The Republic of Serbia v Imagesat International NV

JurisdictionEngland & Wales
JudgeTHE HONOURABLE MR JUSTICE BEATSON,Mr Justice Beatson
Judgment Date16 November 2009
Neutral Citation[2009] EWHC 2853 (Comm)
Docket NumberCase No: 2008 FOLIO 518
CourtQueen's Bench Division (Commercial Court)
Date16 November 2009

[2009] EWHC 2853 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

IN THE ARBITRATION CLAIM BETWEEN

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Honourable Mr Justice Beatson

Case No: 2008 FOLIO 518

Between:
The Republic of Serbia
Claimant (Respondent in the Arbitration)
and
Imagesat International Nv
Defendant (Claimant in the Arbitration)

MR R. JACOBS QC AND PROF D. SAROOSHI (instructed by Clyde & Co LLP)

for the Claimant

MR D. OWEN QC, PROF M. MENDELSON QC AND MR S. MILNES

(instructed by SJ Berwin LLP) for the Defendant

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.

Hearing dates: 21, 22, 23, 26 October

THE HONOURABLE MR JUSTICE BEATSON Mr Justice Beatson

Introduction:

1

This is a challenge under section 67 of the Arbitration Act 1996 (the "1996 Act") to a Partial Award dated 7 May 2008 by an Arbitrator in an ICC arbitration between the claimant, the Republic of Serbia (hereafter "Serbia") and the defendant ImageSat International N.V. (hereafter "ImageSat"). The arbitration arose from a contract between ImageSat and the State Union of Serbia and Montenegro (the "State Union"). The Partial Award dealt with a preliminary issue as to the proper parties to the arbitration. The issue in this application is whether the arbitrator, Professor Michael Pryles, had jurisdiction to find, as he did, that Serbia is the continuation or "continuator" of the State Union and is a proper party. He subsequently issued a Final Award in favour of ImageSat. Serbia launched these proceedings on 2 June 2008. It seeks an order declaring that the arbitrator did not have substantive jurisdiction and setting aside the Partial Award.

2

Under the agreement, concluded on 4 June 2005, the State Union agreed to purchase a satellite ground control station and to acquire exclusive rights relating to two of ImageSat's satellites. Article 18 (set out at [38]) provided for disputes to be referred to arbitration under the ICC Rules, with English law as the governing law and England as the default location for the arbitration. The State Union did not pay sums due under the contract and, in early February 2006, stated it was not bound by the contract. On 24 May 2006 ImageSat sent a Request for Arbitration to the ICC Court of Arbitration alleging breaches of the contract. This was three days after a referendum in Montenegro which favoured independence. On 3 June 2006 Montenegro declared itself an independent state. Thereafter there are two states, Serbia and Montenegro.

The Issues:

3

The central issue before me concerns whether the arbitrator had jurisdiction to decide whether Serbia is the "successor" or the "continuator" or "continuation" of the State Union. As well as questions of arbitral law, it involves questions of public international law, and the justiciability and arbitrability of those questions in this court. I have been assisted by the full and helpful skeleton arguments and the way the submissions in them were developed on behalf of Serbia by Mr Jacobs QC and Professor Sarooshi, and on behalf of ImageSat by Mr Owen QC and Professor Mendelson QC.

4

The list of issues states:-

1

As a matter of English law, is Serbia a party to the agreement and arbitration clause under which ImageSat has brought the arbitration? If not, has Serbia subsequently become, or is it to be treated as if it is, a party to the agreement and arbitration clause under English law, and in particular:

2

Is ImageSat estopped or precluded from contending that Serbia is the "continuator" in law of the State Union?

3

Is Serbia precluded by section 73 and/or section 31 of the Arbitration Act 1996 and/or by a submission to jurisdiction from contending that the arbitrator did not have substantive jurisdiction?

4

Are, or were, the questions whether Serbia is: (a) the "successor", or (b) the "continuator" of the State Union non-justiciable or non-arbitrable under, or as a matter of, English law?

5

If not:

(1) (a) Is Serbia the "continuator" of the State Union under public international law?

(b) If so, is it relevant whether the position under public international law forms part of English law, and if so, does the position under public international law form part of English law?

(c) In the light of the answers to (a) and (b) above, is the consequence that as a matter of English law the agreement and the arbitration clause are binding on Serbia?

Alternatively,

(2) (a) Is Serbia a "successor" to the State Union under public international law?

(b) If so, is a "successor" under public international law treated as a party to or bound by an agreement and arbitration clause in respect of a private contract of this type?

(c) If so, is it relevant whether the position under public international law forms part of English law, and if so, does the position under public international law form part of English law?

(d) In the light of the answers to (a), (b) and (c) above, is the consequence that as a matter of English law the agreement and the arbitration clause are binding on Serbia?

5

Gross J ordered that the hearing was to take place on the basis of the statements of Mr Whittaker, a partner at Clyde & Co LLP, Serbia's solicitors, in support of the application, and of Mr Goldberg a partner at SJ Berwin LLP, ImageSat's solicitors, resisting it, and without oral evidence.

6

Before I turn to the procedural history and my conclusions on the issues, I set out the statutory provisions and introduce the concepts of "continuing" or "continuator" States and "successor" States. I also summarise the territorial and constitutional background, including the parties' submissions as to the consequences of the changes and of the response to them by international organisations.

The statutory provisions:

7

By section 67 of the 1996 Act:

" Challenging the award: substantive jurisdiction

(1) A party to arbitral proceedings may… apply to the court –

(a) challenging any award of the arbitral tribunal as to its substantive jurisdiction; or

(b) for an order declaring an award made by the tribunal on the merits to be of no effect in whole or in part, because the Tribunal did not have substantive jurisdiction.

A party may lose the right to object (see section 73) and the right to apply is subject to restrictions in section 70(2) and (3).

(3) On an application under this section challenging the award of the arbitral tribunal as to its substantive jurisdiction, the court may by order –

(a) confirm the award,

(b) vary the award, or

(c) set aside the award in whole or in part."

8

By section 30:

" Competence of tribunal to rule on its own jurisdiction

(1) Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to—

(a) whether there is a valid arbitration agreement,

(b) whether the tribunal is properly constituted, and

(c) what matters have been submitted to arbitration in accordance with the arbitration agreement.

(2) Any such ruling may be challenged by any available arbitral process of appeal or review or in accordance with the provisions of this Part."

In an application under section 67 it is for the court to determine whether the arbitrator had jurisdiction and whether he was correct in deciding that he did. It does so without any preconception that the arbitrator made the right decision: Azov Shipping Co. v Baltic Shipping Co. [1999] 2 Lloyds Rep 39, at 41, per Longmore J. The arbitrator's determination can only be provisional. It "cannot be conclusive between the parties because of the nature of the intrinsic issue, for his jurisdiction can only be founded on the very mutual assent which is in issue": Azov Shipping Co. v Baltic [1999] 2 Lloyd's Rep 159, at 161, per Colman J. See also Electrosteel v Scan-Trans [2003] 1 Lloyds Rep 190, at [20]- [22] and The Ythan [2006] 1 Lloyd's Rep 457.

9

The other material provisions of the 1996 Act are:

" 31 Objection to substantive jurisdiction of tribunal

(1) An objection that the arbitral tribunal lacks substantive jurisdiction at the outset of the proceedings must be raised by a party not later than the time he takes the first step in the proceedings to contest the merits of any matter in relation to which he challenges the tribunal's jurisdiction. A party is not precluded from raising such an objection by the fact that he has appointed or participated in the appointment of an arbitrator.

(2) Any objection during the course of the arbitral proceedings that the arbitral tribunal is exceeding its substantive jurisdiction must be made as soon as possible after the matter alleged to be beyond its jurisdiction is raised.

(3) The arbitral tribunal may admit an objection later than the time specified in subsection ( 1) or (2) if it considers the delay justified.

(4) Where an objection is duly taken to the tribunal's substantive jurisdiction and the tribunal has power to rule on its own jurisdiction, it may –

(a) rule on the matter in an award as to jurisdiction, or

(b) deal with the objection in its awards on the merits.

If the parties agree which of these courses the tribunal should take, the tribunal shall proceed accordingly."

" 72 Saving for rights of person who takes no part in proceedings

(1) A person alleged to be a party to arbitral proceedings but who takes no part in the proceedings may question –

(a) whether there is a valid arbitration agreement,

(b) whether the tribunal is properly constituted, or

(c) what matters have been submitted to arbitration in accordance with the arbitration agreement,

by proceedings in the court for a declaration or injunction or other appropriate relief.

(2) He also has the same right as a party to the arbitral proceedings to challenge an award –

(a) by an application under section 67 on the...

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