Minister of Finance (Incorporated) 1Malaysia Development Berhad v International Petroleum Investment Company Aabar Investments PJS

JurisdictionEngland & Wales
JudgeSir Geoffrey Vos
Judgment Date26 November 2019
Neutral Citation[2019] EWCA Civ 2080
Date26 November 2019
Docket NumberAppeal Ref: A4/2019/1243
CourtCourt of Appeal (Civil Division)
Between:
Minister of Finance (Incorporated) 1Malaysia Development Berhad
Claimants/Appellants
and
International Petroleum Investment Company Aabar Investments PJS
Defendants/Respondents

[2019] EWCA Civ 2080

Before:

Sir Geoffrey Vos, CHANCELLOR OF THE HIGH COURT

Lord Justice Newey

and

Lord Justice Males

Appeal Ref: A4/2019/1243

Claim No. CL-2018-000704

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

COMMERCIAL COURT (QBD)

The Honourable Mr Justice Knowles CBE

Royal Courts of Justice

The Rolls Building

London, EC4A 1NL

Mr Toby Landau QC, Mr Peter Webster and Mr Joseph Sullivan (instructed by Eversheds Sutherland (International) LLP) for the Appellants

Mr Mark Howard QC, Mr Craig Morrison and Mr Nathaniel Bird (instructed by Clifford Chance LLP) for the Respondents

Hearing date: 29 th October 2019

Approved Judgment

Sir Geoffrey Vos, Chancellor of the High Court (delivering the judgment of the court):

Introduction

1

This appeal raises an important legal issue as to the primacy of the powers of the court contained in sections 67 and 68 (“sections 67 and 68”) of the Arbitration Act 1996 (the “1996 Act”). The judge, Mr Justice Knowles, used case management powers to stay the applications under sections 67 and 68 (the “court applications”) made by the claimants, Minister of Finance (Incorporated) of Malaysia (“MoF”) and 1Malaysia Development Berhad (“1MDB”). That case management order had the effect of allowing two arbitrations (the “second arbitrations”) commenced subsequently by the defendants, International Petroleum Investment Company (“IPIC”) and Aabar Investment PJS (“Aabar”), to proceed to decide factual issues relating to the circumstances in which a consent award (the “consent award”) was entered into in a first and prior arbitration between the parties (the “first arbitration”). Those factual issues also arise in the court applications. The judge also refused to restrain the defendants under section 37(1) of the Senior Courts Act 1981 (“section 37(1)”) from continuing the second arbitrations.

2

The claimants appeal both the grant of a case management stay and the refusal of an injunction.

3

In relation to the stay, the claimants contend that the judge only identified one positive justification for granting the stay of the proceedings under sections 67 and 68, namely to avoid unnecessary duplication. 1 The court process was not of equal status with the subsequent second arbitrations. The judge should have placed greater weight on the structure of the 1996 Act and the provisions of section 4 and schedule 1 2 of the 1996 Act, which make sections 67 and 68 mandatory “notwithstanding any agreement to the contrary”. Had he done so, he would have realised that he was either required to allow the court applications to go first or he ought to have done so as a matter of discretion. The defendants submit that the judge made an entirely proper exercise of discretion, and that there is no legal requirement that the issues raised by applications under sections 67 and 68 should be determined entirely by the court. The various possible outcomes of the second arbitrations going first would all result in the issues being decided by the tribunal that the parties had agreed. Moreover, the judge's conclusion was coherent and elegant; it preserved all parties' rights and minimised prejudice.

4

In relation to the refusal of the injunction to restrain the second arbitrations, the claimants contend that the judge failed to apply the correct two-stage legal test adumbrated in Claxton Engineering Services Ltd v. TXM Olaj-es Gazkutato Kft (No 2) [2011] EWHC 345 (Comm), [2011] 2 All ER (Comm) 128 at [34] (“ Claxton”). He did not ask first whether the claimants' legal or equitable rights had been infringed or threatened by a continuation of the second arbitrations, or whether their continuation would be vexatious, oppressive or unconscionable, before considering, secondly, whether the injunction should be granted as a matter of discretion. Had he done so, the judge would have concluded that the claimants' right to have the proceedings under sections 67 and 68 determined first was indeed infringed by the prosecution of the second arbitrations, which were themselves vexatious, and that an injunction ought to

be granted. The defendants submit that the judge did indeed cite and correctly apply the two-stage approach adumbrated by the claimants
5

The factual background to these issues is complex and hotly contested between the parties. We take the view, however, that only a limited amount of factual context is necessary to allow this court fairly to decide the legal issues arising from the judge's decision. Before the hearing, the court rejected the defendants' application for the appeal to be heard in private. A public judgment was under appeal, and a private hearing had not been shown to be necessary for the proper administration of justice. The court nonetheless invited the parties not to refer in open court to sensitive commercial documents.

Essential factual background

6

We have tried to take our summary of the essential factual background so far as possible from the judge's judgment.

7

MoF is and was wholly owned by the Malaysian Government. 1MDB is a state-owned investment entity, which is a wholly-owned subsidiary of MoF. IPIC is an investment entity indirectly owned by the Government of Abu Dhabi. Aabar is wholly owned by IPIC.

8

Mr Najib Razak (“Mr Najib”) was the Prime Minister of Malaysia from 3 rd April 2009 to 9 th May 2018. The claimants' case is that Mr Najib conspired with others to misappropriate in excess of US$3.5 billion, and that he has sought to conceal and prevent investigation of the conspiracy. They also allege that 1MDB, IPIC and Aabar were victims of that conspiracy. 3

9

On 28 th May 2015, the parties entered into a binding term sheet (the “binding term sheet”) containing a London arbitration clause. The claimants allege that the binding term sheet was grossly disadvantageous to them, and that it was, to the defendants' knowledge, procured by Mr Najib to further his interests and to damage their interests.

10

On 13 th June 2016, the defendants commenced the first arbitration with its seat in London under the arbitration clause in the binding term sheet.

11

On 22 nd April 2017, the parties entered into a settlement deed and a supplemental deed compromising the issues raised in the first arbitration (together the “settlement deeds”). The settlement deeds provided for the issue of a consent award. The claimants contend that the settlement deeds were grossly unfair to them and that they too were, to the defendants' knowledge, procured by Mr Najib to further his interests and to damage their interests. The settlement deeds contained arbitration agreements providing that “[a]ny dispute arising from or in connection with [the settlement deed] (including a dispute relating to the existence, validity or termination of [the settlement deed] or any non-contractual obligation arising out of or in connection with [the settlement 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 settlement deeds also contained a series of events of default and provided that the parties waived any right to challenge the consent award “on grounds of jurisdiction or for any other reason”. The making or commencement of any “demand, action, claim or proceeding whatsoever” by the claimants before 31 st December 2020 (which would seemingly include a challenge to the consent award under sections 67 or 68) was one of the events of default. The settlement deeds provided that, if the defendants certified that an event of default had occurred, interest under the bonds and a US$481 million receivable (totalling just less than US$1.2 billion) would become immediately payable by the claimants to the defendants
12

On 9 th May 2017, the arbitral tribunal in the first arbitration made the consent award, which terminated the first arbitration, stated that the binding term sheet was valid and binding on the parties until terminated by the settlement deeds, provided for the claimants to pay IPIC over US$1.2 billion plus interest by 31 st December 2017, and made certain provisions in respect of deeds of guarantee executed in 2012 by IPIC (the “guarantees”) and in respect of certain bonds (the “bonds”).

13

The defendants contend that, for more than 12 months after May 2017, the claimants complied with their obligations under the settlement deeds and the consent award, including the payment of over US$1.2 billion plus interest.

14

After the departure of Mr Najib as Prime Minister of Malaysia on 9 th May 2018, the claimants issued the court applications. Their claim form was dated 30 th October 2018, and sought (a) to set aside the consent award on the basis that the arbitral tribunal in the first arbitration did not have substantive jurisdiction to make it because, to the defendants' knowledge, Mr Najib lacked authority (under section 67) and (b) determinations that the consent award was procured by fraud or in a way that was contrary to public policy and should be set aside or declared non-binding (under section 68). The claim form was served on the defendants on 20 th November 2018. Mr Richard Little's statement dated 30 th October 2018 in support of the claim form described the court applications in paragraph 12 as follows:-

“12. I understand that this Consent Award should be set aside because:

a. The Consent Award was procured by fraud or the way it was procured...

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