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NDK Ltd v HUO Holding Ltd

Judgment Business Law Reports Cited authorities 26 Cited in 10 Precedent Map Related
Vincent
JurisdictionEngland & Wales
JudgeMr Justice Foxton
Judgment Date01 July 2022
Neutral Citation[2022] EWHC 1682 (Comm)
CourtQueen's Bench Division (Commercial Court)
Docket NumberCase No: CL-20201-000424 & CL-2021-000760
Categories
Between:
NDK Limited
Claimant/(arbitration respondent)
and
(1) HUO Holding Limited
(2) KXF Trading Ltd
Defendants (arbitration claimants)

[2022] EWHC 1682 (Comm)

Before:

Mr Justice Foxton

Case No: CL-20201-000424 & CL-2021-000760

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Stephen Cogley QC and Christopher Jay (instructed by Fieldfisher LLP) for the Claimant

Aidan Casey QC (instructed by CANDEY Limited) and Lionel Nichols (of CANDEY Limited) for the Respondents

Hearing dates: 14 and 15 June 2022

Draft judgment provided to parties: 23 June 2022

Approved Judgment

I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

THE HONOURABLE Mr Justice Foxton

Mr Justice Foxton

This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Friday 01 July 2022 at 10:00am.

Mr Justice Foxton
1

This is the hearing of challenges by the Claimant ( NDK) under ss.67 and 68 of the Arbitration Act 1996 ( the 1996 Act) to two awards made in London by London Court of International Arbitration ( LCIA) tribunals:

i) The Partial Final Award dated 18 May 2021 which granted final anti-suit relief restraining NDK from advancing claims against the Defendants ( HUO, KXF and, together, the LCIA Claimants) in Cyprus ( the PFA).

ii) The costs award made in respect of the PFA on 5 November 2021 as part of the Final Award on Damages, Costs and Interest ( the Costs and Damages Award).

THE FACTUAL BACKGROUND

2

This dispute arises out a joint venture for the operation of a Russian coalmine which was originally entered into in March 2012 by three groups of investors: the Lime family, Mr Indigo and Mr Brown. As is commonly the case, the joint venture was structured as follows:

i) A Russian company, Mine LLC ( Mine Co), acquired the licence to operate the mine.

ii) Mine Co was owned by a Cypriot registered company called SPV Limited ( SPV).

iii) Corporate vehicles ultimately owned by the three sets of investors held shares in SPV in proportion to their interests:

a) The Limes' vehicle, NDK, held a 75% share.

b) Mr Brown's corporate vehicle, K Holdings Ltd ( K Co), held a 15% share.

c) Mr Indigo's vehicle, KXF, held a 10% interest.

3

SPV was required to have articles of association by the Cypriot Companies Law (Cap 113) ( the Articles of Association). In Cyprus, as in England and Wales, these give rise to a statutory contract between the shareholders in their capacity as such. While they contained no express choice of law, the Articles of Association were governed by Cyprus law, as the law of the place of incorporation. They did not contain a jurisdiction clause.

4

In addition to the Articles of Association, the relationship of the three shareholders in SPV was regulated by a shareholders' agreement ( the SHA) which was governed by English law and provided for LCIA arbitration ( the LCIA Arbitration Agreement). The SHA contains various provisions intended to offer a degree of protection to the interests of the minority shareholders.

5

Both the Articles of Association and the SHA contained provisions regulating the rights of the shareholders in SPV to sell their shares and giving the other shareholders rights to pre-empt such a sale in certain circumstances.

6

The joint venture partners fell out, and this has given rise to a number of disputes. Disputes arising from various matters, including disputed amendments to the Articles of Association, were first referred to LCIA arbitration in 2015 ( the Original Arbitration), in which NDK contended that the SHA had been terminated. The course of the Original Arbitration was protracted and sporadic, and in 2018 (while it was underway) the following occurred:

i) K Co acquired HUO as a subsidiary.

ii) K Co entered into an agreement to sell the capital of HUO to Mr Pink, it being a condition of the sale that HUO should first acquire K Co's shareholding in SPV.

iii) K Co then purported to transfer its shareholding in SPV to HUO.

iv) The board of SPV was asked to approve that transfer. For this purpose, SPV's corporate services provider was provided with a letter from Mr Brown's family trust ( the Orange Foundation Letter) which stated that the beneficial owner of the shares would not change following the transfer. The Orange Foundation Letter was later found to be false and fraudulent (given the intention to sell HUO to Mr Pink).

v) The transfer was approved by a unanimous resolution of the board of SPV on 5 February 2018 ( the 5 February Resolution).

vi) As part of the same transaction as the sale of HUO, Mr Indigo also transferred the beneficial ownership of KXF to Mr Pink.

vii) HUO was then joined to the Original Arbitration.

7

While at one point NDK sought to impugn these transfers in the Original Arbitration, suggesting that they were wrongful and gave rise to a breach of the SHA, it accepted in the course of its opening submissions that the transfers were “not in themselves a breach of the SHA” (because the pre-emption rights and transfer restrictions in the SHA did not extend to the disposal of shares in a shareholder in SPV, only to the disposal of shares in SPV itself).

8

On 25 September 2019, the tribunal in the Original Arbitration handed down its award rejecting NDK's claim that the SHA had been terminated and upholding certain of HUO and KXF's complaints. Four months later, on 21 January 2020, NDK commenced proceedings in Cyprus ( the Cyprus Proceedings) against K Co, KXF, HUO and various individuals alleged to be connected to them, alleging that:

i) Mr Pink was acting as a nominee for a competitor of Mine Co in acquiring a beneficial interest in SPV;

ii) the transfers of beneficial ownership to him were undertaken as part of a fraudulent conspiracy in breach of the terms of the Articles of Association; and

iii) the purpose and effect of the transfers had been dishonestly misstated in the Orange Foundation Letter which was intended to induce, and had the effect of inducing, NDK not to exercise rights of pre-emption arising under the Articles of Association.

9

The causes of action advanced were conspiracy to defraud, deceit, breach of the Articles of Association and inducing breach of the Articles of Association. The relief sought includes:

i) declarations that (i) the transfers themselves are void, alternatively voidable (because they were undertaken in breach of NDK's pre-emption rights under the Articles of Association) and (ii) the 5 February Resolution giving effect to the (ex hypothesi) void transfers was ultra vires;

ii) orders setting the transfers aside and transferring the relevant interests to NDK (and supplementary orders intended to facilitate those transfers);

iii) rectification of the register of members to show NDK and not HUO as the owner of the shares; and

iv) damages.

It is no criticism of the draftsperson of the statement of claim in the Cyprus Proceedings to observe that it studiously avoids reliance on the SHA for the purposes its claims, but relies extensively on the Articles of Association.

10

The LCIA Claimants contended that the claims made against them in the Cyprus Proceedings had been brought in breach of the LCIA Arbitration Agreement, and they commenced a fresh LCIA arbitration seeking an anti-suit injunction requiring NDK to abandon the Cyprus Proceedings so far as it concerned them on 13 March 2020 ( the Second Arbitration). As well as challenging the substantive jurisdiction of the Second Arbitration tribunal to grant such relief on the basis that the LCIA Arbitration Agreement did not apply to the claims brought in the Cyprus Proceedings (see for example paragraphs 3 and 4 of its Response to the Request for Arbitration), one of the points NDK took in response was to say that the conduct on the part of the LCIA Claimants which had been pleaded in the Cyprus Proceedings gave rise to a repudiatory breach of the SHA, and NDK purported to accept that breach and terminate the SHA (and with it, it was contended, the LCIA Arbitration Agreement).

11

This led the LCIA Claimants to commence two more arbitrations on 16 April and 3 July 2020, which were consolidated by the LCIA ( the Consolidated Arbitration). The relief sought by the LCIA Claimants in the Consolidated Arbitration included declarations that the SHA remained valid and binding.

12

The Consolidated Arbitration was still ongoing both when the merits hearing took place in the Second Arbitration (2 and 3 December 2020), and when the tribunal handed down the PFA on 18 May 2021 granting the LCIA Claimants final anti-suit relief.

13

The merits hearing in the Consolidated Arbitration took place between 12 and 27 May 2021. On 22 March 2022, the tribunal in the Consolidated Arbitration handed down its award ( the Consolidated Arbitration Award) in which it held, inter alios, that the SHA remained valid and binding. In the Consolidated Arbitration Award, the tribunal held that it was an abuse of process for NDK to raise the complaints relating to the transfer of shares from K Co to HUO having regard to the position it had taken in the Original Arbitration. It also went on to deal with NDK's complaints on the merits, and rejected them. The fact that the dispute as to whether the SHA had been terminated was still pending when the PFA was handed down gives rise to one of NDK's s.68 challenges.

14

On 21 November 2021, the Tribunal handed down the Costs and Damages Award.

THE APPLICATIONS

15

Against that background:

i) NDK has brought challenges under ss.67 and 68 of the 1996 Act to the PFA and the associated parts of the Costs and Damages Award, which are before me at this hearing. The first ground of the s.68 challenge is...

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