Kazakhstan v Istil Group Inc [2007] EWHC 2729 (Comm)

“Ad hoc agreement 59. The next issue that must be grappled with is the contention by Istil that an ad hoc agreement was entered into by the parties conferring jurisdiction on the tribunal to make a final determination of the issue of jurisdiction by virtue of the correspondence between Maitre Bidet (for ROK) and Penningtons in the lead up to the arbitration. 60. I accept that Monsieur Bidet was not an experienced English commercial solicitor and thus might more readily proceed to conduct an arbitration outside the terms of an arbitration clause. But in my judgment it is quite clear that Monsieur Bidet did not do so. His reservation of rights in his letter of 8 November 2001 in response to ROK’s notification of its intention to ask the tribunal to decide the issue of jurisdiction as a preliminary issue contains nothing to suggest that ROK was abandoning its right to challenge the award on jurisdiction if appropriate. Nor indeed did Istil treat the letter as such. It was only later that the parties exchanged submissions identifying “squarely” what the issue on jurisdiction was (including the relevance or otherwise of the French proceedings). It is also notable that there is no suggestion that the tribunal regarded themselves as having an enlarged jurisdiction to make a final decision on the issue. Agreement for arbitration in the course of the French proceedings 61. A supplementary contention is made by Istil that the reliance on the arbitration clause by ROK in the French proceedings constituted an offer to submit the claims to arbitration. It was contended that this offer was last repeated in the submissions filed by ROK on 17 January 2000 as referred to in the Court of Appeal judgment. 62. No copy of those submissions is in fact available. In any event, I am quite unable to agree with the proposition that, in issuing its request for arbitration in July 2001, Istil was accepting any such offer, not forgetting that it was all against the background that the finding of state immunity remained in place.”

“64. However, I have not forgotten that, before me, Istil also seeks to press the argument that ROK was an original party to the contracts. I have some doubt whether this is open to Istil. But putting those doubts aside, it is to be noted that this contention is based on two alternative grounds: (a) that the contracts were concluded by Sauda and Oltex as agents for the Republic, or (b) that the contracts were concluded by Sauda and Oltex as agents for Karmet which was not a separate legal entity from ROK.”

“70. Moreover, throughout the French proceedings it is to be noted that Metalsrussia’s contention was that the second and third contracts were concluded by Oltex on behalf of Karmet. Whilst obviously Metalsrussia is not precluded from asserting an entirely contrary case in relation to the issue of the jurisdiction of the arbitrators, the stance clearly throws some doubt on the credibility of such a submission - the more so when the notice of arbitration itself relied only on the alleged agreement during the French proceedings. It was never contended that ROK was itself a party to the contracts.”

“The LCIA proceedings 30. The arbitration was commenced by notice given by Metalsrussia dated 5 July 2001. It is to be noted that the notice made the following point as regards the scope of the claim and thus the question of jurisdiction: ‘The Republic is not directly a party to the contracts. The contracts were in fact entered into by companies wholly owned or controlled by the Republic. Despite the fact that the Republic was not a signatory of the contracts, the Republic has pleaded in the French proceedings on various occasions that the arbitration clause in the contracts bind it……There is therefore a voluntary acceptance by the Republic to submit to the jurisdiction of the arbitral tribunal, alternatively the submissions constitute an offer that MCL hereby accepts by commencing proceedings before the LCIA’.”

“Parties to the contracts 63. I have already made the finding that Metalsrussia sought to pursue their claim before the French court on the basis that ROK was not a party to the arbitration agreements but was responding to a claim which was based on the proposition that ROK had become responsible for Karmet’s debts on one basis or another. I have also found that, in reality, the claims advanced in the arbitration were formulated in the same way. I return to this topic below.”

“Res judicata 75. As has already been noted, ROK raised two jurisdictional defences in the French proceedings: that the claims were subject to an agreement to arbitrate and that ROK enjoyed sovereign immunity in regard to the claims. 76. In considering the impact of the French judgments at first instance and in the Court of Appeal, I have had the benefit of oral evidence from two distinguished French jurists: Professor Loic Cadiet for ROK and Professor Jean-Jaques Daigre for Istil. As might be expected there was little in issue between them.” 77. I approach their evidence on the basis of the conclusion that I have already reached earlier in this judgment that the claim in the French proceedings was in all material respects the same as the claim made in the arbitration. Indeed this is clear from the letter giving notice of the arbitration and the content of the awards. 78. As I have already outlined, leaving aside the proposition advanced in both sets of proceedings that Karmet was simply an emanation of ROK, it was Istil/Metalsrussia’s primary contention throughout that ROK’s liability for Karmet’s debts arose by virtue of the decrees and the sale and purchase agreement. This coterminosity of the scope of the claims in the two sets of proceeding is further confirmed by the acceptance on the part of Metalsrussia that the commencement of the French proceedings interrupted the relevant period of limitation. 79. Furthermore it was Metalsrussia’s case before the French court, not that the claim fell outside the scope of the arbitration agreements (which were very wide and covered “all possible disputes and differences that might arise” out of the contract) but that ROK was not a party to any arbitration agreements. This stance is confirmed by the judgments of the Court of Appeal which recorded Metalsrussia’s challenge to the judgment as involving the submission that ROK “could not invoke an arbitration clause in a contract it did not sign and which it never accepted”. 80. Thus it was rightly common ground between the experts that the jurisdictional defence based on the arbitration clause had to be decided first. The two defences were alternatives. Only if it was not bound by an arbitration agreement could the defence raised by ROK of sovereign immunity arise. In this respect it was, as I understood it, accepted that the tribunal was wrong to find that it was “not necessary for the Paris Commercial Court to decide on the issue of the application or non-application of the arbitration clause in order to reach its decision on sovereign immunity. 81. Moreover, both experts accepted that the French Court had impliedly determined ROK’s arbitration defence in its dispositif, a view confirmed by the judgment in the Court of Appeal. (In this respect Professor Daigre took the view that the Court of Appeal was wrong but given that the purpose of expert evidence is to identify what conclusions would be reached by the relevant state court on the issue, I feel unable to look behind that decision). 82. It follows in my judgment (again this is not a contentious matter as between the experts), the judgment of the French Court is a judgment on the merits for the purposes of res judicata, despite the fact that the ruling was implicit rather than explicit. It thus constitutes an issue estoppel for the purposes of the present proceedings. On that basis, it has been accepted that ROK cannot be said to be a party to the arbitration clause and must be entitled to the relief claimed in the present application. 83. Indeed, I also accept the argument that Istil’s case that ROK was a party to the contracts and/or the arbitration agreements cuts across the unequivocal and explicit finding of the French Commercial Court that ROK could invoke the defence of sovereign immunity. Since that defence on any view has not been waived, I accept the proposition that Istil is estopped from contending that the legal consequence of the decree and the SPA were that ROK had become a party to the contracts.”

“28. As I have already said, Mr Page has withdrawn the second submission that he made. I therefore turn to deal shortly with his third submission, that the judge has here failed to engage with his argument. The position here is that it is said that he failed to deal with the argument that the Partial Award was a fully enforceable award which ROK had not sought to set aside and that, pursuant to section 58 of the Act, Istil therefore had an unassailable right to rely on it. 29. In my judgment this is incorrect for two reasons. First, the Partial Award would be likely to be useless to Istil because it was in favour not of Istil but in favour of Metalsrussia. Secondly, a Partial Award which a later award has declared is a nullity can scarcely be said to be an enforceable award, whether by reason of section 58 of the Act or at all. More importantly however, contrary to Mr Page’s submissions, the judge did in fact engage with that argument by saying that Istil would have had first to apply to set aside the decision in the final award that the Partial Award was a nullity but had never sought to do so. The learned judge gave an oral judgment on the application for permission to appeal. In the course of that he said this at paragraph 4: ‘The position it seems to me is perfectly plain. The arbitrators if and to the extent they exceeded their powers in setting aside the Partial Award were responsible for an irregularity which if either party had objected to they could and should challenge. The Metalsrussia group, if I may call them that, did not do so and the time for that has expired, so I confidently feel that the submission that the Metalsrussia group’s objection to ROK’s attempt to set aside the final award because there was in existence an earlier award is not made out and thus there is no reasonable prospect of success on any appeal’.”

“36. I agree with both judgments and would add three short points. First, Lord Justice Longmore said that the Partial Award would be useless to Istil. This was only one of the reasons which my Lord gave. I would like to leave this question open. We have not heard full argument on that point, which was one of the points dealt with by Steel J in his judgment. The effect of a merger on the liabilities of a company absorbed by a merger may well depend on the law of its domicile.” ‘The position it seems to me is perfectly plain. The arbitrators if and to the extent they exceeded their powers in setting aside the Partial Award were responsible for an irregularity which if either party had objected to they could and should challenge. The Metalsrussia group, if I may call them that, did not do so and the time for that has expired, so I confidently feel that the submission that the Metalsrussia group’s objection to ROK’s attempt to set aside the final award because there was in existence an earlier award is not made out and thus there is no reasonable prospect of success on any appeal’.”

“Steel J refused permission to appeal on Istil’s main argument, which was that pursuant to section 58 of the 1996 Act, the 2003 Award remained final and binding on the parties, absent a challenge under section 67 or by an agreed arbitral process of appeal or review. The arbitrators’ finding, that their original award was a nullity, was made when they were functus and could have had no legal effect. Steel J did not offer any answer to this point in the course of the permission application, and there is none.”

“Unless otherwise agreed by the parties, an award made by the tribunal pursuant to an arbitration agreement is final and binding both on the parties and on any persons claiming through or under them.”

“The Jurisdiction Award has already established as a matter of fact that the Buyer in all three contracts was Metalsrussia Corporation Limited. No issue is, or can be, taken with that.”

“Without prejudice to its previous submissions regarding the Tribunal’s lack of jurisdiction in general, the non-existence of the Claimant in particular, the false basis on which the Jurisdiction Award was made, and that the claim should be dismissed with costs, the Respondent confirms its position that, to the extent there is any valid claim before it, the Tribunal has no jurisdiction or power either under LCIA Rules or in any other way (and certainly not on the grounds of mere ‘convenience’ to the Claimant) to change the name or legal identity of the Claimant, established as Metalsrussia Corporation Limited in the Jurisdiction Award.”

“Contentions of and Relief sought by the Respondent The Respondent contends that: • BVI Metalsrussia had never been a party to the Three Contracts and never had a cause of action under the Three Contracts; • Whilst maintaining its objection to the jurisdiction of the Arbitral Tribunal, the Award on Jurisdiction had been rendered on the false basis that HK Metalsrussia, in the alternative BVI Metalsrussia as Initial Claimant, was still in existence, and that the Tribunal had no power to add the Claimant as a new party to the arbitration proceedings;”

“The Tribunal issued its award, deciding that it did have jurisdiction and dismissing the Republic’s lis alibi pendens arguments, on 20th January 2003. The Republic made no application to the court under section 67. The Claimant does not accept that the award on jurisdiction was a nullity due to the mergers. The Claimant will rely on the decision in The Sardinia Sulcis [1991] 1 Lloyds Rep 201 and on Articles 22.1, 27 and 32.2 of the LCIA Rules, and will address this issue in argument at the appropriate time.”

“I make this Witness Statement in support of the Defendant’s (Istil’s) application for the trial of the following preliminary issue: Whether the Claimant is precluded from making an application under section 67 of the Arbitration Act 1996 by virtue of its consent, without reserve, to the Tribunal’s ruling on its own jurisdiction and/or by virtue of its failure to challenge the Tribunal’s award dated 20 January 2003 and/or by virtue of section 73(1) or (2) of the Arbitration Act 1996.”