Peepul Capital Fund II LLC and another v VSoft Holdings LLC
| Jurisdiction | UK Non-devolved |
| Judge | Lord Briggs |
| Judgment Date | 19 December 2019 |
| Neutral Citation | [2019] UKPC 47 |
| Date | 19 December 2019 |
| Docket Number | Privy Council Appeals Nos 0084 and 0089 of 2018 |
| Court | Privy Council |
[2019] UKPC 47
Privy Council
Michaelmas Term
From the Supreme Court of Mauritius
Lord Reed
Lord Carnwath
Lord Lloyd-Jones
Lord Briggs
Lord Sales
Privy Council Appeals Nos 0084 and 0089 of 2018
Appellant (VSoft)
Salim Moollan QC
Moorari Gujadhur
Peter Webster
(Instructed by Gujadhur Solicitors)
Respondents (Peepul and another)
Iqbal Rajahbalee SC
Mushtaq Namdarkhan
(Instructed by Fladgate LLP)
Heard on 4 December 2019
This appeal and cross-appeal are mainly concerned with an attempt by VSoft Holdings LLC (“VSoft”), which failed in the Supreme Court of Mauritius, to set aside an arbitration award (“the Award”) made in a Mauritian arbitration, under section 39 of the Mauritian International Arbitration Act 2008 (as amended) (“the MIAA”). The matter comes to the Board because, by section 42(2) of the MIAA, an appeal against the exercise of its statutory jurisdiction by the Supreme Court lies as of right to the Judicial Committee.
Consistent with the general thrust of the UNCITRAL Model Law on which it is closely but not precisely modelled, the MIAA affords only very limited grounds for challenging an award, all of which are set out in section 39(2). Reciting only the specific grounds relied upon in these proceedings, subsection (2) provides as follows:
“An arbitral award may be set aside by the Supreme Court only where —
a) The party making the application furnishes proof that —
…
(ii) it was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present its case;
…
b) the Court finds that —
…
(ii) the award is in conflict with the public policy of Mauritius;
…
(iv) a breach of the rules of natural justice occurred during the arbitral proceedings or in connection with the making of the award by which the rights of any party have been or will be substantially prejudiced.”
It is common ground that section 39(2) confers a discretion on the Supreme Court whether or not to set aside an arbitral award, even if one or more of the specified conditions for doing so is satisfied.
In bare outline, the grounds advanced by VSoft for setting aside the Award arise from a brief exchange between the single arbitrator and counsel for VSoft at the end of a two-day hearing in October 2014, from which the arbitrator came away with the understanding that VSoft had abandoned its defence to the claim, save only as to quantum. VSoft says that its counsel had done no such thing, so that the arbitrator thereafter determined the dispute against VSoft without any ruling upon the substantial matters in issue, in breach of the rules of natural justice within the purview of section 39(2)(b)(iv). Further or alternatively VSoft says that counsel's submission was preceded by an intervention by the arbitrator which amounted to an inappropriate stepping into the arena which had the effect of rendering VSoft unable to present its case, within the meaning of section 39(2)(a)(ii). Both the Supreme Court and the Board received the benefit of an agreed transcript of the oral exchange between the arbitrator and counsel for VSoft. There is, therefore, no dispute about what was said, but the exchange needs to be set in its context in order fully to understand what it meant. Finally it was said that the Award was in conflict with the public policy of Mauritius, within the meaning of section 39(2)(b)(ii).
The Supreme Court rejected VSoft's application. It concluded that VSoft had, by counsel, indeed abandoned its defence to the claim and that it had done so without any inappropriate pressure from the arbitrator, or other impediment to the presentation of its case.
The Award ordered VSoft to pay US$22,855,741 with interest until payment, together with damages and costs to the claimants in the arbitration, namely Peepul Capital Fund II LLC (“Peepul”) and Millenium Strategic Group Limited (“Millenium”), (together “the Investors”). The Supreme Court also continued a freezing injunction against VSoft pending the enforcement of the Award, and an injunction against the Investors, also pending enforcement of the Award, restraining them from “pursuing any action directly or indirectly on the basis that they are shareholders in VSoft …”. The Board will refer to this, for convenience but not by way of definition, as “the anti-suit injunction”.
VSoft appeals to the Board against the dismissal of its application to set aside the Award, and against the continuation of the freezing injunction. It is common ground that the freezing injunction stands or falls with the Award itself. By cross-appeal, the Investors appeal against the continuation by the Supreme Court of the anti-suit injunction. That raises separate issues, to which the Board will return at the end of this judgment.
VSoft is a company incorporated in Mauritius, as a holding company for VSoft Corporation, incorporated in Georgia, USA. Peepul and Millenium are respectively incorporated in Mauritius and the British Virgin Islands. In late 2006 they invested just under $8 million in VSoft in exchange for an approximate one-third equity shareholding, divided as to 31.6% to Peepul and 3.1% to Millenium. Just over 60% of the equity shareholding in VSoft was held by two individuals (“the Promoters”). The relationship between the Promoters, Peepul and VSoft was governed by an agreement dated 29 December 2006 (“the Investment Agreement”). It provided, at clause 12(d), for Peepul to have an option to request a “Promoter Assisted Exit” from its shareholdings in VSoft from and after 1 July 2010, for a minimum return on its investment of the original purchase price plus 30%. It imposed a form of best endeavours obligation on the Promoters to bring about that outcome.
Peepul requested a Promoter Assisted Exit on 28 September 2010. Although not a party to the Investment Agreement Millenium requested an exit on the same terms. Following negotiation, VSoft, the Promoters and the Investors agreed revised terms for the Investors' exit from VSoft by two agreements made on 2 May 2012. The first was a Termination Agreement, terminating the Investment Agreement. The second was a Shareholders Agreement providing, in outline, for the surrender by the Investors of their equity shares in VSoft for an aggregate sum of US$17 million, payable in three tranches: by the end of August 2012, by February 2013 and by August 2013 respectively, with interest accruing on the second and third tranches pending payment. The three tranches were US$10 million, US$5 million and US$2 million respectively.
Clause 3 of the Shareholders Agreement contained straightforward obligations on VSoft to pay and on the Promoters to procure the payment of the three tranches to the Investors by the specified dates, together with interest on any amounts of them remaining unpaid thereafter.
Clause 5 of the Shareholders Agreement, headed “Exit Steps”, set out various aspects of the agreed machinery for the turning of the Investors' equity shareholding into cash. Clause 5(a) provided for the Investors to surrender their shares back to VSoft for cancellation free from encumbrances, but contained no express date or time limit for surrender, although it required VSoft to effect cancellation within three business days from the surrender of the shares, defined as the “Cancellation Date”. Clause 5 (b) required the Promoters to cause VSoft to issue, on the Cancellation Date, the following to the Investors:
i) One Convertible Cumulative Preference Share with a nominal face value and dividend rate, but which conferred 51% voting control over VSoft in the event of default in payment of either the First or Second Tranches, and 26% voting rights in the event of default in payment of the Third Tranche.
ii) A promissory note in favour of the Investors in respect of the First Tranche.
iii) A Redeemable Preference Share (in effect) securing payment of the Second Tranche.
iv) A Redeemable Preference Share (in effect) securing payment of the Third Tranche.
By clause 5(c) the Investors agreed that their nominee directors on the board of VSoft would resign with effect from the Cancellation Date, subject to cancellation of the Surrender Shares.
Notwithstanding the absence of any express date in clause 5 of the Shareholders Agreement for the surrender of the Investors' shares, the Board is prepared to assume that, as submitted on behalf of VSoft, the shares were to be surrendered by not later than the date for payment of the First Tranche. This is because, under clause 5(b), payment of the First Tranche was to be achieved by the issue by VSoft of an on demand promissory note, after cancellation of the Investors' Equity Shares on the Cancellation Date.
The Investors did not in fact surrender their shares for cancellation by the end of August 2012, nor was the First Tranche then paid. No part of any of the three tranches has been paid to date. VSoft had in May 2012 already issued a promissory note in favour of Peepul for its share of the First Tranche, falling due on 31 August 2012, but that has not been paid.
By letter dated 8 October 2012 to the Promoters, the Investors surrendered their equity shares for cancellation, notified and requested the issue of the convertible and preference shares provided for by clause 5 of the Shareholders Agreement on the basis that, because of the default in payment of the First Tranche, the convertible share should carry 51% of the voting rights in VSoft. Although Mauritian company law makes provision in certain circumstances for the automatic cancellation of surrendered shares, it was common ground between counsel, in...
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Privy Council Dismisses Challenge To Mauritian Arbitral Award Based On Alleged Breaches Of Natural Justice And Public Policy
...the recent case of Peepul Capital Fund II LLC v VSoft Holdings LLC [2019] UKPC 47, handed down on 19 December 2019 and available here, the Privy Council (on appeal from Mauritius) upheld the decision of the Supreme Court of Mauritius which refused to set aside an arbitral award on the basis......