La Société Pour La Recherche, La Production, Le Transport, La Transformation Et La Commercialisation Des Hydrocarbures S.P.A ("Sonatrach") v Statoil Natural Gas LLC ("Statoil")
| Jurisdiction | England & Wales |
| Judge | The Hon Mr Justice Flaux,The Honourable Mr Justice Flaux |
| Judgment Date | 02 April 2014 |
| Neutral Citation | [2014] EWHC 875 (Comm) |
| Docket Number | 2013 Folios 731 and 935 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 02 April 2014 |
In the Matter of the Arbitration Act 1996
and
In the Matter of an Arbitration Claim
In the Matter of an Arbitration Claim
[2014] EWHC 875 (Comm)
The Honourable Mr Justice Flaux
2013 Folios 731 and 935
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building,
Fetter Lane, London, EC4A 1NL
Hilary Heilbron QC and Alec Haydon (instructed by Messrs Stewarts Law LLP) for Sonatrach
Toby Landau QC and Jessica Wells (instructed by Messrs Hogan Lovells LLP) for Statoil
Hearing date: 22 nd March 2014
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.
Introduction and background
The claimant in the application under section 68 of the Arbitration Act 1996 in 2013 Folio 731 is the Algerian state oil company, to which I will refer as "Sonatrach". The defendant (to which I will refer as "Statoil") is a subsidiary of the Norwegian oil company Statoil ASA, in which the Norwegian Government is the majority shareholder. Sonatrach's application is to set aside an arbitration award dated 30 April 2013 conducted under the auspices of the International Chamber of Commerce ("ICC") before three well-known Swiss and French jurists: Professor Pierre Tercier, Dr Wolfgang Peter and Professor Charles Jarrosson. Although arbitration hearings took place in Lausanne and Paris, the seat of the arbitration was London. Hence the English court is the supervisory court.
In addition to its section 68 application, Sonatrach seeks to set aside the Order of Cooke J dated 11 July 2013 in 2013 Folio 935, granting Statoil as claimant permission under section 66 of the Act to enforce the Award in the same manner as a judgment. In particular, Sonatrach seeks to contend that the Order for alternative service on Bredin Prat (the Paris lawyers who represented Sonatrach in the ICC arbitration) was defective and to set aside that part of the Order which required Sonatrach to pay Judgments Act interest on the outstanding amounts from the date of the Order.
The underlying dispute concerned Sonatrach's failure to comply with its obligations under four inter-connected contracts ("the 2008 Agreements") concluded on 1 March 2008 after more than twelve months of negotiations:
(1) A Framework Agreement dated 1 March 2008 governed by French law, and subject to ICC arbitration. It provided for, inter alia:
(a) The reservation by Statoil of a certain amount of firm transportation capacity on two of its pipeline systems in favour of Sonatrach; and
(b) The conclusion of heads of agreement ("HOAs") for the sale by Sonatrach and purchase by Statoil of liquefied natural gas ("LNG") between 1 April 2009 and 31 March 2024, including reservation of a guaranteed portion of Statoil's re-gasification capacity at Cove Point, such agreements being conditional upon the agreements reserving re-gasification and pipeline capacity. Provision was also made for a separate HOA regulating additional sales of LNG from Sonatrach to Statoil between 2009 and 2014.
(2) A HOA dated 1 March 2008 for the sale by Sonatrach and the purchase by Statoil of 72 million MMBtu of LNG per year between the first quarter of 2009 and 31 March 2024 ("HOA1"). This was also governed by French law and subject to ICC arbitration.
(3) A second HOA dated 1 March 2008, for the sale by Statoil and the purchase by Sonatrach between Q1 2009 and 31 March 2024 of a quantity of natural gas ("NG") equivalent to the quantity of LNG purchased by Statoil under HOA1 ("HOA2"). This was governed by the law of New York and subject to ICC arbitration.
(4) A third HOA dated 1 March 2008, for the sale of 36 million MMBtu of LNG per year from Sonatrach to Statoil between Q1 2009 and 31 March 2014 ("HOA3"). This was governed by French law and subject to ICC arbitration.
By HOA1 and HOA2, Sonatrach was to supply Statoil with LNG, which Statoil would then convert or "re-gasify" at the Cove Point facility into NG, and return to Sonatrach. Statoil would charge Sonatrach a fee ("Buyer's Cost") for the conversion of the LNG at the Cove Point facility and use of the pipeline to transport the LNG and NG. The sale and purchase of LNG under HOA3 was a 5 year supply agreement for LNG from Sonatrach to Statoil. This was essentially a renewal of earlier HOAs between the parties dating back a number of years. It was contemplated that the HOAs would be carried out through detailed agreements which the parties were obliged to enter into by the terms of the HOAs.
In the event, Sonatrach failed to supply Statoil with any LNG under HOA3, failed to deliver any LNG or purchase any NG under HOA1 and HOA2 and failed to pay the "Buyer's Cost" under HOA1 and HOA2. Accordingly, Statoil issued a Request for Arbitration on 26 May 2010, claiming damages for breach of contract. Sonatrach resisted Statoil's claim on a variety of grounds, all of which were rejected by the tribunal in its Award. For present purposes, the only ground which is relevant is the contention that the 2008 Agreements were not effective, because a condition precedent had not been fulfilled, namely the approval of the Algerian Government of either those Agreements or the detailed agreements.
Sonatrach's Application Notice and Grounds and evidence in support relied upon, cumulatively, section 68 (2)(a), (b), (c) and (d) without particularising which specific head was relied upon in relation to each specific claim, a matter about which Mr Toby Landau QC for Statoil legitimately complained in his Skeleton Argument. However, in a Further Note provided by Miss Hilary Heilbron QC for Sonatrach on the day before the hearing, Miss Heilbron clarified that the application would be based only upon section 68(2)(a), alleged failure of the tribunal to comply with its general duty under section 33 of the Act.
It is fair to say that the application as it was presented orally by Miss Heilbron QC was narrower and more focused than the Application Notice and Grounds of Challenge. So far as Ground 1 is concerned, the essence of the complaint is that (a) the tribunal overlooked a critical piece of evidence, exhibit R74, a letter from Mr Hanifi, the Director-General of Hydrocarbons of the Algerian Ministry of Energy and Mining ("MEM"), dated 2 February 2012 and (b) that the tribunal had mischaracterised the evidence of two of Statoil's witnesses Mr Gunnar Freberg and Mr Philippe Mathieu, in concluding that Statoil had received assurances from Sonatrach on the day the agreements were signed, 1 March 2008, that government approval had been obtained. Ground 2, the alleged improper use by the tribunal of an Administrative Secretary, was not the subject of any specific submissions by Miss Heilbron, although it was not formally abandoned.
Section 68 and the applicable legal principles
Section 68 of the Act 1996 provides, inter alia, as follows:
"68 Challenging the award: serious irregularity.
(1)A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.
A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).
(2)Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—
(a)failure by the tribunal to comply with section 33 (general duty of tribunal);
Section 33 headed "General duty of the tribunal" provides as follows:
"(1)The tribunal shall—
(a)act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and
(b)adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.
(2)The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it."
Before considering the Award and Sonatrach's specific complaints about it in more detail, I should set out the legal principles applicable to section 68 applications, although these were (save on one issue) essentially common ground.
In order to succeed under section 68 an applicant needs to show three things. First of all, a serious irregularity. Secondly, a serious irregularity which falls within the closed list of categories in section 68(2). Thirdly, that one or more of the irregularities identified caused or will cause the party substantial injustice. The focus of the enquiry under section 68 is due process, not the correctness of the tribunal's decision: see per Hamblen J in Abuja International Hotels v Meridian SAS [2012] EWHC 87 (Comm) at [48] to [49]. As the DAC Report states, and numerous cases since have reiterated, the section is designed as a long-stop available only in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected. This point, that section 68 is about whether there has been due process, not whether the tribunal "got it right", is of particular importance in the present case, where, upon close analysis, the claimants' real complaint is that they...
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