Thai-Lao Lignite (Thailand) Company Ltd and Another v Government of the Lao People's Democratic Republic The Bank of the Lao People's Democratic Republic (Third Party)

JurisdictionEngland & Wales
JudgeThe Hon. Mr Justice Popplewell
Judgment Date08 August 2013
Neutral Citation[2013] EWHC 2466 (Comm)
CourtQueen's Bench Division (Commercial Court)
Date08 August 2013

[2013] EWHC 2466 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

7 Rolls Building, Fetter Lane

London, EC4A 1NL

Before:

The Hon. Mr Justice Popplewell

Between:
(1) Thai-Lao Lignite (Thailand) Co. Ltd
(2) Hongsa Lignite (Lao Pdr) Co. Ltd
Claimants
and
Government of the Lao People's Democratic Republic
Defendant

and

The Bank of the Lao People's Democratic Republic
Third Party

Thomas Sprange and Thomas Childs (instructed by King & Spalding) for the Claimants

Phillip Aliker (instructed by Dentons UKMEA LLP) for the Defendant

Robert Howe QC and Andrew Scott (instructed by Sullivan & Cromwell LLP) for the 3rd Party

Hearing date: 2 August 2013

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.

The Hon. Mr Justice Popplewell
1

This is an application by The Bank of the Lao Peoples' Democratic Republic ("the Central Bank") to discharge a domestic freezing order granted by Simon J on 4 July 2013 ("the Freezing Order") against the Government of the Lao Peoples' Democratic Republic ("the Government"). The return date for the Freezing Order, as agreed by extension, was 2 August 2013. The Central Bank, as a non party, seeks to set aside the entirety of the Freezing Order, alternatively paragraphs 6 and 19 thereof, together with directions for an inquiry under the cross undertaking into the damages which it claims to have suffered as a result of the order and further fortification of that cross undertaking.

2

After hearing argument on the Central Bank's application I declined to discharge the Freezing Order, continued it in a form varied by deletion of paragraphs 6 and 19, and gave directions for an inquiry into damages under the undertaking. I refused the Central Bank's application that the Claimants be ordered to further fortify the cross undertaking for the purpose of such inquiry. These are the reasons for my decisions.

3

The background is that the Claimants are companies which were involved in a project to mine lignite coal reserves and develop an on site power plant in the Hongsa region of Laos, pursuant to a project development agreement with the Government dated 22 July 1994 ("The PDA"). Disputes arose and the Government purported to terminate the PDA. Article 14.1(i) of the PDA provided for the resolution of any disputes by arbitration in Kuala Lumpur, Malaysia under the UNCITRAL Arbitration Rules. On 4 November 2009 the tribunal issued an award granting the Claimants US$56,210,000 plus post award interest and costs as contractual compensation for the Government's termination.

4

In the several years since the award, the Claimants have been taking steps in a number of different jurisdictions, including England, New York, France and Singapore, to seek enforcement of the award against the Government. Article 14.2 of the PDA contained an express waiver of immunity from execution by the Government. Meanwhile, on 3 November 2010 the Government commenced proceedings in the High Court of Malaysia to set aside the award.

5

On 26 October 2012 Eder J heard an application by the Claimants for judgment on the award, together with an application by the Government for an adjournment pending the forthcoming hearing of its application to set aside the award in Malaysia. Eder J ordered the Government to pay the full amount of the award into court as a condition of adjourning the Claimants' application for judgment. His order provided that in the event that the Government failed to pay the amount into court, the Claimants could enforce the final award as a judgment of the High Court. The Government did not pay any part of the sums ordered into court. Accordingly on 19 November 2012 Field J ordered that judgment be entered against the Government in the sum then due, inclusive of interest, of US$ 71,594,600.

6

The High Court of Malaysia set aside the award by a preliminary judgment on 27 December 2012 and a full judgment on 1 March 2013. The decision is under appeal.

7

On 4 July 2013 the Claimants made a without notice application for the Freezing Order which was granted by Simon J after a hearing on that day. At that stage the Government had taken no steps to appeal or set aside the judgments of Eder J or Field J. Subsequently, on 15 July 2013, the Government issued an application to set aside the orders of Eder J and Field J. The Claimants maintain that the setting aside of the award by the Malaysian court is no bar to its enforcement and should not lead to the setting aside of either of those orders.

8

The Freezing Order was in the standard Commercial Court form, so far as material to the present application, applying to the Government's assets in England and Wales up to US$ 74,463,620, save for two provisions:

Paragraph 6:

"This prohibition includes in particular any assets (including cash deposits and securities) held in an account in which the Defendant has a beneficial interest, whether maintained in its own name or the name of the Bank of the Lao PDR."

Paragraph 19:

" Special instructions to bank and other financial institutions

(a) Any bank or other financial institution where an account in the name of the Bank of the Lao PDR is maintained is ordered to restrain all activity in the account unless and until it obtains a sworn declaration from an officer of the Bank of the Lao PDR stating that the Defendant has no beneficial interest in the account.

(b) Any bank or financial institutions shall inform the Claimants of the existence of any such account and shall provide the Claimants with a copy of any such declaration."

Service of the Freezing Order and subsequent events

9

The Freezing Order was obtained following a hearing on 4 July 2013, and sealed on the following day, 5 July, which was a Friday. The Central Bank was not then, and has not since been, served with the Freezing Order, nor with the materials placed before the Court by the Claimants in support of their without notice application for it.

10

The Central Bank holds two London accounts with Wells Fargo Bank, N.A. ("Wells Fargo"), one Euro, one Sterling. These accounts are used for traditional central bank functions. Wells Fargo was served with the Freezing Order on 5 July 2013. Wells Fargo attempted to contact the Central Bank over the weekend of 6–7 July. It was not, however, until Tuesday 9 July 2013 that Wells Fargo informed the Central Bank's representatives that the two London accounts had been frozen.

11

The same day, 9 July 2013, the Central Bank, through its solicitors, Sullivan Cromwell LLP ("S&C") emailed the Claimants' solicitors, King & Spalding LLP ("K&S"). The email raised the Central Bank's concerns arising from the Freezing Order; in particular, S&C's email of 9 July identified the Central Bank's concern that the State Immunity Act had not been complied with, that the Freezing Order was preventing the Central Bank from conducting transactions in the ordinary course of its business and operations, of which details were given, and that substantial and immediate loss was likely to result from this. S&C accordingly requested that the Claimants consent by return to a variation to permit such transactions to take place.

12

The Claimants responded by K&S's letter of Wednesday 10 July 2013. K&S's letter set out their clients' position that they were willing in principle to consent to a variation and that any such variation be conditional on the Central Bank providing to the Claimants " … sufficient details of the transactions so as our client and the Court may be satisfied that the transactions do indeed involve the [Central Bank] and third parties and do not involve directly held beneficial assets of the Defendant". The Central Bank accordingly refused to submit to the Claimants' condition. Without prejudice to its contention that the Freezing Order ought not to have been granted, the Central Bank implemented the mechanism contemplated by paragraph 19(a) of the Freezing Order.

13

In these circumstances, it was not until 4.15pm on 10 July 2013 (some 5 days after Wells Fargo had frozen the London accounts) that the Central Bank was able to serve on the Claimants a witness statement, from its Acting Director General of the Banking Operations Department, Mr Oth Phonhxiengdy, declaring that the Lao Government had no beneficial interest in the Wells Fargo accounts.

14

Later on the 10 July, at 7.14 pm, the Claimants confirmed that they were satisfied with Mr Phonhxiengdy's statement (subject to its being sworn, as it duly was, at the British Embassy in Laos, the next day). At 10.32 am, on Thursday, 11 July 2013, Wells Fargo's solicitors, Mayer Brown International LLP, confirmed that the London accounts had been unfrozen.

15

The effect of the Freezing Order was therefore that the Central Bank's accounts at Wells Fargo remained frozen for over three working days. The evidence before me from Mr Storrs, an associate at S&C, was that the Central Bank has incurred substantial losses as a result. Mr Storrs explains that the Freezing Order disrupted a series of back-to-back foreign exchange transactions which the Central Bank had entered into prior to the date upon which the Freezing Order was made, under which large sums were due to be received into the accounts between 9 and 12 July, of which some £170 million was immediately required to settle foreign exchange transactions. The Central Bank had to unwind those transactions in order to meet its liabilities, and claims that as a result of such disruption it suffered losses which are currently estimated to amount to approximately US$4.5 million.

16

The Central Bank remained concerned that paragraph 19 of the Freezing Order continued to risk impeding the Central Bank's day-to-day operations. The...

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