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Manchester City Football Club Ltd v Football Association Premier League Ltd and others [2021] EWCA Civ 1110

 

 

Manchester City Football Club Ltd v Football Association Premier League Ltd and others [2021] EWCA Civ 1110

 

Judge(s): SIR GEOFFREY VOS

THE MASTER OF THE ROLLS

– and –

SIR JULIAN FLAUX

THE CHANCELLOR OF THE HIGH COURT

– and –

LORD JUSTICE MALES

Case Number: A4/2021/0615 & A4/2021/0617
Case Name: Manchester City Football Club Ltd v Football Association Premier League Ltd and others [2021] EWCA Civ 1110
Medium Neutral Citation: [2021] EWCA Civ 1110
Date of Order: 20 July 2021
Date of Hearing: 30 June 2021
Court: Court Of Appeal (Civil Division) [ENGLAND]
Division: Civil
Registry: Royal Courts of Justice

Strand, London, WC2A 2LL

Parties: MANCHESTER CITY FOOTBALL CLUB LTD

Appellant

 

– and –

 

THE FOOTBALL ASSOCIATION PREMIER LEAGUE LTD & OTHERS

Respondent

Representation: Lord Pannick QC, Paul Harris QC and David Gregory (instructed by Clifford Chance LLP) for the Appellant

&

Adam Lewis QC and Andrew Hunter QC (instructed by Bird & Bird LLP) for the Respondents (by written submissions only)

Appealed From: [2021] EWHC 711 (Comm)

 

JUDGMENT

Sir Julian Flaux C:

Introduction

  1. Manchester City Football Club Limited (“the Club”) appeals, with the permission of Males LJ granted on 14 April 2021, against the Order of Moulder J dated 23 March 2021 that her Merits Judgment and Publication Judgment (as defined hereafter) should be published other than to the parties. The appeal concerns the circumstances in which judgments of the Court on applications under sections 67 and 68 of the Arbitration Act 1996 (“the Arbitration Act”) should be published or should remain private, applying the principles set out by this Court in City of Moscow v Bankers Trust[2004] EWCA Civ 314; [2005] QB 207 (hereafter “City of Moscow”). There is also a preliminary question as to whether, given the terms of the relevant provisions of the Arbitration Act, this Court has jurisdiction to hear the present appeal, permission to appeal against the Order of 23 March 2021 having been refused by the judge.

Factual background

  1. The Football Association Premier League Limited (“the PL”) is a company in which the shareholders are the clubs playing in the Premier League in a particular season (“the member clubs”). The relationship between the PL and the member clubs is governed by the articles of association and the Rules of the PL (“the Rules”).
  2. In December 2018, the PL commenced a disciplinary investigation into the Club after allegations about the Club appeared in various European media reports which disclosed details of confidential documents obtained from a hack of the Club’s email servers. The PL contends that the media reports contain information suggesting breaches of the Rules by the Club. During the course of its investigation, the PL requested information and documents from the Club (including copies of various documents identified in those media reports) under Rule W.1. The Club objected to disclosure of that material.
  3. The allegations in the media reports led to The Union of European Football Associations (“UEFA”) commencing on 7 March 2019 a formal investigation into the Club over alleged breaches of UEFA’s financial fair play (“FFP”) regulations.
  4. The following day, 8 March 2019, the PL announced that it had also commenced an investigation into the same allegations, releasing the following statement:

“The Premier League has previously contacted Manchester City to request information regarding recent allegations and is in ongoing dialogue with the club. The league has detailed financial regulations and strong rules in the areas of academy player recruitment and third-party ownership. We are investigating and will allow Manchester City every opportunity to explain the context and detail surrounding them.”

  1. Subsequent developments in the UEFA investigation have been widely reported in the media and have been publicly commented on by both the Club and the PL. That investigation initially led to the Club being banned from UEFA’s European club competitions for two years as well as being fined €30 million, but the ban was overturned and the fine reduced to €10 million by a tribunal in the Court of Arbitration for Sport (“CAS”) in July 2020. It has been reported that, whilst the CAS tribunal held that the most serious allegations against the Club could either not be proved or were time barred, the reduced fine was upheld on the basis that the Club had breached UEFA’s regulations by failing to co-operate with the investigation.
  2. Apart from the PL’s statement on 8 March 2019, neither the PL nor the Club has publicly commented on the PL’s investigation. By a letter dated 18 July 2019 to the Club’s then solicitors, the PL’s solicitors confirmed that the investigation process was confidential and both parties had made strenuous efforts to ensure that this was so, for example by the use of secure file transfer technology.
  3. On 21 August 2019, the PL issued a disciplinary complaint against the Club under Section W seeking disclosure of certain documents and information. A Commission was appointed pursuant to Rule W.21, but its composition and the disciplinary system were challenged by the Club as not sufficiently independent or impartial. Although the PL proposed an ad hoc procedure for the appointment of a new Commission, the Club objected.
  4. By a request dated 22 October 2019, the PL then commenced an arbitration against the Club under Section X of the Rules seeking a declaration and/or determination that the Club was obliged to provide the PL with requested documents and information and an order for specific performance of the Club’s contractual obligation to deliver up documents and information which were being withheld. Under Rule X.8 then in force, the PL provided a list of people who were on a panel from which arbitrators were to be appointed (“the Panel”). The Club appointed John Machell QC from the Panel and the PL Daniel Alexander QC, and, in accordance with the Rules, the two arbitrators then appointed a chairman, Philip Havers QC.
  5. The Club challenged the jurisdiction of the arbitrators, submitting to the tribunal that, on a proper construction of the Rules, the PL had no power to institute a Section X arbitration in respect of its information claim. Accordingly it was submitted that the tribunal lacked substantive jurisdiction and the arbitration could not proceed. It was also submitted that the tribunal did not have the appearance of impartiality.
  6. On 6 February 2020, the Rules relating to the disciplinary and dispute resolution procedures were amended at a meeting of the shareholders.
  7. By its Award dated 2 June 2020, the arbitration tribunal rejected the Club’s challenge to its jurisdiction and impartiality and held that it had substantive jurisdiction to hear the PL’s claim and that it did not lack the appearance of impartiality.
  8. On 26 June 2020, the Club then issued an application by an Arbitration Claim in the Commercial Court contending that:

(1) the tribunal lacked jurisdiction because, on the true construction of the Rules, the PL did not have the power to institute the arbitration under Section X (“the Section 67 Challenge”);

(2) the tribunal was tainted with apparent bias due to the process for appointment and reappointment to the Panel from which arbitrators could be appointed to tribunals for arbitrations instituted under Section X (“the Section 68 Challenge”); and

(3) the arbitrators should accordingly be removed under section 24 of the Arbitration Act.

  1. Before that application was heard, the arbitration continued. On 24 July 2020, the tribunal rejected the Club’s arguments resisting the PL’s case that it was under an obligation to provide certain documents and information to the PL. Accordingly, on 2 November 2020, the tribunal ordered the Club to provide certain documents and information to the PL and to make enquiries of third parties. That order was stayed pending the hearing of the Club’s application to the Commercial Court.
  2. The hearing of the Club’s application before the judge on 1 and 2 March 2021 was in private pursuant to CPR 62.10. In her judgment dated 17 March 2021 (“the Merits Judgment”) the judge dismissed the application. In relation to the Section 67 Challenge, she concluded that the language of Rule X.2 which permitted “all disputes” to be referred to arbitration is not limited by Section W of the Rules (which concern the powers of the PL to deal with suspected or alleged breaches of the Rules). In relation to the Section 68 Challenge she concluded that applying the decision of the Supreme Court in Halliburton Company v Chubb Bermuda Insurance Ltd [2020] UKSC 48 (hereafter “Halliburton”), the matters relied on by the Club (the remuneration of the arbitrators from being on the Panel, the process by which they were appointed to the Panel under the Rules and the control by the PL over reappointment, so the arbitrators lacked security of tenure) did not satisfy the test that a fair minded and informed observer would conclude that there was a real possibility that the arbitrators were biased. Accordingly the section 24 application was also dismissed.
  3. By her Order dated 17 March 2021, the judge dismissed the Arbitration Claim and refused permission to appeal to the Court of Appeal, giving as her reasons: (i) that the construction issue was decided on the basis of the application of the principles in Wood v Capita Insurance Services Ltd [2017] UKSC 24; (ii) that there was no other compelling reason for an appeal as the implications for other clubs was limited since as members of the PL they collectively had power to change the Rules and (iii) that the issue of apparent bias had been decided applying the test of general application approved and having regard to the features of arbitration identified by the Supreme Court in Halliburton.

The judgment under appeal

  1. When the judge sent out the draft of the Merits Judgment to the parties to provide typographical corrections, the covering email indicated that she was minded to publish that judgment. Both parties provided written submissions on the issue of publication and indicated that they were content for the judge to deal with the issue on the papers without the need for a further hearing. Both parties opposed publication, albeit the PL did so subject to an important caveat or condition to which I will return.
  2. By the Publication Judgment dated 24 March 2021, the judge rejected those submissions opposing publication and determined that the Merits Judgment should be published. Having set out the parties’ submissions, at [11] she summarised the key principles relevant to the case before her derived from the judgment of Mance LJ (as he then was) in City of Moscow. It was not suggested by Lord Pannick QC on behalf of the Club that this summary of the principles by the judge was inaccurate:
  3. i) “Whatever the starting point or actual position during a hearing [in other words even if the hearing is in private under CPR 62.10], it is, although clearly relevant, not determinative of the correct approach to publication of the resulting judgment” (at [37]).
  4. ii) “Further, even though the hearing may have been in private, the court should, when preparing and giving judgment, bear in mind that any judgment should be given in public, where this can be done without disclosing significant confidential information. The public interest in ensuring appropriate standards of fairness in the conduct of arbitrations militates in favour of a public judgment in respect of judgments given on applications under s.68. The desirability of public scrutiny as a means by which confidence in the courts can be maintained and the administration of justice made transparent applies here as in other areas of court activity under the principles of Scott v. Scottand article 6. Arbitration is an important feature of international, commercial and financial life, and there is legitimate interest in its operation and practice…” (at [39] emphasis added [by the judge]).

iii) “The factors militating in favour of publicity have to be weighed together with the desirability of preserving the confidentiality of the original arbitration and its subject-matter” (at [40]).

  1. iv) A party inviting the court to protect evidently confidential information about a dispute must not necessarily prove positive detriment, beyond the undermining of its expectation that the subject-matter would be confidential (at [46]).
  2. In the Discussion section of her judgment the judge then considered whether publication would lead to disclosure of “significant confidential information”. She noted that the first such piece of confidential information identified by the Club was the existence of a dispute concerning the PL’s request for documents and information. The judge considered this could not be considered “significant” confidential information for two reasons. First, as a result of the PL’s public statement in March 2019 (as quoted in [5] above), the existence of the investigation had been in the public domain for some time. Whilst it was not in the public domain that the PL had requested documents and information and that the Club had resisted the request, the judge considered that any reasonable reader of the public statement would be likely to infer that the investigation might involve the production of documents and information so that she considered that it was difficult to see how it could be viewed as “significant” confidential information.
  3. Second, she considered that the Merits Judgment did not contain any significant details relating to the disclosure dispute: the judgment does not state the nature of the documents and information requested or the significance of those documents and information to the wider investigation and it does not state the outcome of the arbitration other than on procedural matters.
  4. The judge said at [14] that the only confidential information that would be disclosed is the existence of the dispute and the arbitration. Where it was already public knowledge that the underlying investigation was taking place, she did not regard that confidential information as significant. At [15] she noted: “the desirability of preserving the confidentiality of the original arbitration and its subject-matter” referred to at [40] of City of Moscow, but said that there was nothing about the details of the underlying dispute in the Merits Judgment. At [16], she said that, whilst the expectation of the parties of confidentiality in arbitration was a factor to be taken into account, it was not determinative, even where both parties are opposed to publication.
  5. The judge went on to consider whether publication would result in real prejudice or significant detriment to the Club, whilst accepting that it was not necessary for the Club to prove detriment. She considered that, given that the investigation into the alleged breach of the Rules was already public knowledge, although publication of the Merits Judgment might attract media interest it was difficult to see any detriment. She took into account the Club’s legitimate interest in ensuring that a fair procedure was followed and noted that, whilst the Merits Judgment made reference to the PL’s submission that the Club’s challenge was tactical, it also set out the Club’s submissions in response and that neither the tribunal nor the Merits Judgment made such a finding. Whilst the Club may wish to avoid further media attention regarding the investigation, it was difficult to see any real prejudice from disclosure of the existence of the dispute as to production of documents and information.
  6. The Club had also submitted that public comment and press speculation would prejudice the future investigation. The judge said it was difficult to see how that could arise when the investigation was carried out by the PL, which was already privy to the information said to be confidential and should a Commission or Appeal Board be appointed under the Rules as now amended those appointments were made by a senior judicial figure. If the matter went to arbitration, the arbitrators had each to be a “Suitably Qualified Person”, that is a barrister or solicitor of 10 years standing and “independent of the party appointing him and able to render an impartial decision” (Rule X.10). The judge could not see how public comment or press speculation would undermine the independence of these individuals and prejudice the future investigation.
  7. In conclusion at [19], the judge said it was desirable for any judgment to be made public in order to ensure public scrutiny and the transparent administration of justice providing “this can be done without disclosing significant confidential information”. The confidential nature of arbitration had to be weighed against the public interest in ensuring appropriate standards of fairness in the conduct of arbitrations. She concluded at [20]-[21] that the desirability of public scrutiny and the transparent administration of justice outweighed the competing considerations against publication so that the Merits Judgment ought to be published.
  8. On 26 March 2021, the judge refused permission to appeal against the Publication Judgment. She held that she had applied the principles in City of Moscowand neither taken account of irrelevant matters nor failed to take account of relevant matters. She said at [14] that in her view the Club had a right to make an application for permission to appeal against the Publication Judgment to the Court of Appeal, because it was neither an appeal under section 67 nor section 68 of the Arbitration Act which would be precluded by the terms of respectively section 67(4) and section 68(4). The policy considerations of finality of arbitration did not appear relevant to the separate issue of publication of a judgment and the appeal would not be concerned with the substantive issue dealt with in the Merits Judgment. There was some support for this conclusion from the authorities relied upon by the Club.
  9. The judge granted a stay for seven days so that the Club could make an application for permission to appeal to the Court of Appeal.

The grounds of appeal

  1. The Club puts forward two grounds of appeal:
  2. i) First, the Judge erred by ordering the publication of the Judgments.
  3. ii) Second, in the alternative, the Judge erred by failing to stay publication of the Judgments pending the conclusion of the PL’s investigation.
  4. On 20 April 2021, Males LJ granted permission to appeal on both grounds on the assumption that the Court of Appeal had jurisdiction to do so, saying that whether the Court of Appeal had such jurisdiction was a point of general importance which it was appropriate for this Court to consider. He also ordered that the appeal should be heard in private, that the papers in the appeal should be confidential and not made available to anyone other than the parties and he continued the stay on publication granted by the judge until the conclusion of the appeal.
  5. In the circumstances, I will consider first the issue of jurisdiction. Before doing so, I should refer to the fact that, on the eve of the hearing of the appeal, Associated Newspapers Limited (publishers of the Mail on Sunday) made an application for one of their journalists, Mr Dan Matthews, to be present at the hearing and to be provided with copies of the judgments of Moulder J and the parties’ skeleton arguments, to enable them to understand and to scrutinise the process of the Court. Lord Pannick QC resisted this application on the basis that the hearing was in private and the subject-matter was confidential. However, we acceded to the application, upon Associated Newspapers Limited and Mr Mathews giving undertakings (which they were willing to give) not to publish or disclose the judgments or the skeleton arguments without further Order of the Court and on the basis that the hearing of the appeal remained private.

Jurisdiction

  1. The consequence of the judge’s refusal of permission to appeal against the Merits Judgment in her Order of 17 March 2021 was that this Court has no jurisdiction to entertain an appeal against the Merits Judgment. This is the effect of sections 67(4), 68(4) and 24(6) of the Arbitration Act, each of which provides: “The leave of the court is required for any appeal from a decision of the court under this section.” Lord Phillips MR, giving the leading judgment of the Court of Appeal in Athletic Union of Constantinople v National Basketball Association (No 2)[2002] EWCA Civ 830; [2002] 1 WLR 2863, held at [12] that “the court” in the sections means the Commercial Court (which was the court that made the decision in that case) saying:

“(4) Sections 67, 68 and 69 demonstrate a consistent legislative policy that no appeal shall be made against the decision of a court without the permission of that court. In this respect, there is no logical reason for distinguishing between the effects of sections 67(4) and 68(4) on the one hand, and the effect of section 69(8) on the other hand.

(5) In reserved judgments, this court has recently unanimously held that, on the true construction of section 69(8), a party who wishes to appeal from the decision of the High Court or the county court on appeal from an arbitration award requires the permission of the High Court or the county court, as the case may be, and that the Court of Appeal has no jurisdiction either to grant permission itself or to review a refusal of the High Court or county court to grant permission: (see Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd [2001] 1 QB 308). Much of the reasoning of Waller LJ, who gave the leading judgment in that case, can be applied to section 67(4).”

  1. Lord Pannick QC accepted that the jurisdiction of the Court of Appeal to hear an appeal from a decision under one of those sections was restricted to cases where the Court at first instance had granted permission to appeal, but submitted that the separate issue of an appeal against an Order for publication of the Merits Judgment was not within that restriction for three reasons.
  2. First, as a matter of language of the statutory provisions, taking section 67(4) as the example, what was being referred to was an appeal from a decision as to the substantive jurisdiction of the arbitration tribunal under section 67. An appeal against a decision to publish a decision under section 67 was not itself a decision under section 67. Second, this conclusion was supported by the policy reason for the restrictions in each of these sections, which was to limit further appeals because they would lead to delay in the resolution of a dispute decided by arbitration. This policy reason was explained cogently by May LJ in Amec Civil Engineering Ltd v Secretary of State for Transport[2005] EWCA Civ 291; [2005] 1 WLR 2339 at [9]:

“Mr Robert Akenhead QC was appointed arbitrator. He is a specialist leading counsel with wide experience of construction contract matters. He rejected Amec’s contentions that he had no jurisdiction because the notice of arbitration was ineffective. He also rejected their contention as to the limited scope of the arbitration. Amec appealed against this decision under section 67 of the 1996 Act. On 11th October 2004, Jackson J, sitting in the Technology and Construction Court, dismissed Amec’s appeal in a persuasive judgment. He gave Amec leave to appeal to this court, his leave being a necessary precondition of such an appeal under section 67(4) of the 1996 Act. I am not convinced that he was right to do so. The policy of the 1996 Act does not encourage such further appeals which in general delay the resolution of disputes by the contractual machinery of arbitration. The judge and Mr Akenhead had reached the same conclusion for substantially the same reasons. Their combined experience and authority was, I think, sufficient to conclude the matter without an expensive second appeal.”

  1. Lord Pannick QC submitted that to recognise that this Court has jurisdiction in respect of the appeal against the Publication Judgment would not impede that policy objective. The appeal would not delay the ongoing arbitration process which would continue to take place in private. It was not suggested by the PL that the appeal against the Publication Judgment would impede the investigation.
  2. Third, Lord Pannick QC submitted that the conclusion that the Court did have jurisdiction to hear this appeal was supported by previous judicial decisions. He relied primarily on the analysis of section 18(1)(g) of the Senior Courts Act 1981 by the House of Lords in Inco Europe Ltd v First Choice Distribution[2000] 1 WLR 586. Section 18(1)(g) provides: “No appeal shall lie to the Court of Appeal: …(g) except as provided by Part I of the Arbitration Act 1996 [Part I includes sections 24 and 67 to 69], from any decision of the High Court under that Part.”
  3. In that case, the defendants applied to stay an action under section 9 of the Arbitration Act on the basis that the parties had agreed to refer the relevant dispute to arbitration. The judge at first instance held that the arbitration agreement was null and void and refused a stay. He also refused leave to appeal on the ground that, under section 18(1)(g) of the Senior Courts Act 1981, the Court of Appeal did not have jurisdiction to entertain an appeal against the grant or refusal of a stay in favour of arbitration. The Court of Appeal granted permission to appeal and allowed the appeal on the basis that the judge should have granted a stay. The House of Lords refused a further appeal, holding that the Court of Appeal had jurisdiction to hear the appeal. Lord Pannick QC referred in particular to what Lord Nicholls of Birkenhead said at 592A-C:

“I am left in no doubt that, for once, the draftsman slipped up. The sole object of paragraph 37(2) in Schedule 3 was to amend section 18(1)(g) by substituting a new paragraph (g) that would serve the same purpose regarding the Act of 1996 as the original paragraph (g) had served regarding the Act of 1979. The language used was not apt to achieve this result. Given that the intended object of paragraph 37(2) is so plain, the paragraph should be read in a manner which gives effect to the parliamentary intention. Thus the new section 18(1)(g), substituted by paragraph 37(2), should be read as confined to decisions of the High Court under sections of Part I which make provision regarding an appeal from such decisions. In other words, ‘from any decision of the High Court under that Part’ is to be read as meaning ‘from any decision of the High Court under a section in that Part which provides for an appeal from such decision’.”

  1. Lord Pannick QC also relied on the decision of the Court of Appeal in Virdee v Virdi[2003] EWCA Civ 41. In that case, this Court held that it had no jurisdiction in relation to the appointment of arbitrators by the Court under section 18 of the Arbitration Act (subsection (5) of which contains the same limitation on the right of appeal as the sections relied upon here) where the judge had refused permission to appeal. However, it held that it did have jurisdiction in respect of other orders the judge had made as to whether legal representation was allowed and as to costs between the parties, since the relief sought did not fall within any of the sections of the Arbitration Act.
  2. Lord Pannick QC recognised that Virdeewas of little if any precedential value, since only one party was present at the hearing and he was not legally represented. Brooke LJ said at [4]:

“Given that we have not had the benefit of counsel’s arguments on both sides, although we have had access to the material to which I have referred, this case should not be regarded as binding precedent in the sense that, if the matter comes before the court again, the court should not have the opportunity of considering it and hearing full argument on it free from the shackles of precedent. In all the circumstances, however, we must, of course, deal with the point now on the material which is in front of us.”

  1. Lord Pannick QC also relied upon the decision of the Court of Appeal in Peel v Coln Park LLP[2010] EWCA Civ 1602, which was an application for permission to appeal against a refusal by the judge at first instance to extend the 28-day period for challenging an award under section 70(3) of the Arbitration Act. Again that case is of little precedential value since counsel for the respondents conceded that there was jurisdiction to grant permission to appeal, although Longmore LJ thought this must be right saying at [13]:

“that must be right since section 80(5) of the 1996 Arbitration Act requires that rules of court relating to extending periods of time apply in relation to any time requirement, and so we have the slightly paradoxical situation that, whereas the refusal of the judge at first instance on a matter of substance under section 68 or section 69 cannot be reconsidered by this court, an application of a preliminary nature for extension of time is apparently a matter which can be reconsidered by this court.”

  1. Citation of those cases provoked a debate between counsel and the Court as to where the line was to be drawn between decisions which would be caught by the limitation on the right of appeal in the relevant section of the Arbitration Act and decisions which would not. Lord Justice Males posited the example of a case management decision about how a section 68 application should be dealt with. As I said at the time, that would seem to be an example of something which is part of the process of reaching a decision under section 68, so would be caught by the limitation on the right of appeal. The Master of the Rolls suggested to Lord Pannick QC that a consequential decision on a section 68 application, for example as to costs, would also be caught by the limitation.
  2. Lord Pannick QC made it clear that he was not inviting this Court to lay down any general principles applicable in every case, but only to determine that this Court had jurisdiction to hear the appeal from the Publication Judgment. I agree that it is not necessary for present purposes to determine the more difficult question whether case management decisions either side of the substantive decision under, say, section 67 or 68, for example as to how a hearing is to be conducted or as to costs, would be caught by the limitation in sub-section (4) of each section. Whilst such case management decisions may be said to be part of the process of reaching the substantive decision, the question whether the substantive decision should be published is a distinct question separate from the decision itself. In the present case, the judge’s decision that the Merits Judgment and the Publication Judgment should be published was an application of common law principles as set out in the decision of this Court in City of Moscow. It was not a decision of the Court under sections 24, 67 or 68 and was, therefore, not caught by the limitation on the right of appeal. In those circumstances, I am satisfied that this Court has jurisdiction to hear this appeal under section 16 of the Senior Courts Act 1981 and that the restriction in section 18(1)(g) of that Act is not applicable.

The parties’ submissions on the appeal

  1. In addition to the passages in the judgment of Mance LJ in City of Moscowto which the judge referred, Lord Pannick QC referred the Court to [28], [30]-[32] and [34]. For present purposes it is only necessary to set out [32] and [34]:

“32. The rule makers clearly deduced from the principles of the Arbitration Act 1996 that any court hearing should take place, so far as possible, without undermining the reasons of inter alia privacy and confidentiality for which parties choose to arbitrate in England. Their conclusion in this regard has not been challenged. It may be justified on the simple basis that arbitration represents a special case, in relation to which there has been very considerable development during recent years. An alternative and overlapping consideration is that parties may be deterred from arbitrating or at any rate from invoking the court’s supervisory role in relation to arbitration if their understanding regarding arbitral confidentiality and privacy is ignored. I would personally doubt whether it can be said without any positive evidence that the publication that has in the past frequently followed applications to set aside arbitration awards, e.g. for misconduct, has itself been likely to be detrimental to parties’ keenness or otherwise to agree to arbitrate in London. But I find it easier to accept that, having arbitrated unsuccessfully here, a party could well be deterred from making an arbitration claim in court if there was a risk that by doing so really confidential matters might be disclosed.

  1. The consideration that parties have elected to arbitrate confidentially and privately cannot dictate the position in respect of arbitration claims brought to court under CPR 62.10. CPR 62.10 therefore only represents a starting point. Such proceedings are no longer consensual. The possibility of pursuing them exists in the public interest. The courts, when called upon to exercise the supervisory role assigned to them under the Arbitration Act 1996, are acting as a branch of the state, not as a mere extension of the consensual arbitral process. Nevertheless, they are acting in the public interest to facilitate the fairness and well-being of a consensual method of dispute resolution, and both the Rule Committee and the courts can still take into account the parties’ expectations regarding privacy and confidentiality when agreeing to arbitrate.”
  2. Lord Pannick QC accepted that the judgment of Mance LJ demonstrates that, in each case, in considering whether a judgment should be published, it is a question of weighing confidentiality and any detriment to the parties from publication against the public interest in publication, particularly where the judgment raises matters of some general importance.
  3. He submitted that the circumstances in which an appellate court can interfere with an evaluative judgment by a lower court are accurately set out by Lord Carnwath JSC in R (AR) v Chief Constable of Greater Manchester police[2018] UKSC 47; [2018] 1 WLR 4079 at [64]:

“In conclusion, the references cited above show clearly in my view that to limit intervention to a “significant error of principle” is too narrow an approach, at least if it is taken as implying that the appellate court has to point to a specific principle – whether of law, policy or practice – which has been infringed by the judgment of the court below. The decision may be wrong, not because of some specific error of principle in that narrow sense, but because of an identifiable flaw in the judge’s reasoning, such as a gap in logic, a lack of consistency, or a failure to take account of some material factor, which undermines the cogency of the conclusion. However, it is equally clear that, for the decision to be “wrong” under CPR 52.11(3), it is not enough that the appellate court might have arrived at a different evaluation. As Elias LJ said (R (C) v Secretary of State for Work and Pensions [2016] EWCA Civ 47; [2016] PTSR 1344, para 34):

“… the appeal court does not second guess the first instance judge. It does not carry out the balancing task afresh as though it were rehearing the case but must adopt a traditional function of review, asking whether the decision of the judge below was wrong.””

  1. Lord Pannick QC submitted that there had been errors of principle by the judge in her evaluation. As she had indicated in refusing permission to appeal the Merits Judgment, she had applied the principles in Halliburtonand there was no novelty in her decision, so there was no question of the judgment requiring publication.
  2. In [5] of his Reasons for granting permission to appeal, Males LJ had said that it was arguable that the question dealt with in the Merits Judgment whether, at least until the Rules changed in February 2020, the system for appointing arbitrators in disputes involving the Premier League was structurally biased, was itself a matter of some public interest telling in favour of publication. Lord Pannick QC sought to counter this by submitting that the judge had decided the issue by applying the principles in Halliburtonand, in any event, this would only be of historical interest because the Rules had changed and appointment of arbitrators was now made by an independent chair. The Club’s complaint had been specific to its case.
  3. In relation to her determination that publication would not involve disclosure of significant confidential information, the judge had referred to the public statement by the PL as reported in the Times on 8 March 2019. For completeness, it was pointed out that there had been a recent article in the New York Times on 4 May 2021 about the dispute. This said, inter alia:

“City [the Club] has spent millions of dollars defending itself since the allegations first emerged. Its lawyers are fighting against the [PL]’s arbitration process, arguing that the club will not get a fair hearing, according to documents. The [PL] did not reply to a request for comment.”

Essentially the same story was reported in the Mail Online the same day.

  1. Lord Pannick QC submitted that, notwithstanding the publication of these three articles, publication of the Merits Judgment would disclose that there was a decision in the arbitration at an early stage, when the parties had a reasonable expectation of confidentiality being maintained. What was not publicly known was that the Club had argued that there was no power to arbitrate the particular dispute under the Rules and that there was apparent bias. All of that was confidential and publication would tell the world what was going on and why, in circumstances where the arbitration was not concluded. Lord Pannick accepted the point made by the judge at [13(ii)] of her judgment, summarised at [20] above, that the Merits Judgment does not contain any significant details of the substance of the disclosure dispute.
  2. However he submitted that the judge had not recognised that, contrary to her conclusions at [17] and [18], publication of the Merits Judgment will inevitably lead to extensive press comment and speculation in relation to a matter which had been confidential to date and which the parties were entitled to expect to remain confidential. The press would report whatever they could arising from the judgment and this would be prejudicial to the Club. It was contended that press comment and speculation could be prejudicial to the Club, for example in its dealings with commercial partners. The Club’s skeleton argument served on 6 May 2021 referred to it being in advanced negotiations regarding a potential deal, but Lord Pannick QC informed the Court on instructions that this was no longer the case. Such publicity and press speculation could also potentially disrupt the orderly conduct of the investigation by the PL.
  3. Lord Pannick QC submitted that the judge had erred in finding that publication would not involve disclosure of significant confidential information and in concluding that the Club would suffer no real detriment from publication. She had placed undue weight on the desirability of public scrutiny and therefore had erred in the performance of the relevant balancing exercise, so that it was open to this Court to interfere.
  4. If the Court were against the Club on the first ground of appeal, Lord Pannick QC pursued the second ground, which was that any publication should be stayed until the end of the disciplinary process, which would ensure that any wider public benefit from the publication of the Merits Judgment would accrue, but only at a time when it would not cause the Club and the PL harm in the context of the ongoing proceedings. Contrary to what Males LJ had said at [4] of his Reasons for granting permission to appeal, this alternative argument had been relied upon by the Club before the judge.
  5. The Club also relied upon the fact that its appeal is supported by the PL. The PL put in written submissions from Mr Adam Lewis QC and Mr Andrew Hunter QC, but they did not attend the hearing. They contended that the privacy of Section X arbitrations under the Rules was significant and in need of protection, although they recognised that this argument had been run unsuccessfully in the Commercial Court in Newcastle United Football Club Ltd v The Football Association Premier League [2021] EWHC 450 (Comm). The PL’s argument was that the substantive judgment of HHJ Pelling QC rejecting that club’s bias application should not be published, because the arbitration was pending and was confidential and there was no countervailing public interest justifying publication of the judgment, which raised no new point of law or practice. That argument was rejected by HHJ Pelling QC who ordered publication.
  6. The PL’s support for the Club’s position was conditional, however, on the Club’s agreement that any order as to privacy should be subject to an exception, that the PL should be entitled to rely upon the Merits Judgment in other relevant proceedings between it and other member clubs and to disclose it to such other member clubs as a clear confirmation by the Commercial Court that the PL is entitled to bring specific performance proceedings against member clubs under Section X of the Rules. The Club had agreed to this condition both before the judge and before this Court.

Discussion

  1. In my judgment, the judge made the correct evaluative assessment in ordering that the Merits Judgment and the Publication Judgment should be published, for a series of inter-related reasons.
  2. First, I agree with the judge that publication will not lead to disclosure of significant confidential information. What will be disclosed is the existence of the dispute and the arbitration in circumstances where it is already public knowledge that the underlying investigation by the PL is taking place and, as the judge said, the reasonable reader of the Times article would assume that the investigation would involve the production by the Club of documents and information. Furthermore, since the judge’s judgments, the existence of a dispute and of the arbitration is now in the public domain, as a consequence of the articles in the New York Times and the Mail Online. Specifically it is known that there is an arbitration in progress and that the Club is arguing that it cannot have a fair hearing (which would seem to be a non-lawyer’s interpretation of the allegation of apparent bias). Given what is now in the public domain, it is unreal to suggest that what will be disclosed by the publication of the Merits Judgment, namely the challenge to the jurisdiction of the arbitrators and the unsuccessful allegation of apparent bias, is in any sense significant confidential information. What will not be disclosed by the publication is any details of the substance of the underlying disclosure dispute.
  3. Second, I was not impressed with Lord Pannick QC’s argument that publication was not in the public interest because the Club’s complaint was specific to the Club’s case and, in any event, the judge had simply applied the principles recently confirmed by the Supreme Court in Halliburton. I consider that there is a legitimate public interest in how disputes between the PL and member clubs are resolved and, in particular, in the allegation of structural bias made by the Club which appears to have led to a change in the Rules. As HHJ Pelling QC said at [21] of his judgment in the Newcastle United case, there is a public interest in the publication of a judgment determining an application under section 24 of the Arbitration Act (in other words a judgment dealing with an allegation of apparent bias), because there is a public interest in maintaining appropriate standards of fairness in the conduct of arbitrations. This is so even if the judges determining such applications are applying the principles confirmed by Halliburtonrather than making new law. I also consider that there is a public interest in there being some explanation for the delay in the present case, where the investigation was made public as long ago as March 2019 but has hardly advanced since.
  4. Third, the fact that the PL supports the Club’s appeal so that both parties to the arbitration are opposed to publication is of some weight, but should lead to the Court being careful not simply to accept the parties’ wishes without scrutiny. As Sir Christopher Staughton said in Ex parte P (1998) (unreported) (as cited with approval by Lord Woolf MR giving the judgment of this Court in R v Legal Aid Board ex parte Kaim Todner [1999] QB 966 at 977, in turn cited by Mance LJ at [20] of City of Moscow): “When both sides agreed that information should be kept from the public, that was when the court had to be most vigilant”.
  5. Fourth, in so far as the Merits Judgment confirms the entitlement of the PL to claim specific performance against member clubs, it is of public interest and significance. This point is confirmed by the condition which the PL has imposed on its support of the appeal, that it should be free to rely on and disclose the Merits Judgment in other arbitration proceedings against other member clubs. This demonstrates that whatever interest the parties have in confidentiality is far outweighed by the public interest in the publication of an important judgment on the scope of Section X of the Rules. This point about the importance of the judgment is put clearly in the PL’s own skeleton argument for this appeal at [2]:

“It is correct that the Merits Judgment turned on the application of the normal rules of construction [of] a contract and the application of the undisputed bias test in Halliburton to the uncontested facts. However the specific and clear confirmation in it by the Commercial Court that the PL is entitled to bring specific performance proceedings against a member club under Section X of [the PL Rules] for enforcement of its contractual right to documents (and by parity of reasoning for enforcement of other contractual rights in the PL Rules), is of great significance in the future for the PL, for all member clubs and for practitioners. The PL was concerned before Moulder J, and remains concerned, that absent publication, this important Commercial Court guidance would not be available to those whom it might affect.”

  1. Whilst the desire of the PL to have the best of both worlds is commercially understandable, it is difficult to envisage a more eloquent demonstration as to why publication of the Merits Judgment is in the public interest.
  2. Fifth, I consider that the judge was right to view the Club’s case that publication would cause it prejudice or detriment with considerable scepticism. Given what is already in the public domain, disclosure of the existence of the dispute as to production of documents and information could hardly give rise to any prejudice or detriment to the Club. The suggestion that press interest and speculation might disrupt the investigation or the arbitration, where both are being conducted by experienced professionals is entirely fanciful. Likewise the suggestion that press comment and speculation following publication might damage the Club’s relations with commercial partners was unconvincing. As Lord Justice Males said during the course of argument, any potential commercial partner with whom the Club might enter a contract would be bound to conduct due diligence, which would reveal the existence of the investigation and the dispute.
  3. In all the circumstances, I consider that the judge was entirely correct to order publication of the Merits Judgment so that the first ground of appeal fails. Likewise, given that the public interest in publication outweighed any confidentiality, there was no good reason for deferring publication until after the conclusion of the disciplinary process so that the second ground of appeal also fails. This appeal must be dismissed.

Lord Justice Males:

  1. I agree that this appeal must be dismissed for the reasons given by the Chancellor. I add a few comments in view of the interest and importance of this case in ensuring the correct balance between the confidentiality of arbitration proceedings and the principle of open justice for court proceedings.
  2. As explained in City of Moscow, when considering whether a judgment on an arbitration claim should be published, with or without anonymisation, the court must weigh the factors militating in favour of publicity against the desirability of preserving the confidentiality of the original arbitration and its subject matter. In general, the imperative of open justice, involving as it does the possibility of public scrutiny as a means by which confidence in the courts can be maintained and the administration of justice can be made transparent, will require publication where this can be done without disclosing significant confidential information.
  3. In the present case Moulder J weighed the various considerations appropriately. Her conclusion that her judgment should be published was one which she was entitled to reach. It was not, in my view, a marginal decision. On the contrary, bearing in mind the careful way in which the judge expressed herself in the Merits Judgment in order to avoid revealing information about the underlying dispute, the balance here was clearly in favour of publication.
  4. That would be so even without the condition imposed by the Premier League that it should be free to rely on and disclose the Merits Judgment in other arbitration proceedings (see [57] above), a condition which the judge did not need to mention in the Publication Judgment (and of which I was not aware when granting permission to appeal). But in my judgment the imposition of that condition is fatal to this appeal. The compromise negotiated between the Club and the Premier League whereby the judgment would not be published, but would be available to the Premier League in the event of disputes with other clubs, is unacceptable. If the judgment is to be available as a potentially important precedent, it must be available to all.
  5. More generally, it seems to me that public scrutiny of the way in which the court exercises its jurisdiction to set aside or remit awards for substantial irregularity under section 68 of the 1996 Act is itself in the public interest. In City of MoscowMance LJ addressed a concern that publication of judgments would upset the confidence of the business community in English arbitration. He was sceptical about the extent to which, if at all, this would be so. I share his scepticism, for two reasons. First, the business community will see that, just as in this case, Commercial Court judges can be trusted to ensure that genuinely confidential information is not published. Second, publication of such judgments will confirm the pro-arbitration stance consistently taken by the English courts and thus will enhance the confidence of the business community in English arbitration. It will demonstrate that the section 68 gateway is a very narrow one, not only in theory but in practice, and that it is only in cases of real injustice that arbitral awards can be successfully challenged in the English courts.
  6. Finally, the Club has been anxious to emphasise before us that “the arbitral proceedings relate to an ongoing and confidential investigatory and disciplinary process which is still in its early stages”, and that it may be that no charges will ever be brought against it. While that may be true, it seems to me that this is, if anything, a factor which tells in favour of publication. This is an investigation which commenced in December 2018. It is surprising, and a matter of legitimate public concern, that so little progress has been made after two and a half years — during which, it may be noted, the Club has twice been crowned as Premier League champions.

The Master of the Rolls:

  1. I agree with both judgments.

 

 

Chongqing Loncin Engine Parts v New Monarch Machine Tool, No. 5:21-cv-00084 (N.D.N.Y. 3 August 2021).

 

UNITED STATES DISTRICT COURT

Chongqing Loncin Engine Parts v New Monarch Machine Tool, No. 5:21-cv-00084 (N.D.N.Y. 3 August 2021).

FILE NUMBER: No. 5:21-cv-00084
JUDGE(S): DAVID N. HURD United States District Judge
REGISTRY: NORTHERN DISTRICT OF NEW YORK
DATE OF HEARING:
DATE OF JUDGMENT: 3 August 2021
CASE MAY BE CITED AS: Chongqing Loncin Engine Parts v New Monarch Machine Tool, No. 5:21-cv-00084 (N.D.N.Y. Aug. 3, 2021).
MEDIUM NEUTRAL CITATION: 5:21-cv-00084-DNH-TWD
DIVISION: UNITED STATES DISTRICT COURT
LIST
PARTIES: CHONGQING LONCIN ENGINE PARTS CO., LTD. (also known as Chongqing Lightweight Automotive Components Co. Ltd.),

and

NANJING LONCIN NEMAK PRECISION MACHINERY CO. LTD., Plaintiffs,

-v-

NEW MONARCH MACHINE TOOL, INC., Defendant.

REPRESENTATION: REN RONG PAN ATTORNEY AT LAW of REN RONG PAN, ESQ.

Attorneys for Plaintiffs

45 Division Street, 2nd Floor

Suite 201

New York, NY 10002

 

and

 

HANCOCK ESTABROOK, LLP of ANNELIESE ALIASSO, ESQ.

Attorneys for Defendant

1800 AXA Tower I

100 Madison Street

Syracuse, NY 13202

Appeal:

 

 

JUDGMENT
 

 

DAVID N. HURD United States District Judge

 

MEMORANDUM-DECISION and ORDER

 

  1. INTRODUCTION

 

On January 14, 2021, petitioners Chongqing Loncin Engine Parts Co., Ltd. (“Chongqing”) and Nanjing Loncin Nemak Precision Machinery Co., Ltd. (“Nanjing”), two Chinese engine parts manufacturers, filed this action under the Federal Arbitration Act (“FAA”) and the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) seeking to confirm an arbitration award they received from the China International Economic & Trade Arbitration Committee (“CIETAC”) against respondent New Monarch Machine Tool, Inc. (“New Monarch” or “respondent”), an American tool manufacturer based in Cortland, New York.1 The petition has been fully briefed and will be considered on the basis of the submissions without oral argument.

  1. BACKGROUND2

Chongqing and Nanjing (collectively “petitioners”) are two Chinese companies that purchase and import machine tools used in the manufacture of automobile engines and other machine parts. New Monarch is an

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1 Petitioners initially laid venue in the Southern District of New York. However, on January 19, 2021, U.S. District Judge Gregory H. Woods issued an order to show cause why the matter should not be transferred to the Northern District of New York in light of the petition’s allegation that respondent was “located” in Cortland County. See Dkt. No. 15. After petitioners consented, the case was transferred to this judicial district pursuant to 28 U.S.C. § 1406(a). Dkt. No. 16. 2 The background is taken from the petition and attached exhibits.

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company that manufactures and exports machine tools to international customers in China and elsewhere.

 

As relevant here, in late 2013 and early 2014 the parties entered into three sales contracts (No. DLBJ130018, No. DLBJ130019, and No. DLBJ140010) in which New Monarch agreed to supply and install certain CNC boring machines at petitioners’ manufacturing facilities in China. Each sales contracts contained an arbitration clause:

“All disputes in connection with this Contract or the execution thereof shall be settled friendly through negotiation. In case no settlement can be reached, the case may then be submitted for arbitration to the International Economic and Trade Arbitration Committee of the People’s Republic of China in accordance with its rules and procedures. The arbitration shall take place in Beijing, China. The Chinese laws shall be applied in arbitration. The decision of the Arbitration Committee shall be final and binding upon both parties. Neither party shall seek recourse to a law court or other authorities to appeal for revision of the decision. Arbitration fee shall be borne by the losing party. During the course of the arbitration proceedings, the provisions of this Contract shall not be affected thereby except for the portion of this Contract under the arbitration and this Contract shall continuously be performed.”

 

On August 16, 2016, petitioners claimed that New Monarch had materially breached its obligations under the sales contracts by, inter alia, defaulting on the delivery and installation of the agreed-upon machines. Petitioners declared that the three sales contracts were therefore terminated under the United Nations Convention on Contracts for the International Sale of Goods (“CISG”).

 

On September 13, 2016, in accordance with the arbitration clause written into each sales contract, petitioners applied for arbitration to CIETAC, an arbitration institution headquartered in Beijing, China.3 Although CIETAC initially opened three separate arbitration cases (one for each sales contract), the Arbitration Tribunal (the “Arbitration Panel”) later consolidated and merged them into a single arbitration proceeding.

 

On April 19, 2017 and October 27, 2017, the Arbitration Panel held hearings on the various procedural and substantive disputes between the parties. Ultimately, the Panel found that petitioners had rightfully terminated the three sales contracts with New Monarch because of serious quality problems with the goods in question.

 

On June 28, 2018, the Arbitration Panel rendered an Arbitral Award (the “Arbitral Award”) in favor of petitioners in the amount of $2,407,385.00 plus interest payable within thirty days. New Monarch did not pay the Award. This petition followed.

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3 Initially established by the People’s Republic of China in 1954, CIETAC “operates independently of the Chinese government, with CIETAC arbitrators having the power to issue awards that Chinese law will recognize as ‘final and binding.’” In Re Guo, 965 F.3d 96, 100–101 (2d Cir. 2020).

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III. LEGAL STANDARD

 

“The FAA was enacted in 1925 in response to widespread judicial hostility to arbitration agreements.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). “[T]he purpose behind its passage was to ensure judicial enforcement of privately made agreements to arbitrate.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). Consequently, the Act creates a “strong presumption in favor of enforcing arbitration awards.” Wall Street Assocs., L.P. v. Becker Paribas Inc., 27 F.3d 845, 849 (2d Cir. 1994).

To effectuate its purpose, the FAA also “provides for expedited judicial review to confirm, vacate, or modify arbitration awards.” Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 578 (2008). However, courts have an “extremely limited” role in reviewing such awards. Landau v. Eisenberg, 922 F.3d 495, 498 (2d Cir. 2019). “Indeed, confirmation of an arbitration award is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court.” Salus Cap. Partners, LLC v. Moser, 289 F. Supp. 3d 468, 476 (S.D.N.Y. 2018) (cleaned up).

 

Importantly, though, the Act does not “independently confer subject matter jurisdiction on the federal courts.” Scandinavian Reinsurance Co. Ltd. v. St. Paul Fire & Marine Ins. Co., 668 F.3d 60, 71 (2d Cir. 2012) (cleaned up). Instead, “there must be an independent basis of jurisdiction before a district court may entertain petitions to confirm or vacate an award Case 5:21-cv-00084-DNH-TWD Document 33 Filed 08/03/21 Page 5 of 16 – 6 – under the FAA.” Id. As relevant here, the New York Convention governs the enforcement of arbitral awards stemming from disputes that are “commercial and . . . not entirely between citizens of the United States.” Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 391 (2d Cir. 2011) (citation omitted).

 

“Congress implemented the New York Convention by enacting Chapter 2 of the Federal Arbitration Act.” Goel v. Ramachandran, 823 F. Supp. 2d 206, 210 (S.D.N.Y. 2011). Under Section 207 of the Act, any party may, “[w]ithin three years after an arbitral award . . . is made, . . . apply to any court having jurisdiction . . . for an order confirming the award.” 9 U.S.C. § 207.

 

  1. DISCUSSION

 

Petitioners contend that they are entitled to an order confirming the Arbitral Award because they have satisfied all of their obligations under the FAA and the New York Convention. See Pets.’ Mem., Dkt. No. 13.4 In opposition, New Monarch offers three reasons why the Award should not be confirmed: (1) the arbitration was not conducted in accordance with CIETAC’s own procedures and rules; (2) the Award is against the public policy of the United States; and/or (3) the Award includes attorney’s fees, which are outside the scope of the parties’ arbitration agreements. Resp’t Mem., Dkt. No. 29 at 6–11.

——————————————————————————————————————————

4 Pagination corresponds to CM/ECF.

——————————————————————————————————————————

Case 5:21-cv-00084-DNH-TWD Document 33 Filed 08/03/21 Page 6 of 16 – 7 – “When a party applies to confirm an arbitral award under the New York Convention, ‘[t]he court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.’” Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 90 (2d Cir. 2005) (quoting 9 U.S.C. § 207).5 Under Article V of the Convention, the grounds for refusing to recognize or enforce a foreign arbitral award are:

(1)(a) The parties to the agreement were under some incapacity, or the agreement is not valid under the law;

(1)(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;

(1)(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;

(1)(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such an agreement, was not in accordance with the law of the country where the arbitration took place;

——————————————————————————————————————————

5 “The party seeking enforcement need only submit an authentic copy of the award, the agreement to arbitrate and, if the award is in a language other than English, a duly certified translation.” Jiangsu Changlong Chems., Co., Inc. v. Burlington Bio-Med. & Sci. Corp., 399 F. Supp. 2d 165, 168 (E.D.N.Y. 2005).

——————————————————————————————————————————

(1)(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made;

(2)(a) The subject matter of the difference is not capable of settlement by arbitration under the law of the country where recognition and enforcement is sought; or

(2)(b) The recognition or enforcement of the award would be contrary to the public policy of the country in which enforcement or recognition is sought.

 

See Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15, (2d Cir. 1997). “[T]he party opposing enforcement of an arbitral award has the burden to prove that one of the seven defenses under the New York Convention applies.” Zeiler v. Deitsch, 500 F.3d 157, 164 (2d Cir. 2007) (cleaned up). “The burden is a heavy one, as the showing required to avoid summary confirmance is high.” Id.

 

  1. CIETAC’s Rules and Procedures

 

First, New Monarch contends that the Arbitral Award should not be confirmed because the Arbitration Panel failed to follow CIETAC’s rules and procedures. Resp’t Mem. at 6–7. As respondent explains, the Panel took well over a year to render a decision even though CIETAC’s arbitration rules impose a six-month deadline. Id. at 6.

Upon review, this timeliness argument must be rejected. “Under Article V(1)(d) [of the New York Convention], [r]espondent must show that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place.” BSH Hausgeräte GmbH v. Kamhi, 291 F. Supp. 3d 437, 443 (S.D.N.Y. 2018) (cleaned up).

 

The “arbitration proceedings of this case [were] governed by the Arbitration Rules of the Arbitration Commission effective as of January 1st, 2015.” Ex. D to Pet., Dkt. No. 8-5 at 10. Article 48 of these Rules require a CIETAC arbitration panel to render an award within six months unless the tribunal receives permission from the President of the Arbitration Court to extend the deadline. Ex. 1 to Ping Yu Decl., Dkt. No. 29-9 at 25. Contrary to New Monarch’s argument, the Arbitration Panel appears to have complied with this Rule. The certified English translation of the Arbitral Award explicitly states that the Panel sought and received permission to extend the deadline from the President of the Arbitration Court. Ex. D to Pet., Dkt. No. 8-5 at 12 (“To meet the needs of the ongoing proceedings, upon application by the arbitration tribunal, the president of the court of arbitration agreed and decided to extend the time deadline for making a verdict on the case to June 28th, 2018.”).

 

In short, New Monarch has not shown that the “the arbitral procedure was not in accordance with the agreement of the parties” and therefore has not carried its “heavy” burden of proving that the Article V(1)(d) defense applies. Accordingly, this argument must be rejected.

 

  1. Public Policy

 

Second, New Monarch contends that the Arbitral Award should not be confirmed because the Arbitration Panel’s long delay in rendering a decision “is against the public policy of the United States calling for just and expeditious resolution of disputes.” Resp’t Mem. at 8–10.

New Monarch’s public policy argument is actually two-fold: that the one-year period between the final hearing (on October 27, 2017) and the Arbitration Panel’s entry of a final Award (on June 28, 2018) took too long and that, during this long delay, U.S.–Chinese trade relations deteriorated, making it “impossible for an American company like New Monarch to get a fair shake before the Chinese-based CIETAC.” Resp’t Mem. at 8–9.

Upon review, this argument will also be rejected. “Article V(2)(b) [of the New York Convention] allows a court to refuse enforcement of an arbitration award where enforcement would violate the forum state’s public policy.” Yukos Cap. S.A.R.L. v. Samaraneftegaz, 592 F. App’x 8, 11 (2d Cir. 2014) (summary order). However, the public policy defense in Article V(2)(b) must be “construed very narrowly to encompass only those circumstances where enforcement would violate our most basic notions of morality and justice.” Telenor Mobile Commcn’s AS v. Storm LLC, 584 F.3d 396, 411 (2d Cir. 2009) (cleaned up).

 

As an initial matter, the Second Circuit has explicitly recognized that CIETAC is an organization that “operates independently of the Chinese government.” In Re Guo, 965 F.3d at 101. But even assuming CIETAC was in some way affiliated with the Chinese government, this argument boils down to an assertion that the confirmation of a foreign arbitral award somehow hinges on the current state of trade relations between signatories to the New York Convention.

That is not the law. “The goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.” Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974).

 

In sum, New Monarch has not shown that confirming a monetary arbitral award won by a foreign party in a contract dispute over the delivery of commercial goods would “be directly at odds with a well[-]defined and dominant [American] public policy resting on clear law and legal precedent.” St. Mary Home, Inc. v. Serv. Emps. Int’l Union, Dist. 1199, 116 F.3d 41, 46 (2d Cir. 1997). Accordingly, this argument will be rejected.

 

  1. The Panel’s Award of Attorney’s Fees

 

Third, New Monarch contends that the Arbitral Award should not be confirmed because it improperly includes an award of attorney’s fees. Resp’t Mem. at 10–11. According to respondent, the contractual arbitration clause in each of the three sales contracts “does not provide for an award of attorney’s fees and costs in excess of the arbitration fee.” Id. at 10.

 

Upon review, this argument must be rejected. The arbitration clause in each sales contract states that the “[a]rbitration fee shall be borne by the losing party.” According to New Monarch, this quoted language “does not provide for an award of attorney’s fees and costs in excess of the arbitration fee.” Resp’t Mem. at 10.

But New Monarch’s assertion is begging the question. It relies on the implicit premise that the definition of “arbitration fee” necessarily excludes attorney’s fees or other costs associated with the arbitration. And that might be true, but the burden of establishing a defense invoked under Article V of the New York Convention lies with the respondent. Respondent not pointed to a clear definition of this contract term—whether in the sales contracts, the rules and procedures governing CIETAC arbitration, or Chinese law—that would support its desired conclusion.

 

Equally problematic for this argument is the fact that the rules and procedures governing the arbitration appear to explicitly permit the tribunal to award attorney’s fees. As relevant here, Article 52 of CIETAC’s Arbitration Rules empower the Arbitration Panel to:

“decide in the arbitral award, having regard to the circumstances of the case, that the losing party shall compensate the winning party for the expenses reasonably incurred by it in pursuing the case. In deciding whether or not the winning party’s expenses incurred in pursuing the case are reasonably, the arbitral tribunal shall take into consideration various factors such as the outcome and complexity of the case, the workload of the winning party and/or its representative(s), the amount in dispute, etc.

Ex. 1 to Ping Yu Decl., Dkt. No. 29-9 at 27.

 

This language allocates authority to the Arbitration Panel to award attorney’s fees in an appropriate case. New Monarch has not pointed to any clear basis on which to conclude that the parties (in the sales contracts or elsewhere) intended to limit the authority that is otherwise conferred on the Panel by these Arbitration Rules. Cf. In re Arb. Between Gen. Sec. Nat. Ins. Co. & AequiCap Program Adm’rs, 785 F. Supp. 2d 411, 419 (S.D.N.Y. 2011) (rejecting similar argument where parties “used expansive language”). Thus, especially in light of the substantial deference owed to foreign arbitration awards, this argument must also be rejected.

 

Remaining Matters In addition to confirmation of the Arbitral Award, the verified petition also requests (1) the entry of pre-judgment interest running from July 27, 2018 and (2) an award of attorney’s fees related to the additional costs of bringing this confirmation proceeding in federal court. Dkt. No. 8 at 6.

Upon review, petitioner’s request for pre-judgment interest will be denied. There is a general presumption in favor post-award, pre-judgment interest. In re Arb. Between Westchester Fire Ins. Co. v. Massamont Ins. Agency, Inc., 420 F. Supp. 2d 223, 226 (S.D.N.Y. 2005). However, such an award is only appropriate if it would be “fair, equitable and necessary to compensate the wronged party.” Wickham Contracting Co. v. Local Union No. 3, Int’l Brotherhood of Elec. Workers, AFL-CIO, 955 F.2d 831, 835 (2d Cir. 1992).

 

Petitioners have failed to identify any provision of the Arbitration Panel’s Award that would support the entry of pre-judgment interest. Cf. Oracle Co. v. Wilson, 276 F. Supp. 3d 22, 34 (S.D.N.Y. 2017) (“[C]ourts in this Circuit have found that a district court may not provide prejudgment interest if the Arbitrator’s award is silent on such interest.”). Nor have they indicated the rate of interest they seek, or explained why that rate would be appropriate under the governing law. In short, because petitioners have failed to establish that an award of pre-judgment interest in this case would be “fair, equitable and necessary,” the request will be denied.

Petitioners’ request for additional attorney’s fees will also be denied. “The FAA does not provide for an award of attorney’s fees and expenses for arbitration- confirmation proceedings, but a court remains authorized to enter such an award pursuant to its inherent equitable powers.” Seneca Nation of Indians v. New York, 420 F. Supp. 3d 89, 106 (W.D.N.Y. 2019) (cleaned up). “In the arbitration context, the guiding principle has been stated as follows: when a challenger refuses to abide by an arbitrator’s decision without justification, attorney’s fees and costs may properly be awarded.” Id.

Upon review, that standard has not been met. Cf. Seneca Nation of Indians, 420 F. Supp. 3d at 106 (“Such awards may be made, for example, when a party pursues a frivolous course.”). Even assuming otherwise, petitioners have failed to substantiate their request with contemporaneous time records or other supporting documentation. Accordingly, the request for attorney’s fees will also be denied.

 

  1. CONCLUSION

 

Petitioners’ motion to confirm the Award will be granted. However, petitioners’ requests for pre-judgment interest and for attorney’s fees incurred in bringing this confirmation action will be denied.

Therefore, it is ORDERED that

  1. The Arbitral Award is CONFIRMED; and
  2. Judgment shall be entered in the amount of $2,407,385.00.6

 

The Clerk is directed to enter a judgment accordingly and close the file.

IT IS SO ORDERED.

Dated: August 3, 2021 Utica, New York.

——————————————————————————————————————————

6 Post-judgment interest shall accrue on the full amount of the judgment in accordance with 28 U.S.C. § 1961(a) because “[t]he award of post-judgment interest is mandatory on awards in civil cases as of the date judgment is entered.” Lewis v. Whelan, 99 F.3d 542, 545 (2d Cir. 1996).

Tugushev v Orlov & Ors [2021] EWHC 926

 

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

Tugushev v Orlov & Ors [2021] EWHC 926

 

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

Claimant

 

AND:

 

Vitaly Orlov

Defendant

 

&

 

Magnus Roth

Second Defendant

 

&

 

Andrey Petrik

Third Defendant

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

 

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

 

 

 

JUDGMENT
 

 Sir Nigel Teare :

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

Mr. Tugushev’s claim in this jurisdiction

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

The proceedings in Hong Kong

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

The Part 20 claims in this jurisdiction

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

The Partnership Claim

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

The TTC Claim

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

The Alex Bundle Claim

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

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

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

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

  1. Section 9(4) provides that the court

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

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

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

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

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

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

The scope of the arbitration clauses

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

Estoppel

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

The elements of issue estoppel

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

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

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

The Hong Kong proceedings

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

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

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

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

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

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

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

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

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

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

The alleged issue estoppels

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

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

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

The decision in Hong Kong

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

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

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

The issue sought to be raised in England

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

Justice

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

Abuse of process

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

Conclusion

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

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