Jersey Unreported Judgments

[2009]JRC152A

royal court

(Samedi Division)

30^th July 2009

Before     :

J. A. Clyde-Smith, Esq., Commissioner, sitting alone.

 

On appeal from the Master.

Advocate A. D. Hoy for the Plaintiff.

Advocate K. J. Lawrence for the Defendant.

judgment

the commissioner:

1.        This is an appeal by the plaintiff against a decision of the Master made on 22^nd April, 2009, in which he granted the defendant an extension of time for filing an answer in the proceedings.  The appeal raises the issue of the scope of Rule 6/7 of the Royal Court Rules 2004.

The facts

2.        The plaintiff is incorporated under the laws of the Russian Federation and carries on business as a bank.  The defendant is incorporated under the laws of Jersey and is the majority shareholder in United Company Rusal Limited, also a Jersey company, which is one of the world's largest producers of aluminium and alumina.

3.        By an agreement dated 17^th March, 2008, ("the loan agreement") the plaintiff agreed to make loans available to the defendant in accordance with the procedure and on the terms and conditions set out in the loan agreement.  The loan agreement is governed by Russian law.

4.        Pursuant to an addendum dated 30^th June, 2008, the plaintiff agreed to provide the defendant with a loan in the amount of US$50,000,000 ("the first loan").  By further addendum dated 18^th July, 2008, the plaintiff agreed to provide to the defendant a further loan in the sum of US$20,000,000 ("the second loan").

5.        The repayment date for the first loan was 30^th December, 2008, and the repayment date for the second loan was 16^th January, 2009. 

6.        The loans have not been repaid and the plaintiff has issued an Order of Justice claiming the sum of US$70,000,000 plus interest which it claims is due to it.

Arbitration Clause

7.        Clause 6.1 of the loan agreement is in the following terms:-

"All disputes, differences or claims arising out of or in connection with this Agreement, including those concerning its performance, breach, termination or invalidity, shall be finally resolved by the International Commercial Arbitration Court (ICAC) at the Chamber of Commerce and Industry of the Russian Federation in accordance with its Rules and the Russian substantive law."

8.        Such a clause brings into the play the provisions of the Arbitration (Jersey) Law 1998 ("the Arbitration Law"), Article 5 of which is in the following terms:-

"Mandatory stay of court proceedings where party proves arbitration agreement

If any party to an arbitration agreement, or any person claiming through or under the party, commences any legal proceedings in any court against any other party to the Agreement, or any person claiming through or under him or her, in respect of any matter agreed to be referred, any party to those legal proceedings may at any time before the expiration of a period of 3 weeks from the date on which the action was placed on the pending list or en preuve apply to the court to stay the proceedings; and the court, unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings."

9.        Article 5 comes within Part 2 of the Arbitration Law which is headed "Arbitration within Jersey".  It is clear however from a careful analysis of the history of this law conducted by Mrs Lawrence, that Part 2 had always contemplated both domestic and foreign arbitrations and Mr Hoy did not demur from this.  Furthermore the Court has previously granted a stay for the purpose of a foreign arbitration; see Makarenko-v-CIS Emerging Growth Limited [2001] JLR 348.

10.      Prior to issuing the Order of Justice in Jersey, the plaintiff had commenced arbitration proceedings in the International Commercial Arbitration Court in the Russian Federation under docket number 14/2009.  In his affidavit of 24^th April, 2009, Michael Peter Joseph Nossal, the Deputy Chief Executive Officer of the defendant, stated that he had been informed by the Records/Registering Department of the International Commercial Arbitration Court that the statement of claim filed by the plaintiff in the arbitration proceedings had not been sent on to the defendant because it contained certain defects which the plaintiff had been asked to cure. 

Procedural History

11.      The Order of Justice came before the Court on 20^th March, 2009, when the action was placed on the pending list.  The defendant then issued a summons to be heard before the Royal Court seeking a stay in the proceedings pursuant to Article 5 of the Arbitration Law (the "stay application").  The summons was brought on the basis that there was an arbitration clause in the loan agreement and arbitration proceedings were already under way at the International Commercial Arbitration Court in Moscow.  The defendant also claimed to have defences under Russian Law.

12.      It was accepted by Mr Hoy that the burden of showing cause why effect should not be given to the arbitration agreement is upon the party opposing the application to stay, namely in this case on the plaintiff (see EKN (Jersey) Limited-v-Resources Recovery Board (1982) JJ 359.at 368).

13.      On 14^th April, 2009, the parties' legal advisers attended before the Bailiff's Judicial Secretary and fixed 5^th June, 2009, (now postponed to a later date) as the date for the Royal Court to hear the stay application.  The parties were unable to agree an extension of time for the defendant to file its answer pending that hearing.  The defendant therefore issued a summons on 14^th April seeking an extension of time (the "extension summons").  That summons came before the Master on 22^nd April and he granted an extension until 14 days after the adjudication and delivery of judgment on the stay application or the earlier abandonment or withdrawal of that application or further order.  It is against that order that the plaintiff appeals.

14.      On 24^th April, 2009, the defendant filed evidence in the stay application explaining inter alia the defences available to the defendant under Russian law, which is the governing law of the loan agreement.  The plaintiff is not in a position to file its response to that evidence before 3^rd July, 2009. 

Contentions before the Master

15.      It is helpful to set out the contentions of the parties before the Master as summarised in his reasoned judgment of 20^th May, 2009, because they were broadly the same contentions advanced in the appeal.  Advocate Thompson, on behalf of the defendant, put forward three grounds in support of the extension application which I take in turn. 

Rule 6/7 of the Royal Court Rules

16.      Rule 6/7 of the Royal Court Rules sets out the procedure where there is a dispute as to jurisdiction.  Paragraphs (3), (4) and (7) of that Rule provide as follows:-

"(3)     Any party (in this Rule referred to as 'the applying party') who wishes to dispute the jurisdiction of the Court in the proceedings by reason of any such irregularity as is mentioned in paragraph (1) or on any other ground must -

(a)       if a return date for appearance before the Court has been fixed -

(i)        ask the Court to order that the proceedings be placed on the pending list, and

(ii)       not later than 28 days thereafter apply to the Bailiff in chambers for a day to be fixed for the hearing of one or more of the applications mentioned in paragraph (4); or

(b)       if no return date for appearance before the Court has been fixed, apply to the Bailiff in chambers, not later than 7 days after the expiry of the time limited for the filing by that party of a pleading in the proceedings, for a day to be fixed for the hearing of one or more of the applications mentioned in paragraph (4).

(4)       The applications referred to in paragraph (3) are applications by the applying party for an order -

(a)       setting aside the proceedings or service of the proceedings on that party;

(b)       declaring that the proceedings have not been duly served on that party;

(c)       discharging any earlier order giving leave to serve the proceedings on that party out of the jurisdiction;

(d)       for the protection or release of any of his property arrested or threatened with arrest in the proceedings;

(e)       discharging any earlier order made to prevent any dealing with any of that party's property;

(f)        declaring that in the circumstances of the case the Court has no jurisdiction over that party in respect of the subject matter of the claim or the relief or remedy sought in the proceedings;

(g)       for such other relief as may be appropriate.

(7)       Upon notice being given of an application under paragraph (3) time limits for the filing of pleadings (whether applicable by virtue of these Rules or by order of the Court) shall not apply, and shall not begin to run, until the application has been dismissed by the Court or abandoned, as the case may be."

17.      Advocate Thompson argued that ordering a stay of proceedings pending arbitration meant that the Royal Court would have no jurisdiction over the defendant because the International Commercial Arbitration Court would have jurisdiction.  Thus the defendant's stay application would come within sub-paragraph (f) of paragraph (4) of Rule 6/7.  He also referred to the general provision in sub-paragraph (g) of paragraph (4).  On that basis, he argued that paragraph (7) of Rule 6/7 applied and the time for the filing of an answer did not apply until the Royal Court had dismissed the stay application to be heard on 5^th June or that application was abandoned.

18.      Advocate Hoy, on behalf of the plaintiff, argued that there was no correlation between Article 5 of the Arbitration Law and Rule 6/7.  He contended that a stay for arbitration was not a dispositive order and thus would not come within the ambit of Rule 6/7.  A stay for arbitration merely gave effect to a contractual arrangement between the parties for arbitration and did not and could not oust the jurisdiction of the Royal Court.

Inherent Jurisdiction

19.      Alternatively, Advocate Thompson argued that the Master should exercise the inherent discretion of the Court to extend the time for the filing of an answer.  In this regard he referred the Master to the decision of the Court of Appeal in Jakobsson-v-Offshore Nautical Sales Limited [2003] JCA 029.  In the course of his judgment Southwell J A set out the position regarding inherent powers of the Court at paragraph 13 in the following way:-

"Mr Le Quesne argued that the Jersey Court of Appeal has inherent power similarly to order payment of the judgment debt, or part of it, into Court, and if payment is not made timeously, either the stay or the striking out of the appeal.  He relies on a number of Jersey authorities in which the scope of the inherent jurisdiction of the Jersey Courts has been considered.  In Mayo Associates SA et al v Cantrade Private Bank Switzerland (CI) Ltd (1998) JLR 173 the Court of Appeal considered fully the circumstances in which inherent powers of the Jersey courts may come into operation.  In a passage on pages 187 to 191 the Court of Appeal per Smith JA emphasised that:

i)         The main test as to whether a Court possesses any particular inherent power is necessity.  "The Court has a particular procedural power because it has to have it to be a Court in any meaningful sense."

ii)        Inherent powers are not based simply on fairness, though fairness will be a major factor to be taken into account by the Court when deciding whether or not to exercise such powers.

iii)       Necessity is to be judged by reference to the issues placed before the Court by the parties, and to the Court's ability to act as an effective court of justice in resolving those issues or in effectively enforcing the orders of the Court.

iv)       Inherent jurisdiction is not "an unlimited reservoir from which new powers can be fashioned at will": Professor Dockray in (1997) 113 LQR 120 at p.130.  The necessity for the existence of an inherent power is to be judged by reference to "the merits, consequences and alternatives to the particular power which it is claimed the Court possesses", and to relevant precedents."

20.      Advocate Thompson argued that in the exercise of its inherent powers it would be in the interests of justice for the Court to grant the extension of time sought and it would be an abuse of process for the plaintiff to demand that an answer be filed or otherwise to seek judgment in default.  He argued that the stay being brought was mandatory under Article 5 of the Arbitration Law.  The only grounds on which a stay could be precluded were if the plaintiff could demonstrate either that the arbitration clause in the loan agreement was invalid or there was no defence to the underlying claim.  Although Advocate Hoy submitted that there was no defence to the underlying claim, Advocate Thompson said that the defendant would be providing to the plaintiff evidence of the defences available to it under the laws of Russia which govern the loan agreement (which it has subsequently done). 

21.      Advocate Hoy argued that the Master should consider on its merits the fact that there was no defence to the claim and should refuse the application for a stay on that basis.  The Master did not accept this as appropriate as in his view these were matters which more properly fell to be considered by the Royal Court at the hearing of the stay application.  He declined therefore to consider the case on its merits as in his view this was a purely procedural application pending that hearing and no affidavits had been filed by either party nor was there an answer setting out the defendant's position.

Abuse of process

22.      The third ground on which the defendant sought to rely was that if the plaintiff sought to compel the defendant to provide its answer or to seek judgment in default this would constitute an abuse of process.  Advocate Thompson referred to the decision of the Court of Appeal in the Jakobsson case.  He emphasised the powers of the Court to suppress any abuses of its process and to defeat any attempted thwarting of its process.  Furthermore, where the Court was faced with abuses of its process the threshold for deciding that inherent powers were necessary to curb such abuses was not a high one.

23.      Advocate Thompson argued that the actions of the plaintiff in seeking to compel the production of an answer would, at the very least, be a waste of the Court's time and would lead to no possible good.  If the defendant were to file an answer, that would only seek a stay pending the determination of the dispute by arbitration.  It would provide no response to the specific allegations in the Order of Justice and would be in the barest possible terms.  He referred the Master to the case of Solvalub Limited-v-Match Investments Limited [1996] JLR 361 and the judgment in particular of Le Quesne J A at page 373 as follows:-

"I find it impossible to accept that if the court had been asked to allow judgment in default of answer when the respondent had taken out a summons to dismiss the Order of Justice for want of jurisdiction, a date for the hearing of that summons had been fixed and the decision upon the summons was awaited, the court would have allowed a default judgment to be entered in those circumstances.

Furthermore, even if it had been essential for the respondent to deliver an answer, it would not have been essential for it to deliver an answer in the form of the answer which it did deliver.  The answer could have been limited to a denial of the court's jurisdiction."

24.      Advocate Hoy, argued that there was no reason to show that the defendant would be prejudiced if it was required to file an answer.  Furthermore, the filing of an answer would assist the Royal Court in adjudicating on the application for a stay. 

25.      The Master stated his reasons for granting the extension of time for the filing of an answer as follows:-

"(1)      In my view, the provisions of Rule 6/7 of the Royal Court Rules were in their terms sufficiently wide to encompass an application for a stay under Article 5 of the Arbitration (Jersey) Law 1998.  In particular, I considered that the provisions of sub-paragraphs (f) and (g) of paragraph (4) of Rule 6/7 did cover such an application.  This meant at paragraph (7) of Rule 6/7 had effect.  That being the case, no application for an extension of time was actually necessary because time did not start to run until the Royal Court had adjudicated on the stay application.  I accept, however, that it was a counsel of prudence for the application to be brought.

(2)       As I had heard full argument on the point, I also considered and gave my decision on the question of the exercise of my inherent jurisdiction to grant an extension of time.  Having regard to the authorities to which I have referred above, I considered that this was a proper case to grant an extension of time in the manner sought.  As the authorities showed and Advocate Thompson argued, it would be open to the file a "holding" answer pending the Royal Court hearing on the stay application.  Furthermore, the authorities show quite clearly that an application by the plaintiff for judgment in default pending the filing of any answer would be unlikely to find favour with any Court.  Such an application might well be regarded as an abuse of process. No evidence was adduced to me to show any prejudice in granting the extension sought and I considered the granting of an extension was the proper decision pending the hearing before the royal court of the request for a stay."

Principles to be applied on appeal from the Master

26.      Mrs Lawrence submitted that it was trite law that the learned Master is a master of procedure.  She referred me to Corella and others-v-Lewin and others 1998/228 which set out the principles on which the Royal Court should act in considering an appeal from the Greffier in respect of procedural matters, to the effect that "great weight" should be attached to the learned Greffier's judgment.  It cites a previous judgment that "the Judicial Greffier is clearly a master of procedure in this Court, and we are unused to dealing with matters of practice and procedure in this way."  I agree that on matters of procedure great weight should be attached to the Master's judgment.

Grounds of appeal

27.      The plaintiff elaborated upon the submissions made before the Master in support of its appeal.  The defendant's summons seeking an extension made no reference to Rule 6/7 or to a declaration under 6/7(4)(f) although inter party correspondence made it clear that it was so relying.  In Mr Hoy's submission there was a fundamental conceptual difference between a challenge to the jurisdiction of the Court under Rule 6/7 and an assertion that the Court should not exercise its jurisdiction because of a contractual undertaking between the parties.  Rule 6/7 is concerned with the former and the summons for an extension with the latter.  In this case the defendant had been properly served and is within the jurisdiction of the Court.  Thus no issue as to jurisdiction in the usual sense arises.

28.      He submitted that the imposition of a stay under Article 5 of the Arbitration Law does not represent a finding by the Court that it has no jurisdiction over the dispute but is complying with the statutory requirement to stay to give effect to the contractual undertaking.  Furthermore, different time elements apply under Rule 6/7(3) and Article 5 of the Arbitration Law showing that an application under Article 5 is not intended to fall within the 6/7 regime. 

29.      I am not persuaded that Rule 6/7 should be interpreted in the narrow manner suggested by Mr Hoy or that the Master erred in law in finding that its provisions were sufficiently wide to encompass a stay application under Article 5 of the Arbitration Law, notwithstanding the differing time limits, a not uncommon anomaly which Miss Lawrence put down to burgeoning legislation. 

30.      It is helpful to have regard to the wording of Rule 6/7(4)(f) namely that in the circumstances of the case  "the Court has no jurisdiction over that party in respect of the subject matter of the claim " (my emphasis).  The Court clearly has power over the defendant as a Jersey company because it is within its territorial jurisdiction, but we are not concerned with jurisdiction in that limited sense.  We are concerned with jurisdiction over the defendant in respect of the subject matter of the claim.  The subject matter is governed by  the arbitration clause, and unless the plaintiff can satisfy the Court that the arbitration clause is null and void, inoperative or incapable of being performed or that there is not in fact a dispute between the parties with regard to the matter agreed to be referred, the stay is mandatory and the Court thus has no jurisdiction over the subject matter of the claim, that jurisdiction being vested in the Chamber of Commerce and Industry of the Russian Federation.  I agree with the Master, therefore, that the stay application is within the terms of Rule 6/7(4)(f).  It follows that, as the Master said, that the provisions of 6/7(7) apply upon notice being given of an application and no summons for an extension of time was strictly necessary.

Inherent jurisdiction and abuse of process

31.      On the assumption that Rule 6/7 was not wide enough to encompass a stay application, Mr Hoy maintained the argument that the Court in its inherent jurisdiction should require an answer to be filed so that the Court can see what allegations are genuinely being advanced by the defendant. 

32.      Underlying the plaintiff's case is the concern that the defendant is insolvent and simply playing for time when in reality there is no defence.  Mr Hoy pointed me to correspondence from Ogier acting for the defendant and in particular its letter of 26^th February, 2009, from which it is clear that the economic downturn has affected the defendant's short-term liquidity and that it is seeking to effect a debt restructuring.  That letter acknowledges that the advances from the plaintiff have not been repaid, although it does not go so far as to acknowledge that the same are now due. 

33.      Mr Hoy accepted that if the defendant was ordered to file an answer, there would be nothing to prevent it simply denying the Court's jurisdiction over the subject matter of the dispute (see Solvalub above).  His response was that such an answer would be susceptible to a strike-out and default judgment application which presumably would have to be brought and heard before the stay application.  As the Master stated and as is clear from Solvalub, it is most unlikely that the Court would allow judgment in default in the face of the stay application in which evidence has now been filed by the defendant, directions given and a date fixed.  It seems to me that such interlocutory skirmishing would be wasteful of time and costs and could be regarded as an abuse of process.

34.      Whilst the defendant has brought this application for a stay under Article 5 of the Arbitration Law, it wishes to reserve its rights in relation to arguments of lis alibi pendens and forum non conveniens which arguments might be prejudiced by a requirement to file an answer at this stage.

35.      Advocate Hoy very properly drew my attention to the dicta of the Court of Appeal in Gheewala-v-Compendium Trust Company Limited [2003] JLR 627 at paragraph 28 and Wright-v-Rockway Limited [1994] JLR 321 at page 330 line 18 supporting Miss Lawrence's concern in this respect.

36.      However I agree with Miss Lawrence that it is necessary to step back and consider the position which has arisen here which is as follows:-

(i)        Firstly, the plaintiff did agree in the loan agreement that "any dispute" would be referred to arbitration.

(ii)       Secondly it has itself commenced arbitration proceedings.

(iii)      Thirdly, having commenced arbitration proceedings it has subsequently, and wrongly in the view of the defendant, issued proceedings in Jersey and the burden will now be upon it when the stay application is heard to satisfy the Court that there is in fact no dispute.

(iv)      Fourthly, although it will be for the Court dealing with the stay application to determine whether or not there is a dispute, it is the case that the defendant has filed in April of this year expert evidence setting out matters of Russian law which it says will give defences and which it will be relying upon.

(v)       Fifthly, the stay will be mandatory if the plaintiff fails to discharge the burden upon it.

37.      Therefore, having committed itself contractually to resolution of any disputes before arbitration and having commenced that process, justice dictates, in my view, that the defendant should not be required to take any steps pending the hearing of the stay application and I therefore agree with the Master that in exercising the inherent jurisdiction of the Court he was right to exercise it in favour of an extension to the filing of an answer.

38.      The appeal therefore fails.

Authorities

Royal Court Rules 2004.

Arbitration (Jersey) Law 1998.

Makarenko-v-CIS Emerging Growth Limited [2001] JLR 348.

EKN (Jersey) Limited-v-Resources Recovery Board (1982) JJ 359.

Jakobsson-v-Offshore Nautical Sales Limited [2003] JCA 029.

Solvalub Limited-v-Match Investments Limited [1996] JLR 361.

Corella and others-v-Lewin and others 1998/228.

Gheewala-v-Compendium Trust Company Limited [2003] JLR 627.

Wright-v-Rockway Limited [1994] JLR 321.