Autoridad Del Canal De Panamá v Sacyr, S.A. & Ors

This is a claim by the claimant employer which is the beneficiary under six advance payment guarantees (“APGs”), each subject to English law/exclusive jurisdiction, which were entered into by the defendants, a consortium of construction contractors, in relation to advance payments made by the employer. It is one of a number of disputes between the parties, which are otherwise the subject of ICC arbitration in Miami. The claim is for US$288,275,465.20, which though a substantial number, is a relatively small part of the overall picture.

The factual background is the widening of the Panama Canal, a major engineering project which took place (in broad terms) between the commencement of the procurement process in 2007, and the opening of a third set of locks on 26 June 2016. The new locks allow passage through the canal of all but the largest vessels, thereby making an important contribution to global trade.

The issues for determination by this court concern:

There is a considerable body of material before the court, and as is to be expected with such a project, the facts are complex. As well as lengthy skeleton arguments, a chronology, and a dramatis personae, there was a considerable volume of factual evidence in the form of witness statements and exhibits (which were helpfully combined and filed chronologically). There was also some expert evidence of Panamanian law. For the purposes of the hearing, there were however few factual disputes, and such disputes are not in any event for resolution on applications of this kind.

The claimant, Autoridad del Canal de Panamá (“ACP”), is a Panamanian public corporation. It is the employer under the project. ACP seeks summary judgment under the APGs in respect of advance payments made to the contractor.

The contractor is Grupo Unidos por el Canal S.A. (“GUPC”), a company incorporated in Panama. GUPC became contractor by a process of assignment in 2010 as outlined below.

The first to fourth defendants own GUPC which is their corporate vehicle for the project, and the five defendants are as follows:

In general, it is unnecessary to distinguish between the defendants, each of which entered into advance payment guarantees with ACP as beneficiary, which now seek a stay of these proceedings in favour of arbitration under various agreements.

ACP began the procurement process for the project in August 2007. The first to fourth defendants entered into a joint venture agreement in November 2007 so as to participate jointly in the procurement process.

On 11 August 2009, ACP and the first to fourth defendants (then acting as an unincorporated consortium), entered into a contract for the design and construction of the third set of locks (referred to below as the “Main Contract”, or simply the “Contract”). The Main Contract incorporated conditions relating to the contractual relationship between the parties (the “Conditions of the Contract”). It is subject to Panamanian law, and contains a detailed dispute resolution procedure, ultimately leading to arbitration in Miami under the ICC rules.

For reasons related in part to Panamanian labour regulations, it became necessary for the contractor to be a Panamanian-incorporated company. This was already in the parties’ contemplation: sub-clause 1.7 of the Conditions of the Contract provides for a mechanism to assign the Main Contract to “a company incorporated and operating under the laws of the Republic of Panama with the sole purpose of carrying out and completing the Contract and all obligations of the contractor thereunder”.

GUPC was incorporated on 23 November 2009. The Main Contract was novated from the consortium to GUPC by an Assignment and Acceptance Agreement dated 31 May 2010. This agreement, which is governed by Panamanian law, provides that:

“2.

The Assignor hereby irrevocably assigns, to the Assignee, and the Assignee hereby assumes from the Assignor, all of the Assignor’s rights and obligations, warranties, duties, liabilities and undertakings under and pursuant to the Contract and according to the terms of the Contract, which assignment and assumption shall be effective from the original date of the Contract, subject to the consent and agreement of the Employer to the assignment hereunder […]; provided that the Assignor and each of the Members of the Assignor shall remain jointly and severally liable […] pursuant to the Joint and Several Guarantee.”

In accordance with these arrangements, and so as to maintain their individual liability to ACP as employer, on 31 May 2010 the first to fourth defendants entered into a Joint and Several Guarantee of GUPC’s obligations (the “JSG”), the fifth defendant entering into a similar guarantee of the third defendant’s obligations under the JSG. This has been described as the “original” JSG.

Under the JSG:

“1.1

Each of the Guarantors, jointly and severally:

(a)

as primary obligor and not as surety, unconditionally, jointly and severally guarantees to the Employer the due and punctual performance by the New Contractor of each and all the obligations, warranties, duties and undertakings of the Contractor under and pursuant to the Contract according to the terms of the Contract; and

(b)

if the New Contractor is in breach of any of its obligations, warranties, duties and undertakings as set out in sub-paragraph (a), shall upon demand by the Employer from time to time, forthwith perform the obligations, warranties, duties and undertakings of which the New Contractor is in breach in the same manner that the Contractor is required to perform such obligations, warranties, duties and undertakings according to the terms of the Contract.”

“2.3

The obligations of each of the Guarantors hereunder are primary and not by way of surety and none of the Guarantors shall be entitled as against the Employer to any right of set-off or counterclaim…”

“2.5

None of the Guarantors shall have any greater liability to the Employer under the Guarantee than such Guarantor would have had to the Employer had such Guarantor been an original party to the Contract in place of the New Contractor…”

“3.2

Determinations of interest rate and amounts under this Guarantee shall be made by the Employer, which determinations shall be conclusive and binding hereunder in the absence of manifest error.”

The JSG covers any variations made to the Main Contract:

“Recital (A) The Guarantors […] and the Employer have entered into a contract, on a joint and several basis, for the design and construction of a third set of locks dated August 11th, 2009 (as amended, modified or supplemented, “Contract”)…”

“2.2

Each of the Guarantors authorizes the Contractor and the Employer to make any addendum, variation or amendment to the Contract or the Works without reference to it or any other Guarantor, and agrees that this Guarantee shall apply to such addendum, variation or amendment.”

“2.4

Each of the Guarantors’ obligations under this Guarantee are continuing and accordingly shall remain in full force and effect […] until all obligations, warranties, duties and undertakings now or hereafter to be carried out or performed by the Contractor under the Contract shall have been satisfied or performed in full…”

By paragraph 9, the JSG is governed by Panamanian law, and provides that “[a]ny dispute arising out of, under or in connection with this Guarantee or out of the subject matter of this Guarantee shall be finally settled” by ICC arbitration the venue of which is to be Miami, Florida. The arbitration agreement and any related arbitrations are governed by the United States Federal Arbitration Act.

By mid-2012, it appears that GUPC was facing cash flow difficulties, as a result of which it sought further advance payments from ACP. So far as relevant, a variation order (VO 58) providing for an advance payment (the acronym “AP” in conjunction with identifying letters is used to describe these advance payments) for the payment of “Specified Suppliers” (the “APSS”) in the maximum amount of US$150m was executed on 24 December 2012 providing for repayment by October 2014.

As a precondition, pursuant to sub-clauses 14.2F and 14.2G of the Conditions of the Contract, the first to fourth defendants and ACP entered into an Advance Payment Joint and Several Guarantee in relation to the APSS advance payment for the Specified Suppliers (the “APJSG”) on 24 December 2012. (A parent company guarantee by the fifth defendant of the obligations of the third defendant under the APJSG was entered into on 26 December 2012.)

Under the APJSG:

“1.1

Each of the Guarantors, jointly and severally:

(a)

as primary obligor and not as surety, unconditionally, jointly and severally guarantees to the Employer the due and punctual performance by the Contractor of each and all the obligations, warranties, duties and undertakings of the Contractor under and pursuant to the Contract regarding or in relation to the Advance Payment for Specified Suppliers, including without limitation, the obligation of the Contractor to make full, complete and timely repayment of the Advance Payment for Specified Suppliers, all according to the terms of the Contract; and

(b)

if the Contractor is in breach of any of its obligations, warranties, duties and undertakings as set out in sub-paragraph (a), shall upon demand by the Employer from time to time, forthwith perform the obligations, warranties, duties and undertakings of which the Contractor is in breach in the same manner that the Contractor is required to perform such obligations, warranties, duties and undertakings according to the terms of the Contract.”

“2.3

The obligations of each of the Guarantors hereunder are primary and not by way of surety and none of the Guarantors shall be entitled as against the Employer to any right of set-off or counterclaim …”

“3.2

Determinations of interest rate and amounts under this Guarantee shall be made by the Employer, which determinations shall be conclusive and binding hereunder in the absence of manifest error.”

By paragraphs 2.2 and 2.4, the APJSG covers any variations to the Contract and contains materially the same clauses as those set out above in the JSG.

Like the JSG, by paragraph 9 the APJSG is governed by Panamanian law, and provides that “[a]ny dispute arising out of, under or in connection with this Guarantee or out of the subject matter of this Guarantee shall be finally settled” by ICC arbitration the venue of which is to be Miami, Florida. The arbitration agreement and any related arbitrations are likewise governed by the United States Federal Arbitration Act.

In June 2013, GUPC and ACP entered into VO 70, which provided for a further advance payment intended to enable GUPC to make payments to the lock gates fabricator (the “APLG”). VO 70 initially provided for final repayments of the APLG to be made by mid-2014.

By the end of 2013, the evidence is that the situation had deteriorated to the extent that GUPC gave ACP notice of its intention to suspend the works. ACP rejected the notice, but the works were nonetheless temporarily suspended for a few weeks in February 2014. Negotiations led to a Memorandum of Understanding (the “MOU”) which brought the injection of a considerable amount of cash through VO 90, namely the advance payment for “Specified Expenditures” (the “APSE”). VO 90 was entered into on 13 March 2014, led to the insertion of a sub-clause 14.2 in the Conditions of the Contract, and provided for the APSE to be repaid at the end of 2015.

The MOU was implemented through VO 108 and became part of the Contract on 1 August 2014. VO 108 also amended the repayment provisions for “Other Existing Advances”, which included the APSS and APLG, (the “OEA”), by inserting a sub-clause 14.2J in the Conditions of the Contract.

Sub-clause 14.2J initially provided for two levels of deferrals of the OEA repayment:

Further to VO 108, the defendants and ACP entered into a Guarantee Arbitration Agreement on 1 August 2014 (the “GAA”), which was governed by Panamanian law and subject to ICC arbitration in Miami, and which provided that:

“In the event of any Award, the Guarantors agree jointly and severally that […] they will immediately:

(a)

pay on first demand any sum ordered in any Award in favour of the Employer […]

(b)

give full effect, or cause the Contractor to give full effect, to the terms of any Award.”

On 5 June 2015, GUPC and ACP entered into VO 149 Suppliers, which provided for a further advance payment of US$120m to enable payments to be made to suppliers. For present purposes, this was the last advance payment made. It was also the first advance to be secured by an English law/exclusive jurisdiction APG, indeed (so far as the court has been made aware) the first provision to this effect in any of the many dispute resolution clauses in the documentation to this effect.

The evidence does not go into the reasons for this departure. The claimant pleads that it “… and GUPC agreed upon the use of guarantees governed by English law and subject to the exclusive jurisdiction of the English Courts. As the majority of the guarantors were incorporated in European states, this provided the Claimant with an established route for enforcement, should the need arise”.

In the course of argument, the defendants maintained that enforcement was the key reason, whilst ACP maintained that unless something additional (other than an additional enforcement route) to the existing guarantees (with their arbitration provisions) was intended, there would be no purpose in the English law and exclusive jurisdiction clauses.

Sub-clause 14.2L of the Conditions of the Contract incorporated VO 149 Suppliers into the Main Contract. It provided for a final repayment date of 31 December 2016 and envisaged the possibility of an extension until 31 December 2018 upon the provision of a letter of credit:

“(a)

…the Employer shall make a further advance payment of part of the Contract Price up to a maximum of USD 120,000,000.00…

(b)

The Contractor shall obtain, at its own cost, and furnish to the Employer:

[…]

(ii)

the VO No. 149 Guarantee Security no later than 50 Business Days after the date of this Variation Agreement…

(c)

If the Contractor fails to comply with any or all of sub-paragraph… (b)(ii)… above within the time periods specified therein, then the whole of the balance of the Advance Payment for VO No. 149 Suppliers shall immediately become due and payable…

(e)

Provided that the Contractor has complied and continues to comply with subparagraph (b)(ii) above and subject to sub-paragraphs (h) and (i) below, the Advance Payment for VO No. 149 Suppliers shall be repaid in full by the Contractor to the Employer by way of one lump sum payment on December 31, 2016.

Where this sub-paragraph (e) applies, the Advance Payment for VO No. 149 Suppliers shall become due and payable by the Contractor to the Employer on December 31, 2016.

(f)

Subject to sub-paragraphs (h) and (i) below, if no later than 45 days prior to January 1, 2017 the Contractor at its sole cost has provided to the Employer the VO No. 149 LOC providing a December 31, 2018 maturity date then the Advance Payment for VO No. 149 Suppliers shall not become due and payable in accordance with sub-paragraph (e) above and the Employer shall grant the Contractor a temporary deferral of the repayment of the Advance Payment for VO No. 149 Suppliers until December 31, 2018…

(g)

Subject to paragraph (h)… the Advance Payment for VO No. 149 Suppliers shall become due and payable… by way of one lump sum payment, on the due date set out in sub-paragraph (e) or (f) above as applicable. …

(h)

The Advance Payment for VO No. 149 Suppliers shall immediately become due and payable by the Contractor to the Employer and the Employer shall be able to make a claim for the entire outstanding balance under the VO No. 149 Security, (and for the avoidance of doubt, a claim in respect of the Advance Payment for VO No. 149 Suppliers shall be made, in the first instance, under the VO No. 149 LOC, and, in the second instance, under the VO No. 149 Guarantee Security …), if:

(i)

the Advance Payment for Vo No. 149 Suppliers has not been repaid in full on:

(1)

December 31, 2016 (pursuant to sub-paragraph (e)); or

(2)

December 31, 2018 (pursuant to sub-paragraph (f)), and/or

[…]”

In accordance with these provisions, on 8 June 2015 ACP and the first to fourth defendants entered into an APG entitled, “Joint and Several Guarantee – Advance Payment for VO No 149 Suppliers”. ACP and the fifth defendant entered into a similar parent company APG in the same way as has already been described.

The main terms of the APG, and the provisions upon which much of the argument in the case has turned, are as follows:

“1.1

…wherever used in this Guarantee, “Guaranteed Amount” shall mean the Advance Payment for VO No. 149 Suppliers Outstanding Amount less any amount of the Advance Payment for VO No. 149 Suppliers Outstanding Amount secured by the Advance Payment for VO No. 149 Suppliers LOC, if any.”

“2.1

Each of the Guarantors, jointly and severally:

(a)

as primary obligor and not as surety, unconditionally and irrevocably, jointly and severally guarantees to the Employer the payment by the Contractor of the Guaranteed Amount as and when due pursuant to the Contract; and

(b)

if the Contractor is in breach of any of its obligations as set out in sub-paragraph (a), shall upon demand by the Employer from time to time, forthwith perform the obligations of which the Contractor is in breach in the same manner that the Contractor is required to perform such obligations according to the terms of the Contract.”

“3.3

The obligations of each of the Guarantors hereunder are primary and not by way of surety and none of the Guarantors shall be entitled as against the Employer to any right of set-off or counterclaim whatsoever and howsoever arising. The Employer shall not be obliged to take any action in any court or arbitral proceedings against the Contractor or any Guarantor, to make any claim against or any demand of the Contractor or any Guarantor, to enforce any bond, security, insurance, surety or guarantee held by it in respect of the obligations of the Contractor under the Contract or to exercise, levy or enforce any distress, diligence or other process of execution against the Contractor or any Guarantor. Without prejudice to the obligations of any of the Guarantors under this Guarantee, in the event that the Employer brings proceedings (including any counterclaims) against the Contractor, each of the Guarantors will be bound absolutely by any findings of fact, interim or final award or judgment made by an arbitrator or arbitrators or court in such proceedings or counterclaims or any decision of the DAB where such decision has become final and binding under the Contract.

3.4

Each of the Guarantors’ obligations under this Guarantee are continuing and accordingly shall remain in full force and effect (notwithstanding any intermediate satisfaction by the Contractor, any of the Guarantors or any other person) until all obligations, warranties, duties and undertakings now or hereafter to be carried out or performed by the Contractor under the Contract shall have been satisfied or performed in full and are not revocable and are in addition to and not in substitution for and shall not merge with, otherwise prejudice or affect or be prejudiced by, any other right, remedy, guarantee, indemnity, insurance, surety or security which the Employer may at any time hold for the performance of such obligations and may be enforced without first having recourse to any such right, remedy, guarantee, indemnity or security. Accordingly this Guarantee may be enforced notwithstanding the existence of all or any of the same and also notwithstanding the Employer at any time releasing or abstaining from perfecting or enforcing or otherwise dealing or omitting to deal with all or any of the same.”

“4.2

Determinations of interest rate and amounts under this Guarantee shall be made by the Employer, which determinations shall be conclusive and binding hereunder in the absence of manifest error. For the purposes of this Guarantee, “LIBOR” shall mean a rate per annum (calculated on the basis of a 360 day year and actual days elapsed) equal to (a) the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the offered rates which appear on Bloomberg Page BBAM1 (or on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, for purposes of providing quotations of interest rates of leading reference banks in the London interbank market, as designated from time to time by the Employer) as of 11:00 A.M. (London time) for deposits in U.S. dollars for a period equal to the relevant period for calculation of interest hereunder on the day two (2) Business Days prior to the first day of such period, or (b) if fewer than two (2) such offered rates appear which are relevant to the applicable period, the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates at which the Employer in its reasonable discretion shall determine at approximately 11:00AM (London time) on the date that is two (2) Business Days preceding such period are the applicable rates offered for U.S. dollar deposits by at least two (2) prime banks in the London interbank market for a period comparable to such period.”

“8.1

The Employer’s rights under this Guarantee are cumulative and are in addition to and not in substitution for any rights provided by law or the Contract or any other guarantee, surety, bond, insurance or security that the Employer may have or hold in relation to the Contract, and the Employer may exercise its rights under this Guarantee from time to time without first having recourse to any such right, guarantee, surety, bond, insurance or security.”

The English governing law and exclusive jurisdiction clauses, together with the so-called “FNC Waiver Clause” (FNC standing for forum non conveniens), are as follows:

“9.1

This Guarantee, and any non-contractual obligations arising out of or in connection with it, are governed by, and shall be construed in accordance with, English law.

9.2

Jurisdiction of the English Courts

(a)

The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Guarantee (including a dispute regarding the existence, validity or termination of this Guarantee).

(b)

The Parties agree that the courts of England are the most appropriate and convenient courts to settle any dispute referred to in paragraph 9.2(a) and accordingly no Party will argue to the contrary.”

The evidence is to the effect that by the end of 2015, the date for repayment of the OEA and the APSE was approaching, and GUPC was finding it difficult to obtain a letter of credit (the court was told an obstacle to this was that eligible Panamanian banks were reluctant to open letters of credit at this stage in the contractual works). The parties entered into discussions about deferring the repayment of these advance payments, a deferral being agreed to 31 December 2016, and the date for providing the letters of credit being agreed at “45 days prior to December 31, 2016”. In return for the deferral, ACP was to be provided with further English law APGs.

Accordingly, on 25 February 2016, ACP and the first to fourth defendants entered into English law APGs in respect of the OEA and the APSE (and the fifth defendant entered into commensurate parent company APGs). This agreement was formalised on 24 February 2016 in VO 150 in respect of the APSE and VO 161 in respect of the OEA.

The terms of the four APGs of 25 February 2016, and the repayment terms of the advance payments they guarantee, are materially the same as those of the APG of 8 June 2015 set out above. They contain the same English law/ exclusive jurisdiction clauses.

In summary of the above, these proceedings are concerned with three sets of advance payments, namely:

The relevant English law/exclusive jurisdiction APGs in respect of these advance payments on which this action is based are as follows:

It is common ground (and an important part of the defendants’ case) that the JSG (which is subject to Panamanian law/ICC arbitration) was confirmed by four subsequent confirmations (the last of which is the VO 150 Guarantee Confirmation of 25 February 2016) which confirmed the applicability of the JSG to the obligations of GUPC under the Main Contract up to and including VO 150.

Similarly, it is common ground (and an important part of the defendants’ case) that the APJSG (which was subject to Panamanian law/ICC arbitration) was amended and extended to cover the APSE and the APLG (in addition to the APSS, which it already covered). Further, the VO 150 Guarantee Confirmation of 25 February 2016 also confirmed the applicability of the APJSG to the Main Contract up to and including VO 150.

All parties therefore accept that the scope of the JSG includes all the advance payments which are covered by the English law APGs, and that the scope of the APJSG includes all the advance payments which are covered by the English law APGs (except for the advance payment for VO 149 Suppliers of approximately US$120m, which was not included).

It is further not in dispute that the letters of credit that were required to defer the repayment of these advance payments until 31 December 2018 were (for reasons which it is understood are in dispute in the arbitral proceedings) not provided.

The remaining advance payments (with which this action is not concerned) are all secured by letters of credit in the sum of approximately US$548m.

The amounts of the advance payments outstanding are agreed and total US$288,275,465.20. Although ACP says that the defendants accept that these advance payments are ultimately repayable by GUPC to ACP, and the second, third and fifth defendant’s evidence states this, this was seemingly not accepted at the hearing.

There are three sets of proceedings specifically to mention which are relevant to the English law APGs. An emergency application was made by some of the defendants and GUPC in an on-going arbitration on 16 November 2016. These English proceedings were commenced on 30 November 2016. A further arbitration was commenced under various contractual documents including the JSG and the APJSG by, among others, the defendants, on 31 January 2017.

As indicated above, GUPC sought to secure letters of credit to defer repayment of the advance payments beyond 31 December 2016, but maintains that it was unable to do so. In a letter dated 20 October 2016 (a month before ACP asserts that the letters of credit should have been in place), GUPC requested from ACP the “issuance of a Variation to remove the requirement of the submission of the letter of credits for the additional advances due”.

On 9 November 2016, ACP rejected GUPC’s request. This prompted GUPC and the first to third defendants to file an emergency application for interim measures (the “Emergency Application”) in an on-going ICC arbitration (which has been called the Concrete Arbitration) on 16 November 2016.

GUPC requested the tribunal to issue an order directing ACP to i) “agree to a revised timetable with GUPC S.A. regarding the repayment of any security packages […] that defers any repayment until after the conclusion of the pending dispute resolution process, now anticipated to last until 2022”; and ii) “refrain from executing, enforcing or foreclosing upon any of the letters of credit, or from engaging in any local court proceedings in any way, with respect to the security packages […] or otherwise taking any action against GUPC S.A. that would serve to upset the status quo between the Parties […] until the disputes between them are finally settled.” The first to third defendants asked for similar relief as guarantors.

The tribunal, consisting of civil lawyers (Mr Claus von Wobeser and Mr Pierre-Yves Gunter who was President) and a common lawyer (Dr Robert Gaitskell QC), issued its decision in the form of Procedural Order No. 1 on 30 December 2016. Though in the form of a Procedural Order (made on a prima facie basis), the decision of 30 December 2016 is a detailed document.

The tribunal dismissed the Emergency Application insofar as made by GUPC, and insofar as made by the first to third defendants save to the extent that those parties made their application under the JSG. Insofar as it was made under the JSG, the tribunal postponed its decision in the light of jurisdictional objections.

In relation to the relief sought by GUPC, the tribunal rejected the applications on the basis that the first requirement for granting an interim relief, which is “not […] to make a full examination of the merits of the claims of the requesting party but to only assess the “substantial likelihood of success on the merits of the underlying case””, was not met. The tribunal first had to determine the question in relation to which likelihood of success had to be assessed:

“401.

The Tribunal considers that the claim for which the likelihood of success on the merits must be examined is the Claimants’ claim that they should not be required to repay the advance payments because such repayment would be subject to the resolution of the Parties’ ongoing dispute concerning liability for delays and costs.”

As to likelihood of success, the tribunal said:

“410.

The repayment terms agreed in Variation Order No.108 and the other Variation Orders are detailed provisions setting out certain repayment dates and providing for deferral of such repayment dates only on very specific and clear conditions. None of the conditions for a further deferral of the repayment dates relates to the resolution of disputes. If the First Claimant [that is, GUPC] and the Respondent [that is ACP] intended for the repayment of the advance payments to be conditioned upon the resolution of disputes, they could have, and surely would have, made that clear in the MOU or the Variation Orders.”

…

“414.

Consequently, the Arbitral Tribunal finds that the Claimants have not demonstrated a likelihood of success on the merits of the claim that their repayment obligations should be suspended until the resolution of disputes since the express contractual terms agreed between the First Claimant and the Respondent, in the Contract as amended in particular by the MOU and the Variation Orders, do not establish any link between the First Claimant’s repayment obligations and the resolution of disputes as alleged by the Claimants. Under the clear terms of the Contract as amended, the First Claimant is required to repay the Advance Payments on certain specified dates despite any ongoing disputes between the Parties. Thus, on a prima facie basis, it has not been demonstrated that the merits of the First Claimant’s request, i.e. that it would not have to repay the Advance Payments due to the outstanding disputes between the Parties, have a substantial likelihood of success.”

The tribunal also considered a number of arguments concerning the defences against repayment of the advance payments available to GUPC under Panamanian law. These defences were rejected:

In relation to the relief sought by the Second to Fourth Claimants (i.e. the first to third defendants in the English proceedings) under the English law APGs, in the light of the exclusive jurisdiction clauses contained in the APGs, the tribunal concluded on a prima facie basis (that being the relevant basis in respect of the claim for interim relief) that it did not have jurisdiction in relation to those agreements (paragraph 437).

In relation to the English law APGs, the tribunal said it must defer to the determination by the English courts:

“440.

In light of the exclusive jurisdiction clause in the English Law Guarantees […] as well as the fact that the English Court proceedings [the present proceeding begun by ACP on 30 November 2016] do not involve all of the same parties as the present arbitration, the Tribunal considers that it must defer to the determination by the English Courts presently seized with the [ACP’s] action under the English Law Guarantees […] As [ACP] stated during the Phone Hearing, the [first to third defendants] can raise any defenses to the Respondent’s action under the English Law Guarantees […] in the English Courts, which is the proper forum for any disputes regarding the parties obligations under those security agreements.”

On 30 November 2016 (so after the Emergency Application had been made but before the tribunal’s decision on 30 December 2016) ACP commenced the present proceedings in the English court seeking declarations against the defendants regarding, inter alia, the right to demand repayment under the English law APGs after 31 December 2016, the exclusive jurisdiction clauses, and any breaches of these clauses resulting from the Emergency Application.

On 6 January 2017, by which time the advance payments (at least on their face) had fallen due, ACP notified GUPC that it was in breach of its obligations to make repayments of the relevant advance payments and that it was withholding payment under Interim Payment Certificate No. 124 dated 22 December 2016. On the same day, ACP sent demands to the first to fourth defendants for payment under the APGs, notifying them of its intention to seek indemnification of expenses etc. connected to the Emergency Application, etc. On 24 January 2017, ACP sent similar letters to the fifth defendant in relation to the parent company guarantees.

On 31 January 2017, the defendants filed applications for the proceedings to be stayed, either based on s.9 of the Arbitration Act 1996, or based on CPR r. 3.1(2)(f), CPR r.11(6)(d) and/or under the court’s inherent jurisdiction or case management powers.

On 1 March 2017, ACP filed an application for summary judgment on its claims for i) payment under the APGs, and ii) various declarations against the defendants on jurisdictional issues. An amended Claim Form and Particulars of Claim were served on the defendants on 9 March 2017 including the contention (foreshadowed in drafts sent to the defendants in February) that the English law APGs are to be construed as first demand bonds.

In letters dated 9, 10 and 13 March 2017, the second, third and fifth defendants, the first defendant and the fourth defendant respectively, agreed to the stay and summary judgment applications being listed and heard together based on the following understanding of ACP’s case (taken from the first defendant’s letter):

“Given the narrow scope of your client’s summary judgment application (which focuses in relation to the primary claim, only on the issue of whether the Advance Payment Guarantees are to be construed as a matter of English law as unconditional demand bonds (the “Construction Issue”) and provided your client does not apply at a later stage to expand the scope of its application, we accept that the Defendants’ stay applications and your client’s summary judgment application may be heard together…”

Following the defendants’ evidence in response to ACP’s summary judgment application which included allegations that the demands were not effective, ACP served new demand letters on the first to fourth defendants on 26 April 2017, and on the fifth defendant on 12 May 2017. This was followed by re-amended Particulars of Claim referring to the second set of demand letters.

On 31 January 2017, GUPC and the defendants filed a request for arbitration under the Main Contract, the Panamanian law guarantees and the GAA (the “Guarantee Arbitration”). The Guarantee Arbitration does not extend to the English law APGs.

In the Guarantee Arbitration the defendants (as claimants in the arbitration) seek declarations that repayments of the advance payments are not due and/or payable under Panamanian law and the relevant agreements. These are in effect claims for negative declarations in relation to the liability of GUPC to repay the advance payments under the Main Contract and the defendants’ liability as guarantors under the Panamanian law guarantees as against ACP as respondent in the arbitration.

In the Guarantee Arbitration the claimants are advancing the following arguments among others:

It is not in dispute that the issues raised by the defendants in the Guarantee Arbitration commenced on 31 January 2017 are so far as relevant similar to (ACP says the same as) those rejected by the tribunal in the decision on 30 December 2016 on the Emergency Arbitration. ACP says that commencing the Guarantee Arbitration was “… abusive, done as an artificial attempt to avoid the consequence of its failed application in the First Arbitration and to “outflank” the Exclusive Jurisdiction Clauses by attempting to create an alternative forum in favour of which to seek a stay”. The defendants say that this criticism is misplaced, and that they were reluctant to impose another dispute on the first tribunal which was already overburdened, and that in the Request for Arbitration they stated that they were willing to enter into “good faith discussions” with ACP about the matter being determined before an existing tribunal. The court need not enter into this aspect of the dispute, but the consequence is that a second arbitral tribunal is going to be considering much the same points as the first one rejected albeit on a prima facie basis.

ACP filed its answer to the Request for Arbitration on 10 May 2017. Amongst other things, ACP is challenging GUPC’s right to bring the Guarantee Arbitration, arguing that it has not followed the Main Contract’s agreed dispute resolution procedure, and it is asking the tribunal to stay the arbitral proceedings.

ACP nominated its arbitrator on 7 April 2017. The defendants nominated an arbitrator, but following objections from ACP his nomination was withdrawn, and a replacement was nominated on 10 May 2017. The process of appointing a third arbitrator is presently underway. The defendants anticipate that the tribunal in the Guarantee Arbitration will be constituted and the related terms of reference produced by October 2017. The Guarantee Arbitration is therefore still at an early stage.

Consequent on the wider disputes that have arisen between the parties during and following completion of the project, including the disputes the subject-matter of these proceedings, the following Miami-seated arbitration proceedings are currently on-going:

ACP seeks summary judgment in respect of its claim that the advance payments became due and payable on 31 December 2016 in the sum of US$ 288,275,465.20, and that ACP is now entitled to payment of these sums plus interest by the defendants under the APGs. (Declarations including that the defendants are in breach of the exclusive jurisdiction clauses are not now pursued in the summary judgment application.)

The defendants contend that the provisions of s.9 of the Arbitration Act 1996 are satisfied and that a stay of these proceedings must be imposed because the proceedings are in respect of a matter which under at least one of the arbitration agreements between the parties is to be referred to arbitration. They contend that the issue of whether the advance payments are due and payable by GUPC to ACP under the Main Contract depends on the contract and upon Panamanian law and is subject to arbitration both under the Main Contract and under the arbitration clauses in the JSG and APJSG.

Alternatively, the defendants contend that the court should, in its discretion, grant a stay under CPR3.1(2)(f), CPR11(6)(d) and/or its inherent jurisdiction or case management powers on the basis that there are arbitration proceedings concerning the same issues as those arising in the English proceedings currently in existence and that it is more appropriate for these issues to be dealt with by way of arbitration.

It is common ground that if ACP is right on its main construction argument to the effect that the APGs are demand bonds, the defendants’ contentions that a s.9 or case management stay should be granted do not arise. Similarly, it is common ground that if the conditions for a s.9 stay are met, imposing such a stay is a mandatory requirement. The court will deal first with the claimant’s summary judgment application.

There has been no dispute as to the legal principles applicable to a summary judgment application, the question under CPR r.24.2, which provides that the court may give summary judgment if the defendant has no real prospect of successfully defending the claim.

The broad factual premises for ACP’s summary judgment application are as set out above, and in summary that i) the advance payments were made to GUPC, ii) repayment was deferred until 31 December 2016 with further deferral to 31 December 2018 conditioned on the provision of letters of credit from Panamanian financial institutions of a specified financial standing, and iii) the letters of credit were not provided and the advance payments have not been repaid. These points are not in dispute. ACP accordingly submits that it is entitled to summary judgment against the defendants as guarantors under the APGs, which is in dispute.

ACP’s case for summary judgment depends on the correct construction of the APGs, the relevant provisions of which are set out above.

ACP’s case is that the defendants are not guarantors as under a “see to it” guarantee in which they assume a secondary obligation to make good any default by the primary obligor; rather they undertook as “primary obligors” to pay the sums of money themselves if not repaid by the contractual deadline. In this regard, they put their case in two ways:

It is common ground that if ACP is correct on either of these points it is entitled to summary judgment. However, as explained below, the defendants object to ACP being permitted to argue its alternative case at this hearing.

ACP relies on various points in support of a submission that it is uncommercial to suggest on the present facts and contractual terms that the APGs at issue in these proceedings were anything other than first demand instruments, or at the very least, instruments governed solely and exclusively by English law, such that it cannot have been intended that the defendants should be able to run defences derived from Panamanian law that are nowhere apparent on the face of the contractual terms. They rely on the following contentions:

The defendants on the other hand submit that the origins of the guarantees strongly suggest that the instruments are, indeed, guarantees rather than unconditional demand bonds. They rely on the following contentions:

On ACP’s primary case, the court must decide whether the APGs are unconditional demand bonds/guarantees, or whether, as the defendants contend, they are guarantees under which the guarantors’ liability is coextensive with the liability of the principal debtor. It is agreed that this is a matter of construction of the instruments.

It is agreed on all sides that a first demand bond or guarantee (however labelled) is a very different contract from a “see to it” guarantee (as described in Moschi v Lep Air Services Ltd [1973] AC 331 at p. 347), though of course particular instruments may have features of both. In approaching the construction question, the following principles appear from the case law:

So far as the parties’ arguments on the factual matrix are concerned, there are two points which require particular mention.

First, there is much force in ACP’s contention that at the time the APGs were entered into, it was known that not all of the underlying disputes would be resolved by arbitration by the end of December 2016 when the repayment of the advance payments would fall due. If the defendants are correct in their interpretation of the instruments, and of the Main Contract, and on the defences they raise to GUPC’s liability in relation to the advance payments guaranteed by such instruments, it seems that ACP must wait until the resolution process is complete until it is able to enforce them. However, whilst acknowledging the force of this point, the question remains whether the APGs which ACP received from the defendants were in fact payable on first demand. This part of the factual matrix does not assist in determining this question.

Further, as ACP points out, in its decision of 30 December 2016 on the Emergency Application, the arbitral tribunal took the view that the defendants’ case was wrong as a matter of Panamanian law so far as GUPC’s liability was concerned, finding that the parties “clearly intended for the repayment obligations to be dealt with separately from any ongoing disputes as to other contractual obligations”. The tribunal rejected the argument that repayment of the advance payments by GUPC was conditioned on resolution of the underlying Panamanian law governed disputes, and dismissed the Panamanian law defences. ACP submits that whilst the decision is focused on the position of GUPC, and is on a prima facie basis, and does not involve a detailed assessment of the defences, the arbitral tribunal’s reasoning is nevertheless both compelling and applicable to the defendants (as they are simply one step removed from GUPC).

Again, these are valid points so far as they go, and the arbitral tribunal’s reasoning and conclusions are important in certain respects, but not on this point because the tribunal was not considering whether the English law APGs are first demand instruments.

Second, the defendants rely on the fact that the APGs use the same language as in the JSG and the APJSG. In fact, the language is not quite identical, and the operative parts of the instruments differ in their references to guaranteed obligations and amount. But the significance of the overall similarity is that there is no suggestion that either the JSG or the APJSG are unconditional demand bonds. As the defendants point out, the language goes back to 2010, when the Main Contract was novated from the defendants’ consortium to GUPC, and so as to maintain their individual liability to ACP as employer, the defendants entered into a Joint and Several Guarantee of GUPC’s obligations so as to maintain their individual liability to ACP as employer.

On this basis the defendants say that, even allowing for the fact that the JSG and APJSG are subject to Panamanian law, it is inherently unlikely that the objective intention of the parties was that the same language should produce a radically different liability in the English law guarantees, in the absence of any evidence that such a change was actually intended. In the court’s opinion, this is a cogent point.

It is further to be noted that the defendants dispute ACP’s contention that the English law APGs would provide no additional benefit if they were to be construed as guarantees, because they have the clear advantage of providing a route to enforceability in the European Union by means of a judgment of the English court. However, whilst this is correct in itself, the awards would also be enforceable under the New York Convention.

Turning to the language of the APGs, the relevant provisions are set out in paragraph 32 above. (They are in substance the same for all the APGs.) By paragraph 2.1, each of the guarantors contracts jointly and severally “as primary obligor and not as surety”. Clause 3.3 is to similar effect. As ACP says, this is a strong indication that the guarantors’ liability is not secondary, in the sense of a “see to it” guarantee. The court accepts this—these provisions make it clear that liability under the APGs is primary, not secondary. However, as all parties also recognise, to say that someone is primarily liable begs the question of the content of that primary liability (Carey Value Added v Grupo Urvasco [2011] 2 All E.R. (Comm) 140 at [21]). To make good its case, it is not sufficient for ACP to show that the defendants’ liability is as primary obligor and not as surety. It has to show that the defendants’ liability is triggered by a demand (together with the necessary calculations under the conclusive evidence clause which is an integral part of ACP’s case on this point), and this is what the court has to decide.

In determining the defendants’ liability, the starting point is the “Guaranteed Amount”. This is a defined term, by paragraph 1.1 meaning (in the case of the APG in respect of the advance payment for the VO No 149 Suppliers) “the Advance Payment for VO No. 149 Suppliers Outstanding Amount”. Broadly, the definition of “Guaranteed Amount” is the amount outstanding of the relevant advance payment less any amount secured by a letter of credit (LOC). ACP says (and this is correct) that this does not refer to guaranteed obligations in general terms (in contrast with clauses 1.1(a) in the JSG and APJSG), but rather refers to the guaranteed amounts of money that were due on 31 December 2016. This is a point in favour of ACP’s interpretation, to the extent that the calculation of the sums concerned should not present the kind of difficulties that a more general calculation of loss might present.

The crucial provisions are found in paragraph 2.1. ACP relies on the fact that in sub-paragraph (a) the guarantors contract “unconditionally and irrevocably”, but this language on the whole seems neutral in pointing towards a first demand instrument since it could apply equally to a guarantee.

Much more important, in the court’s view, are the words which follow by which each guarantor “jointly and severally guarantees to the Employer the payment by the Contractor of the Guaranteed Amount as and when due pursuant to the Contract” (underlining added). The defendants place much reliance on these words.

It is correct, as ACP says, that such words may be construed as a trigger (see e.g. Gold Coast at [23]). There is also force in the point that even in a pure demand bond issued by a bank, it is difficult for the instrument to avoid making some reference to performance or default by the principal. However, the words in the APGs go much further than a reference, and there is no reason here not to give them their natural meaning. In fact, according to the defendants (and this has not been contradicted), ACP itself did so in its submissions in the Emergency Application which stated that “the guarantees provided by the Second to Fourth Claimants as security for the Contractor’s obligations expressly state that their obligation to cover the Guaranteed Amount falls due as and when due pursuant to the Contract”. (The first to third defendants were the claimants in the arbitration.)

The next sub-paragraph (b) provides that “if the Contractor is in breach of any of its obligations as set out in sub-paragraph (a), [the guarantors] shall upon demand by the Employer from time to time, forthwith perform the obligations of which the Contractor is in breach in the same manner that the Contractor is required to perform such obligations according to the terms of the Contract”. ACP relies on the fact that the liability arises “upon demand”, and must be performed “forthwith”. However, as noted earlier, the use of the word “demand” is a relatively neutral factor, and “forthwith” does not indicate in context that this is a first demand instrument. ACP says that the provision in paragraph 4.1 as to payment within 14 days of demand shows that the obligation to make payment cannot be said to be dependent on or in any way bound up with the concurrent arbitrations. However, this is to read too much into the provision. The fact that (necessarily) the contract specifies a time for paying the demand does not in itself govern the nature of the obligation to pay.

The much more substantial point is that the guarantors agree to perform GUPC’s obligations of which it is in breach in the same manner that GUPC is required to perform them “according to the terms” of the Main Contract. This is not the language of first demand liability: on the contrary, it expressly refers the guarantors’ obligations to performance of the underlying contract by the principal debtor according to its terms.

This does however give rise to the question whether the contract nevertheless provides a conclusive means of ascertaining such obligations through the conclusive evidence clause. It is a central part of ACP’s case that it does, and this is considered shortly.

ACP relies on paragraphs 3.3, 3.4 (which appear under the heading “Protective Clauses”), and 8.1 of the APGs (which appears under the heading “Miscellaneous”) to support a contention largely advanced in oral submissions that the guarantors’ liability under the APGs is autonomous of the Main Contract. For present purposes, it may be noted that:

ACP places particularly strong reliance on the words in paragraph 4.1 that, “[t]he Guarantors shall pay interest on any amount due under this Guarantee from the date of demand to the date of full payment …” read with the opening words of paragraph 4.2. These opening words provide that, “[d]eterminations of interest rate and amounts under this Guarantee shall be made by the Employer, which determinations shall be conclusive and binding hereunder in the absence of manifest error. … ”. ACP submits that:

The defendants submit that paragraph 4.2 has a limited function restricted to interest:

In the court’s opinion:

As to the last point, ACP emphasises the fact that unlike the JSG (and APJSG) the APGs are governed by English law. There is no hint, it contends, that the parties intended that the liability of the guarantors to repay the advance payments should be subject to establishing that there was no defence to such repayment on the part of GUPC. This factor is all the stronger where the parties have agreed Panamanian law and Miami/ICC arbitration for disputes under the Main Contract and for other guarantee liabilities, and have separately agreed a different English law and jurisdiction for one particular liability secured by separate guarantees, namely the repayment of specific advance payments on contractually fixed dates.

These points arise on ACP’s alternative case, as well as in relation to the jurisdictional arguments under s. 9 Arbitration Act 1996, and will require further consideration in that context. But on the present question whether the APGs are first demand instruments, they are neutral. The governing law/ jurisdiction provisions do not point one way or the other as to the nature of the instruments as first demand instruments.

For these reasons, the court does not accept ACP’s case that under the APGs the defendants are liable to make repayment of the advance payments upon demand, and that ACP itself is entitled conclusively to determine what amounts of principal and interest are due. Since the defendants are not financial institutions, this conclusion also accords with the “Marubeni presumption” mentioned above. Although this is decided on a summary judgment application, the parties have indicated that they are content for the court to decide it now. ACP’s submissions as to conditional leave to defend fall away. A declaration should be drawn up by the parties.

As explained above, ACP’s alternative case is that the defendants’ primary liability is triggered by the failure of GUPC to make repayments “as and when” provided for under the Main Contract, construed under English law. The defendants’ liability, ACP contends, is governed solely by English law and is in no way dependent on establishing that GUPC is also liable as a matter of Panamanian law. If this is correct, it is common ground that the defendants’ stay application would fall away.

However, it is not in dispute that the defendants agreed to the stay and summary judgment applications being listed and heard together on the basis that the issues on the summary judgment application would be limited to the “first demand” point, i.e. not including ACP’s alternative case.

In fact, the alternative case was not raised until ACP’s skeleton argument was lodged shortly before the hearing. The defendants objected to dealing with it at the hearing without proper notice, also objecting that the case is not pleaded. (Following the hearing, draft amendments have been served, and in principle are not objected to by the defendants.)

ACP accepted that the defendants are entitled to proper time to consider the alternative case. It now can consider the position afresh in the light of this judgment. If it wishes to apply for summary judgment on its alternative case, it may restore the application for a hearing. The parties agree that one day is sufficient, and can agree appropriate directions for any further written material that needs to be lodged.

The defendants’ case as to the stay application is as follows. The primary substantive issue under the APGs is whether the advance payments are due and payable by GUPC to ACP under the Main Contract (the “GUPC Repayment Issue”). This depends on Panamanian law and is subject to arbitration both under the Main Contract and under the arbitration clauses in the JSG and the APJSG. Accordingly, the defendants submit, the court is bound to stay these proceedings under s.9 Arbitration Act 1996 on the basis that the proceedings have been brought in respect of a matter which has been agreed to be referred to arbitration.

This issue arises because the court has not accepted ACP’s case that the APGs are first demand instruments, which would have rendered any consideration of the GUPC Repayment Issue otiose. As explained above, ACP’s alternative case in relation to the APGs which would have the same effect has not yet been decided. However, all parties agree that a decision on the defendants’ application for a stay under s. 9 Arbitration Act (subject to ACP’s alternative case) should be given now, the issue having been fully argued.

Section 9 Arbitration Act 1996 provides for a mandatory stay of legal proceedings in the English court in respect of a matter which under the agreement between the parties is to be referred to arbitration:

“Stay of legal proceedings.

(1)

A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter.

…

(4)

On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”

Section 9 gives effect to Article II of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, which provides that:

“Article II

1.

Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

2.

The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

3.

The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”

Though they differ as to the precise formulation, the parties are in agreement that the issues for determination can be considered under three questions which broadly are as follows. For the purposes of s. 9(1):

The defendants accept that the GUPC Repayment Issue falls within the scope of the exclusive jurisdiction clauses in the English law APGs insofar as it arises in relation to claims under the APGs, and contend that it arises as a “matter”. Their contention is that it also falls as the same “matter” within the arbitration agreements, and so within the stay provisions. ACP accepts that the GUPC Repayment Issue falls within both the scope of the exclusive jurisdiction clauses in the English law APGs and within the scope of the arbitration agreements. Their contention is that this issue is not the “matter” in these proceedings, and does not arise as the same “matter” in the arbitration agreements.

As has been noted above, the arbitration agreements in the Panamanian law guarantees are governed by the United States Federal Arbitration Act, and there was some evidence as to US law in that respect. The defendants object that because the question whether the “matter” falls within the scope of these arbitration agreements was raised late, they have had insufficient time to prepare their evidence as to US law on the issue. However, nothing in the end turned on any differences there may be between English and US law in this regard.

The defendants contend as follows:

ACP contends as follows:

Before turning to the analysis, it is necessary to say something about the commercial context. The history as explained above is complex, but, in brief, following a number of advance payments made by ACP to GUPC secured by Panamanian law guarantees with Miami arbitration clauses, new English law/exclusive jurisdiction APGs were entered into in respect of existing and new advance payments, broadly as a result of further deferrals being granted to GUPC (the earlier security remaining in effect as well). The advance payments covered by these new guarantees were repayable on 31 December 2016, but this was deferrable to 2018 dependent upon GUPC putting in place letters of credit.

On 16 November 2016, with the repayment date coming up and the letters of credit not in place, GUPC and the first to third defendants made the Emergency Application to the arbitral tribunal seeking among other things an order restraining ACP from making demands under the APGs. As explained above, this was based on Panamanian law arguments (including as to the construction of the Main Contract) which in the event the tribunal dismissed. One such argument was that GUPC was absolved from repaying the advance payments due on 31 December 2016 on the grounds that ACP was in breach of its obligations under the Main Contract—the tribunal rejected this, stating that the parties “clearly intended for the repayment obligations to be dealt with separately from any ongoing disputes as to other contractual obligations”. As for the APGs, the tribunal noted that the English court had exclusive jurisdiction.

That tribunal’s decision appeared to leave the way open for the English proceedings to continue. But on 31 January 2017, GUPC and the defendants commenced the Guarantee Arbitration against ACP, this time with a differently constituted tribunal. In the arbitration, they seek negative declarations to the effect that the advance payments are not repayable by GUPC—i.e. the GUPC Repayment Issue—and that the defendants are not liable as guarantors. This arbitration is commenced under the Panamanian law guarantees and the Main Contract. As explained above, the arguments advanced are similar to, or the same as, those rejected by the arbitral tribunal in the earlier arbitration.

The claims for negative declarations in the Guarantee Arbitration do not extend to claims made under the English law APGs (because of the exclusive jurisdiction clause).

Section 9 Arbitration Act 1996 is set out above, as are the concomitant provisions of the New York Convention (as to the relationship see Fulham Football Club (1987) Ltd v Richards [2012] Ch 333 at [33]). Section 9(1) provides for a stay on the application “of a party to an arbitration agreement against whom legal proceedings are brought … in respect of a matter which under the agreement is to be referred to arbitration ….”. It is not in dispute that arbitration agreements are contained in both the JSG and APJSG, and that all relevant parties are party to the agreements.

Further, it is not in dispute that under s.9(1), a stay can be granted in respect of part of the legal proceedings, where other parts are not subject to an agreement to arbitrate. This is because proceedings are only to be stayed “… so far as they concern that matter” (i.e. the matter which under the agreement is to be referred to arbitration: Fortress Value Recovery Fund I LLC v Blue Skye Special Opportunities Fund LP [2013] 1 WLR 3466 at [30]).

The question is as to the test the court applies in determining what is the “matter” in respect of which the legal proceedings are brought, and whether such “matter” is referred to arbitration under the arbitration agreement. In Lombard North Central plc v GATX Corpn [2013] Bus. L.R. 68 it was said at [14] that, “There is no judicial authority of which counsel or I know that directly considers the meaning of “in respect of” in section 9(1) or how the court determines whether proceedings are in respect of a referred matter”.

There is however a considerable body of authority that is relevant to this question in various jurisdictions which have the same or similar provisions. This was surveyed by the Singapore Court of Appeal in Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57.

One such authority is Tanning Research Laboratories Inc v O’Brien (1990) 91 ALR 180, in which the High Court of Australia considered the meaning of the word “matter” in s.7(2) of Australian legislation. This provided for a stay of court proceedings where “the proceedings involve the determination of a matter that, in pursuance of the [arbitration] agreement, is capable of settlement by arbitration”. At p.193, it was pointed out that “in any context, ‘matter’ is a word of wide import”, and in the context of s.7(2) “may, but does not necessarily, mean the whole matter in controversy in the court proceedings”.

The issue in Tanning was approached by reference to the “substance of the controversy”, it being noted at p.194 that:

“Section 7(2) of the Act is concerned with “proceedings [which] involve the determination of a matter … capable of settlement by arbitration”. Its operation is thus not confined to proceedings in which the parties seek the same relief as might have been sought in arbitration proceedings. … the question whether a person is claiming through or under a party to the arbitration agreement is necessarily to be answered by reference to the subject matter in controversy rather than the formal nature of the proceedings”.

Similarly, the court in Tomolugen said:

“125    When ascertaining whether a given matter is covered by an arbitration clause, the court must consider the underlying basis and true nature of the issue or claim, and is not limited solely to the manner in which it is pleaded (see, for example, Larsen Oil v Petroprod at [7]-[10]). As Andrew Smith J stated in Lombard North v GATX at [14]:

“... The question of course depends upon the nature of the claim (or claims) made in the legal proceedings, but not, I think only on the formulation of it (or them) in the claim form and any pleadings. That would allow a claimant to circumvent an arbitration agreement by formulating proceedings in terms that, perhaps artificially, avoid reference to a referred matter, knowing that any application to stay them must be made before a defence is pleaded. ...”

126    Blair J approached the issue in the same way in PT Thiess Contractors Indonesia v PT Kaltim Prima Coal, Standard Chartered Bank, Singapore Branch [2011] Arb LR 26, where he emphasised at [35]:

“... the importance of identifying the "substance of the controversy", rather than the formal nature of the proceedings ... [T]he court must consider the substance of the controversy as it appears from the circumstances in the evidence on the application (and not just the particular terms in which the Claimant has sought to formulate its claim in court). ...”

127    We agree with both these statements as to the proper approach which a court should take. …”

Similarly, it has been “suggested that the court should consider the essential nature of the claim but not necessarily the precise formulation in the claim form otherwise this might allow a party to circumvent the arbitration agreement by its formulation. In an appropriate case this will lead to an examination of the claim and the defences to the claim and the subject of the underlying dispute” (David Joseph, Jurisdiction and Arbitration Agreements and their Enforcement, 3rd edn, at ¶11.15, cited with approval in PT Thiess Contractors Indonesia v PT Kaltim Prima Coal [2011] Arb LR 26 at [35]), and see Nomihold Securities Inc v Mobile Telesytems Finance SA [2012] EWHC 130 (Comm) at [38]; c.f. T&N Ltd v Royal & Sun Alliance Plc [2002] CLC 1342 at [18]). The focus on the substance of the controversy is also adopted by Professor Merkin in Arbitration Law at ¶8.20, and in Deutsche Bank AG v Tongkah Harbour Public Co Ltd [2012] 1 All ER 194 (Comm) at [26].

As the survey in Tomolugen shows, the question arises in widely differing circumstances: it was said that “… when the court considers whether any “matter” is covered by an arbitration clause, it should undertake a practical and common-sense inquiry in relation to any reasonably substantial issue that is not merely peripherally or tangentially connected to the dispute in the court proceedings. The court should not characterise the matter(s) in either an overly broad or an unduly narrow and pedantic manner. In most cases, the matter would encompass the claims made in the proceedings. But, that is not an absolute or inflexible rule” ([113]).

Where s.9(1) applies, the stay is mandatory, the exception being in s.9(4), which provides that “… the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed”. As appears above, this exception also is founded in the equivalent provision of the New York Convention.

The essence of the defendants’ case is that once it is ascertained that the APGs are not first demand instruments—as the court has now held—then (subject to ACP’s alternative case on the interpretation of the instruments) the English proceedings inevitably require the court to consider the defendants’ case to the effect that the advance payments are not presently repayable. This is the GUPC Repayment Issue, and that, the defendants argue, is a “matter” within the meaning of s. 9(1) Arbitration Act 1996. The issue is a substantial one (Tomolugen at [113]), in fact it is the primary substantive issue. The issue is referred to arbitration because it is within the arbitration agreements contained both under the Main Contract and in the JSG and the APJSG. In fact, there is a perfect overlap between the English law APGs and the Panamanian law JSG and APJSG in this respect. In those circumstances, the GUPC Repayment Issue must be stayed—the court has no discretion in that regard, since under s.9 a stay is mandatory. A failure to apply s.9 would enable ACP to have key issues over liabilities for advance payments decided by the English court which are more suitably determined by an arbitral tribunal.

The essence of ACP’s case is that the term “matter” in s.9(1) requires something different from the mere existence of a common issue in a different contract. In identifying the “matter”, and following the approach in the New York Convention, the focus must be on the particular “legal relationship” and the particular agreement. In the present case, the “matter” in respect of which these proceedings have been brought is whether the defendants are liable to ACP under the English law APGs. The “matter” is not the issue whether any of the advance payments are currently due to ACP by GUPC under the terms of the Main Contract, as construed in accordance with Panamanian law (i.e. the GUPC Repayment Issue). To construe that as the “matter” would have the effect of forcing ACP to sue in another forum when it was expressly agreed in the contracts in question that it does not have to do so. Nor, and this is a separate contention, is the matter within any of the Panamanian law guarantees.

In considering the opposing arguments, the starting point is the principle that on the application of a party, agreements to arbitrate will be enforced by the court, by way of a stay under s. 9 of the Arbitration Act if the legal proceedings are brought in England, and by way of an anti-suit injunction if the legal proceedings are brought outside England. This fundamental principle is based on respect for party autonomy. What marks the present case out is that the defendants seek to apply the principle notwithstanding that under the contracts on which the claimant sues, the parties have agreed that the English courts shall have exclusive jurisdiction—in other words, party autonomy goes the other way. There is no other case that has been cited in which s. 9 has been invoked in such circumstances.

As explored in argument, a number of points arise out of this. One is that, contrary to the exclusive jurisdiction clause, if ACP wishes to enforce the APGs it must do so by way of arbitration. The defendants seek to meet that point by arguing that the English proceedings will remain on foot. The defendants, they submit, are “not seeking to say that ACP should not have brought its proceedings, or that the Court cannot decide the Construction Issue or that, ultimately, the Court will not be able to give a final judgment (one way or the other) in these proceedings. The defendants’ case on this application is simply that the proceedings involve a matter, namely the Repayment Issue, which is to be referred to arbitration and that the proceedings should be stayed so far as they concern that matter”.

The reality however is that the case as a whole will be stayed, at least for the time being. ACP must recover the advance payments by claiming under the JSG and/or the APJSG. This effectively bars a claim under the APGs save for the purposes of enforcement. As ACP says, on this basis it is difficult to see what security it obtained when it agreed to defer repayment of the advance payments in addition to what it already had.

Further, under the terms of the APGs, ACP is not required to claim under the JSG or APJSG. These terms are set out above. In summary, paragraph 3.3 provides that ACP shall not be obliged to take any action in any arbitral proceedings against GUPC or any guarantor, or to make any claim or demand to enforce any guarantee held by it in respect of the obligations of GUPC under the Main Contract. Paragraph 3.4 provides that the guarantors’ obligations under the APG are in addition to any other guarantee which ACP may hold, and may be enforced without first having recourse to any such guarantee. Paragraph 8.1 provides that ACP’s rights under the APG are cumulative and are in addition to and not in substitution for any rights provided by any other guarantee, and that ACP may exercise its rights under the APG from time to time without first having recourse to any such guarantee.

The court’s conclusions on this question are as follows:

This is consonant with the commercial sense of the transaction. On the defendants’ case, ACP must submit the claim under the APGs to arbitration under different guarantees, in respect of which ACP has made no demand, and has no claim. There is nothing unusual in a party holding more than one security for the same obligation. It is up to that party which security it chooses to enforce. Though there is now an arbitration commenced by the defendants in which they seek a negative declaration, it is common ground that it does not extend to the APGs, and could not result in an award in ACP’s favour under the APGs.

This conclusion focuses on question (i) above. As regards the linked question (ii), ACP submits that the matter/GUPC Repayment Issue does not fall within the scope of the Panamanian Law guarantees insofar as it arises in relation to claims under the English law guarantees. As well as saying that the point is wrong, the defendants say that they have had insufficient time to put in US law evidence (US law governs the arbitration agreements in the Panamanian law guarantees), and invite the court to decline to deal with this “new point”. In view of the conclusions set out above, there is no need for any further decision by the court.

On question (iii), that is, whether ACP is correct to assert that the arbitration agreements in the Panamanian law guarantees are “inoperative” within the meaning of s.9(4), as well as contending that the point is wrong, the defendants also say that they have had insufficient time to put in US law evidence on what they also say is a “new point”. However, in view of the conclusion reached on question (i), again there is no need for any further decision by the court.

The result is that the defendants’ application for a stay under s. 9(1) Arbitration Act 1996 is refused.

In cases outside the ambit of s.9 Arbitration Act 1996, as this case has been held to be, it is common ground that in principle the court has an inherent jurisdiction to stay its proceedings by way of a case management stay to allow one or more issues to be determined by way of arbitration. Unlike a s. 9 stay, a case management stay is discretionary. The parties differ as to how the principle is to be applied in this case. Before discussing the legal test, a preliminary point was raised by ACP in respect of the effect of the Recast Brussels Regulation jurisdictional regime.

In Owusu v Jackson [2005] QB 801, the ECJ was asked (on a reference from the English Court of Appeal) whether a court of a Brussels Convention contracting state (as the United Kingdom is), which has before it a case with connecting factors to a non-contracting state, can exercise a discretionary power available under its national law to decline jurisdiction in favour of the courts of that state. (The Brussels Convention is the precursor of the current Regulation (EU) No 1215/2012, the Recast Brussels Regulation.) Answering the question in the negative, the ECJ said at [46] that the court cannot decline jurisdiction on forum non conveniens grounds:

“ … the Brussels Convention precludes a court of a contracting state from declining the jurisdiction conferred on it by article 2 of that Convention on the ground that a court of a non-contracting state would be a more appropriate forum for the trial of the action, even if the jurisdiction of no other contracting state is in issue or the proceedings have no connecting factors to any other contracting state.”

In its written submissions, ACP points out that the court is not permitted to exercise its inherent jurisdiction to stay proceedings in a manner which is inconsistent with the Regulation (Mazur Media Limited v Mazur Media GmbH [2004] 1 WLR 296 at [69]). So far as concerns a stay in favour of arbitration, as opposed to another court, it is correct that Art. 1(2)(d) of the Recast Brussels Regulation provides that the Regulation does not apply to “arbitration”. However (ACP says), since the court has held that these proceedings have not been brought in respect of a “matter” which under the arbitration agreements is to be referred to arbitration, so that the defendants are not entitled to a mandatory stay under s. 9, there is no relevant difference between an application for a case management stay in favour of proceedings in the courts and those in arbitral proceedings: the court is not permitted to grant a stay on forum non conveniens grounds because to do so is inconsistent with the Regulation. While (as ACP concedes) it has been accepted that the English court nevertheless retains its inherent power to stay its proceedings, including on case management grounds, the court must be astute to ensure that forum non conveniens principles are not re-introduced via the back door (Mazur at [70]; Jefferies International Ltd v Landsbanki Islands HF [2009] EWHC 894 (Comm) at [24]-[29]; Skype Technologies SA v Joltid [2011] I.L.Pr 8 at [22]), Re Zavarco Plc [2015] EWHC 1898 (Ch) at [45]).

On this point of principle, the defendants submit that the Owusu principle does not apply at all to stays made in the context of related arbitral proceedings. The authorities, they submit, do not point to the contrary conclusion. In A v B [2007] 2 CLC 157, a temporary stay was ordered pending the determination of arbitration claims. In CNA Insurance Co Ltd v Office Depot International (UK) Ltd [2012] 1 CLC 283, citing Owusu, a stay on case management grounds was refused because, as a matter of substance, the stay sought there went to jurisdiction and not case management. In Equitas Ltd v Allstate Insurance Co [2008] EWHC 1671 (Comm), the issue was decided on the absence of a sufficiently compelling case to justify a stay, rather than on a lack of jurisdiction to do so. Although Lungowe v Vedanta Resources Plc [2016] EWHC 975 (TCC) is not an arbitration case, the defendants refer to the court’s observations at [83]-[84] that, in an appropriate case and notwithstanding Owusu, the court must be able to exercise its case management powers to grant a stay.

The court accepts the defendants’ submissions in this regard. There is nothing in Owusu which expressly addresses the issue of a stay which is not in favour of the courts of another state, but is made pending the determination of disputes in arbitration. Arbitration is excluded from the Recast Brussels Regulation, as it was from its predecessors, Art. 1(2)(d) providing simply that it does not apply to “arbitration”.

Regard also should be had to recital (12) of the Recast Brussels Regulation, which provides non-exhaustive guidance as to the scope of the arbitration exclusion. It states that:

“Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have entered into an arbitration agreement, from referring the parties to arbitration, from staying or dismissing the proceedings or from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed”.

As ACP points out, the language of the recital closely follows Article II.1 of the New York Convention, which is given effect by ss. 9(1) and (4) of the Arbitration Act 1996. However, the words “in respect of” are wide words, and in this context need not be limited to cases in which the court is required to give a mandatory stay under s.9 of the Arbitration Act 1996, or under national law implementations of Article 8 of the UNCITRAL Model Law on International Commercial Arbitration. As the defendants aptly put it, the recital is sensibly to be read as applying to a case in which a dispute is capable of falling within both an arbitration agreement and a jurisdiction agreement between the parties. Accordingly, the jurisdictional inhibition exemplified by the Owusu principle does not apply to case management stays made in the context of related arbitration proceedings. There is no commercial or policy reason for reaching the contrary conclusion.

There is also force in the defendants’ broader submission that Owusu does not apply at all to a temporary stay which allows for the efficient marshalling of multi-jurisdictional and multi-party proceedings but which does not involve the court declining jurisdiction (c.f. Equitas, supra, at [64]). In such cases, the court’s concern is with the sequence most appropriately followed, and not with shutting out the claim altogether (BC Andaman Co Ltd v Xie Ning Yun [2017] SGHC 64 at [102]). However, in view of the conclusion on the point of principle, it is not necessary to decide this.

The point raised by ACP as to the effect of the Recast Brussels Regulation jurisdictional regime can therefore be put on one side, and was not pursued by ACP in oral submissions.

In the event that the court refuses a s.9 stay—which it has—the defendants seek a case management stay in respect of ACP’s monetary claims. It defines these as being those claims which require resolution of the GUPC Repayment Issue. It relies on four factors which they say apply, (1) a stay will avoid duplicative proceedings and the risk of inconsistent decisions, (2) the tribunal in the Guarantee Arbitration will be better placed to adjudicate the GUPC Repayment Issue, (3) priority should be given to the proceedings between the principals, i.e. GUPC and ACP, and (4) the issues could be determined more quickly in the Guarantee Arbitration.

ACP responds that the effect of a stay would re-write the parties’ contracts, would contradict the commercial objective of the transaction, and deprive ACP of the benefit of the contractual terms which it secured when it obtained the additional security of the APGs. The risk of inconsistent decisions would not be avoided, the defendants are raising what amount to forum non conveniens points which the FNC Waiver Clause precludes, the APGs state that priority should not be given to the proceedings between the principals, and the defendants themselves have created the competing proceedings in the Guarantee Arbitration so as to lay the ground for a stay application. This “second bite at the cherry” comes after their points were roundly dismissed in the Emergency Application.

Whichever arguments are the correct ones, there are clearly potential complexities in deciding the dispute under the APGs. For that reason, the court asked the parties to prepare a Note on Case Management to explain (on a non-binding basis) how they saw the case progressing on their respective approaches on the basis that the court does not grant summary judgment or a stay, which they helpfully did.

ACP’s proposal: ACP proposes a trial in the English court of preliminary issues arising out of the defendants’ Panamanian law defences (plus its alternative construction point). These defences are broadly the same as those that were considered by the tribunal in the Emergency Application, and ACP contends that the outcome will be the same in the English proceedings. If ACP succeeds at trial, it will be entitled to money judgment and the proceedings would end. If the defendants succeed, and at that stage there are detailed and complicated issues which are also being considered in arbitration proceedings, it may well be that there would be an agreed stay to have these issues resolved in such arbitration proceedings.

The defendants’ proposal: The determination of preliminary issues arising out of the Panamanian law defences will involve some factual evidence. This will increase the time necessary for the hearing and when it can be heard. It is common ground that a case management stay may be needed at that stage if the determination of the preliminary issues of Panamanian law does not finally determine the GUPC Repayment Issue. The defendants’ proposal is that the court grants a stay of the English proceedings now in favour of the Guarantee Arbitration. This would involve three stages:

The applicable test is not in dispute. In Reichhold Norway ASA v Goldman Sachs International [2000] 1 WLR 173 it was held that the court has jurisdiction to stay proceedings on case management grounds, it being said at p. 186 that “stays are only granted in cases of this kind in rare and compelling circumstances”. In that case, the claimant’s claim was stayed pending the determination of another claim it had brought by way of arbitration against a third party arising out of the same transaction.

The defendants point out that unlike in Reichhold, this is not an application to stay proceedings between A and B pending an arbitration between A and C, but pending an arbitration between A and B themselves. The Guarantee Arbitration is brought pursuant to arbitration agreements between the parties to the English proceedings, and the issue of GUPC’s liability to repay the advance payments is one which it is common ground is capable of being determined in the arbitration.

Nevertheless, whilst drawing attention to the review in Tomolugen in this context as well, the defendants do not suggest that the test should not be applied (for a recent example in a case that also involved an exclusive jurisdiction clause, see Black Diamond Offshore Ltd v Fomento [2015] 1 CLC 884 at [50]).

ACP places great reliance on the exclusive jurisdiction clause, submitting that while the power can in principle be exercised even though the English court has jurisdiction pursuant to such a clause, and even when this is fortified by a forum non conveniens waiver clause (the FNC Waiver Clause), it is extremely unlikely that the court would ever exercise its discretion to grant a stay in such circumstances.

However, this states the test too high. In Amlin Corporate Member Ltd v Oriental Assurance Corp [2013] 1 All E.R. (Comm) 495 at [22] it was said that the presence of an exclusive jurisdiction clause conferring jurisdiction on the English courts to try a dispute is just one of the relevant circumstances to bear in mind when the court exercises its discretion:

“Mr MacDonald Eggers submitted that the presence of the exclusive jurisdiction clause (there was no such clause in the Reichhold case) meant that the circumstances justifying a stay had to be even more rare and more compelling than in a case where jurisdiction was founded for other reasons and he was even able to cite the judgment of Beatson J in Equitas Ltd v Allstate Insurance Ltd [2009] Ll Rep IR 227 in support of that proposition. For myself, however, I doubt if it is useful to talk of degrees of rarity and compellability. It is better just to decide if the circumstances of any particular case are rare and compelling enough. The presence of an exclusive jurisdiction clause conferring jurisdiction on the English courts to try a dispute is just one of the relevant circumstances to bear in mind when a judge exercises his discretion. That is what the judge did and the second ground of appeal is not, in my judgment, made out.”

In the particular case of guarantees, as in the present case, the question may arise where the issue of the principal indebtedness upon which the guarantors’ liability depends is the subject of an arbitration. As the defendants emphasise, the risk of inconsistent judgments is evident in such cases (Alfred McAlpine Construction Ltd v Unex Corporation (1994) 70 BLR 26 at p. 32E).

A recent authority is Stemcor UK Ltd v Global Steel Holdings Ltd [2015] 1 Lloyd’s Rep 580, where a stay of a claim against guarantors under guarantees with exclusive jurisdiction clauses was granted pending the outcome of an arbitration as to the underlying debt. The court distinguished Classic Maritime Inc v Lion Diversified Holdings Bhd [2010] 1 Lloyd’s Rep 59 which went the other way.

It is clear that each case depends on its facts. One of the points that weighed with the court in Stemcor was that the arbitration proceedings were more advanced than the court proceedings—directions up to and including the final hearing had been made, including a detailed timetable for disclosure and factual and expert evidence, and the hearing date had been fixed (at [50]). In Classic Maritime on the other hand, the arbitration had yet to be instituted.

ACP rightly draws attention to the FNC Waiver Clause in the APGs, by which the parties agree that the English courts are the most appropriate and convenient courts to settle disputes, and that no that party will argue to the contrary. This rules out forum conveniens type arguments, but it does not preclude the grant of a case management stay in an appropriate case (Standard Chartered Bank (Hong Kong) Ltd v Independent Power Tanzania Ltd [2016] 2 All ER (Comm) 740 at [43]).

These authorities show the approach of the court to an application for a case management stay. It is not for the court to dictate what a party’s course of action should be. If a party has contractual rights, it is entitled to enforce them in the contractual jurisdiction. On the other hand, it is not correct, as ACP puts it, that because of the exclusive jurisdiction clause the defendants have “a mountain to climb”. In circumstances in which an international commercial dispute involves arbitration as well as court proceedings, it makes good commercial sense for the court to have regard, where appropriate, to the orderly resolution of the dispute as a whole, if necessary by granting a temporary stay in favour of arbitration. A coherent system of commercial dispute resolution has to take into account the fact that various different tribunals may be involved, each of which should aim to minimise the risk of inconsistent decisions, and avoid unnecessary duplication and expense. All this is amply supported in the case law.

With those points in mind, and having carefully considered the parties’ respective submissions on the application, the court’s conclusion is as follows:

In all the circumstances, and taking into account these and the other points made by the parties, the court’s conclusion is that a compelling case for a case management stay is not made out by the defendants at the present time. As has been made clear, the door is not closed on an application being made in the future, to be decided on the position as it is then.

In summary, and as set out above, the court’s decision is as follows:

The court is grateful to the parties for their assistance, and will hear them on any consequential matters.