National Iranian Oil Company v Crescent Petroleum Company International Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Butcher |
| Judgment Date | 21 October 2022 |
| Neutral Citation | [2022] EWHC 2641 (Comm) |
| Year | 2022 |
| Docket Number | Case No: CL-2021-000620 |
| Court | King's Bench Division (Commercial Court) |
[2022] EWHC 2641 (Comm)
THE HON Mr Justice Butcher
Case No: CL-2021-000620
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND
AND WALES
COMMERCIAL COURT (KBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
David Bailey KC, Jessica Sutherland and Frederick Alliott (instructed by Eversheds Sutherland (International) LLP) for the Claimant
Ricky Diwan KC and Tariq A Baloch (instructed by McDermott Will & Emery UK LLP) for the Defendants
Hearing dates: 27–28 September 2022
Approved Judgment
There are two applications before the Court, brought by the Defendants, to whom I will refer to as ‘CPCIL’ and ‘CGC’ respectively and, when unnecessary to distinguish between them as ‘Crescent’. Both applications are in respect of a challenge which has been brought by the Claimant (‘NIOC’) under s. 67 Arbitration Act 1996 (‘s. 67’ and ‘the 1996 Act’, respectively) relating to a Partial Award on Remedies dated 27 September 2021 by a Tribunal consisting of Hon Murray Gleeson AC, Lord Phillips of Worth Matravers, and Sir Jeremy Cooke (‘the Partial Remedies Award’).
Background
The Partial Remedies Award was issued in the course of an arbitration arising out of a Gas Sale and Purchase Contract (‘the GSPC’) entered into on 25 April 2001 between CPCIL (subsequently assigned to CGC) and NIOC for the long-term supply of gas from Iran to the UAE.
The GSPC provides that the contract is governed by Iranian law. It further provides, by Article 22.2 that:
‘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 [in accordance with the Procedures for Arbitration contained in Annex 2]’.
CGC had in its turn entered into a gas supply agreement with a partly-owned subsidiary, Crescent National Gas Corporation Ltd (‘CNGC’), under which CGC undertook to supply volumes of gas on terms which were broadly similar to those in the GSPC. CNGC in turn entered into contracts to supply gas to various third-party end users. CGC also entered into one sale contract with an end user, namely Sharjah Electricity and Water Authority (‘SEWA’), directly.
NIOC did not perform its obligations under the GSPC. Crescent commenced a first arbitration under the arbitration clause in the GSPC on 15 July 2009. The parties agreed London to be the seat for the first arbitration. That arbitration was bifurcated between Jurisdiction and Liability, and Remedies.
On 31 July 2014, the then-constituted Tribunal issued an Award (‘the Liability Award’) in which NIOC was found to be in continuing breach of the GSPC from 1 December 2005 to the date of that Award. NIOC sought to challenge the Liability Award under ss. 67 and 68 of the 1996 Act. Those applications were dismissed on preliminary issues by Burton J by judgments of 4 March 2016 and 18 July 2016.
Arbitration after the Liability Award
Following the Liability Award, the Remedies phase of the arbitration proceeded. CGC advanced three heads of loss:
(1) CGC's loss of profits arising from the sale of gas to CNGC under its gas supply agreement with CNGC.
(2) CGC's damages in respect of CGC's liability to CNGC in respect of CNGC's loss of profits on contracts with end-user customers.
(3) A declaration of an entitlement to indemnification in respect of future claims made against it by SEWA or CNGC in respect of any claims by third parties.
On 28 June 2018, Crescent commenced a second arbitration to claim damages for breach of the GSPC for the period post 31 July 2014 through to the end of the 25-year period specified in the GSPC. The parties agreed the seat of that arbitration to be Geneva.
The Partial Remedies Award and NIOC's s. 67 Application
The Partial Remedies Award was made in the first arbitration. As I have said, it was dated 27 September 2021. In the Partial Remedies Award Crescent's claims were dealt with as follows:
(1) CGC was awarded US$1,334.70 million in respect of its loss of profits from the on-sale of gas to CNGC. This may be termed ‘CGC's loss of profits’.
(2) CGC was awarded US$1,085.27 million in respect of CGC's liability to CNGC for CNGC's lost profits on the sales to customers of gas and liquid products. This may be termed ‘CGC Liability to CNGC Losses’.
(3) The Tribunal deferred for further consideration CGC's claims for declarations of an entitlement to indemnification in respect of future liabilities to third parties arising out of the non-supply of gas, on the basis that it did not have sufficient information to determine those claims. This may be termed the ‘Indemnity claim’.
NIOC had taken no objection to the Tribunal's jurisdiction over (1), the claim for CGC's loss of profits. The Partial Remedies Award in respect of this head was the subject of a challenge under s. 69 of the 1996 Act, but that application was dismissed by Picken J in a judgment of 30 June 2022.
NIOC had taken before the Tribunal a jurisdictional objection to (2), the CGC Liability to CNGC Losses. The nature of the jurisdictional objection taken will be considered in more detail below. After the issuance of the Partial Remedies Award, NIOC issued, on 25 October 2021, an application to challenge that Award under s. 67 insofar as the Tribunal had declared that NIOC was liable to CGC in respect of the CGC Liability to CNGC Losses and had ordered NIOC to pay US$1,085.27 million in respect of such losses. NIOC contended that the Tribunal ‘had no substantive jurisdiction to determine whether and/or to what extent CGC was liable to CNGC under the terms of a separate contract and to make the award in respect of the existence and/or amount of CGC's alleged liability to CNGC.’
Crescent's Application and Directions given
In response to NIOC's s. 67 application, Crescent issued the two applications which are before the Court. Those applications were (1) for the determination as a preliminary issue that NIOC's s. 67 claim was precluded by s. 73 of the 1996 Act, and (2) for the summary dismissal of NIOC's s. 67 application.
The parties agreed on directions as to how these applications should be dealt with, and these were embodied in an order of Foxton J dated 7 February 2022. It was ordered that there should be a combined hearing of: (1) a preliminary issue, in the following terms: ‘Is the Claimant precluded from advancing the jurisdictional objection in the Section 67 Claim by Section 73(1) of the Arbitration Act 1996?’; and (2) Crescent's application for summary judgment on the basis that the s. 67 application had no real prospect of success. It is that combined hearing which came before me and to which this judgment relates.
The Preliminary Issue
The preliminary issue relates to s. 73 of the 1996 Act. That section provides in part:
‘ 73 Loss of right to object.
(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection—
(a) that the tribunal lacks substantive jurisdiction,
(b) that the proceedings have been improperly conducted,
(c) that there has been a failure to comply with the arbitration agreement or with any provision of this Part, or
(d) that there has been any other irregularity affecting the tribunal or the proceedings,
he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.’
Crescent's case is that, while NIOC did raise a jurisdictional objection to the Tribunal's determination of the CGC Liability to CNGC Losses head of claim, it was not the same jurisdictional objection as it now seeks to raise under s. 67. Crescent contends that as NIOC knew or at least could with reasonable diligence have discovered what Crescent characterises as NIOC's new objection during the Remedies phase of the arbitration, NIOC's participation in the arbitration without raising that objection means that it is now precluded from doing so.
The preliminary issue thus raises the question of whether the objection which NIOC seeks to raise on its s. 67 application is different from the one which was raised before the Tribunal. This entails an analysis of both.
NIOC's Jurisdictional Objection before the Tribunal
NIOC made a jurisdictional objection in its Counter-Memorial on Remedies of 3 February 2016. This was put as follows:
‘[30] In reality, by asking this Tribunal to award damages to CGC for its liability to CNGC for CNGC's lost profits, the Claimants would have the Tribunal assert jurisdiction over a lost profits claim by a company who is not a party to the arbitration clause in the GSPC. In fact, CNGC is a party to a different contract, containing a different arbitration clause and a different governing law clause.
[31] [NIOC] submits, therefore, that the Tribunal cannot properly hear any claims relating to CNGC's alleged lost profits. To do so would be to trespass on the jurisdiction of another tribunal, which CGC and CNGC have contractually agreed should determine any disputes between them. This Tribunal should therefore dismiss this part of the claim in limine for lack of jurisdiction.
…
2. The Tribunal's jurisdiction ratione personae
[113] The Tribunal's jurisdiction in this Case is derived from the arbitration agreement contained in Article 22 and Annex 2 of the GSPC.
[114] CNGC is not a party to the GSPC, and it has never been alleged by the Claimants that it is a party…
[115] … as...
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