Bpy v Mxv

Hearing dates: 16–17 November 2022

Approved Judgment

This judgment was handed down remotely at 10am on Friday 20 January 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives (see eg https://www.bailii.org/ew/cases/EWCA/Civ/2022/1169.html).

THE HONOURABLE Mr Justice Butcher

Application is made under s. 68 of the Arbitration Act 1996 (‘AA’) by the Claimant (‘BPY’) challenging an award dated 7 June 2021 (‘the Merits Award’) and a related costs award dated 15 September 2021 (‘the Costs Award’) made in a London-seated LCIA arbitration before a sole arbitrator. BYP contends that there were serious irregularities within the meaning of s. 68 AA in the manner in which the arbitrator reached her conclusions in the Merits Award, as well as to the basis of her Costs Award; and that it has suffered a substantial injustice in consequence. It seeks an order setting aside the Merits Award and the Costs Award.

Factual Background

BPY is a company registered in and incorporated under the laws of Belize. Its ultimate beneficial owner is Mr A, a Ukrainian national. The Defendant (‘MXV’) was, at the time the arbitration was initiated, also a company registered in and incorporated under the laws of Belize. It is now registered in and incorporated under the laws of Nevis. Its ultimate beneficial owner is Ms B, a Ukrainian national.

Mr A and Ms B had a close business relationship before they fell out in or about February 2013. After they fell out, there has been litigation on several fronts between them. The matter at issue in the arbitration with which the present applications are concerned was as to whether the parties had made three binding sale and purchase agreements (the ‘PSAs’) dated 8 December 2011. BPY contended that the PSAs were valid and binding agreements, under which MXV owed sums which it had failed to pay. Specifically, BPY contended that the first PSA was for the sale by it to MXV of certain specified securities for Eur 369,061.00 and US$ 12,954,837.25; the second PSA was for the sale by it to MXV of certain other specified securities for US$ 2,006,317.50; and the third PSA was for the sale by it to MXV of a quantity of gold for US$ 1,690,800.23. It was common ground that between 9 December 2011 and 5 January 2012 BPY had transferred the securities and gold referred to in the PSAs from its account at Clariden Leu to MXVs account at Clariden Leu (‘the BPY Transfers’).

BPY's case was that the purpose of these transactions was to provide Ms B with the collateral she would need to raise financing to participate in the empire of agricultural businesses which Mr A had built up. MXV's case was that Ms B had already been a partner in the agricultural businesses, and that the BPY Transfers were made pursuant to an agreement between the parties to divide assets, which agreement was recorded in the minutes of a meeting held in Kyiv on 21 November 2011 between Mr A and Ms B. Those minutes recorded that the parties ‘wished to split highly liquid assets, which include monetary funds and bonds (both corporate and sovereign)’. On MXV's case, the PSAs were sham transactions which had not been intended to give rise to any payment obligations. By contrast, on BPY's case, the minutes of the meeting of 21 November 2011 were not authentic; and there was no basis for the BPY Transfers other than the sales recorded in the PSAs.

It was also common ground in the arbitration that on 19 February 2013, MXV made two payments to BPY in the sums of US$ 35,000 and US$ 26,000. It was BPY's case that these payments (‘the February Payments’) were made to discharge a debt under the first of the PSAs. BPY also contended that on 25 February 2013 it had received a letter from MXV, signed by its sole director Mr D, which acknowledged the existence of MXV's continuing obligations to pay the monies set out in the PSAs (‘the DAL’). MXV challenged the validity of the DAL, and of what was called ‘the DAL Receipt’, namely a further copy of the DAL signed by Mr D but which Mr C, BPY's director, had initialled and dated and on which he had written ‘received’.

The Arbitration

On 12 and 19 November 2018 BPY referred the disputes as to whether there were sums due under the PSAs to arbitration in London under the LCIA Rules. There were three references, which were consolidated on 19 December 2018. Ms G (‘the Arbitrator’) was appointed as sole arbitrator on 5 December 2018.

The arbitration proceedings were long and complex. They lasted approximately three years, and in their course the Arbitrator issued 62 procedural orders, which dealt with a wide range of disputed matters, from routine procedural directions to more complex applications for document production, security for costs and the exclusion of documents on the grounds of privilege.

The core issue, however, was whether BPY could enforce claims under the PSAs. MXV defended that claim on two main grounds:

(1) It contended that even if the PSAs were genuine and enforceable agreements, the claims were, on their own terms, statute-barred; and

(2) It contended that the PSAs were sham agreements and that, as already mentioned, the BPY Transfers had taken place pursuant to a restructuring of a business which was at the time jointly owned by Mr A and Ms B. MXV's case was that Ms B had been unaware of the existence of the PSAs until 2015 when she had found out about them in the course of other proceedings.

The Arbitrator decided that there should be the hearing of a preliminary issue on limitation. The main issue in relation to limitation was whether there was an acknowledgement of debt or part payment for the purposes of s. 29(5) Limitation Act. BPY relied, as being such acknowledgements/part payments, on the DAL, the DAL Receipt and February Payments. MXV contended that all these had been arranged between Mr C and Mr D without the knowledge of Ms B. It challenged the DAL documents on the basis that they were backdated forgeries, and the February Payments on the basis that they related to other matters.

After a significant hearing, the Arbitrator made an Award on Preliminary Issue dated 11 February 2020 (‘the Preliminary Issue Award’), running to 336 paragraphs. In that Award, the Arbitrator held that the DAL documents were not backdated forgeries and that the February Payments ‘related to’ the PSAs and not to other matters. Accordingly she dismissed the limitation defence, holding that these constituted a sufficient acknowledgement of the alleged debt for the purposes of s. 29 Limitation Act.

After the Preliminary Issue Award, the parties filed detailed memorials in relation to the remaining issue, which, in brief, was MXV's case that the PSAs were sham agreements which had not been intended to create legal relations on the terms set out in them. An evidentiary hearing was held on 7–12 December 2020. Thereafter the Arbitrator produced the Merits Award, which runs to 770 paragraphs, covering some 259 pages of single spaced text. The Arbitrator concluded that the PSAs ‘were entered into for a purpose other than creating payment obligations between the Claimant and the Respondent, including, but not limited to, the intention to deceive third parties; and not, as alleged by the Claimant, for the purpose of creating legal relations, in particular for Ms B to obtain collateral against which she could raise funds for the Agricultural Business’ (paragraph 604). On that basis she dismissed BPY's claim.

Thereafter, following two rounds of written submissions on 21 June 2021 and 5 July 2021, the Arbitrator made the Costs Award on 15 September 2021. This included a decision, in respect of the hearing on the merits, that BPY should pay 85% of MXV's costs, and should bear all the arbitration costs.

The Arbitration Claims

On 3 July 2021 BPY issued an Arbitration Claim challenging the Merits Award. It proceeded to make submissions in the arbitration in respect of the costs of the arbitration without prejudice to its challenge to the Merits Award.

On 13 October 2021, following the Costs Award, BPY filed a further challenge to the Costs Award under s. 68 AA. On 4 February 2022 Andrew Baker J ordered that the two challenges should be dealt with together.

Section 68 AA

S. 68 provides as follows:

Challenging the award: serious irregularity.

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

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

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—

(a) failure by the tribunal to comply with section 33 (general duty of tribunal);

(b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67);

(c) failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;

(d) failure by the tribunal to deal with all the issues that were put to it;

(e) any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award...