Stockman Interhold SA v Arricano Real Estate Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Burton |
| Judgment Date | 22 October 2015 |
| Neutral Citation | [2015] EWHC 2979 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2014 Folio 1105 & 2015 Folio 47 |
| Date | 22 October 2015 |
[2015] EWHC 2979 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Burton
Case No: 2014 Folio 1105 & 2015 Folio 47
James Collins QC and Siddharth Dhar (instructed by Freshfields Bruckhaus Deringer LLP) for the Claimant
Matthew Weiniger QC (of Herbert Smith Freehills LLP) for the Defendant
Hearing dates: 12 and 13 October 2015
This has been a consolidated hearing of two arbitration claims under ss. 67 and 68 of the Arbitration Act 1996 ("the Act") brought by Stockman Interhold SA as Claimant, represented by Mr James Collins QC and Mr Siddharth Dhar and Arricano Real Estate PLC as Defendant, represented by Mr Matthew Weiniger QC.
The arbitration claims arise out of agreements entered into between the Claimant and Defendant in February/March 2010 in relation to a Cypriot joint venture company, Assofit Holdings Ltd ("Assofit"), which, at the time of the transaction, through its Ukrainian subsidiaries owned a large shopping centre development ("Sky Mall") in Kiev. The agreements between the parties included a Share Purchase Agreement, dated 29 December 2009, pursuant to which the Claimant purchased 50% plus 1 share of the issued share capital in Assofit, a Shareholders Agreement (the SHA) and a Call Option Agreement (the COA), both dated 25 February 2010.
The SHA regulated the parties' respective rights in Assofit. The COA gave the Defendant the option to call for the Claimant to sell its entire shareholding in Assofit to it in certain circumstances ("the Call Option"). In relation to the Call Option and the payment of the option price there was an Escrow Agreement dated 24 March 2010.
The SHA provided for disputes to be resolved by arbitration under the UNCITRAL Rules, while the COA provided for disputes to be resolved by LCIA arbitration, by a sole arbitrator.
A dispute arose between the parties. The Claimant contended that the Defendant had breached the SHA and the COA by soliciting a third party, Dragon-Ukraine Properties & Development PLC ("DUPD") as an investor, and for such purpose disclosing confidential information to DUPD. The Defendant issued a Call Option exercise notice on 5 November 2010, with a view to purchasing the Claimant's shares in accordance with the COA. The Claimant countered by asserting that by disclosing confidential information to DUPD the Defendant had repudiated the SHA and the COA, and issued a notice of termination of both agreements. On 9 November 2010 the Claimant commenced LCIA arbitration proceedings seeking a declaration that (i) the COA had been validly terminated and (ii) that the Call Option could not be exercised. On 21 December 2010 the Defendant commenced UNCITRAL arbitration proceedings, seeking a declaration that the SHA had not been validly terminated and therefore continued to bind the Claimant.
The UNCITRAL arbitration provided for a tribunal of three, to which each party nominated an arbitrator, and Mr Audley Sheppard QC was appointed jointly by the parties as Chairman. Mr Sheppard was also appointed as sole arbitrator ("the Arbitrator") in the LCIA arbitration. By virtue of the relationship between the two arbitration proceedings, the parties agreed to stay the LCIA arbitration until the UNCITRAL arbitration had been concluded, and in addition reached an agreement which is recorded as an order of the Arbitrator in Procedural Order No.1 in the LCIA arbitration:
" Any determinations in the UNCITRAL arbitration … shall be binding on ("with prejudice" to) the parties to this LCIA arbitration."
In accordance with this agreement the UNCITRAL arbitration proceeded first, and the Tribunal issued its award on 9 June 2011 (the "UNCITRAL Award"), which included the following paragraphs relevant to my decision:
" 181. Whether [the Defendant's] alleged breaches go to the root of the SHA is influenced by whether [the Claimant] is viewed as a short term investor/funder or a longer term strategic partner of [the Defendant] in the Sky Mall project.
182…. Clause 11.2 of the SHA provides that neither party may dispose of its shares or there to be a change of control for 2 1/2 years from 1 July 2010, i.e. till 31 December 2013, defined as the "Standstill Period", unless mutually agreed. At the end of the Standstill Period, if either Shareholder wants to sell, it has first to offer its shares to the other party.
…
184. However, the SHA also included a Call Option (Clause 13), which entitled [the Defendant] pursuant to the terms of the COA to acquire [the Claimant's] shares "exceptionally within period starting from 15 November 2010 up to 15 March 2011 inclusive" (Clause 3.2, COA). It is not for this Tribunal to interpret the COA (which is subject to a separate arbitration), and in particular what is meant by "exceptionally", but the fact that [the Defendant] could in certain circumstances buy-out [the Claimant] within several months from signing the SHA indicates that the parties did not necessarily envisage that they were inextricably united until December 2013. The fact that the COA set out what the payment to [the Claimant] would be for every day during the exercise period to achieve an IRR of 40% indicates that the parties envisaged its exercise to be a real possibility.
…
187. The Tribunal considers that [the Claimant] was entitled to be viewed as a medium term investor, at least up until 31 December 2013, unless and until [the Defendant] validly exercised the Call Option, and that [the Claimant] was entitled during that time to insist upon strict compliance with the SHA by [the Defendant] (unless waived). [The Claimant] was entitled to be treated with due respect as a co-shareholder with a common interest and objective to that of [the Defendant] (being the success of the Sky Mall project) and [the Defendant] was not entitled to ignore or undermine [the Claimant's] rights as set out in the SHA.
…
193. The SHA and the COA were disclosed to DUPD for the specific purpose of persuading DUPD to invest in the Sky Mall project (and other projects) …
…
197. The majority of the Tribunal finds that such disclosure was a fundamental breach or a breach going to the root of the SHA entitling [the Claimant] to consider itself discharged from further performance. It was critical to the ongoing relationship that [the Defendant] did not tout the Call Option in the market with a view to finding new investors to replace [the Claimant]. [The Defendant] knowingly and intentionally ignored those confidentiality requirements, with a view to persuading DUPD to become its new partner and to provide funds to use to exercise the Call Option and remove [the Claimant] as a shareholder. Accordingly, [the Claimant] was entitled to terminate the SHA on 8 November 2010."
Of the Tribunal of three, the Arbitrator was the dissenting minority.
" 210…. [the Defendant's] conduct was cynical … [and] evidences [the Defendant's] complete disregard for the SHA and the obligations owed to and rights of [the Claimant].
…
213. Accordingly [the Claimant] was entitled to terminate the SHA…"
The LCIA arbitration then proceeded, and the Arbitrator issued his award on 13 December 2011 ("the First Award"). He concluded that the Claimant had validly terminated the COA, in the following terms:
" 247. Given the Parties' agreement to be bound by the determinations in the UNCITRAL Arbitration, I consider that I should apply the reasoning of the majority of that Tribunal mutatis mutandis. Accordingly, I find that disclosure of the terms of the COA to DUPD amounted to a fundamental breach of the COA.
248. Had it not been for the Parties' agreement, I would have found that disclosure of the COA to DUPD did not amount to a fundamental breach (preferring the view of the minority expressed in the UNCITRAL Arbitration Award)…. I would have concluded that [the Defendant's] discussions with DUPD, including mention of the Call Option, were not so egregious nor went to the root of the contract so as to amount to fundamental breach."
He also concluded that although the Defendant had complied with the provisions of the COA in relation to the exercise of the Call Option, it had not validly exercised such option by reason of its failure to comply with provisions of the Escrow Agreement: paragraph 291: " I am forced to conclude that service on the Escrow Agent prior to 15 November 2010 is not effective vis-à-vis the Escrow Agent …": paragraph 302: " the Call Option exercise notice was not signed by, nor sent under any cover letter or other communication from [the representative of the Defendant identified in the Escrow Agreement]".
The Defendant then brought a number of challenges before this Court under s.68 and s.69 of the Act to the UNCITRAL Award and the First Award, but succeeded on only one of them before Field J on 16 July 2012. Field J accepted the Defendant's submissions that the Arbitrator, in breach of s.68(2)(d) of the Act, had not dealt with an important issue raised before him, namely that non-compliance with provisions of the Escrow Agreement did not vitiate the Claimant's liability to sell its shares in Assofit to the Defendant or invalidate the exercise of the Call Option (paragraphs 37 and 45). By his Order of 16 July he remitted the First Award to the Arbitrator " for him to (a) reconsider his finding that the call option was not validly exercised by [the Defendant] on account of its failure to comply with the requirements of the Escrow Agreement; and (b) thereafter to decide any remaining issues that arise for...
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