certificate

I certify that these 55 paragraphs are a true copy of the judgment of Her Honour Judge Brimer delivered on 6 August 2021.

Dated: 6 August 2021

Taylah Stretton
Associate to Her Honour Judge Brimer

 

Feldman v Tayar [2021] VSCA 185

MATTER Feldman v Tayar [2021] VSCA 185
PARTIES PINCHUS FELDMAN          First Applicant

 

and

 

YOSEF FELDMAN   Second Applicant

 

v

 

COREY STEPHEN TAYAR Respondent

MATTER NUMBER S EAPCI 2020 0030
COURT IN THE SUPREME COURT OF VICTORIA
DIVISION ARBITRATION LIST
JUDGES: MCLEISH, SIFRIS and KENNEDY JJA
WHERE HELD: Melbourne
DATES OF HEARING: 19 March 2021
DATE OF JUDGMENT: 24 June 2021
MEDIUM NEUTRAL CITATION: [2021] VSCA 185
APPEALED FROM: [2020] VSC 66 (Lyons J)
CATCHWORDS ARBITRATION – Clause in arbitration agreement submitting ‘Disputed Matters’ to arbitration – Disputed Matters defined by reference to pleadings – Pleadings not filed – Agreement for oral articulation of claims on first day of arbitration – Whether arbitration agreement complied with writing requirements under s 7(3) of Commercial Arbitration Act 2011 – Whether ‘certain disputes’ submitted to arbitration – Arbitration agreement provided in writing clear mechanism for precise identification of disputes – Agreement to dispense with pleadings did not affect validity of arbitration agreement – Leave to appeal granted but appeal dismissed – Commercial Arbitration Act 2011 s 7.

 

 

 

ARBITRATION – Whether judge erred in not finding arbitrators failed to give reasons as required by s 31 of Commercial Arbitration Act 2011 – No requirement for arbitral reasons to be of judicial standard – Adequacy depends on evidence, nature and complexity of issues and relevant findings – Claim straightforward – Reasons disjointed and not easy to understand but adequately set out arguments, principles and conclusions – Reasons conveyed applicants lacked documentation and arbitral panel accepted respondent’s documentation calculating amount owing – Application dismissed – Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239 applied – Commercial Arbitration Act 2011 s 31.

REPRESENTATION For the Applicants:

Solicitors –      Philip Henenberg

Council –    Mr J Korman

 

For the Respondent

Solicitors –      Dov Silberman

Counsel –     Mr D Silberman (solicitor)

 

McLEISH JA

SIFRIS JA
KENNEDY JA:

Introduction

  1. On 4 March 2013, the applicants and the respondent entered into a written arbitration agreement (‘Arbitration Agreement’) appointing three arbitrators (‘Arbitral Panel’)[1] ‘to determine the Disputed Matters’.  The Disputed Matters were to be identified and determined by pleadings to be filed in the arbitration as directed by the arbitrators.  However, the arbitration commenced on the day of execution of the Arbitration Agreement and, in place of pleadings, the parties and the arbitrators agreed that the claims would be identified orally at the commencement of the arbitration, which they were.

[1]          The Arbitrators were parties to the Arbitration Agreement and executed it on 4 March 2013.

  1. Recital A to the Arbitration Agreement recorded that the parties were in dispute about ‘certain loans, rents, salary payments, the ownership of properties and other matters’.
  1. The parties agreed that the Disputed Matters would be determined by reference to principles of Orthodox Jewish Law (‘Halacha’) and that the Arbitration Agreement would be governed by the laws of the State of Victoria.
  1. The award, titled ‘Court Decision’ (‘Award’), was published with reasons (‘Reasons for the Award’) on 9 May 2013.  The Award recorded the Arbitral Panel’s decision in respect of five claims by the respondent:
  • Claim 1 — Claim on whole or part of certain properties[2](‘Properties’)
  • Claim 2 — Claim under rental agreement
  • Claim 3 — Claim for rent
  • Claim 4 — Claim for salary
  • Claim 5 — Claim for redundancy payments

[2]          67 and 69 Penkivil Street, 7 Park Street, Office within the Adler Building, Dormitory Building.

  1. Claim 1 was partially successful in that a monetary sum ($1,635,802) was ordered, in lieu of the claim to the Properties.[3]  Claims 2 to 4 were successful.  Claim 5 was unsuccessful.

[3]          The Award provided for a lien over the Properties as security for payment of the monetary sum.

  1. The respondent only sought to enforce the monetary component of the Award in respect of Claim 1 ($1,635,802), Claim 2 ($320,168.02) and Claim 4 ($14,000).  The respondent did not seek to enforce the Award in respect of Claim 3.  Allowing for an amount of $120,400 already paid, the total amount sought was $1,849,570.02.
  1. The application to enforce the Award (in respect of Claims 1, 2 and 4) was heard by a judge of the Trial Division of the Court on 2 December 2019.  In his reasons for judgment,[4] the judge held that the monetary component of Claim 1 should be enforced in the sum of $1,515,402.02 after taking into account the repayment of $120,400. The judge refused enforcement of the parts of the Award dealing with Claims 2 and 4. On 2 March 2020, the judge made an enforcement order under s 35 of the Commercial Arbitration Act 2011 (‘Act’).  Further orders were made for the payment of interest and costs.

[4]          Tayar v Feldman [2020] VSC 66 (‘Reasons’).

  1. The applicants seek leave to appeal from the judge’s orders on two grounds. The first is that the Arbitration Agreement does not comply with ss 7(1) and 7(3) of the Act. By this ground, the applicants contend that there was no arbitration agreement under the Act, because there was no agreement in writing as to which disputes were to be submitted to arbitration. Secondly, it is contended that the arbitrators failed to give adequate reasons for the Award in respect of the monetary component of Claim 1 as required by s 31(3) of the Act.

Background

  1. The respondent worked at the Yeshivah Centre in Sydney, a Jewish institution operated by the applicants.  From time to time between 2008 and 2013, the respondent lent various amounts of money to the applicants for the purpose of meeting the ongoing expenses of the centre, which he claimed had not been repaid.  Neither the respondent nor the applicants produced a copy of any loan agreement.
  1. The respondent lent the money to the applicants pursuant to the Jewish legal principle known as ‘Heter Isko’ where the person who advances funds is categorised as an investor seeking to derive a profit from investing capital rather than a lender seeking to derive interest from a loan.  It appeared that as part of the arrangement to advance funds, the Properties comprising various parcels of land owned by the applicants and others were pledged to the respondent but were to be returned if the loans were repaid.
  1. Further disputes arose between the parties including in relation to the non-payment of the rent of the respondent’s home by the applicants and non-payment of salary for work done by the respondent.

The Arbitration Agreement

  1. On 4 March 2013, the parties and the arbitrators entered into the Arbitration Agreement.
  1. The recitals to the Arbitration Agreement provide that:
  1. Disputes have arisen between the Parties concerning certain transactions between them during the period from 2007 to date, including certain loans, rents, salary payments, the ownership of properties and other matters.
  2. Pursuant to this Agreement, an Arbitral Panel will be appointed to determine the Disputed Matters in accordance the processes set out in this Agreement.
  1. ‘Disputed Matters’ is defined as ‘the matters described in Schedule 1 to be determined by the Arbitral Panel and made subject of an Award’.  Schedule 1 states:

The Disputed Matters

The matters to be determined by the Arbitral Panel are to be determined by the Statement of Claim, Statement of Defense [sic] and Cross Claim (if any) and the Reply and Deference [sic] to Cross Claim (if any) to be filed in the arbitration as directed by the Arbitral Panel.

  1. Clause 2 of the Arbitration Agreement relevantly provides:
  1. a)           The Parties appoint the Arbitral Panel to determine the Disputed Matters in the manner and within the times set out in this Agreement and the Arbitral Panel accepts the appointment on the basis set out in the Agreement.
  2. b)        The Parties agree that:
  3. i) the Arbitral Panel will act as an arbitral tribunal under the Act;
  4. ii)          the Arbitral Panel must conduct the determination of the Disputed Matters in accordance with the Arbitration Rules.
  1. Schedule 2 of the Arbitration Agreement provides for ‘Arbitration Rules’, amongst other things:
  1. Reference to Arbitration

Arbitration pursuant to this Agreement shall be conducted under and in accordance with the Act and as otherwise set out in these Arbitration Rules (Rules).

  1. Principles Relating to Arbitration

Subject to section 28 of the Act, the Parties agree that the Arbitral Panel may determine any question that arises for determination in the course of the arbitration in relation to the substance of the Disputed Matters by reference to principles of Orthodox Jewish Law (known as Halacha) including its references to local law (Dinah d’malchushah) and local custom (minhag hamakon).

Conduct of the Arbitration

  1. The arbitration commenced on 4 March 2013.  None of the documents referred to in Schedule 1 were ever created.  The respondent made his claims orally and the second applicant on behalf of himself and the first applicant responded orally.  All parties agreed to this course.  During the course of at least two days of hearings, the parties orally identified the disputes the subject of the arbitration.  There was no evidence to the effect that the applicants opposed this course at the time, or at any time thereafter, or sought an adjournment to ensure that the claims for determination by the Arbitral Panel were further identified.  All of the claims fell within the ‘Disputed Matters’ identified in Recital A of the Arbitration Agreement.
  1. The respondent claimed around $6,000,000 in relation to loans and other transactions that were made between the parties, in respect of which he had only been repaid an insignificant amount.  The respondent relied on at least one document relating to the amount of the outstanding advances, which was presented to the Arbitral Panel.  That document was not before the trial judge or this Court.  The applicants in defence submitted to the Arbitral Panel that only around $1,000,000 had actually been lent by the respondent and that all or nearly all of that had been repaid.  The applicants did not produce any documents in support of their claim.
  1. There was little evidence as to how the hearing was conducted or as to the documents that were relied upon.  However, it is not in dispute that the respondent’s claims were the subject of evidence and submissions before the Arbitral Panel and that the applicants were afforded procedural fairness in relation to those claims.

The Award and the Reasons for the Award

  1. On 9 May 2013, the Arbitral Panel published the Award, together with the Reasons for the Award.  The Award relevantly provides:

Parts of the decision mainly based on claims frankly made by the Parties on a court hearing and on the claims expressed orally on the second hearing of the Court (as the Court was unable to approve the claims sent and written via email).[5]

[5]          The second applicant deposed that the first part of this sentence should properly be translated as: ‘The contents of the decision are mainly based on the claims which were frankly stated by the Parties at the sitting of the Rabbinical Court’: Reasons [32].

Claim 1 – the claim on the whole property or a part thereof located at 67&69 Penkivil Street, 7 Park Street, Office within the Adler Building, Dormitory Building.

Court decision:  The mentioned properties remain in possession of the defendants and nevertheless the defendants are obliged to pay the amount of $1,635,802 to the plaintiff.  However, the lender retains a lien on the properties up to the value of the aforementioned amount.

Claim 2 – the claim regarding $17,815.47 pcm rental agreement

Court decision:  The defendants must pay the entire amount of the rental agreement $17,815.47 pcm, as agreed between the parties initially (including all outstanding payments, which have not been paid completely yet).  This obligation continues until the defendants pay the entire above mentioned amount mentioned in claim 1.  Regarding the monthly payments from that time till [sic] September 2013, it depends on the details of initially made agreement and needs further clarification by the Court.

Claim 3 – the claim of apartment rental payment of $850 per week

Court decision:  Mr Joseph Feldman must pay the entire amount of the claim related to the rent that has not yet been paid.

Claim 4 – the claim regarding salary

Court decision:  The defendants must pay the entire amount of the salary (that has not yet been paid) to the plaintiff for all the time of his service at the office etc., but not for the time after he resigned from work.

Claim 5 – the claim regarding redundancy payments

Court decision:  At the moment, the defendants are exempt from compensating the plaintiff.

  1. The Reasons for the Award are short (three pages) and not easy to understand.  The language is often disjointed.  They are very much based upon the Halacha.
  1. The introductory paragraph of the Reasons for the Award provides:

Our intention here is to quote in brief the primary perspectives that led to the above mentioned decision of the Court, after seriously considering all parts of the Halacha, and after consulting great Torah scholars who sit in judgement around the globe, and it is understood that it is the way of Torah that every matter has perspectives, this one builds and the other demolishes, nevertheless the decision was made according to the opinion of the Court.

  1. The body of the Reasons for the Award relate almost entirely to Claim 1, namely the loans or advances, the agreement to transfer property in relation to the advances, the advances outstanding at the time of the hearing, and the interest (or profits) thereon.

Enforcement

  1. The respondent issued enforcement proceedings pursuant to s 35 of the Act on 6 May 2019, nearly six years after the Arbitral Panel made the Award. The applicants issued an application for refusal of enforcement under s 36 of the Act on 11 September 2019.
  1. The matter was heard by a judge of the Trial Division on 2 December 2019. On 2 March 2020, the judge handed down judgment and made an enforcement order pursuant to s 35 of the Act that the applicants pay the respondent the sum of $1,515,402.02.

Relevant provisions of the Act

  1. Section 1 of the Act defines the scope of the Act:

1        Scope of application

(1)       This Act applies to domestic commercial arbitrations.

(3)       An arbitration is domestic if—

(a)          the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in Australia;  and

(b)          the parties have (whether in the arbitration agreement or in any other document in writing) agreed that any dispute that has arisen or may arise between them is to be settled by arbitration;  and

(c)          it is not an arbitration to which the Model Law (as given effect by the International Arbitration Act 1974 of the Commonwealth) applies.

  1. Section 4 of the Act provides a statutory waiver of a right to object in certain circumstances:

4        Waiver of right to object

A party who knows that any provision of this Act from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating the party’s objection to such non-compliance without undue delay or, if a time-limit is provided for stating the party’s objection, within such period of time, is taken to have waived the party’s right to object.

  1. Section 7 provides for the definition and form of arbitration agreement:

7           Definition and form of arbitration agreement

(1)          An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2)          An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3)          The arbitration agreement must be in writing.

(4)          An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.

(7)          Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.

  1. Section 31 provides for the form and contents of an award:

31          Form and contents of award

(1)          The award must be made in writing and must be signed by the arbitrator or arbitrators.

(3)          The award must state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under section 30.

  1. Section 35 provides for the recognition and enforcement of an award:

35          Recognition and enforcement

(1)          An arbitral award, irrespective of the State or Territory in which it was made, is to be recognised in this State as binding and, on application in writing to the Court, is to be enforced subject to the provisions of this section and section 36.

(2)          The party relying on an award or applying for its enforcement must supply the original award or a copy of the original award.

(3)          If the award is not made in English, the Court may request the party to supply a translation of it into English.

  1. Section 36 provides the grounds for refusing recognition or enforcement of an award:

36          Grounds for refusing recognition or enforcement

(1)          Recognition or enforcement of an arbitral award, irrespective of the State or Territory in which it was made, may be refused only—

(a)          at the request of the party against whom it is invoked, if that party furnishes to the Court proof that—

(i)          a party to the arbitration agreement was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of the State or Territory where the award was made;  or

(ii)         the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present the party’s case;  or

(iii)        the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced;  or

(iv)         the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the State or Territory where the arbitration took place;  or

(v)          the award has not yet become binding on the parties or has been set aside or suspended by a court of the State or Territory in which, or under the law of which, that award was made;  or

(b)       if the Court finds that–

(i)          the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or

(ii)         the recognition or enforcement of the award would be contrary to the public policy of this State.

  1. In respect of ss 35 and 36, the judge made the following comments:

In the context of enforcement proceedings, a prima facie right to recognition and enforcement of the award has been described as ‘consonant with the common law view that the issuing of an arbitral award gives rise to an implied promise that the award will be honoured’.[6]  As French CJ and Gageler J said in TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (a case involving an application to enforce an award under s 8 of the [International Arbitration Act 1974 (Cth)]):

Enforcement of an arbitral award is enforcement of the binding result of the agreement of the parties to submit their dispute to arbitration, not enforcement of any disputed right submitted to arbitration.[7]

The role of the Court under ss 35 and 36 of the [Act] is understood to be limited to the enforcement of contractual obligations arising from the arbitration agreement: it is not to determine substantive disputes between the parties as to fact and law, those being the realm of the arbitral tribunal.[8]  The Court is concerned with the ‘structural integrity of the arbitration proceedings’.[9] As a result, the arbitral award should be enforced unless any of the grounds contemplated by s 36 apply.[10]

[6]          Andent Pty Ltd v Thornhill Machine Tools Australia Pty Ltd [2014] VSC 647, [17] (Croft J).

[7]          TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533, 555–6 [34] (French CJ and Gageler J).

[8]          Indian Farmers Fertiliser Cooperative Ltd v Gutnick (2015) 304 FLR 199, 207 [18] (Croft J).

[9]          Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) [No 1] [2012] 4 HKLRD 1, 7 [7] (Tang V-P, Kwan JA and Fok JA agreeing at 38 [109] and [110]).

[10]         Reasons [58]–[59].

Judge’s reasons

  1. At trial, the applicants principally contended that there was no ‘domestic commercial arbitration’ and no enforceable or valid arbitration agreement, because the Disputed Matters were not identified in writing. They also contended that s 36(1) applied so that the Court should refuse to enforce the Award.
  1. First, the judge held that the Arbitration Agreement was valid and enforceable.  In particular, the disputes submitted to arbitration were sufficiently identified.  He referred to Austra Tanks Pty Ltd v Running[11] and continued:

In the present case, the Agreement contains details of the parties, the Arbitral Panel and how the arbitration was to be conducted.  Having recorded in Recital A that disputes had arisen between the parties ‘concerning certain transactions between them during the period from 2007 to date [4 March 2013], including certain loans, rents, salary payments, the ownership of properties and other matters’, the Agreement provided that the Disputed Matters were to be referred to arbitration.  Schedule 1 contains the means by which the Disputed Matters were to be identified, namely by the subsequent filing of a statement of claim by the Applicants and a defence by the Respondents.  In these circumstances, at the time the Agreement was made, I conclude that there was a binding, valid and enforceable agreement between the parties.

I can see no issue of validity or enforceability in the parties agreeing to identify the particular disputes to be referred to arbitration subsequent to the Agreement being entered into.  Indeed, many arbitration agreements provide a mechanism for defining disputes which ‘may arise’ between the parties to be referred to arbitration.  Such an arbitration agreement does not itself set out the particular disputes which are to be referred.  That can only take place at a later point in time.  However, it is clear that these kinds of arbitration agreements are valid and binding arbitration agreements under the [Act] notwithstanding the precise nature of the dispute is yet to be identified.

In my view, the real complaint of the Respondents, at the level of validity and enforceability, is that the Applicant failed to file a statement of claim in accordance with the terms of the Agreement.  On its face, that non-compliance may amount to a contractual breach.  But in my view, that does not mean that there was not a valid and binding agreement.  Rather, it means that the Respondent had the right to complain about that breach: i.e. to seek enforcement of that term of Agreement or to terminate the Agreement for breach.  However, that issue is not relevant to the question of whether the Agreement on its face was void for incompleteness or uncertainty.[12]

[11]         [1982] 2 NSWLR 840, 843 (Wootten J).

[12]         Reasons [82]–[84].

  1. The judge then addressed whether the Arbitration Agreement complied with ss 1(3)(b) and 7 of the Act. In relation to s 1(3)(b), he said:

Section 1(3)(b) first requires that the parties have agreed that ‘any dispute’ that ‘has arisen or may arise between them’ is to be settled by arbitration. It also requires that agreement is in ‘the arbitration agreement or in any other document in writing’.

In my view, the Agreement satisfies the first requirement of s 1(3)(b). As set out above, it provides that the Disputed Matters are to be settled at arbitration by the Arbitral Panel and sets out the mechanism or procedure for how the Disputed Matters are to be identified, namely by the Applicants filing a statement of claim pursuant to Schedule 1. In this case, as the Agreement is in writing, it satisfies the second requirement in s 1(3)(b).[13]

[13]         Ibid [90]–[91].

  1. In relation to s 7, the judge said:

Section 7(1) of the [Act] first requires an agreement by the parties to submit to arbitration ‘all or certain disputes’ which ‘have arisen or which may arise between them’ in respect of a defined legal relationship. Section 7(3) requires that agreement ‘must’ be in writing. Section 7(4) provides that it is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.

In my view, the Agreement satisfies the first requirement of s 7(1). As set out above, it provides that ‘certain disputes’ are to be settled at arbitration by the Arbitral Panel, namely the Disputed Matters. It sets out the mechanism or procedure for how the Disputed Matters are to be identified, namely by the Applicants filing a statement of claim pursuant to Schedule 1. As that Agreement is in writing, it satisfies the requirement in s 7(3).

In my view, the real complaint of the Respondents, at the level of the [Act], is that either s 1(3)(b) and/or s 7 requires the actual matters to be referred for determination by the Arbitral Panel to be in the writing. I am unable to discern any such requirement on the proper construction of these sections. This is in the context, noted above, that many arbitration agreements relate to disputes which ‘may arise in the future’: those disputes can only be identified at a later point in time. In my view, such agreements clearly fall within s 1(3) and s 7, each of which refer to agreements relating to disputes that ‘may arise between’ the parties.[14]

[14]         Ibid [92]–[94].

  1. The judge found that the parties were aware of how the ‘Disputed Matters’ were to be defined in the absence of a statement of claim and precisely what matters were to be heard and determined by the Arbitral Panel.  The judge accepted that there was no complaint by the applicants and that they were not prejudiced or denied procedural fairness by the failure to provide a statement of claim.[15]  In conclusion the judge said:

As a result, I consider that the Agreement does comply with s 1(3)(b) and s 7 of the [Act] as there is no requirement under those provisions for the particular matters referred to an arbitrator to be in writing. Further, and as a consequence, I do not consider that the arbitration was beyond the scope of the [Act].[16]

[15]         Ibid [96]–[98].

[16]         Ibid [106].

  1. The judge then found that in any event, in the circumstances, by executing the Arbitration Agreement and embarking on the arbitration on the very same day without any statement of claim, the applicants ‘waived their right to object to the [respondent’s] failure to do so’.[17] He referred in that context to s 4 of the Act.

[17]         Ibid.

  1. The judge then held that, as the Arbitration Agreement satisfied the requirements of s 1(3)(b), the arbitration was a ‘domestic’ arbitration.[18] Further, save for Claim 4, the arbitration was a ‘commercial’ arbitration within s 1(1) of the Act.[19]  This issue was not in dispute in the case of Claim 1.

[18]         Ibid [114].

[19]         Ibid [119]–[123].

  1. Accordingly, the judge was satisfied that the Court was able to enforce Claims 1 and 2. The arbitration of Claims 1 and 2 was a domestic commercial arbitration under the Act and the other necessary procedural matters under the Act and the Arbitration Rules had been complied with.[20]

[20]         Ibid [124].

  1. The judge rejected, for the same reasons, the applicants’ contention that the Court should refuse to enforce the Award pursuant to s 36 of the Act on the grounds that:

(a)               there was no valid arbitration agreement under Victorian law;

(b)              the Award dealt with disputes not falling within or beyond the scope of the submissions to arbitration;  and

(c)               the arbitral procedure was not in accordance with the agreement of the parties.[21]

[21]         Ibid [128]–[131].

  1. The judge went on to say that, even if the applicants had established grounds under s 36, he would not have refused to enforce the Award.[22]  He said that refusal to enforce is a matter of discretion.[23]  The judge said:

Third, for the reasons set out above, in this case I am not satisfied that the failure to reduce to writing the Disputed Matters caused any practical unfairness or prejudice in any way to the Respondents.  None was asserted by the Respondents at the arbitral hearings, before the Award and the Reasons were finalised, or in this proceeding.

As a result, I would enforce the Award in respect of Claim 1.[24]

[22]         Ibid [131]–[132].

[23]         Ibid [132]–[137].

[24]         Ibid [138]–[139].

  1. The judge then dealt with the failure to provide reasons as required pursuant to s 31(3) of the Act. In relation to Claims 2 and 4, the judge said:

In these circumstances, the Reasons do not on their face satisfy the requirements to give reasons as required by s 31(3) of the [Act] in respect of Claims 2 and 4. As a result, in the exercise of my discretion, I would refuse to enforce the Award in respect of Claims 2 and 4 under s 36(1)(a)(iv) of the [Act].[25]

[25]         Ibid [159].

  1. In relation to Claim 1, the judge, after referring to the relevant authorities,[26] which were not in dispute, said:[27]

Taking these matters into account, there must still be some reasoning process setting out how the tribunal came to its decision.  When considering the adequacy of reasons the Court is not concerned with assessing the merits of the reasons given for an award beyond determining whether they adequately indicate how the arbitral tribunal came to its decision.  In the context of enforcement proceedings, Croft J in Giedo noted that:

In this respect the court does nevertheless stress that this enforcement application does not involve anything in the nature of a merits appeal from the award.  Indeed, it is not the function of the court to investigate this issue, save to indicate that on the basis of the material, including the submission to arbitration, it was clearly open to the arbitrator to make the relevant findings as set out in the award.[28]

[26]         Ibid [148], [150]; Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239, 269–70 [51]; [2011] HCA 37 (French CJ, Gummow, Crennan and Bell JJ); Bremer Handelsgesellschaft mbH v Westzucker GmbH [No 2] [1981] 2 Lloyd’s Rep 130 (‘Bremer’);  R v F [2012] 5 HKLRD 278.

[27]         Reasons [152].

[28]         Giedo van der Garde BV v Sauber Motorsport AG [2015] VSC 80, [12].

  1. The judge concluded that the reasons were adequate and said:

The Reasons are not easy to understand.  The language is often disjointed.  These issues may be the result of the translation or the way in which the original Reasons were written.

The Reasons focus predominantly on the dispute over the advances that were the subject of Claim 1:  nearly all of the three pages of the Reasons deal with Claim 1.  That is understandable given that it was the largest claim before the Arbitral Panel.  Without assessing the merits of the Reasons, I note that the Reasons on Claim 1 set out the relevant arguments, the Halachic principles upon which they rely, and the conclusions arrived at consequential to those facts.  As such, in my view, they are adequate.[29]

[29]         Reasons [154]–[155].

Proposed grounds of appeal

  1. The applicants’ proposed grounds of appeal are as follows:
  1. The primary judge:

(a)          erred in finding that the parties had entered into an arbitration agreement for purposes of sections 7(1) and 7(3) of the [Act]; and

(b)       ought to have found that:

(i)        there was no arbitration agreement;

(ii)         the parties did not agree in any other document in writing that any dispute that had arisen or may arise between them would be settled by arbitration;

(iii)        in consequence, under section 1(3)(b) of the [Act], the arbitration was not domestic; and

(iv)         pursuant to section 1(1) of the [Act], the arbitral award could not be enforced under the [Act].

  1. The primary judge:

(a)          erred in not finding that the arbitrators failed to give reasons as required by section 31(3) of the [Act] for their finding that the Applicants were liable to repay the Respondent the borrowed principal;

(b)          ought, in the exercise of his discretion under section 36(1)(a)(iv) of the [Act], to have refused to enforce the arbitral award in respect of the borrowed principal, being $1 million; and

(c)          ought to have found that the portion of the arbitral award determining the applicants’ liability for interest was not clearly separate and divisible from the portion of the award dealing with the applicants’ liability to repay the borrowed principal, so that the entirety of Claim 1 could not be enforced.

Proposed ground 1 —Arbitration Agreement

  1. As noted above, the judge held that:

(d)              the Arbitration Agreement was not void for uncertainty or incompleteness as the disputes were ascertainable;

(e) the Arbitration Agreement satisfied the requirements of ss 1(3)(b) and 7(1) and 7(3) of the Act for the reasons given;

(f)               the parties were aware how the Disputed Matters were to be defined and determined in the absence of a statement of claim and neither party was prejudiced or complained;[30]

(g) the arbitration of Claims 1 and 2 constituted a domestic commercial arbitration under the Act and as all procedural requirements had been complied with, Claim 1 should in the exercise of the Court’s discretion be enforced under s 35 of the Act;[31]  and

(h) in the exercise of his discretion, he would not refuse to enforce Claim 1 under s 36 of the Act even if, contrary to his view, that discretion were enlivened.

[30]         The judge found that this was sufficient to constitute a waiver of the right to object to the absence of a statement of claim.

[31]         Claim 2 was not enforced because the reasons were not adequate.

Applicants’ submissions

  1. The applicants submitted that the Arbitration Agreement did not comply with s 7 of the Act because, unless and until pleadings were filed there was no agreement to submit ‘all or certain disputes which have arisen or which may arise’ between the parties to arbitration. Some further process and articulation, in writing, was required, in this case the agreed pleadings.
  1. In the written case, the applicants submitted that the Arbitration Agreement ‘can be characterised in two ways’ and that ‘[b]oth lead to the conclusion that it was not an arbitration agreement for purposes of section 7 of the [Act]’. The first way was by incorporation by reference, that is the pleadings, which did not take place.
  1. The second way was that the parties contemplated a further step or agreement as explained in Masters v Cameron[32] (category two) which never took place with the consequence that ‘an arbitration agreement never came into existence’.

[32]         (1954) 91 CLR 353.

  1. The applicants contended that the consequence was as follows:

In circumstances where there was no arbitration agreement, and no other document in writing in which the parties agreed to submit any dispute to arbitration, there was no domestic arbitration, the [Act] did not apply, and the Court had no jurisdiction to enforce the arbitral award.

  1. During oral submissions, counsel for the applicants placed much emphasis on the construction of ss 7(1) and (3), contending that it was fundamental to identify, in writing, which disputes are to be submitted to arbitration because of the finality and legal consequences of an award. Reference was made to Aughton Limited (formerly Aughton Group Ltd) v MF Kent Services Ltd,[33] in which Sir John Megaw said:

it has been laid down by statute … that an arbitration agreement has to be ‘a written agreement’ … The object, or the effect, of that statutory requirement must be to emphasise, and seek to ensure, that one is not to be deprived of his right to have a dispute decided by a court of law, unless he has consciously and deliberately agreed that this should be so.[34]

[33]         (1991) 57 BLR 1.

[34]         Ibid 31.

  1. The gravamen of the applicants’ oral submission was that the disputes to be submitted to arbitration were not identified in writing. The disputes were to be identified and determined by pleadings that did not come into existence. Any oral agreement as to the disputes to be determined was not sufficient. In short, cl 2(a) of the Arbitration Agreement submitted Disputed Matters to the Arbitral Panel. There were no Disputed Matters because the matters were to be defined by the pleadings. The applicants submitted that Recital A and the oral agreement between the parties as to which disputes were to be determined was not sufficient compliance with ss 7(1) and (3). As a consequence, it was submitted that the judge fell into error.

Respondent’s submissions

  1. The respondent submitted that there was no error in the approach and findings of the judge.  The Arbitration Agreement was in writing, appointed the Arbitral Panel and identified the general nature of the disputes between the parties and procedural aspects as to how the arbitration was to be conducted.
  1. The respondent submitted that the pleadings were not incorporated into the Arbitration Agreement and the Arbitration Agreement was not a ‘Masters v Cameron type of agreement’.
  1. The respondent submitted further that the failure to file a statement of claim had no effect on and did not determine the validity of the Arbitration Agreement and compliance with s 7. According to the respondent:

Such a view is supported by a number of factors.  Firstly the Schedule 1 requirement is clearly procedural as it requires the Parties to file certain types of documents ‘in the arbitration as directed by the Arbitral Panel’.  It is clear from this passage that at the moment when any Statement of Claim (written or oral) would need to be presented there would have to have been an Arbitral Panel in existence.  It follows that the Arbitral Panel would then have the jurisdiction and power to direct the Parties as to how and what documents and evidence were to be produced in accordance with the Agreement.  It follows that the Agreement created an Arbitral Panel with a valid jurisdiction before the creation of any Statement of Claim or defence.

To conclude otherwise would lead to a situation where the Agreement has both created and not created the Arbitral Panel.  The Agreement created the Arbitral Panel and has given that tribunal a jurisdiction to direct parties as to the presentation of, [sic] including a Statement of Claim and Defence.  At the same time, it has not created any Arbitral Panel and has not given it a jurisdiction because ‘Pleadings were not filed, and an arbitration agreement never came into existence’.  Such an interpretation of the nature of the Schedule 1 will lead to uncertainty.  It will be contrary to the principles of interpretation highlighted by the primary judge.  It will also be contrary to a principle set out in the case mentioned in Applicants’ Written Case … ‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.[35]

The general nature of the disputes and claims between the parties are specifically named in the Recital A and most relevantly and importantly correspond precisely with the Claims specifically covered in the Award.

[35]         Romero v Farstad Pacific Shipping (Indian Pacific) Pty Ltd (2014) 231 FCR 403, 414–5 [38] (Allsop CJ, Rares and McKerracher JJ) citing McCormick v Riverwood International (Australia) Pty Ltd [1999] FCA 1640, [74]–[77] (Weinberg J).

Analysis

  1. Arbitration has been a method and feature of dispute resolution under the common law well before the various Arbitration Acts. However, the various Acts and in particular the Act, provide numerous advantages particularly in relation to enforcement. Arbitration may be conducted according to the common law. The Act however applies to ‘domestic commercial arbitrations’.
  1. To qualify as a ‘domestic commercial arbitration’ the parties must agree that ‘any dispute that has arisen or may arise between them is to be settled by arbitration’. The agreement may be in the arbitration agreement or in any other document in writing (s 1(3)(b) of the Act).
  1. Under s 7(1) of the Act ‘arbitration agreement’ is defined as ‘an agreement by the parties to submit to arbitration all or certain disputes, which have arisen and which may arise between them’. Although the agreement must be in writing (s 7(3)), it is sufficient if it is recorded ‘in any form’ if the agreement is otherwise concluded orally or by conduct (s 7(4)).
  1. The requirements contained in ss 1(3)(b) and 7(1) are addressed to establishing that ‘all or certain disputes’ have been submitted in writing to arbitration. If the submission embraces ‘all’ disputes, it is plain that the provisions are met, even though the disputes in question have not, in the agreement itself, been identified with any particularity. More precise identification must then await the arbitral process itself. There is no reason why a submission of ‘certain’ disputes should demand any greater specificity. Therefore, although the word ‘certain’ is capable of connoting precise identification, as used in s 7(1) it means simply ‘some’, standing in contrast to ‘all’. This is usually satisfied by submitting any dispute under a particular agreement, as noted by the judge. Equally, the parties may agree in writing to a mechanism or process for determining which disputes that have arisen or which may arise between them are to be submitted to arbitration. As long as there is a process to determine with certainty which disputes are to be submitted, there is a valid and binding arbitration agreement. The particular disputes need not be identified in the arbitration agreement.
  1. Turning to the facts of the present case, the matter may be tested by considering the position at the time the Arbitration Agreement was signed. At that point, prior to the giving of any direction by the Arbitral Panel and therefore prior to the filing of any pleadings, there can be no issue as to the validity of the Arbitration Agreement, which was immediately binding on the parties. It provides in writing for the submission of disputes between the parties to arbitration. The disputes are identified, both in the definition of ‘Disputed Matters’, which presupposes a direction by the Arbitral Panel, and in Recital A. The Act requires no more, and no Masters v Cameron[36] issue arises.

[36]         (1954) 91 CLR 353; [1954] HCA 72.

  1. In our opinion, the fact that the Arbitral Panel gave no direction, and no pleadings were exchanged, does not alter that position.  The Arbitration Agreement identifies the general nature of the disputes submitted to arbitration in Recital A, leaving the precise articulation and quantification of the specific claims to be determined by pleadings as directed by the Arbitral Panel.  In this case, the parties instead agreed orally that this need not occur.  While that gave the defined term ‘Disputed Matters’ no work to do, the description of the disputes in Recital A was plainly thought sufficient to identify the subject matter of the arbitration.  That was not inconsistent with the Arbitration Agreement, because the Arbitral Panel did not direct pleadings at all.  Nothing in the Arbitration Agreement dictated that such directions were mandatory.  In their absence, the Arbitration Agreement still appointed arbitrators for the purpose of deciding the disputes identified in Recital A.
  1. It follows that it is not correct to say that, because there were no ‘Disputed Matters’ (as defined), nothing was submitted to arbitration, or that the Arbitration Agreement did not provide for ‘certain disputes’ to be submitted to arbitration.  The first proposed ground is not made out.
  1. Given the nature and extent of the argument we will grant leave to appeal on this proposed ground but dismiss the appeal.

Proposed ground 2 — Reasons

  1. To understand proposed ground 2, it is necessary to say a little more about the Reasons for the Award.
  1. The Reasons are not easy to understand.  This may partly be due to the fact that they have been translated.  In any event, however, some things are clear enough.  Having decided that the sale of the Properties was void for ‘overreaching’, the Reasons state that ‘there remains at most the debt of $1,831,360’, as to which there was no proof of overreaching.
  1. As to that amount, the Reasons state that approximately $1,000,000 was principal which the applicants were ‘certainly … liable to pay’, and the remainder profits or interest.  There being doubt as to the position regarding interest, one third would be awarded.  The respondent was also entitled to $126,000 by way of principal under separate loans and ‘5% of the profits as a compromise amount’, together with amounts referable to ‘damage and toil aggravation etc’.  This produced the figure of $1,635,802.
  1. The source of these figures is not further explained.  However, the Reasons state earlier that the applicants ‘completely relied on all of the calculations’ of the respondent, except for disputing the claimed debt of $1,831,360.

Judge’s reasons

  1. As noted at paragraph 45 above, the judge held that in relation to Claim 1 the reasons were adequate.

Applicants’ submissions

  1. The applicants submitted that having identified the relevant contested dispute between the parties in relation to the monetary component of Claim 1 — whether the principal has been repaid — the finding in favour of the respondent ‘contains nothing which can be described as constituting “some reasoning process setting out how the tribunal came to its decision”’.
  1. The applicants submitted further that the claim in respect of interest is not severable and the failure to give reasons in relation to repayment of the principal means that the interest component cannot be enforced.

Respondent’s submissions

  1. The respondent submitted that there was no error in the finding and reasons of the judge.  The reasons were adequate in circumstances where the evidence established, as sufficiently identified in the Award, that the respondent provided the Arbitral Panel with a document that consolidated all of the financial dealings between the parties, being a document relied on by the applicants, who tendered no documentary evidence and simply made bald unsubstantiated assertions about repayment.

Analysis

  1. The authorities are not in dispute.  Both parties relied on the decision of the High Court in Westport Insurance Corporation v Gordian Runoff Ltd (‘Gordian Runoff’).[37]

[37]         (2011) 244 CLR 239; [2011] HCA 37.

  1. Prior to that decision, there was some difference of opinion between the Victorian and New South Wales Courts of Appeal.  In Oil Basins Ltd v BHP Billiton Ltd,[38] the Victorian Court of Appeal held that in certain circumstances the complexity of reasons could reach that of a superior court.  In Gordian Runoff Ltd v Westport Insurance Corporation,[39] the New South Wales Court of Appeal held that the arbitral reasons did not have to be of a judicial standard. The Court referred to the test formulated by Donaldson LJ in Bremer Handelsgesellschaft mbH v Westzucker GmbH [No 2] as follows:

All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is.  That is all that is meant by a ‘reasoned award’.[40]

[38]         (2007) 18 VR 346; [2007] VSCA 255.

[39]         [2010] NSWCA 57 (‘Gordian Runoff v Westport’).

[40]         Ibid [215] (Allsop P, Spigelman CJ agreeing at [1], Macfarlan JA agreeing at [305]) quoting Bremer [1981] 2 Lloyd’s Rep 130, 132–3 [25].

  1. The New South Wales Court of Appeal emphasised the differences between arbitration and litigation and said:

[I]t is wrong to equate the obligations of judges and arbitrators to give reasons as part of the ascription of meaning to the CA Act, s 29(1)(c). This is because of my view that so to equate the responsibilities of arbitrators and judges is not in accordance with the content of either s 29(1)(c) or the Model Law (being relevantly its source and inspiration) or with international arbitration practice as reflected by the cases.[41]

[41]         Ibid [224].

  1. The issue was clarified by the High Court in Gordian Runoff.[42]  Both the joint judgment (French CJ, Gummow, Crennan and Bell JJ)[43] and the separate concurring judgment of Kiefel J[44] endorsed Donaldson LJ’s test of the standard of reasons required in arbitral awards and referred to the passage set out above.  The joint judgement[45] and the separate concurring judgment of Kiefel J[46] make clear that there was nothing in the legislation to suggest that arbitral awards should display reasons of a judicial standard.

[42]         (2011) 244 CLR 239; [2011] HCA 37.

[43]         Ibid [53]–[54].

[44]         Ibid 270–1 [169]–[170].

[45]         Ibid 302–3 [53].

[46]         Ibid [169].

  1. The adequacy or sufficiency of reasons will depend on the evidence, the complexity and nature of the issue, and the relevant finding.  The reasons must address why the arbitrators have reached a particular decision.
  1. The first point to note is that the issue in respect of the monetary component of Claim 1 was relatively simple and straightforward.  The applicants claimed that they gave back about $1 million over the years.  The respondent claimed that he received only an insignificant amount.  The applicants produced no evidence to support their bald and general assertion of repayment.  The respondent provided the Arbitral Panel with a document that consolidated all the previous financial dealings between the parties.  The document contained information regarding monies advanced to, and repaid by, the applicants over time.  The applicants relied on these figures.  Presumably these figures formed the basis of the Award.[47]

[47]         As referred to above, the reconciliation document is not in evidence.

  1. As noted earlier, the judge held that, although the Reasons for the Award are ‘not easy to understand’ and ‘[t]he language is often disjointed’, ‘they are adequate’.[48]  In particular, the judge noted ‘that the Reasons on Claim 1 set out the relevant arguments, the Halachic principles upon which they rely, and the conclusions arrived at consequential to those facts’.[49]

[48]         Reasons [154]–[155].

[49]         Ibid [155].

  1. It must be recalled, and it is not without significance, that Claim 1 dealt with a wider issue than repayment of the loan or principal.  Claim 1 was essentially a claim to the Properties because of non-payment of the principal.  The Reasons for the Award deal with and provide reasons as to why the claim to the Properties failed.  There is no suggestion that in this respect the reasons were not adequate.  However, a necessary part of the reasoning required a consideration of the extent of disparity between the value of the Properties and the amount of the loan or principal.  The existence and extent of the loan and any unpaid balance were integral to the analysis, reasoning and findings.
  1. Having rejected the claim to the Properties, the amount owing became the primary focus, although as pointed out it also informed the dismissal of the claims to the Properties.
  1. The Reasons for the Award set out the relevant rival arguments, albeit rather inelegantly (which may to some extent be  a result of translation).  Nevertheless, the Reasons for the Award record the assertion by the applicants that they ‘gave back over those years approximately 1,000,000’ and the assertion by the respondent that ‘he received only an insignificant amount here and there’.
  1. In finding for the respondent, the reason stated in the Reasons for the Award was that ‘the [applicant] completely relied on all of the calculations of the [respondent] and now he disagrees with him regarding a “significant” amount’.  This sufficiently conveys that the applicants had no documentation and yet asserted a ‘significant’ disparity between the versions while simultaneously relying on the respondent’s detailed document, which was in evidence before the Arbitral Panel.  The Reasons for the Award then go on to deal with the issue of interest and, it may be inferred, rely on the same figures put forward by the respondent in undertaking the necessary calculations.  The applicants, on whom the onus lay to establish that the reasons were inadequate, led no evidence suggesting otherwise.  Good or bad, out of sequence, not fully or precisely stated, there is a sufficient process of reasoning in dealing with Claim 1.
  1. In light of our finding, the issue raised by proposed ground 2(c) as to whether the applicant’s liability for interest was separate and divisible from the portion of the Award dealing with their liability to repay the borrowed principal, does not arise.
  1. It is also not necessary to deal with a notice of contention, by which the respondent contended that, even if the Reasons for the Award were inadequate and capable of triggering the discretion of the Court under s 36 of the Act to refuse to enforce the Award, the Award should still be enforced as there was no serious breach of the rules of natural justice.
  1. We will grant leave on proposed ground 2 but dismiss the appeal.

Conclusion

  1. Accordingly, we grant leave to appeal and dismiss the appeal.

 

CAS 2019/A/6148 World Anti-Doping Agency v. Sun Yang & Fédération Internationale de Natation (Full English Judgment)

Case Name: CAS 2019/A/6148 World Anti-Doping Agency v. Sun Yang & Fédération Internationale de Natation
Court: 1st Court of Civil Law (Sweden)
Medium Neutral Citation: 4A_318 / 2020
Hearing Date(s): 28 February 2020
Decision Date: 22 December 2020
Before: Federal Judges, Kiss, president, Hohl, Niquille, Rüedi and May Canellas.

Registrar: MO Carruzzo.

Decision: The Federal Tribunal Orders that:

1.   The request for review is allowed and the award under appeal is set aside.

 

2.   The challenge against arbitrator Franco Frattini is allowed.

 

3.   Legal costs, set at 7,000 fr., Are charged to the respondent foundation.

 

4.   The respondent foundation will pay the applicant compensation of 8,000 fr. for costs.

 

5.   The securities paid by the applicant are released.

 

6.   This judgment is communicated to the representatives of the parties and to the Court of Arbitration for Sport (CAS).

 

 

Parties Sun Yang

Appellant

 

v

World Anti-Doping Agency (WADA),

First Respondent

 

&

 

International Swimming Federation (FIN A),

Second Respondent

Representation Me Fabrice Robert-Tissot and Mes Christopher Boog and Philippe Bärtsch (Counsel for the applicant)

&

Mes Xavier Favre-Bulle and Marc-Anthony de Boccard (Counsel for the First Respondent)

 

&

Me Serge Vittoz (Counsel for the Second Respondent)

 

 Judgment

 

International sports arbitration,

request for review of the award rendered on February 28, 2020 by the Court of Arbitration for Sport (CAS 2019 / A / 6148).

 

Facts:

 

 

Aa  Sun Yang (hereafter: swimmer or athlete) is a world-class Chinese swimmer who has won several Olympic medals and world championship titles in various swimming events.

The World Anti-Doping Agency (hereafter: WADA) is a foundation under Swiss law; its headquarters are in Lausanne. Its main purpose is to promote the fight against doping in sport at the international level.

The Fédération Internationale de Natation (hereafter: FINA), an association governed by Swiss law with its headquarters in Lausanne, is the governing body for swimming worldwide.

 

Ab  During the night of September 4, 2018, the athlete was subject to an out-of-competition doping control ordered by FINA, as a “testing authority”, the implementation of which was delegated to International Doping Tests and Management (IDTM), which acts as the “sample collection authority”. The circumstances in which the unannounced athlete test took place are at the heart of this dispute. As the parties’ versions differ on a number of points, the Federal Tribunal will stick to the facts found in the award under appeal.

On September 4, 2018, between 10 p.m. and 11 p.m., the sample collection staff, made up of a doping control officer (hereafter: the DCO), an assistant responsible for carrying out the blood samples (“Blood Collection Assistant”; hereafter: the BCA) and another male assistant (“Doping Control Assistant”; hereafter: the DCA), went to the home of the athlete in Hangzhou, China, to collect blood and urine samples from the swimmer. The three aforementioned persons were accompanied by a driver, who did not take part in the disputed doping control.

The DCO, which the athlete already knew due to a previous doping control in which she had participated, presented himself to him, showing him a copy of his identity card issued by IDTM as well as a document of the FINA intended for IDTM, entitled “Letter of authority”, providing in particular as follows:

 

“[IDTM] is appointed and authorized by [FINA] to collect urine and blood samples from athletes in the frame of the doping controls organized as part of the FINA Unannounced out-of-Competition Testing Program”.

The DCA presented the athlete with his national identity card, while the BCA presented him with a copy of his junior nurse certificate, entitled “Specialized Technical Qualification Certificate for Junior Nurses” [STQCJN].

The athlete signed the “Doping Control Form” and cooperated by providing two blood samples. These were sealed in glass containers and kept in a storage box.

Shortly thereafter, the athlete discovered that the DCA was taking photographs of him. Deeming this behavior inappropriate, he wished to re-examine more carefully the documents presented by the sample collection staff, in particular the DCA references. The swimmer considered that the information provided by the DCA was insufficient. At the initiative of the DCO, or at least with its agreement, the DCA, whose task was exclusively to supervise the process of taking urine samples, was excluded from the control mission. No urine sample could be collected, as the DCA was the only male on the collection team.

Showing some concerns about the documents presented by the DCO and the BCA, the athlete sought advice by telephone from those around him. Shortly thereafter, his personal physician, Dr B .________, joined him there. The latter telephonically consulted his superior, Dr C .________, as well as D .________, head of the Chinese national swimming team. Dr B .________ and Dr C .________ then discussed with the DCO the accreditations of the sample collection staff as well as the “Letter of authority”. They informed the Athlete and the COD that the documents presented did not meet the required requirements, which is why the blood samples collected could not be taken away by the COD. The athlete thus wanted to recover said samples. The DCO warned the swimmer that this could be seen as a possible failure to comply with doping control which could have serious consequences. After intense discussion and under pressure from the athlete, the COD or BCA removed a glass container from the storage box and returned it to the swimmer.

Following the instructions of his superior, G .________, which were given to him by telephone, the DCO told the athlete to recover the equipment belonging to IDTM. As the glass container could not be opened manually, the athlete then instructed a security guard to break it. The latter destroyed the glass container with a hammer, the athlete assisting him in this task by projecting light through his cell phone. The athlete then collected the blood samples, which remained intact, and returned the fragmented COD container. He also tore up the doping control form he had previously signed.

At the athlete’s request, Dr B .________ transcribed the complainant’s remarks relating to the disputed doping control on a separate sheet of paper. The said document, signed by the DCO, the BCA, the DCA, the athlete and the aforementioned doctor, states the following in its English translation:

 

“On the night of September 4, 2018, 4 persons of FINA conducted urine test and blood test to Mr. SUN Yang. One of the four persons was the driver who was unrelated. The rest of three persons entered into the room. Among the three persons, the [DCO] (…) possessed and provided and showed the certification of Doping Control Officer. [The Athlete] actively cooperated with the testing. However, in the following process of blood and urine sample collection, [The Athlete ] found that the [BCA], Blood Collection Officer, only provided her Nurse Qualification Certificate (…) but did not provide any other proof of certification for Blood Collection Officer. [The DCA] (classmate of the [DCO]), the Doping Control Officer for urine test, only provided his resident ID card (…) and did not provide any other certification of Doping Control Officer for urine. They were unrelated personnel. Under our repeated inquiries, among them, only [the DCO] (…) provided the certification of Doping Control Officer, and the rest two could not provide Doping Control Officer certification and any other relevant authority. Therefore, the urine test and blood test cannot be completed. (The blood sample that has been collected could not been taken away.) “(The blood sample that has been collected could not been taken away.) “(The blood sample that has been collected could not been taken away.) ”

 

Ac  Denounced for anti-doping rule violation as a result of these facts, the swimmer was cleared on January 3, 2019 by the FINA Anti-Doping Commission.

In essence, the Commission considered that the documents presented to the swimmer by the officers responsible for carrying out the checks did not meet the required requirements. The athlete notification process was flawed. Consequently, the disputed doping control had to be regarded as invalid and void. Therefore, the blood taken during the said test could not be assimilated to a sample within the meaning of the anti-doping regulations. Overabundantly, the Commission pointed out that the totally inappropriate behavior of the DCA (taking photographs of the athlete) constituted a justifiable reason to put an end to the collection of urine samples. As for the BCA, it had not provided the athlete with any document establishing that she had the necessary qualifications to perform a blood test. Finally, as regards the COD, it had not clearly indicated to the swimmer that it considered his behavior as a possible failure to comply with the doping control likely to have serious consequences.

 

 

Ba  On February 14, 2019, WADA sent the Court of Arbitration for Sport (CAS) a declaration of appeal, in which it requested the suspension of the athlete for a period of eight years.

The appellant amended its notice of appeal dated February 18, 2019, citing FINA as the second respondent.

At WADA’s request, the CAS granted it an extension of 20 days to file its appeal brief.

On April 3, 2019, WADA forwarded its appeal brief to CAS.

On April 16, 2019, the Challenge Commission of the International Council on Sports Arbitration (ICAS) rejected the challenge filed by the athlete against the arbitrator appointed by WADA, Michael J Beloff.

On May 1, 2019, the CAS informed the parties that the Panel would be made up of arbitrators Michael J. Beloff and Philippe Sands, as well as a third person, Franco Frattini, judge in Rome, who would chair it.

The swimmer appealed to the Federal Tribunal against the decision rejecting the challenge request against the arbitrator appointed by WADA.

By judgment of September 25, 2019, the Federal Tribunal struck the case out of the list due to the resignation of the said arbitrator on June 28, 2019 (case 4A_265 / 2019).

On May 9, 2019, the athlete asked the CAS to split the procedure (“Request for bifurcation”) and to examine the question of the admissibility of the appeal and / or its jurisdiction.

On May 19, 2019, the CAS informed the parties that the Panel had rejected the objection of inadmissibility because of the delay in filing the appeal brief. Seized of a new appeal lodged by the athlete against the said decision, the Court hereby declared it inadmissible insofar as it was not without object (judgment 4A_287 / 2019 of January 6, 2020).

During the proceedings, the swimmer and FINA also argued that the appellant’s counsel was in a conflict of interest. On May 29, 2019, the athlete filed a writing at the end of which he concluded that the appellant’s counsel was prohibited from representing her in the proceedings pending before the CAS, to the inadmissibility of the notice of appeal and the appeal brief due to the inability to apply for lawyers and hence the lack of jurisdiction  ratione temporis of the CAS to settle the dispute. By incidental decision of July 26, 2019, the CAS rejected the request presented by the athlete. The Federal Court declared inadmissible the appeal lodged by the swimmer against the said decision (judgment 4A_413 / 2019 of October 28, 2019).

On July 5, 2019, WADA chose a new arbitrator in the person of lawyer Romano Subiotto.

The athlete requested the challenge of the aforementioned arbitrator on July 12, 2019. By decision of July 26, 2019, the ICAS Challenge Commission rejected the challenge request.

On August 14, 2019, the athlete and FINA filed their response.

On November 15, 2019, the Panel held a hearing in Montreux, broadcast live on the internet with the agreement of the parties, during which it heard the athlete and eight other people.

 

Bb  The Formation rendered, on February 28, 2020, an arbitration award by which it found the athlete guilty of violation of art. 2.5 of the FINA Doping Control Rules, version 2017 and suspended him for a period of eight years from the date of the sentence. It also rejected WADA’s request for the annulment of the results obtained in competition by the swimmer during the period between September 4, 2018 and February 28, 2020.

In short, the Panel, after having dismissed the procedural objections raised by the athlete, considered that the rules on the notification of the doping control had been respected, the documents presented to the swimmer being sufficient to proceed to the doping test. In addition, there was nothing to justify the conduct adopted by the swimmer, who had ordered the destruction of the container containing the blood samples, tore up the doping control form, and prevented the COD from leaving the premises with the blood samples already taken. The referees further considered that the COD had made the athlete sufficiently attentive to the consequences that could result from his actions. Noting that the athlete had already broken anti-doping rules for the first time in June 2014,they considered that the duration of the athlete’s suspension should be doubled and extended to eight years. For a series of reasons that it is not necessary to state here, the Panel ruled that the annulment of the results obtained by the swimmer between September 4, 2018 and the pronouncement of the sentence was not justified.

 

On April 28, 2020, the athlete appealed in civil matters to the Federal Tribunal for the purpose of obtaining the annulment of the award rendered on February 28, 2020. He further concluded that the Federal Tribunal declare that the CAS is not competent and that he pronounce the challenge of the referee Romano Subiotto (case 4A_192 / 2020). This case is still pending.

 

On June 15, 2020, the swimmer (hereafter: the applicant) submitted an application for review of the award rendered on February 28, 2020. There he made submissions tending to the annulment of the award and the recusal of the award. President of the Arbitration Panel, Franco Frattini.

In support of his request for review, based on art. 121 let. a LTF , the applicant argues that he learned, on the occasion of the publication of an article on the website xxx.com dated May 15, 2020, that the arbitrator Franco Frattini had published, on his account Twitter, repeatedly made in 2018 and 2019, unacceptable comments about Chinese nationals, which, according to him, is likely to raise legitimate doubts as to the impartiality of the said referee in the context of this dispute involving an athlete Chinese.

The petitioner responded to the request for security for costs filed by WADA (hereafter: the respondent foundation), by spontaneously paying the sum of 15,000 fr. (under deduction of costs) to the Federal Tribunal Fund, which was noted by order of July 22, 2020.

On September 4, 2020, FINA (hereafter: the respondent association) declared that it was going to court.

In its response of September 4, 2020, the CAS concluded that the request for review should be rejected to the extent of its admissibility. He produced, as an annex to his writing, a written statement from arbitrator Franco Frattini, in which he vigorously contested the complaints made against him by the applicant.

On September 4, 2020, the respondent foundation concluded that the request for review should be rejected.

The applicant replied spontaneously, prompting a rejoinder from the respondent foundation and the CAS.

 

 

Considering in law:

 

According to art. 54 para. 1 of the Law on the Federal Tribunal of 17 June 2005 (LTF; RS 173.110), the Federal Tribunal writes its judgment in an official language, generally in the language of the contested decision. When this decision has been rendered in another language (here English), the Federal Tribunal uses the official language chosen by the parties. Before the CAS, they used English, while, in their briefs to the Federal Tribunal, they used French. In accordance with its practice, the Federal Tribunal will therefore issue its judgment in French.

 

The Federal Tribunal is seized of an appeal in civil matters and a related request for review against the same arbitration award. In such a case, the appeal is in principle treated as a priority ( ATF 129 III 727considering 1 p. 729; judgment 4A_231 / 2014 of September 23, 2014 at. 2). In this case, the request for review relates to only one question since the petitioner calls into question only the impartiality of the President of the Panel who issued the award under appeal. For reasons of procedural economy, it is therefore appropriate to derogate from the rule and examine first the request for review, since if this were allowed, this would entail the annulment of the award and exempt the Federal Tribunal to rule on the numerous complaints made by the person concerned in his appeal brief.

 

The headquarters of the CAS are in Lausanne. At least one of the parties was not domiciled in Switzerland at the relevant time. The provisions of chapter 12 of the law on private international law (LDIP; RS 291) are therefore applicable ( art. 176 para. 1 LDIP ).

 

 

4.1.  The LDIP does not contain any provision relating to the review of arbitral awards within the meaning of arts. 176 ff LDIP . The Federal Supreme Court has filled this gap by case law. The Federal Tribunal is the competent judicial authority to hear the request for review of any international arbitration award, whether final, partial or preliminary. If it accepts a request for review, the Federal Tribunal does not itself rule on the merits but refers the case to the arbitral tribunal which ruled or to a new arbitral tribunal to be constituted ( ATF 142 III 521 at 2.1 p. 525; 134 III 286 at 2 p. 287 and the references).

 

4.2.  In his request for review, the complainant argues that he discovered, in May 2020, the existence of circumstances likely to seriously question the impartiality of the President of the Panel who pronounced the award under appeal. He therefore considers himself entitled to invoke, in relation to these circumstances, the specific ground for challenge provided for by law ( art. 121 let. A LTF ).

In several judgments, the Federal Tribunal has considered whether it is necessary to open the way for revision when a reason comparable to that in question is only discovered after the expiry of the time limit for appeal. However, it left the question undecided ( ATF 143 III 589 at 3.1 p. 597; 142 III 521 at 2.3.5 p. 535; judgments 4A_234 / 2008 of August 14, 2008 at 2.1; 4A_528 / 2007 of April 4, 2008 recital 2.5).

In a leading judgment, the First Civil Law Court carried out an in-depth examination of the question, by studying not only the solutions recommended by the doctrine and those adopted in comparative law, but also by examining the preparatory work relating to various laws. It noted in particular that the legislature did not seem to have been concerned with the issue relating to the review of international arbitral awards and that, therefore, nothing was against the Federal Tribunal again filling a gap in the LTF or the LDIP. At the end of its examination, the Federal Tribunal evoked the need to admit that the discovery, after the expiry of the time limit for appealing against an international arbitral award, of a reason which would have required the challenge of the sole arbitrator or one of the members of the arbitral tribunal may give rise to the filing, before the Federal Tribunal, of a request for review of the said award, provided that the requesting party has not been able to discover the reason for the challenge. during the arbitral proceedings, showing the attention required by the circumstances. He left the matter open, however, not only because the request for review submitted for his consideration had to be rejected anyway, but also to take into account what a grooming, if not a recasting, of Chapter 12 of the LDIP was. running (could not discover the ground for challenge during the arbitral proceedings by showing the attention required by the circumstances. He left the matter open, however, not only because the request for review submitted for his consideration had to be rejected anyway, but also to take into account what a grooming, if not a recasting, of Chapter 12 of the LDIP was. running (could not discover the ground for challenge during the arbitral proceedings by showing the attention required by the circumstances. He left the matter open, however, not only because the request for review submitted for his consideration had to be rejected anyway, but also to take into account what a grooming, if not a recasting, of Chapter 12 of the LDIP was. running (execution (execution ( ATF 142 III 521 recital 2.3.5).

Since then, the situation has evolved from a legislative point of view. In its Message of 24 October 2018 concerning the modification of the federal law on private international law (chapter 12: International arbitration), the Federal Council proposed to open the way for revision, when a ground for recusation is not discovered only after the end of the arbitral proceedings (FF 2018 p. 7184). In his opinion, this solution is the only one which is effective. The remedy in civil matters turns out to be useless, when a party becomes aware of a ground for challenge only after the expiry of the period for appeal. The Federal Council also notes that the injured party does not always have the possibility of denouncing such a defect at the stage of the enforcement procedure. Moreover, this does not constitute an effective remedy, since the rejection of the request for exequatur does not lead to the annulment of the sentence (FF 2018 p. 7184).

The new art. 190a LDIP adopted by the federal legislature, the entry into force of which was set for January 1, 2021 (RO 2020 p. 4184), provides, in its para. 1 let. c, that a party may request the review of an award, if, despite having exercised due diligence, a ground for challenge is not discovered until after the conclusion of the arbitral proceedings and no other legal remedy is open.

For all the reasons mentioned in ATF 142 III 521 and in view of the new solution adopted by the legislator, it is necessary to fill the existing gap, by admitting that the discovery, after the expiry of the time limit for appealing against an award international arbitral tribunal, a reason requiring the challenge of an arbitrator may give rise to the filing, before the Federal Tribunal, of a request for review of the said award, provided that the requesting party has not been able to discover the reason challenge during the arbitral proceedings by showing due diligence, i.e. the attention required by the circumstances.

 

4.3.

The applicant states that he learned on May 15, 2020, at the earliest, of the existence of the ground for challenge.

For the reason based on the violation of the rules on recusation, the request for review must be filed with the Federal Tribunal, on pain of forfeiture, within 30 days of the discovery of the ground for review ( art. 124 para. 1 let. . a LTF ). This is a question of admissibility, not of the merits. It is up to the applicant to establish the determining circumstances for verifying that the deadline has been met (judgments 4A_247 / 2014 of 23 September 2014 at 2.3; 4A_570 / 2011 of 23 July 2012 at 4.1).

In this case, the award under appeal was notified to the applicant on March 2, 2020. The 30-day appeal period, set out in Art. 100 LTF, suspended from March 21 to April 19, 2020 inclusive by virtue of the order of March 20, 2020 of the Federal Council on the suspension of deadlines in civil and administrative proceedings to ensure the maintenance of justice in connection with the coronavirus, expired on 1 May 2020. However, the applicant states that he learned on 15 May 2020, at the earliest, of the existence of the ground for challenge. By submitting his request for review on June 15, 2020 to the Federal Tribunal, the applicant acted in good time. The question whether the claimant could and should have discovered the ground for the challenge during the arbitral proceedings by showing the attention required by the circumstances will be examined below.

 

 

5.1.  In support of his request for review, the applicant alleges that an article entitled “…”, written by a named E .________, published on May 15, 2020 on the website xxx.com, reported on various messages published by arbitrator Franco Frattini on his Twitter account between May 28, 2018 and June 9, 2019, i.e. before and during the arbitral proceedings conducted before the CAS.

The tweets, short messages of 140 characters maximum, posted by the offending arbitrator read as follows:

 

– tweet of May 28, 2018:

 

“Show the HORROR

THIS IS CHINA TODAY !! I’m sure nobody will ha e the courage to respond to me !!! Ambassador of China to Italy, where are you ??? Are you silent on the tortures on dogs in Yulin ??? ”

– tweet of May 28, 2018:

 

“Let’s multiply our messages! Invade in China with our protest against horror and torture on stray dogs and cats, as they try to invade our markets with fake products !! Raise our voice, otherwise we are in complicity !,”

– tweet of July 3, 2018:

 

“Hell forever for those bastard sadic chinese who brutally killed dogs and cats in Yulin, with the complicity of the chinese authorities !!!”

– tweet of May 28, 2019:

 

“This yellow face chinese monster smiling while torturing a small dog, deserves the worst of the hell !!! Shame on China, pretending to be a superpower and tolerating these horrors !!”

 

– tweet of May 28, 2019:

 

“Racist ???? Me ?? ehi guy, I repeat: those horrible sadics are CHINESE! Not French or Italian or polish! And I think they deserve a worse hell than the one in which they torture innocent animals !! Chinese is Yulin !!! do you want to defend !! come on, shame !!! ”

– tweet of June 2, 2019:

 

“Old yellow-face sadic trying to kill and torture a small dog: this is China’s picture !!! Westerners doing rich business with China bear in mind these atrocities” [response to a post by another user of the social network Twitter]

– tweet of June 9, 2019

“Torturing innocent animal is a flag of chinese! Sadics, inhumans with the protection of chinese authorities and the tolerance of western powers focusing on more business with China, regardless any massive violence! Shame on china and their protectors!” chopping animal carcasses].

 

5.2. As a preliminary point, the respondent foundation argues that the request for review is based on new evidence, either the article published on May 15, 2020, aimed at establishing old facts, or the tweets published between 2018 and 2019 by the referee involved. Referring to an unpublished judgment (4P.76 / 1997 of 9 July 1997, reproduced in Bulletin ASA 1997 p. 511), it notes that the Federal Tribunal left the question of the admissibility of a well-founded request for review undecided. on evidence which did not yet exist at the time the decision to be reviewed was rendered but which is intended to establish facts prior to that decision. According to the respondent foundation, such a process would be inadmissible. The request for review should therefore be dismissed, since the applicant does not/is unable to demonstrate the content of the tweets without post-sentencing evidence.

Such an argument does not stand up to scrutiny. Indeed, the applicant bases his request for review on the various tweets published by the arbitrator in 2018 and 2019, which he moreover annexed separately to his writing, and not on the article published on the internet on May 15. 2020. The respondent foundation is therefore wrong to claim that the applicant would not be able to establish the tweets and their content without the new means of proof. If the person concerned produced the article, it was only to establish the date on which he claims to have discovered the tweets on which his request for review is based. However, the presentation of new facts and new documents subsequent to the contested decision making it possible to determine the admissibility of an act submitted to the Federal Supreme Court is admissible ( ATF 136 III 123 recital 4.4.3; judgments 4F_6 / 2019 of March 18, 2020 rec. 2.1; 4A_705 / 2014 of May 8, 2015 consid. 2.1). The complaint is therefore ill-founded.

 

The respondent foundation and the CAS argue that the applicant could have discovered during the arbitration proceedings, by showing a little diligence, the facts on which he based his request for review.

 

6.1.  The party who intends to challenge an arbitrator must invoke the ground for challenge as soon as it becomes aware of it. This jurisprudential rule, expressly reproduced in art. R34 of the Code of Arbitration in Sports Matters (hereafter: the Code), covers both the grounds for challenge that the interested party actually knew and those that it could have known by showing due attention ( ATF 129 III 445 at 4.2.2.1 p. 465 and the references), it being specified that choosing to remain in the dark may be regarded, depending on the case, as an abusive maneuver comparable to postponing the announcement of a challenge request ( ATF 136 III 605considering 3.2.2 p. 609; judgments 4A_110 / 2012 of October 9, 2012 rec. 2.1.2; 4A_506 / 2007 of March 20, 2008 rec. 3.1.2). The rule in question constitutes an application to the field of arbitral proceedings of the principle of good faith. By virtue of this principle, the right to invoke the plea based on the irregular composition of the arbitral tribunal expires if the party does not immediately assert it, because the party cannot keep it in reserve and only invoke it. In the event of an unfavorable outcome of the arbitral proceedings (judgment 4A_506 / 2007, cited above, recital 3.1.2 and the cases cited). A request for review based on the alleged bias of an arbitrator can therefore only be considered with regard to a ground for challenge that the applicant could not discover during the arbitral proceedings by showing proof of the attention required by the circumstances (judgments 4A_234 / 2008, cited above, recital 2.2.1; 4A_528 / 2007, cited above, recital 2.5.1).

 

6.2. The applicant claims to have discovered the offending tweets when the article by E .________ was posted on May 15, 2020. He states that one of his counsel carried out research to ensure the impartiality of the arbitrator Franco Frattini, when the latter was appointed president of the Arbitration Panel on May 1, 2019. According to his explanations, no contentious tweet appeared when the said council introduced, into the Google search engine, the words “Franco + Frattini”, “Franco + Frattini + sport”, or “Franco + Frattini + Court of Arbitration for Sport”. In this regard, he also refers to a report of June 12, 2020 drawn up at his request by a named F .________, an independent forensic expert, confirming that no suspicious tweet was produced. Displayed when performing a search in the aforementioned search engine with the keywords “Franco + Frattini”. The complainant emphasizes, moreover, that he had no reason to suspect that the arbitrator might have made inadmissible comments in tweets concerning the protection of animals. He cannot therefore be criticized for not having been able to identify the said tweets, which are objectively difficult to find.

 

6.3. In its response, the CAS notes that the offending tweets were posted online between May 28 and July 3, 2018 (recte: June 9, 2019). These were visible as soon as they were published and are still visible today. He argues that the complainant could easily have detected them when appointing the arbitrator in question, if he had undertaken somewhat serious research. In his opinion, it is not enough to enter the name of the arbitrator in the Google search engine. Another occurrence should be added, in order to establish a possible link between the arbitrator and another person or a third party. Also, in the opinion of the CAS, it would not have been absurd to use, for example, the words “Frattini” and “China”, which would have been enough to make certain contentious tweets appear on the first page of the list of search results carried out using the aforementioned search engine.

According to the CAS, the levity displayed by the applicant when looking for elements likely to call into question the impartiality of arbitrator Franco Frattini contrasts with the great care, even determination, shown by the applicant in with a view to obtaining the challenge of the arbitrators appointed by the respondent foundation. If the applicant had acted meticulously, he would have easily spotted the contentious tweets.

The CAS further emphasizes that the website on which the article was posted on May 15, 2020 is managed by a law firm specializing in the defense of athletes suspected of doping. The author of the said article, E .________, describes himself as a retired freelance journalist and engineer. He also took up the case for the applicant, openly defending the Chinese athlete in another article published on March 19, 2020 on the same website. According to the CAS, if a retired journalist was able to discover the contentious tweets in 2020, it is reasonable to think that any other person could have discovered them before the end of the procedure conducted by the CAS.

 

6.4. The respondent foundation argues that the applicant has not demonstrated that it was impossible for him, at the time when the accused arbitrator was appointed, and until the award of the award, to have access to the disputed tweets, whereas the burden of proof is on the athlete. It notes that by entering the first and last name of the arbitrator concerned, with or without quotation marks, into the Google search engine, the said arbitrator’s Twitter account appears on the first page of the list of search results. It also emphasizes that the Twitter account of the offending arbitrator is “public”, that is to say accessible to anyone with internet access, without necessarily having to hold an account on the same network. social. According to the respondent foundation, one could legitimately expect from an athlete risking eight years of suspension and the cancellation of his sports results that he browses, when appointing a referee, the latter’s Twitter account, accessible to all, by performing, at the very least, a simple search using a search engine. The applicant could in fact be required to examine “flagship social networks such as Facebook, Twitter, Instagram”. The applicant’s lack of curiosity is inexcusable, the search for an athlete risking such a heavy suspension must be up to the stakes of the case. Moreover, the applicant is not credible when he claims that it was difficult to detect the disputed tweets on the arbitrator’s account.

 

6.5. In the present case, the applicant states that he discovered the existence of the ground for challenge on May 15, 2020, at the earliest, the date of publication of the article by E .________. It should be noted from the outset that the publication of the said article by a person who seems to have taken up the cause of the defense of the athlete sanctioned, some two and a half months after the notification of the sentence, but especially close to ‘a year after the last of the offending tweets was posted online, it appears to say the least singular, if not welcome. However, it has not been established, on the basis of the elements provided by the parties to the present Court, that the applicant would have been aware of the elements on which he bases his request for disqualification before the publication of the said article respectively before the sentence is rendered or the time limit for appeal to the Federal Tribunal expires. The respondent foundation and the CAS do not claim the contrary, moreover, but argue that the applicant could and should have discovered the ground for challenge during the arbitral proceedings by showing the attention required by the circumstances.

Contrary to what the respondent foundation maintains, the question which arises at this stage is not whether or not it was possible for the applicant to have access to the disputed tweets during the arbitral proceedings but only to determine whether it was possible to may reproach him for not having shown the attention required by the circumstances when seeking the elements likely to call into question the impartiality of the arbitrator. In this regard, whatever the CAS thinks, it should be noted that the circumstance according to which the journalist E .________ was able to access the incriminated tweets, in 2020, is not, in itself, decisive. .

Case law imposes on the parties a duty of curiosity as to the existence of possible grounds for challenge likely to affect the composition of the arbitral tribunal ( ATF 136 III 605considering 3.4.2 p. 618; judgments 4A_110 / 2012, cited above, recital. 2.2.2; 4A_763 / 2011 of April 30, 2012 at. 3.3.2; 4A_234 / 2008, cited above, rec. 2.2.2; 4A_528 / 2007, cited above, rec. 2.5.3; 4A_506 / 2007, cited above, rec. 3.2). A party cannot therefore be satisfied with the general declaration of independence made by each arbitrator but must, on the contrary, carry out certain investigations to ensure that the arbitrator offers sufficient guarantees of independence and impartiality. The Federal Tribunal thus noted an inexcusable lack of curiosity on the part of a party who ignored certain data, accessible at all times, on the CAS website (judgments 4A_234 / 2008, cited above, recital 2.2.2; 4A_506 / 2007, cited above, recital 3.2). On the other hand, he never defined the exact extent of the duty of curiosity. It is indeed difficult to define the outlines of this duty which depend on the circumstances of each specific case. Be that as it may, this duty of curiosity is not unlimited. The parties are certainly required to carry out certain investigations, in particular on the internet (MAVROMATI / REEB, The Code of the Court of Arbitration for Sport, 2015, no 68 ad art. R34 of the Code; KAUFMANN – KOHLER / RIGOZZI, International Arbitration – Law and Practice in Switzerland, 2015, n. 8.138 et seq). If we can certainly require them to use the main computer search engines and consult sources likely to provide, a priori, elements allowing to reveal a possible risk of partiality of an arbitrator, for example the sites internet of the main arbitration institutions, parties, of their advice and of the studies in which they practice, that of the law firms in which certain arbitrators officiate, and in the field of sports arbitration, those of the respondent foundation and the sports institutions concerned, we cannot, however, expect from them that they engage in a systematic and in-depth analysis of all the sources relating to a determined arbitrator (cf. in this sense, KARIM EL CHAZLI, The impartiality of the arbitrator, Study of the implementation of the requirement of impartiality of the arbitrator, 2020, p. 325 and 330 f., which refers to French case law). Moreover, while it is true that it is possible to easily access the data appearing on free access websites, thanks to a single click, this does not mean, however, that the information in question is always easily identifiable. Indeed, as one author points out, while all information can be presumed to be freely accessible from a material point of view, it is not necessarily easily accessible from an intellectual point of view (EL CHAZLI, op. Cit. , p. 329). A party may thus, depending on the circumstances, need clues alerting it to the existence of a possible conflict of interest, requiring it to carry out more in-depth research, in particular when the reason for the risk of bias is a priori unsuspected (EL CHAZLI, op. cit., p. 329). So the mere fact that information is freely accessible on the internet does not mean the information in question is always easily identifiable.

A party may thus, depending on the circumstances, need clues alerting it to the existence of a possible conflict of interest, requiring it to carry out more in-depth research, in particular when the reason for the risk of bias is a priori unsuspected (EL CHAZLI, op. cit., p. 329). So the mere fact that information is freely accessible on the internet does not mean  ipso facto  that the party, which would not have been aware of it notwithstanding its research, would necessarily have failed in its duty of curiosity. In this regard, the circumstances of the concrete case will always remain decisive.

In this case, no one doubts that the Twitter account of the offending referee is accessible to everyone. No one further disputes that a link to the said account appears, in the first results, when the first and last name of the said arbitrator is entered into the Google search engine. It must therefore be admitted that the applicant could, in theory, have had access to the disputed tweets during the arbitration proceedings. However, it has not been established that the use of the Franco Frattini keywords in the aforementioned search engine, during the arbitration procedure, would have enabled the disputed tweets to appear. Contrary to what the CAS maintains, the applicant cannot be criticized for not having carried out research by also introducing the word “China”, because that would amount to admitting that the applicant should have speculated from the outset on a possible lack of impartiality on the part of the arbitrator by reason of the sole criterion of nationality, even though there was no evidence that could lead him to believe that the arbitrator The referee would, by hypothesis, have preconceived ideas with regard to athletes having the same nationality as him.

It remains to be seen whether, as the respondent foundation maintains, the applicant could and should have browsed the “flagship social networks” and, in particular, the Twitter account of the accused arbitrator. Of course, it does not appear to be excluded,  prima facie., that a party may be required, depending on the circumstances, to verify, by virtue of its duty of curiosity, the existence of possible grounds for challenge, by examining, within certain limits at least, various social networks. However, this is not without its specific problems, as the world of social networks is fluctuating and evolving rapidly. In addition, these have tended to multiply in recent years. Even assuming that we can qualify, once and for all, some of them as “flagship social networks”, it would still be necessary to circumscribe the extent of the duty of curiosity over time. At a time when some people frequently use or even abuse certain social networks, in particular by publishing countless messages on their Twitter account, it would be appropriate, where appropriate, not to be too demanding of the parties, under penalty of transforming the duty of curiosity into an obligation to carry out very extensive, if not almost unlimited, investigations requiring considerable time. There is, however, no need to examine this question further since the circumstances of the present case must lead to the denial of an inexcusable lack of curiosity on the part of the applicant.to examine this question further since the circumstances of the present case must lead to the denial of an inexcusable lack of curiosity on the part of the applicant. To examine this question further since the circumstances of the present case must lead to the denial of an inexcusable lack of curiosity on the part of the applicant.

In this case, the arbitrator in question was appointed on May 1, 2019. In accordance with art. R34 of the Code, the parties had a period of seven days to request its challenge. The applicant claims to have carried out certain investigations on the internet and consulted the CAS awards database to verify the cases in which the accused arbitrator had sat. If we can certainly possibly admit that the person concerned should have consulted, if only briefly, the Twitter account of the arbitrator in question, we cannot, on the other hand, consider, in the absence of any other alarming circumstance on the existence of a potential risk of partiality, which the interested party would have failed in his duty of curiosity, by not detecting the presence of tweets published nearly ten months (May 28, 2018 and July 3, 2018) before the appointment of the arbitrator (May 1, 2019), moreover drowned in the mass of messages from a Twitter account of a referee, it seems very active on the social network in question. In any event, and assuming that it should be remembered that the applicant could and should have discovered the first three disputed tweets published by the arbitrator, all prior to the latter’s appointment, such a conclusion would not apply in with regard to other messages posted by the referee. Indeed, a party cannot be required to continue its research on the Internet throughout the arbitral proceedings, nor, a fortiori, that it scrutinizes the messages published on social networks by the arbitrators during the arbitration proceedings.

The objection raised by the respondent foundation and the CAS must therefore be rejected.

 

The respondent foundation and the CAS dispute that the facts alleged by the applicant are capable of calling into question the impartiality of the arbitrator in question and can justify pronouncing his challenge.

 

7.1.  An arbitrator must, like a state judge, present sufficient guarantees of independence and impartiality. Failure to comply with this rule leads to an irregular designation falling under Art. 190 para. 2 let. a LDIP in international arbitration. To say whether an arbitrator presents such guarantees, it is necessary to refer to the constitutional principles developed on the subject of state courts, having regard, however, to the specificities of arbitration – especially in the field of international arbitration – during the ‘examination of the circumstances of the concrete case ( ATF 142 III 521 at 3.1.1; 136 III 605considering 3.2.1 p. 608 and the cited precedents; judgments 4A_292 / 2019 of October 16, 2019 rec. 3.1; 4A_236 / 2017 of 24 November 2017 consid. 3.1.1).

 

7.2.  The guarantee of an independent and impartial tribunal flowing from art. 30 para. 1 Cst.allows the challenge of a judge whose situation or behavior is likely to raise doubts as to his impartiality. It aims to prevent circumstances external to the case from influencing the judgment in favor or to the detriment of a party. It does not impose the challenge only when an effective prevention of the judge is established, because a provision falling within the internal forum can hardly be proved; it suffices that the circumstances give the appearance of prevention and give rise to fear of a partial activity of the magistrate. However, only the circumstances observed objectively need to be taken into account; the purely individual impressions of one of the parties to the trial are not decisive ( ATF 144 I 159 at 4. 3;142 III 521 rec. 3.1.1; 140 III 221 rec. 4.1 and the cases cited).

 

7.3.  In the case of  Mutu and Pechstein against Switzerland (judgment of October 2, 2018), the European Court of Human Rights (hereafter: the Court of Human Rights) was called upon to rule on the alleged lack of independence and impartiality of two CAS arbitrators. On this occasion, she underlined that impartiality is usually defined by the absence of prejudice or prejudice (§ 141). It also recalled that, according to its settled case-law, impartiality must be assessed not only from a subjective point of view, taking into account the personal conviction and behavior of the person called upon to rule on a given occasion, but also by following an objective approach, consisting in asking whether the tribunal offered, irrespective of the personal conduct of a judge, sufficient guarantees to exclude any legitimate doubt as to his impartiality (§ 141).Thus, in cases where it may be difficult to provide evidence to rebut the presumption of subjective impartiality of the judge, the condition of objective impartiality provides an additional important safeguard (§ 142). In this regard, the decisive factor is whether the apprehensions of a party concerning the lack of impartiality of an arbitrator can be regarded as objectively justifiable. In this regard, the Court likes to quote the English adage “justice must not only be done: it must also be seen to be done” (§ 143), which leads it to stress the importance that appearances same can coat.

7.4.  To verify the independence of the sole arbitrator or members of an arbitration panel, the parties may also refer to the guidelines on conflicts of interest in international arbitration, issued by the International Bar Association (IBA Guidelines on Conflicts of Interest in International Arbitration, approved May 22, 2004 and revised October 23, 2014 [hereinafter: the Guidelines]). These guidelines, which could be compared to the ethical rules used to interpret and clarify professional rules ( ATF 140 III 6 at 3.1 p. 9; 136 III 296considering 2.1 p. 300), of course do not have the force of law and it is always the circumstances of the concrete case which are decisive; they are nonetheless a useful working instrument, capable of contributing to the harmonization and unification of the standards applied in the field of international arbitration for the settlement of conflicts of interest, which instrument should not fail to influence the practice of arbitration institutions and courts ( ATF 142 III 521considering 3.1.2). One of the principles of the guidelines is that an arbitrator must refuse to sit or resign when there are or arise after his appointment, facts or circumstances which, in the view of a reasonable third party having knowledge of the facts and relevant circumstances, would give rise to legitimate doubts as to the impartiality or independence of the arbitrator (point 2 (b) of the guidelines). Doubts are legitimate if a reasonable third party, having knowledge of the relevant facts and circumstances, would consider it likely that the arbitrator would be influenced in his decision-making by factors other than the merits of the case as presented in the claims. of the parts (point 2 c) of the guidelines).

 

7.5.  In support of his request for review, the complainant maintains that the tweets published by the accused arbitrator between May 28, 2018 and June 9, 2019, even if they were broadcast in a context other than that of the arbitral proceedings concerning him, highlight manifest prejudices against Chinese nationals and objectively raise doubts as to the impartiality of arbitrator Franco Frattini.

According to the petitioner, the incriminated tweets reveal an unconscious bias or, at the very least, create an appearance of bias on the part of the challenged arbitrator towards any Chinese national. According to him, the terms used by the arbitrator are degrading, offensive and discriminatory against Chinese citizens. The punctuation used as well as the use of capital letters accentuate the virulence of the statements. In addition, the reference made to ethnic origin or skin color would betray the existence of stereotypes, synonymous with bias.

The complainant further maintains that the contested sentence contains inappropriate value judgments about his personality and hurtful comments about him. These passages, read in the light of the incriminated tweets, would thus suggest that the Panel, chaired by arbitrator Frattini, was animated by a form of resentment and bias unrelated to the case it was to decide.

 

7.6. In his written statement of September 3, 2020, annexed to the CAS response, the challenged arbitrator insists that he has taken up the defense of animals for many years and that he is opposed to any form of cruelty towards them. He points out that he published the offending tweets in a very specific context, in reaction to the “slaughter of animals committed each year in the city of Yulin in China on the occasion of the disastrous traditional Dog Meat Festival”, having for object “the slaughter of dogs and cats, which are then roasted and sold at a fair “. He admits having reacted in a very emotional way, discovering some videos where we see dogs “being tortured with sadism by some people” and concedes that his words have sometimes gone beyond his thought. The arbitrator notes, however, that his criticisms were in no way directed against the Chinese nation or the Chinese people in general. In this regard, he specifies that in his capacity as former foreign minister of the Italian government, he has always maintained excellent relations with China. Rejecting against the fact that the applicant could make the amalgam between his personal convictions and his function of judge, he affirms that the sentence under appeal, rendered unanimously, was not influenced by elements external to the case. to be decided. He specifies that in his capacity as former minister of foreign affairs in the Italian government, he has always maintained excellent relations with China. Protesting against the fact that the applicant could make the amalgam between his personal convictions and his function of judge, he affirms that the sentence under appeal, rendered unanimously, was not influenced by elements external to the case. to be decided. He specifies that in his capacity as former minister of foreign affairs in the Italian government, he has always maintained excellent relations with China. Rejecting against the fact that the applicant could make the amalgam between his personal convictions and his function of judge, he affirms that the sentence under appeal, rendered unanimously, was not influenced by elements external to the case to be decided.

 

7.7.  In its response, the CAS recalls that the offending arbitrator is a fervent defender of the animal cause and that the statements made by him in the various tweets were aimed exclusively at the “animal killers” rampant within the framework of the Dog Meat Festival. in Yulin, and not the applicant, his entourage, or the Chinese population in general. Also these tweets do not justify the challenge of the arbitrator concerned.

 

7.8. The respondent foundation, for its part, argues that the arbitrator in question, did not hesitate, on the one hand, to denounce, on his Twitter account, the cruelties against animals committed in other countries and in particular his, but also, on the other hand, to congratulate people of Chinese nationality who have taken up the cause of the defense of animals. She stresses that the statements made must be interpreted taking into account the context in which they were made, either on a social network, in reaction to images deemed violent towards animals. According to her, the accused arbitrator, who does not speak in his capacity as arbitrator on his Twitter account, has every right to have a political opinion and to defend his convictions on social networks. If the respondent foundation concedes that certain words of the challenged arbitrator may seem “awkward”, it maintains that these are not sufficient to call into question his impartiality.

 

7.9.  With regard to the ground for challenge based on the allegedly derogatory and inappropriate remarks made in the award under appeal, it should be noted from the outset that the applicant should have invoked it within thirty days of notification of the award, which he did not do. The person concerned is therefore barred from basing his request for review on certain passages of the award under appeal, highlighted by him, which cannot, in any case, justify the challenge of the arbitrator in question.

As for the other reason advanced by the interested party to obtain the challenge of the arbitrator concerned, it should be noted, with the respondent foundation, that an arbitrator can perfectly defend his convictions on the various social networks. This does not mean, however, that the referee can express on the internet everything he thinks, in extremely strong terms, without risking arousing certain fears, even if they are unfounded, as to his impartiality, and this even if he does not act under his referee “cap”.

In this case, it is clear that the arbitrator, who has obviously taken up the cause for the defense of animals, heard, through his various tweets, castigate a Chinese practice in terms of slaughtering dogs, assimilated by him to torture, as well as the large-scale tasting, on the occasion of an annual local gastronomic festival, of the flesh of sacrificed animals and denouncing people whom the arbitrator considers to be executioners. The arbitrator also did not hesitate to denounce acts of cruelty to animals committed in other countries and to support people of Chinese nationality who have taken steps to put an end to the practice denounced by him. His violent criticisms were thus clearly not directed against all Chinese nationals. Considered in the abstract, the fact that the arbitrator severely criticizes the consumption of canine meat during the annual Yulin festival and denounces certain Chinese nationals guilty according to him of torturing animals could not, in itself, constitute a circumstance allowing for infer the existence of a bias of the arbitrator in question against any Chinese national. In this regard, if we wanted to try a comparison, we could take the example of an arbitrator of Indian nationality who would protest, on social networks, in severe terms, against the practice of bullfighting that is going on. in parts of Spain. Supposing that this person sits on a CAS Panel called upon to rule on an appeal against a disciplinary sanction inflicted on a Spanish athlete, would she be recusable on account of the statements made by her to denounce the cruelty committed according to her towards animals? The answer should probably be resolved in the negative, in the absence of other corroborating circumstances.

However, it must be understood that it is not so much the cause defended by the arbitrator that appears problematic in this case but rather certain terms used by him. Indeed, the arbitrator did not hesitate to use extremely violent terms, repeatedly, and several messages were published even while the present case was under investigation before the CAS. He used the following terms in particular: “those bastard sadic chinese who brutally killed dogs and cats in Yulin”, “This yellow face chinese monster smiling while torturing a small dog, deserves the worst of the hell”, “those horrible sadics are CHINESE ! “,” Old yellow-face sadic trying to kill and torture a small dog “,” Torturing innocent animal is a flag of chinese! Sadics, inhumans “. Among these, the words” yellow face “, used twice by the referee, after his appointment as President of the Formation, are undoubtedly the most questionable. Of course, the referee concedes him – even that certain words have sometimes gone beyond his thought. To say that the terms “yellow face” are “awkward”, as the respondent foundation maintains, is nevertheless an understatement. If we put them in their context, these words, used in the singular, which may have been pronounced under the influence of the emotion provided by images considered as revolting by the interested party, certainly target each time a specific person that the arbitrator has individualized on a video and / or a photograph and that he also calls a sadist because she is, according to him, torturing a small dog. However, these terms clearly refer to the skin color of certain Chinese individuals and are not intended to qualify their behavior considered cruel, unlike other incisive or even hurtful terms used by the referee, such as “sadistic”. Such qualifiers, even though they have been used in a particular context, have absolutely nothing to do with the acts of cruelty alleged against certain Chinese nationals and are, whatever the context, inadmissible. If we add to this the fact that the arbitrator made such remarks, not only on two occasions, but also after his appointment as president of a Panel called to rule on the appeal lodged by a Chinese national ,even while the proceedings were pending, it must be admitted that the appellant’s apprehensions as to the possible bias of the arbitrator in question may be regarded as objectively justified. In this regard, it matters little whether the offending arbitrator is, subjectively, aware or not of the fact that his statements appear objectionable from an objective point of view. Only the objective assessment of the circumstances alleged in support of a request for disqualification is in fact decisive. However, in the present case, the aforementioned circumstances, considered from the point of view of a reasonable third party having knowledge of it, are such as to cast doubt on the impartiality of the arbitrator in question and to create an appearance of prevention. Accept that the applicant’s apprehensions as to the possible bias of the referee in question may be regarded as objectively justified.

 

In the present case, the appellant succeeds since the judgment challenged by him is set aside. The respondent foundation, which succumbs once it has concluded that the request for review has been rejected, will bear the costs of the federal proceedings ( art. 66 para. 1 LTF ). It will also pay the applicant compensation for costs ( Art. 68 (2) LTF). As for the respondent association, having declared that it was going to court, it could not be considered as the unsuccessful party. Moreover, the decision undertaken was not annulled to its detriment. In these conditions, the legal costs could not be charged to the respondent association, the latter not being able to claim compensation for costs either. Finally, the security paid by the applicant must be returned to him.

 

 

 For these reasons, the Federal Tribunal pronounces:

 

The request for review is allowed and the award under appeal is set aside.

 

The challenge against arbitrator Franco Frattini is allowed.

 

Legal costs, set at 7,000 fr., Are charged to the respondent foundation.

 

The respondent foundation will pay the applicant compensation of 8,000 fr. for costs.

 

The securities paid by the applicant are released.

 

This judgment is communicated to the representatives of the parties and to the Court of Arbitration for Sport (CAS).

 

 

Lausanne, December 22, 2020

 

On behalf of the 1st Court of Civil Law

of the Swiss Federal Court

 

The President: Kiss

 

The Registrar: O. Carruzzo