Egiazaryan & Anor v OJSC OEK Finance& Anor

This hearing arises out of an Arbitration Award by Mr Andrew Foyle, Mr Dominic Kendrick QC and, as Chairman, Dr Georg von Segessor, dated 5 June 2014, by which the Arbitrators concluded that they had no jurisdiction over the claims brought by the First Claimant, Mr Ashot Egiazaryan (“C1”), and the Second Claimant, Mr Vitaly Gogokhiya (“C2”), against the First Respondent, OJSC OEK Finance, a Russian company based in Moscow (“R1”), and the Second Respondent, the City of Moscow (“R2”). The application before me under s.67 of the Arbitration Act 1996 (“the Act”) is brought by C2; C1, who was originally a party to the application, no longer challenges the findings of no jurisdiction over his claims. C2 has been represented by Joe Smouha QC and Jeremy Brier, and both the Respondents, as they were before the Arbitrators, by Richard Millett QC, and now also by Jessica Wells. The claims by C1 and C2 are in tort, by reference to Russian law, namely Article 1064 of the Russian Civil Court, which provides that “harm caused to the personality or property of [a citizen or legal entity] shall be subject to compensation in full by the person who has caused the harm”. The tortious claims were made by reference to what Mr Smouha described as “a corporate raid” (being “the redistribution of a company’s ownership through a combination of legal, illegal and illegitimate means”), allegedly devised and orchestrated by R1 and R2 to oust the Claimants from a prestigious and lucrative project to redevelop the Moskva Hotel adjacent to Red Square in Moscow (“the Project”).

The two Agreements containing the relevant arbitration clauses, which related to the control and management of a BVI company initially owned by C2, Konk Select Partners Inc (“Konk”), were the Konk Shareholders’ Agreement the (“Konk SHA”) and the Konk Share Purchase Agreement the (“Konk SPA”, or “the First Konk SPA” to differentiate it from that in June 2009). C2, R1 and Konk were the parties to the Konk SHA, and they were also parties to the Konk SPA, in addition to a Cyprus company, Falmiro Trading Ltd (“Falmiro”), beneficially owned by C1 and others, being the borrower under a loan from Deutsche Bank AG, which was being acquired by Konk. Recital J of the Konk SHA recorded that the shareholders (C2 and R1) were entering into that agreement to set out the terms governing both their relationship as shareholders of Konk and the management and operations of Konk and of Tribalin Trading Ltd (“Tribalin”), CJSC Decorum (“Decorum”), OJSC DecMos (“DecMos”) and what was defined as the “complex”, of which DecMos was the lessee, being the plot on which the Project was being constructed. The governing law of both Agreements was English law.

Section 10.13 of the Konk SHA reads as follows:

“10.13

Arbitration of Disputes

(a)

Any dispute, controversy or claim arising out of, relating to or in connection with this Agreement, including any question regarding its existence, validity or termination, or regarding a breach of this Agreement (a “Dispute”), shall be referred to, and finally settled by arbitration under and in accordance with the Rules of the LCIA then in effect (the “Rules”), which Rules are deemed to be incorporated by reference into this Section 10.13.

(b)

The place of arbitration shall be London, England, and the award shall be deemed to have been made there. . .

. . .

(e)

The parties agree, that all arbitration proceedings initiated under this Agreement and other Transaction Documents [defined so as to include, inter alia, the SPA] (subject to changes and amendments made from time to time thereto) may be considered simultaneously by one and the same arbitration tribunal provided that such proceedings are interdependent or proceed from the same or interdependent facts, causes or circumstances, and provided always that the tribunal considers the full or partial consolidation of such arbitration proceedings possible.”

The Konk SPA contained mutatis mutandis materially the same provisions in its clause 8.

The Claimants asserted before the Arbitrators that C2 entered into the Konk SHA and Konk SPA as nominee or agent of C1, so that C1 was entitled to participate in the arbitration even though not a signatory to the Agreements. The Arbitrators concluded, after considering the evidence before them, that C2 was not C1’s agent but held the Konk shares in his own right. Hence C1 was not entitled to participate in the arbitration. As set out above, C1 does not now challenge that decision.

The Claimants alleged before the Arbitrators that R2, albeit not a signatory to the Konk SHA or SPA could be joined in the arbitration by virtue of the provisions of Article 105 of the Russian Civil Code, by virtue of R2’s liability in respect of the contractual obligations of its dependent company R1. Jurisdiction over the claim against R2 was rejected by the Arbitrators, but is renewed before me.

The issues before me were as follows:

The Arbitrators held an Evidentiary Hearing over a number of days in February 2013, hearing live evidence from factual and expert witnesses. There was also a large number of written statements, submissions and memorials, and the Award consisted of 629 paragraphs. They decided, after opposition by the Claimants, by a Procedural Order No. 11 of 31 August 2012, not to have a separate hearing on jurisdiction, recording that they were not convinced that any of the jurisdictional issues could be effectively isolated from questions of fact which were related to the merits. In the event they reached conclusions of fact by reference to the jurisdictional arguments, but recorded, in paragraph 566 of the Award, that, in the light of their rejection of jurisdiction over the Tort Claim, they had concluded that “there is no need for the Arbitral Tribunal to consider the arguments on the merits of the Tort Claim that were presented by the Parties”.

The Claimants’ Tort Claim brought in the arbitration, which C1 and C2 contended, and R1 and R2 denied, fell within the terms of the arbitration clauses, was described by the Arbitrators in paragraph 533 of the Award by reference to 21 “alleged unlawful acts”, referred to by the Arbitrators as numbered bullet points. Mr Smouha before me has reconstituted the claims sought to be pursued by C2 alone in a remitted arbitration by reference to those 21 bullet points, although five of them (bullet points 1, 2, 3, 18 and 19) have been omitted, as C2 makes no claim relating to the period prior to the Konk Agreements. Mr Smouha has described the claim by reference to three main allegations, subsuming the surviving seventeen bullet points beneath them, as follows. He explains that since there is no concept of conspiracy in Russian tort law, there is simply one claim of unlawful conduct and harm contrary to Article 1064, albeit exemplified by the acts complained of:

“1.

The Konk Agreements were entered into by C2 with R1 as the gateway by which the entire “corporate raid” was made possible, including whereby an employee of Mr Kerimov became installed as a director of DecMos with the ability to control the project directly.

•

Bullet Point 4 from Paragraph 533 of the Award: Respondents arranged the subsequent transfer of the interests in the Project leveraged by R2 through the Konk Agreements to Mr Kerimov.

2.

The Corporate Raid involved C2 in numerous respects; critically one aspect of the corporate raid was the instituting of spurious criminal proceedings against [C2] when he sought to commence legal proceedings in Cyprus to prevent R2 from wielding complete control over Konk and the Project through the vehicle of R1 and the Konk Agreements. Further, between 16 and 20 June 2009, raids by special police in masks with automatic weapons were carried out at (inter alia) [C2’s] home, aimed at forcing C1 to capitulate and sign over his interest in the Project (and any indebtedness owed to him) to Kerimov and his associates.

•

Bullet Point 5: On 22 January 2009, R2, without telling C1, in order that it would be a fait accompli, acted together with Mr Goloshchapov and Ms Pavlyuchenko to remove C1’s General Director of DecMos (Mr Lapshov) and replace him with a Kerimov associate (Ms Kotandzhyan), thus giving Mr Kerimov operational control of the Project and leverage to implement further pressure and intimidation tactics, including forcing C1 to sign the Framework Agreements.

•

Bullet Point 6: Respondents knew, as C1 did, that in Russia an order replacing the general director is the beginning of a corporate raid.

•

Bullet Point 7: R2 procured a breach of R1’s obligations toward Claimants under the Konk Agreements, including Claimants’ first refusal rights over R1’s sale of its Konk shares to Mr Kerimov.

•

Bullet Point 8: Respondents assisted Mr Kerimov’s unlawful interference in the business relations of DecMos and Decorum from January 2009 at the latest.

•

Bullet Point 10: In April 2009, Ms Kotandzhyan continued the process of consolidating control over the Project by removing the DecMos offices to Mr Kerimov’s building. Respondents acquiesced in this move.

•

Bullet Points 11-13 concern factual background to the corporate raid that may form relevant context for a C2 claim but are not particulars of the C2 Tort Claim.

•

Bullet Point 14: R2 made fraudulent requests on behalf of R1 to commence criminal proceedings against C1. These requests resulted in the commencement of bogus criminal proceedings on order against C2 on 1 June 2009.

•

Bullet Point 15: R2 commenced hopeless and vexatious legal proceedings against Claimants (and others) concerning purported breaches of the Investment Agreement.

•

Bullet Point 17: Respondents, together with their co-conspirator Mr Kerimov, arranged theatrical raids at Claimants’ offices by masked police with automatic weapons, distressing searches at the homes of Claimants’ associates (Messrs Artem Egiazaryan and Dmitry Fitisov) and intensive and baseless interrogations of Claimants’ associates (Messrs Artem Egiazaryan and Dmitry Fitisov), all of which were designed to intimidate Claimants.

3.

This culminated in the unlawful taking of C2’s shares in Konk which held the stake in the Project. The Respondents caused harm to C2 by assisting in the seizure of the Konk Shares which culminated in C2 being forced to sign the Second Konk SPA signing away his valuable interests in Konk to Mr Rotenberg for US$2.

•

Bullet Point 16: Respondents knew that when they were contacted by Mr Kerimov in June 2009, there had been no negotiation and no transaction. Respondents nonetheless approved and participated in the execution of documents that were not negotiated and on which Claimants received no legal advice.

•

Bullet Point 20: Following consummation of the raid, Respondents acted with their co-conspirators, Messrs Kerimov, Rotenberg and Goloshchapov, to permit the transfer of ownership of the Project out of Limerick [in whose shares C1 had a substantial interest] and Konk and into new layers of off-shore companies designed to place their interests in the Project out of reach.

•

Bullet Point 21: Respondents have, since the consummation of the raid and all to the present, acted together with their co-conspirators to conceal evidence of the raid from this and other tribunals.”

I shall deal first with the issue as to whether R2 was properly joined in the arbitration. There is no issue between the parties, as there is in respect of Issue 1, with regard to the approach that the Court should adopt towards a decision made by arbitrators as to their own jurisdiction. In relation to this Issue, the parties have agreed to accept the conclusions of the Arbitrators as to Russian law, after hearing the expert evidence, and neither counsel seeks to go behind those conclusions. The issue is simply whether the Arbitrators were correct to conclude that Russian law had no effect on whether a non-signatory to an English law arbitration agreement could be joined in the arbitration.

Given the conclusion of the Arbitrators as to the meaning of Article 105, it is unnecessary for me to set out that Article in this judgment. There were extreme positions taken by the two sides before the Arbitrators as to the meaning and effect of it. Insofar as the Claimants were seeking to argue that its effect was to make R2 a party to the Konk Agreements, the Arbitrators did not accept that submission. The Respondents on the other hand were contending that arbitration agreements fell outside the scope of Article 105 entirely. I set out in paragraph 6(ii) above the conclusion of the Arbitrators. It is clear, and in the end Mr Millett accepted, that what they decided was that the effect of Article 105 was that R2 was not simply a primary (and certainly not just a secondary) obligor, but was jointly and severally liable with R1 on the contract, and liable to take part in the arbitration, and thus be a party to it; except that it was not entitled to initiate arbitration proceedings or counterclaim in the arbitration. This is the clear impact of paragraph 468 of the Award.

The Arbitrators continued (in paragraphs 469-470) by considering that R2 could be made answerable for the liability of R1, and made a defendant to proceedings in Russia to establish such liability. However it is very difficult to see what the Arbitrators can have meant in that regard, since, if R2 was “as liable to arbitrate disputes as . . . to perform the primary obligations” under the Arbitration Agreement, then such joinder in proceedings in Russia would seem hardly appropriate or necessary, save perhaps for enforcement purposes. Such conclusion appears simply to be a product of their conclusion that whatever might be the effect at Russian law, that would have no impact on R2’s obligation to participate in an arbitration governed by English law.

For such was indeed the conclusion of the Arbitrators, namely that there was no effect of Article 105 at English law; English law, being the proper law of the contract, governed the arbitration, and would not recognise R2 as being party to the arbitration agreements (paragraph 477 of the Award). Their conclusion was (at paragraph 478) that “Article 105 . . . is legally irrelevant to the construction of the Arbitration Agreements and forms no proper basis by which [R2] could be held to be party to an English law contract or arbitration clause. If Claimants wish to invoke rights against [R2] under Article 105, they would need to do so in judicial proceedings in Russia”.

Mr Millett submits accordingly that the Arbitrators had no jurisdiction to hear a claim against R2 within the arbitration. He submits that Article 105 does not say that R2 is a party to the Arbitration Agreement (as indeed the Arbitrators found), nor that R2 is the same entity as R1, nor that R2 is a transferee from R1, and it does not address the capacity or status of R1. But in any event, whatever the impact of Article 105 at Russian law, and he was driven to accept that the Arbitrators did nevertheless find that, at Russian law, R2 was liable to participate in the arbitration, he submitted that the Arbitrators rightly applied English law to exclude R2 from the arbitration.

Mr Millett relies upon the following:

The starting point for a critique of the Arbitrators’ conclusion is the fact that, in their conclusory paragraphs which I have set out above, at paragraphs 477 and 478, they have expressed it in terms that Article 105 “forms no proper basis by which [R2] could be held to be party to an English law . . . arbitration clause” (my underlining). That is, as Mr Smouha points out, the fallacy, and the key to their incorrect conclusion. They themselves did not find that Article 105 rendered R2 even at Russian law a party to the arbitration clause, but that it resulted in its being liable to arbitration and to be joined in the arbitration.

Mr Smouha answers Mr Millett’s submissions as follows.

First he accepts the proposition that English law (and substantive law, not procedural law) governs the question as to who is party to the Arbitration Agreement. But that is not the question. At English law there will be many occasions when parties who were not signatories of an arbitration agreement are entitled or bound to be parties to the arbitration: in circumstances such as agency (including cases of undisclosed principal and apparent authority), lifting the corporate veil, assignment, and other scenarios such as universal succession or merger, which may be applicable in other systems of law. English law is the necessary starting point, but where the question to be properly characterised (see Mance LJ in Raiffeisen Zentralbank Österreich AC v Five Star Trading LLC [2001] 1 QB 825 at para 27) is not who is or was party to the arbitration agreement but whether there is jurisdiction over a non-signatory to the arbitration agreement, then English conflicts rules will or may address another system of law. Thus he refers, as did Mr Millett, to paragraphs 105-106 of Lord Collins’ speech in Dallah:

“105.

One of the most controversial issues in international commercial arbitration is the effect of arbitration agreements on non-signatories . . .

106.

The issue has arisen frequently in two contexts: the first is the context of groups of companies where non-signatories in the group may seek to take advantage of the arbitration agreement, or where the other party may seek to bind them to it. The second context is where a state-owned entity with separate legal personality is the signatory and it is sought to bind the state to the arbitration agreement. Arbitration is a consensual process, and in each type of case the result will depend on a combination of (a) the applicable law; (b) the legal principle which that law uses to supply the answer (which may include agency, alter ego, estoppel, third-party beneficiary); and (c) the facts of the individual case.”

Like Mr Millett, Mr Smouha emphasises the word “applicable law”, but he submits that that clearly does not, or not simply, mean the proper law of the agreement.

It is manifest that there will be different scenarios, such as those mentioned by Lord Collins but not limited to them, in which a non-signatory of the agreement can properly be joined in an arbitration. One such example of course occurred in this very case, in which C1 was joined to the arbitration on the basis that C2, the signatory, was his agent. The Arbitrators did not find they lacked jurisdiction to hear his case because he was not a signatory, but because they concluded that he was not the principal, and that C2 owned the shares in his own right, and was party to the Konk Agreements in his own right. Mr Smouha pointed to other examples, such as whether partners can be joined or whether a victim can be a party to an arbitration between tortfeasor and insurer. Just as the proper law of the contract would not apply to issues of agency, so too it would not apply to whether there has been, as a matter of German law, merger between an old company entitled or obliged to arbitrate and a new company (Eurosteel Ltd v Stinnes AG [2000] 1 All ER (Comm) 964). It would be the rules of that law (to which English conflicts rules would look) which would for example govern whether a party was to be added or substituted, depending upon whether the relevant law required both assignor and assignee or both undisclosed principal and undisclosed agent to be joined.

So too in relation to the question here, Mr Smouha submits that English choice of law rules would look to the law of the place of incorporation of the signatory to govern whether a parent is liable to perform an agreement entered into by its subsidiary. He refers to Dicey at Rule 175, whereby, in the context of the entering into of a legal transaction, all matters concerning the constitution of a corporation are governed by the law of the place of incorporation and (at 30-128) “the cases at least establish that the law of the place of incorporation determines . . . the extent of an individual member’s liability for the debts or engagements of the corporation”; and there is reference to Johnson Matthey and & Ltd v Ahmad Alloush [1985], 135 NLJ 1012 (CA) and in particular to JH Rayner Ltd v Department of Trade [1990] 2 AC 418 where Lord Oliver cites with approval the then equivalent in Dicey of that passage.

As for Peterson Farms, Mr Smouha does not disagree with the proposition that “the identification of the parties to an agreement is a question of substantive, not procedural law” but he submits that this is irrelevant to the present question. First of all we are not here identifying a party to an agreement, but resolving who can be made a party to an arbitration. Secondly, the issue is left open as to which substantive law is to be looked to. In Peterson Farms Langley J was not given any such assistance. As he points out himself, at paragraph 50, “it was not suggested to the tribunal that the Group of Companies doctrine was recognised by Arkansas law”. It would seem therefore straightforward that, since neither of the two legal systems being considered before him, that relating to the proper law of the contract and the curial law, introduced such doctrine, and it was not even suggested that the doctrine arose as a result of Indian law, being the law of incorporation of the claimant, there was no room for the adoption of such doctrine. Thus it is difficult to see how Mr Joseph could have formed any conclusion based upon it in his book at 7.45, when he says that “the correct approach . . . ought to be to determine the identity of parties to the agreement by reference to the applicable governing law and not by reference to the principles which ordinarily govern arbitrations of that nature or the lex mercatoria”. That itself would seem obviously right. On the other hand, if the question is one as to whether a non-signatory of the agreement can be joined by virtue of a concept such as agency or, in this case, a principle that shareholders or parents are obliged to arbitrate on contracts entered into by the signatory, then it is not the proper law of the contract which gives the answer, but English conflicts rules would look to another law, in this case the law of incorporation of the signatory. As Mr Smouha points, out if an English company made a contract governed by Ruritanian law, and under Ruritanian company law shareholders of Ruritanian companies were deemed to be parties to all contracts made by the company, it would obviously be inappropriate for an arbitral tribunal to apply Ruritanian law to assume jurisdiction over the shareholders of the English company. Hence Joseph’s conclusion set out in paragraph 14 above, certainly in considering the parties to an arbitration as opposed to parties to an arbitration agreement, is incomplete.

I am entirely satisfied, for the reasons set out above, by way of answer to Mr Millett’s submissions, that R2 was properly joined in the arbitration. The Arbitrators concluded, at paragraph 468 of the Award, that Russian law, being the law of incorporation of R1, provides that R2 was liable to be a party to the arbitration. English law, as the proper law of the Arbitration Agreement, will look to that law to decide whether R2 should be joined as a party, just as it would look to the relevant law in a case involving agency, assignment or succession. The Arbitrators consequently had jurisdiction over R2, and it was not necessary for that obligation to arbitrate to be enforced in the Russian courts, as the Arbitrators suggested.

Unlike Issue 2, where there was agreement between the parties to accept the evidence of Russian law given before the Arbitrators, and to argue whether the Arbitrators’ conclusions had been correct in the light of that evidence, there was no such agreement in respect of the major issue, namely whether the Tort Claim alleged fell within the arbitration clauses. There was no submission to the jurisdiction by R1 or R2, and the Arbitrators decided to hear substantial amounts of evidence. Although, as set out in paragraph 7 above, the Arbitrators expressly did not proceed to make decisions on the merits, they explained their process in paragraph 108 of the Award namely:

“As both the Parties’ arguments on jurisdiction and their material claims place considerable emphasis on the facts, it is appropriate to first attempt a thorough analysis of the factual record that will lay the foundation for Section VII of this Award, which addresses issues of jurisdiction.”

It was common ground that the hearing of a s.67 application by the Court is de
novo. As Gross J described it in Electrosteel Castings v Scan-Trans Shipping [2002] EWHC (Comm) 1993, as cited by Langley J in Peterson Farms: “The question for the Court is . . . not whether [the tribunal] was entitled to reach the decision to which [they] came but whether [they were] correct to do so”: i.e. it is the correctness of the answer and not the reasons given which I must judge; and it is thus not a question of whether the Arbitrators came to a conclusion to which they were entitled to come on the evidence and reasoning before them, but whether they reached the right conclusion. This is emphasised by the Supreme Court in Dallah, although naturally Lord Mance at paragraph 31 said that a Court, even where re-hearing, will “examine, both carefully and with interest, the reasoning and conclusion of an arbitral tribunal which has undertaken a similar examination”.

Where there has been substantial evidence taken below, the Court on an application under s.67 is free to rehear all such evidence, and in Azov Shipping v Baltic Shipping [1999] 1 Lloyd's Rep. 68 Rix J addressed exactly such a position, concluding, at paragraph 70 that “the Court, upon a challenge under section 67, should not be placed in a worse position that the arbitrator for the purpose of determining that challenge”. But that was a case in which there was a short issue of fact, resolved by the Arbitrator over 3 days, namely as to whether the claimant was party to the agreement. In this case, there was a very lengthy hearing, ranging over issues, including the agency or otherwise of C2 and the Russian law questions relating to R2, but, in the context of this Issue 1, addressing at length the jurisdictional facts, for the purpose of resolving whether the Tort Claim fell within the arbitration clauses. There has been no application by either side to rehear any evidence and (with the exception of the Russian law evidence to which I have referred) no agreement that any of the evidence should be taken as read before me, nor any agreement that any of the factual conclusions of the Arbitrators should be accepted before me.

It is understandably pointed out by Mr Millett that the fact that the evidence was taken at length arose out of the decision by the Arbitrators not to bifurcate the issues of jurisdiction and merits, and that this was on a successful application to that effect by the Claimants, although, as recorded in the Arbitrators’ decision in paragraph 7(c) of Procedural Order No.11 of 31 August 2012, the Respondents themselves asserted that certain factual witnesses would probably need to testify even on jurisdiction alone. It does not seem to me, however, that this should impact upon the question as to whether the Arbitrators came to the correct conclusion.

Where there is such a lengthy evidential hearing below, even though the application before this Court is a complete rehearing, Mr Millett submitted in paragraph 11 of his skeleton that “it was open to C2 to challenge the Tribunal’s findings of primary fact or factual conclusions on this application . . . but he has not done so. C2 cannot deny the facts found on this application since he is bound by them”. I do not accept this submission. It is contrary to principle: the same would apply, if he be right, in respect of a party denying jurisdiction who takes part in an arbitration hearing while expressly reserving its position, and yet is then entitled to challenge jurisdiction before the court. But it is in any event contrary to the express words of Lord Saville in Dallah at paragraph 160: “The findings of fact made by the arbitrators . . . can in no sense bind the court”. This is leaving aside the fact that the Arbitrators themselves made findings which would plainly be relevant to both jurisdiction and merits and yet, as set out in paragraph 566 of their Award (see paragraph 7 above) did so without having considered “the arguments on the merits of the Tort Claim that were presented by the Parties”.

In any event there was discussion before me as to the impact of the Arbitrators’ findings. In a similar case to Azov, where (unlike here, where there were wide-ranging questions as to the scope of the claim and of the arbitration) a dedicated issue, for example, as to whether a contract was ever made, might be decided by the arbitrators, there could be what could be described as a ‘killer point’: such as for example a finding by arbitrators that a claimant (Mr Smith) was in fact indubitably in Manchester when he was said to have been making the contract in London (this was dubbed in the hearing before me a ‘Smith-Manchester’ point). Despite considerable concentration on relevant paragraphs of the Award by Mr Millett and consequently by Mr Smouha, I was wholly unpersuaded that there were any Smith-Manchester points in this Award:

The real question in issue both before the Arbitrators and before me seems to me that which is contended for by Mr Smouha, namely that the duty of the Arbitrators, and now the duty of the Court, is to identify the dispute between the parties and then consider that dispute against the terms of the arbitration clauses. It is not the task of either the Arbitrators or the Court to weigh the merits of the case, just as it is not when considering whether there is a ‘dispute’, for the purpose of considering whether it is appropriate for there to be an application for summary judgment in the courts rather than reference to an arbitration at all (see for example Hayter v Nelson [1990] 2 Lloyd’s Rep 265 at 271).

Such task has been greatly ameliorated by the guidance of the House of Lords in Fiona Trust v Privalov [2007] UKHL 40 [2007] 2 CLC 553, per Lord Hoffmann at paragraphs 13-17 and Lord Hope at paragraphs 26-27. In my judgment the resolution of such an issue does not require massive consideration of factual evidence, particularly against the background where the parties are not bound by an arbitrator’s decision, and there can be a complete rehearing before the court. In this case the Tort Claim which was said by the Claimants, and now, as slimmed down, is said by C2, to fall within the arbitration clauses is that which I have set out in paragraph 8 above by reference to Mr Smouha’s summary. The reasons which the Arbitrators gave for concluding that the claims did not fall within the scope of the Arbitration Agreements are those now presented before me by Mr Millett, and opposed by Mr Smouha, and I shall deal with them in turn.

Tort The Arbitrators stated in paragraph 518 of the Award that “the only real claim in this arbitration is Claimants’ Tort Claim. It is, in the experience of the Arbitral Tribunal, uncommon for none of the principal claims to be contract related”. Mr Millett did not expressly support this proposition. It is clear from s.6(1) of the Act that an “arbitration agreement” within the Act means “an agreement to submit to arbitration present or future disputes (whether they are contractual or not)”. There were contractual or quasi-contractual claims being pursued in the Award – of nullity and a breach of the Konk Agreements – but they were abandoned (with one unsuccessful attempt at resuscitation). However it seems to me that what effectively the tort constitutes is ‘mal-performance’ of the Konk Agreements; i.e. C2 began with a substantial interest in the Project through the Konk shares in November 2008 and allegedly by the acts of R1/R2 ended up with a worthless residual interest in June 2009, which he transferred for $2. Mr Millett emphasised the passage in Merkin: Arbitration Law (2015) at paragraph 5.71, which did not support the Arbitrators’ proposition, but which emphasised the need for a Tort Claim to be “closely related” to an underlying contract or to have “necessary connection”. Echoing the words of Lord Hoffmann in Fiona Trust, in which (at paragraph 13) he addressed disputes “arising out of the relationship into which [the parties] have entered”, the Arbitrators in paragraph 544 directed themselves that they must decide whether the Tort Claim is a dispute that “arises out of the relationship into which the Parties entered pursuant to the Kong Agreements”. By reference to the 21 bullet points, they concluded in paragraph 545 that “the claim advanced is insufficiently connected with the relationship created by the Konk Agreements to fall within the arbitration clause”. It is difficult to see how that can be justified.

Other Parties In the same paragraph (518) in which the Arbitrators had commented on what they considered to be the uncommon event of a Tort Claim without a contract claim, they continued: “this unusual feature is combined with a claim for the tort of conspiracy but involves third parties as key conspirators”, and “no English court case was cited with these two unusual features”. In paragraph 517 of the Award the Arbitrators noted that “major participants in the Tort Claim are not parties to the Arbitration Agreements. The Arbitral Tribunal has in mind Messrs Kerimov, Rotenberg and Goloshchapov”. Mr Millett supports this proposition, and refers to a statement in Merkin & Flannery: Arbitration Act 1996 (5^th Ed), where, addressing the “pragmatic and praiseworthy attempt” by the Court of Appeal in Fiona Trust to ensure that all disputes are brought together under one roof, the authors opine that “most forms of . . . wording will be sufficient to ensure that the arbitration will encompass the following categories of claims”, and they list contractual claims, tortious claims for misrepresentation, restitutionary claims and “related claims based on conspiracy, provided that [my underlining] all the proposed respondents are parties to the arbitration agreement”. Leaving aside the fact that this tort claim is not for conspiracy, but is a tort claim brought by reference to Article 1064 by C2 against R1, for whom R2 is liable, neither counsel were able to assist me, and I certainly have no knowledge myself, as to where this proviso comes from. No authority is cited, and the suggestion really is that no conspiracy claim can be brought within an arbitration agreement, because a conspiracy always needs more than one party. It is my experience that the fact that there may be outstanding claims against other parties arising out of the same facts is not an objection to the bringing of a claim which falls within the terms of an arbitration clause.

Other Agreements In paragraph 516 of the Award, the Arbitrators identified as a feature contra-indicating the Tort Claim falling within the scope of the Arbitration Agreements that there were other agreements, some of them containing dispute resolution clauses. Of course the situation is different now that C1 is no longer a party, as a result of the Arbitrators’ decision, not challenged before me, because C1 was party to a number of other agreements. There is however no other agreement to which both C2 and R1 are parties, so that the principle to which Mr Millett drew an analogy, of the ‘centre of gravity’ spelt out by Thomas LJ in Sebastian Holdings Inc v Deutsche Bank AG [2011] 1 Lloyd's Rep 106 at 116, does not obviously apply, as Mr Smouha pointed out, being relevant only to where there is more than one agreement involving the same or similar parties, so that there is in effect a contest as to which clause is the most relevant. The only agreement to which Mr Millett could point was the so-called Cyprus Agreement, or Second Konk SPA, between C2 and Sparklon Holdings Ltd, by which he transferred his remaining interest in the Konk shares for $2. This may have crystallised C2’s loss, and may well merit its own dispute or cause of action, but does not appear to me to detract from the appropriateness of the arbitration clauses in the Konk Agreements (already wide in their own terms by the reference to “consolidation”) for resolving C2’s Tort Claim against R1/R2.

Strength of the case I have already indicated that I have seen no ‘Smith-Manchester’ point or killer point, even if that would be apt where I am deciding the matter afresh, as discussed in paragraphs 24 to 26 above. The Arbitrators considered that none of the 21 bullet points referred specifically to the actions of R1 (paragraph 536) and (paragraph 551) that, as discussed in paragraph 27(iii) above, R1 was not “clearly involved” in those matters. It also noted that the bullet points made “little mention of the Konk Agreement”, identifying, so far as concerns the bullet points relevant to C2, only bullet points 4 and 7. The Arbitrators also note in paragraph 563(1) that “Claimants merely seek damages for the loss of the Limerick shares [referred to in paragraph 8(20) above], to which the Konk Agreements have no association . . . Were the Konk Agreements truly pivotal in this dispute one would have expected Claimants to seek damages for the value of their interest in Konk”. As appears in paragraph 47 below, this appears to be a misunderstanding of the Claimants’ case as put before them, and in any event the Arbitrators themselves appear to recognise (in paragraph 531) that there was loss in relation to the Konk shares by way of an “effect on the ultimate outcome of the actions alleged in the Tort Claim, namely Claimants’ loss of their interest in the Project”, albeit they described it as “restricted”. However, all these understandable criticisms appear to me to go to the strength of the Claimants’ case, i.e. to the merits, in respect of which the Arbitrators had not considered the arguments, but not to the non-existence of a dispute between C1 and R1/R2, by reference to the claims summarised above, falling within the scope of the Konk Agreements.

I recognise that it was necessary for the Arbitrators to hear evidence in relation to the issues with regard to C1 and R2, which they resolved. It is however regrettable that so much time was also taken in addressing ‘jurisdictional facts’ in relation to the question of whether the Tort Claim fell within the ambit of the arbitration clauses, particularly since at paragraph 509 they recognised that their decisions on jurisdiction were subject to ‘review by English courts’, in which none of their factual findings would be binding. It seems to me however that such conclusions as they reached in relation to the facts led them astray. They concluded in paragraph 564 that the “Tort Claim cannot be regarded as arising out of the Konk Agreements or the relationship created by them”, by reference to the “limited scope of the Konk Agreements” and the “sweeping conspiracy on which the Tort Claim is based”. I am satisfied that on the basis of the claims made, as summarised by the Arbitrators, and as explained by Mr Smouha, there is a Tort Claim by C2 against R1/R2, the nub of which is his loss of the Konk shares and his interest in the Project, which falls within the terms of the arbitration clauses in the Konk Agreements, widely construed as now encouraged by Fiona Trust.

Given that the Tort Claim against R1 and R2 falls within the arbitration clauses, should such claim by C2 be remitted to the Arbitrators? There are minor issues, to which I shall return in paragraph 45 below, but the real question is as to what claim C2 made before the Arbitrators? Mr Millett asserts that C2 did not make the Tort Claim before the Arbitrators, and so it should not be remitted to them, because the only claim he made was as holder of the Konk shares as nominee for C1, and if he is now to make such claim as shareholder in his own right:

The first question to address is what the claim was that was put by C2 in the Request for Arbitration and the Statement of Case in the Arbitration. They are materially identical in this regard, so I shall limit my reference to the latter:

“1.

This Statement of Case is served on behalf of [C1] and [C2] (the latter in his nominal capacity as described herein) (together, “Claimants”) . . .

. . .

9.

At the time the Agreements were entered into, and at all other times, Respondents knew and understood that [C2] held his Konk shares as nominee for [C1].

. . .

115.

On the basis of the facts set forth herein, Respondents agreed with Kerimov and others to use unlawful means with intent to injure Claimants. The Claimants are entitled to compensation for all damages flowing from Respondents’ illegal acts, including the loss of [C1’s] investment in the Project and moral damages for pain and suffering.

. . .

121.

. . . The Claimants’ claims in this proceeding fall within the scope of the arbitration provisions in the First Konk SPA and the Konk SHA.

. . .

123.

Claimant [C2] is a proper party to this proceeding because he is a signatory to both the First Konk SPA and the Konk SHA . . .

. . .

133.

. . . Respondents’ roles in orchestrating the corporate raid and conspiring with Kerimov and others to illegally remove [C1] from the Project (including their participation in the duress, intimidation and other wrongful acts committed against the Claimants) are tortious and in breach of the Konk SHA . . .

134.

Claimants seek an award:

. . .

(b)

Ordering Respondents to pay to Claimants damages for the loss of [C1’s] investment in the Project in an amount to be determined;

(c)

Ordering Respondents to pay to Claimants moral damages in an amount to be determined for, inter alia, the anxiety and distress visited upon Claimants by Respondents’ actions as described herein”.

It is therefore a claim made by both Claimants in respect of the unlawful act said to constitute a tort, but on the basis that C2 was only a nominee in respect of the Konk Shares. In the Claimants’ Post-Hearing Memorial, which formed the basis for the Arbitrators’ summary of the 21 Bullet points in paragraph 533 of the Award (referred to in paragraph 8 above), the case was summarised as follows:

“398.

For the avoidance of doubt, the core tortious act underlying this claim is the theft of [C1’s] stake in the Project (i.e. his shares in Limerick and Konk) . . . Respondents have caused harm to [C1], and to [C2] as his agent and bare trustee, by assisting in the seizure of his stake in the Project. . .

399.

In addition to theft, Respondents engaged in further unlawful acts which led to the consummation of the corporate raid and contributed to the harm caused to [C1], by the loss of his property, and to [C2] as his agent and bare trustee. Respondents have committed at least the following acts and omissions which, together with the acts and omissions of their co-conspirators inflicted great harm on the Claimants by, among other things, unlawfully depriving them of their interest in Konk and the Project . . . [the 21 bullet points are set out].

. . .

535.

Claimants seek an award:

. . .

(d)

Ordering Respondents [R1 and R2] to pay to Claimants [C1 and C2] damages for the loss of [C1’s] stake in the Project in the amount of US$652.1 million;

(e)

Ordering Respondents to pay to Claimants moral or exemplary damages in an amount to be determined for, inter alia, the anxiety and distress visited upon them by Respondents’ actions as described herein. . . ”

The Arbitrators concluded:

“435.

In light of the above, the Arbitral Tribunal finds that [C1] vested the Konk Shares in [C2] absolutely. As a result, there was no bare trusteeship that rendered [C2] the agent of [C1]. If anything, [C1] was the agent of [C2].”

The Arbitrators therefore concluded they had no jurisdiction over C1. In considering their jurisdiction in respect of the Tort Claim they made the following “Introductory remarks” in paragraph 509:

“Although it has determined that neither [C1] nor [R2] is a party to the Arbitration Agreements, the Arbitral Tribunal is mindful that its decisions on jurisdiction are subject to review by English courts. Consequently, the Arbitral Tribunal will consider whether the Tort Claim is within the scope of the Arbitration Agreements assuming, for this purpose, that [C1 and R2] are Parties to the arbitration. More specifically, it will also assume that [C1] was the ultimate beneficial owner of the shares in Konk held by [C2].”

The Arbitrators found, contrary to my conclusions above, that such Tort Claim was not within the arbitration clauses. Therefore any claims which C2 had failed (including his claim for moral damages).

Mr Millett submits that, upon this basis, C2 was making only a claim for moral damages for himself, and that, although the claim in respect of the loss of the Konk shares was put as one by the Claimants jointly, it was expressly in respect of C1’s stake in the Project or C1’s investment, and so he was making no claim in respect of the loss of his own interest in the shares, which he cannot now be permitted to run. Apart from the straightforward case that such a claim was not a claim referred to the Arbitrators, he submits that there is a concept imported from the courts into arbitration reflecting, or by analogy with, Henderson v Henderson, which prevents afterthoughts or ‘second bites of the cherry’ in the interests of finality in litigation (or arbitration), so as to prevent what could have been run on a first occasion being run on a second occasion. Although he relies on no specific authority (and if necessary he would support the concept by reference to s.1(a) of the Act which requires that “the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense”) he has the support of Mustill & Boyd (2^nd Ed 1989) whereby:

“A party will not be permitted to raise an issue which was so clearly part of the subject matter of the earlier reference and so clearly could have been raised that it would be an abuse of process to allow the issue to be raised in fresh proceedings . . . Parties to proceedings should take care to bring forward the whole of their case and not keep parts of it back or allow part of it to go by default; otherwise it will be too late for them, after the arbitrator has made his award, to raise fresh claims or defences which ought to have been put forward earlier.”

The Arbitrators expressly record at footnote 564 to paragraph 509 that “it should be noted that there is no separate tort claim made by [C2] and no separate loss asserted. His role is confined to agent or bare trustee, bringing a claim on behalf of his principal/beneficiary”. On the other hand at paragraph 550 of the Award they state:

“The Tort Claim seeks damages only for the loss of shares in Limerick in which [C2] has absolutely no interest, and not for the loss of the Konk shares. But even if it did seek damage for loss of the Konk shares, it appears fairly evident that no damage could have been suffered by [C2] as a result of actions prior to the Konk Agreements . . . Any portion of the Tort Claim, to the extent that it involves [C2] and relates to events pre-Konk is, therefore, hopeless”.

C2 does not, at any rate before me, make any claim in respect of the period prior to the Konk Agreements, and thus this latter conclusion does not affect the position before me.

Mr Millett submits that the Claimants could have pleaded the claim in the alternative (‘If C2 is the beneficial owner of the Konk shares then in the alternative he makes the same claim in respect of the loss of the value of the Konk shares’) and did not do so, no doubt for good tactical reasons, and C2 cannot now be allowed to retrace his steps.

Mr Smouha submits that in fact the Claimants were making just such a claim, and that the Respondents recognised that this was the case:

C2 plainly did make a tort claim in respect of the moral damages which he was said to have suffered as a result of the actions of R1 and R2 (although he did not expand on that in his evidence, which I have been shown). He plainly did bring a claim in tort in respect of the Konk shares, but so far as the quantum of it is concerned he was alleging that it was C1 who had suffered the financial loss, and he was only a nominal shareholder. In fact now, in the light of the Arbitrators’ findings, he asserts that the quantum of the loss he suffered was very much greater, and is to be valued by reference to the value of the Konk shares, and now that the Tort Claim itself can be pursued, as it falls within the arbitration clauses, he wishes to recover his loss, which is now to be ascribed to his beneficial, rather than nominal, shareholding. Further and in any event I am not satisfied that C2’s proposal to pursue that claim now that C1’s claim is ruled out is necessarily the same as or analogous to, a Henderson v Henderson situation. He is not seeking to bring a new reference to arbitration, but in front of the same Arbitrators to run his case as to quantum and entitlement on a different basis, in the light of the Arbitrators’ conclusions as to C1, not having done so previously.

I am invited by Mr Millett not to remit under s.67. Mr Smouha submits that I should remit C2’s Tort Claim, coming as it does, as I have now found, within the arbitration clauses, to the Arbitrators, and leave it to the Arbitrators to decide whether, pursuant to Henderson v Henderson or otherwise, C2 is not to be permitted to pursue his claim. But for my puzzlement at the apparent inconsistency between Footnote 564 and the passage in paragraph 550 of the Award (both set out in paragraph 40 above), I would have no doubt that, particularly in the light of paragraph 42(iv) and (v) above, there would be no inhibition upon C2 pursuing his claim in tort before the Arbitrators. As it is, subject to my considering the further matters below, I would remit the Tort Claim, C2’s claim for moral damages, which plainly can be pursued, and the issue as to whether C2 can now pursue his claim in respect of the loss of the Konk shares pursuant to that Tort Claim, to the Arbitrators. I have the less hesitation in doing so because of the existence of C2’s claim for moral damages which plainly must be arbitrated.

The other matters to which I refer in paragraph 35 above, which are also said by Mr Millett to be reasons why I should not remit, now fall to be considered. They are twofold, but inter-relate:

As to (i), my conclusions are the same as those set out in paragraph 33 above. Even if I were bound by the findings of fact by the Arbitrators, contrary to my conclusions in paragraph 26 above, I am not satisfied that there are any ‘Smith-Manchester’ killer points in the Arbitrators’ award: and in any event, as set out in paragraph 7 above, the Arbitrators themselves said in paragraph 566 that they had not yet considered the arguments on the merits of the Tort Claim.

As to loss, it does concern me to note that the Arbitrators concluded in paragraph 550 (set out in paragraph 40 above) that the “Tort Claim seeks damages only for the loss of shares in Limerick”, when it is quite clear that in their Post-Hearing Memorial the Claimants were seeking damages for the loss of the Konk shares in the alternative. Thus this does leave open the Arbitrators’ view in respect of whether any loss was suffered (by C2 or otherwise), subsequent to the Konk Agreements, in respect of the Konk shares, if indeed a claim in respect of such loss was being sought; and I have already referred at paragraph 33 above to the fact that the Arbitrators were only able to opine in paragraph 531 that the alleged unlawful acts to which they were there adverting could be said to have had a “somewhat more restricted” effect on the Claimants’ loss than they were alleging. In any event, Mr Millett points to the evidence of Deloitte which is referred to by the Claimants in their Post-Hearing Memorial, by reference to the addendum report of Simon Cuerden dated 21 February 2013, in which the very calculations which the Claimants adopt in paragraph 523 of the Memorial (set out in paragraph 42(i) above) as being the loss, are based upon Mr Cuerden’s figures. Those figures in his report, by reference to the “revised calculation applying FTI’s [the Claimants’ expert] updated valuations, show a 50% equity stake in Konk as nil”.

I am satisfied however that this a mismatch. Deloitte were valuing the Limerick shares (as no doubt were FTI as their primary case, though I have not seen their reports), which involved an elimination of any value of the Konk shares, as Limerick was ‘upstream’ from Konk. If, as the Claimants made clear in paragraph 527, also cited above, the loss had been calculated by reference to the Konk shares and not the Limerick shares, on their case a substantial loss would have been shown. I am certainly not persuaded not to remit this case to the Arbitrators by reference to a suggestion that the value of the Konk shares will be shown to be nil.

I accordingly conclude that C2’s Tort Claim falls within the arbitration clauses and that his claim against both R1 and, for the reasons I have given, R2 should be remitted to the Arbitrators pursuant to s.67 of the Act.