Gater Assets Ltd v Nak Naftogaz Ukrainiy
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE FIELD,THE HON. MR JUSTICE TOMLINSON,The Hon. Mr Justice Tomlinson,THE HONOURABLE MR JUSTICE BEATSON |
| Judgment Date | 21 May 2008 |
| Neutral Citation | [2008] EWHC 237 (Comm),[2007] EWHC 697 (Comm),[2008] EWHC 1108 (Comm) |
| Docket Number | Case No: 2006 FOLIO NO. 460,2006 Folio No. 460,Case No: 2006 Folio 460 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 21 May 2008 |
[2007] EWHC 697 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
COMMERCIAL COURT
Mr. Justice Field
2006 Folio No. 460
Mr John Higham QC (instructed by White & Case) for the Applicant/Defendant
Mr Colin Edelman QC and Mr Charles Dougherty (instructed by Clyde & Co) for the Respondent/Claimant
Hearing dates: 21 and 22 March 2007
Approved Judgement
Mr Justice Field:
There is before the court an application for an order that Gater Assets Limited (“Gater”) provide security for costs in respect of an application by Nak Naftogaz Ukrainiy (“Naftogaz”), a Ukrainian Corporation, to set aside an order made by Coleman J pursuant to s.101 (2) of the Arbitration Act (“the Act”) permitting Gater to enforce an award dated the 31 st May 2000 made at the International Commercial Arbitration Court in Moscow.
The agreement to arbitrate is contained in a transit agreement made between Gazprom, the Russian gas producer, and Naftogaz's legal predecessor. Under this agreement Gazprom had the right to send gas through the Brotherhood pipeline in the Ukraine in exchange for allowing Naftogaz's legal predecessor to take a specified quantity of the transiting gas.
It was alleged in the arbitration that: (1) Gazprom insured against gas being misappropriated as it passed through the Brotherhood pipeline in the Ukraine with its captive insurer, Sogaz; (2) between the 1 st November 1998 and the 21 st December 1999 Sogaz reinsured the risk with Monde Re, a company incorporated in Monaco; (3) in December 1998 the legal predecessor of Naftogaz took more gas than it was entitled to under the terms of the transit agreement with Gazprom and Sogaz paid US$88,256,704.49 under the original insurance to Gazprom and Monde Re in turn paid Sogaz the like sum under the terms of the reinsurance; (4) in these circumstances under Russian law the rights of Gazprom in respect of the misappropriated gas passed to Monde Re by way of subrogation; and (5) accordingly Naftogaz owed Monde Re US$88,256,704.49.
By the award dated the 31 st May 2000 the tribunal awarded Monde Re US$88,256,704, 49, plus US$ 117,697 costs. The tribunal specifically considered whether the arbitration agreement was binding between Monde Re and Naftogaz and concluded that it was, and that the tribunal had competence to hear the dispute.
Russia is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Naftogaz sought to challenge the award in the Moscow City Court on a number of grounds, including: (i) that the award was in respect of a dispute not provided for by the arbitration agreement; (ii) the arbitration panel lacked jurisdiction; (iii) the composition of the tribunal was contrary to the arbitration agreement; and (iv) the award was contrary to public policy. The public policy allegations included the allegation that there was no proof of a reinsurance agreement or payment of a claim and that the liability corresponded to an alleged premium of $8.5billion. The Moscow City Court rejected these grounds. It held that Monde Re and Naftogaz were both subject to the arbitration contract as legal successors to the parties to the agreement and upheld the award. Naftogaz appealed to the Russian Supreme Court but without success.
In September 2000 Monde Re sought to enforce the award in New York against Naftogaz and the State of Ukraine on the basis that the Ukrainian state was an alter ego of Naftogaz. Monde Re was unsuccessful, however, principally on forum non conveniens grounds.
On the 3 rd May 2006 the award was assigned by Monde Re, which was then in liquidation, to Gater.
On the 23 rd May 2006 Colman J made the enforcement order to which I have already referred on Gater's ex parte application. He also made a freezing order against Naftogaz's assets in the jurisdiction up to the value of the award.
The grounds on which Naftogaz rely in seeking to set aside Mr. Justice Coleman's order are: (1) there was no arbitration agreement between the claimant and the defendant, (2) neither Sogaz nor Monde Re nor Gater as Monde Re's assignee is entitled to be subrogated to any right of Gazprom to claim arbitration under the transit agreement; (3) the award dealt with a difference not contemplated by and not falling within the scope of the submission to arbitration contained in the transit agreement; (4) the composition of the arbitral tribunal was not in accordance with the transit agreement; (5) the award was obtained by fraud; (6) the enforcement of the award would be contrary to public policy; and (6) Naftogaz failed to make full and frank disclosure to the court on the 23 rd May 2006.
Naftogaz's application for security for costs is made under CPR 25.12 and 13. It is not disputed that Gater is domiciled outside a Brussels-Lugano Regime State and that, apart from the arbitration award, it has no assets. Nonetheless Mr. Edelman QC, for Gater, contends that the court has no jurisdiction to order security for costs against a judgement and award creditor in respect of a New York Convention award. Mr. Edelman's principal submission in support of this contention is that it would be a breach of the New York Convention if the United Kingdom allowed the award of security for costs in favour of an arbitration party who challenged a Convention award and therefore CPR 25.12 (1) should be construed so as to exclude an application for security for costs made by a party against whom a Convention award is made who is seeking to have an enforcement order made set aside.
At this stage I think it would be helpful to set out or summarise, so far as they are material, the relevant provisions in the New York Convention, the Act 1996 and the CPR.
The New York Convention, 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.
Section 66
(1) An award by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgement or order of the court to the same effect.
(2) Where leave is given judgement 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 …..or the provisions or 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.
Sections 67, 68 and 69
As is well known, these provisions allow an arbitration party to challenge a domestic award on grounds of a lack of substantial jurisdiction (s. 67) or serious irregularity (s. 68) or on a point of law by way of an appeal to the court (s. 69).
Section 70(1) and (6)
(1) The following provisions apply to an application or appeal under sections 67, 68 or 69.
……..
(6) The court may order the applicant or appellant to provide security for the costs of the application or appeal and may direct that the application or appeal be dismissed if the order is not complied with….
Section 81(1)
(1) Nothing in this part shall be construed as excluding the operation of any rule of law consistent with the provisions of this part, in particular any rule of law as to …
(c) the refusal of recognition or enforcement of an arbitral award on grounds of public policy.
The CPR
CPR 58.3
These rules and their practice directions apply to claims in the commercial list unless this Part or a practice direction provides otherwise.
CPR 62.1(3)
Part 58 (Commercial Court) applies to arbitration claims in the Commercial Court…..except where this Part otherwise provides.
CPR 62.18 (1) and (3)
(1) An application for permission under (a) section 66 of the 1966 Act;
(b) section 101 of the 1996 Act;
……
to enforce an award in the same manner as a judgement or an order may be made without notice in an arbitration claim form.
(3) The parties on whom the arbitration claim form is served must acknowledge service and the enforcement proceedings will continue as if they were an arbitration claim under section 1 of this Part.
Responding to the opening submissions of Mr Higham QC for Gater, Mr. Edelman QC for Naftogaz submitted that security for costs can never be ordered in favour of a party resisting enforcement of a domestic award because such resistance must be made before an enforcement judgement or order is entered by a challenge under sections 67 or 68 or 69 of the Act, and in such challenge proceedings the party seeking to uphold the award will always be a defendant and not a claimant. This being so, if there were a power to award security for costs against a claimant who has entered judgement to enforce a New York Convention award, Article III of the Convention would be breached because there would be more onerous conditions on the enforcement of a Convention award than on the enforcement of domestic awards.
In reply, Mr. Higham submitted that Mr. Edelman had entirely left out of account section 66 of the Act, which,...
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