ETI Euro Telecom International NV v Republic of Bolivia & Anor

On 9 May 2008 the claimants (whom I shall call “E.T.I.”) applied to me without notice for an order against the Republic of Bolivia and against the 2^nd defendant (whom I call “Entel”) to prevent some deposits at Deutsche Bank, London being removed from England and Wales or being dealt with or diminished in value. I made the order and on 16 May 2008 Mr. Justice Flaux extended it. On 12 June 2008 Entel applied to have the order discharged. On 30 June 2008 the Republic of Bolivia made a similar application. The order was challenged on various bases, including that the court has no jurisdiction to make the order; that there was material non-disclosure, and that there was not sufficient evidence of a risk of dissipation. Those applications are listed for hearing over two days on 29 and 30 July.

On 1 July 2008 Stephenson Harwood, solicitors for the Republic of Bolivia, wrote a letter to the court and Reed Smith, solicitors for Entel (or who claim to be instructed for Entel) countersigned it to record their agreement with its contents. In the letter Stephenson Harwood wrote:

“… We have set out what we consider to be various jurisdictional barriers to the injunctive relief obtained on 9 May 2008. We consider those points to be both clear and unanswerable. We have given the claimant an opportunity to consider these points so that, consistent with their continuing duty for full and frank disclosure, they could themselves apply to the court for the immediate discharge of the relief wrongly obtained. Unfortunately they have not provided their substantive response to the points we have raised. Given the force of the points and the fact that we are dealing with one of the court’s most draconian forms of relief, we respectfully submit that this matter cannot and should not be expected to await a two day hearing now listed for the end of July. If, as we say, the points fatally undermine the entitlement to the relief granted then the injunctive relief should be immediately discharged”.

Orrick, Herrington & Sutcliffe, E.T.I.’s solicitors, required until 7 July 2008 to respond to the points raised by the defendants. The matter was listed for directions on 9 July and I offered the defendants today’s hearing, on 10 July 2008, to present an argument that the order should be discharged on the basis of limited grounds without waiting for the more extended hearing on 29 and 30 July. The defendants wishes to make such an application, confining their arguments on 10 July 2008 to questions of, or closely related to, their points about jurisdiction.

In view of the nature of the challenge to the order advanced before me, there is no need for a detailed explanation of the facts but I shall set out something of the background. I do so on the basis of E.T.I.’s assertion of the position. It might be that the defendants take issue with some of these matters but, to my mind, E.T.I.’s evidence sufficiently establishes them for present purposes.

In 1995 E.T.I. entered into agreement with the Republic of Bolivia and Entel, the Bolivian communications company, whereby Entel was privatised and E.T.I. became owners of half the shares in Entel and, it says, took managerial control. E.T.I. paid something over US$600m and thereafter made substantial investments in Entel and, in 2005, there was a capital distribution.

In 2007 ABN Amro Bank NV was engaged to place a value on E.T.I.’s stake in Entel and considered that it was worth between US$294m and US$325m. E.T.I. says that its value increased thereafter. In January 2006 President Evo Morales took office in Bolivia, advocating significant State intervention in the economy. It is E.T.I.’s contention that the Government began to take measures that adversely affected the value of its investment in Entel, and were designed to expropriate its interest without paying fair compensation.

On 12 October 2007 E.T.I. submitted a request for arbitration to ICSID, the International Centre for the Settlement of Investment Disputes, part of the World Bank based in Washington D.C. established to hear disputes between investors and States under bi-lateral treaties. It sought to recover damages against Bolivia to compensate it for injuries from the Government’s actions. The request was based on its rights under a bi-lateral investment treaty between the Kingdom of the Netherlands and the Republic of Bolivia signed on 10 March 1992. E.T.I. is a Netherlands company.

The treaty is concerned with the legal relationship between Bolivia and Dutch nationals who made investments in Bolivia, and provides for various protections for Dutch nationals who do so. It includes a dispute resolution machinery for arbitration of disputes between either the Dutch or the Bolivian Government and an investor from the other State. The treaty provides that if both States have acceded to the Convention on the Settlement of Investment Disputes between States and nationals of other States of 18 March 1965 (and the Netherlands and Bolivia have) then any disputes that may arise between one of the contracting States and a national of another shall be submitted for conciliation or arbitration to ICSID in accordance with the Convention.

On 2 May 2007 Bolivia formally denounced the ICSID Convention, but it is E.T.I.’s contention that that denunciation did not take effect before 2 November 2007. On 29 October 2007 Bolivia submitted a letter to ICSID objecting to its jurisdiction over the reference submitted by E.T.I. Nevertheless, on 31 October 2007 ICSID registered E.T.I.’s request for arbitration. Bolivia has not participated in the ICSID reference. The tribunal is not yet constituted. E.T.I. says that this is the result of Bolivia not complying with the ICSID rules. In view of the state of the evidence before me, I proceed on the basis that Bolivia has indeed not complied with the ICSID rules for constituting a tribunal, although it is right to point out that the ICSID Convention also contains provisions (in particular Articles 37-40) for machinery for the constitution of a tribunal notwithstanding one party to the dispute is not co-operating, and had that machinery been used by E.T.I. a tribunal could by now have been constituted.

On 1 May 2008, at a May Day rally, President Morales announced that Bolivia was nationalising E.T.I.’s interest in Entel and pronounced a Supreme Decree to that effect. On the same day police took control of Entel’s main offices in Bolivia.

Entel, according to E.T.I., maintains cash reserves in London, including some renewable time deposits at Deutsche Bank. There is a dispute, which I cannot resolve in this judgment, as to whether they are or have been used for day-to-day operating expenses.

On 5 May 2008 E.T.I. obtained ex parte an order of attachment in the courts of the South District of New York. It provided for the Marshal to levy upon, amongst other property, deposits held by Entel in J.P. Morgan Chase Bank NA. E.T.I.’s complaint is headed: “Complaint for order of attachment in aid of international arbitration”. The complaint itself makes it clear that the order is sought “in aid of” the ICSID arbitration. Proceedings are continuing in the New York court. E.T.I. seeks to have the order confirmed and the Republic and Entel (or those purporting to act for Entel) oppose that motion.

On 9 May 2008 E.T.I. sought its order from me, relying upon s.44 of the Arbitration Act 1996, and s.25 of the Civil Jurisdiction and Judgments Act 1982, the latter contention being on the basis that there are “proceedings” before the New York court. It is said that I should discharge the order because the court had no jurisdiction to make it or that the court’s jurisdiction provides no proper basis for making it. These arguments were advanced by Mr. Paul McGrath, representing the Republic of Bolivia:

In response to Bolivia’s arguments, E.T.I. no longer maintains that the court has jurisdiction under the 1996 Act to make the order. The 1996 Act has only limited application to ICSID arbitrations. ICSID arbitrations are subject to the Arbitration (International Investment Disputes) Act 1966. There is power in s.3(1) of that Act for the Lord Chancellor to issue an Order in Council to extend parts of the 1996 Act, including s.44, to cover ICSID arbitrations, but this has not been done (see Republic of Ecuador v Occidental Exploration and Production Company [2006] QB 432 at para.38).

E.T.I.’s contention now is that the court has jurisdiction to make its order under the 1982 Act, and this contention has been expanded since the hearing on 9 May, in that it is said that s.25 of the 1982 applies both on the basis of the New York court proceedings but also on the basis of the ICSID arbitration reference. Although the second limb of that contention was not previously advanced by E.T.I., Mr. McGrath and Lord Brennan have not argued that on that account it is not open to E.T.I. now to advance it or that the order should be discharged on that account. Their contention is that the new argument does not assist E.T.I.

The background to s.25 of the 1982 Act was the decision of the House of Lords in The Siskina [1979] AC 210, that the English court did not have jurisdiction to grant interim relief by way of Mareva injunction (as it was then called) unless it had jurisdiction over the merits of the substantive claim and the provisions of Article 24 of the Convention on Jurisdiction Enforcement of Judgments in Civil and Commercial matters (now Article 31 of the counter-regulation EC No. 44/2001). That provides:

“Application may be made to the courts of Contracting State for such provisional, including protective, measures as may be available under the law of that State, even if, under this Convention, the courts of another Contracting State have jurisdiction as to the substance of the matter”.

Section 25, as originally enacted, read (in part) as follows:

“(1)

The High Court in England and Wales or Northern Ireland should have power to grant interim relief where -

(a)

proceedings have been or are to be commenced in a Contracting State other than the United Kingdom or in a part of the United Kingdom other than that in which the High Court in question exercises jurisdiction; and

(b)

there are or will be proceedings whose subject matter is within scope of the 1968 Convention as determined by Article 1 (whether or not the Convention has effect in relation to the proceedings).

(2)

On an application for any interim relief under sub-section (1) the court may refuse to grant that relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from this section in relation to the subject matter of the proceedings in question makes it inexpedient for the court to grant it.

(3)

Her Majesty may by Order in Council extend the power to grant interim relief inferred by sub-section (1) so as to make it exercisable in relation to proceedings of any of the following descriptions, namely:

(a)

proceedings commenced, or to be commenced, otherwise than in a Contracting State;

(b)

proceedings whose subject matter is not within the scope of the 1968 Convention as determined by Article 1;

(c)

arbitration proceedings”.

Sub-section (5) of s.25 provided that an order in relation to arbitration proceedings may provide for the repeal of any provision in relation to s.12(6) of the Arbitration Act 1950.

By the Arbitration Act 1996 the section is amended in that the reference in sub-section 25(3)(c) to arbitration proceedings was repealed, as was sub-section (5). That amendment to the 1982 Act came into effect on 31 January 1997. On 12 February 1997 there was made the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997. It came into force on 1 April 1997. It provided in paragraph (2) that:

“The High Court in England and Wales or Northern Ireland shall have power to grant interim relief under s.25(1) of the Civil Jurisdiction and Judgments Act 1982 in relation to proceedings of the following descriptions, namely -

(a)

proceedings commenced or to be commenced otherwise than in a Brussels or Lugano Contracting State;

(b)

proceedings whose subject matter is not within the scope of the 1968 Convention as determined by Article 1 thereof”.

I should perhaps say that Article 1 of the 1968 Brussels Convention, to which s.25 and the Order in Council refer, provided, of course, that the Convention should apply to civil and commercial matters but not extend, for example, to Revenue and Customs or administrative matters and should not apply to arbitration and various other specified matters, such as the status or legal capacity of natural persons and bankruptcy.

In Credit Suisse Fides Trust SA v Cuoghi [1998] QB 818 the Court of Appeal considered an order made under s.25 of the 1982 Act after proceedings had been brought by the claimant against the defendant in Switzerland. After explaining the background to the section and referring to the Order in Council, Lord Justice Millett said, at p.825C:

“The position has now been reached … that the High Court have power to grant interim relief in aid of substantive proceedings elsewhere of whatever kind and wherever taking place”.

He went on to say this, at p.827D-E:

“I recognise that an ancillary jurisdiction ought to be exercised with caution, and that care should be taken not to make orders which conflict with those of the court seised of the substantive proceedings. But I do not accept that interim relief should be limited to that which would be available in the court trying the substantive dispute: or that by going further we would be seeking to remedy defects in the laws of other countries”.

Thus, Mr. McGrath submits that s.25 is limited to giving the court jurisdiction to assist foreign substantive proceedings. I accept that, provided the expression “substantive proceedings” is not understood too narrowly. For example, in Kensington International Ltd v Republic of the Congo [2008] a Lloyd’s Rep 161, the claimant, having obtained judgment in the English court, brought attachment proceedings in Switzerland and the Court of Appeal recognised that s.25 provided the jurisdiction to make orders in support of those Swiss attachment proceedings. Mr. McGrath argued that the proceedings in the New York court are not proceedings within the meaning of s.25 of the 1982 Act, or the Order in Council, because they are not substantive proceedings and are themselves ancillary to the ICSID arbitration. I observe, however, that the word “substantive” is not found in either s.25 or in the Order of Council, and it seems to me, for the purposes of this case and sufficiently for Bolivia’s purposes, Mr. McGrath’s argument can be recast to trace more closely the statutory language. If the English court has power to make the order because of the New York proceedings, it is because such power is conferred by the Order in Council. The Order in Council empowers the court to grant interim relief “in relation to proceedings” commenced in a non-Convention State, and whose subject matter is not within the scope of the 1968 Convention as determined by Article 1.

It does not seem to me that the order in these proceedings is interim relief made in relation to the New York proceedings in any relevant sense. The New York proceedings are directed to assets said to be within the New York jurisdiction. These proceedings are directed to different assets, said to be in London. Both are ancillary to the ICSID arbitration and, in that sense, the New York proceedings and these proceedings might be said to be parallel proceedings. But these proceedings cannot be said to be ancillary to, or in support of, the New York proceedings, and the New York proceedings have no primacy over these proceedings except in an irrelevant temporal sense. I do not consider, therefore, that the court has jurisdiction under the Order in Council by virtue of the existence of the New York proceedings.

I must therefore consider the alternative argument that the court has jurisdiction under the Order in Council because the court order is made in relation to the arbitration proceedings. Here Mr. McGrath advances two arguments: that the Order in Council is not to be interpreted as empowering the courts to make orders in relation to arbitration proceedings, and that, even if it did, it must be inexpedient to exercise that power because of the ICSID rules which govern the arbitration and to which E.T.I. is to be taken to have subscribed by submitting the request to a ICSID arbitration.

Mr. McGrath’s first argument is that s.25, as originally enacted, was confined to the position where legal as opposed to arbitral proceedings have been, or are to be, commenced and that the Order in Council does not change this. Although the order brings it about that, as Lord Justice Millett put it, there is jurisdiction to “grant interim relief in aid of substantive proceedings elsewhere of whatever kind and wherever taking place”, that does not include arbitral proceedings. This is not, as I understand the argument, because it is said that the word “proceedings” is in itself always inappropriate to refer to arbitrations. Mr. Moss rightly referred to other areas of the law where the word “proceedings” has been understood to refer to arbitrations and this can, depending on the context, undoubtedly be a natural usage of the term. Mr. McGrath’s argument instead is directed to its meaning in the context of the order and, importantly, in the legislative context in which the order is made.

As I have said, the Order in Council was made shortly after the Arbitration Act 1996 was passed, providing a detailed regime in s.44 for the court powers in support of arbitrations. The specific power conferred by the 1966 Act as amended to extend the regime of the 1996 Act to ICSID arbitrations has not been exercised. It is not, it is said, to be supposed that instead the Order in Council intended to supplement or otherwise affect the new regime under the 1996 Act, and, it is added, it is not to be supposed that the Order, which was directed to private disputes, incidentally conferred power to use s.25 in relation to ICSID arbitrations involving States. There is no need to interpret the Order as having this surprising effect and it should not be so interpreted.

I am persuaded by this argument. Mr. Moss responds that, given the amendment to s.25 made by the 1996 Act, the effect of the order is that there is no statutory restriction on what proceedings can be supported by orders made under the section. It is simply a question of deciding whether arbitration proceedings are included in the expression “proceedings” and that it is natural so to interpret the expression. He reinforces this argument by submitting that there is no reason that, where s.44 is available, the court should not have parallel jurisdictions under s.44 of the 1996 Act and s.25 of the 1982 Act, just as, in other circumstances, the court has power and jurisdiction under s.44 and under s.37 of the Supreme Court Act 1981. However, these arguments do not, as it seems to me, answer the thrust of Mr. McGrath’s point, that the regime for arbitrations, as laid down in detail in the 1996 Act, and there is power to extend it by statutory instrument ICSID arbitrations if it was so decided.

I also accept Mr. McGrath’s second argument about this part of the case, that if there is jurisdiction to make the order it could not be expedient to make it in view of the rules governing ICSID arbitrations. This is because the ICSID Convention, Regulations and Rules provide that, unless otherwise stated, consent of the parties to an ICSID arbitration is deemed to be consent to the arbitration to the exhaustion of any other remedy (see Article 26 of the Convention).

Article 47 of the Convention deals with provisional measures to preserve rights. I should read Rule 39 of the Arbitration Rules:

“(1)

At any time after the institution of proceeding, a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal. The request shall specify the rights to be preserved, the measures the recommendation of which is requested, and the circumstances that require such measures.

(2)

The Tribunal shall give priority to the consideration of a request made pursuant to paragraph (1).

(3)

The Tribunal may also recommend provisional measures on its own initiative or recommend measures other than those specified in a request. It may at any time modify or revoke its recommendations.

…

(5)

If a party makes a request pursuant to paragraph (1) before the constitution of the Tribunal, the Secretary-General shall, on the application of either party, fix time limits for the parties to present observations on the request, so that the request and observations may be considered by the Tribunal promptly upon its constitution.

(6)

Nothing in this Rule shall prevent the parties, provided that they have so stipulated in the agreement recording their consent, their requesting any judicial or other authority to order provisional measures, prior to or after the institution of the proceeding, for the preservation of their respective rights and interests”.

It will be observed that Rule 39 lays down a regime that applies before as well as after the tribunal is constituted. Thus Mr. McGrath submits that it must be inexpedient for an order to be made supposedly in aid of the arbitral tribunal if that in itself is inconsistent with the arbitral regime, and contrary to the arrangement for the arbitration which a party accepts when requesting arbitration.

In support of this, he again refers to Credit Suisse where it is emphasised that it will not be expedient to exercise the jurisdiction under s.25, other than harmoniously with the regime and procedures of the court seised of the substantive proceedings (see especially p.827D per Millett J., which I cited above, and p.831H to 832A per Lord Bingham CJ).

Mr. Moss put forward two arguments in reply to this submission. He said that it is not open to Bolivia to rely upon the arbitration regime when there is no constituted tribunal that can recommend protective measures as contemplated by Rule 39, and when this come about through Bolivia’s own failure to comply with the arbitration regime. There seem to me three answers to this. First, as

Mr. Moss also argues that since ultimately this point raises a question whether it is inexpedient that the order stand, it should not be considered on the limited basis upon which Mr. McGrath urges. It must or should be decided only at the longer hearing at the end of the month, when all the considerations thereupon the expediency of my order and the exercise of the court’s discretion can be weighed. Indeed, Mr. Moss argued that, similarly, all the points raised by the defendants should be deferred for consideration at the end month and adjudicated upon in the light of the broader considerations about this dispute.

I could see force in this submission if I thought that there was a realistic prospect that other considerations might affect my decision, either on the question of expediency or on the other arguments put forward by Mr. McGrath. But I cannot accept that it would be right to maintain a freezing order against another State without considering arguments that it was granted on an erroneous basis, the more so when arguments were put forward when it was granted which clearly cannot be sustained and the relevant ICSID rules were not there before the court. To my mind, this is so even assuming that E.T.I. maintains that the defendants did not move as expeditiously as they might have done to discharge the order. In view of the arguments put forward about the nature and limitations of the ICSID regime, I cannot accept that it is right to maintain the order on the grounds that it should be made in relation to the ICSID arbitration.

In view of these conclusions, it is not necessary for me to consider the alternative argument that Mr. McGrath put forward based upon the State Immunity Act 1978, but it is a short point and I shall say something about it. Section 13(2) of the Act provides that “relief shall not be given against a State by way of injunction …” However, E.T.I. rely upon s.9 of the Act, which provides as follows:

“(1)

Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration.

(2)

This section has effect subject to any contrary provision in the arbitration agreement and does not apply to any arbitration agreement between States”.

The issue between the parties is whether the agreement whereby Bolivia agreed to submit a dispute of this kind to arbitration contains a “contrary provision”. Mr. McGrath says that it does, because the agreement was for ICSID arbitration and because of the regime that I have described. The bi-lateral treaty between the Kingdom of the Netherlands and the Republic of Bolivia provides for ICSID arbitration. The ICSID Convention Rules, as I have explained contemplate that there shall be no provisional measures in respect of an arbitration otherwise than by agreement or in accordance with the machinery under the Rules.

In my judgment, therefore, Mr. McGrath is right in his argument that there is a relevant “contrary agreement”, under s.9, and Bolivia is entitled to State immunity. I am therefore satisfied that the orders made on 9 May and 16 May 2008 against Bolivia should not have been made, either on the basis of contentions that E.T.I. then put forward in support of them, or on the grounds it now argues. There is no proper basis for continuing the order until a further lengthier hearing at the end of July, and the order against Bolivia should be discharged. There is no proper independent basis for maintaining the order against Entel and the order against it too should therefore be discharged.