England & Wales
Ovsyankin v Angophora: Arbitrators' discretion to explore, invite evidence on, and decide on the basis of, issues that are merely 'in play' confirmed; high threshold for successful challenge to arbitral Awards re-affirmed; RAV Bahamas v Therapy Beach Club cited with approval.
- INTRODUCTION
In April 2021, the Judicial Committee of the Privy Council in RAV Bahamas v Therapy Beach Club1 addressed an application to set aside an award in the Bahamas on grounds of "serious irregularity".2 In that case, the Privy Council found that there had been a serious irregularity based on a number of grounds3 and, in doing so, set out guidelines on the manner in which arbitral tribunals should address arguments and evidence presented to them by parties.
A number of the Privy Council's guidelines were cited with approval in the recent case of Andrei Mikhailovich Ovsyankin v (1) Angophora Holdings Limited; (2) Valeriy Anatolievich Kirilov; (3) Dr Georg von Segesser; (4) Sir Jeremy Cooke; (5) Mr Khawar Qureshi QC ("Ovsyankin v Angophora"),4 in which the English High Court dismissed a challenge to an arbitral award rendered in favour of a joint venture between Intesa Sanpaolo S.p.a., an Italian bank, and Gazprombank JSC by the applicant Mr Ovsyankin on the grounds of serious irregularity pursuant to section 68 of the Arbitration Act 1996 (the "Arbitration Act").
The High Court also heard and dismissed the attempts by Mr Ovsyankin (as sole applicant in one arbitration) and Mr Ovsyankin and Retemmy Finance Limited (as joint applicants in two other arbitrations) to remove all three arbitrators from each of the identically-constituted tribunals in the three underlying arbitrations, pursuant to section 24 of the Arbitration Act, on the grounds that they were biased. In doing so, the High Court made some useful comments regarding the ability of arbitrators to sit and decide similar issues in related arbitration proceedings.
- BACKGROUND
The underlying agreements
In 2012, Angophora and Retemmy (the latter being owned by Messrs. Ovsyankin and Kirilov) entered into a Shareholders Agreement in relation to a joint venture. Under the Shareholders Agreement, Angophora and Retemmy each acquired shares in Grooks Global Limited ("Grooks"), a Cypriot company that belonged to a group providing services in the oil and gas industry.
Under the Shareholders Agreement, the parties undertook to cooperate in good faith with one another with the aim of selling their respective shareholdings several years later. Angophora had 'drag-along' rights entitling it both to sell its own shareholding and, in the event that Retemmy refused to buy Angophora's shares in the first instance, require the sale by Retemmy of its shareholding to the same third party that had offered to buy Angophora's.
Angophora also entered into a Deed of Guarantee in relation to the performance of Retemmy's obligations under the Shareholders Agreement, with Messrs. Ovsyankin and Kirilov acting as guarantors.
Finally, Angophora, Retemmy, Mr Ovsyankin and Mr Kirilov entered into a Non-Compete Agreement, whereby they undertook not to compete with the activities of Grooks and its group of companies.
Each of the above three agreements contained an arbitration clause providing for LCIA arbitration in London in the event of a dispute.
The arbitration proceedings
Angophora commenced separate arbitrations under each of the above agreements:
- the 'SHA Arbitration', in which Angophora alleged that Retemmy had breached the Shareholders Agreement by, inter alia, entering into transactions at inflated prices and without proper disclosure or approval
- the 'Guarantee Arbitration', in which Angophora alleged that Messrs. Ovsyankin and Kirilov were correspondingly in breach of the Deed of Guarantee having failed to procure that Retemmy would act in accordance with the terms of the Shareholders Agreement; and
- the 'Non-Compete Arbitration', in which Angophora alleged that Messrs. Ovsyankin and Kirilov had breached the Non-Compete Agreement through various fraudulent activities and the diversion of assets of the Grooks group of companies.
The SHA Arbitration was commenced first. The parties to the Guarantee Arbitration and to the Non-Compete Arbitration, which were commenced later in time, agreed to nominate the same three-member arbitral tribunal in those proceedings as had been appointed in the SHA Arbitration. It was then decided (and not contested by the parties) that the Guarantee Arbitration would be the first to proceed. An award was issued in the Guarantee Arbitration in December 2020.
The tribunal's award in the Guarantee Arbitration upheld the majority of the claims made by Angophora and ordered Messrs. Ovsyankin and Kirilov to pay US$ 43,200,000 in damages to Angophora, together with interest and costs.
- THE HIGH COURT PROCEEDINGS
The facts leading to the applications before the High Court
In the Guarantee Arbitration, Angophora claimed that it was entitled to remedies for losses incurred as a result of the breach of the Shareholders Agreement, for which Messrs. Ovsyankin and Kirilov were therefore consequently liable under the Deed of Guarantee.
Angophora's primary case was that its shareholding in Grooks had been entirely stripped of any value whatsoever as a result of the actions of Retemmy and of Messrs. Ovsyankin and Kirilov:
"The precise quantum of this loss will be a matter for expert evidence in due course, but the best particulars that [Angophora] can currently provide are that Retemmy and [Mr Ovsyankin's and Mr Kirilov's] conduct has deprived [Angophora's] shareholding in Grooks of any value, such that [Angophora's] interest is worth nothing, instead of the substantial value that it should have had."5
As a further or alternative argument to its primary case, Angophora pleaded that its investment (consisting in the full price that it paid for its shares) had been wasted.6 Angophora's pleadings also made reference to a "diminution in the value of its shares in Grooks".7
On the last day of the evidential hearing, the tribunal, having heard the oral evidence adduced by the parties, made the following request sua sponte:
"We actually want to ask both experts whether they have actually thought about what the value of the shares are in the case of a distressed sale, as was mentioned before, if for instance a vulture fund would appear and make an offer, because from what was [sic] have heard we are of the view that the value of the shares cannot have been nil because here is a company or a group of companies that is still producing revenues and on the basis of that we think that there is value in this business, and in the end for the damages calculation which is in issue in this dispute, it will be relevant to know what is the bottom and what is the higher end. I don't know whether counsel have discussed that approach with the experts."8
A number of exchanges ensued between counsel and the tribunal, during which Mr Ovsyankin's counsel expressed its disagreement with the premise of the question raised by the tribunal on the basis that that was not the case that had been pleaded by Angophora and, therefore, not the case that the Respondents had to answer or in respect of which they had pled evidence.9
The tribunal explained that it considered its request legitimate: "[it is] always open to a tribunal, looking at the submissions which are made, to come to a view about what are appropriate damages somewhere between the various extremes that the parties adopt, so long as the parties are given an appropriate chance to deal with it."10
The tribunal then requested the parties to provide reports "by the corporate valuation experts on the value of the shares of Grooks in case of a distressed sale".11
Did the tribunal's request introduce a 'different case'?
The crux of Mr Ovsyankin's application to the High Court pursuant to section 68 of the Arbitration Act in relation to the award rendered in the Guarantee Arbitration was that, in raising the above question, the tribunal had "instructed the parties to obtain new evidence to support a different case from that pursued by Angophora to and at the taking of oral evidence".12
Mr Ovsyankin argued that Angophora had argued its case exclusively on the basis that its shares held no value at all and that he had therefore limited himself to providing evidence to counter that specific claim (rather than a claim that the shares had lost some - but not necessarily all - of their value). The tribunal's request, according to Mr Ovsyankin, prevented it from properly answering the case, was demonstrative of bias (the tribunal purportedly having pre-determined the issue) and was therefore inappropriate.
The applications before the High Court
The applications before the High Court related to all three of the above arbitration proceedings.
The first application was brought in relation to the Guarantee Arbitration. In this application, Mr Ovsyankin challenged the arbitration award under section 68 of the Arbitration Act as well as asking for an order that the arbitrators be removed under section 24 of the Act.
The second application was brought jointly by Mr Ovsyankin and by Retemmy in relation to both the SHA and Non-Compete Arbitrations, and also asked for an order that the arbitrators in each set of proceedings be removed under section 24 of the Arbitration Act.
In his first application, Mr Ovsyankin claimed that "serious irregularity" had occurred in accordance with section 68 of the Arbitration Act – more specifically, that the tribunal had failed to observe its duty to comply with section 33 of the Arbitration Act by not acting fairly and impartially as between the parties, in contravention of section 68(2)(a).
Mr Ovsyankin's main contentions were that the tribunal: had put him at a disadvantage by adopting sua sponte a case on quantum other than that that had actually been advanced by Angophora; had not given him a proper opportunity to meet this different case; and had unfairly taken on the role of advocate on behalf of Angophora by pursuing and promoting the alleged different case and thereafter obtaining evidence in support of it.13
Mr Ovsyankin brought a further argument under section 68(2)(c), that the tribunal had failed to conduct the proceedings in accordance with the rules of the LCIA agreed upon by the parties. In particular, he argued that the tribunal had failed to respect LCIA Rule 22.2, which allows a tribunal to authorise a party to supplement, modify or amend their claim after giving the parties a "reasonable opportunity to state their views". Mr Ovsyankin claimed that Angophora should have been required to amend its pleading formally in order to be allowed to present the alleged different case (i.e. that the value of the shareholding had not been entirely destroyed).14
Finally, Mr Ovsyankin claimed that the tribunal had failed to deal with all of the issues that were put to it, in contravention of section 68(2)(d) of the Arbitration Act.15
In both the application in relation to the Guarantee Arbitration and that in respect of the SHA and Non-Compete Arbitrations, the claimants asked for the arbitrators in each of the three arbitrations at issue to be removed in accordance with section 24 of the Arbitration Act, which includes situations in which there are justifiable doubts regarding arbitrators' impartiality (section 24(1)(a)) or in which arbitrators refuse properly to conduct proceedings (section 24(1)(d)(i)).
- THE JUDGMENT OF THE HIGH COURT
Sir Andrew Smith, sitting as a judge in the High Court, rejected all of the applications. In doing so, he usefully reiterated a number of principles and re-affirmed the high standard necessary for a challenge to be successful under section 68 of the Arbitration Act, as set out in previous judgments.
First, referring to RAV v Therapy and the authorities cited in that case, the Court reminded the parties that tribunals "can sometimes properly decide a case on a basis that has not been pleaded"16 without this giving rise to a serious irregularity under section 68 of the Arbitration Act. It is sufficient for the issue relied upon by a tribunal in its decision to be "in play" or "in the arena"17 in the arbitral proceedings. In the present case, the Court considered that the issue of a partial diminution in Angophora's shareholding "had been sufficiently covered by the (expert and factual) evidence and otherwise been considered in the proceedings to have given the parties a fair opportunity to deal with it."18
The Court then also reaffirmed previous authorities to the effect that arbitral tribunals were entitled to raise points independently, provided the parties were given a proper opportunity to address them.19
Finally, the Court referred to section 34(2)(g) of the Arbitration Act, which allows a tribunal to decide "whether and to what extent [it] should itself take the initiative in ascertaining the facts and the law."20
On the facts, the Court held that what the applicants alleged was a different case had in fact been sufficiently pleaded by Angophora in the Guarantee Arbitration - through its reference to a general "diminution in the value of its shareholding"21 - in addition to its primary case that its shareholding had lost its entire value, such that the allegedly different case was indeed "in play" or "in the arena". This view was supported by the expert report on quantum provided by Angophora in the Guarantee Arbitration, which showed that the expert was not merely instructed to consider a scenario in which the value of Angophora's shareholding was nil but, instead, was asked to provide a general opinion regarding the value of the shares, which therefore envisaged a spectrum of potential valuations, even if the relevant evidence required to quantify such an intermediate valuation was not available to Angophora's expert by reason of the Respondents' own conduct.22 The fact that the alleged 'different case' had been part of the arbitral proceedings was further confirmed by reference to Mr Ovsyankin's own submissions in the Guarantee Arbitration, which evidenced an understanding of Angophora's wider case.23
The Court therefore dismissed the application pursuant to section 68(2)(a) of the Arbitration Act, since the application was based principally on the contention - which the Court rejected - that the tribunal had pursued a different case than that pleaded by Angophora in the arbitration proceedings. The so-called 'different case' had in fact been "fairly in play" and, by consequence, Mr Ovsyankin had had an opportunity to respond to it, even if he had elected not to avail himself of that opportunity.24
The Court also dismissed the application brought pursuant to section 68(2)(c) of the Arbitration Act, since that also relied upon the contention already rejected by the Court that the arbitral tribunal had wrongly entertained a case other than that advanced by Angophora.25
Finally, the Court rejected the application pursuant to section 68(2)(d) of the Arbitration Act since, on the facts of the case, the Court did not agree that the Tribunal had failed to deal with the issues put to it.26 In its decision, the Court recalled the proper approach to the interpretation of section 68(2)(d), as set out in RAV v Therapy, which is that: (i) the section is not directed at procedural questions or arguments, but at issues that are "essential or crucial to the determination of a claim or defence on which the resolution of the dispute or disputes depends";27 (ii) the section's requirement that tribunals "deal with" issues does not imply that tribunals must necessarily answer or take a decision in relation to each specific issue (since an issue may be "dealt with" by, e.g., issuing a decision on another point which renders that issue irrelevant);28 and (iii) the section is only concerned with whether tribunals have dealt with an issue, rather than how they have dealt with it.29
The applications to remove the arbitral tribunal in the Guarantee, SHA and Non-Compete Arbitrations pursuant to section 24 of the Arbitration Act were similarly dismissed. Whilst the Court recognised that the tribunal had made decisions in the Guarantee Arbitration (which was conducted first) in respect of issues which also arose in the SHA and Non-Compete Arbitrations, this was to be expected when the parties had themselves agreed to nominate the same tribunal in all three arbitrations and therefore did not constitute grounds for concluding that there had been bias.30
- ANALYSIS
Ovsyankin v Angophora reaffirms the high threshold necessary for a section 68 application to be successful and the "extreme" nature of the cases that the provision is intended to cover.31
Whilst the High Court in this case disagreed with the applicant's contention that the arbitral tribunal had pursued an issue which had not been raised previously, its decision helpfully delineates the boundaries which apply to arbitral tribunals when raising questions with the parties and deciding upon issues which were either presented as secondary or ancillary, or not expressly pleaded or presented in the parties' evidence.
The decision reaffirms the existing position that an issue must have been "in play" in the proceedings in order for the tribunal to issue a decision on it. The Court interpreted this requirement widely, however, holding that an issue is not required to have been specifically pleaded by parties to proceedings for it to be addressed and decided upon by a tribunal.
Parties must therefore be alert to any questions that are merely "in play" in their proceedings and make sure, where relevant, to address these in their written and oral evidence rather than seeking to use them as the foundation for a subsequent appeal against an award decided on the basis of such questions, solely on the basis that the parties may not have articulated those questions themselves. Parties should apply the same caution where a tribunal raises a question that expands upon (or beyond) the case specifically presented to it, as this may be sufficient to bring such issues "into play".
Finally, the Court's decision confirms the ability of tribunals to deal with overlapping questions when deciding parallel proceedings and clarifies that this alone will not give rise to grounds for a finding that the tribunal was not impartial or was biased.
Footnotes
1. RAV Bahamas Ltd and another (Appellants) v Therapy Beach Club Incorporated (Respondent) (Bahamas) [2021] UKPC 8 ("RAV v Therapy").
2. Section 90 of the Bahamian Arbitration Act 2009, which addresses the concept of 'serious irregularity', is worded identically to the corresponding provision in the English Arbitration Act 1996 (section 68(2)).
3. Ivanyan and Partners' analysis of the RAV v Therapy case can be found here: https://www.mondaq.com/uk/civil-law/1111644/rav-bahamas-v-therapy-beach-club-what-does-it-mean-for-parties-and-arbitrators-.
4. [2021] EWHC 3376 (Comm).
5. Ovsyankin v Angophora, para. 25.
6. Ibid.
7. Ibid.
8. Id., para. 26.
9. Id., para. 29.
10. Id., para. 29.
11. Id., para. 31.
12. Id., para. 27.
13. Id., paras. 75-76.
14. Id., paras. 79-80.
15. Id., para. 81.
16. Id., para. 34.
17. Ibid., referring to Russell on Arbitration (24th Ed., 2015), para. 8-092.
18. Id., para. 44.
19. Id., para. 67, citing Zermalt Holding SA v Nu-Life Upholstery Repairs [1985] 2 EGLR 14 and RAV v Therapy.
20. Id., para. 76.
21. Id., para. 37.
22. Id., para. 42.
23. Id., paras. 48-49.
24. Id., paras. 73; 75-76.
25. Id., para. 80.
26. Id., paras. 84-87.
27. Id., paras. 83(i)-(ii), referring to RAV v Therapy, para. 41.
28. Id., para. 83(iii), referring to RAV v Therapy, para. 43.
29. Id., para. 83(iv), referring to RAV v Therapy, para. 43.
30. Id., paras. 95; 106.
31. Id., para. 23, referring to the 1996 Report on the Arbitration Bill of the Departmental Advisory Committee on Arbitration Law.
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