Gater Assets Ltd v Nak Naftogaz Ukrainiy
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rix,Lord Justice Buxton,Lord Justice Moses,Lord Justice Mummery |
| Judgment Date | 08 August 2008 |
| Neutral Citation | [2008] EWCA Civ 1051,[2007] EWCA Civ 988 |
| Docket Number | Case No: A3/2007/0738,Case No: A3/2008/0645(B) |
| Court | Court of Appeal (Civil Division) |
| Date | 08 August 2008 |
[2007] EWCA Civ 988
Lord Justice Buxton
Lord Justice Rix and
Lord Justice Moses
Case No: A3/2007/0738
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Field
[2007] EWHC 725 (Comm)
Mr Colin Edelman QC & Mr Charles Dougherty (instructed by Messrs Clyde & Co) for the Appellant/Claimant
Mr John Higham QC (of Messrs White & Case) for the Respondent/Defendant Hearing dates : 5 July 2007
Judgement
Gater Assets Limited (“Gater”) is the assignee of a New York Convention arbitration award and seeks to enforce it in England against the award debtor, Nak Naftogaz Ukrainiy (the National Joint Stock Company Naftogaz of Ukraine, “Naftogaz”). Naftogaz wishes to resist enforcement on the ground (inter alia) that the award was procured by fraud (a ground implicitly allowed under the Convention, which provides that enforcement may be refused on the basis that it would be contrary to public policy). It seeks security for costs against Gater on the ground that it is the defendant to Gater's claim to enforce the award, and that it is just that security for the costs of the enforcement issue should be provided. Gater submitted to the judge, Field J, that there was no jurisdiction to grant security for costs, and that even if there was in theory jurisdiction, nevertheless in practical terms Naftogaz was the applicant, so that if anyone should provide security for costs it should be Naftogaz, but in any event it should not be the (assignee of the) award creditor, Gater. The judge agreed with Naftogaz's submissions and awarded security for costs in the amount of £250,000 against Gater, who appeals. In giving permission to appeal, Toulson LJ remarked that arguable questions of some importance were raised.
The judge made his decision in favour of security under CPR 25.12 (1), which provides –
“A defendant to any claim may apply under this Section of this Part for security for his costs of the proceedings.”
The judge was satisfied that Naftogaz was a defendant to Gater's claim to enforce the award; that he therefore had jurisdiction; and that since Naftogaz had shown a prima facie case of fraud, he should order security in his discretion.
The award
The award in question is dated 31 May 2000, and was made by the International Commercial Court in Moscow (“ICAC”). The arbitration agreement pursuant to which the award was issued was contained in a Transit Contract dated 16 January 1998 between the legal predecessor of Naftogaz, which is the national gas company of the Ukraine, and Gazprom, the Russian gas company (the “contract”).
The contract between Gazprom and the legal predecessor of Naftogaz (to which I will refer also as “Naftogaz”) concerned the use by Gazprom of the “Brotherhood” gas pipeline through Ukraine. Gazprom paid for the use of this pipeline in kind by allowing Naftogaz to draw off a certain amount of gas for its own use. Gazprom insured against gas being misappropriated as it passed through the pipeline with its captive insurer, Sogaz Insurance Company (“Sogaz”). Between 1 November 1998 and 31 December 1999 Sogaz reinsured the risk with Compagnie Monegasque de Reassurance (“Monde Re”). Gazprom claimed that in December 1998 Naftogaz withdrew more gas (1.482 billion cubic metres) than it was entitled to, and Sogaz, its captive insurer, and in turn Monde Re, the reinsurer, reimbursed the claim in the sum of $88,256,704.89. Under Russian law, the rights of Gazprom passed by way of subrogation to Monde Re. It was Monde Re which pursued the Gazprom claim against Naftogaz in arbitration, and succeeded in obtaining the award, in its own name, in its favour.
It is this award which Monde Re has now assigned to Gater, and which Gater is seeking to enforce as a judgment in England. The award is in the sum of $88,256,704.49 plus costs. The assignment to Gater, made by Monde Re when in liquidation, is dated 3 May 2006.
The challenge to the award
One of the issues considered by the arbitral tribunal was whether the arbitration agreement contained in the contract was binding between Monde Re and Naftogaz. It considered that it was. That should come as no surprise to English lawyers. In English law a subrogated insurer would sue in the insured's own name, so that its claim would be bound to be brought in any arbitration in which its insured was obliged to participate. The tribunal's jurisdictional competence was also disputed, but again unsuccessfully.
Naftogaz carried its challenge to the award itself to the Moscow City Court. It was again said that the arbitral tribunal lacked jurisdiction, that the dispute was not within the arbitration agreement, that the composition of the tribunal was contrary to the arbitration agreement, and that the award was contrary to Russian public policy. The public policy allegations included one to the effect that there was no proof of a reinsurance agreement (inter alia because the copy before the tribunal was unsigned), and another that there was no proof of payment of the claim. It was also alleged that the Sogaz insurance contract was a fiction, because the limit of liability at $8.5 billion was the same as the amount of the premium. By these arguments, Naftogaz sought to show (inter alia) that Gazprom was illegitimately seeking to avoid a prohibition on assignment contained in the contract. In a reasoned decision, the Moscow City Court rejected all these (and other) grounds of challenge. There was a further appeal by Naftogaz to the Russian Supreme Court, heard on 24 April 2001, but again without success.
In September 2000, while the award was still under appeal in Russia, Monde Re sought to enforce it in New York against both Naftogaz and the State of Ukraine, against the latter on the ground that it was an alter ego of Naftogaz. The object of the proceedings was to execute against the assets of Ukraine in the US, where Naftogaz itself had no assets. Monde Re was unsuccessful in obtaining jurisdiction in New York, principally on the basis of forum non conveniens. There was no challenge to enforcement in New York on the ground of public policy or fraud.
The New York Convention
Russia and the UK are parties to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “Convention”). Relevant provisions are as follows:
“Article 1
1. This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought…
Article III
Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.
Article IV
To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:
The duly authenticated original award or a duly certified copy thereof;
The original agreement referred to in article II or a duly certified copy thereof…
Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity…
(b) The party against whom the award is invoked was not given proper notice…
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration…
(d) The composition of the arbitral procedure was not in accordance with the agreement of the parties…
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country of which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
Article VI
If an application for the setting aside or suspension of the award has been made to a competent authority referred to in article V(1)(e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.”
It may be observed that: (1) the provisions of the Convention are for the most part mandatory (see articles III, V.1); (2) the formal requirements for the party seeking enforcement are limited (article IV.1); (3) subject to article V.2 (which contains the saving in favour of public policy), enforcement may not be refused unless the party against whom enforcement is sought sustains the burden...
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