Ministry of Defence & Support for Armed Forces of the Islamic Republic of Iran v International Military Services Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Phillips |
| Judgment Date | 24 July 2019 |
| Neutral Citation | [2019] EWHC 1994 (Comm) |
| Docket Number | Case No: CL-2001-000289 and CL-2001-000290 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 24 July 2019 |
[2019] EWHC 1994 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BUSINESS & PROPERTY COURTS
COMMERCIAL COURT
Royal Courts of Justice
7 Rolls Building, Fetter Lane,
London EC4A 1NL
Mr. Justice Phillips
Case No: CL-2001-000289 and CL-2001-000290
Andrew Fletcher QC and David Davies (instructed by Stephenson Harwood LLP) for the Claimant
Joe Smouha QC and Tom Ford (instructed by Clifford Chance LLP) for the Defendant
Hearing dates: 21 and 22 May 2019
Approved Judgment
By application notice dated 11 September 2012 (“the 2012 Application”) the claimant (“MODSAF”) seeks to enforce two ICC arbitration awards (“the Awards”) against the defendant (“IMS”) by way of the entry of judgment and a declaration that sums currently held in court as security for the Awards are held for MODSAF's benefit.
However, it is common ground that, due to EU santions against Iran, IMS cannot currently pay the Awards and the court cannot enforce payment of the sums awarded (whether or not, as MODSAF contends, judgment can nevertheless be entered against IMS).
It is important to emphasise, not least because of press interest and the intervention of The Times newspaper (resulting in my decision to order that the hearing and this judgment be public, the reasons for which I gave in an earlier judgment), that the hearing before me was concerned solely with the quantum of the Awards which may, at some future time, be paid or otherwise enforced. The principal issue debated at the hearing and determined below is whether IMS is liable to interest on the Awards during the period during which it has not been permitted to satisfy the Awards because EU sanctions have been in force.
Background
MODSAF is the Iranian Ministry of Defence. IMS is an English company, all but one of its shares being owned by the UK Ministry of Defence, that one share being owned by HM Treasury.
The underlying dispute between the parties arose out of two contracts concluded in the 1970s pursuant to which IMS agreed to supply Chieftain tanks and Armoured Recovery Vehicles to MODSAF. The contracts were terminated on 6 February 1979 following the Iranian revolution, leaving disputes between the parties as to the balances payable. This led to two related ICC arbitrations, one commenced by MODSAF in 1990 and the other by IMS in 1996. On 2 May 2001 the ICC tribunal rendered final awards in both arbitrations, the Awards referred to above.
In the dispositive part of its Award on MODSAF's claim (“the 7071 Award”), the tribunal found:
“ (1) That [IMS] is liable to pay to [MODSAF] the sum of £Stg. 140,599,570 in respect of termination of the P4030 and the ARVs Contracts;
(2) That interest on the said sum should be paid from 28 July 1984 to the date of payment at the LIBOR rate +0.5%;
(3) That [IMS] should pay [MODSAF] US$6,255,404 in respect of its costs in this arbitration.
(4) The total amount of the costs of arbitration fixed by the ICC is US $ 1,800,000. Therefore, [IMS] is responsible for an amount of US $ 1,143,750 in respect of the arbitration costs and expenses and [MODSAF] is responsible for the remaining amount of US$656,250.”
The ICC tribunal dismissed IMS's claim (“the 9268 Award”) for the same reasons as it gave in the 7071 Award. In the 9268 Award the tribunal also ordered IMS to pay $3,127,701 in respect of MODSAF's costs.
By without notice arbitration applications dated 30 July 2001, MODSAF applied to this court pursuant to section 101 of the Arbitration Act 1996 (“the Act”) to enforce the Awards in the same manner as a judgment of the High Court. On 31 July 2001 Morison J granted leave to enforce, but subject to the usual provision that the Awards were not to be enforced until after any application to set aside the orders was finally disposed of.
On 16 August 2001 IMS issued applications to set aside or, alternatively, to adjourn MODSAF's enforcement proceedings, in particular in view of IMS' challenge to the Awards before the Dutch courts. By a consent order dated 5 December 2002, MODSAF's enforcement proceedings were indeed adjourned pending the final resolution of IMS's challenge in the Netherlands. The consent order provided that the adjournment was conditional on IMS paying £382,500,000 into court by way of security in respect of any sums that might ultimately be determined to be due from it to MODSAF pursuant to the Awards. On 18 December 2002 IMS provided the required security. That sum has now increased, by te accrual of interest, to just over £500,000,000.
On 21 December 2006 the Court of Appeal in The Hague partially set aside the 7071 Award by reducing IMS's liability to MODSAF to £127,651,823. In all other respects the Awards were upheld. On 24 April 2009 the Supreme Court of Netherlands dismissed an appeal from the Court of Appeal's decision.
By then MODSAF had been added to the list of entities subject to sanctions imposed against Iran by EU Council Regulation 423/2007 (presently Regulation 267/2012 (‘Regulation 267’)). The sanctions against MODSAF had taken effect on 24 June 2008. As a result, it is common ground that the sums due under the Awards cannot presently be paid to MODSAF.
Nevertheless, MODSAF's position was (and remains) that there is no impediment to the English Court entering judgment in terms of the Awards pursuant to the enforcement regime contained in sections 100–104 of the Act. Accordingly, on 11 September 2012, MODSAF issued the 2012 Application seeking the dismissal of the Defendants' applications to set aside, judgment in terms of the Awards and a declaration that the funds held by the Court Funds Office are held for the benefit of MODSAF.
The 2012 Application has taken an unusually convoluted procedural course. It was initially listed to be heard on 23–24 January 2013 but adjourned five times. Meanwhile, on 16 January 2016, the Central Bank of Iran (‘the CBI’) was removed from the list of sanctioned entities under Regulation 267. In the light of this development MODSAF applied for a further adjournment. This was intended to allow MODSAF time to make an application to the Office of Financial Sanctions Implementation of HM Treasury (‘OFSI’) for a licence under Article 25(a) of Regulation 267 that, MODSAF says, will facilitate payment of the sums due under the Awards to the CBI (‘the Licence Application’). MODSAF's position is that, if its Licence Application is successful, it could, following the entry of judgment, invite the court to direct that the sums due under the Awards be paid to the CBI from the funds held in the Court Funds Office. On 2 December 2016, Blair J ordered that the hearing of the 2012 Application be re-listed for hearing on 4–6 October 2017 and directed that MODSAF pursue the Licence Application with all due diligence. MODSAF made the Licence Application on 14 March 2017. However, a decision on the application had not become available by October 2017. Accordingly, the hearing set for 4–6 October 2017 was not effective and was adjourned three further times until it came before Moulder J on 1 May 2019.
At the 1 May hearing Moulder J determined that the following issues should be determined prior to the full hearing of the 2012 Application:
1. Subject to whether in due course upon the hearing of the 2012 Application MODSAF is entitled to have leave to enforce the Awards and to have judgment entered in terms of the Awards:
i) What are the “terms” of the Awards for the purpose of s 101(2) and (3) of the Arbitration Act 1996 (“ the terms of the Awards issue”)?
ii) Should the Court refuse enforcement of any post-award interest element of the Awards pursuant to Articles 42 and/or Article 38 of the Regulation 267 and/or s. 103(3) of the 1996 Act in relation to the period since MODSAF became a designated entity (it being agreed that IMS is and has been unable to make payment to MODSAF since MODSAF was designated as a specific target of EU sanctions on 24 June 2008) (“ the interest during the sanctions period issue”)?
iii) Is MODSAF entitled to post-award, pre-judgment interest on costs and if so at what rate (“ the interest on costs issue”)?
iv) What would be the relevant quantum for the purposes of the 2012 Application (when determined) taking into account (a) the proper calculation of interest in conformity with the answers to the issues at (ii) and (iii) above and (b) giving credit for amounts previously paid (“ the total quantum calculations issue”)?
2. In the light of the determination of the issues above, what balance of its funds currently held in the Court Funds Office should now be returned to IMS?
Molder J further gave directions for those issues to be determined at the hearing before me on 21 and 22 May 2019.
MODSAF has in the event abandoned its claim for post-award, pre-judgment interest on costs.
Moreover, I do not consider that it would be appropriate to determine the terms of the Awards issue at this stage in circumstances where the prior question of whether the Awards are enforceable in England remains to be decided. In my judgment, it would be more appropriate for the terms of the Awards to be considered alongside the question of whether the Awards are enforceable. I raised this point with the parties during oral argument and both parties confirmed that they were content with this course.
That leaves the interest during the sanctions period issue, to which I will now turn. Determination of that issue will enable the parties to agree the total quantum issue and, correspondingly, the balance of the funds in court which can be returned to IMS, it being accepted that the sums in court exceed IMS' total liability in any event, not least because of the revision to the principal...
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