Koo Golden East Mongolia v Bank of Nova Scotia
| Jurisdiction | England & Wales |
| Judge | Sir Anthony Clarke MR,Lady Justice Smith DBE,Lord Justice Pumfrey |
| Judgment Date | 17 December 2007 |
| Neutral Citation | [2007] EWCA Civ 1443 |
| Date | 17 December 2007 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2007/2806 |
[2007] EWCA Civ 1443
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT, CHANCERY DIVISION
(MR JUSTICE ROYCE)
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Anthony Clarke Mr
Lady Justice Smith Dbe and
Lord Justice Pumfrey
Case No: A2/2007/2806
Mr A Fulton (instructed by Denton Wilde Sapte, London EC4M 7WS) appeared on behalf of the Appellant.
Mr M Black QC, Mr A Miller (instructed by Squire, Sanders & Dempsey, London EC2N 1HQ) appeared on behalf of the Respondent.
Introduction
This appeal arises out of a Norwich Pharmacal order made by Royce J on Monday 10 December in which he ordered the first and second defendants by 16:00 on 13 December to serve on the claimants a signed witness statement answering a number of specific questions. The judge refused permission to appeal but permission was subsequently granted on paper by Buxton LJ who also granted a stay of execution of the order pending determination of the appeal. Because the appeal was said to be urgent we heard the appeal on Monday, which was 16 December, and reserved judgment until today, 18 December.
The order was made against the first and second defendants. Although it appears that the relief is really sought against the first defendant no distinction is drawn between the position of the first and second defendants in this appeal. It is convenient to refer only to the position of the first defendant (the bank). It is a Canadian bullion bank with a London branch. The third defendant is the Central Bank of Mongolia (MongolBank). The claimant's principal dispute is with MongolBank but this appeal is only concerned with the claimant's attempt to obtain information and documents from the bank. In order to focus on the issues in this appeal it is appropriate to say a word about the underlying dispute between the claimant and MongolBank and then the development of these proceedings and the role of the bank.
The Underlying Dispute
The facts are set out in some detail in the claimant's skeleton argument. Mr Fulton accepts on behalf of the bank that the facts are correct or at least arguably correct. It is necessary for present purposes only to refer to some of them. The claimant is a gold mining company based in Mongolia. Mr Sergey Paushok is the indirect majority shareholder in the claimant and its executive director. The claimant says that it is an established, large and successful company. Under Mongolian banking law the right to hold deposits of gold is limited to MongolBank and other banks authorised by MongolBank. In practice gold mining companies place their mined gold with MongolBank for safekeeping, usually releasing it for sale at a later date. On 19 July 2006 the claimant entered into a “safe custody/sale and purchase of precious metal agreement” (the agreement) with MongolBank.
The terms of the agreement, which is governed by the law of Mongolia included the following:
(a) The respondent agreed to deliver to MongolBank gold bullion bars (metal) for safe custody and subsequently to sell metal to MongolBank on certain terms (clause 1.1).
(b) The sale and delivery period was subsequently extended to 25 December 2007 (clause 1.2.1) as varied by supplementary agreement number one dated 5 October 2006.
(c) The sale date would be any date designated by the claimant during the sale period (clause 1.2.2).
(d) The amount of metal to be sold would be at least one million grams, ie one metric tonne (clause 1.2.4).
(e) The price would be the metal price per ounce as set by MongolBank at 9.30am Ulan Bator Time on the date the claimant delivers a letter containing the request to sell the metal to MongolBank (the metal sale letter) (clause 1.2.5).
(f) The claimant was obliged to deliver not less than one million grams of metal to MongolBank (clause 2.1.1).
(g) The claimant was obliged to issue the metal sale letter within the period in clause 1.2.1, that is to say on or before 25 December 2007 (clause 2.1.2).
(h) MongolBank was obliged to ensure acceptance of metal for safe custody in an amount of not less than one million grams (clause 2.2.1).
(i) MongolBank was obliged to ensure the security of the metal delivered for safe custody from the moment of the acceptance of the metal into MongolBank's depository until its sale by the claimant (clause 2.2.2).
(j) MongolBank was obliged to issue a certificate confirming the amount of metal kept in safe custody on the claimant's request within one business day of receipt of such request (clause 2.2.3).
(k) MongolBank had the right to accept metal in an amount greater than provided under the agreement (clause 2.4).
(l) During the metal sale period the claimant must sell to MongolBank metal in the amount set forth in clause 1.2.4, that is one million grams, and MongolBank must accept metal for safe custody and to purchase metal as the claimant requires in the metal sale letters (clause 3.1).
(m) Risk in the metal will pass on delivery into the safe custody of MongolBank but ownership will only pass on the delivery of the metal sale letter designating the sale date and metal sale request and execution of the metal sale statement (clause 4.1).
(n) MongolBank would pay 85% of the value of the metal deposited into safe custody on the date of delivery and that sum would be deducted from the actual purchase price. The balance would be payable to or by the claimant (clauses 5.5 to 5.8).
(o) In cases not covered by the agreement liability would be determined in accordance with Mongolian law (clause 6.6).
(p) All disputes and controversies not expressly addressed in the agreement were to be resolved by negotiation on the basis of Mongolian law (clause 9.1).
(q) If the matters in dispute could not be resolved through negotiation the disputes were to be resolved in court – by which I understand was meant in a court in Mongolia – pursuant to the procedures established by Mongolian law (clause 9.2).
It is the claimant's case that the following terms were implied into the agreement under Mongolian Civil Law:
(1) that the claimant retained the right to reclaim the deposited assets at any time under article 425 of the Mongolian Civil Law; and
(2) That the deposited assets may not be transferred to a third party without the authorisation of the claimant under article 422.3.2 of the Mongolian Civil Law.
In addition, by article 103.1 of the Mongolian Civil Law the rights of an owner may only be curtailed or restricted in ways expressly provided for by specific legal provisions and there are no provisions of Mongolian law which would have the effect of depriving the respondent of title to the gold as a result of any transaction entered into by MongolBank with any third party. Article 106 of the Mongolian Civil Law provides that an owner may reclaim its property from those holding it illegally or without proper authorisation.
Mr Fulton accepts on behalf of the bank that in these circumstances the claimant has an arguable case under the agreement and/or Mongolian law that:
(1) it was not obliged to sell to MongolBank the whole amount deposited with MongolBank;
(2) it could withdraw either the whole amount deposited or the whole amount less one metric tonne;
(3) it could either retain such gold itself or transfer it to another authorised bank in Mongolia;
(4) it could then transfer gold out of Mongolia and sell it on the world market either before or after refining; and
(5) unless and until the claimant delivered a sale letter or letters to the MongolBank (a) the title the gold remained in the claimant; (b) MongolBank could not lawfully deliver the gold to a third party; and (c) MongolBank could not lawfully sell the gold to a third party or have it refined.
The claimant accepts that it could not require redelivery of any of the gold without repaying the 85% of the value of the gold redelivered. Although Mr Fulton submits that the claimant has an arguable case along the lines I have just described he submits that the true position is much more likely to be as follows:
(1) The claimant was bound to buy the whole of the amount of gold delivered at the price prevailing at the date of the relevant metal sale letter or letters.
(2) The claimant was bound to issue the letters on or before 25 December 2007 failing which the property in the gold would pass to MongolBank.
(3) In these circumstances the claimant had no right to possession of any of the gold once it was delivered to MongolBank.
(4) It follows that the claimant does not have an immediate right to possession of gold delivered to a refiner outside Mongolia.
(5) It was not a breach of duty to deliver the gold to such a refiner before property passed to MongolBank because risk had already passed and property was bound to pass on 25 December 2007 at the latest.
It is accepted on all sides that the resolution of these questions depends upon Mongolian law and upon the application of Mongolian law to the terms of the agreement. It is not to my mind without significance that by clause 9 of the agreement the claimant and MongolBank had submitted their disputes to the courts in Mongolia for their resolution under Mongolian law.
I return to the facts. Between 21 July 2006 and 19 January 2007 the claimant delivered a total of 3,299,184.13 grams of gold bars to MongolBank. There is some evidence that the chemically pure element of that gold was or was estimated to be 2,951,024.21 grams. On 12 March 2007 the claimant asked MongolBank to “confirm the amount of gold held in safe custody by MongolBank” in accordance with the...
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