Nomihold Securities Inc. v Mobile Telesystems Finance SA

JurisdictionEngland & Wales
JudgeMR JUSTICE ANDREW SMITH,Mr Justice Andrew Smith
Judgment Date02 February 2012
Neutral Citation[2012] EWHC 130 (Comm)
Docket NumberCase No: 2011–95
CourtQueen's Bench Division (Commercial Court)
Date02 February 2012

[2012] EWHC 130 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Andrew Smith

Case No: 2011–95

Between:
Nomihold Securities Inc
Claimant
and
Mobile Telesystems Finance Sa
Defendant

Adrian Beltrami QC and Alexander Polley (instructed by Simmons & Simmons LLp) for the Claimant

Vernon Flynn QC, David Scorey and Tom Smith (instructed by Latham & Watkins LLP) for the Defendant.

Hearing date: 19 January 2012

Approved Judgment

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 ANDREW SMITH Mr Justice Andrew Smith

Introduction

1

There are two applications before me. By application notice dated 2 December 2011 the claimant, to whom I refer as "Nomihold", applied for an order by way of a final injunction that the defendant, to whom I refer as "MTSF", within seven days discontinue or take all steps within its power to discontinue two arbitrations before the London Court of International Arbitration ("LCIA") to which I refer as the "SPA Arbitration" and the "Second Option Agreement Arbitration". Nomihold pursued its application before me only under section 37 of the Senior Courts Act 1981 (the "1981 Act"), although it was originally also made under section 44 of the Arbitration Act 1996 (the "1996 Act"). MTSF by application notice dated 30 December 2011 applied under section 9 of the 1996 Act for an order that Nomihold's application be stayed.

2

On 11 November 2010 in what I shall call the "First Option Agreement Arbitration" a LCIA tribunal comprising Mr. Steven Jagusch, Mr. Peter Rees QC and Mr. Peter Turner (the "Tribunal") made an award (the "Award") against MTSF in Nomihold's favour. In these proceedings, brought by an arbitration claim form on 25 January 2011, Nomihold claimed orders under section 66(1) of the 1996 Act that Nomihold should be at liberty to enforce the Award in the same manner as a judgment or order of the High Court and under section 66(2) of the 1996 Act that judgment be entered in the terms of the Award, and also sought a world-wide freezing order against MTSF in respect of the amount of the Award and disclosure orders. At an ex parte hearing on 26 January 2011 Gloster J made the orders sought in the claim form. On 1 August 2011 Burton J dismissed MTSF's application to set aside the orders of Gloster J under section 66 of the 1996 Act and affirmed her decision that the Award should be enforced as a judgment. I have been told that the Court of Appeal granted permission to appeal against Burton J's order but it was conditional upon the amount of the Award and some security for costs being paid into court by 30 January 2012, and that has not been done. It appears from what I have been told unlikely that an appeal will be pursued.

The underlying dispute.

3

MTSF is incorporated in Luxembourg and has been described as a "financing entity" for its parent company, Mobile Telesystems OJSC, a wireless communications provider in Russia and the Commonwealth of Independent States. Nomihold, incorporated in the British Virgin Islands, owned the shares in Tarino Limited ("Tarino"), which is a company incorporated in the Seychelles and was the indirect holder, through a combination of its subsidiaries, of all the issued share capital of Bitel LLC ("Bitel"), a mobile telecommunications company incorporated in the Kyrgyz Republic. Bitel holds an apparently valuable GSM 900/1800 licence for the entire territory of Kyrgyzstan.

4

On 17 November 2005 MTSF and Nomihold entered into a sale and purchase agreement (the "SPA") under which MTSF agreed to acquire a 51% holding in Tarino from Nomihold for $150 million. On 22 November 2005 MTSF and Nomihold entered into a put and call option agreement (the "Option Agreement") in respect of the other 49% shares in Tarino and a corresponding interest in Bitel. The Option Agreement gave MTSF a call option exercisable between 22 November 2005 and 17 November 2006, and gave Nomihold a put option exercisable between 18 November 2006 and 8 December 2006. In either case the price for the 49% holding was $170 million. The SPA and the Option Agreement each includes an arbitration agreement for arbitration in London under LCIA rules of "any dispute, controversy or claim arising out of or in connection with" it.

5

A dispute arose between Nomihold and MTSF after Bitel's corporate offices were seized by a third party following a decision of the Kyrgyz Supreme Court on 15 December 2005, as a result of which, as MTSF avers, the investment in Tarino was valueless. In November 2006 Nomihold exercised the put option or purported to do so, and it contended that MTSF was obliged to pay $170 million for the shares. MTSF refused to pay.

The arbitrations

6

On 9 January 2007 Nomihold commenced before the LCIA the First Option Agreement Arbitration under the Option Agreement, and sought among other relief specific performance of the put option. By the Award the Tribunal ordered MTSF to pay US$170 million in exchange for 49% of the shares in Tarino and damages of US$5.88 million, together with interest on both sums, and denied MTSF's requests for rescission of the Option Agreement, for a declaration that "Nomihold was not in a position to satisfy the obligations under the Option agreement and therefore could not make its Put option rights" and for a declaration that Nomihold was no longer able to exercise the put option.

7

On 26 June 2008 MTSF commenced the SPA Arbitration under the SPA Arbitration Agreement, alleging that it was not bound by the SPA because of misrepresentation, mistake and Nomihold's breach of its terms and that Nomihold was obliged to return the money paid thereunder and to pay damages. More specifically it made allegations:

i) About Tarino not being the legal owner (through the holding structure) of Bitel.

ii) About Tarino shares not being free from encumbrances and third party rights and claims because of an agreement to sell it to purchasers referred to as the "Kazakh Group".

iii) About Nomihold not disclosing to MTSF a decision made in the Bishkek Inter-District Court concerning the proper registration of Bitel (so that Nomihold's representation about Tarino's control of Bitel was incomplete and so misleading).

The issues raised in the SPA Arbitration had an impact upon the First Option Agreement Arbitration because MTSF maintained that the "validity of the Option Agreement is predicated upon a valid SPA and valid performance of the SPA" and MTSF was "running as a defence to liability under the Option Agreement the alleged invalidity or non performance of the SPA" (as the Tribunal put it in a letter to the parties dated 22 August 2008).

8

The SPA Arbitration has not progressed. After it was commenced by the LCIA's receipt of the request for arbitration, Nomihold responded to it on 30 July 2008, but thereafter apparently the LCIA Court did not appoint a tribunal under rule 5.4 of the LCIA rules. (The statement in the written submission of Mr Vernon Flynn QC, who represented MTSF, that there was an "arbitral panel" was acknowledged to be a mistake.) On 30 June 2008 MTSF advised the Tribunal that it had commenced the SPA Arbitration. It asked Nomihold to agree to the two references being consolidated, but Nomihold declined. Nomihold also resisted MTSF's request that the Tribunal should stay the First Option Agreement Arbitration until an award had been made in the SPA Arbitration, and rejected the Tribunal's suggestion that it should accept appointment in the SPA Arbitration (provided the SPA Arbitration was expedited). Nomihold's reasons for rejecting these various suggestions have not been explained or explored before me.

9

In these circumstances, the Tribunal decided on 22 August 2008 that what it called the "SPA issue" should be determined in the First Option Agreement Arbitration. It defined the SPA issue in a letter dated 8 October 2008 from Mr Jagusch, as chairman of the Tribunal:

"For the avoidance of doubt, the 'SPA issue' is whether the Option Agreement is predicated upon a valid SPA and the valid performance thereof and, if it is, whether the SPA was invalid or not performed, thus amounting to a defence to Nomihold's claims in these proceedings under the Option Agreement."

10

On 10 November 2010 MTSF served a SPA Issue Statement of Case in the First Option Agreement Arbitration, in which it requested the Tribunal to "set aside the SPA for misrepresentation or mistake or … find that Nomihold has breached the contract such that the entire purchase price of $150 million must be returned to [MTSF] on the grounds of failure of consideration, or that compensatory damages of like amount be paid to [MTSF] to vindicate Nomihold's breaches of contract".

11

In the Award the Tribunal determined:

i) With regard to the complaint about Tarino not being the legal owner of Bitel, that it owned them (whether or not Bitel's shares were so registered).

ii) With regard to the complaint about Tarino shares not being free from encumbrances and third party rights and claims because of an agreement to sell them to the Kazakh Group, that there was no binding agreement that could possibly have amounted to an encumbrance or right or claim.

iii) With regard to the complaint about non-disclosure of the decision of the Bishkek Inter-District Court, that the decision was appealable and of no effect until an appeal was disposed of, and no representation by Nomihold was false on account of the decision.

Thus the Tribunal rejected the three complaints which were comprised in the SPA issue, an issue that was stated in the Award at para 19 to be "The question whether the Option Agreement is predicated upon a valid SPA, and whether the SPA is valid or not performed". It concluded at...

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