Sir Michael Birt, Kt., Bailiff, sitting alone.
Range Energy Resources Inc
Black Gold Khalakan Limited
IN THE MATTER OF ARTICLES 42 AND 44 OF THE ARBITRATION (JERSEY) LAW 1998
Advocate M. H. Temple for the Representor.
Advocate N. M. Sanders for the Respondent.
1. This is an application by the respondent to adjourn a hearing fixed for 27th October, 2014. At that hearing the representor will seek to enforce part of an arbitration award made in its favour. The respondent is challenging that award in the English High Court and seeks an adjournment of the enforcement proceedings in this jurisdiction until that challenge is ruled upon.
2. The representor is a company incorporated in British Colombia, Canada. Its shares are listed on the Canadian Stock Exchange.
3. The respondent is incorporated in Jersey and is wholly owned by New Age (African Global Energy) Limited ("the Parent Company").
4. The representor owns 49.9% of another Jersey company New Age Alzarooni 2 Limited ("the Company"), with the other 50.1% interest being owned by the respondent.
5. The Company's sole asset is a 50% shareholding in Gas Plus Khalakan Limited ("the Investment Company"), the other 50% shareholder being the Parent Company. The Investment Company in turn holds a substantial interest in a production sharing contract with the Kurdistan Regional Government in Iraq concerning the exploration, development and production of hydrocarbons in a particular area known as the Khalakan block.
6. The representor, the respondent and the Company entered into a shareholders' agreement concerning the affairs of the Company. A dispute has arisen between the representor and the respondent as to the level of information provided to the representor about the affairs of the Company and its underlying investment. The shareholders' agreement contains an arbitration provision and the dispute was duly referred to arbitration in London.
7. There was a five day hearing ending on 3rd May, 2013. On 22nd May, 2014, (over a year later), the arbitration tribunal ("the Tribunal") made its award ("the Award"). Essentially, it found in favour of the representor. It ordered that the respondent and the Company should procure the provision of certain information about the affairs of the Company and the underlying investment to the representor. The Tribunal also made an award of costs to the effect that the respondent should pay a total of just over US$2.5m to the representor. It further ordered that if this sum was not paid within 30 days of the award, interest would accrue at 5% compounding annually until payment.
8. On 19th June, 2014, the respondent and the Company filed a challenge to the Award in the English High Court pursuant to Section 68 of the Arbitration Act 1996 and that challenge ("the Section 68 application") is due to be heard in the week commencing 15th December, 2014. That date was fixed on 11th August.
9. On 15th August the representor presented its representation in this Court seeking enforcement of the costs aspect of the Award. That matter has been fixed for hearing on 27th October and it is that hearing which the respondent wishes to have adjourned until the outcome of the Section 68 application is known.
10. Article 42 of the Arbitration (Jersey) Law 1998 ("the 1998 Law") provides (so far as relevant) as follows:-
"42 Effect of Convention awards
(1) A Convention award shall, subject to the following provisions of this Part, be enforceable in Jersey either by action or in the same manner as the award of an arbitrator is enforceable by virtue of Article 29.
11. Article 44 of the 1998 Law spells out the grounds upon which enforcement of an award can be refused and also provides the power to adjourn enforcement until the outcome of any challenge to the award. The relevant provisions are as follows:-
"44 Refusal of enforcement
(1) Enforcement of a Convention award shall not be refused except in the cases mentioned in this Article.
(2) Enforcement of a Convention award may be refused if the person against whom it is invoked proves -
(f) that the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made.
(5) Where an application for the setting aside or suspension of a Convention award has been made to such a competent authority as is mentioned in paragraph (2)(f), the Court may, if it thinks fit, adjourn the proceedings and may, on the application of the party seeking to enforce the award, order the other party to give security."
12. As can be seen, Article 44(5) confers a power to adjourn enforcement proceedings where the arbitration award is being challenged in the court which has jurisdiction in relation to the award. That is the situation here. The respondent has challenged the Award in the English High Court under Section 68 of the Arbitration Act 1996 the relevant provisions of which are as follows:-
"68 Challenging the award: serious irregularity.
(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.
(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant:-
(a) failure by the tribunal to comply with Section 33 (General Duty of Tribunal);
(b) the tribunal exceeding its powers ...
(f) uncertainty or ambiguity as to the effect of the award;
13. The respondent contends in the Section 68 application that the three types of serious irregularity referred to above were committed by the Tribunal in this case.
14. Where an award is challenged in the courts which have jurisdiction over the arbitration tribunal, a tension clearly arises between the desirability of enforcing the arbitration award and the need to have regard to the fact that the arbitration award is being challenged and may be overturned. Section 103 of the Arbitration Act 1996 contains a provision which is to the same effect as Article 44(5) concerning the power to adjourn and both parties agree that assistance can therefore be derived from English case law on this topic. The case to which I have been referred is IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation  2 Lloyd's LR 326. Gross J elaborated the position helpfully at paragraphs 14 and 15 of his judgment as follows:-
"14. Fourthly, section 103(5) 'achieves a compromise between two equally legitimate concerns'; Fouchard at page 981. On the one hand, enforcement should not be frustrated merely by the making of an application in the country of origin; on the other hand, pending proceedings in the country of origin should not necessarily be pre-empted by rapid enforcement of the award in another jurisdiction. Pro-enforcement assumptions are sometimes outweighed by the respect due to the courts exercising jurisdiction in the country of origin - the venue chosen by the parties for their arbitration; Mustill and Boyd at page 90.
15. Fifthly, the Act does not furnish a threshold test in respect of the grant of an adjournment and the power to order the provision of security in the exercise of the court's discretion under section 103(5). In my judgment, it would be wrong to read a fetter into this understandably wide discretion (echoing, as it does, Article VI of the New York Convention). Ordinarily, a number of considerations are likely to be relevant:
(i) whether the application before the court in the country of origin is brought bona fide and not simply by way of delaying tactics;
(ii) whether the application before the court in the country of origin has at least a real (i.e. realistic) prospect of success (the test in this jurisdiction for resisting summary judgment);
(iii) the extent of the delay occasioned by an adjournment and any resulting prejudice. Beyond such matters, it is probably unwise to generalise; all must depend on the circumstances of the individual case. ..."
I propose to approach the matter in accordance with this guidance.
15. Advocate Sanders submits that the three factors listed by Gross J point in favour of granting an adjournment. As to (i) there has been no delay. The Section 68 application was made within a month of the Award, well before any enforcement proceedings were started by the representor. Furthermore the respondent cooperated in fixing an early hearing date before the English High Court. The Section 68 application is bona fide in the sense that the respondent believes that it has good grounds for overturning the Award.
16. As to (ii), he referred me to the particulars of claim in support of the Section 68 application. He submits that they disclose strong grounds for challenging the Award. In particular, the orders of the Tribunal concerning the provision of information require the respondent to procure that the Company breach its obligations as to confidentiality under the shareholders' agreement in respect of the Investment Company and possibly the Investment Company to be in breach of its obligations under the production agreement.
17. As to (iii), there is little prejudice to the representor. The delay will be a comparatively short one, interest will continue to accrue on the sum of $2.5m and there is no difficulty in the respondent meeting the Award. In particular the Parent Company was willing to give a guarantee for the costs sum. Conversely, there was a considerable risk of the respondent suffering prejudice if the enforcement of the Award in respect of costs was not adjourned. The representor's financial position was uncertain and there was a real risk of the representor not being in a position to repay the $2.5m should the Award be set aside on the Section 68 application. He referred to the notes to the representor's accounts in support of this contention.
18. In summary, he submitted that the balance came down in favour of a comparatively short adjournment so that the outcome of the Section 68 application could be known, with the representor being protected in the meantime by the guarantee offered by the Parent Company.
19. Advocate Temple submitted to the opposite effect. As to (i) he referred me to certain paragraphs, which I have read, of the Award which made clear that the Tribunal had found that the respondent had behaved unreasonably in starving the representor of information about the underlying investment, which made it extremely difficult for the representor to raise funds because it was not able to provide detailed and satisfactory information about the prospects for the investment to potential investors. He submitted that the Section 68 application was all part of a similar approach by the representor.
20. As to (ii), he emphasised the high threshold required to succeed on a Section 68 application. He referred me to Lesotho Highlands Development Authority v Impregilo SpA  1 AC 221 and in particular the observations of Lord Steyn at para 28 where he said this:-
"A number of preliminary observations about section 68 are pertinent. First, unlike the position under the old law, intervention under section 68 is only permissible after an award has been made. Secondly, the requirement is a serious irregularity. It is a new concept in English arbitration law. Plainly a high threshold must be satisfied. Thirdly, it must be established that the irregularity caused or will cause substantial injustice to the applicant. This is designed to eliminate technical and unmeritorious challenges. It is also a new requirement in English arbitration law. Fourthly, the irregularity must fall within the closed list of categories set out in paragraphs (a) to (i)."
Advocate Temple emphasised the reference to a high threshold and submitted that there was little prospect of the respondent's Section 68 application meeting such a threshold.
21. As to (iii) the representor had accepted that it would be prejudicial to seek enforcement of the disclosure provisions of the Award at this stage because, once those provisions had been complied with, the position could not be reversed in the event of the Award being overturned by the Section 68 application. The representor had therefore shown itself to be reasonable. However, the same argument did not apply in relation to the costs. That was simply payment of a sum of money and, in the event of the Award being overturned, the sum could be repaid. He accepted that its accounts showed that the representor was not in a particularly strong financial position, but this was largely caused by the actions of the respondent. Starving the representor of information had meant that it was difficult to secure investment in the representor because of its inability to give clear information about the prospects for the underlying investment. The fact remained that the representor had met all cash calls made by the Company and there was no reason to conclude that it would not be able to repay the $2.5m should this become necessary as a result of the Section 68 application. There would be prejudice to the representor as a result of an adjournment because, in view of its financial position, it would benefit greatly from the receipt of $2.5m at this stage.
22. I have considered the arguments put forward by counsel and have read the documents and authorities to which I was referred. As Gross J said in IPCO, it is ultimately a discretionary decision having regard to the various competing considerations. I have come to the conclusion that the balance comes down in favour of granting an adjournment subject to the respondent paying $2.65m (making an allowance for interest) into court by way of security by 24th October and the adjourned date being fixed at this stage, so that it can take place shortly after the anticipated date of decision of the English High Court.
23. I would summarise my reasons as follows:-
(i) I do not consider that the respondent has been guilty of delay in challenging the Award. It did so within one month of receipt of the Award and before any enforcement proceedings against it were begun in Jersey. It cooperated in fixing a comparatively early date in December for the hearing of the Section 68 application. Nor can I find on the evidence before me that the Section 68 application is not brought bona fide. I take account of the findings of the Tribunal that the actions of the respondent concerning the provision of information (or rather the lack of it) were unreasonable but, as pointed out in (ii) below, there are sufficient arguments raised in the particulars of claim to suggest that the respondent genuinely believes there are proper grounds for setting aside the Award.
(ii) As Gross J said in IPCO at para 15, there is a sliding scale as to the views which a judge, considering whether to adjourn enforcement proceedings, may form, on a brief consideration, as to the merits of any challenge. At one end of the spectrum, the award may appear on its face to be manifestly invalid, in which event there should be an adjournment and no order for security. At the other end, the award may appear to be manifestly valid, in which case there should be an order for immediate enforcement. In between there will be various degrees of plausibility in the arguments for invalidity. In IPCO itself, Gross J held (at para 51) that there was a measure of concern about some aspects of the award but that the challenger also faced formidable hurdles in succeeding. The judge concluded that the award was neither manifestly valid nor manifestly invalid but there was a realistic prospect of success. In the circumstances, Gross J concluded that proper deference, going beyond lip service, had to be shown to the pending court challenge to the award.
(iii) I find myself in a similar position. Having read the papers, there would appear to be matters of proper concern and I conclude that there is a realistic prospect of success, without in any way forming a view that the Award is manifestly invalid or that the challenge is likely to succeed. I simply cannot tell at this stage on the brief consideration of the papers available to me. I therefore agree with Gross J that in those circumstances proper deference must be shown to the fact that there is a challenge before the English High Court and that it is possible that the Award will be set aside following the challenge.
(iv) I therefore turn to consider the question of prejudice. There will be some prejudice to the representor by granting an adjournment in that it will not receive the $2.5m at this stage. However, the period of the adjournment is expected to be short and I consider that any prejudice can be reduced yet further by making it a condition that the relevant sum is paid into Court at this stage. The respondent has offered a guarantee from the Parent Company but that could still take some time to enforce should the Parent Company not pay up immediately and could result in further costs for the representor, which may not be in a position easily to bear such costs. I consider therefore that it would be fairer for the sum to be paid into Court at this stage so that, in the event of the Section 68 application failing, the money is here and can be paid over without delay. I have increased the sum to allow for at least a year's interest so as to ensure that the full amount due will be immediately available if the challenge to the Award fails.
(v) Conversely, I consider that there is a real risk of prejudice to the respondent if the adjournment is not granted because I conclude that there is a risk of the representor having difficulty in repaying the sum should this become necessary. The interim accounts of the representor to 31st March, 2014, show that it has cash of US$1.4m but no other liquid assets to meet investment calls made by the Company etc. Its sole other asset of note is its investment in the Investment Company which is of course not easily realisable. Note 1 of its accounts contains the following passages:-
"There is a material uncertainty related to these conditions that may cast significant doubt on the company's ability to continue as a going concern and therefore it may be unable to realize its assets and discharge its liabilities in the normal course of business.
The ability of the Company to meet its commitments and on-going operating expenses will depend upon the following:-
the ability to raise further funds through the issue of equity financing; and
the sale of assets in the ordinary course of business.
Although the Company has been successful in obtaining the necessary financing to continue operations in the past, there can be no assurance that it will be able to continue to do so in the future.
Based on the financial position as at March 31 2014, available funds are not considered adequate to meet requirements for fiscal 2014 based on budgeted expenditures for operations and project exploration and investigation. To meet working capital requirements, the Company will have to access financial resources through equity placement. There can be no assurances that such funds will be available and/or on terms acceptable by the Company."
(vi) In terms of prejudice therefore I consider the possible prejudice to the respondent caused by enforcement at this stage would be greater than the possible prejudice to the representor caused by an adjournment pending the outcome of the Section 68 application.
24. Putting these matters together, I consider that the better course is to grant an adjournment but to direct the parties to attend before the Bailiff's Judicial Secretary within 7 days to fix a new date for the hearing of the representation, which should be a date soon after the anticipated receipt of the decision on the Section 68 application. I am not willing at this stage (as requested by the respondent) to adjourn until the conclusion of any appeal against the decision of the English High Court on the Section 68 application should that occur. I leave it to the parties to ascertain an appropriate date before the Judicial Secretary but will rule upon it should the parties not be able to agree. One would hope to have a reasoned decision within a month or so of the hearing of the Section 68 application and I therefore have in mind a date towards the end of January or early February 2015.
25. My decision to grant an adjournment is however conditional upon the respondent paying into Court the sum of US$2.65m by close of business on 24th October. Should this sum not be paid within that period, the decision to grant the adjournment will fall away and the matter would therefore proceed on 27th October. In my judgment, payment of this sum into Court by way of security is necessary to minimise any prejudice to the representor so as to ensure that, should the Section 68 application be unsuccessful, there is no further delay in the representor receiving the sum due to it.
26. I should add that, since the hearing, I have been informed that, on the day of the hearing (but after it had taken place), the Company made a cash call on the representor and the respondent as shareholders and there was an abbreviated notice period. The representor contended that this was all part of the plan to exert pressure on its budget. The respondent replied by stating that it had not been party to any suspicious activity and had itself been the recipient of the call. There had been may cash calls over the life of the contract (some 33 in all) and the fact that another had been made was not unusual.
27. I am unable to ascertain on the limited information before me whether there is anything unusual in relation to this cash call and I therefore place no weight on it. It has not affected my decision one way or the other.
Arbitration Act 1996.
Arbitration (Jersey) Law 1998.
IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation  2 Lloyd's LR 326.
Lesotho Highlands Development Authority v Impregilo SpA  1 AC 221.