RJ & Anor v HB, Court of Appeal - Commercial Court, October 26, 2018, [2018] EWHC 2833 (Comm)

Resolution Date:October 26, 2018
Issuing Organization:Commercial Court
Actores:RJ & Anor v HB

Neutral Citation Number: [2018] EWHC 2833 (Comm)

Case No: CL-2017-000282





Royal Courts of Justice

Rolls Building, Fetter Lane, London EC4A 1NL

Date: 26 October 2018

Before :


- - - - - - - - - - - - - - - - - - - - -

Between :

- - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - -

David Joseph QC and Iain Quirk (instructed by Baker & McKenzie LLP) for the Claimants

Charles Kimmins QC and Belinda McRae (instructed by Freshfields Bruckhaus Deringer LLP) for the Defendant

Hearing dates: 8, 9 October 2018

- - - - - - - - - - - - - - - - - - - - -

Mr Justice Andrew Baker :


  1. This claim concerns a final award dated 23 March 2017 (`the Final Award') in an ICC arbitration between the defendant (`HB'), who was the claimant in the arbitration, and the claimants (`RJ' and `L Ltd'), who were the respondents in the arbitration, as amended by an addendum dated 14 July 2017 (`Addendum 1') and an addendum to the addendum dated 29 September 2017 (`Addendum 2'). I shall refer to the Final Award thus amended as `the Award'. It is the work of a sole arbitrator (`the Arbitrator'). He is a very senior English QC, well known and highly regarded in the world of international commercial arbitration, who was jointly nominated by the parties for appointment and duly appointed on their nomination by the Secretary-General of the ICC under the ICC Rules.

  2. HB and RJ are wealthy individuals; L Ltd is effectively a corporate vehicle of RJ's, although the ownership and control are indirect. Strictly speaking, there were two ICC arbitrations, in one of which only L Ltd was respondent, but they were consolidated and it is not necessary for my purposes to go into the detail of that.

  3. The arbitrations arose out of arrangements entered into between HB and RJ for an investment by RJ in the banking sector. Through separate corporate vehicles of his, HB owned a controlling interest in a bank (`Bank 1') and in another business. In 2013, HB identified an opportunity to expand his banking interests by using a mix of cash and his controlling interest in Bank 1 to acquire a controlling interest in another bank (`Bank 2'). This would involve merging Bank 1 into Bank 2.

  4. By November 2013, RJ had been introduced to HB as a potential investor and they had agreed in principle that RJ would provide US$75m in cash, through L Ltd as investment vehicle, to enable HB to acquire the proposed controlling interest in Bank 2, with a view to RJ receiving, ultimately, a minority interest in Bank 2 after completion of the Bank 1-Bank 2 merger. For regulatory compliance reasons concerning HB's acquisition of control over Bank 2, that acquisition could not be funded by borrowing. Therefore, the agreement in principle between HB and RJ could not be implemented by RJ (or L Ltd) lending HB US$75m.

  5. Instead, and at the risk of over-simplification for present purposes, the following transaction structure was adopted:

    i) In December 2013, HB contracted to sell to L Ltd a 49.5% share in the company (`X Ltd') through which he owned Bank 1, for US$55m, and a 49.5% share in the company (`Y Ltd') through which he owned the other business, for US$20m. The aggregate price of US$75m was payable, and was paid, up front, but the respective share transfers were deferred, buying HB time to acquire the intended controlling interest in Bank 2 and merge Bank 1 into Bank 2.

    ii) In March 2014, the `Merger Phase Agreements', as the arbitrator dubbed them, were concluded. One issue resolved in HB's favour by the Award was whether the Merger Phase Agreements were binding upon RJ and L Ltd. In addition, claims by RJ and L Ltd that they were procured to conclude those Agreements by fraud and/or that HB was in breach of warranty under them failed before the Arbitrator.

    iii) The Merger Phase Agreements provided, inter alia, for the termination of the December 2013 transactions, for HB to procure that Bank 2 acquire Bank 1 (so far as that was lawful and subject to the obtaining of any necessary authorisations), and (putting it neutrally) for the possibility of the acquisition by RJ, or by an `Affiliate' nominated by him for the purpose, of 25% of the post-merger Bank 2, less 1 share, for c.€55m (then equivalent to US$75m), so far as that was lawful and subject to the obtaining of any necessary authorisations. The primary provision as regards RJ's acquisition, directly or through an Affiliate, of the proposed shareholding in the post-merger Bank 2 was Clause 4.2(A) of a Deed of Termination and Option (`the Deed'), one of the Merger Phase Agreements.

    iv) Again putting it neutrally, the Merger Phase Agreements also sought to cater for the possibility that that final stage was not completed. In that regard, one possible outcome was an entitlement in L Ltd to be paid US$75m plus interest after 31 December 2018. The circumstances in which that outcome might result are or may be contentious between the parties.

  6. HB did procure that Bank 2 acquire Bank 1, as envisaged by the Merger Phase Agreements, but there has not been a share transfer of 25% less 1 share to RJ or an Affiliate nominated by him. In the arbitration, HB alleged that RJ and/or L Ltd were in breach of an obligation to obtain, or at all events reasonably diligently to seek to obtain, necessary authorisation.

  7. By the Award, which is by nature a final award of arbitration determining all claims and counterclaims pursued, and matters of costs, reserving nothing for further determination by the arbitrator:

    i) It was declared that RJ and L Ltd's counterclaims failed, and they were dismissed.

    ii) It was declared that RJ and/or L Ltd were in breach of the Merger Phase Agreements.

    iii) It was declared ``that [RJ] is the beneficial owner of the shares in [Bank 2] purchased with his or [L Ltd's] US$75 million.'' (Award #3)

    iv) Provision was made for costs and the payment of interest on costs.

    v) Finally, it was provided that ``All other claims and requests are dismissed.'' (Award #6)

    The Claim and the Issues Arising

  8. RJ and L Ltd claim that Award #3 is affected by serious irregularity within s.68 Arbitration Act 1996. They also invoke s.67, in part of their claim, but in truth no s.67 question arises. On the basis of serious irregularity as alleged, RJ and L Ltd ask the court:

    i) to set aside Award #3 and associated paragraphs of reasoning, with a direction that relevant matters be now determined afresh by a new arbitrator (to be appointed); alternatively

    ii) to set aside Award #3 and associated paragraphs of reasoning, with a direction that relevant matters be now determined afresh by the Arbitrator; alternatively

    iii) to remit Award #3 and associated paragraphs of reasoning to the Arbitrator for reconsideration.

  9. I have identified the pleas for relief in that order, since they now represent RJ and L Ltd's primary and successive alternative cases. When the claim was first formulated and issued, however, before either Addendum, the primary relief sought was remission. The submission now made is that the Addenda render it inappropriate for there to be remission (there should be a setting aside) and indeed render it inappropriate for matters to be returned to the Arbitrator (there should be a new arbitrator).

  10. The nature and basis of the claim asserted has been set out throughout in an Annex to the Claim Form, by way of statement of case. It was amended after Addendum 1 to strike through the request for remission, promoting what had been an alternative request for the setting aside of the Final Award to become the primary plea, and to add criticisms of Addendum 1 and a plea that it would not be appropriate to remit. It was still not said that the Arbitrator ought to be removed.

  11. That plea emerged, albeit rather less than directly, in a re-amendment of the Annex following Addendum 2. The final sentence of a short additional section criticising Addendum 2 asserted that a particular change effected thereby was ``Not only ... an impermissible excess of power or jurisdiction but ... further evidence of the invidiousness of remitting this matter back to the same Tribunal, when the Tribunal has already made a number of attempts to achieve the same result''. That drafting (in particular, ``further evidence'') betrays to my mind a misunderstanding that the prior amendment, asserting that remission was not appropriate, was or implied a plea for the removal of the Arbitrator. An additional paragraph in the section of the Annex setting out the relief sought asserted that Addendum 2 reinforced the inappropriateness of remission, but also added: ``The Tribunal has now addressed the question of relief on three occasions and it is invidious for the Tribunal to have to reconsider what it has decided and already reached a view on''.

  12. A third witness statement from RJ and L Ltd's solicitor in support of the claim, served after Addendum 2 but before the re-amendment of the Annex, explained more explicitly that the primary plea now was for a new arbitrator (and indeed it proposed a number of candidates for appointment), although in places it continued to labour under the misapprehension that setting aside rather than remitting an award involved without more, or required, replacing the tribunal.

  13. Leaving aside matters of detail (for example, how if the claim succeeds to define the matters to be determined afresh or reconsidered, or deal with Award #6), those pleas for relief give rise to the following issues:

    i) Is Award #3 affected by serious irregularity?

    If so:

    ii) Which paragraphs in the Arbitrator's reasoning are affected thereby?

    iii) Should Award #3 and associated reasoning be set aside because it would be inappropriate to remit them for reconsideration?

    If so:

    iv) Should the fresh determination of matters thus required be left to the Arbitrator or should there be a...

To continue reading