Republic of Kazakhstan v Istil Group Inc.
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE CHRISTOPHER CLARKE,MR JUSTICE DAVID STEEL,Mr Justice David Steel,THE HON. MR JUSTICE TOMLINSON,The Hon. Mr Justice Tomlinson |
| Judgment Date | 21 November 2007 |
| Neutral Citation | [2006] EWHC 448 (Comm),[2007] EWHC 2729 (Comm),[2005] EWHC 2309 (Comm) |
| Docket Number | Case No: 2004 Folio 579,2004 Folio No.579,Case No: 2004 FOLIO NO. 579 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 21 November 2007 |
[2005] EWHC 2309 (Comm)
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
St. Dunstan's House
Mr. Justice Christopher Clarke
2004 Folio No.579
MR. D. QUEST (instructed by Richards Butler) appeared on behalf of the Claimant.
MR. H. PAGE Q.C. (instructed by Penningtons) appeared on behalf of the Defendant
(As Approved by the Judge)
I have before me an application by the defendants, Istil Group Inc., for further security in the sum of £133,539 under Civil Procedure Rules 25.13.2(a) and 25.13.2(g).
Istil, as I will call them, are steel traders 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 grave financial difficulty. The Republic of Kazakhstan, which is the claimant, which owned Karmet, insisted on Istil's predecessor, Metalsrussia Corp. Limited, of the British Virgin Islands ("BVI Metalsrussia"), making advance 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 procedures 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 claimants. By a final award of 1 st June 2004 in the sum of about $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, firstly, 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 to which I have referred.
On 13 th July 2004 the Republic issued applications in this court under s.67 and s.68 of the Arbitration Act 1996. The application under s.67 contends 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 s.68 contends that the arbitration tribunal failed to give the claimant 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.
Thereafter, communications took place between Penningtons, Istil's solicitors, and Messrs. Richards Butler, the solicitors for the Republic, in relation to security for costs. On 13 th July 2004 Richards Butler had advised Penningtons of the issue of proceedings, and those proceedings had been supported by the second witness statement of Mr. McKenzie-Smith of Richards Butler of 9 th July 2004. That witness statement had as one of its exhibits a statement on Kazak law to which I will hereafter refer.
On 15 th 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 a leave application, which they then thought to be necessary, and £40,000 in respect of the appeal. On 22 nd 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 th August 2004 a without prejudice conversation took place between Mr. David Warne of Richards Butler and Mr. Henry Page of Penningtons in which Mr. Warne, according to his attendance note, 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 and that this was a one and 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 th August Penningtons faxed to Richards Butler a one-line fax which read: "We would accept securities(sic) for costs in the sum of £30,000". On 14 th September Richards Butler wrote to Penningtons confirming that their clients were agreeable to providing security for costs in that amount, that is to say £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
Mr. Hugo Page Q.C., 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 rd September Mr. Henry Page faxed a letter to Mr. David Warne thanking him for the fax of 14 th September and saying:
"We must, of course, reserve our position should our estimate of costs prove to be insufficient."
The letter of 14 th September to which I have referred may either be regarded as an acceptance of the offer from Penningtons of 10 th August to accept security in the sum of £30,000 for the entirety of the proceedings, or alternatively if the reference to the entirety of the proceedings introduces a new element, as a counter-offer. The letter of 23 rd September in which Penningtons reserved their position should their estimate of costs prove to be insufficient was either a counter-offer or a new offer because the purport of the letter was to the effect that £30,000 would not necessarily be the sum for the entirety of the proceedings.
On 5 th October Richards Butler faxed to Penningtons thanking them for their fax of the 23 rd and saying this:
"It has been apparent from our earlier discussions regarding security that your clients' request was for security for costs in respect of the Commercial Court proceedings as a whole. It was not a request for security to any particular stage in the proceedings. Additionally our fax of 14 th September makes it plain that the agreement in respect of the provision of security for costs is in respect of the entirety of the proceedings; and in a matter of this nature one would not expect otherwise. Accordingly we cannot accept that it is now open to your clients to reserve their position 'should our estimate of costs prove to be insufficient.' Agreement has been reached on the terms set out in our fax of 14 th September."
Then on the next page of the fax is the last paragraph which reads:
"Please let us have your confirmation forthwith that this is accepted. When that is received we will come back to you with proposals as to how the security is to be provided."
On the same day Mr. Henry Page wrote in manuscript on the first page of the letter the following words:
"We agree to the amount of costs as security for your application to the Commercial Court. Not any appeal therefrom – Penningtons, 5.10.04."
He faxed the letter with that manuscript to Richards Butler.
It seems to me that in their letter of 5 th October 2004 Richards Butler were inviting Penningtons to accept that it was not open to Istil to reserve its position and claim for more than £30,000 should the estimate of costs turn out to be insufficient, and that the...
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