IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY DIVISION
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF AN ARBITRATION CLAIM

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Judgmentf
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HTML VERSION OF JUDGMENT
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Crown Copyright ©

(1) Introduction

1. 1. The Highwayman Hotel in Kidlington, Oxford (“the Pub”) is currently let to the Defendant Tenant by the First Claimant (“Punch”) under a “tied pub” form of tenancy, at below market rent but requiring the Tenant to purchase alcohol sold at the Pub from the landlord or its nominee at above market prices, due to expire on 26 April 2022.
   2. Punch is a subsidiary of the Second Claimant (“Star”) which operates the pub estate business of Heineken UK Limited, the freehold owner of approximately 2,500 out of some 12,000 tied pubs in the UK. In this judgment I will call the Claimants together “the Landlords”, although sometimes for simplicity that phrase is used to refer to only one of them.
   3. By a claim form dated 25 April 2019, the Landlords seek to challenge an award dated 29 March 2019 (“the Award”) made by Ms Fiona Dickie, the Deputy Pubs Code Adjudicator (“DPCA”) in a statutory arbitration commenced by the Tenant under Part 4 of the Small Business, Enterprise and Employment Act 2015 (“the 2015 Act”) and the Pubs Code etc Regulations 2016 (“the Pubs Code”).
   4. The DPCA was and is a member of the Office (“OPCA”) of the Pubs Code Adjudicator (“the PCA”) established by section 41 of the 2015 Act and empowered under schedule 1 to do anything calculated to facilitate or to be otherwise conducive to her functions, which are regulatory and dispute-resolving under the 2015 Act. (Where I refer in this judgment to “OPCA”, I intend to include the PCA and the DPCA.)
   5. In the Award, the DPCA held that the terms of a so-called “market rent only” or “MRO” lease offered to the Tenant to replace the existing tenancy agreement in respect of the Pub, were unreasonable because the proposed lease expired on the same date as the tied tenancy that it was to replace, and ordered the Landlords to offer a new MRO lease for a minimum period of five years from the date of grant (and thus at least two years longer than the lease which they proposed).
   6. By their claim form, the Landlords applied to have the Award set aside or varied on three grounds under the Arbitration Act 1996 (“the 1996 Act”), which I would summarise as follows:

(a) that in finding that the MRO lease proposed was unreasonable due to the length of its term, the DPCA

(i) erred in law so that the Award should be set aside pursuant to section 69 of the 1996 Act, and

(ii) unlawfully relied upon information received in her capacity as regulator under the 2015 Act and the Pubs Code and breached her duty to act fairly and impartially and/or exceeded her powers, so that the Award should be set aside under section 68; and

(b) in ordering the Claimants to offer an MRO lease of a particular length, the DPCA exercised a power that she did not have under the 2015 Act and/or the Pubs Code and so exceeded her powers and/or erred in law such that the Award should be set aside under sections 68 and/or 69 of the 1996 Act.

1. 1. By an order of Zacaroli J dated 9 July 2019, the Landlords’ challenges, including their application for leave to appeal the award under section 69 of the 1996 Act, were directed to be considered at an oral hearing.
   2. At that hearing, listed to take place on 18 December 2019, on what the Claimants then told me, I granted them leave under section 69(3) and adjourned the matter for the OPCA to be represented, which it was at the adjourned hearing on 26 February 2020.
   3. The Claimant Landlords were represented by Catherine Callaghan QC and Peter Stevenson, instructed by DLA Piper Scotland LLP, and adduced two witness statements of Hazel Moffat dated 25 April and 28 November 2019 in support of their challenges.
   4. The Tenant did not serve any evidence or argument in these proceedings nor attend the hearing, but in correspondence with the PCA it identified an objection to the Claimants’ challenges, namely that pursuant to Article 34 of the Rules of the Chartered Institute of Arbitrators (“ChIArb”) which governed the arbitration, the parties waived any right to appeal.
   5. There were also before the Court written “Arbitrator’s Observations” served by the Government Legal Department on behalf of the DPCA on 1 October 2019, a letter of 9 December 2019 in response to Ms Moffat’s second witness statement, and submissions on law only both written and oral from Adam Heppinstall, counsel on behalf of the OPCA.

(2) The Statutory Regime

1. 1. The key provisions of the 2015 Act for the purpose of these proceedings are in section 43, subsection (1) of which states that the Pubs Code must require pub-owning businesses, among other things, to offer their tied pub tenants ‘a market rent only option’ in specified circumstances. A “market rent only option” is defined in subsection (2) as an option for the tied tenant to occupy the tied pub under a tenancy which is ‘MRO-compliant‘ and to pay an agreed rent or (failing such agreement) a market rent.
   2. Section 43(4) provides that a lease will be MRO-compliant if, among other things, it “contains such terms and conditions as may be required by virtue of subsection (5)(a)” and “does not contain any unreasonable terms or conditions“; and subsection (5) states that the Pubs Code may specify descriptions of terms and conditions (a) which are required to be contained in a tenancy or licence for it to be MRO-compliant; (b) which are to be regarded as reasonable or unreasonable for the purposes of subsection (4).
   3. By section 44(1) of the 2015 Act, the powers to determine the procedures to be followed by pub-owning businesses (“POBs”) and their tenants in respect of MRO offers, known as “the MRO procedure’ and the power to confer “functions on the [Pubs Code] Adjudicator in connection with that procedure” were delegated to the Secretary of State
   4. Sections 44 and 45 anticipated two separate procedures for determining disputes between POBs and their tied tenants, namely

(a) where the parties could not agree the rent payable under a proposed MRO lease, section 44(2) entitled the Secretary of State to impose an independent assessor to determine the market rent; and(b) as regards other disputes relating to the offer of an MRO lease, section 45(2) empowered the Secretary of State to confer functions on the Adjudicator to resolve such disputes and, in particular, disputes as to “whether … a proposed tenancy or licence is MRO-compliant“.

1. 1. The 2015 Act also provided for the PCA to have regulatory functions as set out in sections 53 to 61, including the power to carry out investigations into whether a POB has failed to comply with the Pubs Code, to make recommendations, require information to be published or impose financial penalties on the POB and to give advice or publish guidance on any matter relating to the Pubs Code.
   2. The Pubs Code (issued by the Secretary of State under section 42(1) of the 2015 Act on 20 July 2016) provides for MRO-compliant lease offers as follows:

(a) Regulation 29 requires the POB, upon receipt of a valid MRO notice, to send the tenant a “full response” including a proposed tenancy which is “MRO-compliant“;(b) Regulation 30(2) specifies that a proposed tenancy will only be MRO-compliant if “its term is for a period which is at least as long as the remaining term of the existing tenancy”; and

(c) Regulation 31 specifies that the terms of a proposed tenancy shall be regarded as unreasonable if they (i) include a break clause exercisable only by the landlord; (ii) impose a service tie in respect of insurance (other than buildings insurance); or (iii) include terms which are not common in non-tied tenancies;

(d) Regulation 58(3) provides that, in the event that the tenant or pub-owning business refers the dispute to arbitration, that arbitration must be conducted in accordance with “(a) the rules regarding arbitrations issued from time to time by the Chartered Institute of Arbitrators; or (b) the rules of another dispute resolution body nominated by the arbitrator.”

1. 1. In the event of a dispute concerning whether the proposed tenancy is MRO-compliant:

(a) under Regulation 32 the tenant or the POB may refer the matter to the Adjudicator (who, pursuant to Regulation 58(2), must either arbitrate the dispute or appoint another person to do so);(b) under Regulation 33, if the Adjudicator rules that the POB “must provide a revised response to the tied pub tenant”, such “revised response” must be provided within 21 days of the ruling;

(c) under Regulation 34, the parties have a 56 day negotiation period, from the provision of the full response under Regulation 29 or the revised response under Regulation 33, in which to agree terms; and

(d) under Regulation 35, if an MRO tenancy is proposed during the negotiation period which the tenant considers is not MRO-compliant, it may again refer the matter to arbitration.

(3) Factual background

1. 1. The Tenant triggered the MRO procedure under the 2015 Act and the Pubs Code by serving an MRO notice on PTL on 9 November 2016, and the steps then leading to the arbitration and the Award were in summary:

(a) on 6 December 2016, Punch sent its “full response” to the Tenant pursuant to Regulation 29(3) of the Pubs Code, including a proposed MRO tenancy to replace the existing tied tenancy, for a period matching the remaining term of the existing tenancy;(b) on 3 January 2017, the Tenant (dissatisfied with PTL’s full response) referred the dispute to arbitration alleging that the terms of the proposed tenancy were unreasonable on many grounds but without objecting to the proposed period;

(c) in an award made on 5 January 2018, the DPCA as arbitrator (as from November 2017) upheld three of those objections, holding that terms were unreasonable which (i) required the payment of a deposit of six months’ rent; and (ii) the payment of insurance annually in advance and which (iii) triggered repair obligations;

(d) on 24 January 2018 Punch submitted a “revised response” seeking to address those points concerns;

(e) on 7 February 2018, the Tenant (rejecting the revised response) made a second referral to the PCA for arbitration in which it contended that the period of the proposed tenancy was unreasonable; and

(f) on 26 April 2018, the parties were notified that the DPCA was to act as arbitrator in respect of the second reference.

1. 1. On 7 December 2018, while that (second) arbitration was on-going, the DPCA wrote to Star in her capacity as regulator, stating that the OPCA would shortly be issuing a further chapter of its regulatory compliance handbook which would deal with MRO proposals and requesting that Star provide information on its normal practice in respect of lease lengths.
   2. On 21 January 2019, the information so requested was provided to the DPCA (as I have said, as regulator) and included the statement that:

“… it is Star Policy to offer to the Tied Pub Tenant (TPT) an agreement which is as long as the remaining term of the existing tenancy, as stipulated in the Pubs Code or a term of 10 years whichever is longer…there may be instances where an alternative duration may be offered, but this is not common practice”.

1. 1. On 30 January 2019, this information (which I will call “Star’s 10-year Policy”) was forwarded by the DPCA to the Tenant in the arbitration and Star was required by the DPCA to state whether it had made this information known to the Tenant and to explain why a 10-year lease had not been offered.
   2. On 1 February 2019, Star responded to the DPCA’s letter in the context and for the purpose of the arbitration, explaining why it had not disclosed its policy to the Tenant and confirming that it regarded the term offered as appropriate and reasonable.
   3. On 4 February 2019, the Landlords’ solicitors wrote to the DPCA objecting to this information being shared with the Tenant, stating that it had been provided in the legitimate expectation that it would be utilised solely in the OPCA’s regulatory capacity.
   4. On 12 March 2019, the OPCA wrote to the Landlords’ solicitors stating generally that information from a POB brought to the OPCA’s attention in a regulatory capacity would be shared, where relevant, with the other party in an arbitration involving that POB and that“… When acting as arbitrator and managing an arbitration, the PCA and Deputy PCA cannot ‘un-know’ information they have received as the regulator.”

(4) The Award

1. 1. On 29 March 2019, the DPCA published her award in the second reference, now under challenge. Appendix 2 to the Award confirmed that the applicable rules for the conduct of the arbitration were the current ChIArb Rules and paragraph 12 of the Award acknowledged that (a) the Tenant had not raised any objection to the length of the proposed term in the first reference; and (b) the period of the proposed tenancy was as long as the remaining term of the existing tenancy as required by Regulation 30(2) of the Pubs Code.
   2. The reasons stated in the Award for accepting the Tenant’s submission that such a period was unreasonable, were as follows:

“41. When I was on the point of completing my award at the end of January 2019, as regulator I came into possession of information regarding the Respondents’ policy in respect of the lease length that it would offer in its proposed MRO tenancies…

“53. Given that the length of the term of the proposed lease must not be unreasonable, it is for the Respondents to show what their reasons were for offering the lease length that they did and that they were reasonable ones. They have not shown their reasons…

“54. Having failed to put forward a reason for having chosen not to apply its usual policy to lease length, I find that the Respondents had no good reason for its choice, and that the lease length proposed is unreasonable and not compliant.”

1. 1. The Award then held that the DPCA had the power to order Punch to offer a new lease with a minimum term of 5 years:

“61. In submissions dated 4 June 2018 [the Landlords] argued that, properly interpreted, the legislation [the 2015 Act and the Pubs Code] did not empower me to order the precise terms of the revised response…[and] my powers are limited to ordering the service of a revised response, but not to determining what that revised response must contain. However, I find no support for such a construction in the legislation pursuant to which I derive my powers, the drafting of regulation 33(2) being broad.

“62. I take the view that the reference to my powers in that regulation is not exhaustive. Its language is permissive, in that it does not restrict me in the scope of any ruling I may make as to the terms of the revised proposal. I must arbitrate the dispute, and that means that I should ensure that [the Tenant] obtains a compliant MRO proposal without the need to refer for further arbitration on the terms of the MRO lease. History indicates to me that the parties are unable to negotiate to an effective agreement, and therefore in this case I have determined that I should order the compliant lease term on which the revised proposal must be made. [The Landlords’] interpretation of my powers under regulation 33(2) is such as to provide the potential for locking a tied pub tenant into a cycle of litigation. Such delay would place a greater burden on the tenant than on [the Landlords] as a huge international brand with deep pockets.”

(5) The 1996 Act – jurisdiction

1. 1. The Arbitration Act 1996 permits a challenge to an award in limited circumstances. Under section 68 a party may challenge an award on the ground of serious irregularity affecting the tribunal, the proceedings or the award; and under section 69 a party may appeal to the court on a question of law arising out of the award.
   2. Under section 68(2), a “serious irregularity” is defined as meaning “an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant [including] – (a) failure by the tribunal to comply with section 33 (general duty of tribunal)… (b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction….).
   3. Under section 69(3), the Court may grant leave to appeal for an error of law if satisfied that “the determination of the [question of law] would substantially affect the rights of one or more of the parties …., the question is one which the tribunal was asked to determine, …. on the basis of the findings of fact in the award, the question is one of general public importance and … the decision of the tribunal is at least open to serious doubt, and… it is just and proper in all the circumstances for the court to determine the question”. On what I was told on behalf of the Landlords on 18 December 2019, I considered that this test was satisfied, subject to the OPCA having an opportunity to address the questions of law at an adjourned hearing, which it took up as Intervenor.
   4. Section 33 provides that

“(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.

“(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may – (a) remit the award to the tribunal, in whole or in part, for reconsideration, (b) set the award aside in whole or in part, or (c) declare the award to be of no effect, in whole or in part. The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.”

1. 1. Section 94 provides that “(1) The provisions of Part I apply to every arbitration under an enactment (a ‘statutory arbitration), whether the enactment was passed or made before or after the commencement of this Act, subject to the adaptations and exclusions specified in sections 95 to 98… (2) The provisions of Part I do not apply to a statutory arbitration if or to the extent that their application (a) is inconsistent with the provisions of the enactment concerned, with any rules or procedure authorised or recognised by it, or (b) is excluded by any other enactment.”
   2. Article 34(2) of the ChIArb Rules published on 1 December 2015 (to which the Tenant referred in its email to OPCA dated 9 May 2019) states:

“… All awards shall be made in writing and shall be final and binding on the parties. The parties shall carry out all awards without delay. By adopting these Rules, the parties waive their right to any form of appeal or recourse to a court or other judicial authority insofar as such waiver is valid under the applicable law.”

1. 1. The Tenant’s objection to jurisdiction in the present case cannot apply to the challenge under section 68 which is of mandatory effect “notwithstanding any agreement to the contrary” under section 4(1) of the 1996 Act. Arbitral rules that waive recourse to a court insofar as such waiver is valid under English law, do not waive the right to challenge an award under section 68.
   2. By contrast, section 69 is not of mandatory application and an appeal on law under that section is only available ‘unless otherwise agreed by the parties‘. However,

(a) section 51(5) of the 2015 Act and Regulation 58 of the Pubs Code provide that the statutory arbitration will be ‘conducted in accordance’ with those Rules. Thus only those rules associated with the conduct of the reference are engaged, and this did not extend to Article 34 of the ChIArb Rules, which is concerned with the form and effect of an award, including “appealability”, and was not incorporated in the procedure of the arbitration now in issue; and

(b) in any event, the applicability of the ChIArb Rules to the conduct of arbitration was not “agreed by the parties” for the purpose of section 68, but was imposed by the 2015 Act as statute (and in other cases could be potentially imposed by the choice of the arbitrator given that power under section 51 of the 2015 Act).

1. 1. I might add that this also appears to be the position of OPCA as stated in a letter dated 23 May 2019 to the parties, in its Factsheet 14, and in its submissions in the statutory review of the Pubs Code, to the effect that awards made under the 2015 Act can be appealed on the narrow range of grounds provided for in the Arbitration Act 1996, including sections 68 and 69, as confirmed by its counsel’s submissions before me. I was also referred to a decision of another court (without it seems any argument) in Punch Taverns Ltd v Swan Hospitality Limited [2018] EWHC 905, granting the POB leave to appeal a OPCA award pursuant to section 69 of the Arbitration Act.

(6) The challenges to the finding that the period offered was unreasonable

1. 1. This section of my judgment addresses the first two challenges to the Award together, in the order which I have put them above, although they were argued separately (and each at considerable length). There is an obvious danger in over-focus on specific issues, without also considering the case in the round, and risking “not seeing the wood for the trees”.
   2. The first two challenges include separate points of principle as preliminaries, both also then raise a common question as to whether Star’s 10-year Policy was relevant to whether the Landlords’ offer was MRO-compliant, the subject (of course) of the arbitration reference.
   3. I save for the subsequent section (7) of this judgment, where they bite deeper in favour of the Landlords, various points concerning the overarching intention of the 2015 Act and the Pubs Code and what constitutes substantial injustice under section 68 of the 1996 Act, but I have taken account of them on the first two challenges as well.

(a) The alleged unreasonableness of a period expiring with the current tied lease

1. 1. As the Landlords put it, this challenge to the Award concerns the interaction between (i) the requirement imposed by section 43(4)(a)(i), that a compliant tenancy contain such terms and conditions as may be required by virtue of section 43(5)(a); and (ii) the requirement imposed by section 43(4)(a)(iii), that a compliant tenancy not contain any unreasonable terms.
   2. According to the Government Response to the Consultation Paper ‘Pubs Code and Pubs Code Adjudicator’ (April 2016), the purpose of the power under section 43(5)(a) of the 2015 Act to specify particular terms which are required to be contained in a tenancy or licence for it to be MRO-compliant was to “propose minimum requirements designed to ensure that a tenant enjoys no less – but also no more – protection or security of tenure under their new MRO agreement than they previously had under their old tied agreement.“
   3. The Landlords submit that the only “minimum requirement” specified in the Pubs Code pursuant to that power is the requirement imposed in Regulation 30 that “the proposed MRO tenancy is MRO-compliant only if its term is for a period which is at least as long as the remaining term of the existing tenancy” and that this reflects the significance of lease length in MRO negotiations.
   4. It appears that this minimum requirement replaced an original proposal that ‘MRO compliant agreements should be for a minimum of five years’ because it was thought that a requirement which did not mirror the terms of the existing lease would unduly interfere with the parties’ existing rights:

“Retaining the consultation proposal that an MRO-compliant tenancy must be for a minimum of at least five years or the remainder of the existing tenancy, whichever is the shorter, would not provide a realistic MRO offer for tenants. It would create an inequality where tenants could have to exchange security of tenure in exchange for an MRO compliant tenancy…

“Equally establishing that an MRO-compliant tenancy must be for the greater of a period of at least 5 years or the remainder of the existing tied tenancy would have distorting consequences in that tenants would be able to obtain additional security of tenure through the mechanism of the MRO option.”

1. 1. The Landlords’ case is that a lease proposal which offers to (at least) match the period of the existing lease in compliance with Regulation 30, cannot be unreasonable for the purposes of section 43(4)(a) (iii), and by finding to the contrary, the DPCA erred in law. They argue that by requiring an MRO offer which meets that Regulation 30 requirement, the Pubs Code satisfies the basic principle that underlies the 2015 Act that the tied pub tenants should not be worse off than they would be if they were not subject to any product or service tie.
   2. I reject that submission. To the extent that the Government’s response to the Consultation Paper may be of any assistance, it does not determine or change the obvious interpretation of the 2015 Act and the Pubs Code, which is that whilst an MRO-compliant tenancy must be for a period at least as long as to the remaining period of the tied lease, that does not entail the reasonableness of such a period on offer or exclude the possibility that in any particular case, it is unreasonable.
   3. In short, the requirements in Regulation 30 as to the minimum offered lease period, and in section 43(4) and (5) and Regulation 3l as to the reasonableness of offered lease terms, are cumulative as to what might be an MRO-compliant offer as to lease terms including period. The reasonableness or otherwise of the period offered is not determined merely because it complies with the minimum requirement in Regulation 30(2). It might still be unreasonable under section 43(4) and (5) and Regulation 31.

(b) The alleged misuse of the Landlords’ information

1. 1. The Landlords complain vigorously at the disclosure and use of Star’s 10 year Policy by the DPCA in the arbitration and the Award. They stress first that she requested and received that information as regulator, responsible for exercising a public law function by way of investigating and monitoring and enforcing compliance with the Pubs Code, and not in her capacity to arbitrate and resolve commercial disputes between tied pub tenants and POBs as to whether a proposed tenancy is MRO-compliant.
   2. Under paragraph 19 of Schedule 1 to the 2015 Act, the OPCA has an express power to require a person to provide documents or information in that person’s possession or control, for the purposes of an investigation or for monitoring whether a pub-owning business has followed a recommendation or “for the purposes of exercising functions in relation to the offer of a market rent only option“; and under paragraphs 20 to 22, it is an offence, punishable by a fine, to fail to comply with a requirement to provide information or documents, or knowingly to provide false information in response to such a requirement.
   3. The Landlords next pray in aid the so-called “Marcel Principle” as enunciated in Marcel v Commissioner of Police of the Metropolis [1992] Ch 225, in which Sir Christopher Slade stated (at 262C-D):

“In my judgment, documents seized by a public authority from a private citizen in exercise of a statutory power can properly be used only for those purposes for which the relevant legislation contemplated that they might be used. The user for any other purpose of documents seized in exercise of a draconian power of this nature, without the consent of the person from whom they were seized, would be an improper exercise of the power. Any such person would be entitled to expect that the authority would treat the documents and their contents as confidential, save to the extent that it might use them for purposes contemplated by the relevant legislation”.

1. 1. In Re Arrows Ltd (No 4) [1995] 2 AC 75, the House of Lords upheld the Marcel Principle, Lord Browne-Wilkinson stating (at 102G and 104D):

“In my view, where information has been obtained under statutory powers the duty of confidence owed on the Marcel principle cannot operate so as to prevent the person obtaining the information from disclosing it to those persons to whom the statutory provisions either require or authorise him to make disclosure…

“The extraction of private and confidential information under compulsion from a witness otherwise than in the course of inter partes litigation is an exorbitant power. It is right that such information should not be generally available but should be used only for the purposes for which the power was conferred.”

1. 1. In Re Atlantic Computers Ltd [1998] BCC 200, Robert Walker J (as he then was) applying the Marcel Principle, held that a liquidator’s powers to obtain information under the Insolvency Act 1986 should not be used to give the liquidator as a litigant in ordinary litigation, any special advantages in that litigation.
   2. In R (Ingenious Media Holdings plc) v Revenue and Customs Commissioners [2016] 1 WLR 4164 the Supreme Court also applied the Marcel Principle (as stated by Lord Toulson at [17]) in determining whether a Revenue official had acted lawfully in disclosing the claimants’ confidential tax information to journalists, and held that a statutory exception to that duty of confidentiality, which permitted disclosures “made for the purposes of a function of the Revenue and Customs“, should be construed strictly so as to permit disclosure only to the extent reasonably necessary for HMRC to fulfil its primary function.
   3. The Landlords submitted that the Marcel Principle applies to the Star 10-year Policy as (a) confidential and commercially sensitive information (b) acquired by the DPCA pursuant to her legal powers as regulator; the fact that this was without express reference to her statutory power of compulsion was immaterial, because she could only request such information, and Star would only have provided it, because of her coercive powers; and therefore it could not be disclosed to any third party or used unless required or authorised by statute.
   4. These are powerful points leading to the Landlords’ key submission on this aspect, namely that the 2015 Act does not contemplate that confidential information acquired from a POB by OPCA as regulator could be disclosed and used in an arbitration under the 2015 Act with a tied pub tenant, absent any express provision to that effect.
   5. The Landlords put forward four overlapping reasons for this. First, they say that under the eiusdem generis principle of construction, the PCA’s power to obtain information “for the purposes of exercising functions in relation to the offer of a market rent only option” in paragraph 19(3) is to be interpreted as a reference only to the PCA’s regulatory functions (eg to provide advice or guidance on MRO offers under sections 60 and 61) and if Parliament had intended that information relating to the offer of a MRO option acquired in the PCA’s regulatory capacity could then be used in the resolution of an arbitral dispute, it would have said so expressly (cf section 45, which makes express reference to the PCA’s functions “in connection with the resolution of disputes“).
   6. Secondly, the Landlords draw attention to indications that Parliament was alive to the possibility of a conflict between the PCA’s regulatory and arbitral roles, and sought to guard against a blurring of those roles (a) in section 48(5) which provides that where a dispute between a tied pub tenant and a pub-owning business is referred to the PCA for arbitration, the PCA can either arbitrate the dispute itself or “appoint another person to arbitrate the dispute“, as explained in the Note to the effect that this provision enables the PCA to appoint another arbitrator where a conflict of interest may exist, for example, where the PCA has previously advised or investigated an issue relevant to the dispute; and (b) in paragraph 10 of Schedule 1, which requires the OPCA to make procedural arrangements for dealing with any conflict of interest affecting its officers or staff.
   7. Thirdly, in a similar vein, section 52 of the 2015 Act provides that, where the PCA appoints another person as arbitrator, the PCA may require the arbitrator or the parties to the arbitration to provide information to assist the PCA in carrying out functions under Part 4 of the 2015 Act. Thus, it is said, information obtained during the dispute resolution process can be used for regulatory purposes, but there is no similar provision permitting information to flow in the opposite direction, indicating that Parliament did not intend that information obtained for regulatory purposes could be used in arbitration proceedings.
   8. Fourthly, the OPCA has recognised that information obtained in arbitrations should not be shared with third parties, and thus implicitly accepted the converse, that information obtained for regulatory purposes should not be used in arbitrations. Pursuant to paragraph 10 of Schedule 1, OPCA published a Conflicts of Interest Policy in July 2016, and the following statements on its website:

“The PCA is aware of both the need to separate the roles of regulator and arbitrator and to be as transparent as possible about the way it carries out each of these roles…

“In discussions with pub companies or any other person or body, the PCA will never discuss individual cases which are or may be the subject to arbitration…

“The PCA is aware that parties to arbitrations are entitled to have full confidence that the arbitrator has no conflict of interest and conducts arbitrations fairly. A further safeguard is provided through the oversight of the PCA’s Compliance Officer, who will take all necessary steps to ensure that there is a clear separation of functions and that neither the PCA nor the Deputy PCA does anything that could compromise that confidence or give rise to a reasonable perception of bias.”

1. 1. On this basis, the Landlords contend that the DPCA had a conflict in acting as statutory arbitrator in this matter and since she had information as regulator from Star which could not be disclosed and used in the arbitration with the Tenant, without its consent, she could not decide the matter fairly and impartially and she should have (a) resigned as arbitrator or (b) if under any uncertainty as to that, told the parties that she was in possession of information as regulator and invited the parties to make submissions to her on admissibility before disclosure to the Tenant, rather than merely commenting on the content of the information, after disclosure to the Tenant in the first place.
   2. In the Award, and in observations and submissions to the Court, the DPCA and then the OPCA first submitted that where it acquires information from a POB as regulator which is “directly connected” to issues raised in an arbitration, that information should be made known to the Tenant; and if the POB does not do that, then the arbitrator cannot “un-know” information received as regulator, and therefore it is only fair for her to provide the information to the Tenant.
   3. This raises the crucial question of whether Star’s general policy on MRO tenancy duration was relevant or disclosable information in the arbitration. The Landlords attempted to persuade the Court that it was not, because Star might depart from that policy in some instances, and in any event it was a subjective process, which could have no bearing on whether or not the particular term length offered to the Tenant was objectively reasonable in the circumstances of this case.
   4. By providing the Tenant in this arbitration with commercially sensitive information, it was put in a better position than it would have been in had it been free of tie, inconsistent with the principles underlying the 2015 Act, and inconsistent with the ruling in Re Atlantic which prohibited the arbitrator from deciding unilaterally to disclose that information to the Tenant without proper authorisation.
   5. After weighing these arguments, I am far from convinced by the Landlords’ arguments. First, the Marcel Principle requires them to establish that the relevant statutory framework did not include as one of the purposes of the OPCA’s “regulatory” powers, the proper resolution of disputes as to MRO-compliance through the statutory arbitration and other processes envisaged.
   6. It seems to me that the 2015 Act and the Pubs Code, read as a whole, implicitly allowed for that and there is no good reason to exclude such a purpose from the object of the OPCA’s regulatory powers. The provisions as regards possible conflicts do not dictate that the arbitrator must recuse herself if she has relevant information as regulator; and transmission of information from arbitrations to the regulator, far from dictating that information cannot be passed the other way, supports an integrated view of the OPCA’s dual functions.
   7. I do not read the 2015 Act and Pubs Code as laying down an absolute dichotomy, a complete separation between the OPCA officers’ role as regulators and as arbitrators. Nor do I see the need for justice in its arbitrations, involving the possible need for disclosure, as opposed to or even a counterweight to the Marcel Principle. On the contrary, the functions of OPCA as regulator sit in harmony with its arbitrations, serving the same purposes in achieving fairness in the industry including MRO-compliant leases.
   8. It is inherently likely that the OPCA as regulator would be or become aware of matters concerning or obtained from POBs and relevant to MRO disputes which its officers arbitrate. It is then a matter for the judgment of the arbitrator whether any particular such matter is of such significance to the dispute that it would or might feature in the reasons for deciding it such that fairness requires it to be disclosed to the tenant for that purpose and to enable equal opportunity for submissions on both sides.
   9. The fact that this may intrude, both from the regulatory and dispute resolution viewpoints, on the POB’s commercial freedom and property rights (as discussed further below) does not militate against that reading under the statutory framework. Such an intrusion may be a proportionate, due response to the purposes and needs of the system set up under the 2015 Act and the Pubs Code.
   10. Indeed to debar OPCA officers from acting as arbitrators when they obtain relevant information as regulators would create a considerable potential for disrupting that system. This is entirely different from a conflict which may arise for other reasons, contrary to the need for independence in arbitrators. The co-dependency of the regulatory and arbitral functions of OPCA under the 2015 Act and the Pubs Code, as I read them, and the particularly advantageous position of OPCA’s officials, with all their knowledge as regulators, strongly tends against such possible disruption.
   11. Moreover in the context of the statutory framework as a whole, where various disclosure and conflict questions are expressly addressed, the absence of any explicit restrictions on the OPCA in this regard supports the common sense inference that its officers are and remain authorised to act as arbitrators where (or even where) it has obtained relevant information from the POB under, or under the threat (explicit or implicit) of, compulsion as regulator.
   12. The fallacy in the Landlords’ position, so it seems to me, is exposed by their emphatic and repeated contention that “In an arm’s length commercial negotiation between a [POB] and a tenant who is free of tie, the [POB] would not be required to divulge its estate management policy. For that reason, the DPCA’s actions have made the Tenant better off than he would be if he were not tied.” This is based on the false premise that the 2015 Act and Pubs Code must treat a Tenant who rejects an MRO offer as if the dispute was unregulated, to the extent that the POB was free to decide on what was and was not reasonable without objective determination with the benefit of disclosure and other processes imposed by the statutory scheme.
   13. The Pubs Code, as the Landlord acknowledges is based on the principle of fair dealing and this may require proportionate intrusions into the POBs’ business and property rights. If the Landlords were not obliged to disclose relevant information or the arbitrator was precluded from using relevant information (ensuring that both parties knew of it and could make submissions as to its effect), the purposes of the 2015 Act would be subverted.
   14. As for the Landlords’ contention that Star’s 10-year Policy was irrelevant because it was subjective and could be departed from in any particular case, I regard that as wholly untenable. The MRO offer being assessed as reasonable or not was made by the very POB which devised and used such a general policy. Whether or not it reflected terms common in non-tied tenancies (under Regulation) is not determinative, but to claim the policy and reasons for departing from it were subjective and thus wholly irrelevant to the objective question of reasonableness, is absurd.
   15. A POB’s policy as to the lease periods it will generally offer is a valid, possible starting point or at least a factor in considering what is reasonable not only in its fair interests but (especially when it is a major POB with some 20% of tied houses) also in the market. Of course there may be good reasons to depart from that policy, but these cannot be argued out if the landlord does not explain them.
   16. In short a general policy of a landlord and the reasons for seeking to depart from it may possibly be important considerations in deciding whether a particular offer is justified, where that question has to be adjudicated; and to seek to exclude such evidence entirely, without more, might well give rise to suspicion as to the “fair dealing” or otherwise of the landlord concerned.
   17. However, be that as it may, the extent to which Star’s 10-year Policy was significant in this case, was for the arbitrator to assess, after submissions from both sides. If the ground for alleged inadmissibility was its irrelevance, the same points and perhaps more would feature in arguing the substance; and unless it was inadmissible on some other ground, there would be no purpose in a two-stage consideration.

(c) The questions of reasonableness and justice in the Award

1. 1. The Landlords criticise the conclusion in the Award to the effect that the Landlords had failed to show what their reasons were for offering the lease that they did and that they were reasonable ones. They say that in an arbitration commenced by a tenant under Regulation 32, the burden of proving the unreasonableness of the POB’s response lies on the tenant and not the POB, and that the POB’s reasons for not applying its general policy were irrelevant.
   2. In my judgment the question of burden in this case is artificial. The arbitrator was entitled as a matter of law to find that, having failed to put forward a reason for not applying its usual policy to lease length, there was no good reason and that the lease length proposed by the Landlords was accordingly unreasonable and not compliant. I decline to set aside or vary the Award for any error of law under section 69 of the 1996 Act in this regard.
   3. Pursuant to section 33 of the 1996 Act, the DPCA was required to act fairly and impartially between the parties, and to adopt procedures suitable to the circumstances of the particular case. But I do not accept the Landlords’ contention that by disclosing Star’s confidential commercial information to the Tenant, without prior notice or consent, the DPCA contravened the Marcel Principle and/or failed to comply with her general duty under section 33, thereby exceeded her powers contrary to section 68(2)(a) of the 1996 Act or purported to exercise a power which she did not have, to disclose information acquired in her regulatory capacity to the Tenant in the arbitration, contrary to section 68(2)(b).
   4. It seems to me that the above questions of principle sought to be raised by the Landlords in this case, fundamentally fail because of the obvious relevance of Star’s 10-year Policy sought and known to the OPCA as regulator, to the issue of reasonableness or unreasonableness of their MRO offer, the subject of the arbitration. Even if the DPCA had breached section 33, which she did not, it did not cause substantial or any injustice to the Landlords as required under the section 68 jurisdiction.
   5. The Landlords submitted on this aspect that:

(a) but for the alleged procedural irregularity, the outcome of the arbitration may have been different, because if the DPCA had not used that information in the arbitration, she may have concluded that the period of the lease offered was reasonable; and

(b) if the Award is permitted to stand, the Landlords would face an invidious choice between complying with their regulatory obligations to provide information requested by OPCA, which can then be deployed in a private arbitration with a tied pub tenant to their disadvantage, or refusing to comply with their regulatory obligations which is a criminal offence under the 2015 Act, punishable by a fine.

1. 1. Not for the first time, this reasoning, in my judgment, acts against the Landlords and exposes the justice in the Award. The fact that Star’s 10-year Policy was disclosed in the arbitration and available to be argued as significant or not for the reasonableness of the Landlords’ revised lease offer, tended to the efficacy of the arbitration and the purposes of the 2015 Act and the Pubs Code.
   2. The regulatory and arbitration functions of OPCA, and the obligations of disclosure by the Landlords both regulatory and as arbitration parties, cannot be chopped apart in an attempt to ensure that their commercial interests outweigh their statutory obligations. By seeking to exclude Star’s 10-year Policy from the arbitration, the Landlords might be hoping to outwit both procedural and (subject to any explanation for disregarding their general policy) substantive fairness in resolving the dispute.

(7) The challenge to the finding that the Landlords must offer a 5 year period

1. 1. The Landlords forcefully contend also that the power assumed by the DPCA in the Award to require them to offer a lease period of at least 5 years, interferes significantly with their fundamental rights to contract on such terms and to dispose of their property as they choose because it deprives them of possession or as they put it “full access” to the Pub their property for a period two years longer than they were prepared to offer to the Tenant voluntarily.
   2. It cannot be doubted that clear language is required to displace the presumption against state interference with a person’s property rights or other economic interests (see Bennion on Statutory Interpretation 7^th ed. at para 27.8) and if there is any doubt as to the way in which statutory language should be construed “it should be construed in favour of the party who is to be dispropriated rather than otherwise“, as it was put by Buckley LJ in Methuen-Campbell v Walters [1979] QB 525 at 542.
   3. Section 3 of the Human Rights Act 1998 requires that, insofar as it is possible to do so, primary and subordinate legislation must be read and given effect in a way that is compatible with the Convention rights, which includes the right, under Article 1 of the First Protocol to the European Convention on Human Rights, to the peaceful enjoyment of possessions. Any derogation from those rights requires clear statutory language.
   4. As Lord Hoffmann stated in R v Secretary of State for the Home Office, ex p Simms [2000] 2 AC 115 at 131E:

“Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles of human rights. The Human Rights Act 1998 will not detract from this power. The constraints upon its exercise by Parliament are ultimately political, not legal. But the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost. Fundamental rights cannot be overridden by general or ambiguous words. This is because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process. In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual.”

1. 1. That being clear law, the Landlords submitted first that there is no clear language in the 2015 Act nor in the Pubs Code permitting the DPCA to interfere in the commercial negotiations between the Tenant and the Claimants and order a landlord to offer specific terms. To the contrary, section 45(2) of the 2015 Act indicates that the PCA’s powers are limited to determining the question of whether terms proposed by the pub-owning business are MRO-compliant.
   2. The scope of a statutory arbitration between a tied tenant and pub-owning business is defined by section 45 of the 2015 Act which permits the Secretary of State to make provision for dispute resolution in respect of MRO disputes concerning “whether … (b) a proposed tenancy or licence is MRO-compliant …“.
   3. Regulation 32(2) of the Pubs Code specifies that the tenant “may refer the matter to the Adjudicator”. The matter capable of being referred (and therefore the scope of the reference) is thus limited, in this case, to whether the POB’s full response (including the proposed MRO tenancy) complied with the requirements of Regulation 29.
   4. Regulation 33 of the Pubs Code spells out the consequences in an arbitration concerning the compliance of an MRO tenancy offer with Regulation 29, including “…(2) Where – (a) a matter is referred to the Adjudicator under regulation 32(2)(a) to (c); and (b) the Adjudicator rules that the pub-owning business must provide a revised response to the tied pub tenant, the [POB] must provide that response within the period of 21 days beginning with the day of the Adjudicator’s ruling or by such a day as may be specified in the Adjudicator’s ruling. (3) A “revised response” is a response which includes the information mentioned in regulation 29(3)(a) to (c).”
   5. Thus the result of a finding that the MRO offer is non-compliant is that the POB must provide a ‘revised response’ within 21 days. Regulation 32 does not state that the arbitrator can determine the separate and logically subsequent question of whether, if a proposed tenancy is not MRO-compliant, it would be rendered compliant by the insertion of a particular term, and still less does it state that she can order at the same time that the pub-owning business include that particular term in order to make a tenancy MRO-compliant.
   6. There is no other provision entitling the arbitrator to determine the content of the revised response and no other suggestion in the Pubs Code that such an order may be made. If the arbitrator were permitted to order the terms that the POB is required to include in its revised response, there would be no need for a dispute resolution mechanism in respect of the revised response.
   7. The Landlords point out, secondly, by way of contrast, where the 2015 Act and the Pubs Code does permit interference with a POB’s rights and commercial interests, it expressly identifies the basis for that interference and the manner in which it is to be exercised: see for example sections 44(2) and 45(3) of the 2015 Act and Part 7 (Regulations 36, 37 and 59) of the Pubs Code under which the rent payable under a proposed MRO lease can be imposed upon the POB in the event of a failure to reach agreement with the tenant.
   8. Similarly: (a) Part 13 of the Pubs Code expressly provides for the avoidance of terms of a tied-pub tenancy which purport to restrict the rights of the tenant under the Code; and (b) Regulation 28 of the Pubs Code restricts the pub-owning business from exercising any right to recover rent during the pendency of the MRO procedure. The absence of any equivalent language entitling the PCA to determine the content of the other clauses of an MRO tenancy offer is a clear indication that Parliament did not intend to confer such a power on the PCA.
   9. Thirdly, the Landlords rely on the letter dated 9 December 2019 to the Court from the Government Legal Department on behalf of OPCA apparently acknowledging the absence of clear language granting the power in issue, by stating that “… the PCA and DPCA consider that they have jurisdiction to issue a ‘positive’ award where necessary and appropriate, but have brought the need for a better drawn basis for their powers, to the attention of the Secretary of State, as part of the Review”.
   10. Fourth, the Landlords’ repeat the overarching submission on this and their other challenges, addressed above, that the intention of the statutory scheme, and the MRO regime in particular, was to set out certain minimum requirements which are designed to secure that tied pub tenants are treated fairly and are no worse off – but no better off – than they would be under a non-tied agreement, but otherwise to give the parties commercial freedom as to how they choose to conduct their relationship.
   11. As the Parliamentary Under-Secretary of State for DBIS, Baroness Neville-Rolfe stated: “… the only requirement for a lease to be MRO compliant are set out in Clause 43(4). Other than this, it is up to the pub company to decide what the MRO lease or licence looks like. The pub company will be free to offer a new lease or tenancy without it being considered to be discriminatory.”
   12. After considering those strong submissions, and the observations of the DPCA and the submissions of law by counsel on behalf of OPCA, I am persuaded that, notwithstanding the practical points advanced against the Landlords, they are right in denying the power on the part of arbitrators under the relevant statutory provisions, to order that the provision whose absence rendered the POB’s offer unreasonable, to be inserted in the resulting revised offer.
   13. There is obviously a major distinction between a finding that an offer is unreasonable because it contains a proposed period of less than 5 years, and an order that the revised offer contain a period of at least 5 years. Apart from anything else, in principle – although I do not say for one moment that it would or could be appropriate in the present case – the POB might consider the former and produce a revised offer with compensatory terms in return for a period of less than 5 years, for example by rent or repair provisions more favourable to the Tenant.
   14. As the Landlords put it, it could not have been intended in the statutory framework that OPCA, as arbitrator of whether an offer was MRO-compliant, would have the power unilaterally to change one term in an MRO offer, given that any MRO offer represents a commercially balanced package of terms which are inter-dependent, without clear express wording.
   15. I consider with respect that paragraph 62 of the Award, to the effect that the powers of the arbitrator in Regulation 33(2) are “not exhaustive… [and] its language is permissive in that it does not restrict [the arbitrator] in the scope of any ruling [she] may make as to the terms of the revised proposal”, is wrong. The language of the 2015 Act and the Pubs Code is restrictive as well as permissive, or more simply put, permissive language is not sufficient to empower the arbitrator to interfere with the economic and property interests of the parties unless clearly expressed and applicable to that end.
   16. I am sympathetic to the OPCA’s objection, that if the arbitrator is not permitted the power to specify and impose reasonable terms in a revised offer (this already having been the second arbitration reference between the parties), there is a danger of locking a tied tenant into a cycle of litigation, as the Landlords might repeatedly propose terms, which are repeatedly referred to arbitration, the arbitrator decides that the terms proposed are no longer unreasonable and thus MRO compliant, so leaving the rest of the statutory MRO procedure and the Pub’s future as free-of-tie in abeyance.
   17. The point is well-made and I am not wholly satisfied by the Landlords’ two answers to this fear, which they deny in any event that they have any intention or reason to escalate. First, they say that the 2015 Act and the Pubs Code empower OPCA as regulator to control or address the risk which it identifies, by investigating whether a POB has failed to comply with the Pubs Code and if a POB has failed to comply, imposing financial penalties or making further recommendations.
   18. Secondly the Landlords suggest that if OPCA considers the regulatory powers provided by the statute are insufficient or that additional arbitral powers are required, it should recommend a change to the legislation. In particular, they say, section 46 of the 2015 Act imposes an obligation upon the Secretary of State to review the Pubs Code at regular intervals and to recommend to Parliament any revisions to the code that would enable it to reflect more fully its essential principles.
   19. Pursuant to that provision, the DBIS is currently undertaking a statutory review, in which OPCA has (so far) said that the Secretary of State may “wish to consider whether the Code should provide further prescriptions or presumptions on…the nature of compliant terms, to reduce the risk of protracted challenge either in arbitration or to the exercise of the regulator’s powers in this area“, although it has not (yet) recommended any extension or clarification of the powers of an arbitrator appointed pursuant to the Pubs Code.
   20. I cannot but consider these may not be practical solutions for now, and that at least in theory there is a risk of further delay, cost and attrition involved in repeated offers and arbitrations, which might harm the Tenant more than the Landlords. But whilst these points do not cure easily the lack of power, on my understanding of the 2015 Act and the Pubs Code, for the arbitrator to impose what she might consider a reasonable period and/or other terms of a POB’s offer for an MRO-compliant lease, that does not dissuade me from the conclusion of law to which I am driven as to the absence of such a power in the arbitrator within the statutory framework as it stands.
   21. It seems to me that given the absence of such a power, paragraphs 61 and 62 do cause substantial injustice to the Landlords, given that it has not been established that they cannot formulate a reasonable revised offer with a lease period of less than 5 years, but with other compensatory terms. The error in this part of the Award is therefore an appealable irregularity under section 68(2)(b) of the 1996 Act.
   22. The leading authority, Lesotho Highlands Authority v. Impregilo SpA [2006] 1 AC 221, puts the central question as to whether section 68 or section 69 may apply – see Lord Steyn at para [24] – as “whether the tribunal purported to exercise a power which it did not have or whether it erroneously exercised a power that it did have“. This case falls into the first category: by ordering the Landlords to include a specific term in their revised response – a minimum 5 year period – the DPCA did not merely erroneously exercise a power that she had, rather she exercised a power that she did not have under the relevant legislation.
   23. Section 68 of the 1996 Act is of course a “long stop” provision designed to correct cases in which a tribunal has gone seriously wrong: see Lesotho Highlands at para [27]. The threshold test to establish such a significant error is whether it results in a substantial injustice. As correctly stated in Merkin, Arbitration Law at paragraph 20.8:

“…The accepted test now seems to be that there is substantial injustice if it can be shown that the irregularity in the procedure caused the arbitrators to reach a conclusion which, but for the irregularity, they might not have reached, as long as the alternative was reasonably arguable.”

1. 1. In my judgment, the third challenge passes this test. If the DPCA had reached the correct conclusion about the extent of her powers, she could not have made that part of the Award to the extent of requiring the revised offer to contain a proposed lease period of at least 5 years, rather than simply directing the Landlords to issue a revised response as provided by Regulation 33, in which they would no doubt take account of her views including lease period, or risk detriment in further or other processes under the 2015 Act. This was a serious irregularity.

(8) Conclusion

1. For the reasons set out above, I dismiss the first and second challenge as I have listed them in this judgment, concerning the reasonableness of the Landlords’ offer, but allow the third challenge and vary the Award, so that the ruling in paragraphs 61 and 62 thereof is set aside under section 68(3) of the 1996 Act.
2. It is unnecessary and inappropriate to remit the Award for reconsideration by the DPCA in the circumstances which I have set out, and (in case my view on this matters) I do not consider that my finding as to her error in relation to the third challenge entails that she be debarred from determining any further arbitration reference between the Landlords and the Tenant.
3. I would ask Counsel to prepare a draft order for my approval, and to make any consequential applications in writing within 7 days.

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

Introduction

[1] The plaintiff (TCC) is a motor sports club that conducts sport meetings and events at Centennial Park, Taupō. The defendant (TMP) operates the Taupō Motor Sports Park (also known as the Bruce McLaren Motor Sport Park) located on Centennial Park. TMP leases the land from the Taupō District Council (the Council).

[2] TCC and TMP are parties to a 2005 agreement (the Agreement) which gives TCC use rights to the track at the motor sport park for a specified number of days “free of charge” and on terms set out in the Agreement.

[3] The parties are disputing whether, under the Agreement, TMP is entitled to charge TCC a participant levy and, if so, the quantum of such a levy.

[4] The Agreement contains a multi-tiered dispute resolution process culminating in arbitration for “remaining differences” not resolved at the preceding stages of negotiation and alternative dispute resolution (ADR).

[5] TCC has applied for summary judgment seeking a declaration that it is unlawful for TMP to demand a $50 per car/day “participation levy”. TMP has filed an application in response seeking a dismissal or stay of the proceedings on the grounds that the Court lacks jurisdiction. The application for stay is based on cl 8(1) of Schedule 1 to the Arbitration Act 1996 (the Act). TMP contends that TCC’s claims breach cl 5 of the Agreement.

[6] In response, TCC contends cl 5 of the Agreement is inoperative because TMP has repudiated the Agreement. TCC claims TMP has failed to comply with its fundamental obligation to provide TCC with its guaranteed use rights free of charge and has also failed to engage with any of its cl 5 dispute resolution obligations.

[7] The critical issue I must determine is whether under cl 8 of Schedule 1 of the Act, the Agreement is inoperative; i.e. Has TMP repudiated the arbitration clause of the Agreement? If that clause is still operative, then cl 8 of the Act requires me to grant the stay TMP now seeks.

Factual background

[8] TCC has been conducting sports meetings at Centennial Park since 1959. Up until the early 2000s TCC used its own motor-racing circuit on the land leased directly from the Council.

[9] Under the Agreement, TMP agreed to develop TCC’s existing circuit and extensions on the circuit. TMP took an assignment of TCC’s lease from the Council.

[10] Under clause 3 of the Agreement, TMP agreed to pay TCC an annual fee of
$20,000 plus GST. TMP also granted TCC “guaranteed use” of specified tracks for a specified number of car race meetings per year. TMP guaranteed use of the tracks “free of charge on the basis set out in Clause 3.2 of this Agreement”.

[11] In January 2018, TMP notified TCC that it cancelled the Agreement. TCC then issued legal proceedings but those were settled at a mediation in November 2018. Under that settlement, TMP’s liability to pay TCC an annual fee of $20,000 plus GST was deleted and clause 3.2(a) was replaced as follows:

(a) The race meetings referred to in clause 3.1(b) include, free of charge, track hire, and the control tower Control-Roof for the track hired. TMP is entitled to charge for all other rights and services and including but not limited to:

(i) Catering and/or hospitality rights;
(ii) Signage rights;
(iii) Car park charge rights;
(iv) Pit garages
(v) Hospitality suites;
(vi) Participant levies;
(vii) Track cleaning levies;
(viii) non-race-control rooms in the control tower (including the timing room, the Clerk of the Course’s room, and the Stewards’ Room) (provided that TMP shall not be entitled to charge for these rooms for any of the three two-day events in clause 3.1(b)(i));
(ix) Paddock buildings/facilities (e.g. scrutineering pavilion);
(x) Temporary structures supplied by TMP;
(xi) Track (lights and start/finish) control light system;
(xii) Production broadcast or connectivity rights;
(xiii) Any other systems or facilities or rights to be provided by TMP.
[12] Clause 5 of the Agreement, which was unaffected by the 2018 settlement agreement, reads:

5.1 Initiating resolution – If a dispute arises out of or in connection with this Agreement the parties, using the procedures set out in this Clause 5, agree to make a genuine effort to resolve the dispute without resorting to litigation and without limiting in any way the parties’ obligations in Clause 2, Clause 3 or Clause 4. A party may initiate these resolution procedures by giving written notice to the other party with which it is in dispute.

5.2 Negotiations – The party who initiates the resolution procedures must name the representative in the negotiations when giving the written notice referred to in Clause 5.1. The party receiving such written notice must then promptly give written notice to the other party to the dispute naming its representative in the negotiations. Each representative must have authority to settle the dispute. Within three

(3) Business Days after both parties to the dispute have been so advised of each other’s representatives, the representatives must enter into negotiations to try to resolve the dispute. Each party to the dispute must conduct all such negotiations in good faith and with a desire to preserve a commercial relationship with the other parties to this Agreement.

5.3 Alternative dispute resolution – If the dispute is not resolved within the following 10 Business Days then, within a further five (5) Business Days, the parties in dispute must try to agree on a process for resolving the dispute, such as further negotiations, mediation, independent expert determination or mini-trial, but not arbitration or litigation. Agreement on a process is to include agreement on:

(a) the procedure and timetable for any exchange of documents and other information relating to the dispute;

(b) procedural rules and a timetable for the conduct of the selected method of proceeding; and

(c) a procedure for selection and compensation of any neutral person who may be employed by the parties in dispute.

…

5.5 Arbitration – If the parties in dispute fail to agree pursuant to Clause

5.3 on a dispute resolution process within the set or extended time limit or, using an agreed dispute resolution process, fail to settle the dispute within the set or any extended time limit, then any remaining differences and disputes arising between those parties concerning the construction or performance of this Agreement, or the rights and obligations of those parties (but no other differences or disputes), shall be referred to arbitration in accordance with the Arbitration Act 1996. The arbitration shall be conducted by one arbitrator, if the parties in dispute can agree upon one or, failing agreement, by an arbitrator to be appointed by the President for the time being of the Wellington District Law Society or his or her nominee.

[13] TCC had a motor sports event scheduled for March 2019. On 22 January 2019, TMP sent TCC an event contract for signature. This contract included a vehicle participation levy of $50 per car/day. TCC rejected the contract.

[14] The parties then negotiated and agreed upon interim arrangements so that the March 2019 meeting could go ahead. The meeting was held on that agreed basis. Further TCC meetings had been scheduled for June 2019 but these did not occur.

[15] TCC filed these proceedings in July 2019.

[16] By letter dated 14 August 2019, the solicitors for TMP wrote to TCC’s solicitors proposing that TCC discontinue the proceedings and that the parties instead refer TCC’s claims to arbitration in accordance with cl 5 of the Agreement. The letter noted that this would involve “skipping” the intermediate steps in the rest of cl 5 (i.e. negotiations, alternative dispute resolution, etc). TMP suggested that arbitration would likely achieve a quicker resolution of the claims made by TCC.

Relevant legal principles

[17] Clause 8(1) of Schedule 1 of the Act provides:

A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests no later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.

[18] When interpreting arbitration agreements, a generous, liberal and inclusive reading is appropriate. The general principle, stated by this Court in Marnell Corrao Associates Inc v Sensation Yachts Ltd, is that:

Courts should uphold arbitration, by striving to give effect to the intention of parties to submit disputes to arbitration, and not allow any inconsistencies or uncertainties in the wording or operation of the arbitration clause to thwart that intention.

[19] In accordance with standard principles of contract law, a party to an arbitration agreement can lose the right to arbitrate where it has repudiated the arbitration agreement and the other party has accepted that repudiation, and so cancelled it. That is what the English Court of Appeal concluded had happened in Downing v Al Tameer, an authority TCC relies upon, addressed in greater detail below.

[20] The law in New Zealand as to cancellation of a contract is largely codified in subpart 2 of the Contract and Commercial Law Act:

36 Party may cancel contract if another party repudiates it

(1) A party to a contract may cancel the contract if, by words or conduct, another party (B) repudiates the contract by making it clear that B does not intend to –

(a) perform B’s obligations under the contract; or

(b) complete the performance of B’s obligations under the contract.

(2) This section is subject to the rest of this subpart.

38 No cancellation if contract is affirmed

A party is not entitled to cancel the contract if, with full knowledge of the repudiation, misrepresentation, or breach, the party has affirmed the contract.

Analysis and decision

[21] The parties agree that the critical question in determining the stay application is whether, prima facie, the arbitration clause of the Agreement remains operative. If the answer is yes, the proceeding must be stayed, with full consideration of the matter (if pursued) being left to an arbitral tribunal. The prima facie assessment standard of review is now well settled.

[22] The principal contention for TCC is that TMP has repudiated the arbitration agreement and in filing these proceedings TCC has accepted that repudiation. TCC further contends that the requirement in cl 5.5 for arbitration does not arise unless and until the preceding steps of the resolution dispute process set out in cls 5.1 – 5.3 have been taken. In particular, it is claimed that there has been no attempt to refine the issues (“any remaining differences and disputes”) as expressly contemplated by cl 5.5.

[23] TCC submits that TMP has persistently flouted the dispute resolution procedure in cl 5 of the Agreement. This is because it has refused to allow TCC to hold its events free of charge, as required, unless TCC submits to TMP’s demands for a participation levy at whatever level TMP sets.

[24] Mr Judd QC (for TCC) submitted that if there is a dispute under cl 5.1 of the Agreement (and there clearly is a dispute) then the procedures under the dispute resolution process are to be invoked without limiting in any way TMP’s obligation under cl 3 of the Agreement to provide track hire to TCC “free of charge”. This means that pending the determination of the dispute (which might ultimately be at the arbitration stage), TMP must adhere to the “free of charge” obligation. However, TMP, in insisting on participation levies, has repudiated the Agreement.

[25] TCC also says that TMP has no entitlement at all under the Agreement to impose a participation levy of the kind at issue here, and particularly where it is not providing any extra facilities or services in addition to what it is already contracted to provide.

[26] As noted above, TCC relies upon the English Court of Appeal decision Downing v Al Tameer, and contends that the essential facts of that case are almost identical to those of the present case.

[27] In Downing, the Court was concerned with whether the first defendant could rely on an arbitration agreement to stay proceedings. Prior to the proceedings having been issued, the first defendant ignored repeated attempts by the claimant to set arbitration proceedings in motion (requests to nominate arbitrators, etc), before eventually responding by denying any contractual relationship and stating in unqualified terms “the defendants have no intention of dealing with you further” (i.e. in relation to the obligation to arbitrate). In later correspondence, the first defendant’s solicitors had stated in similarly clear terms that it denied the existence of any contractual relationship.

[28] The Court found that prior to the issue and service of proceedings, the defendants were plainly indicating an intention not to be bound by the agreement to arbitrate. That is, they had repudiated both the contract generally and the arbitration agreement. The Court concluded:

Approaching the matter objectively, and looking at the correspondence as a whole, this was a situation which the claimant, having sought and requested the first defendant to pursue the arbitration route, only resorted to proceedings because of the first defendant’s refusal to cooperate or acknowledge the existence of the arbitration agreement. The statement made and attitude evinced in the first defendant’s letter dated 22 June 1995 in response to the claimant’s request to arbitrate, which denied any contractual relationship and stated an intention to deal with the claimant no further, was effectively maintained thereafter.

[29] I understand the frustration and concern of TCC that having long conducted events at Centennial Park and having given up its $20,000 annual fee entitlement in 2018, TMP now seeks to impose charges that appear fundamentally at odds with TMP’s obligation to guarantee use rights to TCC free of charge. However, I find that, at best, TCC’s claims and submissions establish a breach of cls 3 and 5.1 (i.e. a breach of contract) but do not amount to repudiation. I accept that there is a dispute and despite some initial delay by TMP, so do the parties. The dispute is over the interpretation of the Agreement and in my view, the arbitration clause of the Agreement remains operative for determination of that dispute.

[30] Whether a breach of contract amounts to a repudiation is “a serious matter not to be lightly found or inferred”. What has to be established is that the defaulting party has made clear it intends no longer to perform its side of the bargain. Proof of such an intention requires an investigation of the nature of the conduct, the attendant circumstances and the motives which prompted the conduct (among other things).

[31] In Kumar v Station Properties Ltd, the Supreme Court summed up the law in this way:

The mere fact that a party vigorously espouses a view of a contract’s meaning that is ultimately shown or accepted to have been wrong does not mean that the party is thereby manifesting an intention not to perform its obligations under the contract. If it is clear that the party accepts that it is bound by the contract, whatever meaning it is ultimately determined to have, the party should not be held to have repudiated the contract. By contrast, if a party persistently refuses to perform unless the other party accepts additional onerous terms inconsistent with the contract or in the mistaken view that there was never an enforceable contract, the party may well be found to have repudiated the contract. In such circumstances, the stance adopted amounts to a refusal to accept any obligation to complete the contract in accordance with its terms (emphasis added).

[32] Here, TMP accepts that it is bound by the entire contract (i.e. both the main contract and the arbitration clause) but simply takes a different stance on the meaning of participation levies, which is a matter of interpretation to be construed in light of the obligations in cl 3 generally. Clause 3.2(a) does expressly state that TMP is entitled to charge for “all other rights and services” including “participant levies”. Whatever the correct interpretation, I do not believe the threshold of a persistent refusal to perform has been reached, requiring TCC to accept additional onerous terms inconsistent with the contract. As discussed below, the parties have been attempting to negotiate a solution and an interim arrangement was reached in relation to the March 2019 race meeting.

[33] I also find that this case is not “essentially identical” or similar to Downing. At no point has TMP denied the existence of the Agreement, the dispute resolution clause or the arbitration clause. TMP has not repudiated either the main contract or the secondary agreement manifested in the arbitration clause. Despite its initial reluctance and its apparent hard-line stance on participation levies, TMP has not ignored or rejected attempts by TCC to initiate the dispute resolution process contemplated in cl 5. In Downing the first defendant denied the existence of the main contract and repeatedly ignored attempts to set arbitration proceedings in motion and indicated no intention of dealing further with the claimant. The position here is quite different.

[34] I accept the submission of Mr Judd that the principles in Downing can apply even if through filing the Court proceedings the innocent party has accepted the repudiation of the secondary agreement to arbitrate. This is because the innocent party can seek to uphold the main contract, notwithstanding the repudiation of the secondary contract. Mr Little did not dispute that proposition. However, and contrary to Mr Judd’s submission, I find that there has been no repudiation of either the main contract (the grant of use rights) or the secondary contract (the agreement to arbitrate).

[35] I now turn to address the Mr Judd’s second argument, namely that the requirement for arbitration under cl 5 does not and has not arisen in this case because the preceding steps in cls 5.1, 5.2 and 5.3 have not been met.

[36] That is not an attractive argument, particularly in a context such as this where there is a mutual obligation on the parties to make genuine efforts to resolve the disputes without resorting to litigation. As noted by Williams & Kawharu on Arbitration:

8.8.3 Dangers of multi-tier dispute resolution clauses

As noted above, specifying pre-arbitration conditions can often lead to uncertainty as to when arbitration can commence as it can be difficult to determine whether the pre-conditions to the arbitration have been satisfied, or whether they are even required to be satisfied. These difficulties have given rise to arguments that a failure to comply with particular pre-conditions renders the arbitration agreement invalid and unenforceable. Tribunals and courts are generally reluctant to reach this conclusion since, if an arbitration agreement ultimately fails, parties are likely to end up in court

– the exact place they had hoped to avoid by agreeing to an alternative dispute resolution (ADR) procedure. In other instances, arbitration may be inevitable and requiring compliance with the procedures provided for in the pre-conditions will simply add costs and further delays to the ultimate resolution of the dispute (emphasis added).

[37] The comments of Williams & Kawharu are supported by the findings of the Court of Appeal in J R Porter & Ors v Gullivers Travel Group Ltd, where that Court held:

Provisions of the type contained in clause 28 [a referral for expert determination] are common in commercial contracts. If it should be that whenever negotiations broke down after meetings, consultations and the like, the parties could come to the court for relief, or seek some remedy rather than following the agreed arbitration or other dispute resolution, there would be little point in having such agreed processes in commercial contracts. It is difficult to believe that commercial parties would agree to a dispute resolution process which was intended to deal with an important substantive dispute concerning the calculation of price, but was not intended to deal with disputes about the provision of information and documents relevant to that price calculation. Yet that is the effect of the appellant’s argument. We note that as part of the price adjustment process the appellants were entitled under clause 3.2(b)(i) of the contract to liaise with PWC regarding the audit. This provided an opportunity for them to seek information and explanations as to the basis of the calculation prior to the dispute resolution process being invoked.

[38] In any event, on the facts of this case, I find the contention that the arbitration clause is inoperative because the preceding steps in cl 5 have not been followed, should be rejected. It is clear on the evidence that the parties have been negotiating with a view to try and resolve their dispute and I reject the submission of Mr Judd that the negotiations leading to the interim solution for the March 2019 meeting were focused only on that meeting and did not deal more generally with the dispute.

[39] Mr Terry O’Brien, the President of TCC, acknowledged in his email of 13 June 2019 to Mr Tony Walker of TMP that negotiations were taking place and that in terms of cl 5 of the Agreement the parties were required to try and resolve the matter between themselves. There was also a meeting between three board members of TMP and the full committee of TCC on 10 April 2019. The letter from Mr O’Brien to the board of TMP dated 27 May 2019 confirms that the reason for the levy (namely, whether other track hirers would be charged a levy and how the figure of $50/car per day was reached) was discussed at that April meeting. In my view, while far from perfect, the steps the parties did take were broadly in accordance with the substance of the requirements imposed by cls 5.1 and 5.2 (i.e. the steps preceding arbitration). It may be that the solicitors for TMP did not always respond to correspondence from TCC’s solicitors but in my view that does not provide a basis for inferring that TMP was not taking steps to try and resolve the dispute in the manner contemplated by cl 5.

[40] I accept in principle the submission of Mr Judd that the correspondence from TMP after the proceedings which proposed moving straight to arbitration cannot cure any previous default in complying with the preceding steps in the dispute resolution process. However, in this case there is probably some fault on both sides in failing to follow all the steps in cl 5, but I do not see that as a basis for concluding that cl 5 has been rendered inoperative. The practical solution proposed in TMP’s solicitor’s letter of 14 August 2019 is surely a sensible one. As noted by Wild J in Marnell Corrao Associates Inc v Sensation Yachts Ltd, where the parties have agreed on an arbitration evaluation clause, the Court will give full weight to the manifest intention to submit disputes to arbitration and create continuing legal relations.

[41] I also note that TCC likely had the option under cl 17 of Schedule 1 of the Act to seek interim relief if there was a practical problem in relation to holding sports events with a participation levy before the dispute could be finally resolved under cl 5.

[42] For all these reasons I conclude that cl 5 of the Agreement prima facie remains operative. In accordance therefore with cl 8(1) of Schedule 1 of the Act, the proceedings must be stayed with a full consideration of the issue of the participation levy (if pursued) to be left to the relevant arbitral tribunal.

Result

[43] The defendant’s application for a stay of the proceedings dated 12 September 2019 is granted in accordance with cl 8(1) of Schedule 1 to the Arbitration Act 1996.

[44] I am of the preliminary view that the plaintiff should pay costs to the defendant on a 2B basis and that the defendant’s application for increased costs should not be granted. If the parties cannot agree, then short memoranda (no more than three pages) are to be filed and served within 14 days.

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
FINANCIAL LIST (ChD)

Introduction

1. 1. This is an application by the claimant, Madison Pacific Trust Limited (the “Trustee”) as trustee of two series of notes (the “Notes”) issued by UK SPV Credit Finance Plc (the “Issuer”), for directions.
   2. The Issuer is an orphan special purpose vehicle, established for the purpose of (inter alia) issuing the Notes. The first series of Notes (the “2010 Notes”) was issued pursuant to a trust deed dated 24 September 2010 (the “2010 Trust Deed”). The 2010 Notes were in the aggregate amount of US$200 million and were originally due 23 September 2015, but the maturity date was extended to 23 January 2018 (and in August 2016 a 20% amortisation payment was made). The second series of Notes (the “2013 Notes”) was issued pursuant to a trust deed dated 28 February 2013 (the “2013 Trust Deed”). The 2013 Notes are in the aggregate amount of US$175 million and were due 28 February 2018.
   3. The funds raised upon the issuance of both series of Notes were advanced by the Issuer to the second defendant, Joint Stock Company Commercial Bank PrivatBank (“PrivatBank”), pursuant to (1) a loan agreement dated 17 September 2010, relating to a loan of US$200 million (the “2010 Loan Agreement”) and (2) a loan agreement dated 25 February 2013 relating to a loan of US$175 million (the “2013 Loan Agreement”).
   4. The Issuer has charged and assigned by way of security all of its interest under the Loan Agreements in favour of the Trustee.
   5. The Notes are all limited recourse, payment being dependent upon the extent to which recoveries are made under the Loan Agreements. In particular, by clause 2.4 of the Trust Deed, the obligations of the Issuer are “solely to make payments of amounts in aggregate equivalent to each sum actually received by or for the account of the Issuer from [PrivatBank]”. Noteholders were therefore reliant “solely and exclusively upon [PrivatBank’s] covenant to pay under the Loan Agreement and the credit and financial standing of [PrivatBank]”.
   6. The maturity date in respect of both series of Notes has now passed, without payment of principal having been made to the Noteholders. That is a direct result of PrivatBank having failed to repay the amounts due under either of the Loan Agreements.
   7. The Loan Agreements are in materially similar terms. They each contain a provision that “any dispute arising out of or connected with” the Loan Agreement “including a dispute as to the validity, existence or termination [of the Loan Agreement] or the consequences of its nullity … shall be resolved … by arbitration in London … in accordance with the LCIA Rules.”
   8. On 8 November 2017, the Trustee, on its own behalf and on behalf of the Issuer, served two requests for arbitration seeking awards ordering PrivatBank to pay the amounts due under the Loan Agreements. The Trustee acted following instruction from and indemnification by certain holders of interests in the Notes (the “Instructing Group”).
   9. PrivatBank advanced two defences: first, that as a result of the nationalisation of PrivatBank in Ukraine and the subsequent ‘bail-in’, as and when the bail-in is recognised by the Bank of England pursuant to the Banking Act 2009 the obligations of PrivatBank under the Loan Agreements will have been discharged; and, second, that the Loan Agreements are unenforceable for illegality perpetrated by two former owners of PrivatBank (the “Former Owners”).
   10. In partial awards published in the arbitration relating to each Loan Agreement on 13 June 2019 (the “Awards”), the arbitration tribunal (the “Tribunal”) concluded that (subject to the bail-in defence, the determination of which had been postponed) PrivatBank would be required to pay only certain amounts due under the Loan Agreements, for the following reasons:

i) The Loan Agreements were indeed tainted by illegality. That illegality also infected the Notes to the extent that interests in the Notes had been acquired by the Former Owners or entities under their control.

ii) Many of those who had acquired interests in the Notes (including the Instructing Group), on the other hand, were innocent. Not only were they not parties to the illegality, they were victims of it.

iii) The public policy considerations that underlay the defence of illegality under English law required “…a court or tribunal to act to prevent recovery where to allow the claim would be in effect to endorse the fraud and assist in the achievement of the fraudulent purpose. Equally, it can readily be seen that a court or tribunal should aim to protect innocent investors from fraud who would be damaged despite being victims of the fraud if the claims brought for their benefit were to be refused.”

iv) The difficulty the Tribunal faced, in these circumstances, was that the entities actually suing to recover under the Loan Agreements were the Issuer and, as holder of a security interest, the Trustee. As between the Issuer and Trustee (on the one hand) and PrivatBank (on the other) illegality would appear to operate as a binary defence: each Loan Agreement was either enforceable as a whole, or not at all.

v) The Tribunal considered whether there were other ways of ensuring that innocent holders of interests in the Notes could recover, while preventing the Former Owners and their associated entities from recovering (including applications by the Trustee to court in relation to the proceeds of any repayment of the Loans), but decided that “stopping the funds at source is in the view of the Tribunal a much more attractive and economic solution if it can be achieved.”

1. 1. Accordingly, the Tribunal fashioned its Awards as follows:

i) PrivatBank had no liability and should not be required to make any payment to the claimants (the Issuer and the Trustee) “in a sum equal to” the principal value of the Notes which as at 14 June 2019 (the “Relevant Date”) were held for the benefit of the Former Owners or entities owned or controlled by them;

ii) PrivatBank was required to pay to the Trustee “an amount equal to the aggregate principal value of the Notes” held as at the Relevant Date for the benefit of the Instructing Group;

iii) The Trustee was required (by paragraph 5.2(3) of the operative part of the Awards) to pay to each member of the Instructing Group pro rata the amount of its respective interest in the Notes; and

iv) A mechanism was put in place for those persons who held an interest in the Notes but fell within neither (i) nor (ii) above, which entailed notices being published requesting such persons to make themselves known to the Trustee and provide information and evidence within 60 days. PrivatBank was given the opportunity to object to any payment being made to such persons, on the grounds that their claims are (on the findings of the Tribunal) infected with illegality. Any dispute was to be resolved by the Tribunal, and PrivatBank was required to pay to the Trustee only where PrivatBank’s objection was not upheld;

v) The Trustee was required (by paragraph 6.3(3) of the operative part of the Awards) to pay to each entity referred to in (iv) above where either PrivatBank raised no objection, or the objection was not upheld;

vi) The Tribunal stated, however, that nothing in the Awards required the claimants to make any payment under paragraph 5.2(3) or paragraph 6.3(3) until the Trustee had had an opportunity to make an application to a judge of the High Court, seeking directions “in order to confirm that it will have no further liability under the Trust Deed or otherwise as a result of making the payments envisaged by [the Awards]”. In the event that the Court declines to give such confirmation, then the operative parts of the Awards will cease to have effect and the Tribunal retains jurisdiction to deal with the matters raised by the claim and the illegality defence as it may consider appropriate.

1. 1. This is the application by the Trustee which the Tribunal indicated should be made.

The holding structure of the Notes

1. 1. In order properly to explain the problem which the Tribunal sought to resolve by its Awards, and the issues which arise on this application, it is necessary to set out in some detail the structure through which the Notes are held, and the relevant terms of the Trust Deeds. I will do this by reference to the 2010 Trust Deed, but there are no material differences from 2013 Trust Deed.
   2. In relation to the 2010 Notes only one Note has been issued, a permanent global note which is deposited with a common depositary who holds it on behalf of Euroclear and Clearstream (the “Clearing Systems”). The Clearing Systems facilitate trading in the Notes by crediting interests in the global note to account holders, or “participants” in the Clearing Systems.
   3. The participants hold such interests on behalf of persons in the market who wish to acquire beneficial interests in the global note, the ultimate account holders (“UAHs”). The UAHs may hold their interest directly with a participant in the Clearing System or through one or more intermediaries. All dealings in interests in the notes take place by way of book entries, in the books either of the Clearing Systems, the participants or intermediaries.
   4. As a matter of English law, there is a chain of contractual and proprietary relationships between the Issuer and each UAH, as follows (see, for example, Gullifer and Payne, Corporate Finance Law (2^nd ed) at 389-390). The common depositary has contractual rights (set out in the global note, which incorporates the terms of the Trust Deed). The Clearing System has contractual rights against the common depositary; the participants have contractual rights against the Clearing Systems; and where there are no further intermediaries the UAH has contractual rights against the participant. If there are further intermediaries between the participant and the UAH, then each intermediary has contractual rights against the entity next above it (i.e. closer to the Issuer) in the chain.
   5. In addition, the contractual rights of each entity against the entity next above it in the chain are typically held on trust for the entity next below it in the chain. For example, a participant’s contractual rights against the Clearing System are held by it for the benefit of the intermediary next below it in the chain. The common depositary’s contractual rights under the global note against the Issuer are thus held via a trust and series of sub-trusts for each UAH.
   6. In parallel, there is a similar chain of ownership in relation to the security structure, as follows:

i) By clause 2.3 of the Trust Deed, the Issuer covenanted to pay to or to the order of the Trustee amounts corresponding to principal and interest in respect of the Notes, and the Trustee agreed to hold the benefit of that covenant on trust for the benefit of itself and the Noteholders.

ii) By clause 4 of the Trust Deed, the Issuer charged and assigned to the Trustee, for the benefit of itself and the Noteholders all of the Issuer’s rights, interests and benefits in and to the Loan Agreement. This was as security for all sums due under the Trust Deed (in particular the covenant of the Issuer to the Trustee in clause 2) and the Notes.

iii) The immediate beneficiaries of the trust of the security are the Noteholders, in this case consisting only of the common depository as holder of the global note. It holds that interest on a sub-trust for the Clearing Systems, who hold on a sub-trust for the participants and so on down the chain to the UAH.

1. 1. While the Trustee strictly speaking holds the benefit of the security for the common depositary (as the sole Noteholder) alone, the terms of the global note recognise this sub-trust structure by entitling the Trustee “to the extent it considers it appropriate to do so” to have regard to information provided by the Clearing Systems as to the identity of accountholders, and to “consider such interests on the basis that such accountholders were the permanent holder of this Permanent Global Note.”
   2. The arbitration proceedings were brought by the Trustee both in its own name and in the name of the Issuer (as permitted by clause 4.8.3 of the Trust Deed) by way of enforcement of the security.
   3. As such, any sums received from PrivatBank represent “moneys received by [the Trustee] … in connection with the enforcement or realisation of the Security Interests” within the meaning of clause 8.1 of the Trust Deed. Accordingly, they must be applied pursuant to the terms of the payment waterfall set out in clause 8.1, as follows:

“8.1.1 first, in payment or satisfaction of the costs, charges, expenses and liabilities incurred by the Trustee in or about the preparation, execution and performance of the trusts of this Trust Deed (including remuneration of the Trustee and of any Appointee appointed hereunder) and incurred by the Trustee or a Receiver (and any Appointee) in the realisation or enforcement of the Security Interests;

8.1.2 secondly, in or towards payment pari passu and rateably of all arrears of amounts corresponding to principal and interest remaining unpaid in respect of the Notes; and

8.1.3 thirdly, the balance (if any) in payment to the Issuer …”

The issues raised by this application

1. 1. The principal form of relief sought in the Claim Form by the Trustee is an order that:

“The Trustee is at liberty to make payments to or at the direction of the Noteholders (as that term is used in the Trust Deeds) or Ultimate Account Holders (as that term is used in the Awards) in accordance with the payment scheme set out at operative paragraphs 5 to 9 of the Awards.”

1. 1. Alternatively, it seeks an order that:

“The Trustee shall not be liable to any Noteholder, Ultimate Account Holder or other direct or indirect beneficiary under the Trust Deeds by reason of the making or withholding of payments in accordance with the payment scheme [set out at paragraphs 5 to 9 of the Awards]”

1. 1. I will refer to the UAHs to whom paragraphs 5.2(3) and 6.3(3) of the Awards require payment to be made as the “Entitled UAHs”. I will refer to those UAHs to whom the Awards preclude any payment being made as the “Related UAHs”.
   2. By order of Mann J dated 20 November 2019, the first defendant, Shakoor Capital Limited (“Shakoor”) was appointed to represent the Instructing Group and all other Entitled UAHs. The Trustee has sent notice of this application to the Clearing Systems, for onward transmission to UAHs, requesting UAHs to state whether they wished to participate in the application or otherwise set out their views. Aside from one UAH which initially indicated an intention to appear but, having sold its interest in the Notes, no longer wishes to do so, no UAH has indicated an intention to participate in the application, made written representations, or appeared on the hearing of the application.
   3. The Trustee was represented before me by Sonia Tolaney QC and Nicholas Sloboda. Shakoor was represented by Adrian Beltrami QC and Louise Hutton. PrivatBank was represented by David Wolfson QC, Simon Atrill and Nick Daly. The principal submissions in favour of the directions were made by Mr Beltrami. These were adopted by Mr Wolfson, who made further points in support. Ms Tolaney took an initially neutral stance, but in reply made such arguments as she considered could be made against the directions, for the purposes of ensuring the Court was presented with at least some of the arguments that might be made on behalf of UAHs who might be prejudiced by the directions.
   4. The principal submission of Shakoor and PrivatBank is that on the true construction of the Trust Deed the Trustee is required to make the payments to the Entitled UAHs, either pursuant to clause 8.1.1 or clause 8.1.2 of the Trust Deed. If that argument succeeds, no question of breach of trust arises.
   5. In the alternative, I am asked to relieve the Trustee of any liability it may incur to any of the UAHs by reason of making payment in accordance with the terms of the Awards, whether pursuant to the inherent jurisdiction of the Court to supervise trustees (or its variant named after Re Benjamin [1902] 1 Ch 723) or pursuant to s.57 or s.61 of the Trustee Act 1925.

Clause 8.1.1

1. 1. Mr Beltrami contends that the payments required to be made pursuant to paragraphs 5.2(3) and 6.3(3) of the operative part of the Awards constitute “liabilities” incurred by the Trustee in or about the performance of the Trust and incurred by the Trustee in the realisation or enforcement of the Security Interests, within the meaning of clause 8.1.1 of the Trust Deed.
   2. The first step in the argument is that the word “liabilities” is a word of broad meaning, which extends to all legal obligations without limitation, save for that found in the clause itself, namely that they were incurred in or about the performance of the Trust and in the realisation or enforcement of the security. The clause is to be construed as at the time it was entered into and not against the background of the circumstances in which it is now sought to be applied. It is irrelevant, therefore that the drafter of clause 8.1.1 would not have envisaged circumstances such as those which the Trustee currently faces.
   3. Mr Beltrami submitted that there is no reason to limit its scope, for example, by reference to the identity of the person to whom the liability is owed. Nor is there any necessary link between clause 8.1.1 and clause 8.1.2: there is accordingly no reason to exclude from clause 8.1.1 liabilities on the basis that they are owed to persons for the benefit of whom payments in respect of the Notes are to be made under clause 8.1.2.
   4. I accept these submissions. The strongest argument to the contrary is that, given that payments to Noteholders in discharge of arrears due under the Notes are governed by clause 8.1.2, such payments cannot have been the intended subject-matter of clause 8.1.1. Even though the recipients of the payments, the UAHs, are not those entitled to any payment made pursuant to paragraph 8.l.2, payments made under that provision are for their benefit and, by clause 7.4 of the Trust Deed, the realisation of the security and application of the proceeds in accordance with clause 8 will have the consequence of satisfying the Issuer’s payment obligations under the Notes. In other words, however broad is the meaning of “liabilities” under clause 8.1.1, it cannot extend to a liability to Noteholders of amounts due under the Notes.
   5. Although at first sight this argument is compelling, I do not think it is right. The circumstances in which the Trustee might come under a liability within the meaning of clause 8.1.1 to pay either the Noteholders or UAHs any amount in respect of sums due under the Notes are extremely rare. Indeed, it is difficult to think of any circumstances in which that would be possible other than in a case materially similar to this one. That is because a liability to pay an amount due under the Notes could rarely be characterised as having been “incurred by the Trustee in the realisation or enforcement of the Security Interests”.
   6. It is capable of being so characterised in this case only because of the conditionality attaching to the payment to be made by PrivatBank to the Trustee under the Awards. The Awards have resulted from steps taken by the Trustee to enforce the security. As a result of the form of Awards fashioned by the Tribunal the Trustee can receive payment under the Awards only if it accepts the liability to pay the UAHs imposed upon it by paragraphs 5.2(3) and 6.3(3) of the operative parts of the Awards. Accordingly, that liability is properly characterised as having been incurred in or about the “performance of the trusts of this Trust Deed” and “the realisation and enforcement” of the security.
   7. For these reasons I accept that while it is counter-intuitive to consider that a liability to make payment for the benefit of the holders of the beneficial interests in the Notes could fall within clause 8.1.1, on the peculiar facts of this case, it would do so.
   8. The next question is whether the Trustee is in fact under such a liability as a consequence of the Awards. If looked at in isolation, paragraphs 5.2(3) and 6.3(3) of the operative parts of the Awards clearly impose obligations to make payment and would thus constitute a liability. They must, however, be read together with paragraphs 10 and 13. Paragraph 10 provides that:

“Nothing in this Partial Award shall require the Claimants [which includes the Trustee] to make any payment pursuant to paragraph 5 or 6.3(3) until the Trustee has had an opportunity to make an application seeking directions to make those payments from a Judge of the High Court in England and Wales, in order to confirm that it will have no further liability under the Trust Deed or otherwise as a result of making the payments envisaged by this Partial Award. For the avoidance of doubt, such application shall not be a challenge to the terms of this Partial Award or to the Trustee’s entitlement or obligation to make the payments anticipated hereunder.”

1. 1. Paragraph 13 provides that:

“If, on the final determination of such an Application, the Court declines to direct the Trustees to make the payments specified in this Partial Award, paragraphs 1 to 9 hereof shall cease to have effect in their entirety.”

1. 1. Mr Beltrami and Mr Wolfson both submitted that upon a proper analysis of the provisions of the Awards, the Trustee is under an existing liability to make the payments envisaged by paragraphs 5.2(3) and 6.3(3). They accept that the liability is contingent, on the outcome of the bail-in issue which has yet to be resolved by the Tribunal, and defeasible, because if this Court declines to direct the Trustee to make the payments specified in the Awards, then the Awards (and all payment obligations in them) simply fall away. Nevertheless, they submit, until such time as the event referred to in paragraph 13 arises, the Trustee is subject to the liabilities in paragraphs 5.2(3) and 6.3(3).
   2. I would accept that if the Trustee receives payment under the Awards then it will at that point be subject to a liability within the meaning of clause 8.1.1. I do not accept, however, that it is currently subject to such a liability. That is because the liability is also subject to the further contingency that the Trustee receives payment. Unless the Trustee receives payment from PrivatBank the obligations under paragraphs 5.2(3) and 6.3(3) of the operative parts of the Awards do not arise and there would in any event be no proceeds of enforcement to which clause 8.1 of the Trust Deed could apply.
   3. In this case, the enforcement process has been paused pursuant to that part of the Awards which permits the Trustee to seek directions from this Court. Even without the pause button being pressed in that way, I consider that the Trustee would in any event not be bound to receive payment from PrivatBank under the Awards. As with a judgment of a court, the fact that the Trustee has the benefit of it does not mean that (as between it and the judgment debtor) it is bound to receive payment. Such an issue would rarely arise and does so in this case only because of the condition attached to receiving payment which the Tribunal has imposed.
   4. Accordingly, although not quite framed in this way by the Awards or the Claim Form, I consider that the essential question for the Trustee is whether it is consistent with its duties under the Trust Deed to continue the enforcement action it has started, by accepting payment under the Awards and thus incurring the liability to apply all of the proceeds of that enforcement in favour only of the Entitled UAHs.
   5. That question is not answered by the conclusion (which, as I have noted, I accept) that once the proceeds of enforcement against PrivatBank are in its hands the Trustee will be subject to a liability, falling within clause 8.1.1 of the Trust Deed, to apply them in that way.
   6. I will return to this question after considering the alternative construction arguments advanced by the parties.

Clause 8.1.2

1. 1. As noted above, clause 8.1.2 provides for the application of funds received by the Trustee upon enforcement of the security to be applied in or towards payment “pari passu and rateably” of all “arrears” corresponding to the sums remaining unpaid in respect of the Notes.
   2. Mr Beltrami submitted that if the obligation to make payment does not fall under clause 8.1.1 then it falls under clause 8.1.2, on the basis that the only “arrears” to which that clause now applies are those in favour of the Entitled UAHs.
   3. The argument runs (in summary) as follows. “Arrears” means amounts that are both due and payable. That clearly encompasses amounts due and payable by the Issuer, but it is also capable of encompassing amounts due and payable by the Trustee. There are no amounts due and payable by the Issuer in respect of the Notes, because (i) (as a consequence of the limited recourse nature of the rights of Noteholders) the Issuer’s obligation to pay is conditional on it receiving funds from PrivatBank and, (ii) since the Awards require payment to be made only to the Trustee, the Issuer will not receive any funds from PrivatBank. The Awards do create an obligation on the Trustee, but that is limited to the obligation to pay the Entitled UAHs. Accordingly the only “arrears” that exist within clause 8.1.2 so far as the Trustee is concerned, are the sums due and payable by it to the Entitled UAHs.
   4. I do not accept this argument, which requires a strained and unnatural reading of clause 8.1. In my judgment, “arrears” in the context of clause 8.1.2 is not intended to be limited by reference to the extent to which amounts are actually payable by the entity required to make payment (whether it be the Issuer or the Trustee). Rather, it is intended merely to identify the amounts of principal and interest which are outstanding from the perspective of the Noteholders, i.e. which have not been repaid to the Noteholders. That is clear from the words of the clause itself, which links “arrears” to the amounts “remaining unpaid” in respect of the Notes.
   5. That view is reinforced by the fact that paragraph 8.1 is intended to apply wherever the Trustee has enforced its security over the debt due from PrivatBank. Whenever it does so, it will be the Trustee, and not the Issuer, that receives funds from PrivatBank. Thus, if Shakoor’s argument were correct, clause 8.1.2 could never be engaged where the Trustee takes such enforcement: there would be no “arrears” owed by the Issuer (as it had never received any funds so as to render amounts due under the Notes payable by it) and there would be no “arrears” owed by the Trustee (as nothing imposes any liability on the Trustee to make payment to the Noteholders from the proceeds of security other than clause 8.1.2 itself). The fact that Shakoor’s argument would prevent 8.1.2 operating at all in circumstances (recovery of proceeds of enforcement of security by the Trustee) that clause 8.1 as a whole was clearly intended to cover is a compelling indication that the argument is wrong.
   6. That conclusion is reinforced when it is appreciated that payment by PrivatBank under the Loan Agreements to or to the order of the Trustee “…shall pro tanto satisfy the obligations of the Issuer in respect of the Notes…” (see clause 13 of the Trust Deed). As a result of this provision, any payment by PrivatBank to the Trustee (whether pursuant to enforcement of the security or otherwise) would automatically discharge the Issuer, and thus prevent there being “arrears” due from it to the Noteholders.
   7. Mr Beltrami suggested that Noteholders would ultimately recover because if the proceeds were not paid under clause 8.1.2 then they would be paid to the Issuer under clause 8.1.3, at which point the Issuer would have received proceeds such as to give rise to its obligation to make payment under the Notes. I do not think the drafter intended funds to be sent round the waterfall twice in this way. Rather, the drafter intended that any sums payable to the Issuer under clause 8.1.3 would be for the Issuer’s own account. Indeed, it is not immediately obvious how sums paid to the Issuer under clause 8.1.3 would remain subject to the security created by the Trust Deed at all, since the subject matter of the charge in clause 4 is limited to the rights under the Loan Agreements, the sums in the Lender Account and the interest in Permitted Investments. This further supports the conclusion that “arrears” in clause 8.1.2 refers to the amounts unpaid from the perspective of the Noteholders: it is only when the Noteholders have no further right to any principal or interest that the Issuer should receive anything under clause 8.1.3.
   8. In the further alternative, it was submitted that there was no obligation to distribute proceeds of enforcement under clause 8.1.2 pari passu, because the entitlement of Noteholders was to receive payment upon actual receipt by the Issuer from PrivatBank and then only “subject to the conditions attaching to” any such receipt. I do not accept this argument. The phrase relied on appears in clause 2.2 of the terms and conditions of the Notes, under the heading “Limited Recourse”, and follows on from the statement that sums actually received by the Issuer will be paid pari passu to all Noteholders. It cannot have been intended, in my judgment, to remove the right to pari passu distribution that had been given by the immediately preceding words in that clause. In any event, (i) it deals with payments to Noteholders, whereas the payments under the Awards are to be made to UAHs and (ii) it deals with payments by the Issuer, whereas the sums to be paid – both under the Awards and under clause 8.1 of the Trust Deed – are payable by the Trustee.

Trustee’s powers and duties in connection with enforcement of the Security

1. 1. I return to the question I posed in paragraph 41 above, namely whether the Trustee may, consistent with its duties under the Trust Deed, continue enforcement action which will result in it assuming an obligation to apply all of the proceeds of enforcement in payments to the Entitled UAHs alone.
   2. The Trustee has an unfettered discretion as to the manner in which it enforces the security: see in particular clause 7.1 of the Trust Deed (which permits the Trustee after an Event of Default under the Loan Agreements “…at its discretion … to institute such steps, actions or proceedings as it may think fit to enforce the rights of the Noteholders…”) and clause 4.8 and Schedule 10 (which provide for a similarly wide discretion in relation to calling in, collecting, selling or otherwise dealing with the Loan after a Relevant Event has occurred).
   3. It must, however, exercise that discretion subject to its overarching obligation to act in the interests of all the Noteholders: see clause 4.1 of the Trust Deed (which provides that the rights under the Loan Agreements are charged and assigned to the Trustee “for the benefit of itself and the Noteholders”); clause 17.1.6 (which requires the Trustee, whenever it is to have regard to the interests of the Noteholders, to “have regard to the interests of the Noteholders as a class”); and clause 8.1.2 (which, as noted above, requires the funds received by the Trustee to be applied, after costs, charges, expenses and liabilities of the Trustee, pari passu to the Noteholders).
   4. The trust on which the Trustee holds the security is (in the first instance) a bare trust under which the interests of the Noteholders, as beneficiaries, are fixed by reference to the face value of their Notes. In this case the picture is then complicated by the beneficial interest in the Notes being divided up via the sub-trust structure referred to above. Each of those sub-trusts is also a bare trust, the interest of each UAH being fixed by the amount of their interest in the Notes. There is no question of any discretion vesting in the Trustee in this respect.
   5. Conceptually, therefore, the Trustee may be said to hold its rights under the Loan Agreements for the ultimate benefit of each and every one of the UAHs, owing each of them an obligation to recover the amount of the Loan required to repay that UAH. The duty to each UAH is qualified, however, by the duty owed to all other UAHs. In practice, that means that the Trustee cannot take action to the benefit of one UAH which would prejudice others. It could not, for example, under normal circumstances take all the available proceeds of security and apply them in payment of some only of the UAHs. Nor could it take such proceeds as were currently available on a partial enforcement of the security and pay them to some only of the UAHs, if there was any doubt over being able to enforce the remainder of the security. In each case, that would amount to preferring the interests of some beneficiaries over the interests of others.
   6. In considering whether accepting the payments, and the attached obligations, under the Awards would fall foul of its duties, it is first necessary to identify what real alternatives the Trustee has to doing so.
   7. If the Court refuses to grant the relief sought on this application then the matter is automatically referred back to the Tribunal. At that stage, in light of its clear conclusion that no recovery can be made by or for the benefit of any of the Related UAHs, there are only two realistic options. Either the Tribunal concludes that the Trustee’s action against PrivatBank fails altogether by reason of illegality or it provides for an alternative solution to ensure that the Related UAHs recover nothing which – as it acknowledged at paragraph 128 of the Awards – would involve considerably more delay and expense given the locations, resources and conduct of those who might be targeted for relief. Importantly, in neither case would any recovery be made by or for the benefit of the Related UAHs.
   8. It is also instructive to consider the rights of the Noteholders where the Trustee simply refrains from taking action. The final sentence of clause 7.1 of the Trust Deed provides that while Noteholders may not generally enforce the provisions of the Trust Deed, they may do so if “the Trustee, having become bound to proceed in accordance with this Trust Deed, has failed to do so within a reasonable time and such failure is continuing.” Enforcement of the provisions of the Trust Deed includes taking action pursuant to the security over the Loan Agreements to enforce payment by PrivatBank.
   9. The Trustee becomes bound to take action if instructed by Noteholders holding at least one-quarter in principal amount of the Notes outstanding, provided it is indemnified to its satisfaction. This has already been satisfied in this case, where the Trustee took enforcement action upon the instruction of the Instructing Group. While clause 17.2.3 permits the Trustee to refrain from doing anything that would or might in its opinion be contrary to any law or which it may not have power to do, I do not think that would be engaged, since the issue is not whether the Trustee lacks the power to enforce the security, but whether it would be a proper exercise of its discretion where the result would be to benefit some only of the UAHs.
   10. There would be practical hurdles to overcome, caused by the fact that there is only one Noteholder (the common depository). There are, however, circumstances in which the global note may be converted into multiple definitive notes to be held by the participants or, with the co-operation of the participants and the relevant UAHs, the UAHs themselves. The terms of the global note entitle the holder of the Note to request the exchange of the global note for definitive notes in defined circumstances. In the case of the 2013 Notes, those circumstances already exist (one of the circumstances being the occurrence of a “Relevant Event”, which includes the non-payment by the Issuer of principal or interest when the same becomes due). In the case of the 2010 Notes those circumstances do not exist, but in any event those provisions define only the circumstances in which the Noteholder can require exchange, and there does not appear to be anything in the terms of the global note which precludes the Issuer from offering to replace the global note with definitive notes, assuming the persons to whom the definitive notes are to be issued can be ascertained.
   11. If the Trustee was in fact bypassed in this way, then it would create privity directly between the individual holders of the Notes (whether each UAH or an account holder acting on their behalf) and PrivatBank. In that case, as Mr Beltrami submitted, the conclusion of the Tribunal in the existing Awards would, to the extent that any Related UAH itself sought to pursue action against PrivatBank, prevent them from doing so by virtue of issue estoppel.
   12. Where legal action is brought by a trustee, for example to recover trust property from a third party, then a decision adverse to the trustee is binding on the trustee and all of the beneficiaries of the trust, so as to prevent a beneficiary of the trust bringing its own subsequent claim against the third party. That is because there is a sufficient degree of identification between the interests of the beneficiaries and the interests of the trustee: see Gleeson v Wippell & Co Ltd [1977] 1 WLR 510, per Megarry VC at p.515, cited with approval in Lemas v Williams [2013] EWCA Civ 1443, per Arden LJ at [40].
   13. I was initially concerned that, in this case, the effect of the solution which the Tribunal has imposed creates a conflict between the Entitled UAHs on the one hand, and all other UAHs on the other. As such, it might be said that there is insufficient degree of identification (for the purposes of creating an issue estoppel) between any one UAH and the Trustee.
   14. I am persuaded, however, that that is not the correct approach. Rather, it is necessary to focus on the precise issues determined by the Tribunal and the extent to which there is sufficient degree of identification between the Trustee and each UAH in relation to them. The Trustee sought payment under the Loan Agreements for the benefit of all UAHs. The Tribunal’s findings, as to (i) the existence and nature of the illegality and (ii) public policy requiring it to act so as to prevent recovery where to allow the claim would enforce the fraud and assist in the achievement of the fraudulent purpose, are ones in which the Trustee and all UAHs had a sufficient degree of identification. That is sufficient to preclude any of the Related UAHs from being able to recover anything (directly) from PrivatBank. On the other hand, there would be no bar to the Entitled UAHs from recovering in full.
   15. In short, the position the Trustee is faced with is that in no circumstances can it recover anything for or on behalf of the Related UAHs and it can only make any recovery at all if it is prepared to accept that whatever it receives can be paid only to the Entitled UAHs. All parties urged on me the commercial and practical sense in making the order sought in the Claim Form. It would be a “significant step” if the court were to reach a conclusion which led to innocent UAHs who invested in good faith in an English law note instrument being unable to recover on their investments, solely because of the fraud of other non-related noteholders.
   16. I do not think I am driven to that conclusion. Specifically, in the special circumstances of this case I do not think that the Trustee’s duty to act in the interests of all UAHs precludes it from accepting the payments under the Awards. Importantly, although its actions would in fact result in benefit to some only of the UAHs, that would not be at the expense of the other UAHs, because the Trustee is simply incapable of doing anything to benefit them as a result of a legal impediment. The Related UAHs’ inability to recover (and the Trustee’s inability to recover on their behalf) is not due to any action (or inaction) of the Trustee, but is due to the decision of the Tribunal. In other words, the fact that the Trustee cannot recover on behalf of the Related UAHs should not prevent it from recovering on behalf of the Entitled UAHs, where doing so does not itself prejudice the Related UAHs.

The late-responding UAHs

1. 1. So far, I have focused on the position of the Related UAHs. The solution imposed by the Tribunal also arguably prevents those UAHs who failed to respond by the deadline imposed by the Tribunal from recovering under the Awards. The position is not certain, and at least one former UAH (which had intended to appear on this application, but then sold its interest in the Notes) indicated an intention to argue before the Tribunal that no absolute bar had been imposed.
   2. There is therefore the possibility that some UAHs who are not in fact Related UAHs will still be prevented from recovering. These fall into two categories: those who have yet to come forward at all and those that have come forward but only after the deadline set by the Tribunal.
   3. Nevertheless, I do not think this alters the conclusion that the Trustee would be acting consistently with its duties under the Trust Deed by accepting payment, and the attached obligation, under the Awards. The Trustee’s actions would be no more taken at the expense of the late-responding UAHs than its actions would be at the expense of the Related Noteholders. In neither case does the Trustee use any proceeds of enforcement that were referable to the relevant UAHs’ interest under the Notes, nor is it a consequence of its own action or inaction that precludes the relevant UAHs from recovering. On the assumption that the terms of the Awards do prevent a late-responding UAH from recovering at all, then it is the Awards, and not any action of the Trustee, that has that consequence. The decision of the Tribunal as to what constitutes an “Entitled UAH” is binding on the Trustee and all UAHs (including where that is by reference to a time-bar on claims imposed by the Tribunal), in the same way as its findings as to illegality and its consequences.
   4. There is one potential difference, however. If, as was suggested before me, there remains some uncertainty as to the impact of the deadline imposed by the Tribunal, then there remains the possibility that the late-responding UAHs could persuade the Tribunal that they are to be regarded as Entitled UAHs for the purposes of benefitting from the Awards. If so, then the Trustee’s duty to act in the interests of each UAH, to the extent it is practically able to do so, would require the Trustee to advance such arguments as can be made before the Tribunal on behalf of late-responding UAHs.

Conclusion

1. For the above reasons, I conclude that the Trustee would not be acting in breach of trust if it accepts the payments from PrivatBank under the Awards and makes the payments to Entitled UAHs in accordance with the payment mechanism set out in the Awards. On that basis, I am prepared to make the order sought in paragraph 1 of the draft Order.
2. In those circumstances, I need not address the alternative arguments based on the Court’s inherent jurisdiction to relieve the Trustee from liability for breach of trust.

Hilary Term

[2020] UKSC 5

On appeals from: [2018] EWCA Civ 1801

and [2019] EWHC 2401 (Comm)

Micula and others (Respondents/Cross-Appellants) v Romania (Appellant/Cross-Respondent)

JUDGMENT

LORD LLOYD-JONES AND LORD SALES: (with whom Lady Hale, Lord Reed and Lord Hodge agree)

Introduction

1. On 11 December 2013 an International Centre for Settlement of Investment Disputes (“ICSID”) tribunal made a final investment arbitration award (“the Award”) in favour of the Respondents to this appeal (“the Claimants”) against the appellant (“Romania”). The Award related to investments made by the Claimants in food production in Romania prior to Romania’s accession to the European Union on 1 January 2007.
2. The present appeal is the latest chapter in the Claimants’ extensive attempts in a number of different jurisdictions to enforce their award against Romania and the attempts of the European Commission (“the Commission”) to prevent enforcement on the ground that it would infringe EU law prohibiting unlawful State aid. More specifically, this appeal arises out of Romania’s application in the Commercial Court to set aside the registration of the Award or to stay enforcement pending the determination of the proceedings in the EU courts, and out of the Claimants’ application in response for security in the amount of the Award.

Factual and procedural background

3. The First and Second Claimants are brothers born in Romania who became Swedish nationals in 1995 and 1992 respectively, having renounced their Romanian nationality. The Third to Fifth Claimants are Romanian companies incorporated by the First and Second Claimants.

4. In 1993 Romania entered into an association agreement with the European Community and the then 15 member states of that Community, which entered into force in 1995 (“the Europe Agreement”). The Europe Agreement included a provision on State aid and required Romania eventually to introduce State aid rules similar to the EC rules on State aid. The Europe Agreement further encouraged Romania to establish and improve a legal framework which favours and protects investment and to conclude agreements for the promotion and protection of investment.

5. In 1997 to 1998 the Commission was of the view that Romania did not yet meet the criteria for EU membership and recommended, inter alia, that Romania pursue rapid privatisation, secure foreign direct investment and engage in regional development.

6. In 1999, in the context of attempting to develop its regional policy, Romania adopted an investment incentive scheme in the form of Emergency Government Ordinance No 24/1998 (“EGO 24”). With effect from 1 April 1999 the Ștei-Nucet region of Romania was designated as a disfavoured region for a ten-year period. The designation was later extended to include Drăgăneşti.

7. On 30 June 1999 Romania adopted Law No 143/1999 incorporating State aid rules into domestic law and designating the Romanian Competition Council as the competent authority for authorising the grant of State aid. On 15 May 2000 the Romanian Competition Council issued Decision No 244/2000 declaring that certain facilities provided under EGO 24 distorted competition because they constituted incompatible State aid within the meaning of Law No 143/1999 and therefore had to be eliminated unless modified. On 16 June 2000 Romania passed Emergency Government Ordinance No 75/2000 which, with effect from 1 July 2000 modified but did not eliminate EGO 24. The Claimants do not accept that the Romanian Competition Council had authority to require the revocation of the schemes or that its decision followed from EU State aid rules.

8. During the early 2000s, the Claimants, in reliance on the EGO 24 incentives (which required investments to be maintained for twice the period of the benefits received) invested in a large, highly integrated food production operation in that region as part of a ten-year business plan.

9. In 2002 Romania and Sweden negotiated the Sweden-Romania Bilateral Investment Treaty on the Promotion and Reciprocal Protection of Investments (“the BIT”). The BIT entered into force on 1 April 2003. It provided for reciprocal protection of investments and included provision for investor-State dispute resolution under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“the ICSID Convention”). Romania had ratified the ICSID Convention in 1975 and the United Kingdom had done so in 1966.

10. During the formal accession negotiations between Romania and the EU from 2000 to 2004, the EU informed Romania that various Romanian government schemes, including the EGO 24 scheme, were not in line with the State aid rules of the acquis communautaire. The EU urged Romania to bring its schemes into alignment without delay. The EU in 2001 also invited Romania to identify existing schemes that Romania considered were compatible with the acquis and to provide information on the benefits of schemes to disfavoured regions. In a 2003 paper the EU proposed that Romania close existing schemes to new entrants.

11. On 31 August 2004 Romania passed a Government Ordinance repealing all but one of the tax incentives provided in EGO 24 subject to certain transitional periods agreed with the EU with effect from 22 February 2005. The government report accompanying these measures indicated that the repeal was effected in order to meet the criteria in the Community rules on State aid and also facilitate completion of accession negotiations.

12. On 28 July 2005 the Claimants filed a request for arbitration with ICSID under the terms of the BIT, claiming that the repeal of the EGO 24 incentives was a breach of the BIT. Romania contended that it was forced to revoke the incentives in order to comply with EU requirements and allow lawful accession by Romania to the EU. The Commission participated in the arbitration as amicus. Both Romania and the Commission submitted that any payment of compensation arising out of any award in the arbitration would constitute illegal State aid under EU law and render the award unenforceable in the EU.
13. On 1 January 2007 Romania acceded to the EU.

14. On 24 September 2008 the ICSID Tribunal dismissed Romania’s objections on jurisdiction and admissibility and concluded that it had jurisdiction over the claims asserted by the Claimants.

15. On 11 December 2013 the ICSID Tribunal issued the Award. It held that Romania had breached the terms of the BIT by failing to ensure fair and equitable treatment, respect the Claimants’ legitimate expectations and act transparently. Compensation of RON 376,433,229 was awarded (approximately £70m at the time) plus interest to the date of the award of RON 424,159,150 (approximately £80m at the time) plus compound interest until satisfaction of the Award. The Tribunal declined to address in the Award the effect of the EU State aid rules on its enforceability.

16. On 9 April 2014 Romania applied to annul the Award under the procedure set out in the ICSID Convention and to suspend its enforcement pending a decision on that application.

17. Following Romania purportedly implementing the Award in part by setting off tax debts owed by the Third Claimant (which set-off was later annulled by the Romanian courts), on 26 May 2014 the Commission issued an injunction under article 11(1) of Regulation 659/1999 (“the injunction decision”) ordering Romania to suspend any action which might lead to the execution or implementation of the Award until the Commission had taken a final decision on the compatibility of that State aid with the EU internal market, on the ground that the execution of the Award appeared to the Commission to constitute unlawful State aid contrary to article 107(1) of the Treaty on the Functioning of the EU (“TFEU”).

18. On 7 August 2014 the ICSID ad hoc Committee agreed to a continuation of the stay of enforcement of the Award, provided that Romania filed an assurance that it would pay the Award in full and subject to no conditions whatsoever if the annulment application was dismissed. Romania did not give this assurance and the stay was revoked in September 2014.

19. On 1 October 2014 the Commission took a decision formally opening the State aid investigation (“the initiating decision”).

20. On 30 March 2015 the Commission adopted Final Decision 2015/1470 (“the Commission Decision”) which was addressed to Romania. It decided that the payment of the Award by Romania constituted State aid within article 107(1) TFEU and was incompatible with the internal market. It prohibited Romania from making any payment of such State aid to the Claimants and demanded that Romania recover any payments already made under the Award. It further provided that the Claimants and five other entities directly or indirectly owned by the First and Second Claimants were jointly liable to repay any sums received by any one of them as part payment of the Award.

21. Proceedings seeking annulment of the Commission Decision were commenced before the General Court of the European Union (“GCEU”) by the Third to Fifth Claimants on 6 November 2015, by the First Claimant on 28 November 2015 and by the Second Claimant on 30 November 2015. The Claimants did not apply for interim relief before the GCEU.

22. On 26 February 2016, having heard arguments from the parties to the arbitration and from the Commission as amicus, the ICSID ad hoc Committee delivered a decision rejecting Romania’s application to annul the Award.
23. On 18 June 2019 the GCEU annulled the Commission Decision on the ground that the Commission had purported retroactively to apply its powers under article 108 TFEU and Regulation No 659/1999 to events predating Romania’s accession to the EU: European Food SA and Others v European Commission (Cases T-624/15, T-694/15 and T-704/15) EU:T:2019:423. The GCEU did not rule upon certain other grounds of appeal presented by the Claimants because, in the light of its decision, they did not arise.
24. On 31 July 2019 the Commission adopted a decision to appeal against the decision of the GCEU. That decision was communicated to this court and the parties on 13 August 2019. On 27 August 2019 the Commission lodged its appeal to the Court of Justice of the European Union (“CJEU”). The appeal is limited to the pleas of law addressed by the GCEU in its judgment of 18 June 2019. Should it succeed on its appeal, the Commission has invited the CJEU to remit the remaining pleas to the GCEU for further consideration.

25. There are ongoing enforcement proceedings by the Claimants in the United States, France, Belgium, Luxembourg and Sweden. On 12 March 2019 the Brussels Court of Appeal referred three questions to the CJEU concerning the enforcement of the Award and the principle of sincere co-operation in EU law.

26. On 7 September 2018 the Commission responded to a request for an opinion from Romania stating, inter alia, that it continued to view the payment into court of security by Romania as breaching the Commission Decision, the position it maintained throughout the High Court and Court of Appeal proceedings.

27. On 7 December 2018 the Commission adopted a decision empowering it to refer Romania to the CJEU for infringement proceedings for failure to recover sums said to have been paid by Romania to the Claimants under the Award.

The proceedings in this jurisdiction

28. On 2 October 2014 the First Claimant applied without notice for registration of the Award in the Commercial Court, pursuant to the Arbitration (International Investment Disputes) Act 1966 (“the 1966 Act”). Registration was effected on 17 October 2014. On 28 July 2015 Romania filed an application to the Commercial Court to vary or set aside the registration order. By a counter application the Claimants sought an order for security to be made in the event that a stay of enforcement was ordered.
29. In a judgment dated 20 January 2017 [2017] EWHC 31 (Comm); [2017] Bus LR 1147 Blair J dismissed Romania’s application to set aside registration, but granted Romania’s application to stay enforcement of the Award pending determination of the proceedings in the GCEU.

(1)              The Claimants had advanced a case on the basis that the Award was res judicata. The judge held that he could not determine whether the Award could be enforced on this basis, because this was in issue in the pending proceedings before the GCEU and accordingly there was a real risk of inconsistent decisions if the domestic court were to decide as a matter of EU law that the Award could be enforced.

(2)              The judge held that the Commission Decision did not prevent registration of the Award and accordingly he refused Romania’s application to set aside registration. However, he held that the domestic court could not enforce the judgment consequent on registration of the Award in circumstances in which the Commission had prohibited Romania from making any payment under the Award to the Claimants. In his view this did not create a conflict with the international obligations of the United Kingdom under the ICSID Convention, because a purely domestic judgment would be subject to the same limitation.

(3)              The judge held that the domestic court could not rule on whether article 351 TFEU applies in the present case because it was being considered by the GCEU and so there was a real risk of conflicting decisions if the domestic court were now to rule on the issue.

(4)              The judge held that there was no conflict between the European Communities Act 1972 and the 1966 Act and accordingly he rejected a submission on behalf of the Claimants that the court should give priority on this ground to the 1966 Act.

(5)              The judge held that he could not rule on the Claimants’ arguments that EU law did not preclude enforcement because the issue had been raised before the GCEU and there was a real risk of conflict.

(6)              The judge rejected arguments by Romania that the Award had already been paid in full.

(7)              The judge held that the domestic court cannot rule on the validity of the BIT between Sweden and Romania, although he accepted the submission of behalf of the Claimants that the validity of that treaty was not relevant to the issues to be decided.

30. Following a further hearing in May 2017, Blair J handed down a second judgment on 15 June 2017 [2017] EWHC 1430 (Comm) in which he refused the Claimants’ application for security. He considered that, as payment under the Award was prohibited under the Commission Decision, if the court were to proceed to enforce the award against the assets of Romania it would be acting in direct contradiction of the Decision. Accordingly, it was not possible to order security as a condition of the stay. The judge also rejected a submission on behalf of the Claimants that the consequences of non-compliance with an order for security need not be set out in the order which could instead provide that the parties could come back to court to consider what the consequences should be. He considered that the balance at that time was against ordering security but he did not rule it out definitively for the future.
31. The Claimants appealed both orders to the Court of Appeal. On 27 July 2018 the Court of Appeal (Arden, Hamblen and Leggatt LJJ) [2018] EWCA Civ 1801; [2019] Bus LR 1394 dismissed the appeal against the order for a stay but allowed the appeal against the security order and ordered that security should be provided in the sum of £150m.
32. In dismissing the Claimants’ appeal against the grant of a stay:

(1)              The Court of Appeal did not agree with Blair J that the issue ought not to be decided because of a risk of conflict with the GCEU. However, it considered that to permit enforcement on the basis that the Award was res judicata would frustrate the effective application of EU State aid law.

(2)              Arden and Leggatt LJJ held that Blair J had erred in holding that the effect of the 1966 Act, in implementing the ICSID Convention in domestic law, is to give an award upon registration the same status within English law as any other judgment. Hamblen LJ dissented on this issue and considered that Blair J had correctly held that there was no conflict between the international obligations of the United Kingdom under the ICSID Convention (and the 1966 Act which gives effect to those obligations) and under EU law.

(3)              Arden and Leggatt LJJ held that a stay was within the powers of the domestic court because it was consistent with the purposes of the ICSID Convention and it was appropriate to exercise the discretion to order a stay on the facts of the case.

(4)              Leggatt and Hamblen LJJ held that, if there was a conflict between the international obligations of the United Kingdom under the ICSID Convention as reflected in the 1966 Act and the court’s duties under EU law, the judge had correctly concluded that there ought to be a stay because the applicability of article 351 TFEU was an issue before the GCEU and there was a clear risk of conflicting decisions.

33. The Court of Appeal held that there was power to order security. It considered that the judge was correct in holding that the duty of sincere co-operation precluded the provision of security as a condition of the stay. However, the Court of Appeal held that EU law did not preclude an order for security which did not provide as a consequence of any failure to provide security that the stay would be lifted. It considered that there was no material risk of conflict which would preclude such an order. Accordingly, it ordered Romania to provide security in the sum of £150m. It suspended enforcement of the Court of Appeal security order, however, to allow Romania time to lodge an application for permission to appeal to the Supreme Court.

34. On 31 October 2018 the Supreme Court granted Romania permission to appeal limited to Grounds 1, 3 and 4 as set out in the notice of appeal. The Supreme Court also ordered that the stay of the security order made by the Court of Appeal be continued until determination of the appeal or further order. The same order granted the Commission permission to intervene in the appeal, as it had in the High Court and the Court of Appeal. On 11 April 2019 the Supreme Court granted the Claimants permission to cross-appeal in relation to the order for a stay on Grounds 1 and 2 in the notice of cross-appeal and reserved to the hearing the question of permission to cross-appeal on Grounds 3 and 4 in that notice. The grounds of appeal are set out at paras 37 to 39 below.

35. The appeal was listed for hearing over three days commencing on 18 June 2019. On the morning of that day the GCEU handed down its judgment annulling the Commission Decision. As the Court of Appeal’s order of a stay had lapsed with the GCEU giving its judgment, and as security had been ordered as a term of the stay, by its order of 18 June 2019, the Supreme Court adjourned the hearing to a further hearing listed for 7-9 October 2019 and gave directions for other steps to be taken with a view to establishing or clarifying the basis on which it would have jurisdiction to hear the appeals.

36. Following the Commission’s confirmation that it intended to appeal against the decision of the GCEU to the CJEU, Romania issued an application for the stay of enforcement of the Award, which had lapsed with the GCEU’s judgment, to be imposed or extended pending determination of the appeal to the CJEU. The Claimants also issued applications against Romania for security in respect of any stay. These applications were heard by Phillips J on 9 September 2019. On 10 September 2019 Phillips J [2019] EWHC 2401 (Comm) ordered that enforcement of the Award be stayed pending the final determination of the CJEU appeal proceedings. He also ordered that Romania provide security in the amount of £150m by 17 October 2019. Following judgment, the parties applied for certificates for a leapfrog appeal to the Supreme Court under the Administration of Justice Act 1969, which the judge granted.

Grounds of appeal

37. Romania appeals against the order for security on the following grounds.

Ground 1:      The Court of Appeal erred in its approach to assessing whether there was a risk of conflict.

Ground 3:      The security ordered and whether it is to be used to pay the Award is to be subject to the jurisdiction of the Commercial Court, which, from the date on which the United Kingdom withdraws from the EU, will not be bound to observe EU law. While the United Kingdom remains a member state of the EU, it is contrary to EU law for the Court of Appeal as an emanation of the State to create a situation whereby the authority of the EU institutions could be wholly circumvented.

Ground 4:      By ordering Romania to provide security, the Court of Appeal has erred in going further than the process of enforcement which it itself considered to be premature.

38. The Claimants cross-appeal against the grant of a stay on the following original grounds.

Original Ground 1:   Under the ICSID Convention and the 1966 Act there is no power to order a stay of the Award.

Original Ground 2:   The stay is incompatible with the ICSID Convention in any event and serves no useful purpose.

Original Ground 3:   The European Communities Act 1972 does not require the United Kingdom to breach its pre-accession obligations under the ICSID Convention as implemented by the 1966 Act.

Original Ground 4:   Article 351 TFEU applies with the result that the obligations of the United Kingdom under the pre-accession ICSID Convention are not subject to the over-riding effect of EU law.

39. In addition, the Claimants, with the permission of the Supreme Court, rely on a new ground of appeal:

New Ground:  The effect of the GCEU’s judgment annulling the Commission Decision is that the duty of sincere co-operation can no longer require courts in this jurisdiction to stay enforcement of the award.

40. It is convenient to consider the Claimants’ appeal (by way of the cross-appeal) in respect of the stay first.

The Stay Appeal

The new ground

41. Article 4(3) of the Treaty on European Union (“TEU”) provides:

“Pursuant to the principle of sincere cooperation, the Union and the member states shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties.

The member states shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.

The member states shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives.”

42. The duty of sincere co-operation contained in article 4(3) TEU was described, in its application to State aid law, in the following terms by the Court of Justice in Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH (Ryanair Ltd intervening) (Case C-284/12) [2014] 2 CMLR 20, para 41:

“It is also important to note that the application of the European Union rules on State aid is based on an obligation of sincere co-operation between the national courts, on the one hand, and the Commission and the courts of the European Union, on the other, in the context of which each acts on the basis of the role assigned to it by the Treaty. In the context of that co-operation, national courts must take all the necessary measures, whether general or specific, to ensure fulfilment of the obligations under European Union law and refrain from those which may jeopardise the attainment of the objectives of the Treaty, as follows from article 4(3) TEU. Therefore, national courts must, in particular, refrain from taking decisions which conflict with a decision of the Commission …”

In imposing and upholding the stay in the present case, Blair J and the Court of Appeal both referred to this passage and acted on the premise that the Commission Decision was valid in accordance with the principle stated in Masterfoods v HB Ice Cream (Case C-344/98) [2001] All ER (EC) 130, para 53 that:

“Acts of the Community institutions are in principle presumed to be lawful until such time as they are annulled or withdrawn.”

43. In the changed circumstances brought about by the decision of the GCEU annulling the Commission Decision, however, the Claimants now advance, with the permission of this court, their new ground of appeal. The courts below proceeded on the basis that the duty of sincere co-operation in EU law required a stay of enforcement because there was a valid Commission decision which imposed a direct prohibition on Romania from paying the Award. The Claimants now submit that as the Commission Decision has been annulled and the Commission has not sought interim measures staying the effect of the judgment, there is no EU law duty on courts in this jurisdiction to stay enforcement of the Award. They submit that the presumption of validity no longer applies in respect of the Commission Decision and that, on the contrary, the applicable and binding act of the EU institutions is now the judgment annulling the Commission Decision. In their submission the authoritative determination of the EU institutions, binding on the UK courts, is that the Commission had no competence to find that the Award was State aid or to apply EU law to the Award at all and that, accordingly, the basis for the stay has fallen away entirely. They further point to article 278 TFEU which states:

“Actions brought before the Court of Justice of the European Union shall not have suspensory effect. The Court may, however, if it considers that circumstances so require, order that application of the contested act be suspended.”

In the present case, no application has been made to suspend the application of the judgment of the GCEU. Similarly, article 279 TFEU provides that the CJEU may, in any cases before it, prescribe any necessary interim measures. No such measures have been sought or ordered. Accordingly, the Claimants submit that the reasoning in and the annulment ordered pursuant to the GCEU’s judgment have full legal effect.

44. In response, the Commission and Romania submit that the effects of the GCEU’s judgment are limited to annulling the Commission Decision, and that this does not extend to:

(1)              the injunction decision of 26 May 2014 prohibiting Romania from implementing the award pending further investigation by the Commission; or

(2)              the initiating decision of 1 October 2014 by which the Commission formally opened the State aid investigation.

They contend that neither is the subject of any successful or pending legal challenge and that, accordingly, the consequence of the relief granted by the GCEU is that the Commission’s State aid investigation into Romania’s implementation of the Award is reopened. The effect of this, they say, is that even if the Commission does not succeed in its appeal to the CJEU, it will be open to the Commission to re-take a State aid decision provided it can do so by addressing and avoiding the legal difficulties identified in the GCEU’s judgment. In the meantime, the injunction decision continues to have effect. They maintain that the duty of sincere co-operation requires courts in this jurisdiction to refrain from taking decisions that would conflict with these decisions. In addition, they point to the pending appeal by the Commission to the CJEU and the possibility that the Commission Decision may yet be vindicated as creating a further risk of conflict which engages the duty of sincere co-operation.

45. Before considering these submissions, it is appropriate to consider what precisely was decided in the judgment of the GCEU. In the view of the GCEU, the ICSID Tribunal in the Award had confined itself to determining the exact damage suffered by the Claimants on the basis of the repeal of EGO 24 and calculated the amount of damages corresponding to a right to compensation which arose at the time of the infringements committed by Romania in 2005 (para 74). The right to receive the compensation awarded arose prior to Romania’s accession to the EU on 1 January 2007. The Award was simply the recognition of that right and payments made in 2014 merely represented the enforcement of that right which arose in 2005 (para 78). EU law was not applicable in Romania before its accession and it was only from Romania’s accession that the Commission acquired the competence enabling it to review Romania’s actions pursuant to article 108 TFEU (para 79). As the EGO 24 incentives were repealed in 2005, “the Commission was by no means competent to assess their alleged unlawfulness in the light of EU law, at least with regard to the period predating accession” (para 86). The GCEU noted that, as the compensation awarded was calculated from the repeal of EGO 24 on 22 February 2005 until its scheduled expiry on 1 April 2009, that period covered 27 months during which Romania was a member of the EU (para 89). The amounts awarded as compensation for the pre-accession period could not constitute State aid in EU law and the Commission had exercised its powers retroactively “in relation to a situation predating Romania’s accession to the European Union, at least with regard to those amounts” (para 90). With regard to the award of compensation in respect of the post-accession period,

“even assuming that the payment of compensation relating to that period could be classified as incompatible aid, given that the Commission did not draw a distinction between the periods of compensation for the damage suffered by the applicants before or after accession, the Commission has, in any event, exceeded its powers in the area of State aid review.” (para 91)

46. The GCEU then addressed the classification by the Commission of the Award as an advantage and a State aid within the meaning of article 107 TFEU and concluded as follows:

“107.  … the Commission is not competent and … EU law is not applicable to the EGO scheme, to its revocation or to the compensation for that revocation, because the arbitral award, which found that there was a right to compensation in 2013, did not have the effect of triggering the applicability of EU law and the Commission’s competence to the earlier EGO tax incentives and, accordingly, to the compensation at issue which resulted therefrom.

108. Therefore, as the compensation at issue covered, at least in part, a period predating accession (from 22 February 2005 to 1 January 2007) and as the Commission did not draw a distinction, among the amounts to be recovered, between those falling within the period predating accession and those falling within the period subsequent to accession, the decision by which it classified the entirety of the compensation as aid is necessarily unlawful.
109. It follows that the contested decision is unlawful in so far as it classified as an advantage and aid within the meaning of article 107 TFEU the award, by the arbitral tribunal, of compensation intended to compensate for the damage resulting from the withdrawal of the tax incentives, at least in respect of the period predating the entry into force of EU law in Romania.”

In summary, the GCEU held that the Commission had exceeded its competence to the extent that it had applied its State aid powers retroactively to events predating Romania’s accession and the Commission Decision was unlawful to the extent that it classified as an advantage or aid compensation relating to the period prior to Romania’s accession to the EU. As the Commission had not distinguished between the pre- and post-accession periods, the Commission Decision as a whole was annulled.

Initiating decision and injunction decision

47. Romania and the Commission submit that the effect of that relief is that the position prior to the Commission Decision is restored. They submit that the injunction decision and the initiating decision commencing the formal investigation into State aid arising from the Award are distinct from the annulled Commission Decision and are unchallenged. (The Claimants did, in fact, challenge the injunction decision before the GCEU but they later withdrew that action: Micula v European Commission (Case T-646/14) EU:T:2016:135. The initiating decision has never been challenged.) The result, Romania and the Commission therefore submit, is that the Commission’s investigation into Romania’s implementation of the Award is reopened and that both the injunction decision and the initiating decision are restored. The Commission submits that the reopening of the investigation means that the investigation must be closed, either by a successful appeal to the CJEU reinstating the Commission Decision, or by the Commission adopting a new final decision. The Commission also points to the fact that the initiating decision recalls Romania’s obligations under the standstill provision in article 108(3) TFEU which provides that the member state concerned shall not put its proposed measures into effect until this procedure has resulted in a final decision.
48. The case law of the Court of Justice establishes that annulment of an EU measure does not necessarily affect the preparatory acts (R v Ministry of Agriculture, Fisheries and Food, Ex p Fedesa (Case C-331/88) [1990] ECR I-4023, para 34; Kingdom of Spain v Commission of the European Communities (Case C-415/96) [1998] ECR I-7008, para 32). In certain circumstances, therefore, it may be possible to resume the procedure for replacing a measure at the point at which the illegality occurred. In the present case, Romania and the Commission, relying on ArcelorMittal Tubular Products Ostrava v Commission (Case T-364/16) EU:T:2018:696, para 64, maintain that the prior acts adopted in the context of the investigation, the injunction decision and the initiating decision, are separate acts unaffected by the judgment of the GCEU and must therefore be presumed to be lawful. On that basis they rely on Deutsche Lufthansa AG (Case C-284/12) EU:C:2013:755, which establishes that where the Commission has initiated a formal investigation procedure under article 108(2) TFEU with regard to a State measure which has not been notified and is being implemented, a national court is required, pursuant to the duty of sincere co-operation, to adopt all the necessary measures with a view to drawing the appropriate conclusions from an infringement of the obligation to suspend the implementation of that measure. (See also European Commission v Hansestadt Lübeck (Case C-524/14 P) EU:C:2016:971, paras 29, 30 where this was endorsed by the Grand Chamber of the Court of Justice.) Moreover, Deutsche Lufthansa also establishes that where a national court, in these circumstances, entertains doubts as to whether the measure at issue constitutes State aid within article 107(1) TFEU, or as to the validity of interpretation of the decision to initiate the formal examination procedure, the appropriate course is for it to seek clarification from the Commission or to refer a question to the Court of Justice for a preliminary ruling.
49. In response the Claimants submit that the injunction decision and the initiating decision are tainted by the same illegality as the Commission Decision which has been annulled by the GCEU. Relying on Asteris AE v Commission of the European Communities (Joined Cases 97/86, 193/86, 99/86 and 215/86) [1988] ECR 2181, paras 27-29, they submit that the Commission is under an obligation by virtue of article 266 TFEU to comply not only with the operative part of the judgment but also with its reasoning. In Asteris the Greek government had secured the annulment of a regulation fixing aid for the production of tomato concentrates for the 1983/84 marketing year. While that case had been pending before the Court of Justice the Commission had made the same error in relation to regulations adopted in relation to subsequent marketing years. The Court of Justice held that the Commission was bound to have regard “not only to the operative part of the judgment but also to the grounds which led to the judgment and constitute its essential basis, in so far as they are necessary to determine the exact meaning of what is stated in the operative part” (para 27) and concluded:

“However, by virtue of the retroactive effect of judgments by which measures are annulled, the finding of illegality takes effect from the date on which the annulled measure entered into force. It follows that in the present case the institution concerned is also under an obligation to eliminate from the regulations already adopted when the annulling judgment was delivered and governing marketing years after 1983/84 any provisions with the same effect as the provision held to be illegal.” (para 30)

On behalf of the Claimants, Ms Demetriou QC submits that the injunction decision and the initiating decision are vitiated by the same legal errors which resulted in the annulment of the Commission Decision and that it is, therefore, not open to the Commission to rely on the preceding decisions as giving rise to a duty of sincere co-operation on the part of national courts.

50. In determining the effect of the annulment of an EU measure on a preparatory measure, it is necessary, in each case, to identify the precise provision held to be illegal and the specific reasons which underlie the finding of illegality and which the institution concerned must take into account when replacing the annulled measure (Asteris, para 27; Kingdom of Spain v Commission of the European Communities, para 31). As stated above, the Commission Decision was flawed because the Commission exceeded its competence by applying its State aid powers retroactively to events predating Romania’s accession and because the Commission Decision classified as an advantage or aid compensation relating to the period prior to Romania’s accession to the EU. The failure to distinguish between pre- and post-accession periods led to the annulment of the whole Commission Decision. These errors also characterise the injunction decision and the initiating decision. The initiating decision (C (2014) 6848), while expressly stating in the preamble, para (57) that the obligation not to put into effect any aid measure only applies to aid measures put into effect after the entry into force of the Romanian Treaty of Accession on 1 January 2007, continues:

“(58)   The Commission considers that executing the Award would amount to ‘new aid’ in the sense of article 1(c) of Regulation (CE) No 659/1999 of 22 March 1999, as the decision to execute the Award would take place after the entry into force of the Treaty for Romania.

(59)     It does not matter that the revocation of the EGO 24 facilities occurred before the entry into force of the Treaty for Romania or that the amount granted or to be granted would correspond, at least partially, to the operating expenses incurred by the claimants before the entry into force of the Treaty for Romania. For the purposes of State aid law it does not matter at which time these expenses were incurred; rather, the decisive point in time is the moment at which the State decides to relieve the undertaking of the economic burden that those expenses constitute.”

Similarly, at para (34) the Commission states that implementation of the Award would grant to the Claimants an amount corresponding to the advantages foreseen under the abolished EGO 24 scheme from the moment it was repealed (22 February 2005) until the scheduled expiry (1 April 2009) and that this constitutes an economic advantage within article 107(1) TFEU. In the same way the preamble to the injunction decision states at para 23 that by implementing the award Romania is reinstating the EGO incentives and will grant to the Claimants the advantages foreseen under the abolished EGO 24 from its repeal until its scheduled expiry. These preliminary decisions are, therefore, subject to the same flaws as the Commission Decision.

51. Nevertheless, we are not persuaded that these errors in the preparatory decisions prevent the Commission from relying on the initiating decision as giving rise to a duty of sincere co-operation on the part of national courts. The judgment of the GCEU leaves in existence an extant Commission investigation into State aid. In the absence of a final decision of the Commission closing the formal investigation procedure, the effects of that initiating decision subsist (European Commission v Hansestadt Lübeck (Case C-524/14 P), para 31). This necessarily imposes a duty of sincere co-operation on the part of the United Kingdom. Whereas in Asteris the reasoning of the Court of Justice totally undermined the legality of the regulations in respect of subsequent years, it may well be open to the Commission to reconfigure the investigation in the present case so as to avoid the errors which resulted in the annulment of the Decision. Thus, for example, it may be open to the Commission to reframe its investigation so that it is limited to the post-accession period. Similarly, we note that the reasoning of the GCEU judgment does not address the Commission’s case, founded on the terms of Romania’s accession agreement (L 157/203, 21.6.2005; Annex V, section 2, para 5) which exceptionally permits the Commission to object to any aid measure granted in the pre-accession period from 1 September 2004 and to initiate a formal investigation procedure in relation to it and which empowers the Commission to decide thereafter that Romania shall take all necessary measures to recover the aid from the beneficiary. It may be open to the Commission to reconfigure its investigation on this basis. In any event, courts in this jurisdiction cannot be confident that the judgment of the GCEU rules out such possibilities. For these reasons, we consider that the subsisting initiating decision continues to engage the duty of sincere co-operation owed by national courts, notwithstanding the failure of the Commission to apply to suspend the effect of the GCEU decision or to seek an interim order from the CJEU.

52. With regard to the injunction decision, the Claimants object that on its construction it cannot have any application in the present circumstances. The operative part of the decision provides that Romania shall immediately suspend any action which may lead to the execution or implementation of the Award “until the Commission has taken a final decision on the compatibility of that State aid with the internal market”. The Claimants submit that this created only an interim prohibition until the Commission took a final decision, that that final decision was taken on 31 March 2015 and that at that point this injunction ceased to apply. Whether the injunction may have revived as a result of the annulment of the Commission Decision, as suggested by the Commission, was a point not fully argued before us. In any event, it is not necessary to reach a concluded view on this point in the light of the conclusions to which we have come on the parties’ other submissions.

The pending appeal

53. The decision of the GCEU is currently under appeal to the CJEU. Romania and the Commission submit that, as a result, the duty of sincere co-operation continues to apply. They observe that it has not been suggested that the Commission’s appeal has no realistic prospect of success and they point to a risk of conflict between the EU courts and courts in this jurisdiction if the GCEU judgment does not stand and the Commission Decision is vindicated.

54. In Masterfoods (Case C-344/98) the Irish High Court had granted HB a permanent injunction restraining Masterfoods from inducing retailers to store Masterfoods’ products in freezers belonging to HB, in breach of an exclusivity clause, thereby rejecting Masterfoods’ case that the clause and HB’s conduct infringed EC competition rules. In parallel proceedings before the Commission, the Commission ruled that the exclusivity provision infringed article 85(1) of the Treaty establishing the European Community (“EC”) and that HB’s inducement to retailers in Ireland to enter into freezer cabinet agreements subject to a condition of exclusivity infringed article 86 EC. The Irish Supreme Court made a preliminary reference to the Court of Justice in which it asked whether the obligation of sincere co-operation required the Supreme Court to stay the proceedings pending the disposal of the appeal to the Court of First Instance against the decision of the Commission and any subsequent appeal to the Court of Justice. The Court of Justice expressed the duty on a national court in such circumstances in the following terms:

“When the outcome of the dispute before the national court depends on the validity of the Commission decision, it follows from the obligation of sincere co-operation that the national court should, in order to avoid reaching a decision that runs counter to that of the Commission, stay its proceedings pending final judgment in the action for annulment by the Community Courts, unless it considers that, in the circumstances of the case, a reference to the Court of Justice for a preliminary ruling on the validity of the Commission decision is warranted.” (para 57)

55. On behalf of the Claimants, Ms Demetriou seeks to distinguish Masterfoods on two grounds. First, she points to the fact that the decision by the Commission in that case was valid and subsisting whereas the Commission Decision with which we are concerned has been annulled. Secondly, she submits that in Masterfoods the national court was seized with precisely the same issue of law as had been decided by the Commission in its decision, namely the application of the same competition provisions to the same agreements, and that accordingly the Court of Justice was concerned to avoid a direct conflict which would have infringed the principle of legal certainty. By contrast, she submits, there is no such risk in the present case. In these proceedings the court is not asked to determine whether the award or any part of it constitutes State aid, so there is no risk of conflicting judgments on that point or on EU law more generally. In the absence of a stay of the national proceedings, the award could be enforced which might result in Romania paying compensation to the Claimants. Should the Court of Justice allow the Commission’s appeal, she submits, that would oblige Romania to recover the payments of compensation which would not be a conflict but, at most, a possible practical inconvenience. Moreover, that possibility would be remote because if the Commission were to succeed on appeal before the Court of Justice it would be necessary for the matter to be remitted to the GCEU to resolve the other grounds for annulment not yet ruled on by that court.

56. The first suggested ground of distinction may be dealt with very briefly. The judgment of the Court of Justice in Masterfoods makes clear that the duty of sincere co-operation (and therefore the obligation to stay national proceedings) continues pending final judgment in the action for annulment by the Community Courts (paras 57, 59). We are also unable to accept the second suggested ground of distinction. The duty of sincere co-operation is intended to preserve the effectiveness of actions taken by EU bodies with relevant competence. While it is true that the present state of legal proceedings before the EU courts and in this jurisdiction does not present the stark direct conflict apparent in Masterfoods, we are concerned with potentially contradictory decisions on the same subject matter between the same parties (cf Crehan v Inntrepreneur Pub Co [2007] 1 AC 333, per Lord Bingham of Cornhill, at para 11). Ms Demetriou minimises unduly the risk of conflict which the duty of sincere co-operation is intended to avoid. It is only where there is “scarcely any risk” of a conflict between decisions of domestic and EU institutions that national authorities should proceed (Delimitis v Henninger Brau AG (Case C-234/89) EU:C:1991:91, at para 50; Emerald Supplies Ltd v British Airways plc (Nos 1 & 2) (CA) [2016] Bus LR 145, para 70). Moreover, it appears by analogy with Kernkraftwerke Lippe-Ems GmbH v Hauptzollamt Osnabruck (Case C-5/14) EU:C:2015:354 at para 33, that national institutions should defer even if the impediment to the full effectiveness of EU law is only temporary. Subject to the other grounds of appeal considered below, it is not possible to conclude that there is scarcely any risk of conflict. On the contrary, the risk of the consequences to which Ms Demetriou points would amount to a substantial impediment to the operation of EU law. Accordingly, the existence of a pending appeal to the Court of Justice with a real prospect of success is, in itself, sufficient to trigger the duty of cooperation and, subject to the further grounds of appeal considered below, requires the grant of a stay so as not to undermine the effect of the Commission Decision, should it be upheld.
57. For these reasons, we would dismiss this ground of appeal.

Cross-Appeal Original Ground 1: Under the ICSID Convention and the 1966 Act there is no power to stay

Cross-Appeal Original Ground 2: The stay is incompatible with the ICSID Convention in any event and serves no useful purpose

58. Grounds 1 and 2 may conveniently be considered together.

59. There are currently 154 State parties to the ICSID Convention. Both the United Kingdom and Romania are Contracting States. The United Kingdom became a party in 1966, prior to its accession to the EEC in 1973. Romania became a party in 1975, prior to its accession to the EU in 2007. The EU is not a party to the ICSID Convention.

60. Section 6 of Chapter IV of the ICSID Convention provides for the recognition and enforcement of awards. Article 53 provides in relevant part:

“Article 53

(1)       The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention. Each party shall abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention. …”

Article 54 provides in relevant part:

“Article 54

(1)       Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. …

(2)       A party seeking recognition or enforcement in the territories of a Contracting State shall furnish to a competent court or other authority which such State shall have designated for this purpose a copy of the award certified by the Secretary-General. Each Contracting State shall notify the Secretary-General of the designation of the competent court or other authority for this purpose and of any subsequent change in such designation.

(3)       Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought.”

61. Article 55 provides that nothing in article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.

62. Article 53(1) prohibits “any appeal or … any other remedy except those provided for in this Convention”. The exception is a reference to the provisions in section 5 of Chapter IV of the Convention. Article 50 provides for any dispute between the parties as to the meaning or scope of an award to be decided by a Tribunal. Article 51 provides for revision of an award by a Tribunal on the ground of the discovery of some fact which decisively affects the award. Article 52 provides for the annulment of an award by an ad hoc Committee on the grounds that the Tribunal was not properly constituted, that it has manifestly exceeded its powers, that there was corruption on the part of a member of the Tribunal, that there has been a serious departure from a fundamental rule of procedure, or that the award has failed to state the reasons on which it is based. In each case the Tribunal or Committee concerned may stay enforcement of the award pending its decision.

63. The Arbitration (International Investment Disputes) Act 1966 implements the ICSID Convention in the domestic law of the United Kingdom. Section 1(2) provides that a person seeking recognition or enforcement of an ICSID award shall be entitled to have the award registered in the High Court. Section 2 provides:

Subject to the provisions of this Act, an award registered under section 1 above shall, as respects the pecuniary obligations which it imposes, be of the same force and effect for the purposes of execution as if it had been a judgment of the High Court given when the award was rendered pursuant to the Convention and entered on the date of registration under this Act, and, so far as relates to such pecuniary obligations –

proceedings may be taken on the award,

(b)       the sum for which the award is registered shall carry interest,

(c)       the High Court shall have the same control over the execution of the award,

as if the award had been such a judgment of the High Court.

(2)       Rules of court under section 84 of the Senior Courts Act 1981 may contain provisions requiring the court on proof of the prescribed matters to stay execution of any award registered under this Act so as to take account of cases where enforcement of the award has been stayed (whether provisionally or otherwise) pursuant to the Convention, and may provide for the provisional stay of execution of the award where an application is made pursuant to the Convention which, if granted, might result in a stay of enforcement of the award.”

64. A rule of court, CPR 62.21(5), provides with regard to registration under the 1966 Act:

“Where, on granting permission to register an award or an application made by the judgment debtor after an award has been registered, the court considers –

(a)       that the enforcement of the award has been stayed (whether provisionally or otherwise) under the Convention; or

(b)       that an application has been made under the Convention which, if granted, might result in a stay of the enforcement of the award,

the court may stay the enforcement of the award for such time as it considers appropriate.”

65. At first instance, Blair J dismissed the application by Romania to set aside the order of Burton J registering the award. In Blair J’s view, registration of the award would not place Romania in breach of the Commission Decision. However, he stayed enforcement of the award pending the resolution of the annulment proceedings in the GCEU on the basis that under the ICSID Convention and under section 2 of the 1966 Act an arbitral award was to be equated for the purposes of enforcement with a judgment of the High Court. As the High Court would not enforce a domestic judgment which conflicted with a decision of the Commission, it could not enforce the Award pending the outcome of the annulment proceedings. Accordingly, article 351 TFEU (set out at para 90, below) did not apply because there was no conflict between the obligations of the United Kingdom under the ICSID Convention and the EU Treaties.
66. The Court of Appeal unanimously dismissed the appeal against the order for a stay. The majority (Arden and Leggatt LJJ) held that while section 2(1) of the 1966 Act did not have the effect of making an ICSID award registered under section 1 equivalent for all purposes to an ordinary domestic judgment, the domestic court could grant a stay of execution if in the circumstances of the case it was just to do so, provided the stay was temporary and consistent with the purposes of the ICSID Convention. Hamblen LJ (dissenting on this point) held that the ICSID Convention and the 1966 Act conferred on a registered award the same status as a final domestic judgment. Since such a judgment would not be enforced where inconsistent with EU law, there was no inconsistency with the ICSID Convention or the 1966 Act in not enforcing an award where inconsistent with EU law.

67. On behalf of the Claimants it is submitted that Blair J and the Court of Appeal were in error in granting a stay because the ICSID Convention and the 1966 Act do not permit a stay in such circumstances. Distinguishing between enforcement and execution, they submit that a stay of enforcement may only be granted pursuant to articles 50-52 of the ICSID Convention. Article 54 imposes a duty on national courts to enforce awards and does not permit a national court to refuse enforcement where it would refuse to enforce a domestic judgment. They accept that the national court has control over the execution of an award, including power to grant a temporary stay; however, this is strictly for procedural (not substantive) reasons and only where no inconsistency arises with the duties to recognise and enforce the award. They submit that the stay granted in these proceedings was not a stay of execution but a stay of enforcement pending the determination of the GCEU proceedings, which the Court had no power to order.

68. The provisions of the 1966 Act must be interpreted in the context of the ICSID Convention and it should be presumed that Parliament, in enacting that legislation, intended that it should conform with the United Kingdom’s treaty obligations. It is a notable feature of the scheme of the ICSID Convention that once the authenticity of an award is established, a domestic court before which recognition is sought may not re-examine the award on its merits. Similarly, a domestic court may not refuse to enforce an authenticated ICSID award on grounds of national or international public policy. In this respect, the ICSID Convention differs significantly from the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. The position is stated in this way by Professor Schreuer in his commentary on article 54(1):

“The system of review under the Convention is self-contained and does not permit any external review. This principle also extends to the stage of recognition and enforcement of ICSID awards. A domestic court or authority before which recognition and enforcement is sought is restricted to ascertaining the award’s authenticity. It may not re-examine the ICSID tribunal’s jurisdiction. It may not re-examine the award on the merits. Nor may it examine the fairness and propriety of the proceedings before the ICSID tribunal. This is in contrast to non-ICSID awards, including Additional Facility awards, which may be reviewed under domestic law and applicable treaties. In particular, the New York Convention gives a detailed list of grounds on which recognition and enforcement may be refused …” (Christoph H Schreuer, The ICSID Convention: A Commentary, 2nd ed (2009), p 1139, para 81)

“The Convention’s drafting history shows that domestic authorities charged with recognition and enforcement have no discretion to review the award once its authenticity has been established. Not even the ordre public (public policy) of the forum may furnish a ground for refusal. The finality of awards would also exclude any examination of their compliance with international public policy or international law in general. The observance of international law is the task of the arbitral tribunal in application of article 42 of the Convention subject to a possible control by an ad hoc committee … Nor would there be any room for the application of the Act of State doctrine in connection with the recognition and enforcement of an ICSID award …” (Schreuer, pp 1140-1141, para 85)

69. Contracting States may not refuse recognition or enforcement of an award on grounds covered by the challenge provisions in the Convention itself (articles 50-52). Nor may they do so on grounds based on any general doctrine of ordre public, since in the drafting process the decision was taken not to follow the model of the New York Convention. However, although it is recognised that this is the general position under the Convention, it is arguable that article 54(1), by framing the relevant obligation as to enforcement as an obligation to treat an award under the Convention as if it were a final judgment of a local court, allows certain other defences to enforcement which are available in local law in relation to such a final judgment to be raised.

70. The principle that arbitration awards under the ICSID Convention should be enforceable in the courts of all Contracting States and with the same status as a final judgment of the local courts in those States, as eventually set out in article 54(1), was a feature from an early stage in the drafting of the Convention. Mr Aron Broches, General Counsel of the World Bank at the time who chaired the regional consultative meetings (“the Regional Consultative Meetings”) that occurred as part of the Convention’s drafting, explained to delegates that by virtue of this formula Contracting States would be entitled to apply their local law of sovereign or state immunity with regard to the enforcement of awards, and thereby avoid or minimise possible embarrassment at having to enforce awards against other friendly Contracting States. Accordingly, it was made clear that article 54(1) had the substantive effect of introducing to some degree a principle of equivalence between a Convention award and a local final judgment as regards the possibility of applying defences in respect of enforcement. See ICSID, History of the ICSID Convention (Washington DC, 1968) vol II-1: Doc 22 (20 September 1963) “Memorandum of the discussion by the Executive Directors, September 10, 1963, Discussion of the First Preliminary Draft Convention”, p 177); Doc 25, (30 April 1964) “Summary Record of Proceedings, Addis Ababa Consultative Meetings of Legal Experts, December 16-20, 1963”, p 242; Doc 31 (20 July 1964) “Summary Record of Proceedings, Bangkok Consultative Meetings of Legal Experts, April 27-May 1, 1964”, p 520.
71. In his report on the Regional Consultative Meetings, Mr Broches referred to certain comments that had dealt with the effect of what was then draft section 15 (which became article 54(1)) on existing law with respect to sovereign immunity. Mr Broches “explained that the drafters had no intention to change that law. By providing that the award could be enforced as if it were a final judgment of a local court, section 15 implicitly imported the limitation on enforcement which in most countries existed with respect to enforcement of court decisions against Sovereigns. However, this point might be made explicit in order to allay the fears expressed by several delegations” (History, vol II-1: Doc 33 (9 July 1964) “Chairman’s Report on the Regional Consultative Meetings of Legal Experts”, p 575; and see Doc 27 (12 June 1964) “Summary Record of Proceedings, Santiago Consultative Meetings of Legal Experts, February 3-7, 1964”, pp 342 et seq, where Mr Broches again indicated that this was the intended effect of what became article 54(1), but that it could be made completely clear to allay concerns).

72. Accordingly, the provision which eventually became article 55 was included in what was designated as the First Draft of the Convention and was retained in the final version of the Convention (History, vol I, 254; vol II-1, Doc 43 (11 September 1964) “Draft Convention: Working Paper for the Legal Committee”, p 636). The official Report of the Executive Directors on the Convention confirmed that this provision was introduced for the avoidance of doubt (as its text indicates): see ICSID, Report of the Executive Directors of the International Bank for Reconstruction and Development on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington DC, 1965), para 43; Mr Broches made the same point in his Memorandum to the Executive Directors (History, vol II-2, Doc 128 (19 January 1965) “Memorandum from the General Counsel and Draft Report of the Executive Directors to accompany the Convention”, paras 43-44). The law of State immunity varies from State to State, and the Convention made no attempt to harmonise it. As Professor Schreuer points out in his commentary on article 54, persons seeking to enforce arbitration awards made pursuant to the Convention will tend to choose to do so in those jurisdictions which have the least generous rules of State immunity for the protection of the assets of other Contracting States (Schreuer, p 1124, para 27).
73. The fact that the specific qualification of the obligation to enforce an award like a final court judgment relating to state immunity was expressly dealt with in article 55 for the avoidance of doubt indicates that article 54(1) was itself understood to have the effect of allowing the possibility of certain other defences to enforcement if national law recognised them in respect of final judgments of local courts.

74. The travaux préparatoires also indicate that it was accepted that further defences available in national law in relation to enforcement of court judgments could be available in exceptional circumstances by virtue of the formulation of the obligation in article 54(1). Mr Broches pointed out “that the First Draft went further than the Secretariat draft since treating awards in the same way as court judgments implied that exceptional grounds only could be invoked to prevent recognition and enforcement” (Aron Broches, “Awards Rendered Pursuant to the ICSID Convention: Binding Force, Finality, Recognition, Enforcement, Execution”, (1987) ICSID Rev 287, 312). But he also resisted a proposal by the Austrian representative to delete the words (in what became article 54(1)) requiring an award to be enforced “as if it were a final judgment [of a local court]”, so as to make the obligation in that provision an unqualified one, since the Austrian representative noted that “there were several possibilities for annuling [sic] judgments even after they had been declared final” (History, vol II-2, Doc 120 (11 January 1965) “Summary Proceedings of the Legal Committee meeting, December 11, morning”, p 901). Mr Broches stated that in his opinion “by making an award the equivalent of a final judgment one had reached the maximum obtainable” (that is to say, in practical terms, given the issues raised in the drafting meetings) (Broches, p 314). So, for example, there was discussion of the possibility in English law of applying to have a final judgment of a national court set aside on the grounds that it was obtained by fraud, and Mr Broches confirmed that this would also be applicable in relation to a Convention award: see History, vol II-2, Doc 113 (11 January 1965) “Summary Proceedings of the Legal Committee meeting, December 10, afternoon”, p 889 (“If a final judgment against a sovereign State could not be executed, then an award could not be executed either; and in the same way, if a final judgment was open to some extraordinary remedy in the case of fraud or similar occurrence, that would be true for the award as well.”). Later, Mr Broches resisted a suggestion that what is now article 55 should be expanded so as also to “cover the cases where there were laws which, although not related to immunities, might limit the execution of the award against the State”, on the grounds that he “thought this was unnecessary because full recognition had been given to the laws of the State in article [54]” and “[article 55] dealt with one specific problem on which certain delegations had expressed concern” (History, vol II-2, Doc 120, p 905).

75. In his commentary on article 54, Professor Schreuer observes that at the stage of recognition and enforcement of awards “[t]he otherwise self-contained nature of the Convention does not apply” (p 1120, para 10). At, pp 1142-1143, para 91 he says (omitting references):

“The fact that article 54(1) assimilates ICSID awards to final judgments of domestic courts implies that enforcement may be resisted in countries where national rules provide for an exceptional refusal to enforce a final judgment. Though this possibility was already acknowledged during the drafting of the Convention, it has not yet been relied upon in practice in order to defy recognition and enforcement of ICSID awards. Instead, past attempts to resist enforcement of awards have relied upon immunity from execution.”

76. Article 54(3) of the Convention is concerned with execution of awards. Its effect is that the available processes of execution will be those in the law of the State where enforcement is sought. It does not require that State to make available any other processes of execution. This provision does not limit the obligation on Contracting States to enforce awards. Once again, the matter is explained by Professor Schreuer in his commentary: having regard to all the authentic language versions of the Convention, no distinction is to be drawn between enforcement and execution (p 1134, para 64). He observes in his commentary on article 54(3):

“The drafting history and the context of article 54(3) make it clear that the laws of the enforcing State that govern execution of an ICSID award are of a procedural nature only. Article 54(3) does not detract from the obligation of every State party to the Convention to enforce awards. In particular, the laws of the enforcing State may not serve as a standard for the review of awards. Article 54(3) does not affect the finality and non-reviewability of awards …” (p 1149, para 112)

77. Articles 50(2), 51(4) and 52(5) make specific provision for staying enforcement of an award in certain specific situations, none of which applies here. Section 2(2) of the 1966 Act and CPR 62.21(5) make corresponding provision in domestic law for the grant of a stay in such situations. These stays pursuant to the Convention are available only in the context of interpretation, revision and annulment of awards addressed by those articles. In the present case, Romania has already exercised and exhausted its right under article 52 of ICSID to seek annulment of the Award. The ICSID ad hoc Committee upheld the Award on 26 February 2016.

78. However, in light of the wording of articles 54(1) and 55 and the travaux préparatoires reviewed above, it is arguable that there is scope for some additional defences against enforcement, in certain exceptional or extraordinary circumstances which are not defined, if national law recognises them in respect of final judgments of national courts and they do not directly overlap with those grounds of challenge to an award which are specifically allocated to Convention organs under articles 50 to 52 of the Convention. Mr Broches proposed at the drafting meeting on 11 December 1964 referred to above that representatives “should consciously accept something that was of necessity not precise, which each country in good faith would seek to translate into appropriate local law. He thought that it was necessary to leave some freedom to the Contracting States to interpret in good faith the principal concept laid down in the Convention” (ie the obligation in article 54(1)) (History, vol II-2, Doc 120, 903).

79. In the Court of Appeal Hamblen LJ accepted Romania’s submission that the relevant obligation of the United Kingdom under article 54(1) was one of “equivalence”. He considered that, while there will be different national rules and procedures relating to enforcement, provided the same rules and procedures are applied to registered awards as to final court judgments in the State concerned article 54 will be complied with. In his view, the effect of section 2(1) of the 1966 Act was to make an ICSID award registered under section 1 of the Act equivalent for all purposes to a judgment of the High Court given in ordinary domestic proceedings. As a result, in his view, if the present award had been a final decision of the English court there could be little doubt that the English court would stay enforcement because payment was prohibited by a subsequent Commission decision. On that basis, he considered that enforcement of the Award had to be stayed. The courts have general powers under the CPR to order a stay where that would be appropriate outside the specific situations dealt with in CPR 62.21: see in particular CPR 3.1(2)(f), CPR 40.8A and CPR 83.7(4).

80. Hamblen LJ’s view on the general question whether article 54(1) operates on the basis of a principle of “equivalence” gains some support from the points set out above and the travaux préparatoires referred to. But as appears below, even if he is right on that point, consideration of the effect of article 351 TFEU means that it does not follow that Romania succeeds in showing that the enforcement of the Commission Award should be refused under the ICSID Convention and the 1966 Act.

81. On the other hand, it might be said that this reading of the obligation of each Contracting State under article 54(1) to enforce the pecuniary obligations imposed by an ICSID award “as if it were a final judgment of a court in that State” fails to take proper account of the scheme of the ICSID Convention as described above. It is arguable that there is countervailing force in the view of Arden and Leggatt LJJ in the Court of Appeal that it would be inconsistent with that scheme for a national court to refuse to enforce an award on the ground that, if it had been an ordinary domestic judgment, giving effect to it would be contrary to a provision of national law and that the only circumstances in which the validity or enforceability of an ICSID award can be challenged are those set out in the ICSID Convention itself. It is arguable that the words “as if it were a final judgment of a court in that State” in article 54(1) should not be read as referring to the circumstances in which an award is enforceable in the State concerned or as importing national standards as a requirement of enforceability. Rather it is arguable that, as Leggatt LJ put it (at para 258), albeit without consideration of the travaux préparatoires, “the purpose of equating an award with a final judgment of a court in the state where enforcement is sought is to give legal force to an award for the purpose of executing it and to provide machinery for that purpose”. If that is right, then section 2(1) of the 1966 Act, which implements article 54(1), would not entitle courts in this jurisdiction to refuse to enforce an award on grounds that would justify staying enforcement of a domestic judgment. On this view, article 54(1) simply provides a legal basis for execution. If anything, this might be said to emerge even more clearly from section 2(1) which provides that an award shall “be of the same force and effect for the purposes of execution …” (emphasis added) as a domestic judgment (although clearly that provision should be read so as to conform with article 54(1), to which it is intended to give effect).

82. Nevertheless, despite the view they took about the effect of article 54(1), Arden and Leggatt LJJ came to the conclusion that it was open to the court to grant a stay. In their view article 54(3) gave the national court control over the process of execution which includes its manner and timing and that was reflected in section 2(1)(c) of the 1966 Act. Rules of court, CPR 40.8A and CPR 83.7(4), confer wide discretionary powers to stay the execution of a final judgment. Accordingly, it was open to courts in this jurisdiction to grant a stay of execution if in the particular circumstances of the case it was just to do so, provided that the stay was temporary and consistent with the purposes of the ICSID Convention (Arden LJ at paras 122-126; Leggatt LJ at paras 260-262). Both emphasised, however, that this power could not extend to declining to enforce an award because of a substantive objection to it or staying enforcement of an award permanently or indefinitely (at paras 125, 262).
83. The difference between Hamblen LJ on the one hand and Arden and Leggatt LJJ on the other regarding the proper interpretation of article 54(1) of the ICSID Convention is something which ultimately could only be authoritatively resolved by the International Court of Justice. There are valid arguments on both sides. It is perhaps not altogether surprising that there is some doubt about the true meaning and effect of article 54, given that the work on drafting that provision was carried out “under great time pressure and is described by Broches as being characterized by great fluidity, sometimes bordering on confusion” (Schreuer, p 1135, para 66). However, the important point for present purposes is that whichever view is correct, it does not assist Romania in this case.

84. We first address the position which arises on the interpretation of article 54(1) preferred by Arden and Leggatt LJJ. We agree with them that courts in this jurisdiction have the power to stay execution of an ICSID award in the limited circumstances which they describe. However, we consider that in granting a stay of execution of the Award in the present case pending the determination of the annulment proceedings in the GCEU (or further order in the meantime) they exceeded the proper limits of that power. The grant of a stay in these circumstances was not consistent with the ICSID Convention, on their interpretation of it, under which the United Kingdom and its courts had a duty to recognise and enforce the Award. This was not a limited stay of execution on procedural grounds, but a prohibition on enforcement of the Award on substantive grounds until the GCEU had ruled on the apparent conflict between the ICSID Convention and the EU Treaties. Effect was given to the Commission Decision until such time as the GCEU might pronounce upon it. The logic of the position adopted by Arden and Leggatt LJJ was that if the GCEU upheld the Commission Decision, the stay would continue indefinitely (and the same would be true if the CJEU allows the Commission’s appeal against the decision of the GCEU). But the grounds of objection raised by the Commission, even if upheld before the EU courts, were not valid grounds of objection to the Award or its enforcement under the ICSID Convention, as interpreted by Arden and Leggatt LJJ. The principle laid down in article 53(1) that awards are binding on the parties and are not subject to any appeal or other remedy except those provided under the Convention and reflected in article 54 (on their interpretation of it) was disregarded. In substance, the Court of Appeal made use of powers to stay execution granted by domestic law in order to thwart enforcement of an award which had become enforceable under the ICSID Convention.

85. On the other hand, if article 54(1) incorporates the principle of equivalence, in line with Hamblen LJ’s interpretation, it remains the case that Romania’s submission in answer to the Claimants’ cross-appeal cannot succeed. This is because article 351 TFEU has the effect that any obligation on the UK courts to give effect to a decision such as the Commission Decision pursuant to the duty of sincere co-operation which might arise under the Treaties in other circumstances does not arise in this case. The discussion below of Original Ground 4 of the cross-appeal, explains that the United Kingdom owes relevant obligations to non-EU member states under the ICSID Convention, a treaty to which the United Kingdom was party before it became a member state. By virtue of article 351 TFEU this means that the obligations on the United Kingdom arising from the ICSID Convention are “not … affected by the provisions of the Treaties”.

86. Leaving aside the Treaties, in the circumstances of the present case the English courts are obliged under article 54(1) of the ICSID Convention to give effect to the Award in favour of the Claimants and this is not a case in which any of the exceptional possible types of defence to enforcement contemplated by Mr Broches and Professor Schreuer arise. Leaving the Treaties out of the analysis, if the Award were a final judgment of an English court it would be enforced without question. Similarly, on Hamblen LJ’s interpretation of article 54(1) involving the principle of equivalence, it must follow that the Award would be enforced in the same way. Article 351 TFEU means that this obligation cannot be affected by anything in the Treaties, which are the foundation for the legal effect of Commission rulings and for the obligation of sincere co-operation on which Romania seeks to rely. Romania’s attempt to pray in aid the obligation of sincere co-operation is an attempt to pull itself up by its own bootstraps. It cannot make out the necessary foundation for its argument, since it cannot show that the obligation of sincere co-operation has any application at all.

87. Finally, in this regard, we should refer to the submission on behalf of Romania that to the extent that there is any uncertainty as to the meaning of the relevant provisions of the ICSID Convention and the 1966 Act, this court is bound by EU law to interpret them so far as possible in accordance with EU law in order to comply with the EU principle of effectiveness (seeking to gain support from van Munster v Rijksdienst voor Pensioenen (Case C-165/91) [1994] ECR I-4661, para 34; Budĕjovický Budvar národní podnik v Rudolf Ammersin GmbH (Case C-216/01) [2003] ECR I-13617, paras 168-169). This is another bootstraps argument on behalf of Romania. The first step in the analysis should be to ask whether the United Kingdom has relevant obligations arising from the ICSID Convention which, by operation of article 351 TFEU, preclude the application of the Treaties. As explained below in relation to Cross-Appeal Original Ground 3 (paras 101-108), on a proper interpretation of the ICSID Convention, the United Kingdom clearly does have such obligations. Therefore, the Treaties do not have any relevant effect and this court is not bound by EU law to interpret the Convention in the manner for which Romania contends. In any event, the proper interpretation of the Convention is given by principles of international law applicable to all Contracting States and it cannot be affected by EU law.

Cross-Appeal Original Ground 3: The European Communities Act 1972 does not require the United Kingdom to breach its pre-accession obligations under the ICSID Convention, as implemented by the 1966 Act

88. On behalf of the First Claimant, Viorel Micula, Mr Patrick Green QC advances this ground of appeal, which the other Claimants adopt, on the basis that a conflict might be said to arise between the United Kingdom’s obligations under the ICSID Convention and EU law. Mr Green submits that the UK Parliament, in enacting section 2(1) of the European Communities Act 1972, could not have intended to empower the EU to put the United Kingdom in breach of pre-accession international obligations, with only EU institutions as arbiters of the lawfulness of doing so. He says this is so for two reasons. First, it undermines the scheme of the Convention and the express terms and purpose of the 1966 Act. Secondly, at the time Parliament enacted the 1972 Act there was before it a treaty which provided, in what has become article 351 TFEU, that it would not affect the pre-accession international obligations of member states. The effect of the 1972 Act was to confer defined competences within limited fields and the limitations included the preservation of prior international obligations falling within what is now article 351 TFEU. In this regard he relies on the decision of the Court of Appeal in Shindler v Chancellor of the Duchy of Lancaster [2016] EWCA Civ 469; [2017] QB 226, in particular the observations of Elias LJ at paras 58-59, and the observations of Lord Mance in Pham v Secretary of State for the Home Department [2015] UKSC 19; [2015] 1 WLR 1591, para 82.
89. The constitutional principles which underlie this submission are clearly correct. Under the UK constitution Parliament is sovereign and EU law has effect within the United Kingdom only to the extent that it has been given such effect by section 2(1) of the European Communities Act 1972 (R (Buckinghamshire County Council) v Secretary of State for Transport (“HS2”) [2014] UKSC 3; [2014] 1 WLR 324, para 79; Pham v Secretary of State for the Home Department [2015] 1 WLR 1591, paras 80, 90; R (Miller) v Secretary of State for Exiting the European Union [2017] UKSC 5; [2018] AC 61, paras 60, 61). It is for the UK courts to decide on the scope and effect of section 2(1) and, as Lord Reed observed in HS2 at para 79, if there is a conflict between a constitutional principle and EU law, that conflict has to be resolved by our courts as an issue arising under the constitutional law of the United Kingdom. However, by contrast with HS2, which concerned article 9 of the Bill of Rights, the present case concerns obligations arising under the ICSID Convention which are given effect by the 1966 Act, which is not a statute of fundamental constitutional importance. In these circumstances, there is no sound basis for concluding that the effect of section 2(1) of the European Communities Act 1972 was impliedly excluded so far as the 1966 Act is concerned. In any event, successive treaties which have been given effect in the domestic law of the United Kingdom by section 2(1) of the 1972 Act have included a provision equivalent to the current article 351 TFEU. As a result, the 1972 Act has already made provision for the effect of accession on pre-accession treaties and, accordingly, this ground of appeal collapses into Original Ground 4 to which we now turn.

Cross-Appeal Original Ground 4: Article 351 TFEU (formerly article 307 EC)

90. Article 351 TFEU provides:

“The rights and obligations arising from agreements concluded before 1 January 1958 or, for acceding States, before the date of their accession, between one or more member states on the one hand, and one or more third countries on the other, shall not be affected by the provisions of the Treaties.

To the extent that such agreements are not compatible with the Treaties, the member state or States concerned shall take all appropriate steps to eliminate the incompatibilities established. member states shall, where necessary, assist each other to this end and shall, where appropriate, adopt a common attitude.

In applying the agreements referred to in the first paragraph, member states shall take into account the fact that the advantages accorded under the Treaties by each member state form an integral part of the establishment of the Union and are thereby inseparably linked with the creation of common institutions, the conferring of powers upon them and the granting of the same advantages by all the other member states.”

91. At first instance Blair J held that article 351 TFEU did not apply because there was no conflict between the obligations of the United Kingdom under the ICSID Convention and the EU Treaties. In the Court of Appeal the majority (Hamblen and Leggatt LJJ) considered that the issue of whether there was a conflict between the United Kingdom’s duties under EU law and under the ICSID Convention depended on the proper application of article 351 TFEU. That issue had been before the GCEU in the annulment proceedings, although not in precisely the same way, and Blair J had been entitled to stay the proceedings on the basis that without a stay, there would be a clear risk of conflicting decisions with the EU courts. There had been no appeal against his finding on that point. Leggatt LJ considered that while the point could be taken by the court of its own motion, it was inappropriate to do so. Arden LJ (dissenting on this point) considered that the interpretation of article 351 TFEU was a point which should be taken by the court of its own motion. It was for the UK courts to decide whether article 351 TFEU applied to the ICSID Convention. In view of her conclusion that a stay could be ordered consistently with the ICSID Convention, there was no need to reach a final decision on the article 351 TFEU point. However, she considered that there was little overlap between that issue and the proceedings in the GCEU.

92. Before the Supreme Court, the parties have addressed this ground of cross-appeal on the basis that it arises only if Blair J and the Court of Appeal erred in concluding that to stay the enforcement or execution of the award pending the annulment proceedings is consistent with the ICSID Convention. We agree that the matter should be approached on this basis. In those circumstances, Romania and the Commission submit that the EU duty of sincere co-operation nevertheless requires the imposition of a stay, while the Claimants submit that the United Kingdom’s obligations to recognise and enforce awards under the ICSID Convention are pre-accession treaty obligations within article 351 TFEU and are therefore unaffected by EU obligations.

Preliminary issue: permission to appeal

93. A preliminary issue which arises under this ground of cross-appeal is whether the Claimants should be given permission to appeal on this ground, the question of permission having been reserved to the full hearing.

94. At first instance, the Claimants argued that article 351 TFEU applied with the result that the obligations of the United Kingdom arising from the pre-accession ICSID Convention were not subject to the over-riding effect of EU law. Blair J did not express any conclusion as to the United Kingdom’s separate international law obligations under the ICSID Convention, but considered that article 351 TFEU was one of the grounds on which the Claimants asked the GCEU to annul the Commission Decision and that, even though those issues were not necessarily the same as those which arose in these proceedings, there was a risk of conflicting decisions if the court were to decide the effect of article 351 TFEU while the GCEU proceedings were pending (Blair J, Judgment of 20 January 2017 [2017] EWHC 31 (Comm); [2017] Bus LR 1147, para 152). In the Court of Appeal, Leggatt LJ (at para 265) and Hamblen LJ (at paras 160-164) agreed with that conclusion.
95. The grounds of appeal of the Claimants before the Court of Appeal did not raise objection to the judge’s rejection of their arguments on article 351 TFEU. However, although the position is not entirely clear, it seems that they did seek to rely on article 351 TFEU in the course of argument without amending their grounds of appeal (see Arden LJ at para 172, cf Leggatt LJ at para 265). Romania now objects to the Supreme Court considering the submissions of the Claimants on article 351 TFEU, on the ground that the point was not appealed from Blair J to the Court of Appeal.

96. We would grant permission to appeal on this ground. First, we agree with the observation of Arden LJ in the Court of Appeal (at para 173) that courts in this jurisdiction should normally, so far as the law allows, exercise their powers so as to ensure compliance with the international obligations of the United Kingdom. The article 351 TFEU issue as now presented to this court is concerned with seeking to identify what are the relevant international obligations of the United Kingdom and, in the event of a conflict, which obligations are to prevail. Furthermore, we are persuaded that this issue goes to the heart of the present dispute and that the parties cannot by their conduct withdraw it from the court’s consideration. Secondly, the ground is a pure point of law and we are satisfied that Romania and the Commission have had ample time to enable them to meet the case which is now put against them.

Article 351 TFEU

97. Article 351 TFEU is an express provision of EU law regulating priority where there are potentially conflicting obligations. It is general in scope and applies to any international agreement, irrespective of subject matter, which is capable of affecting the application of the EU Treaties (Criminal proceedings against Levy (Case C-158/91) [1993] ECR I-4287, para 11). It applies to agreements concluded by the United Kingdom before its accession on 1 January 1973 (Commission of the European Communities v United Kingdom of Great Britain and Northern Ireland (“Open Skies”) (Case C-466/98) [2003] 1 CMLR 6, para 25). Article 351 TFEU is intended to establish, in accordance with principles of international law, that the application of the EU Treaties does not affect the duty of a member state to respect the rights of non-member states under a prior agreement and to perform its obligations thereunder (Commission of the European Economic Community v Government of the Italian Republic, In re Italian Customs Duties on Radio Valves (Case C-10/61) [1962] ECR 1; Attorney General v Burgoa (Case C-812/79) [1980] ECR 2787, para 8; Levy (Case C-158/91), para 11; R v Secretary of State for the Home Department, Ex p Evans Medical Ltd (Case C-324/93) EU:C:1995:84; [1995] All ER (EC) 481, para 27). It also implies a duty on the part of the EU institutions not to impede the performance of the obligations of the member states which stem from a prior agreement (Attorney General v Burgoa (Case C-812/79), para 9). The rule in article 351 TFEU is concerned with conflicting obligations. Accordingly, where an international agreement merely permits but does not require a member state to act in a manner contrary to EU law, the member state must refrain from such conduct (Evans Medical (Case C-324/93), para 32). Moreover, article 351 TFEU does not apply to the obligations of a member state under a pre-accession agreement where the rights of non-member states are not involved. If the only obligations in play are those owed to other member states, the matter is regarded as an intra-EU matter and EU law prevails over obligations under pre-accession agreements (Commission v Italy, In re Italian Customs Duties on Radio Valves (Case C-10/61) [1962] ECR 1, 10; Radio Telefis Eireann v Commission of the European Communities (“RTE”) (Joined Cases C-241/91 P and C-242/91 P) [1995] All ER (EC) 416, para 84).

Determining the scope of obligations under pre-accession agreements

98. In order to determine whether a rule of EU law may be deprived of effect by a pre-accession international agreement, it is necessary to consider whether that agreement imposes on the member state concerned obligations the performance of which may still be required by non-member states which are parties to it (Levy (Case C-158/91), para 13; Evans Medical (Case C-324/93), para 28). In Levy the Court of Justice considered a submission that an International Labour Organization Convention, ratified by France prior to the entry into force of the Treaty of Rome, was inconsistent with a Council Directive. The Court of Justice held:

“… [I]n proceedings for a preliminary ruling, it is not for this Court but for the national court to determine which obligations are imposed by an earlier international agreement on the member state concerned and to ascertain their ambit so as to be able to determine the extent to which they constitute an obstacle to the application of … the directive.” (para 21) [See also Office national de l’emploi v Minne (Case C-13/93) [1994] ECR I-371, para 18.]

Similarly, in Evans Medical (Case C-324/93) the Court of Justice held (paras 29-30) that it was not for that court but for the national court to determine which obligations were imposed by the Single Convention on Narcotic Drugs, a treaty concluded by the United Kingdom before its accession, and to ascertain their ambit so as to be able to determine the extent to which they thwarted the application of Community law. The authorities cited by Romania on this point cast no doubt on the principle stated in Levy and Evans Medical. In Budĕjovický Budvar národní podnik v Rudolf Ammersin GmbH (Case C-216/01) [2003] ECR I-13617, the obligation owed under the prior bilateral treaty was common ground (para 147). In T Port GmbH & Co v Hauptzollamt Hamburg-Jonas (Joined Cases C-364/95 and C-365/95) [1998] ECR I-1023 the Court of Justice merely held that what is now article 351 TFEU did not apply in a case involving imports from a third country which was not at the relevant time a party to a prior international agreement concluded by member states (paras 61-65).

99. Both Levy and Evans Medical were concerned with proceedings for a preliminary ruling. As Advocate General Lenz explained in Evans Medical (at EU:C:1994:357, para 39), what is now article 267 TFEU empowers the Court of Justice to give preliminary rulings on EU law. It does not confer any power to interpret agreements in international law which member states concluded with non-member states before the entry into force of the Treaties or prior to their own accession. Accordingly, it would not be possible for the Supreme Court to make a preliminary reference to the CJEU on this issue in the present case. While it may well be open to the Court of Justice to rule on the extent of a member state’s prior treaty obligations in other circumstances – for example in infringement proceedings (see Evans Medical per Advocate General Lenz at para 44; European Commission v Slovak Republic (Case C-264/09) [2011] ECR I-8065, paras 32-40) or in direct actions (RTE (Joined Cases C-241/91 P and C-242/91 P)), Levy and Evans Medical make clear that this is not a question of EU law and that there can be no objection to the courts of a member state deciding the issue. Furthermore, as this is a matter of the interpretation of the prior agreement in international law, EU courts are no better placed to determine the scope of obligations under a pre-accession agreement than the courts of the member state concerned or, indeed, a court or tribunal which has jurisdiction to rule on its meaning under the prior agreement itself.
100. On behalf of Romania, Mr O’Donoghue QC submits that in applying article 351 TFEU it is necessary to distinguish between two questions. The first is whether there is a relevant prior international obligation in play at all. The second is whether, even if as a matter of international or domestic law the obligation is in some sense owed to all parties to the prior agreement, “the effect of that is that the case does not only involve ‘intra-Community relations’ for the purposes of article 351 TFEU”. His formulation of the second limb, however, mis-states the effect of the authorities. While it is correct that in order for article 351 TFEU to apply relevant obligations under the prior treaty must be owed to a non-member state, that does not impose an additional requirement that the particular dispute before the court must relate to extra-EU activities or transactions. The decisions of the Court of Justice demonstrate that the opposite is the case. Thus, Levy was concerned only with conduct within France. Similarly, Evans Medical concerned activities entirely within the EU – the importation of drugs from the Netherlands to the United Kingdom – but article 351 TFEU was nevertheless engaged. In both cases what mattered was that the relevant obligations under the prior treaties were owed to non-member states. Thus, notwithstanding the fact that the United Kingdom, Sweden and Romania were at the material times all member states, if the relevant obligations under the ICSID Convention are owed to ICSID contracting States which are non-member states, article 351 TFEU will be engaged.

Does article 351 TFEU apply to the United Kingdom’s relevant obligations under the ICSID Convention?

101. It is not difficult to see that all States which are parties to the ICSID Convention have an interest in the effective operation of the Convention scheme for the enforcement of arbitral awards. However, article 351 TFEU is concerned with conflicting obligations and, accordingly, it is only if a relevant obligation under ICSID is owed by the United Kingdom to a non-member state that the Claimants can succeed on this ground. We also accept the submission on behalf of Romania that we are not here concerned with the general question whether the United Kingdom owes obligations under the ICSID Convention to non-member states, but with the question whether the specific obligation of the United Kingdom under the ICSID Convention to enforce this award is owed by the United Kingdom to non-member states. Romania’s case is that the only legal obligation of the United Kingdom which is in play is the obligation owed under the ICSID Convention to Sweden, which is an EU member state. It submits that Sweden is the only State with a direct interest in the enforcement of the award. The Claimants, on the other hand, identify as the relevant obligations of the United Kingdom articles 54 and 69 of the ICSID Convention. Article 54(1) provides that each contracting State shall recognise an award rendered pursuant to the Convention as binding and shall enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court in that State. Article 69 provides that each Contracting State shall take such legislative or other measures as may be necessary for making the provisions of the ICSID Convention effective in its territories. The Claimants submit that these obligations are owed to all other parties to the ICSID Convention.
102. Mr O’Donoghue on behalf of Romania submits that if the Claimants are correct in their submission, this would apply equally to every significant obligation in every multilateral treaty with the result that every multilateral treaty involving some parties which are not EU member states would fall within article 351 TFEU. He submits that this clearly is not correct and points to decisions of the Court of Justice relating to other multilateral conventions where, he says, article 351 TFEU did not apply: Commission v Italy, In re Italian Customs Duties on Radio Valves (Case C-10/61); Ministere Public v Deserbais (Case C-286/86) [1988] ECR 4907; RTE (Joined Cases C-241/91 P and C-242/91 P). Thus, for example, he submits that in RTE (Joined Cases C-241/91 P and C-242/91 P), a direct action, the CJEU found that the rights of non-member states under the Berne Convention were not involved, since the case – involving the United Kingdom and Ireland – only concerned the rights of EU member states, notwithstanding that the Berne Convention was a multilateral treaty involving multiple non-member states. He relies in particular on para 84 of the judgment where the Court of Justice observed:

“It is, however, settled case law that the provisions of an agreement concluded prior to entry into force of the Treaty or prior to a member state’s accession cannot be relied on in intra-Community relations if, as in the present case, the rights of non-member countries are not involved …” (Emphasis added)

We note, however, that since its decision in RTE, the Court of Justice has had occasion to consider the Berne Convention in Luksan v van der Let (Case C-277/10) EU:C:2012:65; [2013] ECDR 5, where it stated (para 58) that the Berne Convention displayed the characteristics of an international agreement for the purposes of article 351 TFEU, although it concluded (para 62) that article 351 TFEU was not engaged in that case because the relevant provision of the Convention allowed but did not require a member state to adopt a measure which appears to be contrary to EU law.

103. There is, however, a shorter and more fundamental answer to this submission of Romania: it is founded on a non sequitur. In order to determine whether article 351 TFEU applies in any particular case it will be necessary to construe the prior agreement in question in order to ascertain whether any relevant obligations arising from it are owed to non-member states. The authorities on which Romania relies can cast no light on the question whether obligations under articles 54 and 69 of the ICSID Convention are owed to all Contracting States.

104. It is clear that the specific duties in articles 54 and 69 of the ICSID Convention are owed to all other Contracting States. The Convention scheme is one of mutual trust and confidence which depends on the participation and compliance of every Contracting State. The importance within this scheme of the effective recognition and enforcement of awards is apparent from the preamble which emphasises the requirement that “any arbitral award be complied with”.
105. The structure of the ICSID Convention supports this interpretation. The Convention establishes the International Centre for Settlement of Investment Disputes to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of Contracting States (article 1). The Convention provides that in relation to such disputes any Contracting State or any national of a Contracting State can apply to a tribunal appointed pursuant to Chapter IV of the Convention. However, article 64 provides a separate route for resolution of disputes between Contracting States by permitting an aggrieved State to refer the matter to the International Court of Justice. This is required to provide a remedial mechanism in cases of infringement of direct obligations owed to other States. The obligations of Contracting States in articles 53, 54 and 69 are expressed in unqualified terms, without limit as to the persons to whom they are owed. Article 64 is expressed in entirely general terms which are apt to include disputes regarding the obligations set out in those articles. These features of the Convention regime provide a strong indication that a Contracting State which has obligations under the Convention in relation to an award owes those obligations to all other States party to the Convention as well as to any party to the award. Article 27(1) confirms that the obligation on a Contracting State against whom an arbitration award is made to comply with the award is not just owed to the other parties to the dispute, since it recognises that any Contracting State whose national is involved in the dispute may bring an international claim against the other Contracting State if it fails to comply with the award rendered. Professor Schreuer in his commentary on article 53 confirms that the obligation of compliance under article 53 is in fact owed to every other Contracting Party: p 1100, para 13 and p 1109, para 46. The same is true of the obligation under article 54, as Professor Schreuer confirms in his commentary on that provision at p 1125, para 28, (non-compliance with article 54 “would carry the usual consequences of state responsibility …”).
106. The Claimants identify four features of the scheme, which demonstrate that its purpose requires that the relevant obligations must be owed, not only to the State of nationality of the party seeking to enforce the award, but to all Contracting States. First, a key purpose of the Convention is to encourage investment by providing investors with reassurance that a monetary award can be enforced in the territories of all Contracting States. The failure of any Contracting State to enforce an award in accordance with article 54 would undermine the Convention scheme on which investors and Contracting States all rely. This points to a network of mutual enforcement obligations. Secondly, were a Contracting State, when implementing its Convention obligations into domestic law, to qualify them by providing that no award was to be recognised or enforced if illegal under domestic law or contrary to its public policy, that would represent a plain breach of duty owed to all other Contracting States of which they would all be entitled to complain, even before such legislation came to be applied in any particular case. Thirdly, if a Contracting State were to fail to enforce an award in accordance with the ICSID scheme the beneficiaries of the award would be compelled to seek enforcement elsewhere and the burden of enforcement would fall on other States involving expenditure of resources within their legal systems. Fourthly, in such situations attempts to enforce in an alternative forum might result in the party against which enforcement is sought reducing or withdrawing its commercial assets in that alternative forum to the detriment of the State concerned.
107. The travaux préparatoires of the ICSID Convention also support the view that obligations to comply with the Convention scheme are owed to all Contracting States. Thus, at the Fifth Session held on 18 December 1963, responding to a suggestion by the representative of Dahomey that, by analogy with article 94 of the UN Charter, the Security Council be given power to enforce awards, the Chairman stated that he did not believe that any State which had acceded to the Convention would fail to fulfil its provisions but added:

“If it did, other Contracting States might take such action as might be appropriate.” (History, vol II-I, Doc 25 (30 April 1964) “Summary Record of Proceedings, Addis Ababa Consultative Meetings of Legal Experts, December 16-20, 1963”, p 273)

Similarly, in the Sixth Session held on 20 February 1964 the Chairman acknowledged that a Contracting State’s duty to comply with an award was owed to all other Contracting States.

“Apart from legal sanctions based on the revival of the right of diplomatic protection of the investor’s State there would be even more serious indirect sanctions because a State which did not comply would fail to meet its obligations not only to the investor but also to the community of Contracting States which would presumably include capital-exporting countries from which the losing State could expect assistance.” (History, vol II-I, Doc 29 (1 June 1964) “Summary Record of Proceedings, Geneva Consultative Meetings of Legal Experts, February, 17-22, 1964”, p 425)

Although these statements were made in the context of compliance with awards, as opposed to recognition and enforcement, they are powerful indications that obligations under the ICSID Convention are owed by all Contracting States to the community of Contracting States.

108. Accordingly, neither the Convention nor its travaux préparatoires provide any warrant for restricting the duties owed by a Contracting State under articles 54 and 69 so that they are owed only to the State of nationality of an award beneficiary.

Does the article 351 TFEU issue give rise to a risk of conflict which requires the imposition of a stay pending the outcome of the proceedings before the EU courts?

109. Romania and the Commission submit that this court is precluded from deciding the issue of the extent of the obligations of the United Kingdom and to whom those obligations are owed because there would be a risk of a conflict between such a ruling and a future ruling by an EU court in the present dispute. It is said that the duty of sincere co-operation requires courts in this jurisdiction to impose a stay pending the resolution of the issue by the EU courts.

110. Neither the EU courts nor domestic courts have competence to give an authoritative decision, binding as between States, as to the existence and extent of obligations under a prior multilateral convention. The convention itself will usually make provision for the resolution of disputes. In the case of the ICSID Convention that function is reserved to the International Court of Justice by article 64. However, both the EU courts (for example, in infringement proceedings or direct actions) and domestic courts (in national proceedings) have competence to consider and rule upon the effect of a multilateral treaty, insofar as it may bear upon the outcome of the proceedings before them.

111. In the present case, the duty of sincere co-operation does not require courts in this jurisdiction to decline to decide this issue pending its resolution by the EU courts, or otherwise to defer to the EU courts on this issue, for the following reasons.

112. First, the case law of the Court of Justice makes clear that, as a matter of EU law, questions as to the existence and extent of obligations under prior treaties, in the context of article 351 TFEU, are not reserved to the EU courts. In Levy and Evans Medical the Court of Justice has accepted the appropriateness of national courts ruling on such issues. Such questions are not governed by EU law and the Court of Justice is in no better position than a national court to answer them. This is addressed at paras 98-99 above.

113. Secondly, although the Claimants have raised an article 351 TFEU issue in the proceedings before the EU courts, it is not the same issue as that with which this court is seized. In the proceedings to annul the Commission Decision, the Claimants advanced eight pleas of law, one of which was that the Commission Decision was in breach of article 351 TFEU, because that provision affords primacy to Romania’s pre-existing international obligations under the BIT and the ICSID Convention. The GCEU did not rule on that plea and, accordingly, it is not the subject of the appeal to the CJEU by the Commission. Although the pleadings before the GCEU made references to article 54 of the ICSID Convention in conjunction with article 53, the essential article 351 TFEU issue raised by the Claimants in the annulment proceedings concerned Romania’s obligation to abide by and comply with the award under article 53 of the ICSID Convention. By contrast, the issue with which we are concerned in these proceedings is the United Kingdom’s obligations to implement the ICSID Convention and to recognise and enforce the award under articles 54 and 69 of the ICSID Convention. The extent of the United Kingdom’s obligations under those articles has not been raised before the EU courts. There is, therefore, no congruence of the issues before the domestic courts and the EU courts.

114. Thirdly, the prospect of an EU court addressing the applicability of article 351 TFEU to pre-accession obligations under the ICSID Convention in the context of the present dispute is remote. Although the Claimants raised in the annulment proceedings the issue of Romania’s obligations under the ICSID Convention, the GCEU did not rule on this issue. The pending appeal to the CJEU is limited to those grounds on which the GCEU decided the application. Accordingly, if the Commission fails on the appeal, the article 351 TFEU issue will not be addressed in those proceedings. If the Commission succeeds on the appeal, however, the matter will have to be remitted to the GCEU for consideration of the other pleas advanced by the Claimants and the article 351 TFEU issue, so far as concerns the obligations of Romania, may then be considered by the GCEU or on a further appeal by the CJEU.

115. The preliminary reference to the CJEU made by the Belgian court does not raise any issue in relation to article 351 TFEU. Belgium was an original signatory of the Treaty of Rome and the entry into force of that treaty pre-dated Belgium’s ratification of the ICSID Convention.

116. It is conceivable that if the United Kingdom courts were to conclude that no stay of enforcement is required, because article 351 TFEU secures pre-accession obligations owed to non-member states under articles 54 and 69 of the ICSID Convention, and if the United Kingdom were to enforce the award on that basis, the Commission might thereafter bring infringement proceedings against the United Kingdom in which that issue would be squarely raised. It is important to point out, however, that the Commission has given no indication that it is contemplating any such proceedings and the possibility is entirely speculative. There is no good answer to the Claimants’ submission that relevant duties are owed by the United Kingdom under articles 54 and 69 of the ICSID Convention to non-member states, so it seems unlikely that the Commission could bring infringement proceedings on this basis. It would have no realistic prospect of success in disputing the existence of such obligations. Moreover, were it to seek to do so, the principle of comity and the two-way application of the principle of sincere co-operation would be likely to lead the Court of Justice to leave the interpretation of the Convention, to which the EU is not a party, to the domestic courts of the United Kingdom as a Contracting State. (In this regard see the observation of the Court of Justice in Commission v Slovak Republic (Case C-264/09), para 40.) In any event, it would not be appropriate for this court to stay enforcement in deference to the EU courts on this issue, which is not one of EU law, simply because of the speculative possibility of infringement proceedings in the future. (See, generally, Patmalneice v Secretary of State for Work and Pensions [2011] 1 WLR 783.)
117. The possibility that the EU courts may consider this issue at some stage in the future is both contingent and remote. We cannot accept that in such circumstances the duty of sincere co-operation requires the imposition of a stay on the enforcement of the award.

Conclusion on the cross-appeal

118. For these reasons the duty of sincere co-operation is not applicable in this case and there is no impediment to the lifting of the stay, which is an unlawful measure in international law and unjustified and unlawful in domestic law. We would therefore allow the cross-appeal of the Claimants and lift the stay on enforcement of the award.

The appeal

119. In the light of our conclusion in relation to the cross-appeal, it is no longer necessary to consider the appeal in relation to the provision of security. We would discharge the order for security.

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)

Introduction

1. 1. The Claimant (“GPE”) is owned by Gazprom PJSC (which in turn is more than 50% directly or indirectly owned by the Russian Federation) and supplies natural gas to Bulgaria. GPE and Gazprom PJSC on the one hand and companies controlled by the Second Defendant (“Mr Dontchev”) on the other hand entered into a joint venture. Pursuant to the joint venture, GPE/Gazprom PJSC and the Fifth Defendant (“Overgas Holding”) each hold a 50% shareholding in the Fourth Defendant (“Overgas Inc”). Mr Dontchev controlled Overgas Holding through the First Defendant (“DDI Holdings”) and the Sixth Defendant.
   2. GPE and Overgas Inc had entered into a gas supply contract (“the Supply Contract”) whereby GPE agreed to supply Overgas Inc with natural gas from 1st January 1997. GPE ceased to supply gas under the Supply Contract on 31st December 2015. GPE claims that approximately US$105 million was owing by Overgas Inc to GPE under the Supply Contract.
   3. In February 2016, Overgas Inc commenced ICC arbitration proceedings against GPE in Switzerland. In those ICC arbitration proceedings, Overgas Inc claimed damages against GPE on the ground that GPE allegedly had acted in breach of EU and Bulgarian competition law and in breach of the Supply Contract and claimed a right to set-off those damages against the US$105 million owed to GPE. In the same ICC arbitration proceedings, GPE counterclaimed for US$105 million.
   4. On 12th December 2018, the ICC Arbitral Tribunal – constituted by Mr Christer Söderlund, Professor Kaj Hobér and Professor Vladimir Yarkov – by its Award (“the ICC Award”) dismissed Overgas Inc’s claims for breach of competition law and for breach of the Supply Contract and allowed GPE’s counterclaim. Overgas Inc applied to challenge the ICC Award before the Swiss Federal Tribunal, but the application was dismissed in June 2019.
   5. Until April 2016, Overgas Inc owned a 99.628% shareholding in the Third Defendant (“Overgas Mrezhi”), a gas distribution company involved in the design, construction, operation and maintenance of gas distribution networks, facilities and equipment relating to the use and sale of natural gas in Bulgaria. Overgas Mrezhi sells natural gas to consumers in Bulgaria.
   6. In the current proceedings before this Court (“the English proceedings”), GPE claims damages from the Defendants on the ground that there was a scheme on the part of the Defendants to dilute the shareholding of Overgas Inc (the joint venture company) in Overgas Mrezhi from approximately 99.628% to 38.471%, by issuing shares to DDI Holdings amounting to a 61.385% majority shareholding in Overgas Mrezhi at an under-value to the detriment of GPE and Gazprom PJSC. GPE alleges that the purpose of this scheme was to frustrate the recovery of sums owed to GPE by Overgas Inc and to transfer value from Overgas Inc to DDI Holdings. GPE also claims a declaration that the issue of shares to DDI Holdings is void if and to the extent that GPE does not receive adequate compensation directly for its own loss or for the benefit of Overgas Inc.
   7. The Defendants deny GPE’s claim, alleging that the share issue was lawful and part of a legitimate emergency rescue package made necessary after the cessation of supply of natural gas to Overgas Inc from 1st January 2016, because, it is said, Overgas Inc could no longer fund Overgas Mrezhi. Further, the Defendants deny any wrongdoing on their part and allege that, in any event, any alleged loss sustained by GPE was caused by GPE’s own unlawful conduct, namely its own failure to supply gas to Overgas Inc in breach of competition law.
   8. The defence based on GPE’s alleged breaches of competition law, set out in paragraphs 61(a) and 80(a)(i) of the Amended Consolidated Defence and Counterclaim (“the Amended Defence”), is advanced by all of the Defendants other than Overgas Inc (the joint venture company and the Fourth Defendant). The counterclaim based on GPE’s alleged breaches of competition law is advanced by Overgas Mrezhi in paragraphs 96-126 of the Amended Defence. I shall refer to the Defendants other than Overgas Inc (that is, the First, Second, Third, Fifth and Sixth Defendants) as “the Principal Defendants”. Overgas Inc had advanced a similar counterclaim in paragraphs 127-132 of the Amended Defence, but has since discontinued that counterclaim. Overgas Inc’s counterclaim was made pending the ICC Arbitral Tribunal’s determination of whether it had jurisdiction to deal with this allegation of breaches of competition law. Once the Arbitral Tribunal determined it had jurisdiction, the discontinuance of Overgas Inc’s counterclaim was inevitable given that the same issue between GPE and Overgas Inc raised in the said counterclaim was disputed and eventually determined in the ICC arbitration proceedings. During the hearing of GPE’s application, Mr Neil Calver QC, who appeared with Mr Richard Howell, on behalf of the Defendants confirmed that the defence based on breaches of competition law set out in paragraphs 61(a) and 80(a)(i) of the Amended Defence was not being advanced by Overgas Inc, even though those paragraphs had been formally pleaded by all of the Defendants.
   9. GPE applies for an order, pursuant to CPR rule 3.4(2)(b), striking out the Principal Defendants’ defence and counterclaim based on the allegation of GPE’s breaches of competition law, set out in paragraphs 61(a) and 80(a)(i) of the Amended Defence of the Principal Defendants, and the entirety of Overgas Mrezhi’s counterclaim at paragraphs 96-126 of the Amended Defence. The application is made on the ground that the allegation of breaches of competition law which the Principal Defendants (i.e. the Defendants other than Overgas Inc) advance in the proceedings before the English Court formed the basis of Overgas Inc’s claim against GPE in tort for breaches of EU and Bulgarian competition law and in contract for breach of the Supply Contract in the ICC arbitration proceedings, which allegation was rejected by the ICC Arbitral Tribunal, after full pleading, argument and evidence which was considered and analysed in the ICC Award.
   10. GPE argues that it is an abuse of the process of the Court for the identical allegations of breaches of competition law which had been determined by the ICC Arbitral Tribunal in the ICC arbitration proceedings between GPE and Overgas Inc to be advanced in the English proceedings by the Principal Defendants (that is the Defendants other than Overgas Inc). There is no suggestion made by GPE in this application that any of the Principal Defendants were privy to Overgas Inc’s claim in the ICC arbitration proceedings, although GPE maintains that some assistance and possibly funding were provided by some of the Principal Defendants to Overgas Inc in the ICC arbitration proceedings. Accordingly, there is no suggestion in this application that the Principal Defendants are bound by the findings in the ICC Award by reason of estoppel per rem judicatam (res judicata) or issue estoppel, as Overgas Inc is so bound. However, the point made against the Principal Defendants is that GPE’s alleged anti-competitive conduct in respect of the Supply Contract has been finally determined in proceedings between the parties to that Supply Contract, namely GPE and Overgas Inc; and yet the Principal Defendants, who were not parties to the Supply Contract, wish to advance the very same allegations in the English proceedings. GPE contends that such a collateral attack by the Principal Defendants on the Arbitral Tribunal’s findings in the ICC Award, if permitted to be continued, would be deeply unfair and unjust to GPE by permitting GPE to be vexed twice by allegations that have already been considered and determined on the merits after argument and on consideration of the evidence by a legitimate tribunal and would have the effect of bringing the administration of justice into disrepute by creating a real risk of alternative and conflicting decisions as to the relationship between GPE and Overgas Inc and a risk of challenge to the enforcement of the ICC Award.
   11. The Principal Defendants respond to GPE’s application to strike out the breaches of competition law allegations by observing that there is no suggestion that the allegations are otherwise irrelevant to the issues in these proceedings and that there is no application for summary judgment made by GPE. In particular, the Principal Defendants contend that the application for a strike out must be dismissed because it would not be manifestly unfair to GPE to allow the allegation of breaches of competition law to be tried. There can be no abuse of process where the ICC arbitration proceedings took place between GPE and Overgas Inc and concerned issues of competition on the gas wholesale and trading market in which Overgas Inc operated, whereas the English proceedings concern the gas retail and distribution market, where the “principal focus” lies, in which Overgas Mrezhi operates, and Overgas Mrezhi is attempting to recover in these proceedings losses which were not and could not have been claimed in the ICC arbitration proceedings. It is said that the allegations of breaches of competition law will be supported by witness and documentary evidence different from that adduced in the ICC arbitration proceedings, where documentary disclosure was limited. It is argued that there is no principle that it is an abuse of process for third parties to contend that an arbitration award between contracting parties as to their contract is wrong, especially so where the Principal Defendants and Overgas Inc have divergent interests. Any such principle would be contrary to the EU law principle of effectiveness in competition cases. In any event, the limited assistance provided by Overgas Mrezhi to Overgas Inc in the ICC arbitration proceedings was insufficient to render the allegation in the English proceedings an abuse of process. Further, it is said, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards does not make arbitral awards binding on third parties, and as the application presupposes the recognition of the ICC Award, if there have in fact been breaches of EU competition law, the recognition of the ICC Award would be contrary to public policy.

Abuse of process: the law

The authorities

1. 1. Although it may have been a matter of dispute at one stage, the parties were agreed that the Court should apply English law to the question of whether the pursuit of the breach of competition law allegations in the English proceedings is an abuse of process as a matter of procedural law (the law of the forum).
   2. CPR rule 3.4(2)(b) provides that “The court may strike out a statement of case if it appears to the court – … (b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings …”.
   3. In Hunter v Chief Constable of the West Midlands [1982] AC 529, the plaintiffs issued a civil claim against the defendants for damages caused by an alleged assault at the hands of the police. The plaintiffs had been charged with murder on the basis of confessions given by the plaintiffs. The plaintiffs argued that those confessions had been induced by threats and violence made by the police. The criminal court held that the prosecution had established beyond a reasonable doubt that there were no such violence and threats. The plaintiffs were convicted of murder (their convictions were subsequently quashed). The defendant police constables applied for an order striking out the statements of claim issued against them. The House of Lords held that the statements of claim should be struck out. Lord Diplock said (at pages 536 and 541):

“… this is a case about abuse of the process of the High Court. It concerns the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people. The circumstances in which abuse of process can arise are very varied …

The abuse of process which the instant case exemplifies is the initiation of proceedings in a court of justice for the purpose of mounting a collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made.”

1. 1. At page 541, Lord Diplock said that “the dominant purpose of this action … has not been to recover damages but is brought in an endeavour to establish, long after the event when memories have faded and witnesses other than the Birmingham Bombers themselves may be difficult to trace, that the confessions on the evidence on which they were convicted were induced by police violence, with a view to putting pressure on the Home Secretary to release them from the life sentences that they are otherwise likely to continue to serve for many years to come“. The House of Lords held that this civil claim amounted to a collateral attack on the earlier decision of the criminal court.
   2. In Bragg v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1982] 2 Lloyd’s Rep 132, Lloyd’s underwriters had originally insured CTI International Inc (“CTI”) but had become dissatisfied with the risk and threatened to avoid the policy for non-disclosure and misrepresentation unless the run-off of the Lloyd’s policy was reinsured. Oceanus therefore agreed to insure CTI and reinsure Lloyd’s underwriters in respect of their run-off. Oceanus sought to avoid both the CTI policy and the Lloyd’s reinsurance. This led to two separate proceedings being instituted against Oceanus, one instituted by CTI and the other by Lloyd’s underwriters. An application to consolidate both actions was refused. Two specific issues of non-disclosure and misrepresentation raised by Oceanus by amendment to their pleading in the CTI action were ultimately determined at trial against Oceanus. At that trial, Lloyd’s underwriters were subpoenaed to give evidence. In the proceedings instituted by Lloyd’s underwriters against Oceanus, Oceanus sought to raise the same issues of non-disclosure and misrepresentation which had been determined against them at the CTI trial. The plaintiff Lloyd’s underwriters sought to strike out these issues as an abuse of process. The Court of Appeal dismissed the application. At page 138, Kerr, LJ said:

“… defendants who wish to relitigate a particular line of defence in a subsequent action, albeit that they were unsuccessful in this respect in a previous action, are clearly in an a fortiori position from that of the plaintiff in that case. As I mentioned during the argument, one can think of the following kind of illustration. Suppose that a client instructs accountants to investigate and report on some company which the client is thinking of buying. The accountants then produce a report and sue the client for their fees. The client’s defence is that the investigation was negligent and that the report is worthless, and this defence succeeds. Suppose that a third party, to whom the report has been passed and who has bought the company in reliance on it, then sues the accountants in negligence. Could it possibly be said that the accountants are precluded from denying negligence on the ground that this issue had already been fully investigated and decided against them in the action against their client? In my view, the answer would clearly be No. Of course, such situations are highly undesirable. They should, if possible, be avoided by a joinder of all the parties concerned in one action, or by consolidation if there are several actions. But where, as here, consolidation was in fact sought by the party in question, I cannot begin to see how any question of abuse of the process of the Court could be said to arise … Counsel for Oceanus also submitted that, quite apart from these considerations, this is not a case of an identical relitigation, in the sense that the present action would be a mere repetition of what had happened in the C.T.I. action. He said that in the present action Oceanus would have fuller discovery and would also be able to cross-examine witnesses from Lloyd’s instead of having to call them on subpoena, as happened in the C.T.I. action. Moreover, the effect of the “purple amendment” in the present action might well be that Heath, and in particular Mr. Fleetwood, would be attacked not only by Oceanus but also by Lloyd’s. I think, in agreement with the Judge, that there is force in these submissions.”

1. 1. At pages 138-139, Sir David Cairns said:

“I do not accept the proposition advanced by Counsel for the appellant Heath that when an issue has already been decided in proceedings between A and B it is prima facie an abuse of the process of the Court for B to seek to have the issue decided afresh in proceedings between himself and C and that in such circumstances there is an onus on B to show some special reason why he should be allowed to raise the issue against C.

On the contrary, I consider that it is for him who contends that the retrial of the issue is an abuse of process to show some special reason why it is so. Since the cases in which the retrial of an issue (in the absence of an estoppel) has been disallowed as an abuse of process are so few in number, it would be dangerous to attempt to define fully what are the circumstances which should lead to a finding of abuse of process. Features tending that way clearly include the fact that the first trial was before the most appropriate tribunal or between the most appropriate parties for the determination of the issue, or that the purpose of the attempt to have it retried is not the genuine purpose of obtaining the relief sought in the second action, but some collateral purpose.

It would in my judgment be a most exceptional course to strike out the whole or part of a defence in a commercial action, or to refuse leave to amend a defence in such an action, simply because the issue raised or sought to be raised had been decided in another commercial action brought against the same defendant by a different plaintiff. The facts that the first action had been fairly conducted and that the issue had been the subject of lengthy evidence and argument could not, in my view, be sufficient in themselves to deprive the defendant of his normal right to raise any issue which he is not estopped from raising.

If further the defendant was at some disadvantage in the earlier proceedings from which he would be free in the later ones, that is a positive reason why he should not be deprived of the opportunity of raising the issue afresh.”

1. 1. In Secretary of State for Trade and Industry v Baker (No. 2) [1999] 1 WLR 1985, the Securities and Futures Authority (the SFA) began disciplinary proceedings against the respondent, who was a director of a company which became insolvent, to determine whether he was a fit and proper person to remain on the SFA register. Those proceedings were eventually dismissed, but the Secretary of State sought an order under sect. 6 of the Company Directors Disqualification Act 1986 disqualifying the respondent from being a company director, on the ground that his conduct had made him unfit to be a director. At the trial, the respondent applied for the proceedings to be stayed on the ground that they were an abuse of the process of the court, since they concerned substantially the same conduct as the SFA proceedings, and infringed the principle against double jeopardy. The Court of Appeal dismissed the application. At page 1990, Chadwick, LJ said:

“The overriding consideration, as it seems to me, is the need to preserve public confidence in the administration of justice. The court is entitled – indeed bound – to stay the proceedings where to allow them to continue would threaten its own integrity. In the words of Lord Diplock, proceedings should be stayed where to allow them to continue would bring the administration of justice into disrepute among right-thinking people.

Right-thinking people will not rush to a conclusion that – in refusing to stay the disqualification proceedings – the court is allowing its process to be used as an instrument of oppression, injustice or unfairness – in short, that the process of the court is being abused – without taking care to understand the nature of the S.F.A. proceedings and of the present disqualification proceedings and the interrelation between them. It is necessary, as Jonathan Parker J. appreciated, to examine whether the issues upon which the court will need to adjudicate in the present proceedings are the same, or substantially the same, as those which have already been investigated and adjudicated upon in the S.F.A. proceedings.”

1. 1. The Court concluded that the focus of the SFA inquiry and the focus of the disqualification proceedings were different, the one concentrating on the respondent’s conduct as a manager and the other on his conduct as a company director.
   2. In Johnson v Gore Wood & Co [2002] 2 AC 1, the plaintiff, acting on behalf of a company in which he owned the majority of shares, instructed the defendant solicitors in connection with the exercise of an option for the purchase of property. Subsequently, there was litigation between the company and the vendor, as a result of which the plaintiff’s company contended that it suffered losses. It was brought to the attention of the defendants that the plaintiff also had a personal claim for negligence against the defendants, which would be dealt with after the disposal of the company’s claim. The company’s claim was eventually settled with the defendants paying a substantial proportion of the amount claimed by the company. The plaintiff subsequently issued a writ against the defendants in respect of his personal claim. The defendants applied to strike out the writ. The House of Lords dismissed the application and considered the law, especially as regards Henderson v Henderson abuse of process. At page 31, Lord Bingham said:

“Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be 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, focusing 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. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not … it is in my view preferable to ask whether in all the circumstances a party’s conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.”

1. 1. In In re Norris [2001] UKHL 34; [2001] 1 WLR 1388, the defendant had been convicted of drug offences; the Customs and Excise Commissioners applied for a confiscation order in respect of the defendant’s property; upon hearing of the application, the defendant’s wife – who was not a party to the proceedings – gave evidence that the matrimonial home belonged to her; the Crown Court disbelieved her evidence and made the confiscation order. In subsequent proceedings in the High Court to enforce the confiscation order, the defendant’s wife applied to vary the order on the ground that she had an interest in the house. The Court of Appeal dismissed the application, because it would be an abuse of process for the Court to allow a third party to re-litigate issues which had already been decided in the Crown Court on substantially the same evidence and submissions and where the third party had had a fair opportunity to put her case at the earlier hearing (as a witness). The House of Lords allowed the wife’s appeal. Lord Hobhouse held that the issues in the two sets of proceedings were related but not the same; the wife’s interests were not identical with those of the defendant; before the Crown Court, the wife was a mere witness with no right of representation and no control of the proceedings (para. 23-25). In the present case, Lord Hobhouse said that the wife did not have a full opportunity of contesting the decision in the court in which it was made (para. 26). Lord Hobhouse continued (at para. 26):

“… Attempts to relitigate issues which have already been the subject of judicial decision may or may not amount to an abuse of process. Ordinarily such situations fall to be governed by the principle of estoppel per rem judicatam or of issue estoppel (admitted not to be applicable in the present case). It will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse. As previously explained, the present case does not involve such relitigation …”

1. 1. In Conlon v Simms [2006] EWCA Civ 1749; [2008] 1 WLR 484, the defendant was a solicitor who had been in partnership with the claimants. The defendant was found by the Solicitors Disciplinary Tribunal (on an application by the Office of Supervision of Solicitors) to have acted dishonestly in certain transactions and the Tribunal struck him off the roll of solicitors. The claimants sued the defendant alleging that he had induced them to enter into a partnership agreement with him, seeking to rely on the findings of the Tribunal. The defendant denied the allegations and contended that the Tribunal’s findings were inadmissible as evidence of the facts found against him. The judge at first instance held that the defendant was abusing the process of the Court by making a collateral attack on the Tribunal’s findings. The Court of Appeal allowed the defendant’s appeal. At para. 139 and 146-147, Jonathan Parker, LJ said:

“139. As I have already pointed out, we are bound by the decision of this court in the Bairstow case [2004] Ch 1—a decision which, in so far as it relates to abuse of process, was in turn based upon the decision of the House of Lords in the Hunter case [1982] AC 529. Accordingly, the starting point on this aspect of the case must be Sir Andrew Morritt V-C’s proposition (d) in para 38 of his judgment in the Bairstow case. I quote that proposition again, in full:

“If the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it will only be an abuse of the process of the court to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (ii) to permit such relitigation would bring the administration of justice into disrepute.”

146. In such circumstances I consider that there is force in Mr Simms’s submission that in denying the allegations of dishonesty made against him in the present action he is doing no more than continuing to protest his innocence of the charges brought against him by the Law Society, albeit he is doing so in the face of the adverse findings of the SDT and the Divisional Court: to use his own words, he has initiated nothing. At the very least, as it seems to me, that is a factor which should be brought into account in considering whether the Bairstow conditions are satisfied, on the basis that in general the court should be slower in preventing a party from continuing to deny serious charges of which another court has previously found him guilty than in preventing such a party from initiating proceedings for the purpose of relitigating the question whether he is guilty of those charges.

147. It should also be borne in mind, when determining whether a party (be he claimant or defendant) is abusing the process of the court by mounting a collateral attack on a previous court decision, that the practical effect of finding him guilty of such an abuse is to prevent him denying the allegations against him save in circumstances where he is in a position to adduce additional evidence which could not with reasonable diligence have been adduced in the earlier proceedings and which, if admitted, would have “changed the whole aspect of the case”: see Phosphate Sewage Co Ltd v Molleson (1879) 4 App Cas 801, 814, per Earl Cairns LC, and the Hunter case [1982] AC 529, 545b–f, per Lord Diplock. To that extent the party guilty of abuse of process will, as I see it, be placed in a worse position in regard to the adducing of evidence than he would have been in had the previous decision been admissible as prima facie evidence (for it would be no more than that) of the facts found.”

1. 1. The Court decided that there was no abuse of process because the defendant had not “initiated” the allegation and because the facts to be established in the proceedings before the Tribunal were different from the proceedings initiated by the claimants against the defendant (para. 149-150).
   2. In Laing v Taylor Walton [2007] EWCA Civ 1146; [2008] PNLR 11, a property development company owned by Mr Laing secured a loan from a company owned by Mr Watson and there was a dispute between them as to the security for the loan agreed between them. Mr Watson claimed to be entitled both to a 12.5% share in the profits of the development and to a beneficial interest in a 12.5% shareholding in the property development company. Mr Laing contended that, by virtue of an oral agreement between them, all that Mr Watson had been granted beneficially was the 12.5% share in the profits. His interest in the 12.5% shareholding was only as security for that share in the profits. The Court held that Mr Watson’s case as to the agreements and understandings between them was true and declared that the 12.5% shareholding was beneficial and that Mr Watson’s company’s entitlement to the share of profits remained binding on Mr Laing. In separate, later proceedings, Mr Laing sued the defendants (TW), his solicitors, for negligence in failing to record in their preparation of the agreement in question that the shareholding granted to Mr Watson’s company was by way of security only. In order to succeed in his claim against the defendant, Mr Laing had to establish that the underlying agreements between Mr Laing and Mr Watson were as alleged by Mr Laing. However, the Court in the earlier proceedings had already decided that that case was not correct. The Court of Appeal struck out this claim insofar as it rested on this premise. Buxton, LJ said (at para. 25 and 27):

“25. I therefore conclude that it would bring the administration of justice into disrepute if Mr Laing were to be permitted in the second claim to advance exactly the same case as was tried and rejected by H.H. Judge Thornton. If H.H. Judge Thornton’s judgment was to be disturbed, the proper course was to appeal, rather than seek to have it in effect reversed by a court not of superior but of concurrent jurisdiction hearing the second claim. That the second claim is in substance an attempt to reverse H.H. Judge Thornton is important in the context of wider principles of finality of judgments. In Hunter, at 545D, Lord Diplock said that the proper course to upset the decision of a court of first instance was by way of appeal. Where, wholly exceptionally, a collateral, first instance, action can be brought it has to be based on new evidence, that must be such as entirely changes the aspect of the case: see per Earl Cairns L.C. in Phosphate Sewage v Molleson (1879) 4 App. Cas. 801 at 814. The second claim in our case not merely falls short of that standard, but relies on no new evidence at all …

27. I of course agree that it will not necessarily, or perhaps usually, be a valid objection to a claim for solicitors’ negligence in or about litigation that the claim asserts matters different from those decided in that litigation. That is so not only of cases where the solicitors have made what might be called administrative errors that have prevented the earlier proceedings from being properly pursued or their outcome challenged by the proper means (e.g. Walpole v Partridge & Wilson [1994] A.C. 106); but also where errors in assembling the evidence or understanding the law are alleged to have led to an incorrect result, as was the case in Hall v Simons itself. But the present case is significantly different from those just mentioned. The difference is that, as shown in [19] above, in order to succeed in the new claim Mr Laing has to demonstrate not only that the decision of H.H. Judge Thornton was wrong, but also that it was wrong because it wrongly assessed the very matters that are relied on in support of the new claim. That is an abusive relitigation of H.H. Judge Thornton’s decision not by appeal but in collateral proceedings, and in substance if not strictly in form falls foul of the Phosphate Sewage rule.”

1. 1. In Arts & Antiques Ltd v Richards [2013] EWHC 3361 (Comm); [2014] PNLR 10, the insured (A&A) was a jeweller who suffered a loss as a result of a robbery and made a claim for an indemnity under an insurance policy. The insurer (Zurich) defended the claim on the basis of the insured’s failure to comply with a condition precedent in the policy. The claim was referred to arbitration and the arbitrator dismissed the claim and held that the policy included the condition precedent. The insured then sued its insurance brokers (Towergate and Mr Richards) before the Court for damages for negligence in that (a) if the policy included the condition precedent, the brokers did not properly advise the insured as to the effect of that provision and (b) if the policy did not include the condition precedent, the insured was misled by the brokers to believe that it did and was induced to participate in a costly arbitration as a result. The brokers applied to strike out the insured’s statement of case before the Court insofar as it pleaded that the policy did not include the condition precedent because it involved an abuse of process. Hamblen, J allowed the application and said at para. 45-46:

“45. In support of their case Towergate and Mr Richards rely in particular on the Court of Appeal decision in Taylor Walton v Laing which they contend is analogous. That case also concerned the determination by another tribunal of what the contract was. The losing contracting party in those proceedings was not allowed to bring a claim against a third party predicated on the earlier decision to which he was party being wrongly decided. The proper way to challenge that earlier decision was by appeal, rather than by seeking to reverse it in further proceedings. That has been attempted in this case, but the attempt has emphatically failed.

46. I agree that the Taylor Walton v Laing decision supports a finding of abuse of process in this case. Aside from the fact that the earlier decision was in arbitration, the two cases are analogous. There is in this case no new evidence which casts doubt on the Arbitrator’s decision. Indeed, for reasons set out below, such further evidence as there is confirms the correctness of his decision. That decision has sought to be challenged by appeal but the application has been dismissed on the basis that the decision is “not open to serious doubt”. For the issue to be relitigated in this court involves a collateral attack on the Arbitrator’s final and binding decision. Further, that decision relates to the terms of the contract as between A&A and Zurich, which have been determined in accordance with the agreed contractual machinery, namely by arbitration. In all the circumstances, I conclude that it would bring the administration of justice into disrepute, and would be oppressive and unfair on Towergate and Mr Richards, for A&A to be allowed to fight the issue of whether or not the contract contained CP2 all over again. It would accordingly be an abuse of process.”

1. 1. In St Vincent European General Partner Ltd v Robinson [2016] EWHC 2920 (Comm); [2016] 2 CLC 807, the claimant – St Vincent – had commenced proceedings in Cyprus against 19 defendants in respect of a series of agreements, including a pledge agreement. The agreements included an English jurisdiction agreement, but the pledge agreement included a Cypriot jurisdiction agreement. Upon an application made by certain, but not all, of the defendants, the Cypriot court ruled that it had no jurisdiction because the pledge agreement was only a secondary agreement and that the parties’ intention was that the English courts should have jurisdiction. The claimant then commenced proceedings against 11 defendants in England; all of the 11 defendants had been defendants in the Cypriot proceedings. Three of the defendants (the applicants) challenged the jurisdiction of the English court on the ground that the claim was made in respect of the pledge agreement and that agreement included a Cypriot jurisdiction agreement, and that any decision of the Cypriot court was not binding on the applicants, because they had not challenged the jurisdiction of the Cypriot court; that application had been made by other defendants. Mr Richard Salter QC, sitting as a judge of the High Court, dismissed the challenge to the Court’s jurisdiction, holding that as all of the claims made in the English proceedings had been made in the Cypriot proceedings, the decision of the Cypriot court was that it had no jurisdiction in relation to the claims brought in the English proceedings and that the English Court was bound under the Brussels Regulation Recast to follow that decision. The Court went on to consider whether the Cypriot court’s decision was binding on the applicants, given that they were not a party to the application challenging the jurisdiction of the Cypriot Court. Mr Salter QC said at para. 49-52:

“49. Ms Weaver also relied upon the decision of the Court of Appeal in Resolution Chemicals Ltd v H Lundbeck A/S [2013] EWCA Civ 924, in which the Court of Appeal cited with approval the following observations by Sales J in Seven Arts Entertainment Ltd v Content Media Corp plc [2013] EWHC 588 (Ch) at [73]:

‘… the basic rule is that, before a person is to be bound by a judgment of a court, fairness requires that he should be joined as a party in the proceedings, and so have the procedural protections that carries with it. This includes the opportunity to call any evidence he can to defend himself, to challenge any evidence called by the claimant and to make any submissions of law he thinks may assist his case. Although there are examples of cases in which a person may be found to be bound by the judgment of a court in litigation in relation to which he stood by without intervening, in my judgment those cases are illustrations of a very narrow exception to the general rule. The importance of the general rule and fundamental importance of the principle of fair treatment to which it gives expression indicate the narrowness of the exception to that rule.’

50. It is clearly right that, in general, a person should only be bound by a judgment given in an action or an application to which he himself is a party. Cases which fall outside that general rule are exceptional. However, in my judgment, this is plainly such an exceptional case.

51. As the Court of Appeal noted in the Resolution Chemicals case, ‘The law recognises that there are some classes of case where fairness demands that party C should be precluded from re-litigating a matter, even though he was not a party to the previous proceedings between A and B’ [[2013] EWCA Civ 924 at [24], per Floyd LJ]: and, as Lord Bingham of Cornhill made clear in his speech in Johnson v Gore Wood [2002] 2 AC 1 at 31D and 32D, the approach of the court to issues of this kind involves a ‘broad, merits-based judgment’, and should not be formulaic.

52. The fact that the Applicants were not themselves parties to the application which led to the Interim Decision is unquestionably ‘a powerful factor in the application of the broad merits-based judgment’ [Aldi Stores Ltd v WSP Group plc [2007] EWCA Civ 1260; [2008] 1 WLR 748, CA, at [10], per Thomas LJ]. But it ‘does not operate as a bar to the application of the principle’ [ibid.]. In the present case, there are two powerful countervailing factors, which, when taken together, greatly outweigh that factor.”

1. 1. The two powerful factors on which the Court relied were that, first, it was open to the applicants, as parties to the Cypriot action, to join in the application challenging the Cypriot court’s jurisdiction, and second the applicants had positively relied on the Cypriot court’s decision in applying for an order setting aside the Cypriot proceedings and all prior orders against the applicants “on the grounds that the Court lacks jurisdiction to hear this claim and/or the present claim constitutes an abuse of the proceedings before the Court“. At para. 56, Mr Salter QC concluded that “Taking these two factors into account, it would in my judgment be wholly unjust to permit the Applicants to deny the commonality and privity of their interest with those who applied for and obtained the Interim Decision. The Applicants took the benefit of the Interim Decision by arguing before the NDC that the Interim Decision determined the issue of jurisdiction in their favour“.
   2. In JSC BTA Bank v Ablyazov (No. 15) [2016] EWCA Civ 987; [2017] 1 WLR 603, the claimant bank applied for a final charging order over property which it alleged belonged to the defendant judgment debtor, Mr Ablyazov. In support of its application, the claimant relied on a finding by the judge in earlier committal proceedings against the defendant that the property belonged to the defendant. In those earlier proceedings, the defendant’s brother-in-law, Mr Shalabayev, gave evidence that he, not the defendant, was the beneficial owner of the property. The judge in the committal proceedings found Mr Shalabayev’s evidence to be unreliable. In the current proceedings, Mr Shalabayev maintained that he was the beneficial owner of the property and applied for an order that he be added as a respondent to the claimant’s application and that the determination of the application be adjourned until there was a trial of the ownership of the property. The judge dismissed the application on the ground that it would be an abuse of process. The Court of Appeal reversed the decision of the judge that Mr Shalabayev’s application was an abuse of process. Gloster, LJ said at para. 47-51:

“47. Had it not been for the lengthy arguments in this case, I would have written an extremely short judgment concluding that, whatever the outer limits of the legal principle of collateral attack, this was clearly a case where the appeal should be allowed and Mr Shalabayev should be permitted, in proceedings to which he is formally joined as a defendant, to resist the bank’s claim …

“48. My reasons for reaching such a conclusion are very briefly the following. Like Tomlinson LJ, I am also concerned that Mr Shalabayev has had no proper opportunity to establish his claim to ownership of Alberts Court by being a party to any relevant judicial process. Being a witness in Mr Ablyazov’s committal proceedings was a totally different ball game from being a participant as an alleged contemnor. Witness status did not entitle him to address the court upon the conclusion to be derived from the totality of the evidence. There was a limited personal interest, so far as Mr Shalabayev was concerned, in expending his own funds, or perhaps, more importantly, his own time, in obtaining documentary evidence to defend Mr Ablyazov’s position. There was no indication from the bank at that stage that it would piggy-back on any conclusions reached by Teare J in the contempt proceedings, treat them as binding as against Mr Shalabayev in relation to the property and proceed to enforce against any interest he might have in the property as a result, without affording him any further opportunity to defend his position or adduce any further evidence. The focus of the contempt proceedings was, not surprisingly, upon establishing Mr Ablyazov’s contempt of court so that the court could be invited to make an order punishing that content …”

51. In all the above circumstances, I do not consider that Mr Shalabayev has had a proper opportunity to put forward his case in proceedings to which he is formally a party and in relation to which the issue is whether he is its ultimate beneficial owner, whether through his beneficial ownership of Bensbourogh, or simply because that company was acting as his nominee for the purposes of holding the property …”

1. 1. Gloster, LJ then reviewed the earlier authorities, in particular In re Norris, which had similar facts, and concluded at para. 62:

“62. For all the above reasons, including those which I have summarised in paras 48-52 above, whilst I do not accept Mr Sheehan’s proposition that the principle of abuse of process by means of collateral attack does not extend beyond a case where at least one party or his privy was party to the previous proceedings giving rise to the judgment which is allegedly under attack, in my judgment the judge was wrong, as a matter of principle, to conclude that the circumstances amounted to an abuse of process involving a collateral attack on the committal judgment. Mr Shalabayev, in seeking to defend the bank’s claim to deprive him (or Bensbourogh) of his/its alleged beneficial interest in the property and to obtain a determination in the context of the charging order proceedings as to the ownership of the property, is not acting abusively, or seeking collaterally to attack the committal judgment. This is not a case where it would be unfair to the bank to litigate the ownership of the property. Its rights to a charging order, and to defeat any beneficial interest of Mr Shalabayev in the property, arise exclusively under the Charging Orders Act 1979; it did not derive any such rights to do so from findings made against Mr Ablyazov in the committal proceedings. Nor, for similar reasons, would the litigation, in proceedings properly constituted as between the bank, as applicant, and Mr Shalabayev and Bensbourogh, as respondents, of the ownership issue in relation to the property “bring the administration of justice into disrepute”. As Lord Hobhouse said in In re Norris, [2001] 1 WLR 1388, para 26: “It will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse.” Although the judge paid lip service to this principle in his judgment, he did not to my mind provide adequate reasons why the present case was “a rare case”. It was unfortunate that he was apparently not referred to In re Norris. In my judgment not only was he wrong as a matter of principle but also, as Mr Sheehan submitted, he took into account and gave undue weight to inappropriate factors.”

1. 1. In Michael Wilson & Partners Ltd v Sinclair [2017] EWCA Civ 3; [2017] 1 WLR 2646, the claimant provided legal and consultancy services to Sokol Holdings Ltd in respect of natural resources transactions in Kazakhstan. Mr Sinclair was the managing director and a major shareholder of Sokol. The Part 20 Defendant, Mr Emmott, had been a director and employee of the claimant. He had received shares in a company, Max, and funds. The claimant alleged that Mr Emmott acquired these benefits with the knowing assistance of the Sokol and Mr Sinclair, or alternatively, that the transfer of the benefits constituted the payment of a bribe or secret commission for which Sokol and Mr Sinclair were liable to the claimant. The claimant had earlier commenced arbitration proceedings against Mr Emmott claiming that he received the shares and funds as a bribe or secret profit. The arbitral tribunal dismissed the claimant’s claim and concluded that Mr Emmott received the shares on behalf of Mr Sinclair and that he had no control over them. Sokol and Mr Sinclair applied to strike out the claimant’s claim against them. The Court of Appeal dismissed the application. Simon, LJ said at para. 13 and 48:

“13.  At its most simple, the issue can be expressed as follows: whether it is an abuse of the court’s process for A to claim in legal proceedings against C, on a basis which has been decided against A in arbitration proceedings between A and B? …

48.  The following themes emerge from these cases that are relevant to the present appeal.

(1) In cases where there is no res judicata or issue estoppel, the power to strike out a claim for abuse of process is founded on two interests: the private interest of a party not to be vexed twice for the same reason and the public interest of the state in not having issues repeatedly litigated; see Lord Diplock in Hunter’s case [1982] AC 529, Lord Hoffmann in the Arthur J S Hall case [2002] 1 AC 615 and Lord Bingham in Johnson v Gore Wood & Co [2002] 2 AC 1. These interests reflect unfairness to a party on the one hand, and the risk of the administration of public justice being brought into disrepute on the other, see again Lord Diplock in Hunter’s case. Both or either interest may be engaged.

(2) An abuse may occur where it is sought to bring new proceedings in relation to issues that have been decided in prior proceedings. However, there is no prima facie assumption that such proceedings amount to an abuse: see Bragg v Oceanus [1982] 2 Lloyd’s Rep 132; and the court’s power is only used where justice and public policy demand it, see Lord Hoffmann in the Arthur J S Hall case.

(3) To determine whether proceedings are abusive the court must engage in a close ‘merits based’ analysis of the facts. This will take into account the private and public interests involved, and will focus on the crucial question: whether in all the circumstances a party is abusing or misusing the court’s process, see Lord Bingham in Johnson v Gore Wood & Co and Buxton LJ in Laing v Taylor Walton [2008] PNLR 11.

(4) In carrying out this analysis, it will be necessary to have in mind that: (a) the fact that the parties may not have been the same in the two proceedings is not dispositive, since the circumstances may be such as to bring the case within ‘the spirit of the rules’, see Lord Hoffmann in the Arthur J S Hall case; thus (b) it may be an abuse of process, where the parties in the later civil proceedings were neither parties nor their privies in the earlier proceedings, if it would be manifestly unfair to a party in the later proceedings that the same issues should be relitigated, see Sir Andrew Morritt V-C in the Bairstow case [2004] Ch 1; or, as Lord Hobhouse put it in the Arthur J S Hall case, if there is an element of vexation in the use of litigation for an improper purpose.

(5) It will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse of process, see Lord Hobhouse in In re Norris.

To which one further point may be added.

(6) An appeal against a decision to strike out on the grounds of abuse, described by Lord Sumption JSC in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd (formerly Contour Aerospace Ltd) [2014] AC 160, para 17 as the application of a procedural rule against abusive proceedings, is a challenge to the judgment of the court below and not to the exercise of a discretion. Nevertheless, in reviewing the decision the Court of Appeal will give considerable weight to the views of the judge, see Buxton LJ in the Laing v Taylor Walton case, para 13.”

1. 1. At para. 100, Simon, LJ held that the burden of establishing that the making of the relevant allegations was manifestly unfair rested on the party asserting such abuse. Moreover, the standard of proof – the “threshold which engages the court’s duty to act to prevent abuse of its process” – is a high one (para. 87). Simon, LJ then considered the manner in which the abuse of process principle might be applied where the earlier proceedings were arbitration proceedings, rather than court proceedings. Simon, LJ referred to Mance, LJ’s judgment in Sun Life Assurance of Canada v Lincoln National Life Insurance Co [2004] EWCA Civ 1660; [2005] 1 Lloyd’s Rep 606, at para. 68, where Mance, LJ identified the different considerations attending litigation before the Court and arbitration: in litigation, the Court has “compulsive powers” to join additional parties to a dispute or to consolidate proceedings, mindful of “the public nature of litigation” and “the public interest in the efficient administration of justice“, whereas arbitration is “a consensual, private affair between the particular parties to a particular arbitration agreement” and the inconvenience of the arbitral tribunal’s inability to join parties or consolidate proceedings, in the absence of the parties’ consent, is often outweighed by the confidentiality and privacy of the arbitral process. At para. 54 of his judgment in Michael Wilson v Sinclair, Simon, LJ said: “What is clear is that there are good reasons why a court should be cautious before accepting that later court proceedings are an abuse of its process because it involves a collateral attack on an earlier arbitration award …“. Simon, LJ then considered the decisions of the High Court of Hong Kong in Parakou Shipping Pte Ltd v Jinhui Shipping and Transportation Ltd [2011] 2 HKLRD 1, Hamblen, J in Arts & Antiques Ltd v Richards, and the judge at first instance in Michael Wilson v Sinclair at para. 50, where Teare, J said (at para. 50: [2012] EWHC 2560 (Comm); [2013] 1 All ER (Comm) 476):

“… I have therefore concluded that there can be no rule that the court can have no such duty merely because the tribunal whose decision is under attack is an arbitral tribunal. However, it will probably be a rare case where an action in this court against a non-party to an arbitration can be said to be an abuse of the process of this court. Where a claimant has a claim against two or more persons and is obliged to bring one such claim in arbitration the defeat of that claim in arbitration will not usually prevent the claimant from pursuing his claim against the other persons in litigation. Arbitrations are private and consensual and non-parties cannot, in the absence of consent, be joined or be affected by the decisions of the arbitral tribunal.”

1. 1. Simon, LJ then adopted Teare, J’s approach (at para. 67-68):

“67. In my view Teare J correctly stated the law in para 50 of his judgment in the present case. There is no “hard edged” rule that a prior arbitration award cannot found an argument that subsequent litigation is an abuse of process. The court is concerned with an abuse of its own process; and there are abundant references in the authorities to the dangers of setting limits and fixing categories of circumstances in which the court has a duty to act so as to prevent an abuse of process.

68. I agree with Reyes J’s observation in the Parakou case [2011] 2 HKLRD 1 that, although a court will be cautious in circumstances where the strike-out application is founded on a prior arbitration award, that caution should not inhibit the duty to act in appropriate circumstances. I would also add my agreement with Teare J’s observation at para 50 of his judgment that it will probably be a rare case, and perhaps a very rare case, where court proceedings against a non-party to an arbitration can be said to be an abuse of process.”

1. 1. At para. 87-94, Simon, LJ concluded:

“87. Despite these arguments and the judge’s careful reasoning, I am clear that his conclusion was wrong and that the high threshold which engages the court’s duty to act to prevent abuse of its process was not met.

88. There were a number of material considerations which weighed heavily against the conclusion that the claim was an abuse of process.

89. The prior proceedings relied on to support the application to strike out were arbitration proceedings to which Mr Sinclair was not a party. Not only had he not been a party, he had been invited by MWP to join as a party to the arbitration and agree to be bound by an award so that the issue of beneficial ownership of the Max shares could be conclusively determined in a way that would bind each of MWP, Mr Emmott and Mr Sinclair, giving rise to res judicata or creating estoppels on which each could subsequently rely. He had refused to join in the arbitration; and had adopted the position in the Bahamian proceedings that the outcome of the arbitration was “totally irrelevant to the dispute” between MWP and him.

90. Despite this, he now relied on the arbitration proceedings and award to characterise MWP’s claim against him as an abuse of process, seeking to take the benefit of an arbitration award by which the Sinclair defendants would not have been bound had it been decided differently. This was the point about lack of mutuality which plainly troubled the judge; and it was a highly material, if not dispositive, factor. As Kerr LJ said in Bragg v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1982] Lloyd’s Rep 132: “where, as here, consolidation was in fact sought by the party in question, I cannot begin to see how any question of abuse of the process of the court could be said to arise.” …

93. This was not a case in which there had been a prior claim by MWP against the Sinclair defendants; and it follows that the application to strike out could not be founded on the private interest of a party not to be vexed twice for the same reason. MWP’s only means of pursuing its clams against them was by means of the present action. Nor was Mr Emmott being vexed twice, since he was only a party in the litigation at the suit of the Sinclair defendants, by whom he was subsequently released. The judge’s suspicion that his late joinder by the Sinclair defendants was only done to strengthen the abuse argument appears to be justified.

94. It also seems to me that the judge placed too much weight on his view that, because MWP was inviting the court to come to a different view to the arbitrators in relation to the nature and discharge of Mr Emmott’s obligations, it was mounting an illegitimate collateral attack on the award. However, as Lord Hobhouse expressed it in the Arthur J S Hall case [2002] 1 AC 615, 743C, “There is no general rule preventing a party inviting a court to arrive at a decision inconsistent with that arrived in another case.”

1. 1. In Kamoka v The Security Service [2017] EWCA Civ 1665, the appellants were Libyans said to have been members or associates of the Libyan Islamic Fighting Group (LIFG), which had been opposed to the regime of Colonel Qadhafi in Libya. The appellants sought asylum in the United Kingdom. In 2005, after the United Kingdom government formed closer links with the Qadhafi regime, the LIFG was proscribed as a terrorist organisation in the United Kingdom. Libya signed a Memorandum of Understanding (MOU) which gave assurances of safety on return of its nationals. The appellants were convicted of criminal or terrorist offences and were subjected to control orders or detained pending deportation. The appellants appealed to SIAC; two of the appeals were determined and the others were stayed. SIAC concluded that both appellants were a danger to national security but that it would not be safe for them to return to Libya, notwithstanding the MOU. After the fall of the Qadhafi regime in 2011, documents obtained from the Libyan intelligence service showed the extent of the knowledge and complicity of the United Kingdom security services in extraordinary rendition and torture by the Libyan security agencies. The appellants argued that such collusion led to the serious risk that the Qadhafi regime would have regarded the MOU as mere “window dressing” and any assurances given as to safety on return were so unreliable that the decisions on deportation would have been unlawful. The appellants commenced proceedings against the respondents claiming that their detention by the Home Secretary pending their appeals to SIAC against the decision to deport them and the subsequent restriction of their liberty by control orders were unlawful. The appellants claimed damages against the respondents for the torts of false imprisonment, trespass (to person and property) and misfeasance in public office. The respondents applied to strike out the appellants’ Particulars of Claim. The Court of Appeal dismissed the application, holding that there was no abuse of process, taking into account the fact that the appellants did not have access to the newly discovered material and were unaware that they had a cause of action against the respondents at the time of the earlier proceedings in SIAC and the control order proceedings (para. 93). The Court held that the current proceedings did not represent a collateral attack on the earlier judgment of SIAC or on the decisions of the Court in relation to the control orders (para. 101).
   2. At para. 70-71, Flaux, LJ emphasised the open-textured nature of the Court’s jurisdiction to strike out a statement of case on the grounds of an abuse of process:

“70. … the doctrine is a flexible one which is not dependent upon identity of parties or issues and in an appropriate case is equally applicable whether the previous proceedings were criminal or civil. Accordingly, I reject any suggestion by Mr de la Mare QC that Hunter-type abuse cannot arise where the earlier proceedings were civil and there is no identity or privity between the parties. The authorities to which I have referred do not support any such wide proposition.

71. Nonetheless, when the subsequent litigation does not involve an issue previously decided between the same parties or their privies, that subsequent litigation will rarely be an abuse of process …”

1. 1. Flaux, LJ referred to the Court’s assessment of whether there has been an abuse of process as “a broad, merits based judgment, a multi-factorial exercise” (para. 90).

The principles relevant to abuse of process

1. 1. The principles which emerge from these decisions for the purposes of determining whether or not a statement of case constitutes an abuse of the Court’s process, where an allegation or case is advanced which has already been determined in earlier proceedings, in the absence of estoppel per rem judicatam (res judicata) or issue estoppel, are as follows:

i) There will be an abuse of process only if (a) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (b) to permit such re-litigation would bring the administration of justice into disrepute (Hunter; Secretary of State for Trade and Industry v Bairstow [2003] EWCA Civ 321; [2004] Ch 1, para. 38). These two limbs of abuse of process reflect the private interest of a party not to be vexed twice with the same allegation and the public interest of the state in not having issues repeatedly litigated (Michael Wilson v Sinclair, para. 48).

ii) There is no general rule preventing a party inviting the Court to arrive at a decision inconsistent with that arrived in an earlier case (Michael Wilson v Sinclair, para. 94). It is not sufficient for such an abuse of process to be found to exist merely because the earlier proceedings had been fairly conducted and that the issue had been the subject of lengthy evidence and argument. There must be some “special reason” why the facts of the case make the determination in the current proceedings of the issue which has been determined in earlier proceedings an abuse of process (Bragg v Oceanus).

iii) It will be a rare case where the litigation of an issue which has previously been decided, but not between the same parties or their privies, will amount to an abuse of process (In re Norris, para. 26; Michael Wilson v Sinclair, para. 68; cf. Laing v Taylor Walton, para. 25). This indicates that there must be a “special reason” (or “positive reason“) contributing to the conclusion that there has been an abuse of process (Bragg v Oceanus).

iv) There may be an abuse of process where the decision of an earlier proceeding is an arbitration award (Arts & Antiques v Richards, para. 45-46). That said, the fact that arbitration is a private process to which other parties may not have access is a relevant consideration in determining whether the advancing of an allegation in later proceedings is an abuse of process (Sun Life v Lincoln; Michael Wilson v Sinclair, para. 54, 67-68).

v) In order to determine whether there is an abuse of process, the Court “must engage in a close ‘merits based’ analysis of the facts“, taking into account the relevant private and public interests (Michael Wilson v Sinclair, para. 48; Kamoka, para. 90). There is no closed list of circumstances in which such an abuse of process may be found to exist (Hunter; Bragg v Oceanus; Johnson v Gore Wood). Indeed, there is no requirement that any of the parties to the later proceedings were a party or privy to the earlier proceedings (Ablyazov, para. 62; Michael Wilson v Sinclair, para. 48(4); Kamoka, para. 70), although it must be said that for such an abuse of process to exist, the case must be very exceptional.

vi) A number of considerations may be taken into account in order to determine whether there is such manifest unfairness or the allowance of the case to be run would bring the administration of justice into disrepute. Such considerations are not closed and include:

a) Whether the person wishing to advance the allegation had a reasonable opportunity to deal with the allegation in the earlier proceedings (Hunter; Bragg v Oceanus; In re Norris, para. 26; St Vincent v Robinson; Ablyazov, para. 48, 51). This consideration will arise especially if the person wishing to advance the allegation again was a party to the earlier proceedings (Laing v Taylor Walton; Arts & Antiques v Richards; St Vincent v Robinson).

b) Whether the party advancing the allegation in the later proceedings was also the party advancing the allegation in the earlier proceedings (Laing v Taylor v Walton; Arts & Antiques v Richards; cf. Conlon v Simms, para. 146).

c) Whether the party wishing to advance the allegation in question had earlier adopted a contrary position without a satisfactory explanation for the change of case (St Vincent v Robinson).

d) Whether any attempt has been made to include the party now making the relevant allegation in the earlier proceedings (Bragg v Oceanus; Michael Wilson v Sinclair).

e) Whether the earlier proceedings were before the most appropriate tribunal or between the most appropriate parties for the determination of the issue (Bragg v Oceanus).

f) Whether the purpose of the party wishing to have the matter determined afresh was not the genuine purpose of obtaining the relief sought in the second action, but some collateral purpose (Hunter; Bragg v Oceanus).

g) Whether the relevant party was at some disadvantage or was subject to a restriction in the earlier proceedings from which that party would be free in the current proceedings. Such a disadvantage or restriction might include the non-availability of documentation or other evidence in the earlier proceedings (Bragg v Oceanus; Conlon v Simms, para. 147; Ablyazov, para. 49).

h) Whether the party now making the relevant allegation provided assistance, or funding, to one of the parties to the earlier proceedings. In Michael Wilson v Sinclair, at para. 97, Simon, LJ said that “I do not agree that the fact that (1) Mr Sinclair was a witness in the arbitration, and (2) funded the defence, bore any material weight in the light of his equivocal approach to the arbitration“. I consider that the provision of assistance in the form of documents or evidence is of limited, if any, relevance in support of a finding that there has been an abuse of process (In re Norris, para. 23-25; Ablyazov). The provision of funding is perhaps of greater relevance.

vii) The burden is on the party alleging the existence of an abuse of process, by reason of a manifest unfairness to a party or bringing the administration of justice into disrepute, to establish such abuse and the “threshold which engages the court’s duty to act to prevent abuse of its process” is a high one (Michael Wilson v Sinclair, para. 87, 100).

viii) In carrying out this assessment, the Court is not engaging in an assessment of the merits of the relevant allegation. It is not a summary judgment application (Kamoka, para. 98).

The allegations made in the ICC arbitration proceedings and in these proceedings

The ICC arbitration proceedings

1. 1. In the ICC arbitration proceedings, Overgas Inc pleaded at paragraphs 240-349 of its Statement of Claim that GPE breached competition law, and sought relief on that ground. In summary, Overgas Inc’s case in its pleading was as follows:

i) The relevant restrictions imposed for the purposes of preserving competition are located in Articles 102 and 101 the Treaty on the Functioning of the European Union (“TFEU”) and Articles 21 and 37a of the Bulgarian Protection of Competition Act (paragraphs 240-246).

ii) The public enforcement of the prohibitions in Articles 102 and 101 TFEU are carried out by the European Commission and national competition authorities in each EU Member State. The European Commission had stated that there is no doubt that trade between EU Member States is being affected as a result of the sale and supply of natural gas by GPE in Bulgaria, that some of GPE’s business practices constitute an abuse of its dominant market position in breach of EU antitrust rules, GPE is a dominant player on the Bulgarian upstream wholesale gas market, and that GPE isolated the Bulgarian gas market and may have been charging excessively high prices in Bulgaria compared to Western European benchmarks, especially liquid gas hubs (paragraphs 248-250). (I pause to add that the European Commission informed GPE on 18th December 2018 that a separate complaint before it concerning GPE had been closed following Overgas Inc’s withdrawal of its complaint.)

iii) During the period from 2007 to 2012, GPE fixed the resale price at which Overgas Inc was able to sell natural gas to customers in Bulgaria in breach of Articles 102 and 101 TFEU (paragraph 252). In breach of Article 101 TFEU, GPE engaged in prohibited resale price maintenance. Between 2007 and 2012, Overgas Inc was deprived of the ability to set its own resale price in relation to the natural gas which it bought from GPE for onwards resale to Bulgargaz (paragraphs 284-293). This price-fixing had an anti-competitive object and effect. In breach of Article 102 TFEU, GPE abused its dominant position (paragraphs 253-283):

a) The relevant product market was the Bulgarian natural gas sector, namely (i) natural gas supplies by imports and from domestic production to be used for consumption in Bulgaria, (ii) gas trading/wholesale, including gas sales made by importers/wholesalers to suppliers of last resort and large end consumers; and (iii) gas retail, meaning gas sales made to small and medium-sized end consumers, namely (a) the supply of gas to large industrial customers from the transmission network, (b) the supply of gas to small industrial customers through local natural gas distribution networks, and (c) the supply of gas to household customers, through local natural gas distribution networks. GPE’s infringements in the market (i) have eliminated competition in markets (ii) and (iii)(a) and have severely restricted competition in markets (iii)(b) and (c).

b) GPE occupied a dominant position in the market of natural gas supplies by imports and from domestic production to be used for consumption in Bulgaria. GPE’s share in the market for the supply of natural gas to Bulgaria was close to 100%: during the period from 2006 to 2016, GPE’s market share rose from 86% to 97%.

c) Between 2007 and 2012, GPE influenced the structure of the Bulgarian market for natural gas and hindered the maintenance of the degree of competition that could have existed otherwise. On 18th December 2006, GPE and Bulgargaz signed the 2006 Memorandum, by which GPE guaranteed that 1.416 billion cubic metres (“bcm”) of natural gas per year for the period from 2007 to 2009 and 1.424 bcm for the period from 2010 to 2012 (referred to as “the Priority Volumes”) would be delivered at preferential prices from 1st January 2007 to 31st December 2012 and further committed that these quantities would be delivered “with priority via Overgas Inc“. GPE obliged Overgas Inc to agree to amendments to the Supply Contract requiring Overgas Inc to purchase fixed quantities of natural gas at fixed prices set out in the 2006 Memorandum, significantly lower than the prevailing market price. GPE also obliged Overgas Inc to amend its agreement with Bulgargaz, which Overgas Inc could not decline, because GPE was its sole supplier, fixing the same price at which Bulgargaz would purchase the natural gas from Overgas Inc as Overgas Inc agreed to pay GPE under the amended Supply Contract. Accordingly, GPE controlled the price at which Overgas Inc was required to sell the natural gas to Bulgargaz, controlled the volumes to be delivered, and removed any margin available to Overgas Inc on all such volumes and restricted Overgas Inc’s ability to pursue its independent competitive strategy.

d) GPE’s imposition of a fixed resale price to be charged by Overgas Inc for its on-sales to Bulgargaz was an imposition of unfair trade terms on a trading partner in breach of Article 102.

iv) During the period from 2013 to 2015, in breach of Articles 102 and 101 TFEU, GPE restricted the volume of natural gas delivered to Overgas Inc, delivering less than was requested and instead allocating additional volumes of natural gas to Bulgargaz.

a) From 2013, GPE commenced a system whereby volumes and prices for natural gas to be delivered under the Supply Contract were only provided to Overgas Inc with very little advance notice, GPE would only confirm the volumes and prices for natural gas to be delivered under the Supply Contract by way of “a short-term three-month look-ahead” period, and GPE imposed on Overgas Inc insufficient quantities of natural gas and restricted the volume of natural gas delivered to Overgas Inc, delivering less than asked for and instead allocating additional volumes of natural gas to Bulgargaz. In addition, GPE did not agree to provide gas for more than a maximum of three months at a time which restricted Overgas Inc from competing in the market with Bulgargaz. These unreasonable or uneconomic conditions were imposed on Overgas Inc, not Bulgargaz, and hindered Overgas Inc from accessing the larger volume and higher margin parts of the market, for whom security of supply was of crucial importance. As a result, Overgas Inc could not compete effectively with Bulgargaz and could not grow its business. As GPE had a near-monopoly in the upstream wholesale market, Overgas Inc could not rely on an alternative source of supply to fill the gap between GPE’s supplies and its customers’ growing needs, and therefore struggled to maintain its activities in Bulgaria. This constituted a breach of Article 102 TFEU (paragraphs 296-311).

b) On 15th November 2012, GPE and Bulgargaz entered into the 2012 Bulgargaz Contract, a long-term contract for the supply of natural gas. The contracted volumes were 2.9 bcm of natural gas per year, a quantity which would allow Bulgargaz to service the whole of the market in Bulgaria should supplies to Overgas Inc cease. The Bulgarian government announced publicly that it required a direct long-term natural gas supply agreement between GPE and Bulgargaz and it desired the removal of all intermediaries (referring to Overgas Inc) in the supply of natural gas to Bulgaria. The Bulgargaz Contract contributed to and had as its object the exclusionary strategy agreed between GPE and Bulgargaz. Further, the Bulgargaz Contract exacerbated the anti-competitive effect of the exclusionary strategy agreed between GPE and Bulgargaz. The Bulgargaz Contract made it possible for GPE to supply volumes of natural gas sufficient to cover almost the entire consumption of natural gas within Bulgaria through Bulgargaz, given that Bulgaria’s total natural gas consumption in 2015 was approximately 3.10 bcm. This was in breach of Article 101 TFEU which prohibited agreements or concerted practices which have the object or effect or removing a competitor from the market (paragraphs 312-323).

v) During the period from 2016 onwards, GPE violated Articles 102 and 101 TFEU by refusing to supply Overgas Inc in concert with Bulgargaz, thereby effectively putting Overgas Inc out of business (paragraphs 325-349). From 1st January 2016, GPE refused to supply natural gas to Overgas Inc, a long-standing customer for the previous 18 years. This made it impossible for Overgas Inc to remain active in the downstream market for the supply of natural gas in Bulgaria. Upstream natural gas supply was indispensable for Overgas Inc and there was no alternative source of natural gas supply available to Overgas Inc to the supply provided by GPE. The refusal of supply by GPE led to the elimination of effective competition in the gas trading/wholesale and retail markets. This total elimination of competition was an inevitable consequence of the refusal to supply and must have been intended by GPE. There was no objective justification for GPE’s cessation of supplies of natural gas to Overgas Inc. GPE abused its dominant position in the market for the wholesale supply of natural gas by terminating the supply of gas to Overgas Inc. Moreover, this cessation of supply was part of a strategy agreed between GPE and Bulgargaz with the object of removing Overgas Inc as a competitor. The cessation of supply to Overgas Inc was the result of an agreement or understanding reached between GPE and Bulgargaz in December 2015. On 31st December 2015, Overgas Inc received a letter from GPE stating that Overgas Inc would have no natural gas for the needs of its customers from GPE from 1st January 2016, and on the same day Bulgargaz’s parent’s CEO announced the end of supplies to Overgas Inc by GPE and that GPE assured Bulgargaz that “there will be no problems to increase natural gas deliveries“.

1. 1. On 12th December 2018, the ICC Arbitral Tribunal made its Final Award (the ICC Award). This followed a hearing over the course of five days between 5th and 9th March 2018 and the filing of detailed post-hearing briefs by Overgas Inc and GPE (amounting in total to 246 pages of submission in addition to the total of 675 pages of pleadings).
   2. Having determined that it had jurisdiction to deal with the breach of competition law claims and that it was obliged to apply mandatory norms of EU law for public policy reasons (paragraphs 539-551 of the ICC Award), the ICC Arbitral Tribunal made the following findings:

i) With respect to the period from 2007 to 2012:

a) It was obvious that the arrangement between GPE and Bulgargaz was not intended to bring a benefit to the participators by limiting price competition on the Bulgarian market to the detriment of consumers and that the arrangement did not have such an effect; it simply constituted a quid pro quo for the cross-country transit services provided by Bulgargaz to GPE for the purposes of transporting GPE’s natural gas to adjoining countries beyond Bulgaria. These events were entirely external to any matter of competition on the domestic market in Bulgaria (paragraph 648).

b) This case was not about artificially depressing prices for purposes of securing a competitive advantage and clearly did not have the object or effect of keeping out competitors (paragraph 651).

c) The arrangement had no relationship at all to resale price maintenance. The object and effect of the arrangement was to give consideration to Bulgargaz in exchange for Bulgargaz’s provision of cross-country transit services; it did not have price-fixing as its object or effect (paragraphs 652-653).

d) The arrangement did not violate Article 101 or Article 102 TFEU (paragraph 654).

e) Overgas Inc’s case that it suffered a loss by not being able to set prices freely for preferential volumes which it was forced by GPE to sell to Bulgargaz at artificially depressed, below-market prices was not arguable (paragraphs 658-661).

ii) With respect to the period from 2013-2015:

a) Overgas Inc and GPE agreed short-term amendments to the Supply Contract and entered into voluntary agreements as to the volumes to be supplied in each individual period. Overgas Inc never objected to the annual volume of 0.4 bcm allotted to it by GPE and there is no evidence that Overgas raised any concerns about missed-out transactions as a consequence of the particular supply undertakings given by GPE (paragraphs 737-745).

b) Based on the documentary record that was available to the Tribunal, there is no indication that GPE took measures to circumscribe Overgas Inc’s operations on the Bulgarian market that would arguably constitute a breach of Articles 102 and 101 TFEU. There is nothing in the evidence that indicated a planned strategy to exclude Overgas Inc from the Bulgarian market to the benefit of Bulgargaz (paragraphs 754, 757).

iii) With respect to the period from 1st January 2016:

a) Although a dominant undertaking in the relevant market, GPE did not breach Article 102 TFEU by not directly supplying any alternative distributor in the Bulgarian market than Bulgargaz (paragraphs 888-897).

b) Overgas Mrezhi received supplies of natural gas from Bulgargaz as a supplier on the basis of a contract with Bulgargaz of 31st December 2015 (paragraph 902).

1. 1. On the basis of these and other findings, the ICC Arbitral Tribunal dismissed Overgas Inc’s claim against GPE for breaches of competition law.

The allegations in the English proceedings

1. 1. In the Amended Defence in the English proceedings, the Principal Defendants allege that DDI Holdings’ purchase of shares in Overgas Mrezhi was not unlawful, because it had legitimate commercial reasons to ensure that Overgas Mrezhi had sufficient funding to continue its business and not to fail. The cessation of supply by GPE of natural gas under the Supply Contract was in breach of EU competition law and/or in breach of contract (paragraph 61(a)) and the direct and effective cause of the loss and damage claimed by GPE was its own refusal to supply natural gas to Overgas Inc in breach of EU competition law, in breach of an agreement between the shareholders in Overgas Inc and in breach of article 63 of the Bulgarian Obligations and Contracts Law (paragraph 80(a)(i)).
   2. In the Amended Defence, Overgas Mrezhi presents a counterclaim against GPE as follows:

i) The relevant market in which GPE operated is and was the market for the supply of natural gas by way of imported gas and domestically produced gas to be used for consumption in Bulgaria (paragraphs 98 and 117).

ii) Since 2007, GPE’s share of the relevant market was never below 85%; there was no viable alternative source for significant volumes of natural gas supplied into the relevant market by GPE (paragraphs 99 and 117).

iii) In December 2006, GPE and Bulgargaz EAD (“Bulgargaz”) agreed that GPE would deliver to Bulgargaz 1.416 bcm of natural gas per year “with priority via Overgas Inc” at preferential (sub-market) prices (paragraph 102). Accordingly, Overgas Inc would supply Bulgargaz with the said volume at prices pre-agreed between GPE and Bulgargaz. It is alleged that Overgas Inc was coerced to agree to amendments to the Supply Contract and its agreement with Bulgargaz to align the arrangements between each of GPE, Overgas Inc and Bulgargaz (paragraph 103) and that Overgas Inc was compelled to sell the first 1.416 bcm of natural gas purchased from GPE per year to Bulgargaz at no margin, and later at a margin of just US$1 per mcm (paragraph 104).

iv) As a result of an agreement between GPE and Bulgargaz in 2012, GPE agreed to supply Bulgargaz up to 2.9 bcm of natural gas annually, and GPE wanted to partition the market between large industrial and wholesale customers (accounting for 2.9 bcm of natural gas), which would be supplied by Bulgargaz, on the one hand and the customers of Overgas Mrezhi (and its predecessors in title) (accounting for 0.4 bcm of natural gas), which would be supplied by Overgas Inc, on the other hand (paragraphs 105-106). It is alleged that, as a result, between 2013 and 2015, GPE sold natural gas to Overgas Inc in such volumes and under such terms which meant that Overgas Inc was able only to supply Overgas Mrezhi (and its predecessors in title) and not more lucrative large industrial and wholesale customers, which GPE intended and ensured would be supplied by Bulgargaz (paragraph 107). It is alleged that Overgas Inc was coerced to execute amendments to the Supply Contract providing for the supply of natural gas on this restricted basis, such pressure having been exerted by GPE as the sole supplier and the only importer of natural gas into Bulgaria (paragraph 108).

v) On 30th December 2015, Bulgargaz’s parent’s CEO announced the end of supplies to Overgas Inc by GPE and that Bulgargaz would take over the supply of all of Overgas Inc’s customers; this was confirmed by the Russian Ministry of Foreign Affairs on the following day. The Principal Defendants allege that it is to be inferred that GPE and Bulgargaz had colluded to reach a prior agreement that Overgas Inc’s customers, including Overgas Mrezhi, would be transferred to Bulgargaz (paragraph 110).

vi) Since 1st January 2016, GPE ceased to supply natural gas to Overgas Inc under the Supply Contract, and Bulgargaz has been the sole purchaser in Bulgaria of imported natural gas from GPE and, as a result, Bulgargaz now supplies a very high market share of large industrial and wholesale customers and smaller industrial and residential customers. Bulgargaz is an actual or potential competitor of Overgas Mrezhi for smaller industrial and residential customers and Overgas Mrezhi is a potential competitor of Bulgargaz for large industrial and wholesale customers (paragraphs 100 and 109).

vii) Accordingly, GPE has knowingly prevented Overgas Inc from being able to supply natural gas to its customers, including Overgas Mrezhi, with the result that Overgas Inc has had no revenue stream since 1st January 2016 (paragraph 111).

viii) To GPE’s knowledge, Overgas Mrezhi was at all material times prior to 1st January 2016 reliant on Overgas Inc as its predominant source of financing and that GPE’s refusal to supply Overgas Inc would significantly harm Overgas Inc’s ability to fund Overgas Mrezhi (paragraph 112).

ix) Since 1st January 2016, Overgas Mrezhi has been obliged to procure natural gas from Bulgargaz to meet its supply obligations to its customers and was required to pay penalties to Bulgargaz to secure the necessary supply (paragraph 113).

x) GPE abused its dominant position on the relevant market and acted in bad faith by distorting competition between EU Member States and within Bulgaria (which has been a Member of the European Union since 1st January 2007), contrary to article 102 TFEU and articles 21 and 37a of the Bulgarian Protection of Competition Act, (paragraphs 114-118), as follows:

a) From 1st January 2007 to 31st December 2012 by virtue of the actions set out at paragraphs 102-104 of the Amended Defence, namely by strengthening Bulgargaz against potential competition from Overgas Mrezhi’s predecessors in title, in particular GPE fixed Overgas Inc’s resale price to Bulgargaz, ensuring favourable prices to Bulgargaz.

b) From 1st January 2013 to 31st December 2015 by virtue of the actions set out at paragraphs 105-108 of the Amended Defence, namely by colluding with Bulgargaz and its owner (the State of Bulgaria) to partition the market in favour of Bulgargaz, in particular GPE prevented Overgas Mrezhi and its predecessors in title from acquiring new customers, as the volumes of natural gas available to them through Overgas Inc were limited to up to 0.4 bcm of natural gas per year with all other volumes allocated to Bulgargaz.

c) Since 1st January 2016 by virtue of the actions set out at paragraphs 109-113 of the Amended Defence, namely by refusing to supply Overgas Inc and agreeing to increase the market share of Bulgargaz, in particular GPE (i) obliged Overgas Mrezhi to purchase natural gas from Bulgargaz on the terms of supply mandated by Bulgargaz and not on the more favourable terms that would have been available from Overgas Inc, (ii) obliged Overgas Mrezhi to purchase natural gas from Bulgargaz upon payment of penalties to Bulgargaz caused by its late notification of its desperate need for the urgent supply of natural gas, which could only be from Bulgargaz, and (iii) obliged Overgas Mrezhi to seek urgent refinancing as a result of the impact of these events on Overgas Inc, which was unable to fund Overgas Mrezhi, with Overgas Mrezhi replacing funding from Overgas Inc with higher cost funding.

xi) In breach of article 101 TFEU and article 15(1) of the Bulgarian Protection of Competition Act, GPE entered into certain agreements with Bulgargaz which distorted competition between EU Member States and within Bulgaria, amounting to an infringement by object and effect of EU and Bulgarian competition law (paragraphs 119-121). The agreements alleged were:

a) The December 2006 Memorandum by which GPE fixed Overgas Inc’s resale price to Bulgargaz at a level favourable to Bulgargaz, which in turn prevented Overgas Mrezhi’s predecessors in title from competing with Bulgargaz.

b) The 2012 Bulgargaz Contract, by which GPE partitioned the market in favour of Bulgargaz, allocating natural gas supplies away from Overgas Mrezhi’s supplier, Overgas Inc, and by limiting supplies to Overgas Inc, preventing Overgas Mrezhi and its predecessors in title from competing with Bulgargaz.

c) An agreement to be inferred from the announcements made by Bulgargaz’s parent company’s CEO and the Russian Ministry of Foreign Affairs at the end of 2015, whereby GPE favoured Bulgargaz by ceasing supplies of natural gas to Overgas Mrezhi’s supplier, Overgas Inc, thereby compelling Overgas Mrezhi to become a customer of Bulgargaz and preventing Overgas Mrezhi from competing with Bulgargaz.

xii) But for the alleged infringements, Overgas Mrezhi (and its predecessors in title) would have grown its market share more significantly and more rapidly by acquiring new customers in line with its business plan, would have received sufficient amounts of natural gas from Overgas Inc to supply its new customers, would have received sufficient funding from Overgas Inc to meet its investment obligations and business plan, would not have been obliged to purchase natural gas from Bulgargaz (its competitor), would not have been obliged to pay penalties to secure an immediate supply of gas from Bulgargaz from 1st January 2016, and would not have been obliged to obtain alternative funding in place of funding from Overgas Inc (paragraph 122).

xiii) As a result of the aforesaid infringements, Overgas Mrezhi has suffered loss and damage, including the difference between Overgas Mrezhi’s actual profits and the profits which would have been generated by Overgas Mrezhi (and its predecessors in title) had it grown its market share, the difference in price for natural gas supply from Bulgargaz since 1st January 2016, had Overgas Mrezhi not been obliged to pay penalties as aforesaid and had Overgas Mrezhi instead been able to continue to purchase natural gas from Overgas Inc, and the additional funding costs incurred by Overgas Mrezhi (paragraphs 123-126).

The extent, if at all, to which the allegations in each of the proceedings are the same

1. 1. The fundamental basis of GPE’s application is that the allegations of anti-competitive conduct which were advanced against GPE by Overgas Inc in the ICC arbitration proceedings are the same as those allegations advanced against GPE by the Principal Defendants in the English proceedings.
   2. In his submissions, Mr Alain Choo-Choy QC on behalf of GPE, contended that the allegations in each set of proceedings are the same for the following reasons:

i) In both sets of proceedings, the allegations of breaches of competition law cover three distinct periods: 2007-2012, 2013-2015, and from 1st January 2016.

ii) In respect of the period from 2007 to 2012, Overgas Mrezhi alleges in the English proceedings that as a result of GPE’s arrangement with Bulgargaz in relation to Priority Volumes of natural gas evidenced by the 2006 Memorandum, GPE coerced Overgas Inc into agreeing to the amendments to the Supply Contract, which effectively allowed GPE to fix the resale price at which Overgas Inc was required to resell to Bulgargaz the natural gas supplied by GPE to Overgas Inc, with the net result that Overgas Inc had to make such resales to Bulgargaz for little or no margin. This was in breach of Articles 101 and 102 TFEU and Articles 15(1), 21 and 37a of the Bulgarian Protection of Competition Act. These are the same allegations made in the ICC arbitration proceedings.

iii) In respect of the period from 2013 to 2015, Overgas Mrezhi alleges in the English proceedings that GPE artificially restricted supplies of natural gas to Overgas Inc to 0.4 bcm per year in order to prevent Overgas Inc from being able to supply sufficient volumes to Overgas Mrezhi and its predecessors in title to enable the latter in turn to supply large industrial and wholesale customers and that GPE coerced Overgas Inc into entering into short-term amendments to the Supply Contract providing for the supply of natural gas to Overgas Inc on a restricted basis; that such artificial restriction of the supplies by GPE to Overgas Inc arose against the background of substantial volume allocations by GPE to Bulgargaz upon the conclusion of the 2012 Bulgargaz Contract. This was in breach of Articles 101 and 102 TFEU and Articles 15(1), 21 and 37a of the Bulgarian Protection of Competition Act. This same allegation was made in the ICC arbitration proceedings, even though additional allegations were made in those ICC arbitration proceedings.

iv) In respect of the period from 1st January 2016 onwards, Overgas Mrezhi alleges in the English proceedings that GPE’s cessation of supplies of natural gas to Overgas Inc was the result of a collusive arrangement between GPE and Bulgargaz whereby it was agreed that Overgas Inc’s customers, including Overgas Mrezhi, would be transferred to Bulgargaz. This was in breach of Articles 101 and 102 TFEU and Articles 15(1), 21 and 37a of the Bulgarian Protection of Competition Act. The same allegation was made in the ICC arbitration proceedings.

1. 1. In support of GPE’s analysis of the comparison of the allegations of breaches of competition law raised in each set of proceedings is supported by a schedule exhibited to Mr Andrew Moody’s second witness statement dated 2nd August 2019 (para. 2.8 and exhibit AGM16) comparing Overgas Inc’s allegations in the ICC arbitration proceedings, the decisions and references in the ICC Award, and the allegations in Overgas Mrezhi’s statement of case in the English proceedings.
   2. Mr Neil Calver QC, on behalf of the Principal Defendants, contended that there were central or key differences between the allegations in the two sets of proceedings:

i) The ICC arbitration proceedings were a contractual process between Overgas Inc and GPE. No claim was made by Overgas Inc on behalf of Overgas Mrezhi. Accordingly, the ICC Arbitral Tribunal had no power to award damages in respect of Overgas Mrezhi’s loss. By contrast, Overgas Mrezhi is claiming relief for its own loss in the English proceedings, distinct from the loss claimed by Overgas Inc in the ICC arbitration proceedings.

ii) The ICC arbitration proceedings principally concerned restrictions on competition on the gas wholesale/trading market where Overgas Inc operated and not the gas retail/distribution market which is the principal focus of the English proceedings and in which Overgas Mrezhi operated. Further, it was argued, Overgas Mrezhi is seeking to recover losses in the English proceedings which were not and could not have been claimed in the ICC arbitration proceedings, where Overgas Mrezhi’s position was irrelevant because – as Overgas Inc pleaded in the ICC arbitration proceedings – Overgas Mrezhi operated at a different level of the market or in the supply chain, as a licensed distributor selling gas at regulated price to residential consumers. Mr Calver QC pointed to the fact that Mr Moody in his witness statements (served on behalf of GPE) himself stated that Overgas Inc and Overgas Mrezhi acted “at different market levels” and that Overgas Inc and Overgas Mrezhi “operated in different capacities in the Bulgarian gas market prior to 2016” (paragraph 8.3 of his second witness statement and paragraph 6.9 of his third witness statement dated 5th November 2019).

iii) Accordingly, the allegations of breaches of competition law in each of the proceedings concern infringements of a different nature whose object or effect was restrictive of competition in different markets.

1. 1. Having considered these submissions and reviewed the allegations of breaches of competition law as pleaded in the ICC arbitration proceedings and in the Amended Defence in the English proceedings, in my judgment, the allegations made in each of the proceedings are substantially the same. Both sets of allegations aver and rely on the alleged facts that (1) GPE dominated the Bulgarian wholesale and retail markets; (2) GPE compelled Overgas Inc to sell natural gas to Bulgargaz pursuant to amendments to the Supply Contract at prices below the prevailing market price during the period from 2007 to 2012, following the 2006 Memorandum agreed between GPE and Bulgargaz; (3) by reason of the 2012 Bulgargaz Contract, during the period from 2013 to 2015, GPE undertook to supply Bulgargaz with 2.9 bcm of natural gas, accounting for the bulk of the natural gas required for consumption in Bulgaria, thereby delivering to Overgas Inc limited quantities of natural gas, and thereby preventing Overgas Inc from competing effectively in Bulgaria; (4) from 1st January 2016, GPE ceased to supply natural gas to Overgas Inc under the Supply Contract with the result that Overgas Inc could not acquire alternative sources of natural gas to the supply provided by GPE; and (5) GPE’s conduct constituted a breach of Articles 102 and 101 TFEU.
   2. It is true to say that the argument had been formulated in different terms in the ICC arbitration proceedings than in the English proceedings, and additional facts were alleged in the ICC arbitration proceedings.
   3. Nevertheless, the counterclaim presented by Overgas Mrezhi is essentially founded upon the same factual allegations which were raised and determined in the ICC arbitration proceedings. Moreover, in both sets of proceedings, the allegations of breaches of competition law refer to both markets in which Overgas Mrezhi and Overgas Inc operated. It follows that the defence relied on by the Principal Defendants that the losses claimed by GPE were caused by breaches of competition law also raises the same allegations as raised and determined in the ICC arbitration proceedings.
   4. It is also true to say that the focus of the counterclaim in the English proceedings is on the loss sustained by Overgas Mrezhi, and the market in which it operated, rather than Overgas Inc, which operated in a different market and whose loss was the focus of the ICC arbitration proceedings. As explained below, this is a material consideration.

Is there an abuse of process in the Principal Defendants’ allegation?

No privity of interest

1. 1. It is common ground between the parties for the purposes of this application that Overgas Inc (the claimant in the ICC arbitration proceedings) and Overgas Mrezhi (the relevant counterclaimant in the English proceedings) – both of whom have advanced the allegation of breaches of competition law by GPE in the respective proceedings – are separate legal entities, and that Overgas Mrezhi was not a party to the ICC arbitration proceedings and is not therefore bound by the findings in the ICC Award by reason of estoppel per rem judicatam (res judicata) or issue estoppel.
   2. Furthermore, it was common ground for the purposes of this application that the Principal Defendants, in particular Overgas Mrezhi, were not privy to the ICC arbitration proceedings. In this context, I refer to privity in the strict context so as to attract the doctrines of estoppel per rem judicatam (res judicata) or issue estoppel. In his skeleton argument, at paragraph 48(1), Mr Calver QC submitted that an identity of interest in the outcome of earlier proceedings between a party and a third party cannot render later claims by that third party abusive, absent a privity of interest between it and the party to the earlier proceedings and in support of that submission relied on Flaux, LJ’s judgment in Kamoka v The Security Service [2017] EWCA Civ 1665, at para. 119:

“If “identity of interest” is intended by the judge to be a reference to privity of interest, then the judge has failed to consider at all the applicable legal test, as laid down by the Court of Appeal in Resolute [sic] Chemicals and Standard Chartered. Had he done so, he could not have concluded that there was any privity of interest. If “identity of interest” is some wider concept than privity, it cannot render the claims of the first, third and fourth appellants abusive, absent privity of interest. As is clear from the authorities (specifically Lord Hobhouse in In re Norris at [26]) cases where subsequent proceedings are an abuse of process, notwithstanding that the claimant or his privy was not a party to the earlier proceedings, are entirely exceptional. This case is, as Mr de la Mare QC submits, not remotely like Ashmore v British Coal Corporation, which as Lord Hobhouse indicated was a case about marshalling litigation or, in more modern parlance, case management of group litigation. Since the second and fifth appellants’ appeals to SIAC were not test or lead cases, the analysis in that case is inapplicable.”

1. 1. I do not think Mr Calver QC maintained this submission during his oral argument. If he had, I could not have accepted it. There may well be an abuse of process when there is no privity or identity of interest between the parties to the earlier and later proceedings. When Flaux, LJ said that, absent any privity of interest, there could be no abuse of process, I consider that Flaux, LJ had abuse of process of the type established in Henderson v Henderson (1843) 3 Hare 100 in mind, rather than abuse of process of the Hunter type. This is demonstrated by Flaux, LJ’s reference to Resolution Chemicals v Lundbeck A/S [2013] EWCA Civ 924; [2014] RPC 5, which was concerned with abuse of process of the Henderson v Henderson type, and by what Flaux, LJ said earlier in his judgment both at para. 70 (quoted above) and at para. 49:

“… to the extent that Mr de la Mare QC sought to suggest that Hunter-type abuse does not really arise in cases where the earlier proceedings are civil proceedings and there is no identity or privity between the parties in the two sets of proceedings, so that neither the doctrine in Henderson v Henderson (1843) 3 Hare 100 nor issue estoppel applies, it seems to me that suggestion is not supported by the authorities. There are cases, albeit relatively rare, where the court has found subsequent proceedings abusive because they involve an attempt to re-litigate what was decided in an earlier civil case, albeit there is not identity of parties.”

The parties’ submissions on abuse of process

1. 1. Mr Choo-Choy QC, on behalf of GPE, submitted that, nonetheless, the maintenance by the Principal Defendants of the allegation that there have been breaches of competition law by GPE is an abuse of the Court’s process because (1) it unfairly vexes GPE with precisely the same allegations of breaches of competition law by Overgas Inc, who successfully defended such allegations in the ICC arbitration proceedings at great effort and expense, and (2) it brings the administration of justice into disrepute to permit Overgas Mrezhi and the other Principal Defendants to make such allegations against Overgas Inc when Overgas Inc itself is “forever precluded (on res judicata, issue estoppel and abuse of process grounds) from advancing or repeating such allegations following the Award and the ruling of the Swiss Federal Tribunal upholding the Award“.
   2. In support of this general contention, Mr Choo-Choy QC submitted that:

i) The ICC Arbitral Tribunal decided that GPE was not guilty of any anti-competitive conduct and that decision was upheld by the Swiss Federal Tribunal.

ii) The central allegations of breaches of competition law advanced both in the ICC arbitration proceedings and in the English proceedings are essentially the same. The fact that Overgas Mrezhi is claiming for damages for its own loss in the English proceedings as distinct from the loss claimed by Overgas Inc in the ICC arbitration proceedings does not detract from the fact that Overgas Mrezhi’s counterclaim for breaches of competition law in the English proceedings represents an abuse of the Court’s process, because the counterclaim depends on proof of the same allegations advanced in the ICC arbitration proceedings, and dismissed by the ICC Arbitral Tribunal. In any event, any difference in the losses claimed by each of Overgas Mrezhi and Overgas Inc should not be overstated, because at least some of the losses claimed by both companies comprise the loss of market share represented by large industrial and wholesale customers.

iii) The legality of GPE’s dealings with Overgas Inc in connection with the supply of natural gas fell squarely within the arbitration agreement between them.

iv) During the ICC arbitration proceedings, which lasted more than three years, the parties exchanged “thousands of pages of pleadings, documents, witness and expert evidence … and post-hearing briefs” and the oral hearing took five days and the total costs amounted to many millions of dollars (Mr Moody’s 2nd witness statement, para. 4.7, 4.8. 4.12, 4.18).

v) As is common ground, Overgas Inc is legally precluded from claiming that its natural gas trading relationship with GPE was tainted by GPE’s anti-competitive conduct, in any jurisdiction in which the ICC Award is entitled to recognition and enforcement under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Nevertheless, Overgas Mrezhi and the other Principal Defendants seek to characterise the relationship between GPE and Overgas Inc in a manner which Overgas Inc itself is legally precluded from doing. The proper characterisation of that relationship between GPE and Overgas Inc must be a matter for the ICC Arbitral Tribunal as the exclusive dispute resolution tribunal chosen by the parties to the Supply Contract (relying on Art & Antiques v Richards).

vi) The ICC Award is entitled to recognition and enforcement, including enforcement in the same manner as a judgment or order of the court to the same effect (sect. 66(1) and 101(2) of the Arbitration Act 1996). If the Principal Defendants’ statement of case was not struck out in respect of the allegation of breaches of competition law, the Court may come to a judgment which is at odds with the decision of the ICC Arbitral Tribunal and create a risk that the ICC Award would be denied recognition in this jurisdiction and perhaps elsewhere. That would bring the administration of justice into disrepute in that it would involve an inappropriate and unjustified disregard of the public interest in the finality of earlier judgments and arbitration awards and in the upholding and giving effect to arbitral awards in accordance with the terms of the New York Convention.

vii) The Court is being simultaneously required to accept that the ICC Arbitral Tribunal conclusively ruled as between GPE and Overgas Inc that GPE did not engage in anti-competitive conduct and to reconsider the same allegations against GPE because they are made not by Overgas Inc, but by the Principal Defendants. Overgas Mrezhi’s pursuit of the same allegation in the English proceedings is in the nature of a collateral attack on the decision of the ICC Arbitral Tribunal, which had been contractually chosen by GPE and Overgas Inc to rule on the conduct of the relationship between them.

viii) This is a sufficiently unusual or exceptional circumstance to amount to an abuse of the Court’s process.

ix) There is an inconsistency in the position adopted by the Principal Defendants in that they have deleted reference to GPE’s alleged anti-competitive conduct being in breach of the Supply Contract between GPE and Overgas Inc in paragraph 80(a)(i) of the Amended Defence, but nonetheless maintain a claim in tort in respect of the same conduct. I note, however, that paragraph 61(a) still refers to the relevant conduct being in “breach of contract“.

x) The alleged breaches of competition law advanced by Overgas Mrezhi against GPE in the English proceedings are the same as those breaches alleged against GPE by Overgas Inc in the ICC arbitration proceedings. The case advanced by Overgas Inc in the ICC arbitration proceedings must have been known to Overgas Mrezhi because there were close relationships between the two companies given the shareholding of Overgas Inc in Overgas Mrezhi and the fact that the two companies had overlapping senior management during the ICC arbitration proceedings through at least Mr Dontchev, Mr Svetoslav Ivanov and Ms Emiliya Georgieva, the first two of whom were witnesses for Overgas Inc in the ICC arbitration proceedings, and Mr Ivanov expressly stated that he gave evidence in his capacity as Overgas Mrezhi’s Executive Director (Mr Moody’s second witness statement, para. 4.21-4.25, and third witness statement, para. 6.1-6.8). Further, this case received or was capable of receiving practical support and contribution in terms of documents and witness evidence, and possibly funding, from Overgas Mrezhi (Mr Moody’s second witness statement, para. 4.21-4.25). In this respect, during oral submissions and during an exchange of written submissions after the hearing, GPE submitted that, on the evidence of Overgas Inc’s financial statements, Overgas Inc did not fund its conduct of the ICC arbitration proceedings, but that – it is to be inferred – Overgas Mrezhi, the principal trading and revenue generating company within the Overgas/Dontchev group of companies, must have ultimately funded the conduct of the ICC arbitration proceedings.

xi) The present case represents a stronger case of abuse of process than that identified in the Court’s earlier decisions in Laing v Taylor Walton and Arts & Antiques v Richards. Although in those earlier decisions the party alleged to be guilty of the abuse of process was a party to both sets of proceedings, the present case is a stronger case because GPE is at risk of being vexed twice by the same allegations, having successfully defeated them on the merits in the ICC arbitration proceedings.

xii) If GPE had been found by the ICC Arbitral Tribunal to be guilty of breaches of competition law, Overgas Mrezhi would have sought to treat any attempt by GPE to deny that it had acted contrary to competition law as an impermissible collateral attack on the ICC Award. Accordingly, considerations of mutuality strongly suggest that it would be likewise abusive for Overgas Mrezhi to maintain these allegations inconsistently with the finding of the ICC Arbitral Tribunal.

1. 1. Mr Calver QC, on behalf of the Principal Defendants, submitted that:

i) It is only a rare or exceptional case where such an application should be permitted. It would not be manifestly unfair to GPE to allow the allegation of breaches of competition law to be tried.

ii) There can be no abuse of process where the ICC arbitration proceedings took place between GPE and Overgas Inc and concerned issues of competition on the gas wholesale and trading market in which Overgas Inc operated, whereas the English proceedings concern the gas retail and distribution market, where the “principal focus” lies, in which Overgas Mrezhi operates, and Overgas Mrezhi is attempting to recover in these proceedings losses which were not and could not have been claimed in the ICC arbitration proceedings.

iii) The allegation of breaches of competition law will be supported by witness and documentary evidence different from that adduced in the ICC arbitration proceedings. There was very limited documentary disclosure in the ICC arbitration proceedings, as the disclosure obligations of the parties were circumscribed by the specific requests made by each party, many of which did not translate into actual disclosure, as opposed to general disclosure of documents adverse to the parties’ cases (Model D Extended Disclosure as has been ordered in the English proceedings). Further, it was submitted that:

a) In the ICC arbitration proceedings, Overgas Inc initially requested 64 categories of documents from GPE and then applied to the ICC Arbitral Tribunal for disclosure of 53 categories of documents, of which the ICC Arbitral Tribunal ordered disclosure of 10 categories of documents, thereby omitting disclosure of plainly material and relevant documents relating to the 2006 Memorandum, the price of gas supplied to Overgas Inc from 2013 to 2015 and the decision to cease supplies from 1st January 2016. In the event, GPE eventually produced only 128 “contested documents“, only a handful of which were material to the alleged breaches of competition law (Mr Benjamin Holland’s fifth witness statement, para. 48).

b) GPE has already disclosed to the Defendants in the English proceedings documents which were not available to Overgas Inc in the ICC arbitration proceedings, including the 2012 Bulgargaz Contract, GPE’s response to the European Commission’s request for further information, and 77 documents exhibited to that response (Mr Holland’s fifth witness statement, para. 49).

c) Overgas Mrezhi was not involved in the selection by Overgas Inc of documents it produced in the ICC arbitration proceedings, but did provide Overgas Inc with particular documents if specifically requested (Mr Holland’s fifth witness statement, para. 52(c)).

d) It is clear from a number of findings made by the ICC Arbitral Tribunal that those findings were based on the documentary materials available in those proceedings and in a number of instances the ICC Arbitral Tribunal indicated that it could not make a finding in the absence of relevant materials.

e) The EU Damages Directive 2014/104/EU states in recitals (14) and (15) that a claimant who asserts a claim for damages for infringements of EU or national competition law often will not have access to the documents held by the defendant needed to articulate its claim fully and contemplates that disclosure will be ordered by the Court in a Member State without any requirement that the claimant will have to specify individual items of documentation.

iv) The Court should be slow to find an abuse of process where the earlier decision is an arbitral award in an arbitration to which the Principal Defendants were not parties. The ICC arbitration proceedings were between Overgas Inc and GPE and in those proceedings Overgas Inc did not make any claims on behalf of Overgas Mrezhi, the losses alleged in both sets of proceedings are distinct, and none of the Principal Defendants were invited to join those proceedings. None of the Principal Defendants would have the benefit of the ICC Award.

v) There is no principle that it is an abuse of process for third parties to contend that an arbitration award between contracting parties as to their contract is wrong. This is especially so where the Principal Defendants and Overgas Inc have divergent interests. There is no identity of interest between Overgas Inc on the one hand and Overgas Holding and its owners on the other hand. Overgas Inc was and is a joint venture in which GPE/Gazprom PJSC and Overgas Holding each have a 50% interest. Further, at the time of the ICC Award and during most of the ICC arbitration proceedings, Overgas Inc’s interest in Overgas Mrezhi had been reduced from 99.628% to 38.471%.

vi) The Court should not find an abuse of process to exist in circumstances where, had the decision of the ICC Arbitral Tribunal been that there had been anti-competitive conduct on the part of GPE, such a decision would not have been binding on GPE.

vii) The Court should be slower to conclude that a party is guilty of an abuse of process where the relevant allegation is raised by way of defence and that party has “initiated nothing” (Conlon v Simms, para. 146).

viii) In any event, the limited assistance provided by Overgas Mrezhi to Overgas Inc in the ICC arbitration proceedings was insufficient to render the allegation in the English proceedings an abuse of process. The fact that Mr Dontchev gave evidence in the ICC arbitration proceedings and that Overgas Mrezhi provided documents to Overgas Inc when requested to do so does not of itself render the allegations of breaches of competition law abusive. Further, Overgas Inc did not report on the progress of the ICC arbitration proceedings to Overgas Mrezhi’s board or other shareholders (Mr Holland’s fifth witness statement, para. 37). Overgas Mrezhi did not pay the costs of the ICC arbitration proceedings; Overgas Inc paid for the ICC arbitration proceedings with its own funds (Mr Holland’s fifth witness statement, para. 52(b)(i)). As further submitted during oral submissions and in the post-hearing exchange of written submissions, this is supported by a correct reading of Overgas Inc’s financial statements and by a letter dated 12th December 2019 signed by Ms Izabela Dzhalazova of ISA Audit Ltd, the registered auditor of Overgas Inc for the years ended 31st December 2016, 2017 and 2018; certainly, it is said, there is nothing to gainsay Mr Holland’s witness statement.

ix) The fact that the Swiss Federal Appeal Tribunal upheld the decision of the ICC Arbitral Tribunal is irrelevant, because none of the Principal Defendants had a right of appeal or were parties to the said proceedings. Further, there was no possibility of the Swiss Federal Tribunal reversing the ICC Award on its substance having regard to a violation of the EU or EEA competition rules (Commission Decision of 8th December 2017, Case AT.40208 – International Skating Union’s Eligibility rules, C(2017) 8240 final (“the ISU Decision”), recital (5)).

x) The EU law principle of effectiveness in respect of EU competition law requires that it should be “open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition” (Courage Ltd v Crehan (Case C-453/99) [2002] QB 507, para. 26 (CJEU); Manfredi v Lloyd Adriatico Assicurazioni SpA (C-295/04) [2006] ECR I-6619, para. 60-61 (CJEU); EU Damages Directive 2014/104/EU, art. 12). It is a matter for national courts of Member States which can make references to the CJEU for preliminary rulings to determine the compatibility of arbitration awards with EU competition law (Genentech Inc v Hoechst GmbH (C-567/14) [2016] 5 CMLR 9, para. AG55-AG72 (AG Wathelet)). Arbitral tribunals cannot make references to the CJEU and the Swiss Court has held that EU competition law does not form part of Swiss public policy (the ISU Decision, recitals (271)-(283)) (although, as Mr Choo-Choy QC said, there is no evidence of Swiss law before the Court). If Overgas Mrezhi was deprived of the right to bring its counterclaim for breaches of competition law by reason of the ICC Award delivered in proceedings to which it was not a party, that would fall foul of the principle of effectiveness. This consequence is not limited to Overgas Mrezhi and the other Principal Defendants, but extends to any person who has suffered loss by reason of the alleged breaches of competition law in Bulgaria.

xi) Nothing in the New York Convention renders an arbitral award binding on parties who were not parties to the relevant arbitration proceedings. In any event, the Court may refuse to recognise an arbitral award “if it would be contrary to public policy to recognise or enforce the award” (sect. 103(3) of the Arbitration Act 1996). Where the recognition or enforcement of an arbitration award under the New York Convention would condone anti-competitive conduct contrary to EU law, that may well constitute a ground for refusing the award recognition or enforcement for being contrary to public policy (Eco Swiss China Time Ltd v Benetton International NV (C126/97) [2000] 5 CMLR 816, para. 39).

xii) The allegations of breaches of competition law are relevant to issues of causation.

xiii) It would be unfair to the Principal Defendants if they were precluded from advancing the allegations of breaches of competition law in the English proceedings.

xiv) The decisions in Laing v Taylor Walton and Arts & Antiques v Richards are distinguishable, because in both of those cases, the claimants in both sets of proceedings were seeking to revive claims which had been dismissed in the earlier proceedings; in the present case, GPE was defending Overgas Inc’s claim in the ICC arbitration proceedings and is defending Overgas Mrezhi’s counterclaim in the English proceedings. There is nothing inherently abusive about the claimant in those cases maintaining a defence, rather than a claim, in subsequent proceedings.

Decision

1. 1. The starting point in determining whether the Principal Defendants are abusing the process of the Court is the following considerations:

i) As I have found above, the allegations of breaches of competition law made in the ICC arbitration proceedings and the English proceedings are essentially the same. However, the losses claimed by Overgas Inc in the ICC arbitration proceedings and being claimed by Overgas Mrezhi in the English proceedings are distinct.

ii) The parties advancing the allegation of breaches of competition law in the ICC arbitration proceedings and in the English proceedings are not the same.

iii) There is no privity between Overgas Inc on the one hand and the principal Defendants on the other hand. Accordingly, there is no question of estoppel per rem judicatam (res judicata) or issue estoppel applying in this case.

iv) The person answering the allegation of breaches of competition law – GPE – was a party to the ICC arbitration proceedings and is the claimant in the English proceedings.

1. 1. In order for the Court to find an abuse of process, it must undertake a broad, merits- based assessment with a view to determining whether allowing the allegation to be maintained (a) would be manifestly unfair to GPE in having the same issues re-litigated in the sense that GPE is required to be vexed twice with the same allegation or (b) would bring the administration of justice into disrepute and thereby engage the public interest of the state in not having issues repeatedly litigated.
   2. I unhesitatingly come to the conclusion that permitting the Principal Defendants to maintain the allegation that GPE’s conduct was in breach of EU and Bulgarian competition law in the English proceedings is not an abuse of the Court’s process. My reasons are as follows.
   3. First, Overgas Mrezhi is, in the first instance, entitled to present its claim for damages in respect of losses resulting from GPE’s alleged conduct, which losses are distinct from those claimed by Overgas Inc, in the ICC arbitration proceedings. There is no reason that I can discern which should undermine that fundamental entitlement. The striking out of Overgas Mrezhi’s counterclaim would operate as an obvious unfairness to Overgas Mrezhi. The same is true of any order which would restrict the ability of the Principal Defendants to defend the claim made against them by GPE by reason of a lack of causation referable to GPE’s alleged anti-competitive conduct.
   4. Second, although the essential facts underlying the allegations of breaches of competition law are the same, Overgas Mrezhi should be entitled to pursue its claim for damages in respect of its own distinct loss resulting from such alleged breaches irrespective of any determination of Overgas Inc’s claim.
   5. Third, Overgas Mrezhi did not have a full or reasonable opportunity to present its claim for damages in respect of losses resulting from GPE’s alleged conduct in the ICC arbitration proceedings. In addition, the other Principal Defendants did not have a full or reasonable opportunity to participate in the ICC arbitration proceedings to put their case. The lack of such opportunity was the direct result of the fact that the ICC arbitration proceedings were necessarily limited to the parties to the arbitration agreement – GPE and Overgas Inc – and represented a private forum for dispute resolution between those parties.
   6. Although Overgas Mrezhi may have provided some assistance to Overgas Inc, in the form of documents and/or evidence, in the latter’s conduct of the ICC arbitration proceedings, that by itself is not sufficient to constitute an adequate opportunity for Overgas Mrezhi to participate in the ICC arbitration proceedings to present its claim for its own loss.
   7. Fourth, whether GPE’s conduct amounted to breaches of competition law insofar as it affected Overgas Inc is a matter between GPE and Overgas Inc and was a matter to be determined in arbitration, as between them, pursuant to the arbitration agreement. The same cannot be said about the impact of any such conduct on the other parties, in particular Overgas Mrezhi. Any claim by Overgas Mrezhi could not have been referred to the ICC Arbitration Tribunal in the absence of a pre-existing or ad hoc arbitration agreement. In those circumstances, I do not see how any decision of the ICC Arbitral Tribunal could be permitted to impose any restriction on the counterclaim or allegation being advanced by the Principal Defendants in the English proceedings.
   8. Fifth, numerous cases may arise where proceedings determined between two parties, A and B, may result in a particular finding, and then later proceedings between B and C may give rise to the same issue, for example because B claims damages, an indemnity or a contribution from C as a result of the earlier finding. In those circumstances, there is no reason why C should be prevented from questioning whether the earlier finding made by a court or arbitral tribunal may have been wrongly decided, either because of a misinterpretation of the facts or the law or because B may not have presented a particular argument or because the evidence adduced in the earlier proceedings was different from that which is available subsequently. To take a more specific example, if A and B both claim that C has been guilty of wrongful conduct (say, in tort) and that such conduct caused each of A and B loss, if an earlier tribunal or court dealing with A’s claim held that C was not in fact guilty of such wrongful conduct, I do not see why B should not subsequently be entitled to claim damages from C alleging the same wrongful conduct. Accordingly, there must be some special reason or factor rendering such later proceedings an abuse of the Court’s process. As I conclude below, there is no such special reason or factor in this case.
   9. Sixth, the above considerations apply with particular force to claims relating to breaches of competition law. To deny Overgas Mrezhi the opportunity to pursue its own claim for breaches of EU competition law would be to deny it any effective means of having its claim for damages caused by GPE’s alleged anti-competitive conduct determined merely because a separate claim made by Overgas Inc has been determined in GPE’s favour by the ICC Arbitral Tribunal (Courage Ltd v Crehan (Case C-453/99) [2002] QB 507, para. 26 (CJEU); Manfredi v Lloyd Adriatico Assicurazioni SpA (C-295/04) [2006] ECR I-6619, para. 60-61 (CJEU)). Such a denial would be contrary to the principle of effectiveness. By art. 12 of the EU Damages Directive 2014/104/EU, it is provided that:

“To ensure the full effectiveness of the right to full compensation as laid down in Article 3, Member States shall ensure that, in accordance with the rules laid down in this Chapter, compensation of harm can be claimed by anyone who suffered it, irrespective of whether they are direct or indirect purchasers from an infringer, and that compensation of harm exceeding that caused by the infringement of competition law to the claimant, as well as the absence of liability of the infringer, are avoided.”

1. 1. This approach is consistent with the approach adopted by the CJEU in refusing arbitral awards recognition or enforcement under the New York Convention on the grounds of public policy where a breach of EU competition law is alleged, by requiring the national court of a Member State to determine whether there has been any breach of EU competition law (Eco Swiss China Time Ltd v Benetton International NV (C126/97) [2000] 5 CMLR 816, para. 31-39).
   2. This brings me to an additional point which was the subject of some oral argument, as well as being addressed in the parties’ written skeleton arguments, namely the recognition due to be given to the ICC Award under sect. 101 of the Arbitration Act 1996 and the New York Convention. Both parties appeared to accept that the recognition which is to be given to an arbitration award under the Arbitration Act 1996 is limited in its binding effect to the parties to that award. Accordingly, I do not understand how that could affect the freedom of the Principal Defendants to pursue their allegations of breaches of competition law. I think Mr Choo-Choy QC’s point was that if the Court were to allow the Principal Defendants to argue that GPE conducted itself vis a vis Overgas Inc in an anti-competitive manner and if the Court were to make a finding to that effect, that would give rise to an inconsistency between the Court’s judgment and the ICC Award with the possible effect that the ICC Award would be denied recognition or enforcement. It is in this respect that the public interest would be engaged. Whether the ICC Award should or should not be denied recognition or enforcement is a matter to be considered upon a relevant application being made. In any event, this is not a consideration which causes me to change my decision on GPE’s application.
   3. Seventh, the interests of Overgas Inc on the one hand and the Principal Defendants on the other hand have not been established by GPE to be sufficiently close to undermine the reasoning I have adopted in coming to my conclusion. In particular, Overgas Inc is owned 50/50 by GPE/Gazprom PJSC on the one hand and Overgas Holding on the other hand. In this respect, I have well in mind the fact that there were common directors between Overgas Inc and Overgas Mrezhi and, further, that Overgas Inc had a majority shareholding in Overgas Mrezhi until April 2016, when its shareholding was substantially reduced. The reduction of Overgas Inc’s shareholding in Overgas Mrezhi is the subject of GPE’s complaint in these proceedings. However, there is no reason to conclude that these considerations render the Principal Defendants’ allegation of breaches of competition law an abuse of process on this ground. Moreover, there is no evidence which I have seen where I can safely conclude in an interlocutory hearing such as this that Overgas Mrezhi funded Overgas Inc’s conduct of the ICC arbitration proceeding.
   4. Eighth, I am aware of no authority which stands in the way of the decision to which I have come. In fact, I consider that the authorities referred to above support my conclusion (in particular, In re Norris, Conlon v Simms and Ablyazov), given that in each of those cases the person alleged to be guilty of an abuse of process had not been a party to the earlier proceedings and therefore did not have the opportunity to advance and prove its allegation in the earlier proceedings. The decisions in Laing v Taylor Walton and Art & Antiques v Richards gave me some pause. In any case, those decisions are distinguishable from the present case in that in each of those decisions, the Court held that it was an abuse of process for a contracting party in proceedings against a third party to the contract (a solicitor who advised in relation to the contract or an insurance broker who negotiated the contract) to present a case as to the contract’s meaning or content, which was at odds with an earlier decision as to the contents of a contract in proceedings between the two contracting parties. These decisions might be justified having regard to the facts that (a) the person presenting the abusive allegation in each case was the same in each of the earlier and later proceedings, and (b) the defendant in the later proceedings was responsible in some manner, whether by reason of legal advice or contractual negotiation, for the contents of those contracts. In any case, I do not consider that those decisions compel me to come to a different decision on GPE’s application.
   5. Ninth, it is apparent from the ICC Award that there was an absence of documentary or evidential material in some respects in the ICC arbitration proceedings. The explanation provided by the Principal Defendants concerned the limited availability of certain documentation. Insofar as there is additional documentation and/or evidence available in the English proceedings which is relevant and was not available in the ICC arbitration proceedings – and I did not understand GPE to contest this – that reinforces my decision on the lack of any abuse of process. In this context, the fact that the ICC arbitration disclosure model is request-led and in the current proceedings the Court has adopted Extended Disclosure Model D, which is not request-led, is a material consideration. This is especially so, bearing in mind that the EU Damages Directive 2014/104/EU states in recitals (14) and (15) that a claimant who asserts a claim for damages for infringements of EU or national competition law often will not have access to the documents held by the defendant needed to articulate its claim fully and contemplates that disclosure will be ordered by the Court in a Member State without any requirement that the claimant will have to specify individual items of documentation (see also Cooper Tire & Rubber Co Europe v Bayer Public Co [2010] EWCA Civ 864, at para. 43). Thus, the recitals state that:

“(14) Actions for damages for infringements of Union or national competition law typically require a complex factual and economic analysis. The evidence necessary to prove a claim for damages is often held exclusively by the opposing party or by third parties, and is not sufficiently known by, or accessible to, the claimant. In such circumstances, strict legal requirements for claimants to assert in detail all the facts of their case at the beginning of an action and to proffer precisely specified items of supporting evidence can unduly impede the effective exercise of the right to compensation guaranteed by the TFEU.

(15) Evidence is an important element for bringing actions for damages for infringement of Union or national competition law. However, as competition law litigation is characterised by an information asymmetry, it is appropriate to ensure that claimants are afforded the right to obtain the disclosure of evidence relevant to their claim, without it being necessary for them to specify individual items of evidence. In order to ensure equality of arms, those means should also be available to defendants in actions for damages, so that they can request the disclosure of evidence by those claimants. National courts should also be able to order that evidence be disclosed by third parties …”

1. That said, I am not in a position to assess the probative value of any additional documents or evidence which have or might become available in the English proceedings which were not available in the ICC arbitration proceedings. Accordingly, to be clear, I would have come to the same decision on the application even if I had ignored this consideration.
2. Tenth, it was suggested by GPE that if the ICC Arbitral Tribunal had come to an opposite conclusion, GPE would have been bound by that decision and could not now assert otherwise in the English proceedings. However, I do not necessarily accept that premise. If it is permissible for the Principal Defendants to advance allegations of breaches of competition law against GPE, I do not see why GPE could not have advanced the contrary case in the English proceedings had the ICC Arbitral Tribunal found that it had acted in breach of competition law in the ICC arbitration proceedings (see e.g. Conlon v Simms).
3. Eleventh, I have seen no evidence to indicate that Overgas Mrezhi and the other Principal Defendants do not have the genuine purpose of advancing their counterclaim or defence by reason of the alleged breaches of competition law. There is no evidence to suggest that the Principal Defendants are engaged in a collateral attack on the ICC Arbitral Tribunal’s decision.
4. Twelfth, stepping back and looking at the facts in the round, in my judgment, in permitting the Principal Defendants to pursue the allegations of breaches of competition law against GPE, there is no manifest unfairness to GPE and this does not bring the administration of justice into disrepute by allowing the Court’s process to be used as an instrument of oppression, injustice or unfairness. Indeed, the contrary conclusion would have caused manifest unfairness to the Principal Defendants. This is not one of those rare or exceptional cases where an abuse of process may be found to exist.
5. For these reasons, I dismiss GPE’s application to strike out the Principal Defendants’ statement of case insofar as it advances allegations of breaches of competition law against GPE.
6. I am grateful to both counsel for their very helpful and skilfully developed submissions.