Stockman Interhold SA v Arricano Real Estate Plc

There are before me a series of arbitration applications, involving a number of Awards, the details of which I set out below, in a relatively long running dispute between these parties, all of which Awards were made by an experienced commercial arbitrator, sitting as sole arbitrator. I set out full details of the precise applications below. I refer to the applicant as Stockman and the respondent as Arricano.

The story commenced in 2009, when Mr Teder, of Arricano, sought investors in various shopping centre projects in Ukraine that he was developing, in particular the Sky Mall in Kiev. Those projects were held by a company called Assofit and its subsidiaries, and Mr Teder held his interest in Assofit through Arricano.

Mr Teder’s property group was in need of a significant cash injection. To this end, he spoke to a number of potential investors, including Mr Andrey Adamovsky. Mr Adamovsky was interested in the Sky Mall project and he made an offer in November 2009 to buy shares in Assofit.

In December 2009, Mr Teder and Mr Adamovsky signed a letter of intent. One of the terms of that agreement was that, upon signing, Mr Teder would terminate any negotiations with other third parties in relation to the sale of a stake or investment in the Sky Mall project.

In addition, in December 2009, Mr Teder and Mr Adamovsky signed a Memorandum of Understanding, or MOU which described the proposed terms on which Stockman would acquire 50%+1 share in Assofit in order to acquire an interest in the “Property”, described as the assets and liabilities in tow companies called Dniprovska Prystan and Pryzma Beta, constituting together an integral property complex, Sky Mall. The transaction was valued at USD 40 million.

The MOU noted that the parties agreed not to initiate the sale of shares, participation interests or the Property at any time sooner than 2 and a half years after the Project Phase 2 (as defined in a Share Holders Agreement, or SHA, of which more below).

The MOU also described a Call Option whereby Arricano would have the

Various agreements were then entered into between 29 December 2009 and 25 February 2010 by which Stockman agreed to purchase shares in Assofit from Arricano.

On 25 February 2010, Stockman and Arricano entered into two other agreements, being the SHA, and a Call Option Agreement, or COA.

The most relevant provisions of the SHA were as follows:

As for the COA, it provided as follows (leaving out headings):

“2.1

In consideration of the mutual obligations under this Agreement and Shareholders Agreement, which are sufficient consideration, the Investor hereby grants to Arricano an option to require the Investor to sell all of the Option Shares on the terms set out in this Agreement (the “Call Option”)….

…3.1 The Call Option is effective within 12 months, starting from 15 March 2010 up to 15 March 2011 inclusive.

3.2

Without prejudice to clause 3.1 above the Call Option Completion may be exercised exceptionally within period from 15 November 2010 to 15 March 2011 inclusive (“Call Option Completion Period”).

3.3

The Call Option shall be exercised only by Arricano giving to the Investor and the Escrow Agent the Call Option Exercise Notice which shall include:

3.3.1

The date on which the Call Option Exercise

Notice is given;

3.3.2

a statement to the effect that Arricano is exercising the Call Option;

3.3.3

a date, which shall fall within the Call Option Period and shall accrue no less than in ten (10) and no more than forty-five (45) Business Days after the date of the Call Option Exercise Notice, on which the Option Completion is to take place (“Completion Date”)

3.3.4

indication of the Option Price on the Completion Date which shall be calculated in accordance with Schedule 2; and

3.3.5

a signature by authorized person on behalf of Arricano.

3.4

The agreed form of the Call Option Exercise Notice is attached as Schedule 1.

3.5

The Call Option may be exercised only in respect of all of the Option Shares.

4.1

The consideration due from Arricano in respect of the Option Shares shall be the payment by Arricano to the Investor of the Option Price on the Completion Date….

…6.1 Option Completion shall take place at the office of the Company at Grigori Afxentiou, 8 ELPA, LIVADIOTIS, 3^rd Floor, Flat/Office 306, P.C. 6023, Larnaca, Cyprus, or at such other place as the Parties may agree when all of the following business shall be transacted:

6.1.1

Arricano shall pay the Option Price by funds transfer on the Completion Date to the Investor’s bank account:

[Account details]

and the Investor hereby authorises payment of the Option Price into such account, which shall constitute a good discharge by Arricano in respect of it and Arricano shall have no obligation as to the distribution or allocation of the Option Price to the Investor;

6.1.2

on the Date of Completion Arricano’s bank presents to the Escrow Agent the SWIFT-message confirming of payment of the Option Price to the Investor’s bank account specified in clause 6.1.1 above;

6.1.2

the Escrow Agent performs all such actions which are required in the Escrow Agreement for the completion of the Call Option Exercise by Arricano.”…

…16.1 Call Option and the Escrow Agreement shall be terminated in the event of a default by Arricano to perform its financial obligations set out in clause 3.5 of the Shareholders Agreement and passing of the resolution by the Board of Directors of the Company on additional investment in form, affirmed in Schedule 3.”

In addition to the above clauses, which I have set out verbatim, there were the following further clauses in the COA:

There was also an escrow arrangement, dated 24 March 2010, between Arricano, Stockman, and Credit Agricole, which provided that Credit Agricole, who was referred to as “the Keeper”, was to be provided with a sealed envelope containing various documents selected by Stockman and Arricano. The agreement then provided the terms on which the envelope was to be returned to Stockman or Arricano, and defined the period of the return of the envelope to Arricano as being from 15 November 2010 to 15 March 2011.

Clause 2 of this agreement was the most important clause, and provided as follows:

“2.1

Return of the Envelope to Arricano may be made within the Period of the Return of the Envelope to Arricano only. To avoid any doubts, any documents mentioned in the article 2 hereof as a ground for the Return of the Envelope by the Keeper shall not be transferred to the Keeper before or after the Period of the Return of the Envelope to Arricano.

2.2

The Envelope must be returned to Arricano in case of (i) presentation to the Keeper the Call Option Exercise Notice by Arricano’s representative and (ii) the SWIFT-message from the Arricano’s Bank.

2.3.

In case the Keeper receives within the Period of the Return of the Envelope to Arricano both documents according to the clause 2.2, the Keeper must check the correspondence of the documents to the samples as provided in Schedules 1, 2, 4 hereto and provide both Depositors with written notice not later than 3 (three) business days after receipt of such documents.

2.3.1

If both documents formally meet the requirements of this Agreement, the Keeper shall mark in its notice that the documents meet the requirements of the Agreement and indicate the date starting from which the Representative of Arricano may receive the Envelope;

2.3.2

If any document or both documents do not formally meet the requirements of this Agreement, the Keeper shall mark in the notice such discrepancy and inform that the Keeper shall perform any further actions with the Envelope only after joint written notice of Representatives of both Depositors or based on documents which shall meet formal requirements of this Agreement.

2.4 The Keeper shall return the Envelope to the Investor in the following cases:

2.4.1

If the Keeper within the Period of the Return of the Envelope to Arricano shall not receive from Arricano the Call Option Exercise Notice and a SWIFT-message from the Arricano’s Bank; or

2.4.2

If the Keeper until 15 March 2011 inclusively shall receive personally from the Investor’s representative apostilled Resolution of the Board of

ASSOFIT HOLDING LIMITED on additional investment in the Project according to the pro-forma as provided in Schedule 3;

2.4.3

If the Keeper within the Period of the Return of the Envelope to Arricano shall receive joint written notice from both Depositors with the relevant instructions. Such notice shall be delivered to the Keeper personally by the Representatives of both Depositors. Separate written notices from each Depositor are prohibited.

2.5

The Return of the Envelope to Arricano or the Investor, as the case may be, shall be performed at the Keeper’s location by executing the respective Protocol of Receipt/Transfer, signed by the Keeper and respective recipient Depositor’s representative.

2.6

The Keeper shall send a written notice to both Depositors on Return of the Envelope.”

Mr Teder was also negotiating at about this time with Dragon-Ukraine Properties and Development PLC (“DUPD”) for DUPD to acquire a stake in Arricano. A Term Sheet was initialled by Mr Teder on 21 May 2010, stating that its purpose was for DUPD to acquire a minimum of 16.6% interest in Arricano, with a maximum interest of 50%. It contemplated an investment of up to USD 90 million, and provided that approximately USD 50 million would be used to exercise the Call Option.

Various further transactions then took place which were designed to further DUPD’s acquisition of shares in Arricano. I do not need to record the full details of these transactions for the purposes of this judgment. Suffice it to say that, as noted below, Stockman in due course relied on these transactions to assert breaches of the SHA, on the basis of which they terminated that agreement.

The next really relevant event was the exercise of the Call Option by Arricano, which took place on 5 November 2010. That was swiftly followed by a Notice of Termination of the SHA by Stockman, on the grounds that Arricano had committed a number of fundamental breaches of that agreement, by reason of the transactions with DUPD. Those breaches included the following, taken from the Notice of Termination:

On 9 November 2010, Stockman commenced the LCIA arbitration, pursuant to an arbitration clause in the COA.

Stockman also sought and obtained an injunction from the Cyprus courts stopping Arricano proceeding pursuant to the Call Option Notice. On 29 November 2010, lawyers acting for Arricano told Stockman that they were ready willing and able to proceed but could not do so because of the Cyprus court order.

On 21 December 2010, Arricano commenced the UNCITRAL arbitration proceedings under the SHA.

A tribunal of three arbitrators was appointed in relation to the UNCITRAL arbitration, whereas a sole arbitrator was appointed in the LCIA reference. The sole arbitrator in the LCIA reference was however also the chairman of the UNCITRAL tribunal.

By agreement, the LCIA arbitration was stayed pending the hearing of the UNCITRAL arbitration. It was also agreed that the findings of the UNCITRAL tribunal would be binding on the parties in the LCIA arbitration.

The UNCITRAL Tribunal issued its Award on 9 June 2011. In certain regards, the tribunal was not unanimous, and the dissenting arbitrator was in fact the chairman (who was the sole arbitrator in the LCIA arbitration). This latter fact is however of no relevance to my judgment.

The dispositif in the UNCITRAL Award reads as follows:

“242.1

The Tribunal declares that Stockman validly terminated the SHA on 8 November 2010.

242.2

The Tribunal orders that:

(a)

Arricano takes all steps required for the Filgate Loan to Pryzma Beta to be brought under the joint control of Arricano and Stockman by Arricano arranging for the transfer of the loan from Filgate to a Cypriot Company owned directly or indirectly as to 49.97% by Arricano and 50.03% by Stockman.

(b)

Arricano arranges for the right to land of the Sky Mall project to be transferred to Pryzma Beta and that Arricano and Stockman sell all shares in Dnepreovskaya Prystan to a third party specified by Arricano for USD 1 or for another amount taking into account tax optimisation.

242.3

The Tribunal declares that Arricano and Stockman, as shareholders in Assofit, and their nominees, owe one another fiduciary duties.

242.4

Costs shall be dealt with in a separate Award.

242.5

All other claims of both parties are dismissed.”

The current arbitral story, in terms of Awards, begins with the first LCIA Award, made on 13 December 2011. In its submissions leading up to that Award, Arricano claimed that it had validly exercised the Call Option, and went on to claim various forms of relief.

In the light of the jurisdictional arguments that were addressed to me, it is particularly important to address certain of the paragraphs of Arricano’s submissions, and the prayer for relief. I start with Arricano’s initial submissions, served on 23 December 2010, which included the following passages.

“5.2

According to Schedule 2 to the COA, the Option Price increases on a daily basis. The Respondent therefore seeks a declaration that the price as at 29 November 2009, the Completion Price indicated in the Call Option Notice, should be the price at which it can acquire the Claimant’s shares. The Respondent is entitled to such a declaration on the basis that it would put it in the same position as if the Claimant had not purported to terminate the COA in breach of its contractual obligations. The Respondent invited the Claimant to agree to this by the Letter dated 7 December 2010. However, the Claimant rejected this request by the Letter dated 15 December 2010.

5.3

In addition, the Respondent seeks an order against the Claimant for payment of the costs and damages which it incurred as a result of the invalid termination of the COA and respectfully requests the Tribunal to allow it to set off such order against the Option Price. Given the potential difficulties which the Respondent will face when trying to enforce an award against the Claimant a company incorporated in the BVI with no known assets other than the shares in Assofit, it would be unjust if the Respondent were forced to pay a large sum over to the Claimant without any security that it will receive payment of the money which is owed in return. The Respondent again invited the Claimant to confirm its agreement to such a set-off in the Letter dated 7 December 2010. Again, the Claimant rejected this request.”

THE RESPONDENT’S REQUEST FOR RELIEF.

Next in time was Arricano’s memorial, served on 24 June 2011. This read, in material part, as follows:

“7.1

As set out at paragraphs 2.3 and 5.1 above, by the time Stockman sent its Termination Notice to Arricano, Arricano had already exercised its Call Option….

…7.3 By exercising its Call Option, Arricano created a new contract between Arricano and Stockman according to which Arricano was under an obligation to pay the Option Price to Stockman and Stockman under an obligation to transfer its Assofit shares to Arricano….

…7.11 Even if the COA was subsequently terminated, either as a result of the termination of the SHA or as a result of Stockman accepting Arricano’s repudiatory breach, this could therefore in any event not affect the validity of the exercise of the Call Option by Arricano and the obligation on Stockman to transfer its shares in Assofit to Arricano….

ARRICANO’S REQUEST FOR RELIEF.

Moving on to Arricano’s post hearing brief, served on 22 July 2011, Arricano submitted as follows:

“2.10

Thus, by exercising its Call Option, Arricano created a new contract between Arricano and Stockman according to which Arricano was under an obligation to pay the Option Price to Stockman and Stockman under an obligation to transfer its Assofit shares to Arricano. If, as it has done, Stockman fails to complete that contract, Arricano is entitled to specific performance and damages in addition or in lieu.”

Turning to the concluding sections of that document, these read as follows:

“9.1

Based on the above, Arricano exercised its Call Option in accordance with the terms of the COA before Stockman terminated the COA. By exercising the Call Option, Arricano exercised a unilateral contractual right which created a new share and purchase agreement requiring Stockman to transfer the Assofit shares and Assofit to pay the price. These obligations had accrued and did not terminate with the termination of the COA by Stockman.

9.2

Furthermore, there was no repudiatory conduct on behalf of Arricano – either in the form of a breach of fiduciary duties or the confidentiality obligations in the COA – which entitled Stockman to terminate the COA. In any event, the COA expressly excludes Stockman’s right to terminate the COA as a result of Arricano’s repudiatory conduct.

9.3

Accordingly, Arricano counterclaims for a declaration that (1) the COA has not been validly terminated (2) it validly exercised the Call Option and (3) the Option Price should be the price as at 29 November 2010.

9.4

On 21 December 2010, in order to protect its rights under the SHA, Arricano obtained an interim injunction from the Cypriot courts. On 14 July 2011 Stockman applied to discharge its Cypriot order (referred to at paragraphs 6.17ff above) and Arricano’s injunction was also discharged. On 18 July 2011, Stockman gave notice to convene an Assofit board meeting, and Arricano obtained an injunction in Cyprus to protect its rights under the COA by prohibiting Stockman from selling or alienating its shares.

9.5

Following Stockman’s notice of 18 July 2011, Arricano wrote to Stockman on several occasions, asking Stockman to clarify their agenda, proposing new issues for the agenda and requesting that the meeting be held in Kyiv instead of Larnaca. On 21 July 2011, counsel for Mr Teder called Mr Granovsky, who refused to hold the meeting in Kyiv and confirmed that the meeting would be held in Larnaca. At 12.00p.m. on 22 July 2011, Mr Teder, Ms Burkstska and Mr Christos Kinanis for Mr Pinchuk attended the meeting in Larnaca. None of Stockman’s representatives attended the meeting.

9.6

According to Schedule 2 to the COA, the Option Price increases on a daily basis. Arricano therefore seeks a declaration that the price as at 29 November 2009, the Completion Price indicated in the Call Option Notice, should be the price at which it can acquire Stockman’s shares. Arricano is entitled to be put into the same position as if Stockman had not purported to terminate the COA in breach of its contractual obligations. Arricano invited Stockman to agree to this by letter dated 7 December 2010. However, Stockman rejected this request by letter dated 15 December 2010.

9.7

In addition, Arricano seeks an order that Stockman transfer all the shares it holds in Assofit to Arricano by (1) executing the relevant instrument of transfer of shares in respect of all the shares it holds in Assofit to and in favour of Arricano and (2) delivering the original share certificates in respect of all the shares it holds in Assofit to Arricano. This should allow for Arricano to complete its exercise of the Call Option and be put in the situation it should have been in since 29 November 2010.

9.8

Finally, Arricano seeks an order against Stockman for payment of the costs and damages which it has incurred as a result of the invalid termination of the COA and respectfully requests the Tribunal to allow it to set off such order against the Option Price.

9.9

Given the potential difficulties which Arricano will face when trying to enforce an award against Stockman, a company incorporated in the BVI with no known assets other than the shares in Assofit, it would be unjust to force Arricano to pay a large sum of money to Stockman without any security that Arricano will receive payment of the money which it is owed in return. Arricano again invited Stockman to confirm its agreement to such a set-off in the Letter dated 7 December 2010. Again, Stockman has rejected this request.

9.10

Accordingly, Arricano asks for the dismissal of Stockman’s claims and for the reliefs sought in its Counterclaim.”

In the event, in his decision in the first LCIA Award, the arbitrator determined that the COA had been validly terminated, and that the option agreement in the COA had not been validly exercised, because the necessary procedural

That alternative claim in damages was for the losses which Stockman asserted that it would suffer if Arricano was permitted to exercise the Call Option. They asserted that Stockman’s interest in the company was worth significantly more than the amount of the Option Price, and that if the Call Option was held to be validly exercised, Stockman would be deprived of this extra value. Stockman asserted an entitlement to damages on this account by reason of Arricano’s alleged breaches of confidentiality, breach of fiduciary duty and repudiatory conduct, and also claimed damages on account of an alleged necessity to commence the LCIA arbitration.

That Award (as well as the UNCITRAL Award) was the subject of a challenge by Arricano on a number of grounds. The challenge to the UNCITRAL

The issue in question was identified by Field J in his judgment, at paragraph

Field J’s conclusion on this is set out in paragraphs 44 and 45 of his judgment, as follows:

“I conclude, therefore, that this issue was in play in the LCIA Arbitration. The arbitrator did not deal with this issue and, in my judgment, in failing to do so he was in breach of s.68(2)(d). What was required was that the issue be identified as an issue in the arbitration and then determined. It is not, in my opinion, to be inferred that the arbitrator dealt with the issue by upholding Stockman’s contention that the COA had not been validly exercised because the option notice did not meet the requirements of clauses 2.2 and 9.1 of the Escrow Agreement.

In my judgment, Arricano has or will suffer a substantial injustice by reason of this breach of s.68(2)(d), since its contention that breach of the requirements of the Escrow Agreement does not invalidate the exercise of the Call Option is reasonably arguable (cf Vee Networks Limited v Econet Wireless International Limited [2004] EWHC 2909 (Comm)”

Field J thus rejected all of the other challenges to the LCIA Award, but upheld this one challenge made under s.68(2)(d). In view of the success of this application, the First LCIA Award was remitted by Field J to the arbitrator by order dated 31 July 2012. That order provided as follows:

“The LCIA Award be remitted to the arbitrator, Mr Audley Sheppard, for him to (a) reconsider his finding that the call option was not validly exercised by Arricano on account of its failure to comply with the requirements of the Escrow Agreement; and (b) thereafter, to decide any remaining issues that arise for determination.”

The precise scope of that remission is relevant to the jurisdictional issues that I consider later in this judgment.

Pursuant to that remission, submissions were made to the arbitrator. The parties were agreed as to the issues that arose on that remission, which, it was common ground, were accurately summarised in Arricano’s skeleton argument of 10 September 2012, as follows (and I quote):

“(1)

Does non-compliance with the requirements of the Escrow Agreement vitiate Arricano’s right under the COA to acquire Stockman’s shares in Assofit?

(2)

If not, did Arricano exercise the Call Option lawfully?

This issue was expressly left open in paragraph 305(b) of the Award; and

(3)

If so, did Arricano’s right to acquire Stockman’s shares in Assofit accrue prior to Stockman’s termination of the COA? This issue was also expressly left open in paragraph 305(a) of the Award.”

A hearing then took place before the arbitrator on May 1 2014, at which both parties were represented by experienced legal teams.

However, shortly prior to the issuance of the Second Award, on 12 August 2014, Stockman wrote to Arricano to tell it that Stockman had transferred the shares in Assofit which were in issue to Althor, a wholly owned subsidiary of Stockman. The letter in question read as follows:

“Further, please be informed that on 25 July 2014, Stockman transferred all its shares in Assofit to Althor Property Investments Limited (copies of its constitution documents are attached as Appendix 2 hereto), a company fully owned by Stockman. Such transfer was properly authorised by the Board of Directors of Assofit (copy of the Resolution of the Board of Directors is attached as Appendix 3 hereto.

In reply to the request mentioned in your aforementioned letter of 6^th August 2014, we hereby confirm that such transfer took place in full compliance with applicable laws and regulations, including without limitation Article 34 of the Articles of Association of Assofit. Please note that such transfer falls within the permitted transfers provided for by Article 34(i).”

In the light of this information, Arricano contacted the arbitrator to ask him to defer his Award.

In due course, there was then further correspondence between the parties and the arbitrator, as follows:

This exchange of correspondence is important in the context of Arricano’s submissions on waiver, and the potential expansion of the arbitrator’s jurisdiction, to which I return below.

The Second LCIA Award was issued on 19 August 2014. The arbitrator’s conclusions were as follows:

Stockman then raised various challenges to the Second Award by an Arbitration Application in 2014. In the event, those challenges were consolidated, by order of Burton J made in June 2014, with challenges made to the Fourth Award in early 2015, to which I refer below, both of which were dealt with by Burton J in a judgment dated 22 October 2015 after a hearing over two days in October 2015. I refer to this judgment further below, since one of the items which was left over by Burton J is before me.

The arbitrator’s hope that the parties would be able to agree an appropriate escrow methodology was not borne out by events. Thus, by October 2014,

It is necessary to explain Arricano’s concerns, as expressed to me in submissions, at this stage. Because Stockman had transferred its shares at a time prior to the Second Award, Arricano wished to perform due diligence to ensure that the shares still had value before paying money over.

Those concerns were expressed to the arbitrator in an application for emergency relief filed on 24 October 2014. In that document, Arricano said that “Stockman’s actions place Arricano in an impossible position. By paragraph 166(c) of the Second Award, Arricano must pay the Option Price into escrow by 1 January 2015. However, Stockman’s conduct has deprived Arricano of the ability to raise the necessary funds. No rational lender or investor will advance monies to procure shares in a company whose main assets have been misappropriated. Moreover, even if Arricano is able to raise sufficient funds to implement the Second Award, Arricano faces the very real risk that it will pay Stockman in excess of USD 50 million for shares that are now worthless”.

Initially, therefore, Arricano asked for an extension of time within which to deposit monies pursuant to the Second Award, and for directions to be given in respect of its damages claim. That application was opposed on jurisdictional grounds, and a hearing took place on 26 November 2014. It was made clear at the hearing that the application was interlinked with Arricano’s damages claim, because it wished to be able to set off that claim against the

By letter dated 3 December 2014, Arricano put forward such an application.

Stockman replied on 5 December 2014 denying that the arbitrator had

In the event the arbitrator held, in his Third Award, issued on 8 December 2014, that he no longer had jurisdiction to extend time for the lodgment of the deposit. This was because the time limit for deposit had been included in the dispositif of the Second Award.

However, the arbitrator again asked Arricano whether they wished to make any further application, in the dispositif of this Award, in which he stated as follows:

“I did intend and do consider it permissible applying the wording of paragraph 166 that I should be able to make further orders concerning the choice of escrow agent and the terms of the escrow arrangement. The purpose of the reservation in paragraph 166(d) was to ensure that my decision in my Second Award that Stockman should transfer its Assofit shares to Arricano was not frustrated by the Parties being unable to agree an escrow agent or escrow terms. Accordingly, I do consider that I do have jurisdiction and authority to consider Arricano’s alternative relief.”

Arricano responded the day after the arbitrator’s request, on 10 December 2014, with an application that they should be permitted to examine the shares prior to exchange in order to ensure that the shares had the necessary

“attributes”. The order that Arricano sought was in the following terms:

“(1)

Deposition of the Call Option Price by Arricano.

A copy of the full text of this draft order is annexed to this judgment as

Stockman responded on 12 December 2014, again refusing to address the

The arbitrator held, however, in his Fourth Award, dated 19 December 2014, that he did have jurisdiction to make an order of the type Arricano sought. He stated as follows:

“51.

Nevertheless, I find that the jurisdiction and authority reserved by me is not as limited as Stockman contend. It is certainly not limited to a situation where there is a dispute about the identity of the escrow agent and the escrow arrangement terms: a disagreement about the latter is sufficient. In addition, given that the escrow arrangements have not been agreed, there is clearly a dispute about the latter.

52.

Further, while any additional orders and awards may not alter the dispositive in the Second Award that Stockman shall transfer its shares in Assofit to Arricano (paragraph 166(b)), subject to Arricano first depositing the Option Price with an independent third party by 1 January 2015 (paragraph 165(c)), I reserved a broad discretion, if the parties could not agree, in respect of the “terms on which the Option price is to be deposited” with the independent third party, so as to ensure that the principal relief that I had awarded was not frustrated.

53.

I acknowledge that the COA prescribed a mechanical procedure concerning the operation of the Call Option. However, in ordering specific performance, and the terms on which the Option Price is to be deposited in escrow, I am not required to apply the SHA word for word (see eg Gill v Tsang [2003] All ER (D) 175 at para 50; but I was also referred by Stockman to Quest Advisors Limited v McFeeley [2011] EWCA Civ 1517). The further escrow arrangement prescribed in my Second Award is not found in the COA, but it is consistent with the COA in that it protects both Parties and ensures that they get what they bargained for: the shares in Assofit in exchange for payment of the Option Price. It is implicit in that bargain that the shares should have the same attributes (in terms of ownership and control over assets) as existed at the time of the COA. I consider that it is reasonable for Arricano to have an opportunity to examine the attributes of the shares before the Option Price is released from escrow. If, as is alleged, but on which I have not made any finding, the shares are worthless, that would be wholly inconsistent with the COA and frustrate my Second Award.

54.

However, having exercised the Call Option, and should it pay the Option Price into escrow, Arricano cannot retain discretion whether exchange of the shares for all of some of the Option Price takes place: if there is a dispute, that will have to be resolved by me.

55.

In conclusion, I do not consider that adding qualifications to the release of the Option Price that recognises the possible change in circumstances and attributes of the shares during the interim period from the time of exercise of the Call Option, is altering the conditions in paragraph of paragraph (sic) 166(c) of my Second Award, but instead falls within the jurisdiction and authority reserved by paragraph 166(d).

Thus, he proceeded to make an order, on 19 December 2014, in the following terms:

“For the reasons set out above, the Arbitral Tribunal hereby makes the following Award:

(a)

Declares that the Arbitral Tribunal:

(i)

does have jurisdiction and authority under paragraph 166(c) of its Second Award to make further orders and awards concerning the terms on which the Option Price is to be deposited with an independent third party; and

(ii)

that such orders and awards may include allowing Arricano a reasonable opportunity to examine the attributes of the Call Option Shares before the Call Option Price is released from escrow.”

In the light of this Award dated 19 December 2014, and towards the very end of 2014, Arricano sought to obtain finance for the purchase of the shares. I heard a great deal, in particular from Mr Tymochko, as to the difficulties that Arricano had in arranging such finance. For present purposes, I need only record the following:

In due course, on 31 December 2014, evidence of these arrangements was put before the arbitrator to establish purported compliance with the arbitrator’s order. This, in due course, led to the dispute which led to the Fifth Award.

The evidence in fact put before the arbitrator is recorded in paragraphs 32 to

Following the production of the documentation intended to establish compliance with the condition precedent for exchange, Stockman wrote to the arbitrator on 31 December 2014, to contend that the arrangements that had in fact been made were not sufficient to amount to compliance with the condition precedent, with the result that the condition precedent had not been satisfied, and there should be no exchange.

There was then an exchange as to the appropriate procedure to be followed and, in particular, whether the issue of whether the arrangements put in place by Arricano satisfied the conditions of the Second Award should be determined as a preliminary issue. Arricano contended that the whole of the remaining dispute, including its claim for damages, should be determined; whereas Stockman contended that the issue of whether Arricano’s arrangements satisfied the conditions of the Second Award should be determined as a preliminary issue. The arbitrator decided in favour of Stockman’s proposal on 27 January 2015.

I interpose at this stage the fact that Stockman had, by Claim Form dated 15 January 2015, challenged the Fourth Award. It was this challenge that was in due course consolidated with the challenge to the Second Award, which was heard by Burton J, leading to his judgment of 22 October 2015, to which I make reference below.

Various submissions were served by both parties between late January and late February 2015. The parties were asked whether they wished for a hearing but declined. Accordingly, the arguments were considered by the arbitrator on paper.

Stockman put forward three arguments in support of their contentions.

It was these arguments that the arbitrator had to consider and did consider in his Fifth LCIA Award. I deal below with his findings.

However, in the context of the challenge to the Award based on fraud,

I consider each in turn, concentrating in this part of my judgment on what was said in the letters, and the factual position as at the date of each of the letters, before I turn to the findings made by the arbitrator, what those findings indicate his understanding of the facts at the time was, and whether that understanding was induced by any fraud.

I start therefore with the letter of 31 December 2014. That letter, as I have stated, enclosed copies of letters from Renaissance and Emergex, and supporting bank statements, which were to evidence the fact that Arricano had deposited the Option Price. Arricano also confirmed that it accepted all of the terms of the Second, Third and Fourth Awards, and that the Call Option Price

As far as the factual position as at this moment in time is concerned, the factual evidence is confined to the documents in fact presented. Those documents showed that there was at that moment money in the relevant accounts, although the Emergex agreement with Dragon showed that Dragon could withdraw the money at any time. I consider below, under the heading of fraudulent representation, what representations I consider were made by the tender of this material and whether those were knowingly false.

Going back to the chronology, then, as I have said, Stockman contended that this material did not evidence compliance with the condition precedent. The timetable for submissions was agreed after the decision to treat this issue as a preliminary issue, and Arricano’s submissions were served first, on 5 February 2015.

Once again, it is important to note what was said.

Arricano then turned to an explanation of what it said the documents established. In view of the importance of this letter, and the allegations of fraud, I quote the most relevant passages in full. They read as follows:

“18.

As explained in Mr Tymochko’s witness statement, the negotiations with Renaissance and Emergex took place under enormous time pressure mostly between 24 and 30 December 2014. Mr Tymochko led the negotiations with Renaissance. The content of these negotiations is evidenced by the email correspondence at Exhibit C42. This consists of all the emails passing between Mr Tymochko and Renaissance for the purpose of arranging this part of the financing. In summary, Mr Tymochko managed to agree with Mr Roman Pivovar of Roden Capital Limited (“Roden”) that Renaissance would put up USD30.4 million for the benefit of Arricano for the purpose of financing the acquisition of Stockman’s shares in Assofit. The parties agreed that the money would be held by Silverioco Limited (“Silverioco”), a wholly owned subsidiary of Renaissance, and deposited on several bank accounts with Hellenic Bank in Cyprus, some in EUR and some in USD. The parties further agreed that the money would be released to Stockman upon (1) registration of the transfer of Stockman’s shares in Assofit to Arricano; (2) Arricano and Renaissance having had a reasonable opportunity to examine the attributes of Stockman’s shares in Assofit to ensure that they would generally and substantially be in the condition as of the date when the Call Option became exercisable in 2010; and (3) Renaissance, Arricano and Stockman agreeing an appropriate form of escrow agreement. Arricano undertook to pay Roden USD500,000 for arranging the USD30.4 million financing and another USD 500,000 if the deal went ahead. In exchange, Renaissance undertook to provide Arricano with a letter confirming that the USD30.4 million had been deposited on behalf of Arricano on Silverioco’s bank accounts with Hellenic Bank.

19.

As also explained in Mr Tymochko’s witness statement, the negotiations with Emergex resulted in Emergex agreeing to deposit USD 21,050,000 on a bank account with J&T Banka for the benefit of Arricano for the purpose of financing the acquisition of Stockman’s shares in Assofit (50%+1 share). The details of the transaction were recorded in two parallel agreements, the Agreement on Intermediary and Financial Services dated 10 December 2014 between DRGN and Arricano dated 10 December 2014 (“the DRGN-Arricano Agreement”) (Exhibit C43) and the Agreement on Intermediary Services between DRGN and Emergex dated 26 December 2014 (the “DRGN-Emergex Agreement”)(Exhibit C44).

20 . Under the DRGN-Arricano Agreement, DRGN confirmed that it would guarantee the amount of USD21 million until 31 January 2015 and would transfer USD21 million to Emergex by 31 December 2014. In exchange, Arricano agreed to pay DRGN a service provider fee of USD500,000. DRGN further undertook to instruct Emergex to (1) issue a confirmation letter regarding the deposit of the USD21 million and to submit this letter together with the relevant bank statement to Arricano and (2) pay to Stockman the purchase price (not exceeding the amount actually transferred by DRGN to Emergex) for Stockman’s shares in Assofit as specified in a notice to be sent by Arricano and accepted by DRGN “the Payment Notice”). Clause 2.7 of the DRGN-Arricano Agreement made clear that the Payment Notice could only be accepted by DRGN if (1) Arricano and DRGN had a reasonable opportunity to examine the attributes of Stockman’s shares in Assofit to ensure that they would generally and substantially be in the condition as of the date when the Call Option became exercisable in 2010; and (2) DRGN, Arricano and Stockman could agree an appropriate form of escrow agreement.

21.

Under the DRGN-Emergex Agreement, DRGN confirmed that it was willing to collect a guarantee amount of up to USD52 million to secure the acquisition of Stockman’s Assofit shares and that this guarantee amount may be paid to Emergex’s account (in one or in a number of instalments) at any time within 3 month. (sic) Emergex agreed to pay to Stockman the purchase price (not exceeding the amount actually pre-paid by DRGN to Emergex) for Stockman’s Assofit shares if and when requested to do so by DRGN. In exchange for this money, DRGN agreed to pay Emergex USD5,000.

22.

As set out in the letters from Renaissance and Emergex dated 30 December 2014, the deposits will be released to Stockman subject to them agreeing with Arricano and Stockman an appropriate form of escrow arrangement. It has therefore always been intended for the unilateral deposits made by Arricano by 31 December 2014 to be provisional only and for them to be replaced with an agreement between the independent third parties and Arricano and Stockman as soon as possible….

[There then followed two paragraphs dealing with the question of the independence of the third parties.]

…

25.

According to paragraph 166(c) of the Second Award, Arricano was required to deposit “the Option Price with an independent third party, by 1 January 2015, on terms that it shall be released to Stockman upon registration of the transfer of Stockman’s (or its subsidiaries’ or other relevant entities’) shares in Assofit to Arricano.”

26.

Accordingly, all that the Second Award required Arricano to do by 1 January 2015 was to deposit the Option Price with an independent third party. The manner in which the money was deposited had to enable it to be released to Stockman upon registration of the share transfer. This central importance of the deposit of the Call Option Price was confirmed by the Sole Arbitrator at the hearing on 26 November 2014 where he stated that Arricano had to “put up or shut up” by the Call Option deadline. By transferring the equivalent of at least USD 51,450,000 to Renaissance and Emergex by 31 December 2014 Emergex complied with this requirement.”

The statements made in this covering letter were supported by the witness statement of Mr Tymochko, which was appended to the letter, along with the other exhibits mentioned.

Again, however, it is also important for me to note what had been happening with the “deposits” in the interim period, and the witness evidence as to this. I have the benefit of both the findings of the arbitrator in this regard, and the evidence of the witnesses from whom I have heard, namely Mr Merkulov and

I deal below, in my discussion of the legal issues, with the question of the knowledge of Arricano of these facts.

Stockman responded to the Arricano submissions on 17 February 2015. Having noted that there might be objection to the arbitrator determining the issue of whether there had been compliance with the terms of the Second Award, it expressly waived this objection. However it “reserved its right” to object to the arbitrator determining any other issues in the arbitration, including, without limitation, Arricano’s claims for damages and set off.

Stockman made a number of points, which I have already summarized, in paragraph 65 above.

Arricano’s reply submission, as I have noted, was dated 25 February 2015. In that document, the following statements were made (and again I quote):

“14….As explained in the second witness statement of Mr Tymochko dated 25 February 2015, Arricano had to agree to pay a further USD 250,000 to extend its agreement with DRGN until 1 March 2015 (see Exhibit C45). For a further fee, a further extension until 16 March 2015 could be agreed if necessary. These are substantial costs which Arricano had to incur, and continues to incur pending resolution of the parties’ dispute, as a result of Stockman preventing Arricano from obtaining financing from ordinary sources….

The DRGN-Arricano Agreement

24.

As confirmed by Mr Tymochko in his second witness statement, the DRGN-Arricano Agreement has been extended until 1 March 2015. A further extension until 16 March 2015 could be agreed if necessary.”

As is apparent from the quotation above, this submission was accompanied by the witness statement of Mr Tymochko which attested to the facts set out above. I do not need to cite any further from that statement since the summation above is an accurate one.

Turning to the evidence of what had happened in fact, there is no further evidence of the state of affairs on the Renaissance side, although it is said that there has not been full disclosure of this, an assertion which in my judgment is likely to be correct. There was as at this date, as I understand it, no further movement from the Emergex account.

Again, I deal with the knowledge of Arricano in my discussion of the legal

On 11 March 2015, there was a further movement of money, this time out of the Emergex account. The sum of USD 21.045 million was paid to DRGN leaving only USD5,000 in the account. No notice of this fact was passed on to the arbitrator.

As to who knew of this transfer, again I discuss this further below.

The Fifth Award was rendered on 31 March 2015. The arbitrator rejected each of Stockman’s contentions. For the purposes of this judgment, the most relevant issue was the question of whether the monies remained available in

Following the Fifth Award, Stockman continued to press for disclosure of documents relevant to the question of the period of the deposit, in particular. Thus, by letter dated 8 April 2015, Freshfields, on behalf of Stockman, requested that (given the date of 16 March 2015 referred to in paragraph 89 of the Fifth Award quoted above) HSF confirm that the funds continued to be held on deposit for Arricano’s benefit, and provided them with copies of any agreements by which this had been done. Following a holding response from HSF, Freshfields applied on 8 May for an order from the arbitrator.

HSF initially asked for further time to respond, since Arricano had been experiencing financial difficulties. Before they had a chance to respond substantively, the arbitrator made the order that had been requested. Immediately following this, Arricano sent a further, substantive response (probably drafted before the arbitrator’s order) in a letter dated 6 May 2015, in which they said as follows:

“3.

As you are aware from the documents that have been disclosed in the arbitration, Arricano is incurring very substantial financing costs in order to keep the Option Price on deposit with Emergex and Renaissance/Silverioco. Those costs are adding to Arricano’s existing financial difficulties, which have been caused (at least in part) by Stockman’s misappropriation of the assets of the parties’ joint venture, including Arricano’s share of the profits generated by Sky Mall. Moreover, those costs have been greatly increased (and will continue to increase) by the delay in resolving this arbitration, which delay is the direct result of Stockman’s conduct in misappropriating Assofit’s assets.

Given that it is likely to be some time before the Option Price is required to be released from the escrow account, Arricano proposes that it be permitted to withdraw the sums currently deposited with Emergex and Renaissance/Silverioco, and that the escrow agreement provide for Arricano to fund the escrow account in full within 60 days of the Damages Award…[sc an Award in which the arbitrator determines Arricano’s damages claim.]”

On 7 May, USD 21.05 million was paid into the Emergex account by DRGN Limited, but on the same day the amount of USD21 million was paid to a different Emergex account. It was Arricano’s case that this was a transfer from a current to a deposit account.

The next day, 8 May, the arbitrator noted what had been said by HSF, but went on to say that Arricano was to confirm that the Option Price remained deposited with the third parties. HSF responded on the same day stating that they had provided evidence of the extension of the agreement between Arricano and DRGN with their letter of 6 May, and that the balance was covered by the arrangement with Renaissance which “had no expiry date and thus remains valid today.” The arbitrator confirmed, in response, that he had

As regards Renaissance, there was then an email exchange on 8 and 9 May between Mr Tymochko and Mr Pivovar. Mr Tymochko said that the arbitrator had asked for confirmation that the amount was still deposited, that bank statements were unnecessary and that a simple email confirmation would do. Mr Pivovar responded to say that he was on vacation, as was most of his office, to which Mr Tymochko said that the confirmation just needed to come from Arricano, so “just an OK from you will do at this stage”. Mr Pivovar responded saying: “Then I guess no need to ask me ;) ok” As Mr Tymochko accepted in cross examination, the ;) was a winking face.

On 11 May, HSF responded to the arbitrator. They said that “the reference to a “Guarantee” comes from the original agreement of 10 December 2014 between Arricano and DRGN which defined the money to be held by Emergex as the “Guaranty Amount”. As shown by the bank statement dated 30 December 2014 this sum is held by Emergex Solutions as cash on an account and the Additional Agreement confirms that it will be kept there until 1 June 2015.”

On 15 May, Arricano again requested that it should be permitted to withdraw funds from the deposited monies, a request repeated in its application to the arbitrator as to the procedure to be adopted going forward, filed on 28 May 2015.

On 1 June 2015, there was a hearing in relation to, amongst other things,

On 9 June, Freshfields wrote asking for documentation showing all movements on the bank accounts since 31 December 2014. This was in the light of the fact that the most recent extension of the guarantee had expired on 1 June 2014. The application was reiterated on 3 July.

On 8 July 2015, the arbitrator issued an order rejecting Arricano’s application to be able to withdraw monies, and stating that those monies had to be retained by independent third parties. In the light of this, Freshfields asked for confirmation again that the monies had been retained. In addition, the arbitrator, by letter dated 10 July 2015, asked for an update on the status of the Option Price, to be provided by 13 July 2015, a deadline which was extended at Arricano’s request to 20 July 2015.

On 20 July 2015, DRGN Ltd paid USD21.05 million into the Emergex

On the same day, at 19:02, HSF wrote to the arbitrator stating that:

“1.

The previous arrangements concerning the deposit remain in place.

2.

Arricano has concluded a further agreement with DRGN Limited, by which DRGN has agreed to make the funds advanced by it available until 1 September 2015. DRGN and Emergex had also entered into an Addendum to the Agreement on Intermediary Services, extending the term of that agreement. The effective date of both agreements, (copies of both of what are attached) is 1 June 2015.

3.

As previously noted, Arricano’s arrangements with Renaissance are not time limited.”

2 days after this letter, on 22 July, USD21.05 million was withdrawn from the

On 23 July Freshfields reiterated their request for disclosure of bank

On 27 July, Mr Tymochko was told by Mr Pivovar, that as of 31 January

After prompting from Freshfields, the arbitrator ordered that Arricano respond by 3 August to Freshfield’s letter of 23 July 2015.

On 3 August, for the first time, Arricano informed the arbitrator and Stockman that withdrawals had been made from the various accounts, and indicated that Arricano should be in a position to provide copies of statements by 7 August.

Arricano, in this regard, disclosed (on 10 August 2015) a number of pieces of documentation, namely the Emergex and Renaissance bank statements to which I have made reference earlier in my judgment. Although the arbitrator ordered further disclosure on 16 August 2015, no further disclosure was provided.

Following this disclosure, Stockman applied, by Claim Form dated 2 October

That application was out of time, and Arricano opposed the application for an extension of time under s.79 of the Arbitration Act 1996. However, Males J granted that application by order dated 26 November 2015. Directions were then given for the trial of the fraud allegation by Blair J on 9 December 2016, along with directions for trial of the challenges to the Seventh Award, which I deal with below.

On 8 October, the Sixth Award was issued, which dealt with the costs of the

Again, I need at this point to interpose into the chronology the fact that, as I have noted above, the hearing of the challenges to the Second and Fourth Awards took place before Burton J on 12 and 13 October 2015. Stockman were largely unsuccessful on its challenges.

However, the judge left open what he referred to as the “paragraph 168 point”, that being a reference to paragraph 168 of the Second Award.

In relation to this point, the judge said:

“31 I referred in paragraph 11 above to what I call the “paragraph 168 point”. In that paragraph of the Second Award, after making the declaration and the order for specific performance of the Call Option, the Arbitrator recorded:

“I reserve jurisdiction to hear a claim by [the Defendant] for damages in lieu of specific performance arising from the purported transfer of [the Claimant's] shares in Assofit to Althor Property Investments Limited and any subsequent transfer.”

This arose as a result of the discovery, only just prior to the Second Award, that the Claimant had, it seemed, transferred its shares in Assofit, which might render any order for specific performance nugatory. The Claimant has challenged in these proceedings whether the Arbitrator would have any jurisdiction to hear such a claim, whether for damages in lieu of specific performance or indeed damages in addition to specific performance. The paragraph is ambiguous, and the Defendant is content through counsel to accept what has in fact ensued, namely that the Arbitrator did not purport to assert jurisdiction, but was reserving the question of jurisdiction, and indeed the parties have taken part in subsequent proceedings, and there have been further awards and orders, with a view to a decision by the Arbitrator as to whether he has such jurisdiction. By an Order dated 16 June 2015 he has directed that the issue of jurisdiction be tried together with the merits of the claims for damages. Accordingly the parties have agreed that I do not need to address the paragraph 168 point upon the basis that it be read as if it had said what it seems the Arbitrator, and at any rate the Defendant, believed it to say, namely “ I reserve the question as to whether I have jurisdiction ”.

32

In an additional Arbitration Claim Form dated 16 January 2015 two further matters were raised by the Claimant, relating to paragraph 166(d) of the Second Award and paragraph 57(a)(ii) of a Fourth Award dated 19 December 2014, arising out of a further discovery namely that there has or may have been disposition of Assofit's interest in the Sky Mall; and relating to whether, under those paragraphs or otherwise, the further disclosure orders, which have in fact been made by the Arbitrator and at least partially complied with by the Claimant, could be made. After hearing argument, and in particular being informed that the Arbitrator himself will be dealing with all questions of jurisdiction whether to make those orders or otherwise, I adjourn the issues raised by the second Claim Form, to be restored to this court if necessary after the further hearing or hearings before the Arbitrator.

33

With the exception of the issues thus agreed or adjourned, I dismiss the Claimant's claims for relief under the Act.”

Whilst the challenge to the Fifth Award was being pursued in Court, the arbitration was being pursued, a continuation which in due course led to the Seventh Award. The parties’ applications and submissions on the issues which were dealt with in this Award were occurring during the same period of time as the exchanges which in due course led to the Seventh Award, which was rendered on 5 May 2016.

The course of this part of the arbitration was as follows:

It will be noted that the challenge to the Fifth Award was issued on 2 October

A further arbitration hearing took place on the 25 and 26 November 2015. At that hearing, the arbitrator noted that Stockman had put it out of its power to comply with any order to transfer the shares, since those shares had been transferred to an independent third party trust. Arricano has relied in front of me on the fact that the arbitrator was misled by Stockman as to the true position and that his decision at earlier stages might well have been different had he known the true position.

Arricano had only become aware of the fact that the shares had been

Turning to the Seventh Award itself, this can be subdivided into two parts, as follows:

I deal with each aspect in turn, and will seek to summarise the arbitrator’s reasoning.

He then turned to the second part of the dispute, namely Arricano’s claim for damages. His findings in this regard were as follows.

First, he reiterated the fact, initially stated in his order dated 16 June 2015, that he did not in fact intend in his Second Award to conclude that he did have jurisdiction to award damages. Instead, he was reserving the jurisdiction to hear all aspects of these claims, including jurisdiction, merits and quantum.

Secondly, he turned to the issue of jurisdiction, and dealt with this under various heads.

After this somewhat lengthy account of the facts, I turn to the issues before me.

The applications which were listed to be heard before me were as follows:

I will deal with the issues which, in my view, arise, in category and chronological order, as follows:

In my judgment, it is most helpful to look at matters chronologically, beginning with the position as it stood as at the making of the First Award. Simply stated, at this stage the arbitrator was functus officio and no longer had any jurisdiction in relation to any claim of Arricano. The only jurisdiction he had reserved was as to a claim for damages by Stockman, the details of which I have outlined above.

However, the arbitrator’s jurisdiction was revived by virtue of the remission by Field J. The question at this stage is as to the extent of the revival of jurisdiction. It should be remembered that the relevant context was as follows:

The leading authority on this issue is the decision of Rix J (as he then was) in

Similar reasoning can be found in other cases to which I was referred, including the decision of the Privy Council in Sans Souci Limited v VRL Services Limited [2012] UKPC 6, where it was said that:

“10 Section 11 of the Arbitration Act empowers the Court to “remit the matters referred, or any of them, to the reconsideration of the arbitrators or umpire.” This statutory power has its origin in section 8 of the English Common Law. It exists in order to enable the tribunal, which would otherwise have been functus officio from the publication of its award, to address issues which were part of the submission to arbitration but were not resolved, or not properly resolved, in the award. Leaving aside the perhaps anomalous category of cases in which an award has been remitted on the ground that fresh evidence has become available since it was made, the essential condition for the exercise of the power is that something has gone wrong with the proceedings before the arbitrators. Some error, oversight, misunderstanding or misconduct must have occurred which resulted in the tribunal failing to complete its task and justifies reopening what would otherwise be a conclusive resolution of the dispute.

11

It is apparent from the reasons given by the Court of Appeal in December 2008 that, in ordering a remission, they were concerned only with the way in which the arbitrators had dealt with, or failed to deal with, the “unrecoverable expenses.” Harrison P., delivering the leading judgment, identified the error or oversight which justified the remission at paragraph 69:

“Whether or not expenses incurred by the Respondent were in fact ‘unrecoverable’, as claimed by the appellant in its Points of Defence, or reimbursable as contended by the Respondents, should have been determined by the arbitrators. The arbitrators were required to demonstrate in their award that they accepted that the expenses were ‘unrecoverable’, or alternatively payable by the Appellant. At its lowest, the arbitrators should have demonstrated that they considered the issue of ‘unrecoverable expenses' as contended for by the Appellant.”

No other matter is identified by the Court of Appeal as warranting a remission. Indeed, no other criticism was made of the way in which the arbitrators had dealt with damages.

12

The Proprietor's response is simple, perhaps too simple. It is that the scope of the remission is determined by the Court of Appeal's order. The order allowed “the appeal against the award of damages”, and remitted the award to the arbitrators to determine “the issue of damages”. In the absence of any words of limitation, it is said that this unambiguously means the entire issue as to damages as formulated in the arbitrators' Terms of Reference. In the absence of any ambiguity in the language of the order, it should not be construed by reference to the limited reasons given for making it.

13

In the opinion of the Board, this approach to the construction of a judicial order is mistaken. It is of course correct that the scope of a remission depends on the construction of the order to remit. But implicit in the Proprietor's argument is the suggestion that the process of construing the order is to be carried out in two discrete stages, the first of which is concerned only with the meaning of the words, and the second with the resolution of any “ambiguities” which may emerge from the first. The Court's reasons, so it is said, are relevant only at the second stage, and then only if an “ambiguity” has been found. The Board is unable to accept these propositions, because the construction of a judicial order, like that of any other legal instrument, is a single coherent process. It depends on what the language of the order would convey, in the circumstances in which the Court made it, so far as these circumstances were before the Court and patent to the parties. The reasons for making the order which are given by the Court in its judgment are an overt and authoritative statement of the circumstances which it regarded as relevant. They are therefore always admissible to construe the order. In particular, the interpretation of an order may be critically affected by knowing what the Court considered to be the issue which its order was supposed to resolve….

15.… As Rix J pointed out in his valuable judgment in Glencore International A.G. v. Beogradska Plovidba (The “AVALA”) [1996] 2 Lloyd's Rep. 311 , 316:

“When … a Court remits an award to an arbitrator, it is not remitting a whole dispute, unless upon the terms of the order it expressly does so. It generally remits something narrower, and where it does so against the background of an arbitration which has already been defined by pleadings and argument before an arbitrator, it is some one or more of the issues as so defined within the scope of the reference that in general must be considered to be the subject matter of the remission.”…

… 17 These considerations apply generally to the construction of judicial orders. But there are particular reasons for giving effect to them in the context of the judicial supervision of arbitration proceedings. An arbitration award is prima facie conclusive. The Court has only limited powers of intervention. It exercises them on well- established grounds such as (to take the case arising here) the arbitrators' failure to deal with some matter falling within the submission. The reopening by the arbitrators of findings which there were no grounds for remitting and which they had already conclusively decided would therefore have been contrary to the scheme of the Arbitration Act . The terms of the order may of course in some cases be such that it must be concluded that the Court did exceed the proper limits of its functions. But it should not readily be assumed to have done so, especially when its reasons show that it has not.”

Hence, the arbitrator’s jurisdiction comes to an end when the initial Award is rendered, and it is only revived in relation to the particular issues remitted. Moreover, the arbitrator cannot, on the face of things, allow an amendment to enable a party to introduce a new dispute into the reference which has, by definition, ended at the time of the making of the Award. The scope of the reference must be judged, in my judgment, as at the date of the initial award, since it is only matters within that reference that jurisdiction can be revived in respect of. However, in the final analysis, everything must depend on the proper construction of the Order of remission, viewed against the relevant background.

How then does this principle fall to be applied to the current facts?

In order to determine whether such a claim was made, it is necessary to return to the claim submissions prior to the first LCIA Award. Arricano pointed to the fact that, in paragraph 10.4 of its initial submissions, a claim for damages was indeed made. Stockman countered by saying that there was no claim for damages in the prayer for relief, other than in relation to costs, which Arricano sought to set off. In addition, Arricano pointed to paragraph 2.10 of its post hearing brief, which stated that it was entitled to damages in addition to or in lieu of specific performance. Stockman again contended that the only damages sought were costs, and that no facts were set out in support of the claim for damages subsequently made (and now relied on). This was hardly surprising, as both parties accepted, since the relevant facts which are now relied on occurred by reason of Stockman’s subsequent conduct.

I have concluded that the scope of the initial remission did include a remission in respect of a claim for damages in addition to or in lieu of specific performance. I reach this conclusion for the following reasons.

Thus far, it seems to me that the question is straightforward. Stockman’s real point is that he did not have jurisdiction to award further damages arising out of conduct which had taken place after the date of the First Award.

I agree with the arbitrator that this is too narrow an approach. As Rix J said in The Avala, ref supra, then, prima facie, a limited remission would be to deal with the matters before the arbitrator on the pleadings before him at the date of the original Award. However, this can only be a prima facie rule, and, in an appropriate case and, depending on the breadth of the order of remission, it may be that the arbitrator has to deal with matters that have occurred since the date of the First Award.

Here, the remission was a broad one, in that it required the arbitrator to revisit ground that, because of his decision in his First Award that the Call Option had not been validly exercised, he had not addressed. He therefore had to consider this question afresh, including the question of whether specific performance and damages should be awarded. In my judgment, it cannot be right that in considering those issues, he should be precluded from taking into account matters which would be relevant thereto simply because they had occurred after his initial Award. There is, in my judgment, a difference between, effectively, freezing the dispute, including disallowing reference to all relevant facts occurring after the First Award, which is not in my judgment the correct approach, and allowing a wholly new issue to be raised on the remission.

In this case, the breach by Stockman of which Arricano complained initially was its breach in wrongly challenging the exercise of the Call Option. Had that breach not occurred, then, in line with the regime set out above, Arricano would have tendered the Option Price (being the amount due as found by the arbitrator on 29 November 2010); the Escrow Agent would then have handed over the share documentation to Arricano; and Stockman would have received the Option Price. In fact, because of Stockman’s breach, this did not happen, and instead the share documentation was returned to Stockman whilst the dispute between the parties was ongoing, enabling Stockman to take the action of which Arricano now complain – ie to transfer the shares to a third party.

In my judgment, therefore, although the facts which led to this enhanced damages claim occurred after the First Award, the remission incorporated the necessity to consider the damages claim itself, and this entitled the arbitrator to take into account events which led to an increase (or decrease) in the quantum of that claim occurring after the date of the First Award.

It is, therefore, strictly speaking, unnecessary for me to consider the alternative arguments put forward before me as to the scope of the arbitrator’s jurisdiction at the moment that he published his Second Award. However, in case this matter should go further, and because the points have been very fully argued, I set out my views on them.

I have set out the terms of the relevant correspondence which took place immediately prior to the issuance of the Second Award above. Arricano contended that, by virtue of this correspondence, Stockman either consented to an extension of the jurisdiction of the arbitrator to enable him to deal with a claim for damages, or alternatively, since they did not object to his giving of leave to amend as soon as possible, lost the right to object by virtue of s.73 of the Arbitration Act 1996.

I will deal with the question of express agreement first, and then the question of waiver. In addition, I need to deal separately with the claim for damages in lieu of specific performance and the claim for damages in addition to specific performance.

As to express agreement, this argument was not put very clearly in advance of the hearing before me. However, I am satisfied that by the time of closing submissions, the argument was being advanced, albeit somewhat hesitantly.

Although technically not binding on me, I consider the approach of the arbitrator in this regard as relevant evidentially. His approach was as follows:

On a fair reading of the Seventh Award, therefore, then it seems to me clear that the arbitrator was indeed finding that there had been an ad hoc reference of these issues. In particular, the quotation from paragraph 207 suggests quite clearly that this was his view.

Once again, I am in agreement with the arbitrator. In my judgment, the following is the appropriate analysis.

Overall, in my judgment, again in agreement with the arbitrator, I hold that, on its true construction, this agreement was to refer the claim for damages arising out of the Althor transaction and that this was broad enough to refer both a claim for damages in lieu of specific performance or a claim for damages in addition to specific performance.

The question of waiver is also an involved one. The starting point must be the provisions of the Arbitration Act 1996. The relevant provision is s.73(1), which provides as follows:

“73 Loss of right to object.

Section 31 of the 1996 Act provides as follows:

“31 Objection to substantive jurisdiction of tribunal.

Here Arricano submitted that:

Stockman, for its part, submitted as follows:

In my judgment, on the face of things, Arricano are right in saying that Stockman did not raise the point that the arbitrator did not have jurisdiction to deal with such a damages claim “forthwith”. Accordingly, prima facie, Stockman lost the right to make such an objection by virtue of s.73. Stockman did not at any stage ask the arbitrator expressly for an extension of time to challenge his jurisdiction on this basis.

The only ground on which Stockman can now rely as justifying an extension of time would be that set out in the obiter dicta of Flaux J that I have set out, namely that because the arbitrator dealt with the merits of the point, the tribunal must be taken to have allowed an extension of time.

I do not think that I need to express any concluded view on whether or not the comments of Flaux J set out above are correct, since in my judgment the issue must always depend on the facts of the individual case. On the facts of the current case, I have concluded that there was no implicit extension of time. I have reached this conclusion for the following reasons:

Accordingly, I hold that Stockman also waived its right to object to the jurisdiction of the arbitrator to deal with the claims for damages relating to the Althor transaction.

I turn to the next argument put forward by Stockman, namely that having granted specific performance, in his Second Award, the arbitrator was functus officio and could not grant any damages, whether in lieu of, or in addition to, specific performance.

For its part, Arricano contended, first, that Stockman had waived this point by continuing to take part in the proceedings after the Second Award, and, secondly, that the arbitrator, like the Court, had power under s.48(5) of the Arbitration Act 1996, to award damages in lieu of or in addition to the grant of specific performance.

Stockman countered by arguing that whilst the arbitrator would have had power to grant damages in addition to or in lieu of specific performance “at first instance”, once he had made a decision, he lost such power.

The arbitrator decided that he was not functus officio, for the reasons set out above. I have concluded that he was clearly correct. In my judgment, the correct analysis is as follows:

In the light of this analysis, I conclude that the arbitrator retained jurisdiction to deal with a claim for damages at least in lieu of specific performance.

In the light of these conclusions, I do not need to reach any concluded view as to whether the arbitrator was right to find that he had the same power as was held to be vested in the Court in Gill v Tsang [2003] WL 21554631.

The claim for damages in addition to specific performance may be said to be more difficult. I deal with this in the next section.

Under this heading, Stockman argued that the arbitrator only reserved jurisdiction in respect of the claim for damages in lieu of specific performance, whereas what was now being claimed was damages in addition

It will be seen that this argument is again independent of the contentions in relation to the scope of the original remission. What is said under this head was that, even if a claim for such damages was initially remitted or was the subject of some expanded jurisdiction initially, then the arbitrator, by virtue of making the order that he did at the time of the Second Award, had lost the right to make any order granting damages in addition to specific performance.

Arricano, for its part, contended that the important point was that at all times the arbitrator had had, as Chitty on Contracts (32^nd ed) puts it “the power … to substitute an order for specific performance with damages either in addition or in lieu”.

The arbitrator concluded that the initial formulation of relief put forward by Arricano could be varied, and that he had jurisdiction to award damages either in lieu of in addition to specific performance.

Again, I am in agreement with the arbitrator. In my judgment, the arbitrator had, as I have said, jurisdiction to grant damages in addition to or in lieu of specific performance as at the time that the Second Award was rendered. The arbitrator then reserved jurisdiction to deal with not only the claim for damages in lieu, but also the appropriate form of relief if the parties could not agree on escrow arrangements, which they did not. Accordingly, in my judgment, his jurisdiction remained the same as at the time of the Second

In the light of the conclusions I have already expressed, it is not strictly necessary for me to deal with the further question of whether the arbitrator had jurisdiction, under the LCIA Rules, to amend to add the claim for damages in addition to specific performance as he purported to do at paragraph 211 of the Seventh Award. However, in case this matter goes further, I will set out my brief views.

This matter was not the subject matter of detailed argument, but I was referred to the views of the learned authors of A Guide to the LCIA Arbitration Rules, 1^st ed.. They take the view (at paragraphs 6.10 to 6.11) that the LCIA Rules only permit the arbitrators to admit new claims which are within the

It follows from all of the above, in my judgment, that the arbitrator did indeed have jurisdiction, as he has held in his Seventh Award, to award damages in addition to specific performance.

I turn therefore to the separate challenge to the Fifth Award.

I start with the provisions of the statute, namely s.68(2)(g) of the Arbitration

The relevant legal principles were not really in dispute between the parties.

Here, therefore, as I have noted above, the issues are as follows:

I consider each of these questions in turn.

However, before I do, there is in my view a logically anterior question, which is as to what the relevance is, in this Court, of the findings already made by the arbitrator in the Seventh Award.

I raised this point during the hearing with Counsel on both side.

In its closing submissions, Stockman contended as follows (though without any citation of authority):

For its part, Arricano contended that there was a simpler bifurcation of issues. On the one hand, issues which were within the arbitrator’s jurisdiction were binding. On the other hand, issues which were not within the arbitrator’s jurisdiction were not binding. Findings which were within the arbitrator’s jurisdiction could not cease to be so simply because the Fifth Award was remitted.

In my judgment, this is in reality a question of the application of normal principles of issue estoppel. Insofar as the relevant matters were within the jurisdiction of the arbitrator, then findings on such matters are binding on the parties and thus on me. If they are not within the arbitrator’s jurisdiction (or are findings on which jurisdiction rests), they are not binding on me.

With this summary in mind, I turn to the four issues identified above, indicating my own views where relevant.

The representations to the arbitrator are those made in the HSF letter sent on 31 December 2014, the submissions dated 5 February 2015 put in by Arricano, and the reply submissions dated 25 February 2015 put in by Arricano to which I have made reference.

The question that I have to address is what those letters would have conveyed to a reasonable reader. In this regard, the arbitrator’s statements as to what he understood from those letters is evidence of this – and in my judgment powerful evidence – but is not conclusive. It is not conclusive because this fraud claim was not before him in any of his Awards.

Dealing with each letter in turn, then:

The next question is whether any of these statements were false. I deal with each letter in turn. Again, in my view, the findings of the arbitrator are not binding since he did not have to consider the question of the falsity of the representations directly.

As regards the 31 December 2014 letter, I would not regard the statements in this letter as proven to be untrue.

As regards the 5 February 2015 submissions:

This leaves the letter of 25 February 2015. By this time, on the evidence before me, no further withdrawals had been made from either the Renaissance/Silverioco accounts or the Emergex accounts. Accordingly, the position remained, in my judgment, as it stood as at 5 February 2015.

The next event of relevance was the withdrawal of monies from the Emergex accounts on 11 March 2015. This rendered the representations made in the earlier letters untrue. No notice of this fact was given to the arbitrator.

Accordingly, I conclude that the representations made in the letters to the arbitrator of 5 and 25 February 2015 were, or became untrue. To the extent that they became untrue, then (if Arricano had the relevant knowledge) they should have been corrected, but were not.

The next question is whether Arricano knew that the statements that were being made to the arbitrator were false. It is here that the relevance of the arbitrator’s findings is most acute, since the arbitrator, as noted above, made a number of potentially relevant findings by which, in my judgment, I am bound.

The question for me is whether, as at the time that the Fifth Award was rendered, the statements that had been made to the arbitrator were, to the knowledge of Arricano, false. In this regard:

I start with the findings of the arbitrator.

Looking at matters as at the date of the Fifth Award, ie 31 March 2015:

On the basis of these findings, then in my judgment it must follow that:

It would follow that the Fifth Award was indeed procured by fraud.

In the light of this conclusion, it is, strictly speaking, unnecessary for me to consider Stockman’s case that Mr Tymochko’s knowledge was in fact to be treated as Arricano’s knowledge, despite the finding of the arbitrator to the contrary. Accordingly what follows is not necessary to my decision.

However, in case I am wrong in my holding that the arbitrator’s finding on this is binding on me, I consider the relevant authorities.

I start with Arricano’s contentions. Arricano contended that Mr Tymochko’s knowledge could not be ascribed to it because:

Stockman, for its part, contended that:

I will deal with each issue, beginning with the question of what is meant by directing mind and will. That concept was helpfully analysed by Lord

Applying this approach, I turn to the facts of this case, on the basis of the evidence that was before me. I would regard the following as of importance.

In my judgment, the evidence before me (which may of course not be the same as that in front of the arbitrator) establishes that Mr Tymochko was the directing mind and will of Arricano, as that phrase is properly to be understood in the light of the exegesis in Meridian Global, set out above.

I turn to the second and third of the arguments put forward by Arricano in this connection, which are in my view linked. The question is whether there is some reason why the knowledge of the individual, Mr Tymochko, who was an officer of Dragon Capital and Arricano, should not be treated as the knowledge of Arricano.

The first way in which Arricano put this was to say that Mr Tymochko received the knowledge as an officer of Dragon Capital. This is what the arbitrator found. In this connection, Arricano pointed to the decision in Re Hampshire Land Co. [1896] 2 Ch 473.

In my judgment, this case is not authority for the proposition that the knowledge of an officer of two companies must be treated as the knowledge of one company only. The individual’s knowledge is his knowledge. The question then is which company is to be treated as having that knowledge. On the face of matters, then both companies would have that knowledge, in my judgment. However, that may not in fact be the case, for example, if, as in the Hampshire Land case, the individual in question is acting in fraud of, or in breach of duty towards, one of the companies. This is particularly so where, as in the Hampshire Land case, both companies were innocent, as Vaughan Williams J pointed out.

Arricano’s contentions under this head thus came down to the proposition that Mr Tymochko was acting in breach of his duty towards Arricano in not passing on notice of the withdrawals. Accordingly, they argued, his knowledge should not be ascribed to the company. In that connection, they relied on the decisions in Re Hampshire Land Co. [1896] 2 Ch 743, at 479 (cited above) and JC Houghton v Nothard, Lowe & Wills Ltd [1928] AC 1, at 19. Those cases are said to be authority for the so called “fraud exception” whereby the knowledge of an agent which would otherwise be imputed to his principal will not be because he is acting in fraud of his principal, or otherwise in breach of duty to the principal.

The rationale for this “exception” was stated in the Houghton case as follows:

“Has knowledge then been brought home to the respondent company on which to found the alleged standing by? In the case of a natural person, if information is intelligibly conveyed to and received by him, its source, whether a servant or a stranger, whether he is high or low, matters little, if at all. With an artificial incorporated person it must necessarily be otherwise, for an impersonal corporation cannot read or hear except by the eyes and ears of others. Who are to be the organs, by which it receives knowledge so as to affect its rights, may be specially determined by the articles of its constitution, but otherwise, in a matter where knowledge may lead to a modification of the company's rights according as it is or is not followed by action, the knowledge, which is relevant, is that of directors themselves, since it is their board that deals with the company's rights. The mind, so to speak, of a company is not reached or affected by information merely possessed by its clerks, nor is it deemed automatically to know everything that appears in its ledgers. What a director knows or ought in the course of his duty to know may be the knowledge of the company, for it may be deemed to have been duly used so as to lead to the action, which a fully informed corporation would proceed to take on the strength of it.

There are two exceptions, however, to this rule, which are now material. The directors, other than the Lowes, did not in fact know till a late date what the Lowes had been doing, and when they found out they took prompt and proper action. The circumstances have been detailed by my noble and learned friend. It is plain, and I think uncontested, that they could not have been made personally liable for any neglect or misfeasance, and, if so, the company cannot be affected as if it had known from them, what they neither knew nor could have been expected to know under the system of domestic management established by the company. On the other hand, the Lowes knew everything all along, and if, by their keeping the matter to themselves, their company could be estopped from denying that it was bound by the 70 per cent. arrangement, they would have relieved themselves and Mr. Prescott from personal liability under their guarantee at the sacrifice of their company's interests. Their silence was accordingly a notable breach of duty. It has long been recognized that it would be contrary to justice and common sense to treat the knowledge of such persons as that of their company, as if one were to assume that they would make a clean breast of their delinquency. Hence, for the purpose of estopping the company, some knowledge other than theirs has to be brought home to other directors, who can be presumed not to be concerned to suppress it. This was laid down, following earlier cases, in In re Hampshire Land Co. , and was even then treated as incontestable. So far as I know it has never been doubted since. If so, there was in this case no standing by and no estoppel. The cases on which the above propositions are based were not contested by Sir John Simon in his reply, nor were any authorities cited which conflicted with them. It is not for us to dispute settled law, and accordingly the appeal fails.” (my emphasis).

Stockman, for its part, relied first on the decision of the Court of Appeal in El

This important distinction, between the knowledge of an individual being that of the company, and the knowledge of an individual as agent being imputed to the principal, led the Court of Appeal in that case to conclude that, because Mr Ferdman was acting in fraud of the company, his knowledge was not to be imputed to the company; but, nevertheless, because he was the directing mind and will of the company in relation to the relevant transaction, his knowledge was indeed the company’s knowledge.

On this logic, then the knowledge of Mr Tymochko, in his capacity as agent of Arricano, would not be ascribed to Arricano if and insofar as he was acting in breach of duty to Arricano; but would be ascribed if he was to be regarded as the directing mind and will of Arricano.

More recently, the rationale for, and extent of, this so called exception has been the subject matter of consideration by the Supreme Court in Bilta (UK)

A number of passages in the judgments make clear the general principles which must now be applied. In particular, there are two passages, one in the judgment of Lord Sumption and one in the joint judgment of Lords Walker and Hodge, which are of particular importance.

Accordingly, as the learned editors of Bowstead on Agency, 20^th ed, make clear, English law no longer recognises any general “fraud exception”: see Article 95(4).

I turn to apply these principles to the facts of this case. The evidence before me established the following:

As a matter of law, I do not accept that Mr Tymochko’s knowledge is not to be attributed to Arricano. I would follow the guidance of the Supreme Court in the Bilta case. Here, the question arises in the context of a claim by an innocent third party against the company. The situation is thus the first of those considered by Lords Walker and Hodge in the Bilta case. There the company is to be treated as having the knowledge of its officer under normal principles. The so called “fraud exception” has no application because the claim is not one by the company against its fraudulent agent, but is a claim by the innocent third party against the company.

As I have indicated, then in my judgment:

Accordingly, I would have found that:

Accordingly, even if the arbitrator’s findings had not been binding on me, I would have reached the same result, albeit by a different route.

I turn then to the last question, which is whether there was serious injustice caused by the fact that the Fifth Award was procured by fraud. I have noted above the accepted test for serious irregularity in this context – ie that it needs to be “shown that the irregularity in the procedure caused the arbitrators to

In this context, again, the parties’ submissions were relatively simple and indeed stark.

Arricano, for its part, contended that there was no possibility that the arbitrator would have reached a different conclusion and that this was possible to deduce from the Seventh Award. That was because, it was argued, the arbitrator held, with full knowledge of the frauds now relied on before me, Arricano had not acted in repudiatory breach of the Call Option Agreement and/or any contract brought into being by the exercise of that Call Option.

Stockman countered by saying that this was to mischaracterise the relevant issue. The question which the arbitrator had to address in his Fifth Award was whether or not, by reason of the failures alleged by Stockman on the part of Arricano, there was a failure to comply with the condition precedent to Stockman’s obligation to transfer the shares; whereas the question addressed in the Seventh Award was whether there was a repudiatory breach bringing an end to the parties’ primary obligations under the Option contract.

Applying the test set out above, there are in my judgment two related questions:

Here, the irregularity complained of is that the arbitrator did not know that the monies were not in fact still in the relevant accounts as at the moment that he issued the Fifth Award. That this is so is clear from that fact that, as I have recorded above, he understood that he would have been told if the monies had been taken out of the account. In fact, the monies had been withdrawn, and he had not been told.

The next question is thus whether he might have found that, if the monies had been deposited as required, but then withdrawn, this would have meant that the relevant condition precedent had not been satisfied. Allied to this question is whether any such conclusion on his part would have been reasonably arguable.

I have reached the conclusion that the arbitrator either would, or should, have concluded that there was no failure to comply with a condition precedent even if, after the event, amounts were withdrawn from the account. In my judgment, the question of whether a condition precedent has been satisfied must be judged as at the moment when the condition has to be satisfied. If, at that moment, the condition has been satisfied, nothing that happens thereafter could reasonably affect that conclusion.

Accordingly, I conclude that there was no substantial injustice by reason of any fraud on the part of Arricano.

Accordingly, I decline to order remission of the Fifth Award to the arbitrator.