Mobile Telesystems Finance SA v Nomihold Securities Inc.

Hearing date : 26 July 2011

This application for permission to appeal and the consequent appeal raised an important point of principle and practice in relation to the granting of freezing orders in aid of the process of execution of an arbitration award. It is unfortunate therefore that it had to be heard as a matter of urgency before a court composed of only two lords justices and moreover that the circumstances demanded that our decision be rendered immediately. At the conclusion of the three hour hearing on Tuesday 26 July 2011 we announced that we would grant permission to appeal and allow the appeal, giving reasons for our decision in due course. These are my reasons for reaching that decision.

The Appellant is Mobile Telesystems Finance SA to whom I shall refer as "MTSF". It is incorporated in Luxembourg. MTSF is part of a wider group of companies to which I will refer where necessary as "the MTS Group". The MTS Group is the leading telecommunications provider in Russia, Eastern Europe and Central Asia, with 102 million mobile telephone subscribers, 7.5 million household customers, 1.3 million broadband internet users, 2.1 million pay-per-view television subscribers and over 36,000 employees. The immediate parent company of MTSF, by which it is wholly owned, is MTS OJSC. MTS OJSC is incorporated in Russia and listed on the New York Stock Exchange. The evidence demonstrates that MTSF is a company set up purely to secure tax benefits to MTS OJSC.

The Respondent is Nomihold Securities Inc, to whom I shall refer as "Nomihold". The underlying subject matter of the present dispute between Nomihold and MTSF relates to an agreement to buy and sell shares in a Seychelles company, which in turn was believed to have the benefit indirectly of a mobile telephone communications licence in Kyrgyzstan. In broad summary:—

i) On 17 November 2005 MTSF and Nomihold entered into a sale and purchase agreement under which MTSF agreed to acquire a 51% interest in Tarino Limited from Nomihold for US$ 150 million in cash.

ii) At the time of the sale and purchase agreement it was apparently understood that Tarino was the indirect owner, through its wholly owned subsidiaries, of Bitel LLC, a Kyrgyz company holding a GSM 900/1800 mobile telecommunications licence for the entire territory of Kyrgyzstan.

iii) MTSF and Nomihold also entered into a put and call option agreement dated 22 November 2005 in respect of the remaining 49% of Tarino, providing for a put option exercisable by Nomihold at a price of US$ 170 million.

It is said by MTSF that on 15 December 2005, therefore shortly after MTSF and Nomihold had entered into the sale and purchase agreement and the option agreement, Bitel's corporate offices, presumably in Kyrgyzstan, were seized by a third party and that MTSF effectively lost control of Bitel. In November 2006 Nomihold exercised the put option. We were not told whether the shares in Tarino are alleged to have become valueless in consequence of what is said to have occurred in December 2005, but on MTSF's account the shares in Tarino no longer carried with them any indirect interest in Bitel. MTSF resisted the exercise of the put option.

In January 2007 Nomihold commenced arbitration proceedings in London against MTSF before an arbitral tribunal constituted under the rules of the London Court of International Arbitration seeking, amongst other things, specific performance of the put option. MTSF contested the proceedings. On 11 November 2010 the tribunal rendered its award in favour of Nomihold. We have not been shown the award. Nomihold says that it is in a total amount of around US$ 208 million. MTSF says that there is a serious issue as to what the award means and that on its true construction specific performance was ordered. I will assume for present purposes that it is in form an award under which US$ 208 million is payable by MTSF to Nomihold. MTSF did not challenge the award which accordingly became final on 5 January 2011.

Section 66 of the Arbitration Act 1996 provides:—

"Enforcement of the award.

(1) An award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect.

(2) Where leave is so given, judgment may be entered in terms of the award.

(3) Leave to enforce an award shall not be given where, or to the extent that, the person against whom it is sought to be enforced shows that the tribunal lacked substantive jurisdiction to make the award.

The right to raise such an objection may have been lost (see section 73).

(4) Nothing in this section affects the recognition or enforcement of an award under any other enactment or rule of law, in particular under Part II of the Arbitration Act 1950 (enforcement of awards under Geneva Convention) or the provisions of Part III of this Act relating to the recognition and enforcement of awards under the New York Convention or by an action on the award."

The procedure under s.66 of the Arbitration Act is governed by rules of court. CPR 62.18 provides, so far as relevant:—

" Enforcement of awards

62.18–(1) An application for permission under—

(a) section 66 of the 1996 Act

…

to enforce an award in the same manner as a judgment or order may be made without notice in an arbitration claim form

…

(6) An application for permission must be supported by written evidence—

(a) exhibiting—

(i) where the application is made under section 66 of the 1996 Act or under section 26 of the 1950 Act, the arbitration agreement and the original award (or copies);

(ii) where the application is under section 101 of the 1996 Act, the documents required to be produced by section 102 of that Act; or

(iii) where the application is under section 3(1)(a) of the 1975 Act, the documents required to be produced by section 4 of that Act;

(b) stating the name and the usual or last known place of residence or business of the claimant and of the person against whom it is sought to enforce the award; and

(c) stating either—

(i) that the award has not been complied with; or

(ii) the extent to which it has not been complied with at the date of the application.

(7) An order giving permission must—

(a) be drawn up by the claimant; and

(b) be served on the defendant by—

(i) delivering a copy to him personally; or

(ii) sending a copy to him at his usual or last known place of residence or business.

…

(9) Within 14 days after service of the order or, if the order is to be served out of the jurisdiction, within such other period as the court may set—

(a) the defendant may apply to set aside the order; and

(b) the award must not be enforced until after—

(i) the end of that period; or

(ii) any application made by the defendant within that period has been finally disposed of.

(10) The order must contain a statement of—

(a) the right to make an application to set the order aside; and

(b) the restrictions on enforcement under rule 62.18(9)(b)."

On 26 January 2011 Nomihold applied to Gloster J at a without notice hearing. Nomihold says that it asked for registration of the award as a judgment pursuant to s.66(2) of the Arbitration Act and also for a worldwide freezing order to be made in relation to MTSF. We have not been shown the Part 8 Claim Form which was apparently filed on 25 January.

So far as concerned enforcement of the award Gloster J ordered as follows:—

"3. Judgment be entered in terms of the award dated 11 November 2010 (the "award") as set out in Schedule 2 pursuant to s.66(2) of the Arbitration Act 1996.

4. In default of the Respondent applying in accordance with paragraph 5 below, the Applicant be at liberty to enforce the award in the same manner as a judgment or order of the High Court to the same effect pursuant to s.66(1) of the Arbitration Act 1996.

5. Within 14 days after service of this Order the Respondent may apply to set aside paragraph 4 of this Order."

There was some debate before us as to whether paragraph 3 of the Order is in the procedurally correct form. Arguably the Order should, both in terms of s.66 of the Arbitration Act and of CPR 62.18, have given leave or permission to enter judgment rather than directing that judgment be entered. We were told by Mr Salzedo QC, for Nomihold, that judgments are no longer entered in a formal manner, and he submitted that by virtue of the order made by Gloster J on 26 January Nomihold had a judgment in its favour. However he accepted that the judgment was defeasible—he described it as a judgment nisi. That is because of the provisions of CPR 62.18.(9) and (10), pursuant to which MTSF had the right to apply to set aside the order giving permission to enforce the award as a judgment. MTSF made such an application within the time prescribed for so doing, as I shall describe below, in consequence of which the award may not be enforced until that application has been finally disposed of. The precise form in which the Order was made is not material to the issue which we have to decide. It is the substance which is important.

Gloster J's...