Cruz City 1 Mauritius Holdings v Unitech Ltd & Ors

This is an application by the respondent (“Cruz City” or "the Respondent") that the permission to appeal granted by Moore-Bick LJ on 12 July 2013 to the appellants, Unitech Limited ("Unitech"), Burley Holdings Limited ("Burley") and Arsanovia Limited ("Arsanovia") (collectively "the Appellants") be made subject to the condition that the Appellants pay the whole or a substantial proportion of sums in excess of US $300 million, due under certain arbitration awards into court, or alternatively secure such payment by a written guarantee issued by a first-class bank with a place of business within England or Wales.

The application was originally made in a letter from Cruz City's solicitors dated 12 June 2013. By an order dated 24 July 2013 Moore-Bick LJ dismissed the application for conditions to be attached to the grant of permission and stated that such dismissal was:

“without prejudice to the Respondent's right to make a formal application for such relief on notice to the appellants, if so advised.”

By his order dated 12 July 2013 Moore-Bick LJ also granted a stay of the disclosure order made by Field J.

At the end of the hearing I announced my decision that I would impose conditions on the permission to appeal which had been granted to the Appellants. Subsequently, by order dated 11 November 2013, I ordered that the conditions subject to which the appeal from the order of Mr Justice Field dated 23 May 2013 could be brought, was the payment by the Appellants into court within 28 days from 6 November 2013 of the sums of US$333,620,492 and £182,882, due under the relevant awards, failing which the appeal would be struck out and the stay of execution of the order of Mr. Justice Field would be lifted. The order also provided that any monies paid into court pursuant to this order would be held pending further order of the Court of Appeal. The order was made subject to an undertaking from Cruz City that, pending further order of the Court of Appeal, it would not seek to attach or freeze or in any way seek any form of enforcement against any money paid into court pursuant to the order.

These are the reasons for my decision and the order which I made on 11 November 2013.

The background to these proceedings can be summarised as follows.

The appeal arises out of awards made in 3 London-seated arbitrations: LCIA Case No. 111791 (“Arbitration 1”), LCIA Case No. 111792 (“Arbitration 2”), and LCIA Case No. 111809 (“Arbitration 3”), all heard in January 2012.

The arbitrations concerned a joint venture arrangement ("the Santacruz Project”) between Cruz City and the Appellants for the commercial development, management and operation of certain land in Mumbai. In order to facilitate the parties’ investments in the Santacruz Project, an SPV, Kerrush Investments Limited (“Kerrush”), was incorporated. Kerrush was (at the outset of the Santacruz Project) owned 50% by Cruz City and 50% by Arsanovia. The disputes arose out of a shareholders’ agreement entered into between, inter alios, Cruz City, Arsanovia and Kerrush on 6 June 2008 ("the Shareholders’ Agreement”), and a Keepwell Agreement between Cruz City, Unitech and Burley.

Cruz City issued the proceedings in Arbitration 1 against Arsanovia and Burley under the Shareholders Agreement and in Arbitration 2 against Unitech and Burley under the Keepwell Agreement. Arsanovia issued the proceedings in Arbitration 3 against Cruz City.

Before the arbitral tribunal Cruz City succeeded in each of the arbitrations. In summary, by partial final awards in the case of Arbitrations 1 and 2 (“Award 1” and “Award 2”, respectively) and a final award in the case of Arbitration 3 (“Award 3”), each dated 6 July 2012, the Tribunal ordered the Appellants to pay Cruz City US$298,382,949.34 against delivery of the Cruz City’s shares in Kerrush, and Cruz City’s costs and legal fees and expenses of the arbitrations. In detail, the orders required the Appellants to pay:

The Appellants challenged Awards 1 and 2 in the English Commercial court on jurisdictional grounds pursuant to section 67 of the Arbitration Act 1996 ("the 1996 Act"). The applications were heard by Andrew Smith J who handed down judgment on 20 December 2012. The Appellants’ challenge to Award 1 under section 67 was successful, but the Appellants were unsuccessful in their section 67 challenge to Award 2, which was upheld. They did not pursue any challenge in respect of Award 3. Accordingly, Awards 2 and 3 are final and binding (not least by virtue of section 58 of the 1996 Act). The Appellants did not seek to appeal against the judgments of Andrew Smith J.

The Appellants have paid nothing towards satisfying Awards 2 and 3. Nor have they paid any sum in respect of costs orders, whether of the Tribunal or of the English court. Other than shareholdings identified in publicly available documents, Cruz City is unaware of what assets the Appellants may hold outside India or the full extent or nature of the Appellants’ real estate assets (or other assets) in India or the manner in which they are owned.

It was common ground before me that the Appellants owe Cruz City the sum of over $300 million plus costs and that interest was accruing at 8% per annum compounded quarterly.

It was also common ground before me that the Appellants have sufficient funds with which to satisfy Awards 2 and 3. Unitech is a company incorporated under the laws of India. Its balance sheet, as contained in its audited accounts for the year ended 31 March 2013, and published in August 2013, shows a surplus of approximately US$1.6 billion. The consolidated balance sheet of the entire Unitech group as at the same date shows a surplus of approximately $1.8 billion. Mr Jonathan Hirst QC, leading counsel for the Appellants, accepted that there was no evidence before the court which could suggest otherwise.

At the end of January 2013, Cooke J granted orders under section 66(1) of the 1996 Act ("the Enforcement Orders”), permitting Cruz City to enforce Awards 2 and 3 in the same manner as judgments or orders of the court to the same effect. Cooke J also permitted service on Skadden, Arps, Slate, Meagher & Flom (UK) LLP ("Skadden"), the solicitors who had acted for the Appellants in the arbitrations and in the subsequent proceedings before Andrew Smith J. The Enforcement Orders were served on Skadden by hand on 31 January 2013, and no application was made by the Appellants to set them aside.

The chronology in relation to this application may be summarised as follows:

The Appellants' current appeal, in respect of which they have been given leave, is to set aside the order of Field J. They contend that:

I am satisfied on the evidence before me that the Appellants will take all steps as may be available to them to avoid any payment of the sums due under Awards 2 and 3. In this context I refer to:

It is also clear that the Appellants intend, in any enforcement proceedings in India, to raise the jurisdiction arguments which were rejected by Andrew Smith J in the context of the section 67 challenge.

Moore-Bick LJ granted a stay of execution of the order made by Field J. The hearing of the appeal is listed for 17 February 2014. In the intervening period, Cruz City will not have the benefit of the disclosure order. I am satisfied, on the evidence before the court, that Cruz City, as a result, will be hampered in its efforts to identify assets belonging to be Appellants for the purposes of execution and enforcement of Awards 2 and 3.

It was common ground that the court's power subsequently to impose conditions upon which an appeal can be brought, in circumstances where such conditions were not attached to the original grant of permission to appeal under CPR 52.3(7)(b), is set out in CPR 52.9(1)(c). CPR 52.9(2) further states that:

“The court will only exercise its powers under paragraph (1) where there is a compelling reason for doing so.”

A “compelling reason” was thus required if Cruz City’s application were to succeed.

Mr Neil Kitchener QC and Miss Nehali Shah appeared on behalf of Cruz City. Largely for reasons which reflected the arguments advanced in their written and oral submissions, I decided to impose the conditions on the Appellants' permission to appeal. In those circumstances I do not propose to rehearse their submissions separately.

Mr Jonathan Hirst QC, who, together with Mr Craig Morrison, appeared on behalf of the Appellants, submitted that the required standard of demonstrating "a compelling reason" for attaching conditions, was not met in the circumstances of this case. In particular Mr Hirst submitted as follows:

It is clear that, in similar situations to the present (i.e. in cases where a liability judgment has been given, that is no longer subject to appeal, and the relevant appeal relates to subsequent enforcement orders or orders in aid of execution), courts at all levels have been prepared, in appropriate circumstances, to require an appellant to pay into court the amount of the judgment debt as a condition of the grant of permission to appeal. Prior to the current hearing, I drew counsel’s attention to certain cases decided in the context of the Masri litigation where the court indicated that it was prepared to make such an order or referred to the fact that the House of Lords had already done so; these were Masri v CCIC [2008] EWCA (Civ)1367 at [21] and [33]; Masri v CC(OG)CI [2009] EWCA (Civ) 36 at [6] and [27-32]; and Masri v Consolidated Contractors International Co SAL [2011] EWHC 409 (Comm) at [22(vi)].

The circumstances in Masri were briefly that, after initially and unsuccessfully objecting to the jurisdiction of the English court, the defendants expressly submitted to the jurisdiction and participated fully in the liability and quantum proceedings in the Commercial court, and in all subsequent proceedings before other courts, regularly exercising all rights of appeal open to them (except where a pre-condition of their obtaining leave was payment into court of the judgment debt). Numerous judges concluded in the course of various hearings that there was no doubt that the defendants, who were judgment debtors in excess of US$ 75.6 million, (a) were solvent, and had more than sufficient funds to meet the judgment debt without imperilling their ability successfully to carry on business, but (b) had no intention of paying the judgment debt and were determined to do everything possible to frustrate the judgment creditor's efforts to enforce the judgment in whatever jurisdiction such efforts might be made. After judgment, on 20 December 2007, I, as a judge of the Commercial Court, made various orders in aid of execution, including the appointment of a receiver over certain of the defendants' assets, freezing orders and orders requiring that the defendants disclosed information about their assets. The defendant judgment debtors then appealed the receivership order and certain of the freezing orders to the Court of Appeal. On 4 April 2008, the Court of Appeal (Lord Neuberger MR, Ward LJ and Lawrence Collins LJ (as he then was)) dismissed their appeal and confirmed the appointment of the receiver and the freezing orders; [2008] EWCA 303 (Civ); [2008] 2 LLR 128.  The House of Lords gave the defendants leave to appeal from the Court of Appeal's decision, but only on condition that the defendant judgment debtors paid the entire amount of the judgment debt then outstanding, in the sum of US $63,365,957.40 into court. The defendant judgment debtors failed to comply with that provision so their appeal was struck out; see Masri v CC(OG)CI [2009] EWCA (Civ) 36 at [6] and [27-32]; Masri v Consolidated Contractors International Co SAL [2011] EWHC 409 (Comm) at [22(vi)].

In Masri v CCIC [2008] EWCA (Civ) 1367 the defendant judgment debtors applied for permission to appeal from further post-judgment receivership orders made by Tomlinson J by way of enforcement. Lawrence Collins LJ, with whom Goldring LJ agreed, stated at [2] that:

"As Tomlinson J said in this case, there is no doubt that the [defendants'] group in general, and the judgment debtors in particular, have available to them substantial funds out of which they could easily pay the judgment debt without in any way imperilling their ability to carry on their successful businesses. But they have made it absolutely clear that they had no intention of paying the judgment debt. They have commenced proceedings in the Yemen for a declaration that they are not liable…. They have commenced proceedings both in the Lebanon and in Greece, from where they are run, for declarations that the judgment of the English court is not enforceable in those jurisdictions."

Lawrence Collins LJ took the view that in the circumstances of the case no permission to appeal should be granted. However he went on to say at [33] that:

“But if I had considered that there were arguable grounds for appeal I would have taken the view that this court should impose a condition of payment in [sic] of the whole of the judgment debt on conditions similar to those imposed by the House of Lords when granting leave to appeal in the receivership appeal, conditions which were not complied with by the judgment debtors with the result that the appeal was struck out.”

Likewise in Masri v CC(OG)CI [2009] EWCA (Civ) 36 at [6] and [27-32], the Court of Appeal took the view that permission should only be given to the defendant judgment debtors to cross-appeal against another enforcement order (namely a declaration by David Steel J as to the reasonableness of a letter sent by the court-appointed receiver) on condition that the entire outstanding judgment debt was paid into court within 28 days. At [31]-[32] Sullivan LJ (with whom Mummery and Rimer LJJ agreed) said:

“31.

In these circumstances I will say only that Mr Layton has persuaded me that the grounds of the Respondent’s proposed cross appeal are properly arguable. However, in view of the particular characteristics of this long-running litigation, I am firmly of the view that permission to appeal should be granted only on the terms which Lawrence Collins L.J. would have imposed had he granted permission to appeal against the Orders made by Tomlinson J., although for my part I would extend the time for compliance with the conditions from 14 days to 28 days.

32.

I would therefore grant permission to appeal if the outstanding judgment sum of US$63,365,957.40 is paid into court within 28 days of the date of our order following the handing down of our judgment.”

The Masri cases demonstrate that, in circumstances where a judgment debtor (in respect of a debt that is no longer subject to appeal), who has participated in liability proceedings in this jurisdiction, is able to pay a judgment debt, but has no intention of doing so, and is taking all possible steps to avoid enforcement of the judgment against its assets, whether in this jurisdiction or elsewhere, the courts may well consider that it is appropriate to attach a condition of payment in full of the judgment debt, to the grant of any permission to appeal against a post-judgment enforcement order. Although there was (unsurprisingly) no discussion in the Masri cases of what amounts to a "compelling reason" for the purposes of CPR 52.9(1)(c) - since the payment condition was, or would have been, attached, to the original grant of permission, in relation to which no such requirement is imposed - the Masri cases, in my judgment, are nonetheless instructive examples for present purposes as to the type of circumstances in which there will be a "compelling reason" for the imposition of such conditions.

As Clarke LJ (as he then was) noted in Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2001] EWCA Civ 2065 at [39], the requirement that there must be a "compelling reason" in order for the court to exercise its powers under CPR 52.9(1)(c) to impose a condition after the first instance judge, or a single Lord Justice has granted permission to appeal on the papers, as will ordinarily be the case, without imposing conditions,

“…is curious if it is intended to create a higher threshold than would have been applicable to the exercise of discretion of a judge considering the matter on an application [for permission to appeal] on notice or of any Lord Justice considering the matter on an application [for permission to appeal] without notice whether or not to impose a condition. ”

Certainly so far as the power to impose conditions is concerned (as opposed to the power to strike out on appeal, or set aside permission), it appears illogical that any higher threshold should be required.

Be that as it may, the cases referred to by Mr Kitchener in his written submissions likewise show that, in circumstances where a judgment debtor is attempting to appeal the original judgment imposing liability upon him, is well able to pay the judgment debt, but is taking all steps open to him to avoid enforcement, there may well be a compelling reason for the imposition of a payment condition.

Thus, for example, in Hammond Suddard Solicitors v Agrichem International Holdings Ltd supra the Court of Appeal required the defendant to pay into court the amount of the judgment debt plus costs as a condition of proceeding with its appeal. The appellant was a foreign company, which appeared (a) to have ample assets overseas (so that the new condition would not stifle the appeal), but (b) to be unlikely to honour the original judgment if its appeal failed. Clarke LJ said at [41] that the court had concluded there was a compelling reason for making the appellant pay the judgment debt or secure it as a condition for it to proceed with the appeal, including:

In Bell Electric Ltd v Aweco Appliance Systems GmbH & Co [2002] EWCA Civ 1501; [2003] 1 All ER 344, the Court of Appeal required the appellant defendant to give security for the judgment debt as a condition of prosecuting its appeal, despite the absence of any perceptible problems in enforcing the judgment debt, because of the appellant’s deliberate breach of an earlier order to pay the judgment sum. The defendant had indicated to the claimants in correspondence that if attempts were made to enforce the judgment prior to the appeal, steps would be taken to frustrate the enforcement process. Potter LJ said, at [22]:

“The question posed in this case, to which the judgment in the Hammond Suddard case provides no answer, is whether, where there is no reason to suppose that vigorously pursued steps by way of enforcement will ultimately prove fruitless if the appeal fails, there may none the less be a ‘compelling reason’ meanwhile to make an order staying the appeal if the interim order is not complied with, or a payment into court made or other security provided in respect of the judgment sum. Depending upon the overall circumstances, I see no reason in principle why that should not be so in a case where (i) the appellant is in deliberate breach of the order to pay the judgment sum; (ii) he has applied for and been refused a stay; (iii) his failure or delay in payment is due not to any financial difficulty but is cynically based upon the practical difficulties for the respondent in seeing enforcement in a foreign jurisdiction.”

In Day’s Medical Aids Ltd v Pihsiang Machinery Manufacturing Co Ltd [2004] EWCA Civ 993, there was no stay of execution pending the defendant’s appeal, but the defendant (a Taiwanese company) had failed to comply with the judgment. The Court of Appeal made it a condition of permission to appeal that the defendant paid to the claimant the judgment sum plus costs and interest. The claimants relied upon the facts that defendants were in deliberate breach of the order, the application for a stay of execution was refused, and the defendant’s failure to pay was not due to any financial difficulty. Additionally, there was evidence of potential difficulties facing the claimants in enforcement, the principal place for which was in Taiwan. The claimants also relied upon the defendants’ behaviour as indicative of the fact that they were likely to be as obstructive as possible if the matter came to enforcement (e.g. in respect of the claimants’ application under CPR 71, the defendants refused to instruct solicitors in England to accept service notwithstanding that they retained English solicitors for other proceedings). Dyson LJ held, at [25], that he was in no doubt that conditions should be imposed, because of the points relied upon by the claimant. Dyson LJ noted that the 3 requirements identified by Potter LJ at paragraph 22 of Bell were satisfied, accepting that these were not in themselves decisive, but cogent. At [29], Dyson LJ stated that:

“the defendants’ conduct in refusing to comply with court orders that have been made, without explanation, and their behaviour in relation to the CPR 71 matter, strongly suggests that they will place whatever obstacle they can in the path of any attempt by the claimants to enforce the judgment.”

Logically two questions are posed by CPR rule 59.9(1)(c). The first is whether there is in the instant case a compelling reason for making the continued prosecution of the appellants’ appeal conditional upon the payment into court of the judgment debt and costs (or those debts being secured in some satisfactory way within the United Kingdom), and the second is whether the court should exercise its discretion to make the order; see per Clarke LJ in Hammond Suddard Solicitors v Agrichem International Holdings Ltd supra at [40].

So far as the first of those two questions is concerned, I have no doubt that, in the present case, there was indeed a compelling reason for making the Appellants either pay the judgment debt or secure it as a condition of permitting it to proceed with the appeal. The factors which in my judgment combined to constitute a compelling reason may be summarised as follows:

Once the court has concluded that there is a compelling reason to make the order sought, it then has to go on to consider whether, in the exercise of its discretion, such an order should be made. There is little doubt in my mind as to how the discretion should be exercised in the circumstances of the present case. Contrary to Mr Hirst's submissions, I do not think the imposition of a condition of payment into court is in any way disproportionate. It seems to me that a case such as the present, where there is no longer any outstanding appeal against the award, is, as Mr Kitchener submitted, a fortiori the position in cases such as Hammond Suddard Solicitors, Bell Electric Ltd, and Day’s Medical Aids Ltd supra. As the conditions imposed in the Masri litigation show, the fact that the imposition of conditions seeks to ensure compliance with earlier liability judgments or orders, which are not themselves the subject matter of the current appeal, in respect of which permission is sought, is irrelevant. Nor is there anything in Mr Hirst's point that in the present case the relevant awards and orders were technically made in separate proceedings. In my judgment, there is nothing unjust or inconsistent with the overriding objective in requiring the Appellants to comply with those awards and court orders as a precondition to the prosecution of any appeal. Indeed such an order furthers the overriding objective that orders of the court should be complied with, and, where a defendant has available funds with which to do so, that judgment debts should be paid.

Contrary to Mr Hirst's submissions, it was also in my view irrelevant to the issue of imposition of conditions that: Moore-Bick LJ had stayed compliance with the order of Field J (both as regards the substantive order and the order for costs); that no application had been brought to set aside that stay; or that, by contrast, in each of the cases cited by Mr Kitchener a stay of execution had been refused. The critical point here was that the awards, now incorporated in an order of the court, were final and that there had been no stay of their enforcement. Nor was there any validity in Mr Hirst's point that reliance should be placed upon Moore-Bick LJ's refusal on the papers of the request made in the Respondent's solicitors' letter dated 12 June 2013 for the attachment of conditions. Moore-Bick LJ's order dismissing the application clearly envisaged that the Respondent would be free to make a formal application for such relief on notice to the Appellants. Moreover Moore-Bick LJ gave no reasons for such refusal, from which it may be inferred that he simply considered that such an application was one which needed to be made formally and on notice.

Nor was I persuaded by Mr Hirst's attempt to draw an analogy with the approach of the Commercial Court in relation to applications made under section 70(7) of the 1996 Act for an order that money payable under an award should be brought into court or otherwise secured pending the determination of an application or appeal under sections 67, 68 or 69 of the 1996 Act. In the present case no, and certainly no realistic, analogy could be drawn as between the current appeal and a section 70(7) application made in the context of a section 67 challenge by the other party to the jurisdiction of the arbitral tribunal. The facts of such a case and the present were entirely different. In the present case, such challenge has long since been finally determined and there was a final order requiring payment of the sums due under Awards 2 and 3. In my judgment there was no logical basis for requiring the Respondent, as a condition for obtaining an order for the attachment of conditions, to demonstrate that the Appellants' appeal was "flimsy or otherwise lacks substance." Nor was there any justification for importing into CPR 52(9) by way of analogy any such general principle as that articulated by Flaux J at [50] that the jurisdiction to order a payment as a condition of any appeal would only be exercised in circumstances where the applicant could demonstrate that the prosecution of the appeal would prejudice its ability to enforce. As the cases which I have cited show, there are all kinds of reasons that might be justified as "compelling" reasons for the imposition of conditions, which might include, but are not limited to, demonstrating prejudice of ability to enforce.

For all the above reasons I considered that it was appropriate in the exercise of my discretion to require the Appellants to pay the full amount of the sums due under Awards 2 and 3 into court. In all the circumstances, 28 days from the date on which I announced that I would attach conditions to the grant of permission appears to be a reasonable time to allow the Appellants to comply with this order. If that is not sufficient time, then the Appellant will need to support any application for an extension of time with evidence which, at the very least, explains (a) the nature and value of the Appellant’s assets outside India; (b) why such assets are not sufficient and/or readily available to produce funds for the payment into court; and (c) in adequate detail what steps they have taken to date to obtain Indian exchange control permission for the transmission of funds out of India, what response(s) have been received from the relevant Indian authorities, and what are the relevant statutory and/or regulatory procedures governing such applications. The information currently contained in paragraph 17 of Mr Rajan Gupta’s first witness statement is inadequate in this respect.