Republic of Kazakhstan v Istil Group Inc.
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RICHARDS,Lord Justice Longmore,Lord Justice Toulson,Lady Justice Arden,SIR ANTHONY CLARKE |
| Judgment Date | 25 April 2007 |
| Neutral Citation | [2007] EWCA Civ 471,[2005] EWCA Civ 1468 |
| Docket Number | A3/2005/2349,Case No: A3/2006/0902 |
| Court | Court of Appeal (Civil Division) |
| Date | 25 April 2007 |
[2005] EWCA Civ 1468
Sir Anthony Clarke Mr
Lord Justice Rix
Lord Justice Richards
——
A3/2005/2349
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE CHRISTOPHER CLARKE)
MR JONATHAN HARVIE QC (by instructed Penningtons Solicitors Llp, London) appeared on behalf of the Appellant
MR MALEK QC AND MR DAVID QUEST (instructed by Richards Butler, London) Appeared on behalf of the Respondent
——
( Approved by the Court)
—-
Introduction
This is an appeal brought with the permission of the judge against an order of Christopher Clarke J made on 18 October 2005 in which he dismissed an application for security for costs by the defendant.
The judge dismissed the application because of an agreement between the solicitors for the parties under which the claimant agreed to provide security for the defendant's costs in the sum of £30,000. The issue in this appeal is whether the judge erred in principle in dismissing the application.
We heard oral argument yesterday. At the conclusion of the argument we announced our decision that the appeal would be allowed, and said that we would make the following order:
1. The appeal be allowed and paragraphs 1 and 2 of the order made by Christopher Clarke J on 18 October 2005 be set aside.
2. The claimant give further security for the defendant's costs of the claim up to and including the hearing beginning on 12 December 2005 in the sum of £120,000 by paying the sum of £120,000 into the Court Funds Office by 4.30 pm on 1 December 2005 or otherwise to the satisfaction of the court.
3. Unless security is given as ordered
(a) the claim is struck out without further order; and
(b) on production by the defendant of evidence of default, there be judgment for the defendant without further order with the costs of the claim to be the subject a detailed assessment.
4. The claimant do pay the costs of the application for security for costs before Christopher Clarke J and of this appeal.
5. The costs of the application before Christopher Clarke J are summarily assessed at £15,460.60 and the costs of this appeal are summarily assessed at £14,104.79.
6. The claimant to pay those costs to the defendant on or before 1 December 2005.
We adjourned giving our reasons for those orders until today. These are the reasons which persuaded me that those orders should be made.
The proceedings
I can summarise the proceedings and the events which led to them from the judge's judgment. Like the judge I shall call the claimant "the Republic" and the defendant "Istil". Istil is a steel trader whose predecessor in 1995 bought steel from SJC Karaganda Metallurgical Combine ("Karmet"), a Kazak state enterprise, which owned a very large steel mill in Kazakhstan. Karmet was or became in great financial difficulty. The Republic, which owned Karmet, insisted on Istil's predecessor, Metalsrussia Corp Limited, of the British Virgin Islands ("BVI Metalsrussia"), making advanced delivery of raw materials to the value of steel to be delivered to Istil.
Proceedings were commenced by BVI Metalsrussia in the Commercial Court in Paris against the Republic in respect of a number of contracts for the purchase of steel from factories belonging to the Republic. The Republic contested jurisdiction on the ground that it was not a party to those contracts but that if it was then there was a binding LCIA Arbitration Clause and that, alternatively, it was entitled to sovereign immunity. BVI Metalsrussia contended that there was no claim against the Republic under the contracts themselves, together with their arbitration clauses, but only under separate undertakings given during the proceedings relating to the insolvency of Karmet. The Commercial Court in Paris, and subsequently the Court of Appeal, rejected the contention that the Republic was party to any arbitration agreement, but declined jurisdiction on the grounds of sovereign immunity.
BVI Metalsrussia then commenced LCIA arbitration proceedings under three contracts for the sale of rolled steel, dated 1994 and 1995, seeking to recover the advance payments that had been made and damages. The first contract was expressed to be between an entity named Kazakhstan Sauda as sellers and Metalsrussia Corp as buyers. The second and third contracts were between Oltex Trading Corporation as sellers and Metalsrussia Corp as buyers. The Republic contested the jurisdiction of the arbitrators. In the course of the arbitration it appears that BVI Metalsrussia had merged with its parent company which in turn had merged with Istil, the claimant. By a final award of 1 June 2004 in the sum of $6 million the arbitrators found that Karmet was, as principal of the named parties, the seller and that it had made no delivery under two of the contracts and short delivery under the third.
At issue in the arbitration were, first, whether BVI Metalsrussia were the buyers, or whether the true buyers were a Metalsrussia company which became known as HK (for Hong Kong) Metalsrussia; and, secondly, whether the Republic had become a party to the contracts and the arbitration clauses therein as successor to Karmet by virtue of certain provisions of the agreement by which the Republic had sold the mill to a company in the Mittal Group. On both of those issues Istil succeeded. The Tribunal also held that Istil had succeeded to BVI Metalsrussia's claims as a result of the two mergers.
On 13 July 2004 the Republic issued applications in the Commercial Court in London under sections 67 and 68 of the Arbitration Act 1996 ("the 1996 Act"). The application under section 67 contends that the Arbitration Tribunal lacked substantial jurisdiction on the grounds that neither Istil nor the Republic was a party to the arbitration agreements contained in the contracts in respect of which Istil was claiming in the arbitration; secondly, that Istil is bound by the decision of the Paris Commercial Court to the effect that it was not bound by those agreements; and, thirdly, that it repudiated any arbitration agreement by its contentions made before the Paris Commercial Court and the Paris Court of Appeal. The application under section 68 contends that there were serious irregularities affecting the arbitration and the award on the ground that the arbitration tribunal failed to give the Republic an adequate opportunity to deal with one particular allegation and that the tribunal, having held that the question of limitation was to be determined as a matter of Kazak law, wrongly applied French or Belgian law to the question of whether the limitation period had been interrupted.
The agreement for security for costs
On the same day as the applications were issued (13 July 2004) the solicitors for the Republic, Richards Butler, advised Penningtons, the solicitors for Istil, of the issue of proceedings. On 15 July Penningtons told Richards Butler by fax that they had instructions to accept service and suggested that the Republic should provide security for costs in the sum of £10,000 for any application for leave to appeal which they thought to be necessary, and £40,000 in respect of the appeal. In fact, contrary to what Penningtons thought, the Republic was not seeking leave to appeal against the award, but relief under sections 67 and 68 of the 1996 Act as I have described.
On 22 July Richards Butler enclosed by way of service the claim form and other necessary documents. In the course of that letter they noted the comments made by Penningtons about security for costs and expressed the initial view that: "Given the nature of the application, it is by no means clear that there is an entitlement to security", and also expressed the view that any application for security at that stage would be premature.
On 5 August 2004 a without prejudice conversation took place between Mr David Warne of Richards Butler and Mr Henry Page of Penningtons in which, according to his attendance note, Mr Warne indicated that he did not accept that there was any right to security but that he would be prepared to recommend to the Republic that security be provided in the amount of £30,000 within 42 days. His note records that he thought that the £40,000 proposed was excessive, that this was a one and a half to two-day hearing case and that on that basis it was clear that the Commercial Court could not accommodate the hearing before January 2005, which gave a relatively relaxed timetable for the provision of security.
On 10 August Penningtons faxed Richards Butler a one-line fax, which read:
"We would accept securities for costs in the sum of £30,000."
There followed some without prejudice exchanges and, on 14 September, Richards Butler wrote to Penningtons confirming that their clients were agreeable to providing security for costs in that amount—that is, £30,000 within 42 days of final agreement being reached in respect of the entirety of the proceedings. Mr Henry Page faxed a copy of that letter to his client's counsel, Mr Hugo Page QC, with the manuscript question:
"Is this some kind of a trick? As far as I know, the entirety of the proceedings is the application to set aside."
On 23 September Mr Henry Page faxed a letter to Mr David Warne thanking him for "your recent confirmation" of 14 September, and saying:
"We must of course reserve our position should our estimated costs prove to be insufficient."
The judge said that the fax of 14 September might...
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