OMV Petrom SA v Glencore International AG

The claimant, OMV Petrom SA, is an oil company incorporated in Romania. The defendant, Glencore International AG, is incorporated in Switzerland, and has as part of its business an oil trading business. The proceedings arise out of contracts for the supply of crude oil to Romania between 1993 and 1997. The trial is due to be held commencing 6 May 2014.

The nature of the present applications is as follows. Petrom submits that issues arising in an arbitration that took place in 2005 between Glencore as respondent, but a different party as claimant, should be treated as settled in these proceedings in the Commercial Court. Accordingly, it seeks an order (among other things) striking out parts of the defence as an abuse of process. Glencore contends that it is not an abuse of process to raise these matters again, relying (among other things) on the fact that the arbitration was confidential to the parties to it. It has its own application which it describes as intended to enforce the confidentiality of the award.

The facts, which are not greatly in dispute for present purposes, are unusual. The dispute arises out of the supply by Glencore of crude oil into Romania between about 1993 and 1997. The supply contracts were between Glencore and a company called SC Petrolexportimport SA (“Petex”), which was a commission agent. The nature of the underlying allegations are that Glencore did not supply crude oil of the contractual specification, but delivered blended cargoes made of up various types of cheaper and heavier crude oils.

In 2003, Petex commenced arbitration in its own right against Glencore claiming that it was in breach of contract, and/or guilty of fraud. Following hearings in 2005, the arbitrators delivered their Partial Final Award on 16 January 2006. The tribunal found that Glencore was in breach of the supply contracts. On that basis, the tribunal did not need to consider separately Petex’s claim in deceit.

However, part of Glencore’s defence to the claim was that it was time barred. The answer raised by Petex was that its claim was not time barred, because relevant facts had been deliberately concealed by Glencore (s.32 Limitation Act 1980). For various reasons, Glencore maintained that Petex knew or accepted the position. However, this was rejected by the tribunal, which found in favour of Petex on the deliberate concealment point.

The tribunal then went on to consider title to sue. It held that as commission agent, Petex did have title to sue. However, it held that Petex had not suffered any actionable loss. It explained that its principals (two Romanian companies) had ceased to exist, but that Petrom appeared to be the successor in title. (This point is in dispute in these proceedings.) However, it found that Petex had not informed Petrom about the proceedings, and did not intend to account to anyone for the amounts recovered. In those circumstances, it was found that Petex had suffered no loss.

The tribunal went on to consider quantum, observing that it was strictly unnecessary to do so. The damages claim was (and indeed subject to accrued interest still is) in the region of US$64m. Most of this was attributable to a discount of US$2 a barrel which Petex said should have been applied to the cargoes. The other part of the total was based on a revaluation of the blends actually supplied, as put forward in the expert evidence. For reasons given by the tribunal, had Petex been able to maintain its claim, it would have awarded damages limited to the smaller sum.

The appeal of Petex to this court under s.68 Arbitration Act 1996 was unsuccessful. According to Petrom, it was only then that Petex informed it about the facts giving rise to the claim. Petrom then took the following steps. Pursuant to an assignment of Petex’s rights under the supply contracts, it commenced arbitration proceedings against Glencore. At about the same time, it began these proceedings in the Commercial Court on 30 April 2008. Pursuant to standstill agreements, these proceedings were stayed pending the second arbitration. However, Petrom’s claim in this second arbitration failed, on the basis that as an assignee of Petex, its claim was res judicata by virtue of the award in the first arbitration.

The standstill in these proceedings came to an end in October 2011, but the parties then negotiated as to whether individuals who had been joined as defendants could be let out on the basis that Glencore would accept vicarious liability for their acts (this has taken place). In the event, Glencore’s defence was served on 12 November 2012.

By its claim, Petrom seeks damages for conspiracy and/or deceit, on the basis of an agreement to defraud by delivering cargoes which purported to be the contracted cargoes, but were in fact blends made of various types of cheaper and heavier crude oils. The Particulars of Claim were served on 26 October 2012, and amended on 27 February 2013.

By its defence, Glencore’s primary contention is that Petrom’s claims are time barred. It also pleads that Petrom is not the successor in title to the original Romanian companies. Further, it denies any wrongdoing, alleging that Petex was at all times aware of the material facts. As to damages, it raises in essence the same defences on which it succeeded in the first arbitration.

Petrom submits that this is a plain case of an abuse of process. It would, it is submitted, be manifestly unfair to Petrom for Glencore to be permitted to challenge the conclusions reached by the tribunal in the first arbitration, and to do so would be to bring the administration of justice into disrepute. It emphasises that Petrom was in ignorance of the first arbitration, which Glencore won on the basis that Petrom, rather than Petex, was the true claimant. In these circumstances, now that Petrom is suing in its own capacity, Glencore should not be allowed to require it to relitigate precisely the same issues as were determined by the tribunal.

It submits that although the precise causes of action are different, the principal issues which Glencore seeks to argue by its defence are precisely the same as those in the arbitration. The issues are the same, and so is the evidence on which Glencore seeks to rely in support of its case. No additional allegations are being made. The decision of the tribunal in the first arbitration was reached after full argument and evidence, and it was not a case in which Glencore was at any disadvantage. Because of the passage of time, memories of the individuals concerned will have diminished.

Furthermore, a key witness in relation to the question whether Petex was aware of the material facts was Mr Aurel Fotin Bacila, and he has died since the arbitration. This, it is submitted, is an important factor which adds substantially to the unfairness which would result to Petrom if Glencore was permitted to rely on the arguments in question. Petrom is not an unconnected third party, but was intimately connected with the result of the arbitration. The only reason it failed was that it was Petrom, not Petex, which had suffered the loss. The witnesses Petrom intends to rely on are the same as those who gave evidence in the arbitration, and it would be unfair on the witnesses that they should be subject to further cross examination now on the same facts. The precise paragraphs which it contends should be struck out were set out in a draft order.

Glencore submits that it would be unjust and inappropriate to strike out any part of its defence for the following reasons:

This is not a case in which Petrom relies on the doctrine of res judicata and it was not a party to the arbitration (that is, the first arbitration). However, it is well established that independent of the res judicata doctrine, it can be an abuse of process for a party to later proceedings to seek to relitigate issues determined in previous proceedings.

The leading case is Secretary of State for Trade and Industry v Bairstow [2004] Ch 1, in which the authorities are reviewed and the principles summarised by Sir Andrew Morritt V-C at [38]. He said that a collateral attack on an earlier decision of a court of competent jurisdiction may be, but is not necessarily, an abuse of the process of the court. If the earlier decision is that of a court exercising a civil jurisdiction, then it is binding on the parties to that action and their privies in any later civil proceedings. (Privies for these purposes include assignees and others who stand in the same position as the party in question: see e.g. Gleeson v Wippell [1977] 1 WLR 510 at 515E.)

The passage in the judgment relevant to the present case is as follows:

“If the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it will only be an abuse of the process of the court to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (ii) to permit such relitigation would bring the administration of justice into disrepute”.

The foundation of Petrom’s submission is that although the precise causes of action in this case are different from those determined by the Tribunal in the arbitration, the principal issues which Glencore seeks to argue by its defence are precisely the same. In oral argument, Glencore broadly accepted that the evidence at trial will be the same as it was in the arbitration, and that there are substantial overlapping issues. It accepts that the underlying question is the same, namely whether it has a valid answer to the claim on the basis that Petex knew what was happening in terms of the oil delivered. Its basic contention is that having won the first arbitration, it now has to defend itself for a second time, and has the right to do so.

I proceed therefore on the effectively undisputed basis that in these proceedings both the claims and the defences are essentially the same as in the arbitration. This is not surprising since, subject to quantum, the claim was largely upheld, Petex having failed because it had no standing to bring it. The main difference lies in the fact that the court proceedings are brought by a different claimant.

Glencore’s first objection to Petrom’s application is that arbitration is private and confidential and fundamentally a contractual method of resolving disputes between contracting parties. The promise to honour the award is given only to the other contracting party, and no-one else. Glencore cites Sun Life Assurance Company of Canada v Lincoln National Life Insurance Co [2005] Lloyd’s LR 606. At [68], Mance LJ points to important differences between litigation and arbitration as a consensual private affair between the particular parties to a particular arbitration agreement. The fact that, except by consent, other parties cannot be joined, and connected arbitrations cannot be heard together, means that, “Different arbitrations on closely inter-linked issues may as a result lead to different results, even where, as in the present case, the evidence before one tribunal is very largely the same as that before the other”.

As this passage indicates, the Sun Life case concerned the effect of findings in one arbitration on a subsequent arbitration, the arguments being directed to res judicata. However, it does not decide that the fact that the matters in question were raised previously in arbitration proceedings rather than court proceedings is itself a ground for refusing relief for abuse of process in subsequent court proceedings, and I did not understand Glencore to submit otherwise.

The question whether abuse of process may be relied upon where the earlier decision is that of an arbitral tribunal, rather than that of a court, arose directly in Michael Wilson & Partners Limited v Sinclair [2013] 1 All ER (Comm) 476. At [50], Teare J pointed out that the question is whether the process of the court is being abused by a claim being brought before it. He accepted that the nature of the tribunal which has given the prior decision may be important in deciding whether the subsequent court proceedings are an abuse of process. This (it is to be noted) takes account of the principle that arbitration proceedings are confidential to the parties of the arbitration. But in deciding whether it is the court’s duty to prevent its processes from being abused, he concluded that “… there can be no rule that the court can have no such duty merely because the tribunal whose decision is under attack is an arbitral tribunal”: see also Art & Antiques Limited v Richards [2013] EWHC 3361 (Comm), at [23], Hamblen J.

In this case, Petrom of course was not a party to the arbitration. As regards non-parties, Teare J goes on to say that “… it will probably be a rare case where an action in this court against a non-party to an arbitration can be said to be an abuse of the process of this court”. As he pointed out, where a claimant has a claim against two persons and is obliged to bring one claim in arbitration, the defeat of the claim in arbitration will not usually prevent him from pursuing his claim against the other person in litigation. On the facts of that case, however, he decided that it would be an abuse of process to allow a collateral attack on the prior decision of the arbitral tribunal to be made, even though the court proceedings were brought against a non-party to the arbitration. I would accept also, that it can be an abuse of the process of the court to seek to relitigate in court proceedings issues which have been the subject of prior proceedings before an arbitral tribunal if the tests set out in the authorities are otherwise satisfied.

In the present case, the position is the other way around to that in the Michael Wilson case. The claimant is the non-party to the arbitration, seeking to argue that the defence raised by the defendant is a collateral attack on the award. Again, the fact that it was the defendant in both proceedings was relied on by Glencore as a reason to refuse relief. However, it has been held in relation to court proceedings that it can be an abuse of process for a defendant to seek to reopen issues decided against it as defendant in previous court proceedings (North West Water Ltd v Binnie & Partners [1990] 3 All ER 547). In Conlon v Simms [2008] 1 W.L.R. 484 at [174], Moore-Bick L.J. said that the facts of that case were unusual, but he did not disapprove the decision. On this basis, Glencore’s status as defendant in both proceedings is a relevant factor, but is not in itself a reason for refusing to grant Petrom relief which would otherwise be available.

Glencore further argues that in the decided cases the party alleged to be abusive is invariably the party which lost in the earlier proceedings, whereas it was successful in the arbitration. Whilst it lost on the deliberate concealment issue, there can be, it submits, no estoppel against it as the successful party on an issue on which it lost. This is because there can be no right of appeal in such circumstances (Spencer Bower and Handley, Res Judicata, 4^th ed, para 8.25). This is linked to another submission made by Glencore, which is to the effect that the ratio decidendi of the award was that Petex had no status to bring the proceedings, and that the tribunal’s findings as to fraud were obiter.

In agreement with Petrom, I consider that neither point is valid in the context of an abuse of process argument. It can, in my view, be an abuse of process for a party which was successful overall in earlier proceedings to seek to relitigate an issue on which it was unsuccessful. Likewise, whilst it may be decisive under the doctrine of res judicata to identify whether or not a particular finding was obiter, there is no reason to take such a restrictive view in the case of abuse of process. The focus in the latter case is not so much on the binding nature of the finding, but upon the undesirability of having the same matter adjudicated upon again where it would be manifestly unfair to do so, or would bring the administration of justice into disrepute.

In this regard, it is in my view relevant to weigh in Petrom’s favour the fact it may be perceived as unfair on witnesses that they should be subject to further cross examination now on the same facts. It is further relevant that a witness whom Petrom would wish to testify, Mr Bacila, has died since the arbitration. (Glencore says it has allowed Petrom to adduce his previous evidence in the trial by way of exception to the confidentiality of the arbitration.) Further, Petrom can fairly point to the period of time that has passed since the arbitration hearings, though there are some significant issues as to the responsibility for the delay. These are factors that can properly be taken into account when applying the test in the Bairstow case.

However, there are points which go the other way. Petrom’s case at trial will be the same as that of Petex in the arbitration, namely that Glencore, and individuals for whom Glencore is vicariously liable, acted dishonestly. The effect of Petrom’s application, if successful, would be to foreclose that question. Essentially, findings of dishonesty made by the tribunal in private arbitration proceedings would be adopted without more by the court in public proceedings.

The position in my view is analogous to that in Conlon v Simms, ibid, where it was held that the court should be slower in preventing a party from continuing to deny serious charges of which another court has previously found him guilty than in preventing such a party from initiating proceedings for the purpose of relitigating the question whether he was guilty of those charges. At [178], Ward LJ put the question in terms of whether it was more unfair on the claimants to require them to prove very serious charges of fraud they made than it was unfair on the defendant to prevent him from defending himself in the new proceedings. He was uncomfortable with a result by which “… a man facing serious charges of fraud is not able to defend himself again, and I conclude that he suffers a greater unfairness than do the claimants”. The same point applies in the present case in my view, and I would regard it as sufficient to decide this application against Petrom.

There are further factors to take into account as well, however. The first goes to what Glencore characterises as a “lack of mutuality” in Petrom’s position. In the draft order which it submitted on the application, Petrom sought an order that the “Defendant is precluded from challenging in these proceedings any conclusions and findings of fact made by [the tribunal] by way of an arbitration award dated 16 January 2006 …”. However it became clear in argument that this is not in fact Petrom’s position. Its position is that Glencore should be barred from rearguing factual issues which were decided against it. However Petrom made it clear that it intended to reargue the findings of the tribunal on quantum. These are significant findings, because on a claim for approximately US$64m, the tribunal assessed the quantum of damages to be only US$11.6m.

Petrom responded that the distinction it sought to draw is that findings of the tribunal as to quantum were obiter. I do not accept that this is a good answer. Whilst the findings as to quantum clearly are obiter, for the reasons set out above I doubt that this is decisive where the issue is abuse of process as opposed to res judicata. More generally, I do not think that Petrom is entitled to hold Glencore to the parts of the award that are disadvantageous to it whilst leaving in issue the tribunal’s findings that were in Glencore’s favour. This is not compatible with an abuse of process case.

There are two other factors which in my view are also important. I described above the procedural chronology. As appears from the second witness statement of Ms Dumitrescu for Petrom, after the standstill, and after negotiations as regards the status of individual defendants, these proceedings got fully underway at the latest in October 2012 when the amended Particulars of Claim were served. The defence was served in November 2012 and amended in February 2013. I do not accept, however, that it was only when the defence was served that it became clear that Glencore was going to maintain that it was not fraudulent. Even if that is so, case management directions were given on 21 February 2013. Since then, disclosure has taken place, and the parties have served their factual evidence. Petrom’s strike out application was not issued until 11 December 2013, by which time the proceedings were well advanced ahead of the trial on 6 May 2014.

Petrom submits that even if it could have brought the application at an earlier stage, this is irrelevant, because the question is whether the conduct of Glencore amounts to an abuse of process. If it does, it is submitted that the court has a duty (not a discretion) to prevent that abuse from taking place (Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 536) if necessary of its own motion.

I do not accept this submission. In Conlon v Simms, ibid, at [166], Moore-Bick LJ said that “… since the consequences of any action to prevent abuse are likely to be serious, it is desirable that any alleged abuse should be identified as soon as possible and the issue raised, where convenient, in the statements of case”. There is no reason why that should not have been done in the present case. Abuse of process was an obvious point to make by way of reply if a good one. However, to date the action has proceeded on the basis that Petrom will have to prove the fraud it alleges, which is reflected in the current Case Memorandum and List of Issues. I have taken account of Petrom’s explanation in its evidence, but the reality in my view is that if this point was to be taken, it had to be taken much earlier.

Furthermore, there are significant doubts as to the effect of the order sought by Petrom as regards the issues that would, and would not, remain live at trial. The draft order it seeks would strike out particular paragraphs and sentences of the Amended Defence. However some assertions of honest belief on the part of Glencore and the individuals concerned would remain, and whilst some references to earlier paragraphs of the pleading (paragraphs 11-14) are to be struck out, other similar references are not. I am inclined to think that Glencore is right in saying that the application is at best internally inconsistent, and at worst will make the Amended Defence incomprehensible. The defence apart, on the basis of the draft order, I consider that the issues that would remain for decision at trial would be intertwined with issues to be struck out, making a sensible resolution of the issues difficult.

The burden is on the party making the application based on abuse of process to make good the argument. This has been described in this context as an “exacting test” (Calyon v Michailaidis [2009] UKPC 34 at [37]). I do not consider that Petrom has satisfied it.

For the above reasons, I do not accede to Petrom’s application of 11 December 2013 based on grounds of abuse of process. As mentioned, Glencore had its own application dated 20 December 2013 which it describes as intended to enforce the confidentiality of the award. It indicated that it would not pursue that application on the basis that all questions relating to the status of the arbitration would be for the trial judge. I am grateful to the parties for their assistance, and will hear them as to any consequential matters.