QUEENS BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| NORSK HYDRO ASA||Claimant|
|- and -|
|THE STATE PROPERTY FUND OF UKRAINE & ORS||Defendants|
Guy Philipps QC (instructed by White & Case) for the Second Defendant
Hearing dates : 25 September 2002 & 11 October 2002
Crown Copyright ©
Mr Justice GROSS:
(1) The order made (without notice) by Morison, J. on the 29th April, 2002 ("the Morison order") and the judgment entered pursuant thereto;
(2) The interim third party debt order made (without notice) by Andrew Smith, J., on the 13th September, 2002 ("the Smith order").
"On 19 April 1996 Hydro and the Respondents, as well as the European Bank for Reconstruction and Development, signed the Owner's Agreement (the "Agreement") regulating the relationship between the owners of Transinvestservice, a company with limited liability incorporated under the laws of Ukraine ….. The purpose of the Agreement is to regulate Hydro's role in Transinvestservice and the operation of Transinvestservice. For example, in Article 4 of the Agreement the owners of Transinvestservice recognise and acknowledge the leading role to be played by Hydro in Transinvestservice. Article 3 of the Agreement sets forth certain undertakings made by the owners of Transinvestservice with respect inter alia to licences, permits and approvals required for the operation of the Yuzhny II terminal near Odessa, Ukraine.
The Respondents have in various ways breached their obligations under the
Agreement, inter alia by attempting to oust Hydro as an owner of Transinvestservice
and has thereby caused damage to Hydro. In this arbitration, initiated pursuant to
Article of 20 of the Agreement, Hydro will seek compensation for such damage."
" This Owners' Agreement … is made on 19 April 1996, between 1. Norsk Hydro a.s, a company with limited liability incorporated under the laws of Norway and having its principal offices in Oslo, Norway (hereinafter referred to as "Hydro"); 2. The State Property Fund of Ukraine, being an agency of the Government of Ukraine and having its principal offices in Kiev, Ukraine (hereinafter referred to as the "State Property Fund"); 3. Concern Primorsky, a concern organised and incorporated under the laws of Ukraine and having its principal office in Odessa, Ukraine (hereinafter referred to as "Primorsky"); and 4. Alpex, an joint venture company organized and incorporated under the laws of Ukraine and having its principal office in Odessa, Ukraine (hereinafter referred to as "Alpex") 5. Colorado Financial Incorporated, a company organised and existing under the laws of the State of Nevada, United States of America, with its principal offices in Odessa, Ukraine (hereinafter referred to as "Colorado"). 6. European Bank for Reconstruction and Development, (hereinafter referred to as "EBRD")
"Owners" shall mean Hydro, EBRD, the State Property Fund, Colorado, Primorsky and Alpex, individually or together, and any other party holding Shares in the Company, and "Owner" shall mean any one of them;
…..2. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Owner hereby represents, warrants and covenants to the other Owners that:(i) it is a separate legal entity and has all requisite corporate and other power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, and that it is duly established, organised and validly existing under the laws of its jurisdiction of incorporation or, in the case of the EBRD, under international law;
(ii) All proceedings required to be taken by it to authorize the execution, delivery and performance of this Agreement by it have been properly taken, and this Agreement constitutes its valid and binding obligations, enforceable against it in accordance with it terms…..
18. WAIVER OF IMMUNITY
To the extent that any Owner other than the EBRD enjoys sovereign and/or diplomatic immunity, such Owner hereby irrevocably and unconditionally waives all such immunity, including, but not limited to, immunity from the jurisdiction of any court of law in respect of any injunction, arrest or attachment of any property, whether before or after the rendering of any award, and with respect to the execution of any award."
Interposing here, the EBRD did not waive immunity, as was further made clear by cl. 19 of the OA.
"20. APPLICABLE LAW AND DISPUTES
This Agreement shall be governed by and construed in accordance with the substantive laws of Sweden.
Any dispute, controversy or claim arising out of or in connection with this Agreement or the breach, termination or invalidity thereof which cannot be amicably resolved, shall be finally settled by arbitration in accordance with the UNCITRAL Arbitration Rules, with the Stockholm Chamber of Commerce as appointing authority. The arbitral tribunal shall be composed of three arbitrators, it being agreed that all three arbitrators shall be appointed by the Stockholm Chamber of Commerce. The place of arbitration shall be Stockholm, Sweden."
"Respondents: 1. The Republic of Ukraine, represented through the State
Property Fund of Ukraine (the "Republic") 18/9 Kutuzov St. 252001, Kiev, Ukraine
. 2. Concern Primorsky ("Primorsky")
49 Suvorova Str., 270026 Odessa, Ukraine
3. Alpex joint venture company ("Alpex")
9 Kateryninska Str., 270026 Odessa, Ukraine
4. Colorado Financial Incorporated ("Colorado")
25 Risheljevskaja Str., 270026 Odessa, Ukraine"Paragraphs 2 and 3 were in the following terms:
"2. Preliminary Statement of Relief claimed by Hydro
Hydro will ask the arbitral tribunal – to be appointed – to confirm that Respondents have breached their obligations under the Agreement and will ask the tribunal to order the Respondents to pay compensation for damages caused by Respondents. Hydro's prayers for relief will be set forth in detail in the Statement of Claim to be submitted pursuant to Article 18 of the UNCITRAL Arbitration Rules.3. Appointment of arbitrators
Pursuant to Article of 20 of the Agreement all three arbitrators are to be appointed by the Stockholm Chamber of Commerce. Hydro has today requested the Stockholm Chamber of Commerce to make such appointments …"
Norsk Hydro ASA….
The proceedings were characterised by participation on the part of NH but non-participation by the Respondents. So far as concerns the first Respondent to the arbitration, "The Republic of Ukraine, through the State Property Fund of Ukraine", all communications were addressed to the address of the State Property Fund ("the SPF"). The SPF did not participate in the arbitration, save to contest jurisdiction on the ground of a signature point (which does not require elaboration on this occasion). No other jurisdictional issue was raised. Save insofar as these communications to the SPF and this participation on the part of the SPF count as communication to and participation of Ukraine, it was not involved at all in the arbitration. The tribunal recorded the position of the parties as follows:
Hydro requested the Arbitral Tribunal(a) to confirm that the Respondents are in breach of the Owners' Agreement, through the breach of their contractual duty of good faith under that Agreement;
(b) to confirm that the Respondents are in breach of Section 4 of the Owners' Agreement;
(c) if the Tribunal were to find that the Owners' Agreement had been improperly executed by the Respondents, to confirm that the Respondents are in breach of Sections 2 (i) and2 (ii) of the Owners' Agreement;
(d) to order the Respondents to pay, jointly and severally, USD 21,260,000 plus interest pursuant to the provisions of the Swedish Interest Act (rantelagen) from the date of the Award; and
(e) to order the Respondents to pay, jointly and severally, Hydro's costs incurred in connection with these proceedings, including legal fees and compensation to the arbitrators, plus interest on such amount.
At the main hearing, Hydro reduced its claim under (d) above, from USD 21,260,000 to USD 20,000,000 plus interest.
The Respondents did not participate in the proceedings before the Arbitral Tribunal. However, the State Property Fund and Alpex demanded before the Stockholm Chamber of Commerce that the request for arbitration be rejected for lack of jurisdiction according to Article 21of the UNCITRAL Arbitration Rules."
(1) The OA was a valid agreement; pursuant to cl. 20 of the OA, the tribunal had jurisdiction to determine the dispute and Swedish Law was to be applied.
(2) The tribunal did not proceed with the claims against Alpex and Colorado, essentially because they could not be located.
(3) As to the substance of the matter, the tribunal put it this way:
"(b) declares that the Republic of Ukraine, through the State Property Fund, and the Concern Primorsky are in breach of Section 4 of the Owners' Agreement and of their general duty of loyalty and consideration for the interests of Norsk Hydro ASA under the Owners' Agreement;
(c) decides that the Republic of Ukraine, through the State Property Fund, and the Concern Primorsky, jointly and severally, shall pay to Norsk Hydro ASA the amount of sixteen million two thousand seven hundred nine US dollars (USD 16,002,709) plus interest on that amount according to Section 6 of the Swedish Interest Act ("… interest shall be calculated per annum according to a rate of interest equivalent to the discount rate established by the Central Bank of Sweden from time to time plus eight percentage points") from the date of this Award until payment is made;"
(4) The tribunal then proceeded to deal with costs and arbitrators' fees in the same manner.
" The State Property Fund of Ukraine (1) The Republic of Ukraine (2) Concern Primorsky (3)"
The Morison order itself provided as follows:
"1. The Claimant has permission to enforce the Award rendered in Stockholm on 20 March 2000 in the Arbitration between the Claimant and (1) The Republic of Ukraine, through the State Property Fund of Ukraine; (2) Concern Primorsky, (3) Alpex Joint Venture Company; (4) Colorado Financial Incorporated (the "Award") against the First, Second and Third Respondents;
2. That judgment be entered for the Claimant as against the First, Second and Third Respondents as follows:a) US$16,002709 for damages (as set out in the Award)…"
It was further ordered that judgment be entered for various other sums in respect of interest and costs. Additionally, the Morison order included the following paragraph:
"To the Respondents: Within 21 days of service of this order, you may apply to set aside this Order and the Award shall not be enforced until after the expiration of that period, or, if you apply to set aside this Order within the 21 days, until after the application has been finally disposed of."
The Morison order and associated judgment were served through diplomatic channels on Ukraine on the 24th July, 2002.
"a) there is an amount owing by the [defendant] ('the judgment debtor') under the judgment or order given on 29 April 2002 [by the Honourable Mr Justice Morison in claim no. 2002 FOLIO 441] and
there is a debt due or accruing due by the third party to the judgment debtor
and the court orders that
- The application will be heard at 10.30 [am] on Friday 1 Nov ember 2002 at E121 Royal Courts of Justice when a Master will decide whether a final third party debt order should be made.
- Until that hearing the third party must not, unless the court orders otherwise, pay to the judgment debtor, or to any other person, any sum of money due or accruing due by the third party to the judgment debtor, except for any part of that sum which exceeds the total shown below."
"21…Accordingly absent payment of the interest on the Dollar Notes which was due to be paid on 16 September 2002, the major portion of which is now frozen in the hands of Deutsche Bank, an Event of Default will occur on 26 September 2002. The consequences of such Default would be catastrophic for Ukraine, both politically and economically. Accordingly Ukraine is taking steps to put itself in a position by alternative means to fund Deutsche Bank with the amount required to make the interest payment on the Dollar Notes, whilst retaining the amount the subject of the Third Party Debt Order, before an Event of Default occurs. However the difficulty, inconvenience and cost of its having to do so should not be underestimated. The freezing of the funds has created major financing problems for the Ministry of Finance of Ukraine. In order to ensure that an Event of Default does not occur it will be required to reallocate State resources at extremely short notice. For a developing State with limited resources facing enormous budgetary pressures this is a very real political and administrative problem which is deeply troubling to the Government of Ukraine. Since I became aware of the Third Party Order on 16 September 2002 I have spoken on numerous occasions to several officials at the Ministry of Finance including Volodymyr Visotsky, Head of Debt Department of the Ministry of Finance and Oleg Bilinsky, Head of Capital Markets Division in the Debt Department of the Ministry of Finance, who have expressed to me their great concern about the consequences to Ukraine of these events. 22. The non payment of the interest due on 16 September 2002 has of course already come to the attention of the Note holders entitled to receive such payments. The matter is also becoming apparent to the wider financial community. Rumours as to Ukraine's ability and willingness to comply with its foreign debt obligations are extremely damaging to Ukraine, impacting not only its current position but its future ability to raise finance in the international capital markets. Ukraine has today been forced to issue a statement through Euroclear and Clearstream, in an attempt to reassure investors."
"1. The Owners' Agreement giving rise to the proceedings and containing the arbitration agreement was (purportedly) entered into by the State Property Fund only, as principal, and not as agent for the Republic of Ukraine. 2. As a matter of Ukraine law, the State Property Fund is a separate legal entity with capacity to contract and to sue and be sued in its own name. See Article 15 of the Temporary Regulations on the State Property Fund of Ukraine approved by Resolution of the Verkhovna Rada of Ukraine of 7 June 1992; Informational Letter #01-8/1432 of the Higher Arbitration Court of Ukraine (1 December 1992). 3. Therefore, the Republic of Ukraine was not a party to the arbitration agreement. 4. Not being a party to the arbitration agreement, the Republic of Ukraine is immune from the jurisdiction of the English court as respects proceedings which relate to the arbitration: see s. 1(1) and 9(1) of the State Immunity Act 1978. 5. Further or alternatively, the Republic of Ukraine was not a party to an arbitration agreement in writing, and the court has no jurisdiction to enter judgment against it in respect of the purported arbitration award (see Part II of the Arbitration Act 1996, especially s.100). 6. The statements in paragraph 11 of the witness statement of Paul Fallon dated 11 September 2002 that the Republic of Ukraine (i) nominated arbitrators and (ii) entered an appearance in the arbitration proceedings are untrue. In accordance with the Owners' Agreement (and the Claimant's request for arbitration), the arbitrators were appointed by the Stockholm Chamber of Commerce. The Republic of Ukraine (as opposed to the State Property Fund) did not "enter an appearance" or play any part in the arbitration proceedings; and there is no suggestion in the award or elsewhere that it did. 7. Therefore the order of 29 April 2002 must be set aside as against the Republic of Ukraine. 8. Further or alternatively, the order of 29 April 2002 should be set aside as having been applied for without full and frank disclosure in relation to the facts and matters set out above. 9. If the order of 29 April 2002 is set aside as against the Republic of Ukraine, then the interim third party debt order must also be set aside. 10. Alternatively, the interim third party debt order must be set aside as having been applied for and made contrary to CPR 62.18(9)(b)(i).10.1 The order of 29 April 2002 was served on 24 July 2002.
10.2 The Republic of Ukraine had two months and 21 days to enter an appearance (s. 12(2) and 22(2) of the State Immunity Act 1978), and thus two months and 21 days to apply to set aside the order.
10.3 The award must not be enforced within that period; CPR 62.18(9)(b).
10.4 The interim third party debt order, being an order purporting to enforce the award, was made on 13 September 2002, within that period."
(I) Could the Morison order stand where (so far as relevant) the award was against a party, described as "The Republic of Ukraine, through the State Property Fund of Ukraine" but the Morison order provided for enforcement against two parties (1) The State Property Fund of Ukraine and (2) The Republic of Ukraine ? While this Issue went primarily at least to the Court's jurisdiction, it also encompassed allegations of non-disclosure. ("Issue (I) – the Morison order")
(II) Should the Smith order be set aside on the ground of prematurity, having been granted less than two months after the service of the Morison order on Ukraine ? This Issue went solely to the Court's jurisdiction, in the light of the provisions of The State Immunity Act 1978, esp. ss. 12 and 22, read together with CPR 62.18. ("Issue (II) – the Smith order")
(III) Should the Smith order be set aside as a matter of discretion, given the existence of a challenge to the Morison order, admittedly arguable (hence the need for NH's further evidence) but, ex hypothesi, made late ? This Issue only arose if Ukraine had failed on Issues (I) and (II) and therefore necessarily proceeded on the assumption that the Ukraine's application to set aside the Morison order had been made outside of the time provided under the CPR for such challenges. ("Issue (III) – discretion").
ISSUE (I) – THE MORISON ORDER
" (2) A New York Convention award may, by leave of the court, be enforced in the same manner a judgment or order of the court to the same effect….
(3) Where leave is so given, judgment may be entered in terms of the award."
As it seems to me, the Morison order was not an order "in terms of the award"; it was an order in different terms. For the reasons already given, in the present context, that difference matters. There was no jurisdiction to enforce the award in the terms of the Morison order and that order must be set aside.
(1) The decision on Issue (I) rests on the question of the court's jurisdiction. Had I not reached the view to which I have come as to the court's jurisdiction, I would not have set aside the Morison order on the various points of non-disclosure alleged. In short, I am not persuaded that there was non-disclosure; it was made clear in Ms. Mulcahy's Witness Statement of 26th April, 2002 that the application for enforcement was departing from the style of the award. If that is too generous a view, I am nonetheless satisfied that any non-disclosure here was the product of innocent mistake or confusion so that in my discretion I would have viewed setting aside the order as a disproportionate sanction.
(2) I am not without sympathy for the efforts of NH's solicitors and, in particular, Mr. Fallon in seeking to grapple with the ambiguity (not, I suspect, of Mr. Fallon's making) in the naming of the relevant Respondent to the award. That said, the Court had no jurisdiction to "iron out" the ambiguity by purporting to enforce the award in different terms. This case accordingly underlines the importance of addressing such issues before the stage of the award is reached; if, however, an ambiguity of this nature remains in an award then (so far as the enforcing court is concerned) it has to be addressed in the course of any argument as to enforcement. What cannot be sought is enforcement other than in terms of the award.
ISSUE (II) – THE SMITH ORDER
" 12 Service of process and judgments in default of appearance(1) Any writ or other document required to be served for instituting proceedings against a State shall be served by being transmitted through the Foreign and Commonwealth Office to the Ministry of Foreign Affairs of the State and service shall be deemed to have been effected when the writ or document is received at the Ministry.
(2) Any time for entering an appearance (whether prescribed by rules of court or otherwise) shall begin to run two months after the date on which the writ or document is received as aforesaid."
S.22 of the 1978 Act is entitled "General Interpretation". S.22(2) provides as follows:
"In this Act references to entry of appearance and judgments in default of appearance include references to any corresponding procedures."
" (1) An application for permission under –… (b) section 101 of the 1996 Act; …
to enforce an award in the same manner as a judgment or order may be made without notice in an arbitration claim form.
(3) The parties on whom the arbitration claim form is served must acknowledge service and the enforcement proceedings will continue as if they were an arbitration claim under Section I of this part.
(4) With the permission of the court the arbitration claim form may be served out of the jurisdiction irrespective of where the award is, or is treated as, made.
(8) An order giving permission may be served out of the jurisdiction –(a) without permission; and
(b) in accordance with rules 6.24 to 6.29 as if the order were an arbitration claim form.
(9) Within 14 days after service of the order or, if the order is to be served out of the jurisdiction, within such other period as the court may set –(a) the defendant may apply to set aside the order; and
(b) the award must not be enforced until after –(i) the end of that period; or
(ii) any application made by the defendant within the period has been finally disposed of."
(1) CPR 62.18 contemplates that an applicant seeking enforcement may proceed by way of an arbitration claim form or may simply seek an order granting the relevant permission. Were Mr. Walker's argument well-founded, it would be necessary either (i) to read s.12(2) of the 1978 Act as not applying to such arbitration claim forms or (ii) to conclude that s.12(2) applied where the applicant proceeded by way of arbitration claim form but not otherwise. Conclusion (ii) was described by Mr. Philipps as "bizarre" and, it is sufficient to observe, Mr. Walker did not contend for it. It follows that Mr. Walker's argument must and does proceed on the basis that s.12(2) is inapplicable to all enforcement procedures under CPR 62.18.
(2) As foreshadowed, Mr. Walker contends for such a result by seeking to confine the operation of s.12(2) to the court's "adjudicative jurisdiction". However, s.12(2) is not in terms so confined. Instead, s.12 is found under the heading "Procedure". It is therefore necessary for Mr. Walker to read words into the section.
(3) The rationale for doing so, Mr. Walker submits, is that the "generous" time period furnished by s.12(2), is appropriate in the case of the service of claims on states; of these, the state may know nothing until service is effected. By contrast, in the case of enforcement, ex hypothesi, the state affected will or should be aware of the matter giving rise to the judgment or award; there is accordingly no warrant for the application of the two month period in this context. I am, with respect, unable to accept this argument and do not think that the discussion in Alcom (supra) is of assistance here.
(4) As it seems to me, s.12 means what it says. It deals with procedure. It is not to be confined to the court's "adjudicative jurisdiction". The two month period is an acknowledgement of the reality that states do take time to react to legal proceedings. It is understandable that states should have such a period of time to respond to enforcement proceedings under ss. 100 and following of the 1996 Act; not untypically, an award will be made in one country but enforcement may be sought elsewhere, perhaps in a number of jurisdictions, where assets are or are thought to be located. I therefore decline to read words into s.12 so as to preclude its application to the enforcement of awards under CPR 62.18.
(5) Insofar as it remains in dispute, I am satisfied that the wording in s.12(2) of the 1978 Act, "Any time for entering an appearance (whether prescribed by rules of court or otherwise)" applies to the time period to be set by the court as available to a defendant to seek to set aside an order for enforcement under CPR 62.18(9). If need be, s.22(2) of the 1978 Act (".. references to entry of appearance …include references to any corresponding procedures"), though, I suspect, primarily designed for other purposes, is capable of supporting such a construction; for my part, however, I would be inclined to arrive at my conclusion on the wording of s.12(2) standing alone but read in context.
(6) In the result, the Smith order cannot stand. The Morison order was served on Ukraine on the 24th July, 2002. That order gave Ukraine a 21 day period within which to apply to set it aside. To that 21 day period must be added the two months provided for in s.12(2) of the 1978 Act. The total period therefore expired on or about the 15th October, 2002. The Smith order was made on the 13th September. It was accordingly premature; it was, it must be stressed, granted by way of enforcement; it was not a freezing order; there was, however, no jurisdiction to enforce the award until the 15th October.
ISSUE (III) – DISCRETION
CONCLUSIONS AND POSTSCRIPT
" The State does not for the purposes of this application in this jurisdiction contend that, as a matter of fact and/or Ukrainian law, the Fund, by Mr. Kulichenko and Ms Gonchar, did not sign the Owners' Agreement.
However, the State does reserve the right so to argue in any other proceedings in this or any other jurisdiction, and the fact that the State is not so arguing here today is not a concession or admission that the Fund did sign the Owners' Agreement.
A fortiori, it is not a concession or admission, in this jurisdiction or any other, on the part of the Fund, which I do not represent and which does not appear here."