Royal & Sun Alliance Insurance Ltd & Others v Tughans (A Firm)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 14 October 2022 |
| Neutral Citation | [2022] EWHC 2589 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2021-000582 |
[2022] EWHC 2589 (Comm)
Mr Justice Foxton
Case No: CL-2021-000582
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF AN ARBITRATION CLAIM
Royal Courts of Justice
Strand, London, WC2A 2LL
Ben Hubble KC and Brendan McGurk (instructed by DAC Beachcroft LLP) for the Claimant (and Arbitration Respondent)
Richard Coleman KC and Nathalie Koh (instructed by Fenchurch Law Limited) for the Defendant (and Arbitration Claimant)
Hearing dates: 27 and 28 July 2022
Further Submissions: 22 August, 2 and 7 September 2022
Draft judgment to parties: 13 September 2022
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HONOURABLE Mr Justice Foxton
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Friday 14 October 2022 at 10:00am.
This is the hearing of three challenges brought by the Arbitration Respondent ( RSA) to the Final Arbitration Award ( the Award) of 7 September 2021 in which the Arbitrator declared that RSA was obliged to indemnify the Arbitration Claimants ( Tughans) in respect of certain losses and liabilities.
RSA has brought a “triple crown” of Arbitration Act 1996 ( the 1996 Act) challenges to the Award. It is said that:
i) the Arbitrator acted in excess of jurisdiction for the purposes of s.67 of the 1996 Act;
ii) the Arbitrator's decision to grant the declaration in issue involved a serious irregularity under ss.68(2)(a), (b) and/or (c) of the 1996 Act which has caused RSA substantial injustice; and
iii) the Arbitrator's decision involved an error of law (which is challenged under s.69 of the 1996 Act, permission to bring such a challenge having been granted by Henshaw J).
THE BACKGROUND
The arbitration between the parties took place at a point in time at which there have been no factual findings in any form of proceedings (criminal or civil) as to the underlying events, but where allegations had been made in proceedings against Tughans, and Tughans wished to ascertain its insurance coverage position in relation to those allegations. The section which follows does not, therefore, involve any factual findings as the conduct or state of mind of any individual, but sets out the assumed background against which the issues raised in the arbitration fell to be determined. What actually happened, and the state of mind with which relevant individuals acted, will be a matter for determination in other proceedings. Nothing in this judgment is in any way intended to pre-judge or influence that determination.
The origins of the dispute lie in a transaction entered into by the National Asset Management Agency ( NAMA), a “bad bank” established in December 2009 by the Eire government to acquire and manage impaired loans held by participating Irish banks and any associated security. NAMA was assisted in its work in relation to transactions involving banks in Northern Ireland by a Northern Ireland Advisory Committee ( NIAC). Over the period from 13 May 2010 to 7 November 2013, Mr Frank Cushnahan was a member of the NIAC.
NAMA decided to sell that part of its portfolio which involved Northern Irish property loans ( the NI Loan Book), an endeavour which became known as “Project Eagle”. Mr Ian Coulter, then managing partner of Tughans (a firm of solicitors operating in Belfast) and chairman of the Confederation of British Industry, Northern Ireland, was interested in facilitating such a sale, and he appears to have contacted Mr Tuvi Keinan about the project. Mr Keinan was a partner in Brown Rudnick LLP ( BRUK), a law firm established as an English limited liability partnership, which was an affiliate of the US law firm Brown Rudnick LLP (incorporated under the laws of the Commonwealth of Massachusetts). Mr Keinan had contacts in the USA with interests who were thought to be potential purchasers of the NI Loan Book.
Mr Keinan initially introduced a US investment management firm called Pacific Investment Management Company ( PIMCO) as a potential purchaser. PIMCO established a special purpose vehicle called Bravo SPV as its proposed purchasing entity. An engagement letter between Bravo SPV and BRUK dated 26 September 2013 provided as follows:
“As you are aware, under the terms of the Engagement it is proposed that we will pay you a success fee of up to €16m … in connection with the introductory services associated with the transaction. The success fee will only be payable upon our successful completion of the Transaction”.
The engagement letter indicated that the success fee would be split three ways, between BRUK, Tughans and Mr Cushnahan.
On 13 March 2014, PIMCO withdrew from the proposed acquisition (it is said because it had discovered a proposed payment to Mr Cushnahan, although I make no finding on this issue: see [3] above). However, Mr Coulter and Mr Keinan identified another potential buyer, US private equity interests operating through a Delaware company, a Delaware limited partnership and a Netherlands holding company, and who I shall refer to as Cerberus.
On 23 March 2014, BRUK sent the terms of a proposed engagement letter to Cerberus. The letter referred to BRUK providing “services to Cerberus on an exclusive basis in connection with” its acquisition of the NI Loan Book through a subsidiary referred to as “Newco”, those services to include “assisting in connection with the Transaction and reviewing documents as requested by Cerberus”. The engagement letter continued:
“In the event that Newco consummates the Transaction, Brown Rudnick will be entitled to a success fee of £15,000,000 … (‘the Success Fee’) … Brown Rudnick agrees that you shall only be obligated to pay the Success Fee to Brown Rudnick upon successful completion of the Transaction and not under any other circumstances (including any default by you hereunder).
It is acknowledged and agreed that upon receipt of the Success Fee, if any, Brown Rudnick shall pay fifty percent (50%) of the Success Fee to Tughans, a Northern Ireland law firm (subject to Brown Rudnick and Tughans bearing their proportionate share of any taxes) in respect of services rendered by Tughans in connection with the consummation of the Transaction by Newco. Brown Rudnick acknowledges and agrees that (1) prior to the payment of the Success Fee, if any, Brown Rudnick shall obtain and provide to Cerberus a written certification from Tughans containing the same representations and warranties set forth in this letter under the section entitled ‘Representations and Warranties’ in form and substance reasonably acceptable to Cerberus (the ‘Tughans Letter’) and (2) Brown Rudnick may not make any payment of the Success Fee, if any, to Tughans prior to confirmation by Cerberus in writing that the Tughans letter is acceptable”.
The “Representations and Warranties” section provided:
“Brown Rudnick represents and warrants the following:
1. Brown Rudnick is aware of and familiar with the provisions of the U.S. Foreign Corrupt Practices Act, as amended, and its purposes, and any other anti-corruption law applicable in a jurisdiction in which it or any party hereto may have conducted, or will conduct business, including but not limited to the UK Bribery Act of 2010, as amended and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended (hereinafter “Applicable Anti-Corruption Laws”) and have not, directly or indirectly, violated any Applicable Anti-Corruption Law. Without limitation of the generality of the foregoing, none of Brown Rudnick or any of its partners, directors, officers, employees or agents has made or will make, directly or indirectly, any payment, loan or gift (or any offer, promise or authorisation of any such payment, loan or gift), of any money or anything of value to or for the use of any Government Official under circumstances in which any of them knows or has reason to know that all or any portion of such money or thing of value has been or will be offered, given or promised, directly or indirectly, to any Government Official, for the purpose of inducing the Government Official to do any act or make any decision in its official capacity (including a decision to fail to perform his or its official function) or use its influence with a government or instrumentality thereof in order to affect any act or decisions of such government or instrumentality or to assist Cerberus and/or its affiliates in obtaining or retaining any business;
2 Neither Brown Rudnick nor any of its partners, directors, officers, employees or agents providing services pursuant to this letter is a Government Official or has a family relationship with any Government Official in the jurisdictions in which it will conduct business pursuant to this engagement, except as disclosed to, and agreed to in writing by, Cerberus. Brown Rudnick will advise Cerberus promptly to the extent any such family relationship arises during the term of the engagement, and Brown Rudnick and each of our partners, directors, officers, employees or agents will provide adequate assurances, whether in the form of a certification, a formal recusal by the relevant family member or otherwise, to satisfy Cerberus that no violation of Applicable Anti-Corruption Laws will arise as a result of such family relationship. Should in any instance Cerberus determine, reasonably and in good...
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