JSC Zestafoni G Nikoladze Ferroalloy Plant v Ronly Holdings Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J |
| Judgment Date | 16 February 2004 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 16 February 2004 |
Queen's Bench Division (Commercial Court).
Colman J
Anthony Trace QC and Benjamin John (instructed by Derrick French & Co) for JSC Zestafoni.
Timothy Brenton QC (instructed by Ince & Co) for Ronly.
The following cases were referred to in the judgment:
Athletic Union of Constantinople v National Basketball AssociationUNK[2002] 1 Ll Rep 305.
Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbHUNK[1982] 1 Ll Rep 217.
Entores Ltd v Miles Far East CorpELR[1955] 2 QB 327.
Foster v DriscollELR[1929] 1 KB 470.
Ispahani v Bank Melli Iran[1998] Ll Rep (B) 133.
Regazzoni v K C Sethia(1944) LtdELR[1958] AC 301.
Rustal Trading Ltd v Gill & Duffus SA[2000] CLC 231.
Arbitration Arbitrator's ad hoc jurisdiction Four parties to contract containing arbitration clause Whether two parties could and did agree to ad hoc arbitration outside arbitration clause Whether ad hoc agreement unenforceable as contrary to foreign law Arbitration Act 1996, s. 67.
This was an application by the claimant (Zestafoni Plant) under s. 67 of the Arbitration Act 1996 to set aside an interim arbitration award on the ground that the arbitrator had no jurisdiction to make the award.
The disputes between Zestafoni Plant and the defendant (Ronly) related to a 1997 agreement entered into by Ronly and a British Virgin Islands company (Fapet), together jointly and severally referred to as Faronly, with Zestafoni Plant, incorporated in the Republic of Georgia and Redwater Overseas Ltd, a Republic of Ireland company, together jointly and severally referred to in the agreement as Zestafoni. Under that agreement, which was for a period of two years, Faronly was to sell and supply to Zestafoni raw materials and electricity and Zestafoni was to sell and supply to Faronly ferroalloys manufactured at its plant in Georgia. Under the terms of the agreement, Faronly also made a loan of US$ 1.5 million to Zestafoni. There was also a law and jurisdiction clause which provided that the agreement should be governed by English law and that disputes should be referred to arbitration in the City of London with one arbitrator to be appointed by each of Faronly and Zestafoni and a third arbitrator by the two so appointed.
In the event, Ronly, having advanced a claim for amounts due to Faronly under the agreement, purported to agree with Zestafoni Plant through its general director that the claims advanced by Ronly should be referred to a sole arbitrator (K). After K had accepted his appointment and had entered on the reference and after pleadings had been exchanged, Zestafoni Plant took the point that in the face of the law and jurisdiction clause it was not open to Ronly and Zestafoni Plant to agree between themselves to ignore that provision of the agreement and to proceed to refer the claims to K as sole arbitrator. It was also asserted on behalf of Zestafoni Plant that Ronly had no standing to claim in its own name amounts due to Faronly under the agreement.
Both those issues were the subject of a hearing before K and he issued an award in favour of Ronly on both issues.
Zestafoni Plant applied to set aside that award on the three grounds that (i) by reason of the terms of the law and jurisdiction clause it was not open to Ronly and Zestafoni Plant alone to create a binding sole arbitrator agreement, (ii) alternatively on its proper construction the correspondence never gave rise to an agreement because Ronly and Zestafoni Plant were never ad idem and (iii) that Zestafoni Plant acted illegally under the law of Georgia in entering into such an agreement without the authorisation of the Georgian Ministry of Justice and that therefore it would be contrary to public policy for the English courts to give effect to it by giving effect to the arbitrator's award.
Held, dismissing Zestafoni Plant's application under s. 67 of the Arbitration Act 1996:
1. Clause 18 of the agreement permitted variation of the agreement and it was not inconsistent with the doctrine of separability of arbitration agreements to hold that clause 18 permitted variation of the clause containing the agreement to arbitrate. However clause 1.1.4 which provided that both Fapet and Ronly could be bound by a document signed under or pursuant to the agreement if it was signed by Ronly alone did not permit Ronly alone to vary the agreement to arbitrate since the variation would not be done by Ronly under or pursuant to the agreement but in order to vary it. Further clause 18 required the variation to be signed by the parties, meaning all the parties. Therefore the agreement to appoint a sole arbitrator, being a variation of the arbitration agreement, was outside the scope of the powers available under the agreement to Ronly acting alone.
2. The existence of the clause providing for any arbitration to be constituted by the appointment of two arbitrators, one by Faronly and one by Zestafoni, and a third arbitrator appointed by those two did not mean that a sole arbitrator could not be vested with jurisdiction to determine any issue under the agreement. If four parties entered into an agreement to refer to the arbitration of three arbitrators disputes arising out of an underlying agreement and, such disputes having arisen between two of the parties, those two parties agreed between themselves to appoint a sole arbitrator to resolve those disputes, there was no reason in principle why (i) that bipartite agreement should not be ad hoc agreement to arbitrate the disputes defined in it binding upon the two parties who had entered into it and (ii) an arbitrator appointed pursuant to that agreement should not have jurisdiction to determine those disputes as between those two parties.
3. The conduct of Ronly and Zestafoni Plant and the correspondence gave rise to an agreement binding between the two of them to refer the relevant issues to K as sole arbitrator.
4. The principle of openness and fair dealing between the parties to an arbitration demanded not merely that if jurisdiction was to be challenged under s. 67 the issue as to jurisdiction must normally have been raised at least on some grounds before the arbitrator but that each ground of challenge to his jurisdiction must previously have been raised before the arbitrator if it was to be raised on a s. 67 application challenging the award. (Athletic Union of Constantinople v National Basketball AssociationUNK[2002] 1 Ll Rep 305 followed.)
5. The only qualification to that requirement was if Zestafoni Plant could show under s. 73(1) of the Act that at all times when it took part in the arbitration before K it did not know and could not with reasonable diligence have discovered the grounds of objection, namely that the agreement for a sole arbitrator had been entered into in breach of Georgian law, but it could not do so. In any event even if Georgian law provided that the ad hoc agreement was void, the agreement was made in England, impliedly governed by English law, and to be performed in England and it would not have been contrary to public policy to enforce it.
Colman J:
1. There is before the court an application under section 67 of the Arbitration Act 1996 whereby the applicant (Zestafoni Plant) invites the court to set aside an interim arbitration award by Mr Ian Kinnell QC dated 12th May 2003 on the grounds that he had no jurisdiction to make the award. He held that he did have jurisdiction by reason of an ad hoc agreement to appoint him as sole arbitrator reached between the defendant, Ronly Holdings Ltd (Ronly), and Zestafoni Plant and that the claims advanced by Ronly fell within the scope of that jurisdiction.
2. There is also before the court an application by Zestafoni Plant under section 69 of the 1996 Act, in case it is concluded that the arbitrator did have jurisdiction, for permission to appeal against so much of his award as concluded that Ronly had title to sue for the amounts claimed in its own name.
3. The disputes between Ronly and Zestafoni Plant relate to or arise out of an agreement dated 30th September 1997 (the Agreement) which was entered into by Ronly, an English company, and Fapet International Commercial Trading Inc, a British Virgin Islands company (Fapet), together jointly and severally referred to as Faronly, with Zestafoni Plant, incorporated in the Republic of Georgia and Redwater Overseas Ltd, a Republic of Ireland company, together jointly and severally, referred to in the Agreement as Zestafoni.
4. Under that Agreement, which was for a period of two years, Faronly was to sell and supply to Zestafoni raw materials and electricity and Zestafoni was to sell and supply to Faronly ferroalloys manufactured at its plant in Georgia.
5. Under the terms of the Agreement, Faronly also made a loan of US$ 1.5 million to Zestafoni.
6. There was also a Law and Jurisdiction clause which provided that the Agreement should be governed by English law and that disputes should be referred to arbitration in the City of London with one arbitrator to be appointed by each of Faronly and Zestafoni and a third arbitrator by the two so appointed.
7. In the event, Ronly, having advanced a claim for amounts due to Faronly under the Agreement, purported to agree with Zestafoni Plant through its General Director, a Mr Ambokadze, that the claims advanced by Ronly should be referred to Mr Kinnell as sole arbitrator. After he had accepted his appointment and had entered on the reference and after pleadings had been exchanged Zestafoni Plant, then represented by Norton Rose, took the point that in the face of the Law and Jurisdiction clause it was not open to Ronly and Zestafoni Plant to agree between themselves to ignore that provision of the Agreement and to proceed to refer the claims to Mr Kinnell as sole arbitrator. It was also asserted on behalf of Zestafoni Plant that Ronly had no standing to claim in its own name amounts due to Faronly...
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