QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| BANCO NACIONAL DE COMERCIO EXTERIOR S.N.C
|- and -
|EMPRESA DE TELECOMUNICACIONES DE CUBA S.A.
(instructed by Messrs Freshfields Bruckhaus Deringer) for the Appellant
Mark Cran QC and Andrew Thomas
(instructed by Messrs Travers Smith) for the Respondent
Hearing date: 16 July 2007
Crown Copyright ©
Mr Justice Tomlinson:
"A judgment shall not be recognised:
1. if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought…"
In the alternative ETECSA invokes Article 46.1 of the Judgments Regulation which provides:
"The court with which an appeal is lodged under Article 43 or Article 44 may, on the application of the party against whom enforcement is sought, stay the proceedings if an ordinary appeal has been lodged against the judgment in the Member State of origin or if the time for such an appeal has not yet expired; in the latter case, the court may specify the time within which such an appeal is to be lodged."
I should also set out Article 46.3:
"The court may also make enforcement conditional on the provision of such security as it shall determine."
An appeal against the judgment of 18 November 2005 is indeed pending before the Court of Appeals of Turin. Although ETECSA's Appellant's Notice seeks in the alternative a stay of enforcement of the Turin judgment, under Article 46.1, what is in fact sought is a stay of these appeal proceedings, i.e. the appeal against recognition and registration of the Turin judgment as a judgment of the English Court. Whilst the appeal is pending enforcement is precluded, although not conservatory measures – see Article 47.3. In fact Irwin J granted a domestic freezing order against ETECSA at the same time as directing registration and thus recognition of the judgment. In view of the nature of the jurisdiction conferred upon the court by Article 46.1 the application for a stay of these proceedings, i.e. of this appeal, should logically be considered first, before any consideration of the question whether the order of Irwin J as to registration should be upheld or set aside. If the appeal is first resolved, there will remain no proceedings capable of being stayed.
(i) to open and maintain with the Escrow Agent the Cash Flow Account and the Escrow 1 Account and irrevocably and unconditionally to instruct the Escrow Agent to transfer automatically the Monthly Deposits from the Cash Flow Account to the Escrow 1 Account; and
(ii) "Pursuant to the terms and conditions of the Loan Agreement, … deposit in the Escrow 2 Account" the quarterly foreign currency dividends declared in favour of TELAN "with funds obtained from the Escrow 1 Account and from other sources in accordance with the provisions of the Loan Agreement."
"WHEREAS, the recent statements made by the Secretary for Foreign Affairs of Mexico linking the loans granted by the Mexican financial institution Banco Nacional de Comercio Exterior S.N.C. (BANCOMEX) to the National Bank of Cuba to the conflictive politics that have arisen between the governments of Cuba and Mexico, implies a threat to the normal development of the Cuban companies benefiting from this loan, such as the company Empresa de Telecomunicaciones de Cuba S.A. (ETECSA) and Telefónica Antillana, S.A. (TELAN) and an inadmissible attempt to pressure and damage the reputation of our country.
WHEREAS, the malicious conduct carried out by the Secretary for Foreign Affairs of Mexico related to this transaction could cause serious harm to ETECSA and TELAN, companies that perform an essential role in the telecommunications sector in Cuba.
WHEREAS, the telecommunications sector is absolutely crucial for the integral development of the country and important resources have been invested in such sector to achieve a system that is in line with the economic and social progress of Cuba and, in the present situation, the facilities and guarantees granted by ETECSA and TELAN could seriously compromise this development.
WHEREAS, it is indispensable to protect ETECSA and TELAN in order to prevent them from being involved in this political dispute that has arisen due to the damage that this could cause to the country if the pertinent measures are not immediately adopted.
WHEREAS, by means of the Executive Committee of the Council of Ministers exercising the authority vested therein by law, the following is hereby ruled:
DECREE NUMBER 273
ONE: The facilities and guarantees provided by ETECSA and TELAN, as collateral for the obligations undertaken by the National Bank of Cuba with the Mexican financial institution Banco Nacional de Comercio Exterior S.N.C, shall be deemed legally null and void, therefore ETECSA and TELAN must immediately take all the necessary measures so that the provisions included in this decree are duly fulfilled. ETECSA and TELAN must adapt that stated in this Decree and any obligations undertaken thereby with BANCOMEX, and any provision or instruction related to such obligations, shall hereby be deemed legally null and void.
TWO: The Government of the Republic of Cuba fully accepts to undertake the guarantees that have currently been provided by ETECSA and TELAN.
SOLE: This Decree shall come into force on the date it is signed.
In the city of Havana, in the Palace of the Revolution, on the thirtieth day of April in the year two thousand and two."
(i) In May 2002 Bancomext commenced proceedings against ETECSA in Turin under the 2000 Escrow Agreement ("the Italian court proceedings").
(ii) In November 2002 ETECSA (and TELAN) filed arbitration proceedings pursuant to the Rules of the ICC in Paris against Bancomext under the Loan Agreement ("the Paris arbitration proceedings").
(iii) In February 2004 the Court of Turin suspended the Italian court proceedings pending the conclusion of the Paris arbitration proceedings. The first instance judge, Dr Simonetta Rossi, did so in reliance on the Italian law number 218 of 31 May 1995 which conferred on her a discretion so to do "in the event of the prejudiciality of foreign proceedings… if the foreign ruling may affect Italian law" which provision she held applicable to the prejudiciality of foreign arbitration proceedings. She found also that there was a link between the Loan Agreement and the Escrow Agreement and considered as a result that the arbitration ruling which aimed to confirm, among other things, if TELAN and ETECSA may be considered to be exempt from compliance with the obligations deriving from the Loan Agreement may be relevant to or find effect in the judgment of her own court.
(iv) In July 2004 the award was rendered in the Paris arbitration proceedings. It was held, broadly, that ETECSA had assumed pursuant to the Loan Agreement and Assignment Agreement directly and unconditionally both affirmative and negative covenants and that Decree Number 273 did not constitute a cause of force majeure nor give rise to circumstances exonerating ETECSA and TELAN from complying with those obligations. The amount required to be deposited in Escrow Account 1 by ETECSA was found and ETECSA was directed to deposit it within sixty days.
(v) In December 2004 the Turin Court resumed the Italian court proceedings.
(vi) Also in December 2004, ETECSA filed annulment proceedings in relation to the award before the Court of Appeals in Paris.
(vii) In November 2005 the Turin Court rendered the Turin Judgment.
(viii) On 6 December 2005 ETECSA appealed the Turin Judgment to the Turin Court of Appeals and on the same day obtained from the President of the Court ex parte an interim suspension of the enforceability of the judgment.
(ix) However after a full inter partes hearing on 17 January 2006 the full Court of Appeals, including the President, set aside the interim suspension order. I shall have to revert to the grounds upon which the court did so. They had nothing whatever to do with the prospects of success of the substantive appeal further than a finding that the grounds were not patently without foundation.
(x) On 29 September 2006 Bancomext applied, without notice, to Irwin J to register the Turin Judgment in this jurisdiction and for a domestic freezing order: the Turin Judgment was registered and the domestic freezing order granted.
(xi) On 26 October 2006 Bancomext applied, without notice, to David Steel J, for a worldwide freezing order: the worldwide freezing order was granted.
(xii) By a decision of 16 November 2006 the Court of Appeal in Paris annulled the arbitration award. The annulment was based on a jurisdictional point – the Court of Appeal found that the arbitrators had acted without jurisdiction in determining certain matters which arose in part under the Second Loan Agreement which provided for arbitration in Madrid. However, the court considered that this point was by itself sufficient to require annulment of the entire award, which was declared void. Bancomext's alternative argument that the award should be annulled only in part was rejected. ETECSA for its part had also raised other substantive grounds on the basis of which it argued that the award should be set aside but the Court of Appeal had no need to consider these arguments.
(xiii) On 6 December 2006 ETECSA applied again to the Turin Court of Appeals for a stay of the Turin Judgment based this time upon the annulment of the award.
(xiv) In January 2007 Bancomext issued an application to the Cour de Cassation seeking to annul the decision of the Paris Court of Appeals annulling the award. The next procedural step in this proceeding is that Bancomext is due to file the memorial in support of the application on 26 August 2007. It appears that the procedure could take two years, could result in the matter being remanded to the Court of Appeals and that at the end of the challenge, if the annulment is upheld, a new arbitration could be commenced.
(xv) On 13 February 2007 the Turin Court of Appeals rejected as "simply inadmissible" ETECSA's application for a stay of execution of the Turin Judgment. The decision already given over a year earlier on a similar request was, by virtue of Article 351(3) of the Italian Code of Civil Procedure, "non-contestable" – neither revocable nor open to amendment. As I read the judgment, the occurrence of new facts, in particular the ruling of the Paris Court of Appeal which annulled the award by which the Turin Judgment was allegedly influenced, was nothing to the point precisely because the previous application under Article 351 had been rejected for reasons which had nothing to do with the strength or otherwise of the substantive grounds of appeal, further than that they were not wholly without foundation – "unclear groundlessness." The previous application had been rejected because the court concluded that ETECSA would in consequence of a successful appeal following unconditional enforcement suffer no prejudice over and above the mere fact of execution, the Italian courts adhering to the general principle of enforceability of judgments given at first instance without awaiting the outcome of an appeal – see the decision of the European Court of Justice in van Dalfsen v. van Loon  ECR 1-4743 at paragraphs 28-30 of the judgment. The Turin Court of Appeals specifically rejected ETECSA's argument that it would be "extremely difficult" to recover from Bancomext any amount which it had obtained as a result of enforcement of the judgment. The court noted that the damages were payable to a substantial bank, Bancomext, with a substantial capital of about €350million to which resort for financing had in the first instance been had by the Cuban Government. Thus not only did Italian procedure provide no mechanism for review of the decision by the Court of Appeals in January 2006 that there would be no prejudice to ETECSA arising out of execution of the judgment, over and above that inherent in the general principle of enforceability, but also the decision of the Paris Court of Appeal annulling the award was simply irrelevant to that discretionary decision, going as it did, if to anything, to the merits of the substantive appeal rather than to the question of the prejudice to be suffered by ETECSA through enforcement before exhaustion of the appeal process.
(xvi) On 5 June 2007 a procedural hearing in ETECSA's appeal in Turin took place before the Turin Court of Appeals at which the parties formally confirmed their Prayers for Relief. The parties have now to file their closing briefs. These briefs will be filed in the early Autumn. It will be in this closing brief that ETECSA will be able to rely upon the annulment of the award in support of its appeal: the position under Italian law is that before that stage ETECSA is unable to rely upon the annulment of the award because unsolicited briefs are not contemplated and would be rejected as inadmissible.
(xvii) By a judgment handed down on 4 July 2007, the English Court of Appeal have discharged the worldwide freezing order granted by David Steel J on the basis that the Court did not have jurisdiction to make a worldwide freezing order in the circumstances of this case.
"Under no circumstances may a [the] foreign judgment be reviewed as to its substance."
In his report on what was then the Brussels Convention Mr Jenard spelled out bluntly the meaning of this provision. At page C59/46 (Official Journal of the European Communities, C59, vol. 22 5 March 1979) citing in support of his second paragraph both Graulich and Batiffol he said:
"It is obviously an essential provision of enforcement conventions that foreign judgments must not be reviewed.
The court of a State in which recognition of a foreign judgment is sought is not to examine the correctness of that judgment; 'it may not substitute its own discretion for that of the foreign court nor refuse recognition' if it considers that a point of fact or of law has been wrongly decided."
As the European Court pointed out at paragraph 32 of its judgment in van Dalfsen an assessment by the recognising or enforcing court of the chances of success of an ordinary appeal lodged or to be lodged in the State in which the judgment was given amounts to a review of the foreign judgment as to its substance.
"… (i) That the enforcing court has a general and unfettered discretion under the Convention to stay the enforcement proceedings if an appeal is pending in the State in which the judgment was obtained;
(ii) That a judgment obtained in a contracting State is to be regarded as prima face enforceable, and accordingly the enforcing court should not adopt a general practice of depriving a successful plaintiff of the fruits of the judgment by the imposition of a more or less automatic stay, merely on the ground that there is a pending appeal;
(iii) That the purpose of Articles 30 and 38 [now Articles 37 and 46 of the Regulation] is to protect the position of the defendant in an appropriate case and to ensure that, if the appeal succeeds, then the defendant will be able to enforce the order of the Appeal Court and will not be deprived of the fruits of his success by reason of a previous unconditional enforcement of the judgment. It seems to me that the court's discretion to grant a stay should be exercised with this purpose in mind."
At page 361 he went on:
"… I do not think that merely because the court of the State in which the judgment was given has considered what security should be provided by the successful plaintiff as a condition to declaring the judgment enforceable in that State is, of itself, any reason for the enforcing court not to order a stay. It is true that there may be cases where all relevant factors relating to the question whether a stay should be ordered, and if so on what terms, may have been fully debated before and considered by the court of the State in which the judgment was given. In such a case I would expect the court of the enforcing State to respect the decision of the former court and to be reluctant to re-open questions which have been determined by it unless perhaps circumstances have changed since the relevant decision was given. I do not, however, consider that the mere fact that the question of the security to be provided by the plaintiff has been considered by the court of the state in which the judgment was given is, of itself, any reason for the enforcing state to decline to exercise its responsibilities and powers under Article 38 [now Article 46]."
On the facts Petereit was a very different case from that which is now before the Court. I need only quote one more passage from the judgment of the Deputy Judge, at page 362:
"… I am equally clear that I ought not to be deterred from staying the enforcement proceedings because of the security which has been ordered by the Landgericht. It was not disputed at the hearing before me that this security, which is in the sum of DM49million, is wholly inadequate since at the present time the interest accrued under the judgment already amounts to over DM10million. As it so happens, the defendant's application to the Oberlandesgericht for further security has not yet been determined. Furthermore the German courts have not been invited at any stage to consider whether in all the circumstances it might not be appropriate to order a stay. I can find nothing in these facts to cause me to decline to make the order which in my view will best protect the interests of both parties, namely, a stay of the enforcement proceedings subject to the provision of appropriate security."
In the present case the Italian Court has been invited to consider whether in all the circumstances it might not be appropriate to order a stay. The Turin Court of Appeals gave full consideration to that question in its judgment of 24 January 2006. It concluded that ETECSA's application in that regard was "groundless and not worthy of acceptance." It did not even mention in its judgment that Bancomext had on 12 January 2006 by its Legal General Council given a written undertaking to the Court:
"… in the event that this Honourable Court of Appeals should allow Bancomext to enforce the judgment number 7485/05 rendered by the Tribunal of Turin in its favour on November 18, 2005, and thereby to collect any sum, to promptly repay any such sum that this Honourable Court should decide, when it adjudicates the merits of the pending appeal, should not have been paid to Bancomext, together with interest on the said sum."
(i) that the claim in the arbitration was "separate" from the claim before the Turin Court,
(ii) that the obligations under the Loan Agreement and the Escrow Agreement are "autonomous, albeit functionally linked" and,
(iii) that "it is clear that the subject-matter of the two proceedings is different in substance."
Indeed the second of these conclusions is one reached independently on two occasions by the Turin court, the first occasion being a judgment given on 12 August 2002 in proceedings for interim relief – see page 11 of the agreed English translation of the second judgment. It is true that in relation to damages accruing due as from 1 July 2002, although not those due on 30 June 2002, the judgment recites that the "amounts have been set by the award." Mr Cran submits that this was a purely mechanical exercise, that the amounts were not disputed and that the Turin court merely "borrowed" these amounts from the award which was not itself essential to the conclusion that these were the amounts which were in fact due. Although he did not expressly assent to this analysis, I did not understand Mr Onions to controvert it. Indeed Bancomext adduced evidence, in the shape of Mr Birrell's 8th Witness Statement, to the effect that the relevant amounts, appearing in both the award and the Turin Judgment, are in fact derived from an Annex to the Escrow Agreement and had never been in issue in either the arbitration or the Turin proceedings. I would also note, finally, that the evidence before the court is to the effect that as a matter of both Mexican law, the law of the Loan Agreement and Italian law, the law of the Escrow Agreement, the Loan Agreement is to be treated as a valid engagement until pronounced otherwise. The ground upon which the award has been annulled does not in any way support a case that the Loan Agreements are invalid. Whilst it is obviously true that the Turin court did originally suspend its proceedings in order to await the outcome of the arbitration, the position today is in fact the same as it would have been if there had been no arbitration and no challenge to the validity of the Loan Agreements.
"Such a course commends itself for two reasons. First it accords with the spirit of the Convention that all issues should, so far as possible, be dealt with by the State enjoying the original jurisdiction. Secondly, the Courts of that State are likely to be better able to assess whether the original judgment was procured by fraud."
So here, the effect if any of the annulment of the award should, so far as possible, be dealt with by the courts of the State enjoying the original jurisdiction, Italy. The courts of Italy, reviewing in their own language their own judgment on a question of Italian law are likely to be better able than this court to assess the effect if any of the annulment of the award.