Vee Networks Ltd v Econet Wireless International Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Colman |
| Judgment Date | 14 December 2004 |
| Neutral Citation | [2004] EWHC 2909 (Comm) |
| Docket Number | Case No: 2004 FOLIO 664 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 14 December 2004 |
[2004] EWHC 2909 (Comm)
The Honourable Mr Justice Colman
Case No: 2004 FOLIO 664
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr S Browne-Wilkinson QC (instructed by DLA) for the Applicant
Mr S Moverley-Smith QC (instructed by Kerman & Co) for the Respondent
Hearing dates: 25 and 26 November 2004
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.
COLMAN J.
Introduction
The primary application before the court is under section 67 of the Arbitration Act 1996 to challenge an arbitration award dated 17 July 2004 made by Mr Richard Briggs FCI Arb. That application is made by a Nigerian company which at the material time was called Econet Wireless Nigeria Limited, to which I refer as "EWN". Disputes had arisen under a Technical Support Agreement ("the TSA") entered into on 25 March 2003 between EWN and Econet Wireless International Ltd ("EWI") a company incorporated in Bermuda. EWN was about to set up a mobile phone service in Nigeria and EWI had significant technical and engineering expertise relevant to the establishment of mobile phone services. Under the TSA EWI was to act as non-exclusive provider of support and technical services to EWN. Those services included under clause 3.2 engineering, including planning, design of the network, installation of equipment and design engineering and construction of buildings and outside plant equipment, marketing services, sales and distribution services, training and development of e-commerce services. EWI was to provide the requisite personnel, some of whom were to be seconded to EWN under employment contracts to which both EWN and EWI were parties. The TSA was terminable by either party on 180 days notice and forthwith under certain default provisions.
EWN claimed to terminate the TSA in October 2003. EWI neither accepted that EWN was entitled to do so nor treated EWN as having repudiated it. The dispute was referred to arbitration under the arbitration clause in the TSA. By its statement of claim of 9 February 2004 EWI claimed damages of over $20 million. It subsequently raised an alternative claim that if the TSA was held to be void, it was entitled to recover a like amount by way of restitution or quantum meruit. By its Defence and Counterclaim of 19 April 2004 EWN pleaded that the TSA was void and unenforceable because, under it, EWI was engaged in the business of developing and/or operating and/or advising and/or acting as a technical consultant to EWN's business and enterprise and such business was ultra vires EWI's memorandum of association. In its counterclaim EWN claimed US$856,973 as money paid to EWI under a mistake of fact or as money had and received, alleging that this was the amount of withholding tax which EWN ought to have deducted from monies paid to EWI but had mistakenly failed so to do.
On 5 May 2004 the arbitrator directed by consent of the parties that he should hear and determine in a partial award various preliminary issues including:
i) whether EWN was estopped by convention from asserting that the TSA was ultra vires the powers of EWI;
ii) if not, whether the TSA was ultra vires;
iii) if it was ultra vires, whether any claim for restitution, unjust enrichment or quantum meruit could be advanced in the arbitration or whether the only further order that could be made was as to the costs of the arbitration.
Prior to the commencement of the hearing of the arbitration the parties agreed that the statement of the principles of Bermuda law and construction set out by the well-known Bermudan law firm, Conyers Dill and Pearman in a report dated 21 May 2004 was correct.
By a partial award dated 17 July 2004, the arbitrator concluded that:
i) EWN was not estopped from asserting that the TSA was ultra vires the powers of EWI;
ii) the TSA was not ultra vires EWI's powers;
iii) it was therefore unnecessary to decide the third issue.
By this application under Section 67 of the 1996 Act EWN submits that the partial award should be set aside because the arbitrator ought to have construed the memorandum of association of EWI as not including in the objects the business identified in paragraph (o) of the Second Schedule of the Bermudan Companies Act 1981, namely that of "developing, operating, advising or acting as technical consultants to any other enterprise or business". Mr Simon Browne-Wilkinson QC, on behalf of EWN, argues that this construction leads to the position that if the business in question involved activities within or incidental to any of the list of objects included in EWI's memorandum but the real substance of such activities fell within paragraph (o) of the Second Schedule to the 1981 Act, those activities fell outside the objects of the company. I shall explain this argument more fully later in this judgment.
It is then submitted that if the TSA were ultra vires, the arbitrator had no jurisdiction conclusively to determine any of the preliminary issues because his jurisdiction was derived from the arbitration clause in the TSA and he ought to have held that the TSA was void and therefore that the agreement to arbitrate contained within it was void. Accordingly, EWN was entitled to have the whole of the partial award set aside under section 67.
In response to the application under section 67, EWI raise a threshold point which is of considerable importance to the scope and application of the jurisdictional provisions of the 1996 Act. In essence, Mr Stephen Moverley-Smith QC submits that this application is fundamentally misconceived in as much as section 67 is inapplicable where, as in the present case, the issue to be determined by the arbitrator is not whether he has substantive jurisdiction but whether the underlying or matrix contract, as distinct from the arbitration agreement contained in the arbitration clause, is invalid.
This submission is based on section 7 of the 1996 Act. It is argued that the effect of this section is to preserve the jurisdiction of the arbitrator to determine conclusively whether the underlying contract was ultra vires the powers of EWI notwithstanding that, if it were, the underlying contract containing the arbitration clause would be null and void. The function of section 67, it is submitted, is not to challenge an arbitrator's determination of the issue whether an underlying contract was void, for whatever reason, but to challenge a determination by an arbitrator as to whether he has "substantive jurisdiction". The determination of substantive jurisdiction involves only the matters set out under section 30(1) of the 1996 Act, namely (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. In the present case, it is submitted, the issue to be determined by the arbitrator was not whether there was a valid arbitration agreement but whether the matrix contract was ultra vires the powers of the company. The effect of section 7 of the 1996 was to give the arbitrator jurisdiction conclusively to determine the latter issue. Therefore, the validity of the arbitration agreement was never in issue and accordingly section 67 had no application.
It was further submitted on behalf of EWI that the arbitrator had reached the correct conclusion as to the proper construction of the memorandum and that the activities of the company under the TSA all fell within the objects. The objects were not to be construed as if the memorandum incorporated all the provisions of the Bermudan Companies Act 1981.
EWI further submitted that if it were held that the TSA was ultra vires, the effect of Section 7 of the 1996 Act was to preserve the arbitrator's jurisdiction to the effect that he had jurisdiction to determine non-contractual disputes such as its alternative claim for restitution and/or quantum meruit and the counterclaim for money had and received. Seeing that the scope of the arbitration agreement was wide enough to cover such disputes, the arbitrator did have jurisdiction to determine such issues.
It was further submitted that there had been an ad hoc submission of the issue of jurisdiction to the arbitrator in the sense that there was agreement by both parties that he should conclusively determine that issue.
EWN submit in the alternative that, if the partial award is not set aside under Section 67, it ought to be set aside or remitted to the arbitrator under Section 68 of the 1996 Act on the grounds that he arrived at his conclusion that the TSA was not ultra vires by reliance on an argument, partly of Bermudan law and partly of construction which had not been advanced by either party in the course of the hearing (and which was demonstrably wrong) without warning the parties that he proposed to take this course and without giving EWN the opportunity to deal with the point by adducing further evidence of Bermudan law and making further submissions to him. There had thus been a serious irregularity which had caused substantial injustice to EWN.
As to the application under section 68, it was conceded on behalf of EWI that the arbitrator had in a certain passage of his award employed arguments of law and construction which had not been relied upon by EWI at the hearing. However, it was submitted that the steps by which the arbitrator arrived at his conclusion that the TSA was ultra vires did not include this reasoning and accordingly the arbitrator's reliance on these arguments did not cause substantial injustice...
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