LV Finance Group Ltd v IPOC International Growth Fund Ltd

• Jurisdiction: Bermuda
• Judgment Date: 31 August 2006
• Date: 31 August 2006
• Docket Number: Commercial Court 2006 No. 176
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Kawaley, J

Commercial Court 2006 No. 176

BETWEEN:

LV Finance Group Limited

Plaintiffs

and

IPOC International Growth Fund Limited

Defendant

Mr J Elkinson and Mr B Adamson for the Plaintiff

Mr M Diel for the Defendant

The following cases were referred to in the judgment:

IPCO (Nigeria) Ltd v Nigerian National Petroleum CorpUNK [2005] 2 Lloyds Rep 326

Soleimany v SoleimanyELR [1999] QB 785

Westacre Investments Inc v Jugoimport-SDPR Holding Co LtdELR [2000] 1 QB 288

New Skies Satellite BV v FG Hemisphere Associates LLCBDLR [2005] Bda LR 59

Webster v Southwark London BCELR [1983] QB 698

Whitehead v TattersallENR (1834) 1 Ad & El 491

Margulies Brothers Ltd v Dafnis Thomaides & Co (UK) LtdUNK [1958] 1 Lloyds Rep 205

Tridon Australia Pty Ltd v ACD Tridon Inc [2004] NSWCA 14

Application for permanent injunction — Proceedings in Russia — Arbitration in Switzerland — Public policy — Unenforceable contract — Enforcement of declaratory convention award

RULING of Kawaley, J

Introductory

1. By a Generally Indorsed Writ issued on June 7, 2006 in 2006: No. 170, the Plaintiff, a British Virgin Islands company (‘LVFG’), seeks a permanent injunction restraining the Defendant, a Bermuda company (‘IPOC’), from taking any further steps in proceedings in the Arbitration Court of the City of St. Petersburg and the Leningrad Oblast (‘the St. Petersburg Proceedings’) or otherwise bringing any proceedings in breach of the two Zurich arbitration awards and related declaratory and other relief.

2. The First Partial Award is dated October 19, 2005 (‘FPA’) and the Second Partial Award is dated May 16, 2006 (‘SPA’). Following an ex parte hearing, both awards were subsequently recognised by this Court on June 14, 2006 herein, when leave to enter judgment in terms of the awards was also given. IPOC on or about June 21, 2006 filed a still pending appeal against the SPA under Swiss arbitration law, but has not obtained a stay of the latter award in support of the appeal. IPOC then applied by Summons dated July 5, 2006 to set aside the June 14, 2006 Order, which application falls for present consideration.

3. Three broad points were advanced by Mr. Diel on IPOC's behalf as grounds for setting aside the June 14, 2006 Order. Firstly, it was submitted that the present application was duplicative and an abuse of process, and accordingly should be stayed under the Court's inherent jurisdiction. Secondly, it was contended that the Plaintiff's application was legally misconceived because (a) recognition was not available under Bermuda law, (b) only the awards and not the reasons for them were enforceable, (c) declarations were not, in any event, enforceable, and (d) there were public policy grounds for refusing to enforce the awards. Thirdly, it was argued that in light of the Defendant's pending appeal, the enforcement application should simply be adjourned under section 42(5) of the Bermuda International Conciliation and Arbitration Act 1993. Fourthly, it was argued that paragraph 1 of the Order made no legal sense and that paragraph 2(i) ought to be modified to reflect the terms of the FPA more accurately, even if the Order was not liable to be set aside.

4. Four issues essentially fall for determination. Firstly, should the Plaintiff's application be adjourned, although it has been fully argued, no formal application for an adjournment was ever made and no evidence has been filed in support of the oral application first made at the substantive hearing of the Defendant's application to set aside the June 14, 2006 ex parte Order granting the Plaintiff leave to enter judgment in terms of the two Zurich awards? Secondly, should enforcement of the awards be refused on public policy grounds, namely that the Plaintiff is seeking to rely on its on own illegal conduct? Thirdly, a point which appears never to have been the subject of a considered judgment in a Commonwealth Court, can leave to enter judgment in terms of a declaratory award be granted at all? And, fourthly, should the terms of the June 14, 2006 Order be modified, even if it is not set aside.

The arbitration agreements and the First and Second Partial Zurich Arbitration Award

5.LVFG and IPOC are, it is common ground, party to valid arbitration agreements governed by English law contained in Option Agreements dated April 14, 2001 (‘the April Option Agreement’) and December 10, 2001 (‘the December Option Agreement’) and providing for arbitration in Switzerland. A Geneva arbitration proceeding under the December Option Agreement which LVFG absented itself from resulted in a decision in favour of IPOC which is also subject to appeal (‘the ICC Award). A Zurich arbitration proceeding in which both parties seemingly fully participated and which was commenced by IPOC under the April Option Agreement resulted in the FPA and the SPA. The latter award made various findings including the finding that a witness, whom LVFG contends was IPOC's main witness, lied before the Geneva tribunal and attempted to mislead the Zurich Tribunal. As a result, the Zurich Tribunal found it was entitled to disregard the ICC Award.

6. Certified copies of both Zurich awards and the April Option Agreement containing the relevant arbitration agreement were exhibited to the First Affidavit of Justin Barrie Michaelson sworn on June 6, 2006 herein. The FPA including its reasons runs to 134 pages, but the substantive award provides as follows:

‘1. Respondent's Prayer No. 1 referred to in para.60 hereinabove, requesting to note that Claimant's Initial Prayers for Specific Performance are withdrawn with prejudice, is hereby dismissed.

2. The question whether Claimant's Initial Prayers for Specific Performance have been withdrawn without prejudice has become obsolete so that no decision on Respondent's alternative Prayer No.1 referred to in para. 60 hereinabove must be made.

3. The decision on Respondent's Jurisdictional Objections referred to in paras. 68 et seq. hereinabove is deferred to a later stage of proceedings.

4. Claimant's claim in Claimant's Prayer A/1, quoted in para. 59 hereinabove, is hereby fully dismissed.

5. A decision on Claimant's claim in Claimant's Prayer A/2 quoted in para. 59 hereinabove, is deferred to a later stage of proceedings.

6. Claimant's claim in Claimant's Prayer A/4 quoted in para. 59 hereinabove is deferred to a later stage of proceedings.

7. Respondent's counterclaims in Respondent's Prayers Nos. 4 and 5 quoted in para. 60 hereinabove are deferred to a later stage of proceedings.

8. Affirming Respondent's counterclaim in Respondent's Prayer No. 6 quoted in para. 60 hereinabove it is hereby declared that, Claimant has not validly exercised the April Option under the April Option Agreement by its purported option notices of July 29, 2003 (C–177) and August 12, 2003 (C–189).

9. A decision on the cost [sic] of the Arbitral Tribunal and the Parties' costs relating to the proceedings on the Preliminary issues is deferred to a later stage of proceedings.

10. Notice of this Partial Award will be given to the Parties by registered mail against return receipt.’

7. The SPA including its reasons is 350 pages long, but the substantive award provides as follows:

‘1. Respondent's Jurisdictional Objection in Respondent's BID-Prayer No. 1 (a) to (e) and referred to in paras. 174/175 et seq. hereinabove has become obsolete.

2. Claimaint's BID-Prayer submitted in para. 1008 BID-Answer quoted in para. 163 hereinabove is hereby dismissed with regard to the Second Purported Option Notice and with regard to the Third Purported Option Notice has become obsolete in view of the unenforceability of the April Option Agreement.

3. Claimant's BID-Prayers submitted in paras. 1009 to 1012 quoted in para. 163 hereinabove are hereby dismissed.

4. Claimant's BID-Prayer submitted in para. 1013 BID-Answer quoted in para. 163 hereinabove has become obsolete because of the unenforceability of the April Option Agreement.

5. Respondent's Prayer No. 4 quoted in para. 58 hereinabove is hereby dismissed except for the part requesting the Arbitral Tribunal to declare the April Option Agreement unenforceable, which part is hereby affirmed. The Arbitral Tribunal thus declares the April Option Agreement an illegal transaction: its purpose and performance are illegal, and it is therefore unenforceable.

6. The alternative prayer contained in Respondent's Prayer No. 4 is hereby dismissed without prejudice.

7. Respondent's Prayer No. 5 quoted in para. 58 hereinabove has become obsolete except for the part requesting the Arbitral Tribunal to declare that claims brought under the April Option Agreement are against public policy and arising ex turpi causa, which part covers Claimant's claims made in this arbitration relating to its attempted performance and enforcement of the April Option Agreement, is hereby affirmed. The Arbitral Tribunal thus declares that the claims brought by Claimant under the April Option Agreement are against public policy and arise ex turpi causa.

8. The decision on the Costs of Arbitration as described in paras. 688 and 696 is hereby deferred to a later stage of proceedings.

9. Notice of this Partial Award will be given to the Parties by registered mail against return receipt.’

The June 14, 2006 Ex Parte Order

8. The Order that IPOC seeks to set aside was made by me on June 14, 2006 in the following principal terms:

‘(1) The Awards made by the Arbitral Tribunal consisting of Dr. Daniel Wehrli, Chairman, Ian L. Meakin and Dr. Boris O. Kojevnikov at Zurich, Switzerland on the 19^th day of October 2004 (“the First Partial Award”) and on the 16^th May 2006 (“the Second Partial Award”)(collectively “the Awards”) together with their findings are hereby recognized by this Court;

(2) The Plaintiff has leave to enforce the following declaratory judgments in the Awards by entering the following declaratory...