National Iranian Oil Company v Crescent Petroleum Company International Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Burton |
| Judgment Date | 04 March 2016 |
| Neutral Citation | [2016] EWHC 510 (Comm) |
| Docket Number | Case No: 2014 FOLIO 1028 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 04 March 2016 |
[2016] EWHC 510 (Comm)
The Honourable Mr Justice Burton
Case No: 2014 FOLIO 1028
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Barbara Dohmann QC, Sara MastersQC, Edward Ho & Leonora Sagan (instructed by Eversheds LLP) for the Claimant
Gordon Pollock QC, Salim MoollanQC &Emily Wood (instructed by Hogan Lovells International LLP) for the Defendants
Hearing dates: 23/24/25 February 2016
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.
Mr Justice Burton:
The Claimant (NIOC) and the First Defendant (Crescent Petroleum) entered into a long term gas supply and purchase contract (the "GSPC") on 25 April 2001. It contained Article 22 " Governing Laws and Arbitration" which provided as follows:-
"22.1 Governing Law
This Contract shall be governed by and interpreted in accordance with the Laws of Islamic Republic of Iran.
22.2 Arbitration
The Parties shall use all reasonable efforts to settle amicably within 60 days, through negotiations, any dispute arising out of or in connection with this Contract or the breach, termination or invalidity thereof. Any dispute, controversy or claim arising out of or relating to this Contract, or the breach, termination or validity or invalidity thereof shall be finally settled by arbitration before three arbitrators, in accordance with a "Procedures for Arbitration" (attached hereto as Annex 2) which will survive the termination or suspension of this Contract. Any award of the arbitrators shall be final and binding upon the Parties. Either Party may seek execution of the award in any court having jurisdiction over the Party against whom execution is sought."
In 2003 Crescent Petroleum wished to assign the Contract to its subsidiary the Second Defendant (Crescent Gas). There was a clause of the GSPC by Article 16, which provided (materially): -
"16.1 Neither Party shall, without obtaining the prior written consent of the other, be entitled to assign this Contract or any rights and obligations hereunder to any other party, which consent in case of a subsidiary of a Party (an entity of which a Party owns or controls, directly or indirectly, majority of the voting rights) shall not be unreasonably withheld."
In July 2009 the First and Second Defendants commenced an arbitration claiming that, in breach of the GSPC, NIOC had failed to deliver any gas. NIOC challenged the jurisdiction of the Arbitrators in respect of the claim by both Defendants: in relation to the First (and consequently the Second) Defendant by reference to grounds of alleged corruption, and in relation to the Second Defendant additionally on the basis that the assignment was not valid, such that Crescent Gas was not a proper party to the arbitration. The appointed Arbitrators (the Arbitrator appointed by the Claimant having been changed twice, in circumstances not material before me) were Dr Gavan Griffiths QC (presiding), Dr Kamal Hossain and Dr Assadollah Noori. After lengthy submissions and a 30 day hearing, the Arbitrators issued an Award (of 1387 paragraphs and 362 pages). By a majority (Dr Noori dissenting), they dismissed NIOC's challenge on jurisdiction and declared that the GSPC was valid and binding on the parties, that the Second Defendant was a party to the GSPC by assignment and a competent joint claimant in the arbitration, and that NIOC had been in breach since 1 December 2005, and remained in breach, of its obligation to deliver gas under the terms of the GSPC, dismissing NIOC's defences and counterclaim.
NIOC brings applications under s.67 and s.68 of the Arbitration Act 1996 (the "1996 Act") to appeal/set aside the Award on a number of bases set out in Grounds of Appeal and Relief dated 26 August 2014. By an Order dated 23 February 2015, on the application of the Defendants, Teare J ordered the trial of Preliminary Issues which came before me on 23 February 2016. At the outset, I summarised those issues as follows in a way which was substantially accepted by counsel:-
(1) Is the issue of separability of the arbitration clause governed by English Law?
(2) If yes, is the arbitration clause separable and unaffected by the corruption alleged?
(3) If the issue of separability is governed by Iranian Law, Iranian Law being the law of the GSPC, does it apply?
(4) If separability does not apply, then, Iranian Law being the law of the GSPC, is the result of the corruption alleged such as to render the contract void or ineffective at Iranian Law?
(5) Was consent to assignment obtained (within the meaning of Article 16.1, set out above)?
(6) If not, is the Iranian Law concept of lazarar available so as to deem consent to have been obtained?
(7) Is it unarguable that the Award is unenforceable at English Law by virtue of s.68(2)(g) of the 1996 Act, as contrary to English public policy?
It is apparent from the above that issues (3), (4) and (6) are all governed by, and need substantial consideration of, Iranian law, and there were learned Iranian law experts on both sides ready and willing to be cross-examined on their detailed experts' reports, which I have read. Issue (5) is prima facie a question of Iranian law also, but it was common ground between the parties that the test of construction (upon which alone this issue depended) was the same at Iranian law as at English law, namely that it is for a court or arbitrators to decide the meaning of the Article in an international commercial contract as between international businessmen: or, as it was put in Iranian law, by reference to reading it in the eyes of a reasonable (international) merchant looking at the contract as an objective bystander. So although some evidence was contained in the various experts' reports, the matter fell to be decided by me by reference to principles of law entirely familiar to the Commercial Court.
I concluded, after hearing submissions, at the outset of the hearing that I would deal with issues (1), (2), (5) and (7) first, on the basis that if I resolved them in favour of the Defendants, issues (3), (4) and (6) would not arise. I agreed to give a decision on the four issues, with short reasons, after the conclusion of the argument, and, dependent upon the result, that would either bring the hearing to an end or we would then restart the hearing to deal with the remaining issues (3), (4) and (6). In the event, the hearing of the four issues concluded effectively at the end of the second day, Wednesday 24 February, with some additional short matters outstanding on the third day, so I was able at 2pm on Thursday 25 February to give my decision and short reasons resolving the four issues in favour of the Defendants. I now proceed to give the full judgment.
Issues (1) and (2): separability
I take these two issues together. The parties agreed, subsequent to the arbitration agreement (at a time when the disputes had arisen and the issue of corruption had been raised) to hold the arbitration in London. The seat of the Arbitration (within s.3 of the 1996 Act) was accordingly England and Wales, such that by s.2 (1) the provisions of Part 1 of the 1996 Act applied. Of those provisions, s.7 is 'non-mandatory', i.e. the parties are entitled to make their own arrangements by agreement, but the 1996 Act provides rules which apply in the absence of such agreement (s.4 (2)).
S.7 provides: -
" Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement."
S.7 is headed up " Separability of arbitration agreement". This is well understood as a concept, particularly as a result of the decision of the House of Lords in Fiona Trust & Holdings Corp v. Privalov [2008] 1 Lloyds Rep 254, namely that s.7 is to be interpreted so that the main agreement and the arbitration agreement must be treated as having been separately concluded, and the arbitration agreement could be invalidated only on a ground which related to the arbitration agreement, and was not merely a consequence of the invalidity of the main agreement: the doctrine of separability requires direct impeachment of the arbitration agreement before it could be set aside. There is no suggestion in this case that there was any ground for the latter approach, the Claimant's allegation of corruption applying only so as to seek to impugn the GSPC itself, and not the arbitration agreement.
The submissions of Barbara Dohmann QC for the Claimant are founded upon the following two sections of the 1996 Act:-
(i) S.2 (5) which provides that "Section 7 (separability of arbitration agreement)… [applies] where the law applicable to the arbitration agreement is the law of England and Wales… even if the seat of the arbitration is outside England and Wales… or has not been designated or determined".
(ii) S.4 (5), which provides " The choice of a law other than the law of England and Wales… as the applicable law in respect of a matter provided for by a non-mandatory provision of the Part is equivalent to an agreement making provision about that matter."
She submits...
To continue reading
Request your trial
-
RBRG Trading (UK) Ltd v Sinocore International Company Ltd
...Ltd [1999] 2 All ER 146; Honeywell International Middle East Limited v Meydan Group LLC [2014] 2 Lloyd's Rep 133, and National Iranian Oil v Crescent Petroleum [2016] 2 Lloyd's Rep 24 A helpful summary of principles to be derived from the authorities is provided in Dicey, Morris & Collins,......
-
Alexander Brothers Ltd (Hong Kong S.A.R) v Alstom Transport SA
...1 Ll Rep 361. Minmetals Germany GmbH v Ferco Steel Ltd [1999] CLC 647. National Iranian Oil v Crescent Petroleum Co International Ltd [2016] EWHC 510 (Comm); [2016] 1 CLC 508. Playboy Club London Ltd v Banca Nazionale del Lavoro SpA [2018] EWCA Civ 2025. R v V [2008] EWHC 1531 (Comm). RBRG ......
- Enka Insaat Ve Sanayi as v OOO Insurance Company Chubb
-
Sinocore International Company Ltd v RBRG Trading (UK) Ltd
...will apply where the award gives effect to a corrupt practice, such as to enforce payment or recovery of a bribe (see National Iranian Oil v Crescent Petroleum [2016] 2 Lloyd's Rep 146 at §41–42, referring to Nayyar v Denton Wilde Sapte [2010] Lloyd's Rep PN 139). Although I was not directe......
-
An Oily Situation: Separability, Public Policy and Arbitral Awards
...arbitral awards on public policy grounds. In National Iranian Oil Company v Crescent Petroleum Company International Ltd & Anor [2016] EWHC 510 (Comm), Mr Justice Burton commented on the following aspects of arbitration law and public Separability – Part 1 of the Arbitration Act 1996 applie......
-
An Oily Situation: Separability, Public Policy and Arbitral Awards
...arbitral awards on public policy grounds. In National Iranian Oil Company v Crescent Petroleum Company International Ltd & Anor [2016] EWHC 510 (Comm), Mr Justice Burton commented on the following aspects of arbitration law and public policy: Separability – Part 1 of the Arbitration Act 199......