The Republic of Korea v Mohammad Reza Dayyani
| Jurisdiction | England & Wales |
| Judge | Mr Justice Butcher |
| Judgment Date | 20 December 2019 |
| Neutral Citation | [2019] EWHC 3580 (Comm) |
| Date | 20 December 2019 |
| Docket Number | Case No: CL-2018-000454 |
| Court | Queen's Bench Division (Commercial Court) |
[2019] EWHC 3580 (Comm)
THE HONOURABLE Mr Justice Butcher
Case No: CL-2018-000454
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF
ENGLAND AND WALES
COMMERCIAL COURT (QBD)
IN THE MATTER OF AN ARBITRATION
AND IN THE MATTER OF THE ARBITRATION ACT 1996
Royal Courts of Justice
Strand, London, WC2A 2LL
Ricky Diwan QC and Peter Turner QC (instructed by Freshfields Bruckhaus Deringer LLP) for the Claimant
Ali Malek QC, Cameron Miles and Judy Fu (instructed by Gresham Legal) for the Defendants
Hearing dates: 18–21 November 2019
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.
This is an application by the Claimant, to which I will refer as “the Republic”, to set aside an award dated 5 June 2018, made by Professor Bernard Hanotiau (President), Mr Philippe Pinsolle and Dr Gavan Griffith QC (“the Tribunal”), pursuant to s. 67 Arbitration Act 1996, on the grounds that the Tribunal lacked substantive jurisdiction over the claims made by the Defendants (to whom I will refer collectively as such or as “the Dayyanis”) in the arbitration.
The claims were made pursuant to a bilateral investment treaty, the Agreement Between the Government of the Republic of Korea and the Government of the Islamic Republic of Iran for the Promotion and Protection of Investments dated 31 October 1998 (to which I will refer as the “BIT”). The BIT contained, amongst others, the provisions which I have set out in Appendix 1 to this judgment, and to many of which it will be necessary to refer.
Background
The Parties and the Dispute
The dispute arose out of the failed acquisition of Daewoo Electronics (“Daewoo”) by a Singapore company called D&A Holding Co Pte Ltd (“D&A”).
Daewoo is a joint stock company incorporated in Korea, active in the home appliance sector and part of the Daewoo Group, a Korean conglomerate with wide-ranging business interests.
The Daewoo Group was particularly affected by the Asian Financial Crisis of 1997. In 1999, a committee of creditor financial institutions (“CFIC”) was formed pursuant to an “Agreement among Financial Institutions on Promotion of Corporate Restructuring”. In August 1999, the Daewoo Group applied to that CFIC for a corporate restructuring plan. The Daewoo Group's CFIC selected 12 companies within the group, including Daewoo Jeonja, for a “corporate workout”, a type of corporate restructuring carried out pursuant to an agreement prepared and executed by the company's creditors under the provisions of the Korean Corporate Restructuring Promotion Act. On 1 November 2002, Daewoo was established to take over the core business units of Daewoo Jeonja. On 15 November 2002, the CFIC executed a corporate workout agreement with Daewoo.
In October 2005, the Daewoo CFIC resolved to sell Daewoo. This did not succeed. On three further occasions, in 2006, 2007 and 2008, the Daewoo CFIC attempted to sell Daewoo but failed. On 12 November 2009, a fourth attempt was launched.
As at this date, the Daewoo CFIC consisted of 38 creditor financial institutions (Agreed Case Memorandum, para 5), among which Woori Bank was designated the principal creditor bank. The largest shareholder in Daewoo was the Korea Asset Management Company (or “KAMCO”), which is a specialised debt resolution agency created pursuant to the Korean Act on the Efficient Disposal of Non-Performing Assets, etc of Financial Companies and the Establishment of Korea Asset Management Corporation. 42.8% of KAMCO's shares are held directly by the Korean Government, 28.6% are owned by the state-owned Korea Development Bank, and the remaining 28.6% are owned by a group of private Korean banks.
In the fourth attempt to sell Daewoo, five companies submitted letters of intent as potential buyers. One of these was Entekhab Industrial Group (“EIG”), a holding company incorporated under the laws of the Islamic Republic of Iran. EIG invests in a wide range of industries, including the manufacture and distribution of home appliances in the Iran and Middle East region. Since 2008, EIG had been selling in Iran products manufactured by Daewoo. EIG is owned and controlled by the Dayyanis (Gharavi 1 st W/s para. 10). The First Defendant, Mr Mohammad Reza Dayyani, who is an Iranian national, has at all relevant times been the Chief Executive Officer and Chairman of EIG, and its majority shareholder. His father, the Second Defendant Abbas Dayyani, was also a shareholder in EIG.
On 18 March 2010, EIG submitted its bid for the acquisition of Daewoo, offering a purchase price of KRW 540 billion. On 14 April 2010, EIG was informed that it had been selected as the final preferred bidder for the sale. On 21 April 2010, EIG and the financial institutions who constituted the sellers of Daewoo (“the Sellers”) entered into a Memorandum of Understanding (“MOU”). Under the MOU the purchase price was to be KRW 605 billion (subject to adjustment).
In April 2010, Woori Bank indicated that there were some concerns about EIG's ability to finance the purchase and with respect to a possible impact upon the sale of US sanctions against Iran. EIG said that it was willing to change the contracting party or the composition of the financing consortium so that issues as to sanctions would not arise. In June 2010, however, the United Nations implemented certain further economic sanctions against Iran. On 4 August 2010, the Sellers' financial advisors wrote to EIG highlighting that the international sanctions against Iran could potentially impact the sale due to the nationality of EIG. On 9 August 2010, EIG informed the Sellers that, in order to ease their concerns with respect to sanctions, it was ready to change the identity of the purchaser by replacing EIG with a non-Iranian entity.
On 17 August 2010, D&A was incorporated in Singapore by the Dayyanis with the sole purpose of acquiring Daewoo's assets and liabilities (Gharavi 1 st W/s paras. 11, 32). Mohammad Reza Dayyani was the managing director of D&A. He was one of the initial shareholders of D&A, together with Mr Mohamed Makki, Mr Mohamed Abdullah Abu Alsaud and Mr Hassan Ahmed Al Janbi. Subsequently, on 1 December 2010, the Defendants other than Mohammad Reza Dayyani became shareholders of D&A through a series of share transfers from the other shareholders in D&A. As recognised by Mr Lingard in his First Witness Statement on behalf of the Republic (para. 32), there was no dispute that the Dayyanis own and control D&A. Dr Gharavi's evidence is that the Dayyanis “at all times remained the directing mind and funder of D&A's investment operations” (Gharavi 1 st W/s para. 100).
On 22 September 2010 the Daewoo CFIC approved the execution of a Share and Claim Purchase Agreement (“SPA”) between the Sellers and D&A. The SPA was executed on 7 November 2010. The SPA contained, amongst others, the terms which are set out in Appendix 2 to this judgment. In particular, under the SPA:
(1) The Purchase Price was to be KRW 577,775,000,000 (or approximately US$ 500 million).
(2) A Contract Deposit was to be paid by D&A “upon the date hereof”, in the amount of KRW 57,777,500,000 (or approximately US$ 50 million), to be credited towards the Purchase Price.
(3) Closing of the SPA was to take place on 30 December 2010, but no later than three months after execution.
(4) Under Article 4, in the period between the date of the SPA and Closing “Each Party will use its Best Efforts to take all actions and do all things necessary, proper or advisable to consummate, make effective, and comply with all of the terms of this Agreement and the Transactions applicable to it … Each Party shall cooperate with each other and use commercially reasonable efforts to satisfy all of the Closing conditions in an expeditious matter (sic) …”
(5) Under Article 4.13, D&A was to submit to the Sellers letters of confirmation in the name of the investors in the transaction in a form and substance satisfactory to the Sellers by a date specified as at latest one month from the execution date of the SPA. Under Article 8.1(c)(i), the Sellers were entitled to terminate the SPA if D&A failed to submit the letters of confirmation in time. Under Article 8.2, if the SPA were terminated pursuant to Section 8.1(c)(i), “the full amount of the Contract Deposit (together with accrued interest) shall become the property of, and may be retained by, the Sellers as liquidated damages …”
(6) The governing law of the SPA was specified, in Article 9.5, as the laws of Korea, and the Seoul Central District Court was specified, in Article 9.6(b), as being the court of first instance having exclusive jurisdiction over any dispute arising in connexion with the SPA.
D&A paid the Contract Deposit of KRW 57,777,500,000 on 8 and 9 November 2010.
The parties subsequently agreed that the date for submission of the letters of confirmation should be 7 December 2010. On 5 December 2010, Oriental Victor General Trading LLC paid KRW 15 billion as Advance Support Fund. On 7 December 2010, D&A submitted the letters of confirmation. These were not accepted by the Sellers, whose advisers wrote that if satisfactory letters of confirmation were not submitted by 10 December 2010, the letter would serve as termination notice and the Contract Deposit would be retained by the Sellers. On 13 December 2010, the Sellers stated that the SPA had been terminated with immediate effect.
There were various subsequent negotiations. On 30 May 2011, the Sellers declared these to be over, and...
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