Minister of Finance (Incorporated) v International Petroleum Investment Company
| Jurisdiction | England & Wales |
| Judge | Mr Justice Robin Knowles CBE,Mr Justice Robin Knowles |
| Judgment Date | 08 May 2019 |
| Neutral Citation | [2019] EWHC 1151 (Comm) |
| Docket Number | Claim No: CL-2018-000704 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 08 May 2019 |
[2019] EWHC 1151 (Comm)
IN THE HIGH COURT OF JUSTICE
THE BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Robin Knowles CBE
Claim No: CL-2018-000704
In the Matter of the Arbitration Act 1996
Luke Parsons QC, Joseph Sullivan and Tom Nixon (instructed by Eversheds Sutherland (International) LLP) for the Claimants
Ewan McQuater QC, Farhaz Khan and Nathaniel Bird (instructed by Clifford Chance LLP) for the Defendants
Hearing dates: 11–12 March 2019
JUDGMENT (in public)
I direct that pursuant to CPR PD39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version may be treated as authentic
Introduction
The Claimants (“MOF” and “1MDB”) are, respectively, established and incorporated in Malaysia. The Defendants (“IPIC” and “Aabar”) are incorporated in the Emirate of Abu Dhabi.
The parties are, on the face of things, the parties to three arbitration agreements providing for arbitration seated in London.
The first of those arbitration agreements was made when the parties became, again on the face of things, parties to a Binding Term Sheet dated 28 May 2015 (“the Binding Term Sheet”). The other two were made when, on the face of things, they became parties to a Settlement Deed and a Supplemental Deed each dated 22 April 2017 (together, “the Settlement Deeds”).
The Binding Term Sheet and the Settlement Deeds each purported to compromise by agreement, rights and liabilities between MOF and 1MDB on the one hand and IPIC and Aabar on the other hand.
An arbitration (“the First Arbitration”) was commenced on 13 June 2016 under the arbitration agreement in the Binding Term Sheet. The Settlement Deeds followed 10 months later. In accordance with the terms of those Settlement Deeds, on 9 May 2017 a consent award (“the Consent Award”) was made by the arbitral tribunal in the First Arbitration.
From 3 April 2009 until 9 May 2018, and including at the date of the Consent Award, Mr Najib Razak (“Mr Najib”) was the Prime Minister of Malaysia. In broadest summary, MOF and 1MDB allege that Mr Najib conspired with others to misappropriate in excess of US$3.5 billion and has sought to conceal and prevent investigation of the conspiracy.
Although, as appears below, allegations are made against IPIC and Aabar, the victims of the conspiracy are said by MOF and 1MDB to include “IPIC, [Aabar] and/or 1MDB” (Response to Request for Arbitration dated 16 January 2019; see also the witness statement of Mr Richard Little for MOF and 1MDB at paragraph 6).
In agreeing the Binding Term Sheet and in due course the Settlement Deeds and the Consent Award Mr Najib furthered the conspiracy, so allege MOF and 1MDB. In providing confidentiality of process, the choice of arbitration is said to be part of the attempts to conceal and prevent investigation of the conspiracy. MOF and 1MDB allege that IPIC and Aabar knew that Mr Najib was acting contrary to the interests of MOF and 1MDB in bringing them about. IPIC and Aabar deny the allegations made against them.
The choice of seat for the First Arbitration engaged the supervisory jurisdiction of the English Court. MOF and 1MDB seek to invoke that supervisory jurisdiction in respect of the First Arbitration to challenge the Consent Award. Their challenges are made using the supervisory jurisdiction found specifically in sections 67 and 68 of the Arbitration Act 1996 (“the 1996 Act”).
Under section 67 it is said that the tribunal did not have substantive jurisdiction to make the Consent Award. Under section 68 it is said that there was serious irregularity affecting the tribunal, the First Arbitration or the Consent Award. Specifically, invoking section 68(2)(g) of the 1996 Act, it is the allegation of MOF and 1MDB that the Consent Award was procured by fraud or the way in which it was procured was contrary to public policy. In evidence in support of the arbitration claim form that is currently before this court MOF and 1MDB contend that the Settlement Deeds are void and not binding upon them.
IPIC and Aabar have responded by commencing arbitrations (“the Second Arbitrations”) against MOF and 1MDB under the arbitration agreements in the Settlement Deeds. They have also applied to stay the section 67 and 68 challenges in favour of the Second Arbitrations. They say they are entitled to a stay as of right under section 9 of the 1996 Act or that the court should exercise its case management powers or inherent jurisdiction to grant a stay.
In turn MOF and 1MDB have applied for an injunction under section 37 of the Senior Courts Act 1981 against IPIC and Aabar requiring them not to pursue the Second Arbitrations pending the outcome of the section 67 and 68 challenges.
This judgment concerns the applications for a stay and for an injunction.
Other applications
The arbitration claim form raising the section 67 and 68 challenges was issued outside the time limits provided by the 1996 Act. For reasons given ex tempore on 11 March 2019, I refused an application by IPIC and Aabar to strike out the claim form (an application based on a contention that MOF and 1MDB had not applied to extend time).
The application to extend time will itself be heard in May after the parties have completed the preparation and filing of their evidence in that connection. It remains open to the court to postpone the consideration of the extension of time to the substantive hearing of the section 67 and 68 challenges. For now, it must be kept in mind that it is an open question whether time will be extended.
MOF and 1MDB have a further application, on which full argument has not yet been heard, that the section 67 and 68 challenges be heard in public.
The Consent Award
The Binding Term Sheet was summarised as follows in a recital to the Settlement Deeds:
“The Parties entered into [the Binding Term Sheet] in connection with the settlement, release and discharge of all outstanding rights, obligations and liabilities as between the 1MDB Group and the IPIC Group (each as … defined …), in exchange for the creation of new rights, obligations and liabilities between them and [MOF] undertook to procure the satisfaction by 1MDB of all its obligations, to perform those obligations itself and to indemnify and make certain payments to the IPIC Group …”.
The Binding Term Sheet is described by MOF and 1MDB as “grossly disadvantageous” to them. They say their agreement to the settlement in it was, to the knowledge of IPIC and Aabar procured by Mr Najib in his interests and contrary to the interests of MOF and 1MDB. IPIC and Aabar deny the allegations made against them.
In due course, on 13 June 2016, IPIC and Aabar commenced the First Arbitration seeking an award from the arbitral tribunal and against MOF and 1MDB based on the Binding Term Sheet. A distinguished, independent, expert and experienced arbitral tribunal was appointed.
The parties had filed statements of case in the First Arbitration by the time of the Settlement Deeds dated 22 April 2017.
On 24 April 2017 MOF and 1MDB withdrew counterclaims in the First Arbitration on the basis that that withdrawal was without prejudice to any right to assert those counterclaims in another forum.
The claims remaining were then settled under the terms of the Settlement Deeds, which provided for the issue of the Consent Award. MOF and 1MDB describe the settlement set out in the Settlement Deeds as “grossly unfair” to them and say their agreement to the settlement was, to the knowledge of IPIC and Aabar, procured by Mr Najib in his interests and contrary to the interests of MOF and 1MDB. IPIC and Aabar deny the allegations made against them.
Under the Consent Award:
a. The Binding Term Sheet was stated to be valid and binding upon IPIC and Aabar and MOF and 1MDB until terminated by the Settlement Deeds.
b. MOF and 1MDB were to pay to IPIC by 31 December 2017 approximately US$1.2 billion (and interest) in instalments.
c. In relation to Deeds of Guarantee executed in May 2012 and October 2012 by IPIC (“the Guarantees”) in respect of certain bonds (“the Bonds”) it was stated that US$102,725,000 had been paid by IPIC, and that MOF and 1MDB were obligated to indemnify IPIC in respect of all sums which might be paid thereafter by IPIC or any member of IPIC's Group or for which they might become liable under or in relation to the Guarantees up to the full sum potentially falling due under the Guarantees of approximately US$4.7 billion.
d. The First Arbitration was terminated.
No decision on the underlying merits was made by the arbitral tribunal in the First Arbitration.
The Second Arbitrations
The Settlement Deeds pursuant to which the Consent Award was made each contained an arbitration agreement in these terms:
“Any dispute arising from or in connection with this Deed (including a dispute relating to the existence, validity or termination of this Deed or any non-contractual obligation arising out of or in connection with this Deed or the consequences of its nullity …) shall be finally resolved by arbitration under the LCIA Rules which are deemed to be incorporated by reference into this Clause. …The seat of arbitration shall be London, England and the language of the arbitration shall be English. The governing law of this arbitration clause shall be the substantive law of England.”
The requests for arbitration to commence the Second Arbitrations were made by IPIC and Aabar on 21 November 2018 with MOF and 1MDB serving their responses to those requests on 16 January 2019.
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