OAO ‘CT-Mobile’ v IPOC International Growth Fund Ltd

• Jurisdiction: Bermuda
• Judgment Date: 06 October 2006
• Date: 06 October 2006
• Docket Number: Commercial Jurisdiction 2006 No. 169 and 170
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Kawaley, J

Commercial Jurisdiction 2006 No. 169 and 170

BETWEEN:

OAO ‘CT-Mobile’

Plaintiff

and

IPOC International Growth Fund Limited

Defendant

And BETWEEN:

LV Finance Group Limited

Plaintiff

and

IPOC International Growth Fund Limited

Defendant

Mr J Woloniecki for OAO-CT Mobile

Mr J Elkinson and Mr B Adamson for LV Finance

Mr M Diel for the Defendant

The following cases were referred to in the judgment:

Toth v Jarman [2006] EWCA 1028

The Angelic Grace [1995] 1 Lloyds Law Rep 87

Donoghue v Armco [2002] 1 Lloyds Law Rep 425

Skandia International Insurance v Al Amana Insurance & Reinsurance CoBDLR [1994] Bda LR 30

Macmillan Ltd v Bishopsgate Investment Trust plc (No. 3)WLR [1996] 1 WLR 387

Paczy v Haendler & Natermann GmbHUNK [1979] FSR 420

Faghirzadeh v Rudolf Wolff SA [1977] 1 Lloys Law Rep 630

Asghar v Legal Services Commission [2004] EWHC 1803

Bermuda International Conciliation and Arbitration Act 1993

Arbitration proceedings in Switzerland and Sweden — Purchase of stakeholding in MegaFon — Enforcement of award — Proceedings in Russia — Illegality of option agreement — Forum — Independence of expert witness — Conflict of laws — Misconduct — Scope of arbitration agreements

JUDGMENT of Kawaley, J

A. INTRODUCTORY

1. OAO-CT Mobile, the Plaintiff in 2006:169 (‘CTM’) is a Russian company which is the registered owner of 25.1 % of the shares of a Russian telecommunications company referred to in these proceedings as MegaFon. CTM and the Defendant, IPOC International Growth Fund Limited, a Bermuda mutual fund company, (‘IPOC’) are parties to two agreements dated August 6, 2001. One agreement is a Shareholder Agreement (‘SHA’) and the other is a Business Combination Agreement (‘BCA’); however both agreements relate to the shareholding of various parties in MegaFon, and contain arbitration clauses providing for arbitration in Sweden under Swedish law.

2. The Plaintiff in 2006: 170, is a British Virgin Islands incorporated company, LV Finance Group Limited (‘LVFG’), which entered into two Option Agreements with IPOC on April 10, 2001 and December 14, 2001 (respectively, ‘the April Option Agreement’ and ‘the December Option Agreement’). The Option Agreements purportedly gave IPOC the right to purchase from LVFG 100 % (77.7% and 22.3 %, respectively) of the shares of a Bahamian company, Transcontinental Mobile Investment Ltd. (‘TMI’), which, as the April Option Agreement contemplated, owned the shares of CTM. IPOC purportedly exercised both options and expected to become indirect owner of CTM's 25.1% ‘MegaFon Stake’. Instead, LVFG sold its TMI shares, which eventually were acquired by companies belonging to the Alfa Group. The April Option agreement provided for arbitration in Zurich, and the December Option Agreement provided for an ICC administered arbitration in Geneva. Both agreements were expressed to be governed by English law.

3. On or about August 15, 2003, IPOC commenced an ICC arbitration proceeding in Geneva, Switzerland, against LVFG, and on or about September 22, 2003, IPOC commenced an arbitration proceeding against LVFG in Zurich, Switzerland, under the December and April Option Agreements, respectively. On or about October 14, 2003, IPOC commenced an arbitration proceeding against, inter alia, CTM in Stockholm, Sweden, under the SHA. The broad purpose of the Swiss and Swedish arbitrations was to (a) enforce the Option Agreements, so that IPOC would become indirect owner of CTM's 25.1 % MegaFon Stake and (b) have CTM's MegaFon Stake transferred to IPOC because of alleged breaches of the SHA, so that it would become the direct owner of the MegaFon Stake.

4. In the ICC arbitration proceeding, a final award was made in IPOC's favour under the December Option Agreement affecting 22.3% of the disputed stake on August 15, 2004 (‘the ICC Award’). On October 19, 2004, the Zurich arbitral tribunal gave a First Partial Award (‘FPA’), and on May 22, 2006 the Zurich tribunal declared that the April Option Agreement was unenforceable on grounds of illegality in the Second Partial Award(‘SPA’). LVFG appealed the ICC Award, and it was set aside on August 30, 2006. The FPA and the SPA have been appealed by IPOC, but they were recognised by this Court in granting leave to enter judgment in their terms under section 40(1) of the Bermuda International Conciliation and Arbitration Act 1993 on August 31, 20061. Judgment was entered in terms of these awards on September 1, 2006.

5. On March 30, 2006 in Case No. A56–15164/2006, IPOC commenced proceedings in St. Petersburg and Leningrad Oblast Arbitration Court against, principally2, LVFG, CTM and the four other respondents to the Stockholm arbitration proceedings (‘the St. Petersburg Proceedings’). The main relief sought was (a) direct ownership of the MegaFon Stake, and (b) consequential rectification of the SHA and the BCA. On April 4, 2006 in the St. Petersburg Proceedings, IPOC obtained an injunction effectively placing CTM's shares in MegaFon under the control of a court bailiff. On April 26, 2006, IPOC obtained a second injunction restraining CTM from liquidating or reorganizing in any way.

6. On June 6 and 7, 2006, respectively, CTM and LVFG issued a Generally Indorsed Writ of Summons in this Court against IPOC seeking, inter alia, permanent injunctions restraining IPOC from pursuing the St. Petersburg Proceedings or similar proceedings elsewhere in breach of the relevant arbitration agreements. An interim injunction in broadly similar terms was granted by this Court on June 8, 2006, the applications (like the present expedited trials) being heard together3. The present proceedings did not mark, in litigation terms, the beginning of the present dispute.

7. When litigation relating to the present commercial dispute seemingly commenced in or about the summer of 2003, the MegaFon Stake was believed to be worth just over US$320 million. It is now estimated to be worth some US$1.5 billion. The Bermuda proceedings follow not just three still pending arbitration proceedings (in Switzerland and Sweden), but various previous litigation skirmishes in the Bahamas, BVI (including an application for leave to appeal to the Privy Council) and Russia. Having regard to the Overriding Objective recently incorporated as Order 1A in the Rules of the Supreme Court, and the obvious risks in large commercial cases of an excessive consumption of private costs and public court time if litigation is permitted to become an unruly horse, I decided, with IPOC's initial tacit assent, to order an expedited trial of the Plaintiffs' permanent injunction applications on June 29, 2006. Having already formed the view that their case for such relief was arguable, it seemed more rational to effectively merge an early application to

set aside the ex parte order (which would almost inevitably have resulted in an appeal, however decided) with a trial of the permanent injunction application (which would almost inevitably result in an appeal, however decided). This trial would take place on the very narrow basis of a construction of the relevant arbitration agreements, and would not necessitate either discovery or cross-examination (save, perhaps, of foreign law experts).

8. Such an approach appeared to me to fairly accommodate the legitimate interests of both sides in an expeditious determination of whether or not the St. Petersburg Proceedings could, or could not, be pursued. The alternative approach would have potentially resulted in an application to discharge the June 8, 2006 Ex Parte Order being heard when the present expedited trial took place, with appeals not being exhausted until, possibly, late 2007. If the Ex Parte Order was upheld on appeal, a trial of the permanent injunction application would not likely take place until 2008, with appeals not being exhausted until possibly 2009. In light of the fact that all parties are represented by large international law firms, with sophisticated local and overseas legal teams, the latter well-versed in the complexities of a commercial dispute which has been in litigation-mode for three years, it seemed to me that the timetable set fairly balanced the need for adequate time to prepare with expedition, IPOC's belated complaints to the contrary notwithstanding.

9. IPOC has complained about the fairness of the timetable imposed on it in relation to the expedited trial in terms of its ability to prepare its pleadings. It should be noted that the injunction issue, which turns fundamentally on the construction of the arbitration agreements, is in large measure being tried on the affidavits, as this issue is one which could appropriately be determined (assuming it was the sole claim) in an action commenced by originating summons. The significance of pleadings, for present purposes, is minimal, and indeed the rules applicable to Commercial Court actions require pleadings to be as brief as possible.

10. This is not to say that the pleadings have not been helpful in defining the issues in controversy, and setting out the parties' respective positions. The huge volume of evidence and fulsome written submissions IPOC has filed, however, makes it impossible for the Defendant to credibly assert that its most able litigation team has been unable to adequately prepare for a trial on what are essentially narrow legal and factual issues. But this case primarily turns on the application of legal principles to a comparatively narrow range of facts.

11. In the event, all concerned have copiously prepared for a trial which involves two broad issues. The first issue , despite superficial complexity, sensibly viewed, is, as regards LVFG, ultimately straightforward in factual and legal policy terms: are the St. Petersburg Proceedings brought in breach of the arbitration agreements contained in the SHA and BCA (CTM/Swedish law) and/or in the Option Agreements (LVFG/English law, presumed in...