Ums Holding Ltd and Others v Great Station Properties S.A. and Another Stremvol Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 05 October 2017 |
| Neutral Citation | [2017] EWHC 2398 (Comm) |
| Docket Number | Case No: CL-2016-000354 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 05 October 2017 |
and
And In the Matter of an Arbitration
[2017] EWHC 2398 (Comm)
Mr. Justice Teare
Case No: CL-2016-000354
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
John Brisby QC and Tom Gentleman (instructed by Hogan Lovells International LLP) for the Claimants/Arbitration Respondents
Daniel Jowell QC and Richard Eschwege (instructed by Skadden Arps Slate Meagher & Flom LLP) for the Defendants/Arbitration Claimants
Hearing dates: 24–27 July 2017
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.
By an Award dated 9 May 2016 an arbitration tribunal ("the Tribunal"), consisting of Sir Gordon Langley, Sir David Steel and the Hon. L. Yves Fortier PC, CC, QC, ordered the Grigorishin Respondents to pay US$55.8m. to the Claimants in connection with 1 a Joint Venture Agreement and also US$250m. as the price payable in respect of the exercise of a "put option" by the Claimants.
By this arbitration application the Grigorishin Respondents seek to have the award set aside pursuant to section 68 of the Arbitration Act 1996. They allege no less than 16 serious irregularities grouped under 5 headings.
The alleged serious irregularities are said to be either within section 68(2)(a), a breach of the Tribunal's duty to act fairly pursuant to section 33 of the Act, or within section 68(2)(d), a failure by the Tribunal to deal with the issues that were put to it.
Notwithstanding that the Grigorishin Respondents are the Applicants in this section 68 application I shall refer to them as the Grigorishin Respondents. I shall refer to the Claimants in the arbitration as the Claimants.
The parties and their disputes
The Claimants are two companies beneficially owned by Mr. Vladimir Lukyanenko, a citizen of Russia and Ukraine. The Grigorishin Respondents are three companies beneficially owned by Mr. Konstantin Grigorishin who was born in Ukraine where he lived for 16 years before moving to Russia.
Stremvol Holdings Limited is a Cypriot company owned as to 51% by one of the Grigorishin Respondents and as to 49% by the Claimants. It is the joint venture vehicle through which the Claimants and the Grigorishin Respondents hold interests in a number of companies including NPO, a company based in Ukraine and involved in the manufacture of gas compressors.
The commercial relationship between Mr. Lukyanenko and Mr. Grigorishin broke down in 2013.
There were in essence two disputes, one relating to the Joint Venture Agreement ("the JVA") and the other relating to an Option Agreement. The Claimants alleged that the Grigorishin Respondents perpetrated an "Illicit Scheme" whereby they covertly diverted profits and opportunities away from NPO to two companies connected to the Grigorishin Respondents, namely, Technoimport and ES LLC. This was said to be in breach of the JVA, which breach was said to have caused damage to the Claimants in the sum of US$55.8m. The Claimants also alleged that they had been entitled to exercise a Put Option under the Option Agreement relating to their shares in Stremvol and so were entitled to a sum of US$250m. in return for the sale of those shares. The Grigorishin Respondents denied that there was any Illicit Scheme and, with regard to the Option Agreement, alleged that the business of Stremvol had been conducted oppressively by the Claimants such as unfairly to prejudice the shareholders of Stremvol with the result that under section 202 of the Cyprus Companies Law they were entitled to an order that the Claimants sell their shares in Stremvol at the market price, which I was told was no more than $4m.
The arbitration
Arbitration was commenced in 2013. After pleadings and evidence had been exchanged there was a hearing before the Tribunal from 14–25 September 2015 during which factual and expert evidence was adduced by the parties. Before the Tribunal there were (according to Mr. Sciannaca of Hogan Lovells, the solicitors acting for the Grigorishin Respondents) "many dozens of volumes, comprising tens of thousands of pages". At the end of the hearing the Tribunal requested a List of Issues to be agreed. The parties prepared such a list and exchanged lengthy written closing submissions on 13 November 2015. Reply submissions were exchanged on 4 December 2015. On 14 December 2015 the parties informed the Tribunal that there was no need for a further oral hearing. The Tribunal informed the parties on 11 January 2016 that it did not require an oral hearing but that it did require further written submissions concerning a recent Supreme Court decision on the subject of implied terms. Those submissions were provided and on 9 May 2016 the Tribunal published its Award. The Claimants' claims succeeded with the result that the Grigorishin Respondents were ordered to pay $55.8m. in respect of the JVA claim and $250m. in respect of the Option claim. The Award is a substantial document which sets out the Tribunal's reasons for making the Award.
The section 68 challenge
On 6 June 2016 the Grigorishin Respondents issued an arbitration claim form seeking an order setting aside the Award on the grounds of one or more serious irregularities within the meaning of section 68 of the Arbitration Act 1996.
The Grounds of Challenge are set out over 24 pages and 135 paragraphs and allege many serious irregularities grouped under 5 headings, grounds A-E. They are supported by 84 pages and 362 paragraphs of evidence from Mr. Sciannaca. Such was the breadth of the challenge that the hearing before this court lasted 4 days. Paragraph 13 of the Grounds of Challenge said this:
"The Grigorishin Respondents' challenge to the Award is based in significant part upon the Tribunal stating findings, and conclusions based upon those findings, without making any attempt to reconcile them with the countervailing evidence and arguments put forward by the Grigorishin Respondents. Repeatedly (and not just in relation to isolated points) evidence favourable to the Grigorishin Respondents' case, on a multitude of issues, was simply not mentioned anywhere in the Award. Moreover, with the exception of Mr. Grigorishin, none of the Grigorishin Respondents' witnesses was specifically commented upon with regard to their credibility or quality of their evidence, and despite numerous central issues in the arbitration turning on competing expert evidence, the Award makes no mention at all of one of the Grigorishin Respondents' expert witnesses, his two reports or the objective documentary evidence exhibited to those reports."
This description of a major part of the challenge is surprising. It is the conventional view that an arbitration tribunal does not have to refer to the competing evidence and arguments in its award. What it must do is decide the essential issues in the case and, pursuant to section 52(4) of the Arbitration Act 1996, give the reasons for the award. Recognising this, Mr. Brisby QC (who did not appear in the arbitration) put the case of the Grigorishin Respondents in this way. He said that this was an exceptional case. He said that such was the "wholesale failure" of the Tribunal to consider "large chunks of crucial evidence on central points of the case" that there had been a failure to act fairly as the Tribunal was required to do pursuant to section 33 of the Arbitration Act 1996.
In the light of the nature of this part of the Grigorishin Respondents' challenge to the Award it is necessary to consider the limits to a section 68 challenge. They have been described in several cases since the coming into force of the Arbitration Act 1996 but, having regard to the submission made by Mr. Brisby, it is necessary to consider them again. The relevant parts of section 68 provide as follows:
"(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. …………
(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 the tribunal);
…..
(d) failure by the tribunal to deal with all the issues that were put to it;
……
(i) any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award."
In Lesotho Highlands Development Authority v Impregilo SpA and others [2006] 1 AC 221 the House of Lords considered a challenge to an award pursuant to section 68 of the Arbitration Act 1996. Lord Steyn referred to the "radical nature of the alteration of our arbitration law brought about by section 68 of the 1996 Act" (see paragraph 26 of the judgment). The Act had been preceded by "persistent criticism" about the excessive reach of the powers of intervention by the court under the Arbitration Act 1950. A "major purpose" of the 1996...
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