Deutsche Schachtbau-und Tiefbohrgesellschaft m.b.H. v R'as al-Khaimah National Oil Company

JurisdictionEngland & Wales
JudgeLord Keith of Kinkel,Lord Brandon of Oakbrook,Lord Templeman,Lord Oliver of Aylmerton,Lord Goff of Chieveley
Judgment Date23 June 1988
Judgment citation (vLex)[1988] UKHL J0623-1
Date23 June 1988
CourtHouse of Lords
Deutsche Schachtbau-und Tiefbohrgesellschaft mbH and Others
(Respondents)
and
Shell International Petroleum Company Limited (Trading as Shell International Trading Company)
(Appellants) (First Appeal)
Deutsche Schachtbau-und Tiefbohrgesellschaft mbH and Others
(Respondents)
and
Shell International Petroleum Company Limited (Trading as Shell International Trading Company)
(Appellants) (Second Appeal)

[1988] UKHL J0623-1

Lord Keith of Kinkel

Lord Brandon of Oakbrook

Lord Templeman

Lord Oliver of Aylmerton

Lord Goff of Chieveley

House of Lords

Lord Keith of Kinkel

My Lords,

1

I have had the opportunity of considering in draft the speeches to be delivered by my noble and learned friends Lord Oliver of Aylmerton and Lord Goff of Chieveley. I agree with them, and for the reasons they give would allow the appeal in the garnishee proceedings and discharge the Mareva injunction.

Lord Brandon of Oakbrook

My Lords,

2

For the reasons contained in the speeches of my noble and learned friends, Lord Oliver of Aylmerton and Lord Goff of Chieveley, with both of which I agree, I would allow these appeals.

Lord Templeman

My Lords,

3

This appeal raises an important question; when there is a conflict between an order of an English court and an order of a court of a foreign state whereby a debtor is compellable under English law to discharge his debt by payment to a third party and is compellable under foreign law to discharge his debt by payment to his creditor, thus rendering the debtor liable to pay the same debt twice over, in what circumstances should the English court defer to the foreign court thus removing the danger of double payment but thereby preventing the third party from enforcing an English judgment debt against the creditor? In the present case the debtor is the appellant, Shell International Petroleum Co. Ltd. ("Sitco"), the creditor is the R'As al-Khaimah National Oil Co. ("Rakoil") and the third party is the respondent Deutsche Schachtbau-Und Tiefbohrgesellschaft m.b.H. ("D.S.T."). Sitco is an English company resident in England. Sitco admits and claims to owe Rakoil U.S. $4.8m. and interest for oil supplied by Rakoil to Sitco in the state of R'As al-Khaimah ("the State"). Rakoil was incorporated in the State and is resident in the State. Under English private international law rules the debt admitted to be due from Sitco to Rakoil is situate in England. D.S.T. is a judgment creditor of Rakoil for sums exceeding U.S. $4.8m. The only way by which D.S.T. can obtain any payment is by a garnishee order whereby Sitco will pay to D.S.T. the debt which Sitco owes to Rakoil. The payment by Sitco to D.S.T. pursuant to the garnishee order will, under English law, discharge to the extent of the payment, the debt owed by Sitco to Rakoil. The payment by Sitco to D.S.T. pursuant to the garnishee order will also discharge, to the extent of the payment, the judgment debt owed by Rakoil to D.S.T. A garnishee order has been made but not implemented and Sitco now ask for the garnishee order to be discharged because the Civil Court of the State has ordered Sitco to pay the State. If the garnishee order is discharged D.S.T. will not be able to enforce its judgment debt against Rakoil. if the garnishee order is not discharged Sitco may be obliged to pay twice over unless the Civil Court of the State relents or unless Rakoil pays the English judgment debt due from Rakoil to D.S.T. Sitco argue that a garnishee order should not be made if in the result Sitco may be obliged by the conjoint effect of the order of the English court and the order of the Civil Court to pay twice over. D.S.T. argue that it is the duty of the English court to enforce the judgment debt owed by Rakoil to D.S.T. under English law without taking into account the order of the Civil Court. This raises the question of principle. D.S.T. also argue in the alternative that having regard to the conduct of Rakoil, the State, the Civil Court and Sitco, it is proper that the English court should expose Sitco to the risk of paying twice rather than condemn D.S.T. not to be paid at all.

4

The State is an independent sovereign state situate on the southern shores of the Persian Gulf. The State is represented by the Ruler. All the issued share capital of Rakoil belongs to the Ruler; the affairs of Rakoil are supervised by the Crown Prince on behalf of the Ruler. By an agreement dated 23 May 1973 ("the concession agreement") the State granted a concession for the exploration and exploitation of oil in an area of the territorial waters of the State defined by the concession agreement. Pursuant to the concession agreement a well, known as B-1 was drilled and disclosed the presence of hydro carbons. Under the concession agreement the State through Rakoil was liable to contribute to the cost of the drilling of well B-1 but only if the well produced commercial quantities of oil defined as 15,000 barrels per day. Rakoil was not asked to contribute and did not contribute to the costs of well B-1. By an agreement ("the assignment agreement") dated 1 September 1976 which incorporated an operating agreement ("the 1976 operating agreement") the holders of the concession, then a consortium of companies represented in these proceedings by D.S.T., agreed to drill further wells and the State through Rakoil became entitled to interests in those wells and became liable to pay a proportion of the costs and expenses of exploration whether or not those wells produced oil. Further wells were drilled, some contributions to costs were paid by Rakoil, but in 1978 the State stopped all contributions towards exploration costs. The concession agreement to which the assignment agreement and other later agreements were supplemental and the 1976 operating agreement included the following arbitration clause:

"1. All disputes arising in connection with the interpretation or application of this agreement shall be finally settled under the rules of conciliation and arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with the rules.

2. The arbitration shall be held in Geneva, Switzerland, and shall be conducted in the English language."

5

D.S.T. on behalf of the consortium accordingly referred to arbitration in Switzerland claims against Rakoil and the State in respect of contributions to the costs of exploration. The State and Rakoil challenged the jurisdiction of the arbitration tribunal on the grounds that the assignment agreement and the 1976 operating agreement and subsequent supplemental agreements ought to be set aside because, it was alleged, the holders of the concession in 1976 had falsely represented that commercial quantities of oil had been established and that substantial quantities of oil had been discovered as a result of the sinking of well B-1.

6

The rules of conciliation and arbitration of the International Chamber of Commerce which were incorporated in the relevant arbitration clauses provided, inter alia, that:

"… the arbitrator shall not cease to have jurisdiction by reason of any claim that the contract is null and void or allegation that it is inexistant provided that he upholds the validity of the agreement to arbitrate. He shall continue to have jurisdiction, even though the contract itself may be inexistant or null and void, to determine the respective rights of the parties and to adjudicate upon their claims and pleas."

7

The arbitration tribunal appointed to hear and determine the application made by D.S.T. determined that the tribunal had jurisdiction, that the allegations of misrepresentation were unfounded, and awarded D.S.T. on behalf of the consortium, against the State and Rakoil jointly and severally U.S. $4,635,664. and interest from 30 June 1980 until payment. The final award was dated 4 July 1980.

8

Switzerland, where the award in favour of D.S.T. was made on 4 July 1980 is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("the New York Convention") adopted by the United Nations Conference on International Commercial Arbitration on 10 June 1958. Section 7 of the Arbitration Act 1975 defines an "arbitration agreement" as an agreement in writing to submit to arbitration present or future differences capable of settlement by arbitration and defines a "convention award" as an award made in pursuance of an arbitration agreement in the territory of a state, other than the United Kingdom, which is a party to the New York Convention. Section 3 of the Act of 1975 provides that:

"(1). A Convention award shall … be enforceable-

(a) in England and Wales, either by action or in the same manner as the award of an arbitrator is enforceable by virtue of section 26 of the Arbitration Act 1950; …

(2). Any Convention award which would be enforceable under this Act shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in the United Kingdom; and any reference in this Act to enforcing a Convention award shall be construed as including references to relying on such an award."

9

By section 5 of the Act of 1975 enforcement of a Convention award shall not be refused except in certain specific cases none of which applies to the Convention award dated 4 Jul 1980.

By section 26 of the the Arbitration Act 1950:

"An award on an arbitration agreement may, by leave of the High Court or a judge thereof, be enforced in the same manner as a judgment or order to the same effect, and where leave is so given, judgment may be entered in terms of the award."

10

On 2 July 1986, Bingham J. granted D.S.T. leave to enforce against Rakoil the Convention award dated 4 July 1980 in the same manner as a judgment and ordered Rakoil to pay to D.S.T. the sum of U.S. $4,635,664...

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