England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice, Rolls Building Fetter Lane, London EC4A 1NL
		21st September 2017

Thursday, 21st September 2017

Mr Justice Blair

(12.00pm)

1. Judgment was handed down in this case on 5 September 2017 (see [2017] EWHC 228 (Comm)).
2. In short, the claim is brought by ACP, that is the Panama Canal Authority, on a number of advance payment guarantees issued, in effect, by the contractors. These are subject to English law and the exclusive jurisdiction of the English court.
3. There are also a number of advance payment guarantees, which had been given some time earlier, which are governed by Panama law, and which provide for arbitration in Miami.
4. There were three issues for decision on which the court held that:

(1) The English law/jurisdiction advance payment guarantees are not first demand instruments. ACP's application for summary judgment on this ground was refused. ACP's application for summary judgment on an alternative case had been raised late. The court ruled that the defendants could not be expected to answer it at the hearing, but that ACP could, if it wished, restore the application for a hearing on its alternative ground. ACP has now indicated that it will not pursue its summary judgment application in this regard.

(2) The defendants' application for a stay under s. 9(1) Arbitration Act 1996 in favour of Miami arbitration was refused.

(3) A compelling case for a case management stay was not made out by the defendants at the present time, but that the door is not closed on an application being made in the future to be decided on the position as it is then.

5. There are three issues for determination which arise consequentially on the judgment:

(1) The defendants' application for permission to appeal the court's dismissal of the s. 9 stay application. ACP does not seek permission to appeal against the court's decision on the nature of the guarantees, so that this issue is now settled. Nor do the defendants seek permission to appeal against the refusal of the case management stay.

(2) The defendants' application for a stay of these proceedings pending its appeal against the court's decision on the s. 9 stay, or pending an application to the Court of Appeal for permission to appeal if necessary.

(3) Costs.

6. Some minor points on the wording of the order to be made in the consequence of the judgment were contested, but these have now been agreed between the parties.
7. I begin with the defendants' application for permission to appeal, which I have carefully considered. I recognise that the case law does not contain a precise analogue for the position that arises in this case, namely, where a party applies under s. 9 Arbitration Act 1996 to stay an issue arising under a contract with an exclusive jurisdiction clause, in favour of the English court. I also recognise that the claim is a substantial one. These points militate in favour of giving permission.
8. However, on the other side, ACP is the beneficiary of advanced payment guarantees subject to English law and exclusive jurisdiction. It has elected to bring its claim under these guarantees. It has made no claim under the prior Panama law guarantees, which provide for arbitration. It is correct that arbitration proceedings have been commenced under these prior guarantees, but these have been commenced by the defendants seeking negative declarations. It is common ground that the arbitral tribunal has no jurisdiction over the English law guarantees.
9. On the defendants' case, to enforce the English law guarantees ACP must first obtain an arbitral award under the Panama law guarantees, and then bring the proceedings in this court back to life, so to speak, using that award to found an issue estoppel. All this seems far removed from the purposes of s. 9.
10. The defendants further submit that this would be an opportunity for the Court of Appeal to review the relationship generally between exclusive jurisdiction clauses and claims for a stay under s. 9. That, it seems to me, is a decision for the Court of Appeal and not for me.
11. Applying the test, I do not consider that the appeal passes the threshold of either limb of CPR Part 52.6 and refuse permission to appeal.
12. For reasons which I shall mention shortly, this judgment will be read by the arbitral tribunal in the Panama law guarantees case, and it is right that I should briefly give the background to the next steps in the English proceedings.
13. The defendants are entitled to seek permission to appeal from the Court of Appeal, and have indicated their intention to do so. This gives rise to the question of what should happen in the English proceedings, pending a decision on their application.
14. Looking beyond that, if the Court of Appeal refuses permission, that is an end of the challenge, and the English proceedings will continue subject to any case management stay in the future.
15. If the Court of Appeal gives permission to appeal, the question is what should happen in the English proceedings, pending a decision on the appeal. The defendants say that the proceedings should be stayed. ACP says that they should continue. That, of course, will be a decision for the Court of Appeal, but the relevant factors are much the same as those which arise pending the decision.
16. Similar questions arise for the arbitrators. I was told that there was a procedural hearing by the arbitral tribunal on 19 September 2017, and that the tribunal wants to consider scheduling questions for the arbitration after this court's decision today.
17. I should say that my strong commercial instinct is that, if the law permits, the claims under these advance payment guarantees should, so far as practical, be progressed, and should not be allowed to languish. It is true that these are not first demand instruments, but they were given, in effect, in exchange for further time to repay the advance payments made to the contractors by the Panama Canal Authority.
18. Where such instruments are issued under English law and jurisdiction, it is important that liability questions are settled expeditiously. That should be capable of being accommodated alongside the appeal process, if that arises, at least to a degree.
19. The defendants, however, argue that it would be contrary to principle to require them to take any steps in the proceedings whilst their application for permission to appeal is pending, and if successful, whilst the appeal itself is pending. They say to do so would deprive them of the fruits of a successful appeal.
20. They further say that in the case of an application under s. 9, Arbitration Act 1996, there is a further and decisive reason for imposing a stay. This arises from section 9(3), by which an application may not be made for a stay of proceedings under s. 9, after the applicant has "taken any step in those proceedings to answer the substantive claim". Once a step in the action has been taken within the relevant provision, the defendants say, then the court no longer has jurisdiction to order a stay.
21. The first step which ACP wishes them to take is to serve a defence. However, the service of a defence, the defendants submit, would constitute the paradigm example of "[a] step in [the] proceedings to answer the substantive claim". If the defendants were to serve defences it would, therefore, deprive the court of jurisdiction to grant a stay and render their appeal nugatory.
22. In approaching this submission it is important to appreciate that the issue, as it arises under s.9 Arbitration Act 1996, is different from that which arises where the issue is as to the court's jurisdiction, as in the leading case of Deutsche Bank v Petromena [2015] 1 WLR, 4225.
23. As Sales J pointed out in Bilta (UK) Limited v Nazir [2010] 2 Lloyd's Reports 29 at [22], s. 9 is part of a code contained in primary legislation, regulating proceedings concerning disputes covered by arbitration agreements.
24. So in this case, for example, there is a no dispute that the court has jurisdiction—under the terms of the contracts it has exclusive jurisdiction. The question is as to the interplay between such jurisdiction and the s. 9 stay, which when it applies is mandatory if invoked by one of the parties to the arbitration agreement.
25. The rationale of section 9(3) is explained in the authorities dealing with this subsection and its predecessors. They are referred to in the decision in Capital Trust Investments Limited v Radio Design, reported at first instance in [2001] 3 All ER 756, and on appeal in [2002] EWCA Civ 135.
26. In Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd's Reports 357 at p.361, Lord Denning put the underlying principle in this way:

"On those authorities, it seems to me that in order to deprive a defendant of his recourse to arbitration a 'step in the proceedings' must be one which impliedly affirms the correctness of the proceedings and the willingness of the defendant to go along with the determination by the Courts of law instead of arbitration."

27. In the Capital Trust case itself, the alleged step in the proceedings was an application notice by the defendants that, "In the event that its application for a stay is unsuccessful, the first defendant [ie Radio Design] applies for summary judgment against the claimant ….".
28. At [60], the court said as follows:

"It appears to us that that application was not a 'step in the proceedings' on the basis of the principles set out above. Thus, it did not (in the words of Lord Denning) express the willingness of Radio Design to go along with a determination of the courts instead of arbitration. On the contrary, it made it clear that the application for summary judgment was only advanced 'in the event that its application for a stay is unsuccessful'. In Merkin's words, approved by Otton LJ, the application made it clear that it was specifically seeking a stay, with the result that a step which would otherwise be a step in the proceedings namely an application for summary judgment, is not so treated."

29. As ACP submits, by filing a defence pursuant to an order of the court, which is valid unless and until set aside on appeal, the defendants evince no intention to submit the dispute to the court. Quite the contrary, by seeking to appeal the order, they stand by their contention that the court must grant a s. 9 stay, whilst complying with the order because it is an order, pursue their rights to an appellate review of the order. An appropriate reservation can be expressed in the defence itself, and if this is thought useful, in the order of the court requiring the defence, for the avoidance of doubt.
30. This view is supported by Sales J's judgement in Bilta at [30], where he makes it clear that a suitable reservation in asking the court for more time to put in a defence, will be effective to exclude the operation of section 9(3).
31. The same logically applies to the filing of a defence itself under reservation in the circumstances of an appeal. I reject the defendants' submissions in this respect.
32. However, that leaves open the question how the court should deal with the practical consequences of either a possible appeal while the application for permission remains outstanding, or an actual appeal if permission is given by the Court of Appeal.
33. I preface my remarks on this by pointing out that similar practical issues arose on the defendants' alternative application (alternative that is to the application for a s. 9 stay) for a case management stay on the grounds that arbitration proceedings are pending. Both the claimant and the defendants at the court's request put in detailed expositions as to how they considered that these proceedings could sensibly be managed on their view of the case (see paragraphs 154 and 155 of the judgment).
34. The court's conclusion is at paragraphs 165 to 166, and the considerations set out there are relevant in the present context too.
35. The next step, in my view, is for the defendants to file their defences. There are a number of observations to make in this regard.
36. First, the defendants, in my view, exaggerate the work that would be required in this respect. A feature of this case is that these defences have already been put to and considered by one of the existing arbitral tribunals dealing with the various disputes between parties, and rejected, albeit on a prima facie basis. It was following that decision that the defendants commenced a new arbitration, with different arbitrators, seeking determination of the same defences. All this is explained in the judgment (see, e.g. paragraph 65)
37. In this regard, ACP accepts that if the court were to hold at the trial (which would be a trial of preliminary issues) that, on a correct view of the instruments, the liabilities under the APGs depend on disputes relating to the performance of the underlying contracts, a case management stay in favour of arbitration at that stage would be very much on the cards.
38. So the defences need not go into the details of the underlying contractual dispute. The question envisaged for the trial is whether liability under the APGs depends on the resolution of that dispute, or, as the arbitrators held on a prima facie basis in the defendants' Emergency Application in the first arbitration, is independent of it, which is a much more contained question.
39. Second, a powerful reason for avoiding further steps such as the drafting of a defence in the case of a pending appeal, is that the expenditure will be wasted if the appeal is allowed. However, this consideration applies with less force here, because the same issues will arise in the arbitration as arise in these proceedings, if a stay is ultimately granted on appeal.
40. Drawing these points together, the court's ruling is as follows: the defendants must now file their defences without prejudice to their appeal (assuming they pursue it) in relation to the s. 9 stay.
41. I agree with the defendants to this extent that the two-week period that ACP asks for is too short. They ask for a date towards the end of the year. I will indicate that the defences should be ready in two months, that is by 21 November 2017.
42. A CMC should now be fixed to come on after that date. The position can be assessed then, in the light of the decision of the Court of Appeal as to permission, and if permission has been granted, the listing of the appeal.
43. I see no reason why ACP should not be permitted to set down the hearing itself at this stage. The parties' estimate is four to five days and the sooner this is fixed the less delay there will be should the matter go forward in the English court.
44. This is subject to an important caveat. I quite agree with the defendants that it would be unthinkable for the court to determine ACP's claim prior to the resolution of the appeal in the event that permission is granted.
45. But the balance between the parties, that is to say, the balance between the defendants' right to appeal, or at least seek permission to appeal, and the fact that this court's judgment is binding unless and until set aside on appeal, is, in my view, held by requiring the defendants to plead their defences. Any further steps beyond this would be a matter for the court at a later date.
46. All this is, of course, subject to such orders as the Court of Appeal may make if it gives permission to appeal.
47. Finally, I turn to the question of costs. ACP says that it should have its costs of the applications. The defendants say that there should be no order as to costs, reflecting the fact that they succeeded on ACP's summary judgment application, that ACP succeeded on the s. 9 stay application, and that it was something of a score-draw on the defendants' alternative case management stay application.
48. ACP also submitted that it is contractually entitled to its costs even in respect of its own unsuccessful application for summary judgment. This, it says, follows from the indemnity provisions of the advance payment guarantees. However, this is wrong. The indemnity cannot be stretched to include the costs of unsuccessfully attempting to enforce the guarantees. See the decision of the Einstein J in Precious Metals Australia Ltd v Xstrata (Schweiz) AG, [2005] NSWSC 141.
49. In my view, there is, however, force in ACP's submission that the lead application was in substance the defendants s. 9 stay application. As a matter of fact, the defendants opened the case at the hearing. I consider that having succeeded on this application, ACP is entitled to its costs, but that the costs order must reflect the fact that it failed on its summary judgment application. I should add that the construction of the APGs in this regard has now been settled by the court's ruling. It is also relevant that the door has been left open on a case management stay, the court rejecting ACP's contention that a stay is precluded on Owusu v Jackson grounds (so far as this was pursued).
50. In my judgment, ACP is entitled to two-thirds of its costs of the applications, to be assessed on the standard basis, if not agreed.
51. In the usual way, ACP is entitled to a payment on account. It is submitted the outline of a bill of costs indicating total costs of about USD 1.8 million on the applications. It asks for a payment on account of USD 500,000.
52. The defendants did not dispute the principle, but pointed to the lack of any detail as to the incidence of costs.
53. However, it is a fair assumption that the defendants' costs are at least in the same region as those of ACP, if not more, since there were three sets of legal representatives representing the defendants on the applications.
54. I shall order a payment on account to be made in the sum of USD 300,000. That is my ruling in respect of these matters.

MR LAND: My Lord, just for abundance of clarity, there was an application for expedition on which you said in your judgment that claimants should not be stopped from getting a date, but you didn't actually --

MR JUSTICE BLAIR: No, I'm not going to make any formal order for expedition other than I have indicated in my reasons.

MS SHAH: We are grateful, my Lord. One point because we made for an extension of the time for appellant's notices and we asked for 21 days since yesterday, so 11 October, so we would be very grateful for an extension for the time period under 52.12.

MR JUSTICE BLAIR: Yes.

MR LAND: My Lord, that was not objected to.

MS SHAH: My Lord, I'm grateful.

MR SHEEHAN: My Lord, two small points from me. First of all, the impact of filing a defence and pending the appeal on the s. 9 application, Your Lordship will also recall that yesterday Mr Dunning gave two commitments, first of all that it could be recorded in the order that filing a defence would not constitute a step and, secondly, he offered an undertaking that that point wouldn't be argued and for the sake of clarity, just to make sure that would be an undertaking recorded on the face of the order.

MR JUSTICE BLAIR: Well, Mr Land, both those points are sound points and the order should reflect them.

MR LAND: My Lord, yes, and I'm sure the order can be agreed between the parties in the normal way.

MS SHAH: My Lord, one further point occurs to me. On the pleadings, the version of the re-re-amended particulars in the bundle has not yet deleted the construction arguments rejected by the court in the summary judgment application, so, if ACP is content, we would be grateful for those to be served deleting those so that we don't have to plead to those, and making the usual order to costs consequential to the amendments.

MR JUSTICE BLAIR: Thank you for raising that, Ms Shah.

MR LAND: My Lord, yes, in terms of the demand bond aspects of the amendment, yes, we can remove them.

MR JUSTICE BLAIR: Yes. It is re-amend, is it?

MR LAND: Re-re-amend, my Lord.

MR JUSTICE BLAIR: Yes. In accordance with the draft, but with the passages relating to the first demand point deleted. And the costs thrown away by the amendment to be the defendants' in any event.

MR SHEEHAN: My Lord, the final I raise is the point with diffidence and relates to the timing of the defence. In circumstances where your Lordship has refused the application for expedition, on the current state of the lists, the hearing would not be likely to come on until I think November of next year. We made our submissions in writing as to the timing constraints we were under and I'll not repeat what we say about that, but what I would say, with respect, is in circumstances where that is the earliest hearing to come on, plainly ACP would suffer no prejudice if we were to be given until the end of this year for the filing of our defence and so with diffidence we would invite your Lordship to revisit your ruling on that matter.

MR LAND: My Lord, I simply say that one doesn't know precisely what the list is going to do in due course and that these parties should simply get on, as your Lordship found, and that the November date, bearing in mind what has gone before in the arbitrations and what is required to be done in any event, that the date your Lordship has ordered is fair on the defendants and the claimant equally in terms of keeping the proceedings on foot.

MR JUSTICE BLAIR: Anything you want to add, Ms Shah?

MS SHAH: No. We also support the request for longer time, particularly because the parties who are represented by White & Case and Mr Sheehan have been taking the lead in the arbitrations and they are the parties that will, therefore, need to take the lead also on the defences.

MR JUSTICE BLAIR: He'll have to find the time to draft it?

MR SHEEHAN: I think that is what my learned friend is saying.

MS SHAH: It is their availability, which, as I understand is very limited in the next couple of months, we support the request for the extension, given that no prejudice is going to be caused given the likely hearing date and also the fact that there is no guarantee of precisely when the Court of Appeal will have determined its consideration of the --

MR JUSTICE BLAIR: No, I follow that. Just two points. First of all, I wouldn't assume it would necessarily go over to November. It does rather depend on the state of the court's lists, and they are busy, as you know, but I'm not going to change the date I gave in the judgment, I'm afraid. Is there anything else that the parties would like to raise with me? Between you, could you very kindly draft an order and submit it to me for signature. I'm very grateful to you all.

(12.30 pm)