Sojuznefteexport v Joc Oil Company

• Jurisdiction: Bermuda
• Judgment Date: 01 January 1987
• Date: 01 January 1987
• Docket Number: Civil Jurisdiction 1984 No. 362 and Civil Jurisdiction 1985 No. 329
• Court: Supreme Court (Bermuda)

In the Supreme Court of Bermuda

Melville, J

Civil Jurisdiction 1984 No. 362

and

Civil Jurisdiction 1985 No. 329

Sojuznefteexport

Plaintiff

and

Joc Oil Company

Defendant

Sir Patrick Neill, Q.C.; Mr. Van Veeder, Q.C. and Mr. Hargun for the Plaintiff.

Mr. Kenneth Rokison, Q.C.; Mr. Peter Gross; Mr. David Winter and Mr. Jai Pachai for the Defendant.

Heyman v DarwinsELR [1942] AC 356

MacKender v FeldiaUNK [1966] 2 Lloyds Rep. 449

Crane v Hegemen-Harris Co IncUNK [1929] 4 All ER 68

Bremer Vulkan v South India ShippingELR [1981] AC 909

Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbHUNK [1976] 2 Lloyds Rep. 155

Kianta v Britain and Overseas Trading LtdUNK [1953] 2 Lloyds Rep. 569

“The Atlantic Star”ELR [1974] AC 436

Amin Rasheed v Kuwait InsuranceELR [1984] AC 50

“The Abidin Daver”ELR [1984] AC 398

Rouyer Guillet et Cie v Rouyer Buillet & Co. Ltd.UNK [1949] 1 All ER 244

Re CohnELR [1945] Ch 5

Dalmia v National Bank of PakistanUNK [1978] 2 Lloyds Rep. 223

Belvedere Insurance Co Ltd v CSC Assurance Ltd 1982 Civil Jur. No. 6

Hamlyn v Talisker DistilleryELR [1894] AC 202

Government of Gibraltar v KennyELR [1956] 2 QB 410

Enforcement of arbitration award — Doctrine of separability / autonomy / severability — Validity of arbitration clause — Scope of arbitration clause — Assignment and reassignment — Grounds for refusal of enforcement of the award — Sources of foreign law

JUDGMENT

Melville, J.

These are consolidated proceedings begun by Originating Summons on December 5, 1984 and Writ of Summons dated 18th September 1985, whereby the plaintiffs (SNE) seek to enforce a Russian arbitration award of 9th July, 1984 against the Defendants (JOC), a Bermuda Exempt Company, in the amount of US $199,255,719.55.

Using the method adopted by SNE, the references in the various documents will be as follows:-

TD3.405:15 = Transcript Day 3 at page 405, line 15.

B5/3.46 = Common Bundle 5, tab 3 at page 46.

B12.34 = Common Bundle 12 at page 34.

Maggs X = Professor Maggs Examination—in chief.

Maggs XX = Professor Maggs in Cross-examination.

Maggs XXX = Professor Maggs Re-examination.

Maggs I = Professor Maggs' First Report.

Maggs II = Professor Maggs' Second Report.

The award which was unanimous was made by three Russian arbitrators, sitting as a Tribunal of the Foreign Trade Arbitration Commission in Moscow (FTAC), and were the late Professor R.L. Naryskina as the Arbitrator nominated by SNE; Professor S.N. Bratus as the Arbitrator nominated by JOC and Professor V.S. Pozdnyakov as the Chairman appointed by the two Arbitrators. Hearings of the Tribunal were held over some 33 working days at five separate sessions held in Moscow in (i) October 1981; (ii) January–February 1984; (iii) March 1984; (iv) April 1984 and (v) June 1984.

On 17th November, 1976 the parties purported to enter into a contract, No. 1306–70048, in Paris for the sale and purchase of huge quantities of crude oil and oil products. Appended to the agreement were SNE's standard forms of FOB and CIF contracts (all in the English language) each of which contained an arbitration clause, which was in similar terms. I need set out only the FOB Standard Clause 10 [B3/1.11] which reads:-

‘All disputes or differences which may arise out of this contract or in connection with it are to be settled, without recourse to the general courts of law, in the Arbitration Order by the Foreign Trade Arbitration Commission of the USSR Chamber of Commerce and Industry in Moscow, in conformity with the rules of procedure of the above Commission.

‘The awards of this Arbitration shall be final and binding upon both parties concerned.’ Both forms contained a term that ‘Neither party is entitled to transfer their rights and obligations under the present contract to a third party without the other party's previous written consent’ and also a term providing that ‘The USSR is regarded as the place of conclusion and fulfilment of the contract: Clauses 11(a) and 12(a) and 11(f) and 12(f) respectively.’ [B3/1.11 and 15].

Contract No. 1306–70048 and both forms were signed and initialled by Mr. Johannes Deuss for JOC and by Mr. V.E. Merkulov on behalf of SNE.

There had been previous contracts and dealings between the parties before the November 1976 contract; and under the latter agreement SNE made some 39 shipments of oil and oil products to JOC by about June 1977. Of a total of nearly $123,000,000, JOC paid to SNE some $21¹/₂ million, leaving an outstanding balance of $101,341,433.70, it was alleged.

By about May 1977, differences arose between the parties about the November 1976 agreement with which we are concerned, which eventually culminated in the arbitration proceedings in Moscow which ended with the award in July, 1984. In the interim, the parties and others in one form or another were involved in litigation in the Netherlands and Germany about matters connected with this transaction no doubt; but which I need not pause to set out.

Some time in the course of the arbitration proceedings—on 2nd February 1984 to be exact—the Tribunal announced that the November 1976 contract contravened Article 125 of the USSR Fundamentals of Civil Legislation and the 1935 Signature Decree (which required two authorised signatures to a valid contract by SNE); and that the contract was invalid pursuant to Article 45 of the RSFSR Civil Code. Both sides seem to accept that this agreement was invalid or void ab initio—at least these proceedings have been conducted on that basis.

At the end of the day the FTAC Tribunal rejected all the counter claims of JOC but made various awards in favour of SNE. These awards were (i) US $101,341,443.70 for the value of oil and oil products delivered by SNE to JOC. This claim was decided under Articles 48 and 473 of the RSFSR Civil Code (B7.405 and 510). (ii) US $96,922,873.42 for the profits which JOC obtained, or should have obtained, from the use of the sum mentioned in (i) above from the time when payment should have been made to SNE. This claim was decided under Article 473 of the RSFSR Civil Code, the calculation of the claim being up to 31st March 1984, with a right to SNE to present a separate claim as to JOC's profits after that date. (iii) US $991,402.43 as arbitration costs awarded under Paragraph 5 of the Schedule to the FTAC Rules of Procedure [B4/3.43], so that the total amount awarded was US $199,255,719.55, all of which remains outstanding.

SNE now seek to enforce the award by two separate enforcement procedures: (i) under Section 3(1) of the Bermudian Arbitration (Foreign) Awards Act 1976 [the 1976 Act] (now section 46(1) of the Arbitration Act 1986 which became operative on 25th August 1986) and which is SNE's primary case; and/or alternatively (ii) at Common Law. Under the latter head SNE claim enforcement by action on the award and under section 12 of the Bermudian Arbitration Act 1924 (now section 37 of the 1986 Act); but it appears that proceedings under section 12 are more of a summary nature and are only appropriate when there is unlikely to be any substantial dispute between the parties.

For part of the hearing in August 1986 and at the resumed hearing in January 1987, the Arbitration Act 1986 would have been in operation, but I gather nothing of significance terms on the provisions of the new Act, so it appears proper to refer to the Bermudian Legislation as the ‘1976 Act.’ The 1976 Act gives effect in Bermuda to the terms of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, June 10, 1958 (the New York Convention).

Instead of the normal pleadings, the parties have agreed the matters in dispute but for one item and have briefly set out the rival contentions on each issue. These are very conveniently summarised in Bundle 2 of the documents. Some eight issues have been agreed and they embrace the matters mentioned in Sections 4 and 5 of the 1976 Act.

However, the parties were unable to agree what has been referred to as JOCs' ‘Issue A’ [ISSUE 1] which reads:-

‘Is the Arbitration Award which the claimants [SNE] seek to enforce a “Convention Award” within the meaning of the 1976 Act?’

All the issues including Issue A have been fully canvassed in the hearing and I have no doubt it was and is a relevant issue between the parties and that it is for SNE to satisfy the Court that what it is seeking to enforce under the 1976 Act is a ‘Convention Award.’ By section 1(1) of the 1976 Act a ‘Convention Award’ means an award:

‘… made, in pursuance of an arbitration agreement outside Bermuda in the territory of a state, other than the United Kingdom, which is a party to the New York Convention’;

Section 3 is as follows:-

‘(1) A Convention award shall, subject to the following provisions of this Act, be enforceable in Bermuda either by action or in the same manner as the award of an arbitrator is enforceable by virtue of section 12 of the Arbitration Act 1924.

‘(2) Any Convention award which would be enforceable under this Act shall be treated as binding for all purposes on the persons as between whom it was made and may accordingly be relied on by any of those persons by way of defence, set-off or otherwise in any legal proceedings in Bermuda; and any reference in this Act to enforcing a Convention award shall be construed as including references to relying on such an award.’

SNE have to satisfy the provisions of section 4, which reads:-

‘The party seeking to enforce a Convention award must produce—

• (a) the duly authenticated original award or a duly certified copy of it; and

• (b) the original arbitration agreement or a duly certified copy of it; and

• (c) where the award or agreement is in a foreign language, a translation of it certified by an official or sworn translator or by a diplomatic or consular agent.

Once SNE have satisfied the requirements of section 4, it is then for JOC to bring themselves...