Nomihold Securites Inc. v Mobile Telesystems Finance SA

This has been the hearing of an application by the Defendant, MTF SA ("MTF"), a Luxembourg company, to set aside paragraph 3 of the Order of Gloster J of 26 January 2011, by which, on the ex parte application of the Claimant ("Nomihold"), a BVI company, made on 25 January 2011, she entered judgment in the terms of an Arbitration Award dated 11 November 2010 ("the Award"), and the leave so granted to enforce the Award under s66 of the Arbitration Act 1996 ("the 1996 Act").

The Award was made in England at English law, by reason of a dispute under a Put Option Agreement, dated 22 November 2005 ("the POA"), which was expressly subject to English law and to arbitration under the Rules of the London Court of International Arbitration ("LCIA"). It is common ground that such Award would constitute a New York Convention award in any other jurisdiction, but when enforced in England and Wales under the law of the seat and in the jurisdiction of the supervising court it is strictly speaking not being enforced as a Convention Award (see s100 of the 1996 Act).

By virtue of ss70 and 73 of the 1996 Act the right to challenge the Award under ss67, 68 and 69 of the Act, or at all, was lost at the latest by 5 January 2011 and by Article 26.9 of the LCIA Rules the Award is final and binding.

The Arbitrators, consisting of a panel of Mr Stephen Jagusch as Chairman and Mr Peter Rees QC and Mr Peter Turner, delivered a lengthy and fully reasoned Award containing 308 paragraphs. Between 9 January 2007, when the Request for Arbitration was filed, and the date of the last submissions in September 2010, the Arbitrators held four hearings, the last in September/October 2009.

The Arbitrators heard nine live witnesses, including the principal of Nomihold, Mr Iskander Yerembetov, in London between 10 and 13 December 2007, two in March 2009 and a further four between 29 September and 2 October 2009 and they considered substantial submissions, witness statements, exhibits and other documents; and written submissions were continuously provided up and to including September 2010 by the lawyers representing both parties.

The Tribunal refers, at paragraph 38 of its Award, to being "presented with 14 witness statements, 16 expert reports and numerous written submissions rehearsing arguments over many hundreds of pages, numerous applications and four separate hearings."

The arbitration related to whether the Claimant, having previously sold to the Defendant 51 per cent of the shares of a Seychelles company called Tarino Ltd ("Tarino") by a Share Purchase Agreement dated 17 November 2005 ("SPA"), to which no challenge is or was made, was entitled to exercise its put option to sell to the Defendant the balance of 49 per cent of the shares in Tarino under the POA, by an exercise of its put option on 18 November 2006.

The Arbitrators concluded that the Claimant was entitled to sell the shares, rejecting various challenges to the Claimant's entitlement, so that the agreed purchase price of $170 million was due and payable.

The Tribunal's decision was as follows:

"The Tribunal hereby:

(1) Orders [MTF] to pay to Nomihold the sum of US$170 million in exchange for the remaining 49 per cent of Tarino shares in respect of [MTF's] failure to comply with the Put Notice.

(2) Orders [MTF] to pay to Nomihold the sum of US$5.88 million in damages in respect of [MTF's] breach of clause 3.5 of the [POA]."

In addition there was an order for interest and costs.

The sum of damages was payable by reference to clause 3.5 of the POA and related to a cash amount thereunder. I have heard no separate argument as to this sum.

As to the purchase price of the shares, clause 4 of the POA provided that, in exchange for the price, the Claimant would deliver the option share certificates etc, which the Claimant has done, and Tarino now to be under the Defendant's 100 per cent control (and, since the SPA, its 51 per cent control) was to pass the necessary resolutions to register the new ownership of its shares in the name of the Defendant (clause 4.3(1)(d) and 4.3(1)(i)(e)).

By clause 4.4 the Defendant undertook to the Claimant to take all actions that may be necessary for Tarino to comply with those subclauses.

The dispute in the Arbitration arose because the purchaser, the Defendant, complained that Tarino did not own (indirectly through three Isle of Man companies) the shares in a Kyrghyz company called Bitel, whose shares were effectively confiscated and transferred to another owner, as of 14 December 2005, as a result of a court ruling of a Kyrghyz court on 21 November 2005.

The issues in the Arbitration were all dedicated towards extricating the Defendant from the POA and its obligation to purchase the remaining 49 per cent of the shares of Tarino thereunder, because Tarino did not, by the time of the exercise of the put option (they alleged by the time of the POA itself, but that was rejected by the Arbitrators), indirectly own the shares in Bitel.

The issues in the Arbitration can be summarised as follows:

(i) Was the Claimant unable to convey clear title (indirectly through Tarino) to Bitel, because the Claimant had previously sold its interest in Bitel to a Kazakh group (dealt with in paragraphs 63 to 67 of the Award "the Kazakh Issue")?

(ii) Was there misrepresentation and mistake on the basis that Kyrghyz law required registration of shares as a prerequisite of ownership, to the intent that at the time of the SPA the Isle of Man companies, through which Tarino owned its interest in Bitel, were not so registered (paragraphs 68 to 196 of the Award "the Registration Issue")?

(iii) Did the Claimant breach the seller's warranties in the SPA, that Tarino (indirectly) owned Bitel when the Isle of Man companies were (allegedly) not registered at the time of the SPA (paragraphs 197 to 221 of the Award) ("the Warranties issue")?

(iv) Could the Claimant exercise the put option after Tarino lost its indirect ownership of Bitel because the shares in Tarino no longer satisfied the definition of "Option Shares" in the POA (paragraphs 228 to 260 of the Award) ("the Construction Issue").

(v) Did the Claimant breach the warranty in the POA (clause 5.2) that the Option Shares were free from encumbrances by reference to the alleged sale to the Kazakh group ("the Kazakh Misrepresentation Issue")?

(vi) Did the Claimant make a material misrepresentation that Tarino (indirectly) owned Bitel at the date of the POA ("the Bitel Misrepresentation Issue")?

(v) and (vi) were in paragraphs 261 to 277 of the Award.

(vii) Was the POA void for mistake either because of the alleged agreement with the Kazakh group or the non-ownership of the Bitel shares (paragraphs 278 to 284 of the Award: "the Mistake Issue")?

The sums which the Claimant now seeks pursuant to the Award to enforce as a judgment in England is of the order, including interest, of some US$208 million.

The procedural steps can be summarised as follows:

(i) When Gloster J made her ex parte order, giving leave to enforce the Award as a judgment, she also granted a worldwide freezing order in support. There was an unsuccessful challenge to that freezing order before me by the Defendant on 18 February 2011, but more significant was the Defendant's case, which was at that same hearing successful, to clarify the position relating to what is apparently the only asset of the Defendant, a debt of $400 million owed to it by its parent, MTS OJSC ("MTS"). MTS was instrumental in the issue of Loan Notes to third parties, which were structured through its subsidiary, the Defendant, so that the Defendant loaned $400 million to MTS, and MTS loaned that money to the third parties. MTS sought to do two things: (a) to eliminate a clause in the Notes which made it an event of default if the Defendant were to default, inter alia, in respect of payment of the Award, and (b) to restructure the Notes so as to eliminate the Defendant from the loop. This was because (i) MTS openly asserted that the Defendant was not going to pay the Award, (ii) it was clear that upon the restructuring the Defendant would hold "minimal assets with which it could satisfy the Award". For reasons I then gave, I permitted steps to be taken to eliminate the default provision, but I did not sanction the proposed form of the restructuring as it then stood. I was also concerned at the apparent effluxion of a guarantee ("the Sistema guarantee") of the Defendant's liability for the Award by MTS's shareholders, which had been reported in MTS's accounts. The Notes remain in place.

(ii) Gloster J had removed from the worldwide freezing order on 4 February 2011 the proviso permitting transactions in the ordinary course of business, because she was persuaded that a freezing order in support of enforcement after an award should be treated in the same way as a freezing order in support of enforcement after a judgment (see Soinco SACI v Novokuznetsk Aluminium Plant [1998] QB 406 per Colman J and Masri v Consolidated Contractors [2008] EWHC 2492 (Comm) at 35, per Tomlinson J. David Steel J, on 18 July, refused to permit a variation of the freezing order to allow payment of...