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22 June 2017
The applicant in a recent case applied to the Limassol District Court for the registration and enforcement of an arbitral award dated May 23 2014, which had been issued by the London Court of International Arbitration (LCIA) against the respondents (Magot Incorporation Ltd).(1) The LCIA decided that it had no jurisdiction over the applicant (respondent two in the arbitration proceedings) and ordered the respondents (the applicants in the LCIA proceedings) to pay $551,841.77 in costs.
The LCIA proceedings were brought against the applicant and an associated company. This company and the respondent were both 50% shareholders of a third company whose sole asset was shares in a fourth company. A sale agreement involving the shares in the fourth company, which the applicant signed as guarantor, was completed. Subsequently, the respondents made a request to the LCIA arguing, among other things, that the sale of the shares was the object of equitable fraud and deceit due to the incomprehensible low purchase price of the shares.
The respondents opposed the registration of the arbitral award in Cyprus for numerous reasons. However, this update focuses on the jurisdictional objections raised before the court which relate to Article V(1)(c) of the New York Convention and the principles of res judicata and issue estoppel.
According to Article V(1)(c) of the New York Convention:
"1.Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced."
The respondents essentially argued that in light of the LCIA's finding on jurisdiction, which had resulted in it awarding costs, the applicant was not entitled to pursue the registration of the arbitral award in Cyprus. According to the respondents, the tribunal's conclusion meant that:
Having heard expert opinions on the issue from the applicant and the respondents, the court rejected the respondents' submissions. The court explained that while the applicant had not initially been a party to the proceedings, he had subsequently participated by stating his position in relation to the LCIA's jurisdiction. The court also accepted the applicant's submission that the LCIA's lack of jurisdiction did not affect its authority to award costs to the applicant under Section 61 of the Arbitration Act 1996.
Pursuant to Section 61 of the Arbitration Act 1996, "the tribunal may make an award allocating the costs of the arbitration as between the parties subject to any agreement of the parties".
Further, the court observed that through their arbitration request to the LCIA, the respondents made the applicant a party in the proceedings. The respondents had also attempted to argue, during the LCIA proceedings, that the share sale agreement, which included an arbitration agreement and was signed by the applicant as guarantor, was broad enough in scope to confer jurisdiction on the LCIA to adjudicate the matter.
The court subsequently stated that the LCIA's decision on jurisdiction was the result of a reasoned process. The court explained that, in the proceedings, the arbitral tribunal had primarily been asked to interpret the scope of application of the arbitration agreement contained in the share sale agreement. Consequently, the award of costs to the applicant following the tribunal's determination on the issue of jurisdiction could not support the respondents' argument that the arbitral award was contrary to Article V(1)(c) of the New York Convention.
Further, the respondents maintained that the court should dismiss the application because the principles of res judicata and issue estoppel were engaged, to the effect that the applicant was barred from invoking the Cypriot court's jurisdiction. The court referred to Mills v Cooper ((1967) 2 QB 459) and highlighted that the principles of issue estoppel and res judicata were not engaged.
Conversely, the court agreed with the expert opinion, submitted on behalf of the applicant, concerning the LCIA proceedings, whereby the arbitral award is final and binding on both the parties and any parties claiming through or under them, including on matters of jurisdiction and costs which cannot be separated. In addition, the proceedings cannot be considered an interim procedure which cannot be recognised and enforced.
This case sheds light on the interpretation and application of Article V(1)(c) of the New York Convention and clarifies that an arbitral award, including an award for costs, is registrable before the courts even in cases where the LCIA has no jurisdiction.
For further information on this topic please contact Constantinos Pashiardis at George Z Georgiou & Associates LLC by telephone (+357 22 763 340) or email (firstname.lastname@example.org). The George Z Georgiou & Associates website can be accessed at www.gzg.com.cy.
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