Koshigi Ltd v Donna Union Foundation
| Jurisdiction | England & Wales |
| Judge | Sir William Blair |
| Judgment Date | 30 January 2019 |
| Neutral Citation | [2019] EWHC 122 (Comm) |
| Docket Number | CL-2018-000255 & CL-2018-000530 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 30 January 2019 |
[2019] EWHC 122 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
IN AN ARBITRATION CLAIM
Royal Courts of Justice,
Rolls Building, 7 Rolls Buildings
Fetter Lane, London, EC4A 1NL
Sir William Blair
CL-2018-000255 & CL-2018-000530
Christopher Parker QC and James Clifford (instructed by Fladgate LLP) for the Claimants
Edmund King QC (instructed by Bryan Cave Leighton Paisner LLP) for the First Defendant
The Second Defendant did not appear and was not represented.
Hearing dates: 17 January 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Sir William Blair (SITTING AS A HIGH COURT JUDGE)
The issue for decision relates to the liability for costs in respect of two discontinued Arbitration Claims brought under s. 68 Arbitration Act 1996 (which deals with serious irregularity). The claimants (respondents in the arbitration) are Koshigi Limited and Svoboda Corporation (the KS Shareholders), and the first defendant (claimant in the arbitration) is Donna Union Foundation (DUF).
In view of the limited nature of the present issue, it is not necessary to explain in detail the complex background. The arbitration concerns a shareholders' dispute in respect of the second defendant, a Maltese company called Ulmart Holdings Limited (UHL). DUF is a minority shareholder in the company, and the relief it sought in the arbitration was an order under the provisions of the Maltese Companies Act requiring the KS Shareholders to buy out its shares on the basis of their allegedly oppressive and unfairly prejudicial conduct towards DUF.
All three members of the Tribunal were selected by the LCIA Court, including the Tribunal Chair, who (it is not in dispute) is a well-known and very experienced international arbitrator. The liability hearing took place over nine days between 25 September and 5 October 2017. Towards the end, the KS Shareholders raised questions as to what they alleged was non-disclosure on the part of the Chair. Following the conclusion of the hearing, the lawyers for the KS Shareholders continued to investigate matters which in their view compromised his independence and wrote further letters to the Tribunal in this regard.
On 21 March 2018, the Tribunal issued its award on liability finding substantively for DUF, and making an award to the effect that the KS Shareholders were obliged to acquire the DUF shares in UHL at a price to be determined by the Tribunal (this was the first award). Shortly afterwards, their solicitors wrote to the Tribunal to the effect that the KS Shareholders would be applying to set aside the award on the grounds of serious irregularity, including bias. They invited the Chair to recuse himself, which the Chair declined to do.
The hearing on valuation took place on 10 and 11 April 2018. On 18 April 2018, the KS Shareholders issued proceedings under s. 68 Arbitration Act 1996 challenging the first award. This is the first of the two discontinued arbitration claims in respect of which costs issues now fall to be determined.
The grounds of the claim were that the Tribunal:
“(i) failed to comply with its general duties under Section 33 of the Act to act fairly and impartially as between the parties, because the Tribunal's Chairman breached his duty to act fairly and impartially and was biased; (ii) failed to conduct the arbitration in accordance with the procedure agreed by the parties, because the Tribunal referred to documents that had not been admitted into the evidential records in accordance with the procedure that had been agreed between the Tribunal and the parties; and (iii) failed to deal with the issues that were put to it, because it failed to address a number of the Claimants' arguments.”
The KS Shareholders relied on the second and third grounds in support of their case on bias, but also as independent grounds on which to challenge the awards.
On 20 June 2018, DUF issued an application for security for costs in relation to the claim in the sum of US$526,415.39.
On 16 July 2018, the Tribunal issued its second award, ordering the KS Shareholders to buy DUF's shares in UHL for US$67,159,546. This involved a process by which the share certificate/s were to be exchanged for the amount of the purchase price. The prescribed procedure was (in summary) that the purchase price was be paid to DUF's solicitors to be held by them in escrow, and DUF was to deliver to the KS Shareholders' solicitors the share certificate/s and transfer forms to be held by them in escrow.
This was supposed to happen by mid-August 2018. However, by the end of August the purchase price had not been paid, and the KS Shareholders maintain that DUF was in breach of its obligations to deliver the shares. The purchase price has still not been paid, and it is evident that the KS Shareholders do not intend to pay it.
Meanwhile, on 8 August 2018 the KS Shareholders issued further proceedings under s. 68 Arbitration Act 1996 challenging the second award. This was based on the first of the grounds of the previous claim, in other words bias on the part of the Chair. This is the second of the two discontinued arbitration claims in respect of which costs issues now fall to be determined.
On 10 September 2018, Notices of Discontinuance of the s. 68 claims were served on DUF's solicitors. The KS Shareholders' case is that they discontinued because there was no need to continue with the claims because the awards had become unenforceable. This was because, they say, the prescribed mechanism failed because of what they contend was DUF's failure to deliver the shares, and that since the Tribunal having delivered its award is functus, no other mechanism can now be substituted.
DUF's application for security for costs came before Judge Waksman QC on 12 September 2018. Live issues included the question of costs in respect of the discontinued claims, and the fact that DUF was considering applying to set aside the Notices of Discontinuance. This was on the basis that it should not be exposed to the contentions raised in the s. 68 claims in other proceedings. Those issues were adjourned.
On 17 September 2018, the KS Shareholders issued an application for an order that DUF is to pay the costs of the discontinued claims, alternatively that there be no order as to costs. That has been their case at this hearing.
On 9 October 2018, the parties entered into a consent order by which the KS Shareholders undertook that they would not rely on any facts and matters which are the same or substantially the same as those relating to the s. 68 claims in any proceedings in any jurisdiction. On that basis, DUF agreed not to apply to set aside the Notices of Discontinuance.
On 10 October 2018, DUF issued an application for an order that the KS Shareholders pay the costs of the discontinued s. 68 claims on an indemnity basis. The KS Shareholders say that they gave the undertaking in the consent order in the belief that there would be no further costs incurred in these matters. It is a legitimate comment made by the KS Shareholders that the indemnity costs application followed immediately after the consent order was signed. On the other hand, if they had not given the undertaking, the KS Shareholders faced an application to set aside the Notices of Discontinuance which they have avoided.
In any case, DUF's position is that its costs should be paid on an indemnity basis, and that has been their case at this hearing.
To complete the picture, various applications continued to be made by the parties to the Tribunal. Further, on 2 January 2019, the KS Shareholders applied to the LCIA for the revocation of the appointment of all three members of the Tribunal on the ground that circumstances exist that give rise to justifiable doubts as to its impartiality and/or independence. That matter apparently remains to be dealt with, but it was said on behalf the KS Shareholders at the hearing of the present matter that the application would have no effect on the awards one way or the other.
In their application to the LCIA, the KS Shareholders stated their belief that the final hearing in front of the Tribunal fixed for 14 January 2019 should be adjourned. That did not happen, and among other things, the question of the costs of the arbitration was dealt with at that hearing. The result is not yet known. The Tribunal has made it clear that it will be the last hearing in the arbitration.
The issues for decision
The issues presently for decision are –
(1) Which party is to pay the costs of the discontinued s. 68 proceedings including those of the hearing in front of Judge Waksman QC, and the present hearing. As noted, DUF's case is that the KS Shareholders should pay, whereas the KS Shareholders' case is that DUF should pay, or alternatively that there should be no order as to costs.
(2) If the court decides that issue in favour of DUF, whether costs should be awarded on a standard basis, or, as DUF submits, on an indemnity basis.
(3) The appropriate amount of the interim payment, there being no dispute that an interim payment should be ordered.
The legal test on discontinuance
There is no dispute as to the applicable test. The usual or “default” rule is that upon discontinuance of a claim the claimant pays the costs, but there are exceptions. The principles were set out in Brookes v HSBC Bank plc [2011] EWCA Civ 354 and it is common ground that they apply equally to proceedings under s. 68 Arbitration Act 1996.
In Brookes v...
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English High Court Orders Indemnity Costs In Discontinued S.68 Proceedings To Challenge Awards
...Koshigi Ltd and another company v Donna Union Foundation and another [2019] EWHC 122 (Comm) the English High Court considered an application for costs arising from discontinued proceedings under s.68 Arbitration Act 1996 to challenge two arbitral awards. The claimant in the underlying arbit......