Arsanovia Ltd and Others v Cruz City 1 Mauritius Holdings
| Jurisdiction | England & Wales |
| Judge | And,Mr Justice Andrew Smith |
| Judgment Date | 20 December 2012 |
| Neutral Citation | [2012] EWHC 3702 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2012-1047 |
| Date | 20 December 2012 |
In the Matter of Arbitrations
Mr Justice Andrew Smith
Case No: 2012-1047
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Jonathan Hirst QC and Craig Morrison (instructed by Skadden Arps Slate Meagher & Flom LLP) for the Claimants
David Wolfson QC and Nehali Shah (instructed by White & Case LLP) for the Defendants
Hearing dates: 21 and 22 November 2012
Introduction
On 6 July 2012 three awards were issued by Tribunals appointed by the London Court of International Arbitration comprising the same three members, Mr Salim Moolan, Mr Paul Hannon and Mr J William Rowley:
i) An award in an arbitration between Cruz City 1 Mauritius Holdings ("Cruz City"), a Mauritian company, as claimants and Arsanovia Limited ("Arsanovia"), a Cypriot company, and Burley Holdings Limited ("Burley"), a Mauritian company, as respondents ("Arbitration 1" and "Award 1").
ii) An award in an arbitration between Cruz City as claimants and Burley and Unitech Limited, (Unitech"), an Indian company, as respondents ("Arbitration 2" and "Award 2").
iii) An award in an arbitration between Arsanovia and Burley as claimants and Cruz City as respondents, in which Cruz City made a counterclaim against Arsanovia ("Arbitration 3" and "Award 3").
On these applications under section 67 of the Arbitration Act, 1996 Arsanovia, Burley and Unitech challenge Awards 1 and 2 on the grounds that the Tribunals did not have substantive jurisdiction. The Tribunals have determined that they had substantive jurisdiction, but their decisions do not bind me in any way and I must consider the matter de novo: Dallah Real Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46, paras 26 and 96. The claim form also made applications under section 68 but they were not pursued.
Unitech is the parent company of Arsanovia and Burley, and the arbitrations arise out of a joint venture into which they entered with Cruz City for the development of slum areas in Mumbai, India, which involved finding the residents temporary housing, clearing the slums, redeveloping the areas and re-housing the residents. For this purpose, a company called Kerrush Investments Limited ("Kerrush") was formed with Arsanovia and Cruz City as shareholders. Arsanovia, Cruz City and Kerrush entered into a Shareholders' Agreement ("SHA") dated 6 June 2008, and other persons and companies, including Burley, subscribed to parts of the SHA. Unitech, Burley and Cruz City entered into a Keepwell Agreement, also dated 6 June 2008, under which Unitech agreed to put Burley in funds so that it could make payments due under the SHA. The clearance of the slums was delayed, and on 14 July 2010 Arsanovia served a Management Approval Termination Notice and a Buy-Out Notice on Cruz City on the grounds that a "Bankruptcy/Dissolution Event" (as defined in the SHA) had occurred in respect of the "Affiliate which controls Cruz City" (Lehman Brother Holdings Inc, which had filed for Chapter 11 Bankruptcy in the USA). If they were valid, the notices would have given Arsanovia management control over Kerrush and require Cruz City to sell its interest in Kerrush to Arsanovia under a formula in the SHA. On 13 September 2010 Cruz City purported to exercise a put option under the SHA on the basis that requirements for the start of the construction phase of the project had not been met, and required Arsanovia to buy City Cruz's interest in Kerrush. The terms of the put option were much more favourable to Cruz City than the formula governing the Buy-Out Notice. The essential question in the arbitrations was whether Arsanovia's notices were valid because, if they were, Cruz City was never entitled to exercise the put option.
This question led to the three arbitrations. In Arbitration 1, Cruz City sought against Arsanovia and Burley damages and specific performance under the SHA. In Arbitration 2 they sought damages against Unitech and Burley under the Keepwell Agreement. In Arbitration 3 Arsanovia sought a declaration that their notices had been validly issued and specific performance of Cruz City's obligations under the SHA or damages for their breach or both, and Cruz City brought a counterclaim seeking relief against Arsanovia and Burley similar to that sought in Arbitration 1. The SHA and the Keepwell Agreement both contained arbitration agreements in materially the same terms. I need set out only that in the SHA, which provided at clause 21.1 in these terms:
"LCIA Arbitration. Any dispute arising out of or in connection with the provisions of this Agreement, including any question regarding its validity, existence or termination, shall be referred to and finally settled by arbitration under the London Court of International Arbitration Rules ("Rules"), which rules are deemed to be incorporated by reference into this Clause. The number of arbitrators shall be three. The seat or legal place of the arbitration shall be London, England. The language to be used in the arbitral proceedings shall be English. … Notwithstanding the above, the Parties hereto specifically agree that they will not seek any interim relief in India under the Rules or under the Arbitration and Conciliation Act, 1996 (the "Indian Arbitration Act"), including Section 9 thereof. The provisions of Part 1 of the Indian Arbitration Act are expressly excluded. For the avoidance of doubt, the procedure in this Clause 21 shall be the exclusive procedure for the resolution of all disputes referred to herein."
The SHA and the Keepwell Agreement were both governed by Indian law: clause 24 of the SHA provided that:
"Governing Law. This agreement shall be governed by, and construed in accordance with laws of India, without regard to the conflict of law rules thereof that would require the application of the laws of another jurisdiction."
Clause 18 of the Keepwell Agreement provided that:
"Governing Law. This Keepwell Agreement shall be governed by, and construed and interpreted in accordance with, the laws of India without regard to conflicts of laws principles thereof."
Although the three arbitrations were separate and were never formally consolidated (hence three separate awards), they were heard together by the same Tribunal. The claimants disputed the jurisdiction of the Tribunals to determine Arbitrations 1 and 2 and the counterclaim in Arbitration 3. In Awards 1 and 2 the Tribunals determined that they had jurisdiction, determined that Arsanovia was not entitled to give the notices and Cruz City had validly exercised the put option, and ordered Burley and Unitech to pay what was due under the put option. In Award 3, the Tribunal, without making findings on jurisdiction, dismissed the claim and the counterclaim.
The grounds on which Mr Jonathan Hirst QC, who represented the claimants, argued that Award 1 is invalid because the Tribunal did not have substantive jurisdiction are these:
i) The law applicable to the arbitration agreement in the SHA is Indian law and therefore Indian law determines whether Burley is a party to it.
ii) Under Indian law, Burley did not agree to be bound by the arbitration agreement in the SHA; and even if the arbitration agreement is governed by English law it did not do so.
iii) Under Indian law, where an arbitration is brought against two respondents only one of whom is party to the arbitration agreement, the arbitration cannot be maintained against either; and so, because the Tribunal did not have jurisdiction over Burley, it did not have jurisdiction to decide the claims against Arsanovia either.
Mr Hirst submitted that Award 2 is also invalid because the Tribunal did not have substantive jurisdiction on these grounds:
iv) The law governing the arbitration agreement in the Keepwell Agreement is Indian law and therefore Indian law determines its scope.
v) Under Indian law and on the proper construction of the Keepwell Agreement the claims against Unitech and Burley could be brought only after Burley's liability under the SHA had been adjudicated (if not admitted); and they were therefore premature and beyond the Tribunal's jurisdiction.
vi) In any case, under Indian law the question whether Burley was liable under the SHA in the arbitration leading to Award 2 was not within the scope of the arbitration agreement in the Keepwell Agreement, and, since Award 1 was invalid, therefore Burley had not been validly found to be liable under the SHA and so the Tribunal in Arbitration 2 had no jurisdiction to make an award against Burley or Unitech under the Keepwell Agreement.
All these propositions were disputed by Mr David Wolfson QC, who represented Cruz City.
The applications made, as I have said, under section 67 of the Arbitration Act, 1996 and challenge Awards 1 and 2 "as to [the Tribunals'] substantive jurisdiction", that is to say (since the term "substantive jurisdiction" has the same meaning in section 67 as in section 30, where it is defined) as to "(a) whether there is a valid arbitration agreement, (b) whether the tribunal is properly constituted, and (c) whether matters have been submitted to arbitration in accordance with the arbitration agreement".
The law applicable to the arbitration agreement in the SHA
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