Franek Jan Sodzawiczny v Simon John McNally
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 15 December 2021 |
| Neutral Citation | [2021] EWHC 3384 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2021-000211 |
[2021] EWHC 3384 (Comm)
Mr Justice Foxton
Case No: CL-2021-000211
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
David Caplan (instructed by Charles Russell Speechlys LLP) for the Claimant/Respondent
Bajul Shah (instructed by Lexent Partners Limited) for the Defendant/Respondent
Hearing dates:8 December 2021
Further written submissions: 9 December 2021
Draft Judgment to parties: 9 December 2021
Approved Judgment
I direct that 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 HONOURABLE Mr Justice Foxton
Introduction
This is the Defendant's (“Mr McNally's”) application to set aside part of the order made by Cockerill J on 18 April 2021 (“the Cockerill Order”) granting the Claimant (“Mr Sodzawiczny”) permission under s.66 Arbitration Act 1996 to enforce the Third Partial Award of 9 December 2020 (“the Award”) “in the same manner as a judgment or order of the court”. Mr McNally seeks to set aside that part of the Cockerill Order which applies to “so much of the [Award] as relates to the Property”.
“The Property” is a property in Mallorca which gave rise to one set of the issues in an LCIA Arbitration (LCIA Arbitration no 183969 – “the LCIA Arbitration”) involving claims by Mr Sodzawiczny against Mr McNally, Dr Gerald Martin Smith and Mr Simon Cooper, and for which Mr Stuart Isaacs QC was appointed the sole arbitrator (“the Arbitrator”).
In the LCIA Arbitration, Mr Sodzawiczny alleged that he had agreed with Mr McNally that the Property would be acquired for his benefit by a Spanish SL (originally called McNally Properties SL, later renamed Treehouse Properties SL, and which I shall refer to as “Treehouse Spain”) which was in turn owned by an Isle of Man Company (McNally Properties (SP) Limited, later renamed Treehouse Investments Limited, and which I shall refer to as “Treehouse IOM”) the shares in which were held by Mr McNally. The relief sought by Mr Sodzawiczny in relation to the Property was as follows:
i) a declaration that Mr Sodzawiczny was the ultimate beneficial owner of the Property;
ii) a declaration that Mr McNally held and holds on trust any powers or interests he had or has, directly or indirectly, in relation to the Property on trust for Mr Sodzawiczny; and
iii) an order that Mr McNally transfer or do whatever is necessary to effect the transfer of the Property or its indirect ownership to Mr Sodzawiczny.
There was a live issue between the parties in the LCIA Arbitration as to whether the factual basis for the declarations sought was established on the evidence. There was also a dispute as to whether Mr McNally was (any longer) in a position to effect a transfer of Treehouse Spain (which was the legal owner of the Property). It was Mr McNally's case that his shareholding in Treehouse IOM was diluted to 0.2% on 25 September 2014, as a result of an issue of shares to GAC Holdings Limited (“GACH”). However, two months later, Mr McNally executed documentation in Mallorca which, if the transaction had completed, would have transferred 100% of the shares in Treehouse Spain to Mr Sodzawiczny.
It is also relevant to note in this context that Mr Sodzawiczny advanced a number of serious allegations against Mr McNally in the LCIA Arbitration. Those allegations were essentially upheld by the Arbitrator who found that Mr McNally was adept at using trusts, similar structures and nominee arrangements to hide the true beneficial ownership of entities in the ownership structures he established.
The Arbitrator found that Mr McNally had procured the acquisition of the Property for Mr Sodzawiczny and holds or held any interest in the Property on trust for Mr Sodzawiczny (Award, [372]). The Arbitrator noted that no issues had been raised by Mr McNally (who was represented in the LCIA Arbitration, as he is now, by Mr Bajul Shah) as to the terms of the declarations and orders sought. The Arbitrator considered the issue of relief at Award, [457]–[463]:
i) He found that Mr Sodzawiczny was the ultimate beneficial owner of the Property ([460]).
ii) He referred to the declarations and order sought by Mr Sodzawiczny (as set out at [3] above), noting that no argument had been advanced by Mr McNally “as to the terms of any declaration or order” ([460]).
iii) He held that it was “appropriate to grant the Claimant declaratory relief and consequential orders” ([462]), from which it follows that the Arbitrator must have been satisfied that (i) the factual basis for the declarations sought had been made out and (ii) there was no obstacle to an order being made against Mr McNally in the terms sought.
These various findings were then reflected in the dispositive of the Award which (as amended by a Memorandum issued by the Arbitrator on 5 January 2021):
i) “grants the Claimant a declaration that he was and is the ultimate beneficial owner of the Property” (“Declaration (1)”);
ii) “grants the Claimant a declaration that Mr McNally held and holds any powers or interests which he had or has, directly or indirectly, in relation to the Property on trust for the Claimant” (“Declaration (2)”); and
iii) “orders Mr McNally to transfer or do whatever is necessary to effect the transfer of the Property (or its indirect ownership) to the Claimant” (“the Transfer Order”);
the Arbitrator reserving jurisdiction over “all other requests and claims, including questions of costs and interest, to one or more future awards”.
Mr McNally's application seeks to set aside the Cockerill Order so far as it concerns Declarations (1) and (2) and the Transfer Order.
S.66 Arbitration Act 1996
S.66 of the Arbitration Act 1996 provides:
“(1) An award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.
(2) Where leave is so given, judgment may be entered in terms of the award.
(3) Leave to enforce an award shall not be given where, or to the extent that, the person against whom it is sought to be enforced shows that the tribunal lacked substantive jurisdiction to make the award. The right to raise such an objection may have been lost (see section 73).
(4) Nothing in this section affects the recognition or enforcement of an award under any other enactment or rule of law, in particular under Part II of the Arbitration Act 1996 (enforcement of awards under Geneva Convention) or the provisions of Part III of this Act relating to the recognition and enforcement of awards under the New York Convention or by an action on the award.”
S.66, therefore, provides for two alternative orders the court may make to assist with the enforcement of an arbitration award – ordering that the award may be enforced in the same manner as a judgment or order of the court “to like effect” and entering judgment in the terms of the award. The second of those options was introduced by s.10 of the Arbitration Act 1934, supplementing the power to provide relief in the form of the first option introduced by s.12 of the Arbitration Act 1889. The power now provided for by s.66(2) was introduced following the Report of the Committee on the Law of Arbitration chaired by Sir Frank MacKinnon ( 1927, Cmd No 2817, [17]), and was intended to provide for those cases in which a judgment was necessary, either for the purposes of enforcement abroad (including in Scotland) or in order to serve a bankruptcy notice (in the light of the decision in Re A Bankruptcy Notice [1901] 1 KB 31). There is an important difference in the status of the two orders. An order giving the award creditor permission to enforce an award in the same manner as a judgment does not result in a court order which is amenable to the court's contempt jurisdiction: ASM Shipping Ltd of India v TTMI Ltd of England [2007] EWHC 927 (Comm), [26]. By contrast, an order of an appropriate kind which is entered as a judgment under s.66(2) is potentially subject to this jurisdiction.
It has long been recognised that s.66 (whichever option is followed) is intended to provide a summary form of procedure which achieves the outcome otherwise obtainable by an action on an award (see for example Mustill and Boyd, Commercial Arbitration (2 nd), 419, Coastal States Trading (UK) Ltd v Mebro Mineraloelhandelsgesellschaft GmbH [1986] 1 Lloyd's Rep 465, 467 and West Tankers Inc v Allianz SpA (The Front Comor) [2012] EWCA Civ 27, [36]–[38]).
It is clear that the court has a discretion as to whether to make an order in either form (“may, by leave of the court”). The Department Advisory Committee (“DAC”) on Arbitration Law, in their Report on The Arbitration Bill (February 1996) considered whether the Act should incorporate guidance as to the circumstances in which the court should refuse to make an order under s.66, consultees on the draft bill having raised in particular the position of awards on matters which were not arbitrable, or where enforcement of the award “would improperly affect the rights and obligations of those who were not parties to the arbitration agreement.” The DAC was initially attracted to including specific provision in s.66 identifying these as two cases where enforcement would be refused ([373]–[374]). However, in their Supplementary Report on the Arbitration Act 1996 of January 1997, the DAC decided against that course ([32]).
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