The Commercial Court recently (18 October 2002) had to deal with the question of the validity of an enforcement order in respect of a foreign arbitral award. The parties named in an award differed from those referred to in the enforcement order. The case involved an agreement governing the development of a terminal in the Ukraine and which regulated the relationship between the various owners. A dispute between the owners arose and Norsk Hydro claimed that it had been wrongly expelled from the joint venture; that, effectively, its interest in the terminal had been expropriated.
The agreement was to be governed by and construed in accordance with the substantive laws of Sweden. It also provided that any dispute arising out of or in connection with the agreement was to be resolved by arbitration under the UNCITRAL Arbitration Rules. The Stockholm Chamber of Commerce was to be the appointing authority for the three arbitrators, and the seat of the arbitration was also to be in Stockholm.
One of the parties referred to in the agreement as an "owner" was the "State Property Fund of Ukraine, being an agency of the Government of Ukraine". However, in the Request for Arbitration, the first Respondent was referred to as "Republic of Ukraine, represented through the State Property Fund of Ukraine." There was no issue as to sovereign or diplomatic immunity, this having been waived, and there was also no issue as to the contractual capacity of the parties. Throughout the arbitration, the first Respondent did not participate, save to contest jurisdiction on the ground of a signature point. However, all communications to it were sent to the address of the State Property Fund.
Norsk Hydro requested the Tribunal to find that the Respondents were in breach of the agreement and that they should pay, jointly and severally, US$21.26 million plus interest from the date of the award. The Tribunal, finding that it had jurisdiction to hear the claim and that the agreement was valid, ruled that "the Republic of Ukraine, through the State Property Fund" (and one other Respondent – Concern Primorsky) were in breach of the agreement. An award in the sum of US$16 million plus interest was made in favour of Norsk Hydro.
The award remained unsatisfied. Despite various negotiations, Norsk Hydro was unable to resolve the matter. Consequently, an application was made to the English Courts in 2002 for permission to enforce the award against the Respondents. The Respondents to this application were (1) State Property Fund of Ukraine (2) Republic of Ukraine, and (3) Concern Primorsky. Such permission was granted, although the Respondents were allowed 21 days from service of the order to apply to have it set aside. The order was served through diplomatic channels on the Ukraine on 24 July 2002. Consequently, all that remained for Norsk Hydro to do was enforce the judgment through the normal routes.
To this end, Deutsche Bank AG in London were principal paying agents for the Republic of Ukraine in respect of its debt commitments through bond issues. On the basis that it was being funded by Ukraine in London, and that sums held by Deutsche to the credit of Republic of Ukraine would constitute a debt capable of being attached for the purposes of CPR Part 72, Norsk Hydro sought and obtained, without notice, an interim third party debt order.
Subsequently, Ukraine applied to have the orders made by the English Courts set aside on the basis that, inter alia, the agreement giving rise to the proceeding was entered into by the State Property Fund only, as principal, and not as agent for the Republic of Ukraine and that the Republic of Ukraine was not a party to an arbitration agreement in writing, and the Court had no jurisdiction to enter judgment against it in respect of the purported arbitration award.
The issue came before Mr Justice Gross in the Commercial Court. The Judge concluded that the first order could not stand because the relevant Respondent to the award was the "Republic of Ukraine, through the State Property Fund of Ukraine", whereas the order purported to enforce the award against the "State Property Fund of Ukraine" and the "Republic of Ukraine" as separate entities. He held that the Court had no jurisdiction to make such an order. He referred to section 100 of the Arbitration Act 1996 providing for the recognition and enforcement of New York Convention awards. This involved an important policy interest, reflected in the UK’s treaty obligations, in ensuring the effective and speedy enforcement of such international arbitration awards. As a result, the task of the enforcing court should be as "mechanistic" as possible. Subject to the various grounds on which enforcement of a New York Convention Award may be refused (sections 102 to 103 of the Arbitration Act 1996), the enforcing Court is neither entitled nor bound to go behind the award in question or to explore the reasons or the intention of the tribunal. The proper approach was to seek enforcement of an award in accordance with the terms of that award.
On the second order, the Judge explained that, pursuant to section 12 (2) of the State Immunity Act 1978, two-months had to be added to the 21-day period expressly provided for in the first order. Since the enforcement of the award had actually been sought by way of the second order prior to the expiry of the two-month plus 21-day period, this order was premature and was also set aside.
This is an important decision because it clarifies that when seeking to enforce an award against a single party, it is not possible to enforce it against two separate and distinct parties. Moreover, an order by a Court providing for enforcement of an arbitral award had to follow the award. The Court confirmed that:
"no doubt, true ‘slips’ and changes of name can be accommodated; suffice to say, that is not the case. Here it is sought to enforce an award made against a single party, against two separate and distinct parties. To proceed in such a fashion, necessarily requires the enforcing Court to stray into the arena of a substantive reasoning and intentions of the Arbitration Tribunal".
Clearly, the courts are not prepared to re-write an award, and the concept of the slip rule in enforcement proceedings, to the extent to which it exists at all, is quite narrow. This decision is a cautionary note for applicants seeking to enforce an award to frame any such application to reflect the precise terms of the award.
Article by Gearoid Carey
© Herbert Smith 2003
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