A and Another v B
| Jurisdiction | England & Wales |
| Judge | THE HON. MR JUSTICE TOMLINSON,The Hon. Mr Justice Tomlinson |
| Judgment Date | 01 July 2010 |
| Neutral Citation | [2010] EWHC 1626 (Comm) |
| Docket Number | Case No: 2009 Folio 1645 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 01 July 2010 |
[2010] EWHC 1626 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF AN ARBITRATION APPLICATION
Before: The Hon. Mr Justice Tomlinson
Case No: 2009 Folio 1645
IN THE MATTER OF AN ARBITRATION
Michael Black QC (instructed by Messrs SC Andrew) for the Claimant
Vernon Flynn QC (instructed by Messrs Latham & Watkins) for the Defendants
Hearing dates: 28 & 29 April 2010
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Hon. Mr Justice Tomlinson:
This hearing of a preliminary issue concerns the ambit of a permissible challenge to the validity of an arbitration award, under sections 67 and 68 of the Arbitration Act 1996, “the Act”, where the lack of jurisdiction or serious irregularity is alleged to have arisen in consequence of the arbitral tribunal having failed to decide the dispute in accordance with the law chosen by the parties as applicable to the substance of the dispute, as required by section 46 of the Act.
It is common ground that if the challenge is potentially maintainable under section 67, a full re-hearing would be required in order to determine whether the challenge succeeds – see the decision of Rix J in Gulf Azov v Baltic Shipping [1999] 1 Lloyds Rep. 68, followed on numerous occasions by judges of the Commercial Court and regarded by Langley J in Peterson Farms v. C & M Farming Limited [2004] 1 Lloyd's Rep. 603 as “now clearly established”. It was at one time thought that a full re-hearing of this issue would require a hearing of five days duration, with oral evidence as to Spanish law, here the chosen proper law. In the light of that, and since it was recognised that the challenge might be ruled not maintainable without the need for a re-hearing, the parties sensibly strove to identify a preliminary issue which might form the vehicle for an examination of the permissible ambit of a challenge of this unusual nature. In the event the preliminary issue which emerged after a contested hearing had given the opportunity for the matter to be argued and further refined is:
“Does the material relied upon by the Claimant disclose a case with a realistic prospect of success for the challenge of the Final Award of the majority of the arbitrators in ICC Arbitration No. 13912/EC/ND under section 67 and/or 68 of the Arbitration Act 1996.”
It is this issue which I directed to be determined and which I must now determine.
The underlying facts which gave rise to the dispute may be shortly stated. A, B and C are all Spanish companies. B owned all of the share capital of C. B is a manufacturing company. C was involved in the development, manufacture and marketing of equipment for computer-aided design and computer-aided manufacturing in the industry with which B is concerned. The group of companies of which A is a part is in the same business as C.
On 2 April 2004 A as buyer and B as seller entered into a Share Purchase Agreement, the “SPA”, for the purchase and sale of 100% of the share capital in C and the debt owed by C to B. The SPA is written in English but is governed by Spanish law. It provides for disputes to be referred to arbitration under the Rules of Arbitration of the International Chamber of Commerce, “the ICC”. The place (“seat”) of the arbitration was to be London and the language of the arbitration was to be English. The obligations of A were guaranteed by its French parent company X but this is of no relevance save in so far as it serves to emphasise that neither the parties nor the dispute had any connection with either England or English law.
Pursuant to the SPA A agreed to pay B €46 million, plus one million shares in A, plus or minus certain contractually stipulated adjustments. The precise value of the total purchase price was the subject of expert analysis and debate in the arbitration but approximated to €52 million.
After the purchase A discovered that over 10% of C's turnover came from transactions involving over-billing and other improper and illegal billing practices. Much of the over-billing took place in connection with European Union and local government grant programmes. In other instances, C assisted its distributors and customers to commit tax evasion both through over-billing and a scheme of fictitious invoices, and paid kickbacks to obtain sales. C also participated in customs and import tax fraud by understating the real value of goods by including fake invoices in shipments of goods to countries such as Brazil. The relevant factual findings are to be found in section Q of the Award at paragraphs 40, 48, 53, 54, 67, 69 and 72.
A's concerns and complaints were first made known in November and December 2004. B rejected them out of hand as false, malicious and libellous.
On 30 June 2005 A commenced the arbitration. The claim was for sums exceeding €54 million, therefore exceeding the purchase price and giving rise to the riposte of B in the arbitration that A could not seriously be contending that the company which they had bought had no value. The claims were based on allegations of “dolo” (fraud), and breach of express representations and warranties in the SPA.
Three arbitrators were appointed. They were:
i) Mr Thomas H. Webster, a Canadian lawyer in practice since 1979, now practising in Paris but also admitted to the Bar in New York, as an English solicitor and as an avocat in France, with wide experience of international arbitration.
ii) Mrs Teresa Zueco Pena, a Spanish lawyer, also admitted to the Bar in Brussels and, at the time of her appointment as arbitrator, shortly to sit for admission in New York. She has practised since 2000 in Madrid, Brussels and New York. The materials before me do not disclose the extent of her previous experience either of sitting as arbitrator or of conducting international arbitration.
iii) As Chairman, Mr Van Vechten Veeder QC, an English barrister with very wide experience of international arbitration.
In the usual way there was an exchange of requests for arbitration, answer, reply and execution of terms of reference. There was then exchange of memorial and counter memorial followed by a procedural hearing and a further round of reply memorial and counter memorial. The first main evidential hearings took place from 23 April to 5 May 2007 and from 28 May to 2 June 2007. A was represented at these hearings by Messrs Latham and Watkins, Paris. B was represented by English Counsel instructed by Messrs Herbert Smith and by Messrs Buffete Ramon Hermosilla of Madrid. Written submissions were made in August 2007. A final hearing took place on 28 and 29 November 2007. Further written submissions were made in January 2008. The Final Award was issued on 21 October 2009 and notified to the parties on 28 October 2009.
The Award was made by a majority comprising Mr Webster and Mr Veeder. The Tribunal ordered B to indemnify A pursuant to an express indemnity provision in the SPA, Article 10.1. The indemnity, in respect of multiple breaches of the express warranties given and representations made in the SPA, was in the sums of €15 million and €90,495. In addition the Tribunal awarded both pre-award and post-award interest, €6.5 million towards A's costs and US$440,000 in respect of the ICC's costs. It is a fully reasoned award running to 348 pages.
It is common ground that by agreement to the ICC Rules of Arbitration the parties waived their right to any form of recourse in so far as such waiver can be validly made – see Article 28.6 of the Rules. An application for leave to appeal under section 69 of the Act is therefore unavailable to B, although this is academic because by virtue of section 82 a question of law, to which alone an application under section 69 can relate, means for this purpose a question of the law of England and Wales. Under Article 10.6 of the SPA the amounts awarded should have been paid within ten days after publication of the Award. They have not been paid. However recourse under sections 67 and 68 remains available. The relief available under those sections of the Act does not yield to the agreement of the parties to exclude it.
The dissenting arbitrator issued a Dissenting Opinion of some 19 pages. It is expressed in unusually trenchant terms. Indeed Mr Vernon Flynn QC for A described it as intemperate. The dissenting arbitrator was highly critical of her colleagues. They had, she said, decided to ignore the parties' agreement to submit the SPA to Spanish law and had in an arbitrary fashion proceeded to decide the dispute “ ex aequo et bono”. They had she said done so for two reasons. Firstly, coming from a common law system, they did not feel comfortable with Spanish law and preferred “to grant an indemnity under Article 10.1 of the SPA as if such clause would be self-governing, and not limited by Spanish law”. Secondly, they had felt it necessary to punish reprehensible conduct, ignoring the question whether such conduct caused any actual economic damage to A and imposing punitive and multiple damages in a manner which was not permitted under Spanish law and thus ignored the remedies available within the limits of the law of the contract. The majority had “hidden” behind a broad interpretation of Article 10.1 of the SPA and, despite their effort to camouflage it, wrongly granted punitive and multiple damages to punish the existence of the over-billing practices, “disguising” such a penalty as enormous contractual damages for breach of warranties and representations. The...
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