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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> The Republic of Kazakhstan v Istil Group Ltd. [2007] EWCA Civ 471 (25 April 2007) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2007/471.html Cite as: [2008] Bus LR 878, [2007] EWCA Civ 471, [2007] 2 Lloyd's Rep 548, [2007] ArbLR 36 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(MR JUSTICE DAVID STEEL)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE LONGMORE
and
LORD JUSTICE TOULSON
____________________
THE REPUBLIC OF KAZAKHSTAN | Appellant |
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| - and - |
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ISTIL GROUP LTD | Respondent |
____________________
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
VINALL
(instructed by Messrs Penningtons) appeared on behalf of the Appellant.
MR A MALEK QC and MR M PARKER (instructed by Messrs Reed Smith Richards Butler LLP) appeared on behalf of the Respondent.
____________________
VERSION
OF JUDGMENT
Crown Copyright ©
Lord Justice Longmore:
Virgin
Island company called Metals Russia Corp Limited ("Metals Russia") made three contracts for the purchase of rolled steel. All three contracts contained a London arbitration clause requiring the disputes to be resolved under the auspices of the London Court of International Arbitration ("the LCIA"). The counterparties to those contracts were as to the first contract an organisation called Estate Foreign Trade Company
Kazakhstan
Sauda ("Sauda"), and as to the second and third contracts, Oltex Trading Limited ("Oltex").
Istil
Group
Inc, whom I shall call
Istil,
the present applicants, have from an early stage contended that Sauda and Oltex made the sale contracts as agents for the owners or operators of the steel mill from which the steel was to be provided, pursuant to those contracts, Karaganda Metallurgical Combine ("Karmet"). No steel has ever been delivered pursuant to those sale contracts.
Republic
of
Kazakhstan
("ROK"), passed decree number 1338, by clause 6 of which all export sales and agreements for supply of raw materials were suspended with effect from 18 October 1995.
Istil
now contend that Karmet was not a legal entity distinct from ROK, and ROK itself was liable on the contracts as principal.
Group
Ispat UK, that it would discharge the debts and liabilities of Karmet. One such debt was said to arise from
various
"
verification
of debt" documents signed on 17 and 18 October 1995, whereby Karmet acknowledged that
various
sums in excess of $10 billion were due to Metals Russia. But neither payment nor damages for non-delivery have been forthcoming.
Kazakhstan
but resorted to arbitration proceedings in London by a notice of arbitration of 5 July 2001. The LCIA duly appointed three arbitrators, Dr
Volka
Tribel of Düsseldorf being the Chairman. The tribunal dealt with the question of jurisdiction in what they called a partial award of 15 January 2003. By that time Metals Russia had in early April 2002 merged into its parent company, Metals Russia
Group
Holdings Limited, which in turn had merged in mid April 2002 into
Istil.
According to British
Virgin
Island law that meant that both Metals Russia and its parent company had ceased to exist. No one, however, informed the arbitrators of that fact, so that their partial award which decided that they did indeed have jurisdiction was in favour of Metals Russia.
Istil
informed the arbitrators of the position. A final hearing then took place in February 2004 which led to a final award in favour of
Istil
of 11 June 2004. The final award decided that the partial award was a nullity, since Metals Russia had ceased to exist. The arbitrators then substituted
Istil
as claimant and confirmed their original conclusion as to jurisdiction. They further held that ROK had in 1995 accepted an obligation to be responsible to Karmet's trade creditors, that ROK had in any event succeeded to Karmet's obligations and that ROK should pay
Istil
a sum of about $6 million.
1) Any contention byIstil
that the tribunal had exceeded its powers in setting aside its partial award should have been pursued under section 68 of the Act but that it had not been.
2) The parties were therefore now bound by the decision that the partial award was a nullity.
3) Obiter, that the partial award was not in fact a nullity sinceIstil
had succeeded to Metals Russia's right to arbitrate under British
Virgin
Island law and that, although English law required notice of
Istil's
succession to be given, once it was given the arbitration could continue and any orders or awards already made would be effective.
4) ROK never made any ad hoc agreement to the effect that the tribunal could finally decide the question of jurisdiction.
5) Karmet and ROK were separate legal entities so that ROK could not be liable just because Karmet was.
6) None of the contracts was made by Sauda or Oltex as agents of ROK but only, if at all, as agents for Karmet.
7) ROK never became a party to any arbitration clause.
8) The claim before the arbitrators was essentially the same as that made before the Paris Commercial Court, which had decided that the claim did not fall within the arbitration clause, andIstil
were now estopped from arguing the contrary.
Istil's
claims and that the award should be set aside. He refused permission to appeal.
Istil
now seek permission to appeal and the question now before us is whether this court has any jurisdiction to grant permission to appeal once the judge has refused.
vested
in the court of first instance the duty to decide whether permission to appeal should be granted in cases where under section 67 the judge decides questions of jurisdiction. It has done likewise under section 68, where procedural irregularity has been alleged, and under section 69, where permission to appeal an award has been granted or refused or where a decision on such an appeal has been made.
very
limited inroad on the finality of the judge's decision and have held that if there was any procedural unfairness in the judge's decision, in relation to the question of an appeal or, if this is different, a failure to engage with the arguments on that limited question this court can set aside the judge's decision and consider what further order should be made, see CGU
v
AstraZeneca [2006] EWCA Civ 1340, [2007] 1 Lloyds Reports page 142. The judgment of this court was delivered by Rix LJ, with whom, as it happens, myself, and the Master of the Rolls agreed. In paragraph 79 Rix LJ said this:
"What one is looking for is not merely an error of law, but such a substantial defect in the fairness of the process as to invalidate the decision."
He continued in paragraph 80:
"For these purposes, it is clear that perversity in itself, a decision that no reasonable decision-maker could make, is not enough. It might be enough in judicial review: but in this context, perversity is an error of law like any other."
Istil,
which produced the second award to the effect that the first award was a nullity, he adhered to the results to which he had already come in his draft judgment and became so wedded to that conclusion that for that reason he refused permission to appeal. Indeed, in oral submissions Mr Page said that in the course of discussion the judge said, "It is not going to affect the result".
Republic
was precluded from objecting to the decision that the arbitration tribunal had jurisdiction because it had failed to challenge the partial award and that the judge also failed to appreciate that the point if decided in
Istil's
favour by him or on appeal would dispose of the application.
v
National Basketball Association [2002] EWCA Civ 830, [2002] 1 WLR 283, by holding that once the judge at first instance has made a decision on the arbitration tribunal's jurisdiction and has refused permission to appeal, this court has no jurisdiction to grant permission to appeal, and partly because the proposed construction is not necessary to protect
Istil's
human rights. It is true that no Human Rights Convention point was raised in the Athletic Union case, but it has now been raised and comprehensively dealt with in the North Range Shipping Limited
v
Sea Tram Shipping Corporation [2002] 1 WLR 2397 and the CGU case, to which I have already referred in relation to section 69 of the Act, and indeed in ASM Shipping Limited
v
TTMI [2006] EWCA Civ 1341, [2007] 1 Lloyds Reports 136, in relation to section 68 of the Act.
view
of the matter at least, there has never been any arbitration agreement.
v
United Kingdom decision 55331/00, a decision on admissibility of an application to the court in relation to this Court's restrictions on second appeals. That case is of some relevance because effectively the restrictions on appeals in the relevant sections of the Arbitration Act do, in my judgment, relate to second appeals. That is obviously so in relation to the section 69 but, despite submissions to the contrary, is scarcely less so in relation to section 67.
view,
a legitimate aim for Parliament to seek to restrict further appeals. That is particularly so when section 1(1) of the 1996 Act provides that the relevant provisions of the Act are to be construed so as to achieve the object of obtaining fair resolution of disputes without unnecessary delay or expense and, also, that the court should not intervene except as provided by the Act. Those aims are themselves legitimate and one way of achieving those aims is by restriction of appeals.
vested
in the judge who has himself decided whether the point argued is right or wrong. That does not seem to me to be a relevant consideration. Judges are independent tribunals and one of their common, though no doubt unenviable, tasks is to decide whether to give permission to appeal against their own decisions. In other parts of the civil system, their decision may not be the final one but it is nevertheless a decision which they are accustomed to make. In the context of arbitration cases, where disputes have to be resolved without unnecessary delay or expense, it is, in my
view,
proportionate that it should be the judge who knows about the case and who decides the dispute who should be entrusted with the decision whether there is a reasonable prospect of success.
v
AstraZeneca has decided that section 69 should be read
viz
that it is open to the court to review the fairness of the process of the determination of the question whether leave to appeal should be given.
Istil
therefore had an unassailable right to rely on it.
Istil
because it was in favour not of
Istil
but in favour of Metals Russia. Secondly, a partial award which a later award has declared is a nullity can scarcely be said to be an enforceable award, whether by reason of section 58 of the Act or at all. More importantly however, contrary to Mr Page's submissions, the judge did in fact engage with that argument by saying that
Istil
would have had first to apply to set aside the decision in the final award that the partial award was a nullity but had never sought to do so. The learned judge gave an oral judgment on the application for permission to appeal. In the course of that he said this at paragraph 4:
"The position it seems to me is perfectly plain. The arbitrators if and to the extent they exceeded their powers in setting aside the partial award were responsible for an irregularity which if either party had objected to they could and should challenge. The Metals Russiagroup,
if I may call them that, did not do so and the time for that has expired, so I confidently feel that the submission that the Metals Russia
group's
objection to ROK's attempt to set aside the final award because there was in existence an earlier award is not made out and thus there is no reasonable prospect of success on any appeal."
"It is important to underline what was also said in North Range about the dangers of this residual jurisdiction being misused. There may be a temptation, even an unconscious one, to present an unfavourable decision as one which is not only wrong but arrived at unfairly. But in the nature of things it is likely to be an exceptionally rare case where the submission of unfairness is justifiably advanced. The courts will not permit the residual jurisdiction, which exists to ensure that injustice is avoided, to become itself an unfair instrument for subverting statute and undermining the process of arbitration."
very
rarely going to succeed and this application does not come within several miles of it.
Lord Justice Toulson:
Lady Justice Arden:
Istil.
This was only one of the reasons which my Lord gave. I would like to leave this question open. We have not heard full argument on that point, which was one of the points dealt with by Steel J in his judgment. The effect of a merger on the liabilities of a company absorbed by a merger may well depend on the law of its domicile.
view of the argument that we have had, albeit only orally from the appellant, but also in writing from the respondent, I would make an order that these judgments may be reported and referred to hereafter as authority.
Order: Appeal dismissed.