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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Protech Projects Construction (Pty) Ltd. v Mohammed Abdulmohsin Al-Kharafi & Sons for General Trading, General Contracting and Industrial Structures WLL [2005] EWHC 2165 (Comm) (14 October 2005) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2005/2165.html Cite as: [2005] EWHC 2165 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
PROTECH PROJECTS CONSTRUCTION (PTY) LIMITED |
Claimant |
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- and - |
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MOHAMMED ABDULMOHSIN AL-KHARAFI & SONS FOR GENERAL TRADING, GENERAL CONTRACTING AND INDUSTRIAL STRUCTURES WLL |
Defendant |
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AND BETWEEN | ||
MOHAMMED ABDULMOHSIN AL-KHARAFI & SONS FOR GENERAL TRADING, GENERAL CONTRACTING AND INDUSTRIAL STRUCTURES WLL |
Claimant |
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- and - |
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BIG DIG CONSTRUCTION (PROPRIETARY) LIMITED (In Liquidation) |
Defendant |
____________________
Mr C. Reese QC (instructed by Beachcroft Wansbroughs) for Al-Kharafi
Hearing dates: 5th – 7th October 2005
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Crown Copyright ©
The Hon. Mr Justice Langley :
Introduction
The Awards
The Set-Off
Material Facts
i) Kharafi knew of the liquidation of Protech by 18 April 2005.
ii) It was only on 25 April 2005 that Kharafi first learnt of the existence of the Deed of Cession (to which I shall refer as "the Proceeds Recession") made between Protech and one of its creditors ("Nedbank") whereby Protech ceded the proceeds of its claims against Kharafi to Nedbank.
iii) At the "locus standi" hearing before the arbitrator, Protech had disclosed Deeds of Cession of the claims made with various parties ("the Claims Cessions") and Deeds of Partial Release ("the Releases") from the Claims Cessions made in July 2002. Protech did not disclose the Proceeds Recession. On 31 October 2002, prior to the hearing, Corbett & Co had written to those acting for Kharafi, in answer to a specific request, stating that there were no other cession agreements.
iv) In fact both Corbett & Co (though not the writer of the 31 October letter) and of course Protech, knew of the existence of the Proceeds Recession, but the letter itself was the result of inadvertence and misunderstanding on the part of Corbett & Co (not Protech) and was not in any way contrived or deliberate. The explanation is to be found in the 5th witness statement of Mr Corbett, which has not been challenged.
v) The original Claims Cessions did, but the Proceeds Recession did not, in South African law, deprive Protech of standing to bring or continue the arbitration claim in its own right. The Releases and the Proceeds Recession were together intended to nullify Kharafi's contention that the Claims Cessions deprived Protech of standing whilst preserving the interests of creditors of Protech in the claims.
vi) There was a dispute as to whether, by South African law, there was any discretion in a court or tribunal to permit a claimant to continue current proceedings when the claimant had no standing to bring them when they were commenced. The criteria for the exercise of any discretion if there was one were also in dispute.
The Locus Standi Award
"unless [Kharafi] now agree to waive the matter to ask the ICC to re-start the arbitration, assigning a new number but otherwise leaving matters as they are. As your appointment was by consent, there should be no break in your appointment."
In paragraph 8.3 the arbitrator also recorded that:
"On 8 August 2002 Protech submitted to ICC a further Request for Arbitration as indicated in its letter of 18 July 2000. That arbitration which was assigned the reference … is currently 'on hold'. I am appointed the Sole Arbitrator"
"10.1 Protech's locus standi in the arbitration founds on the arbitration agreement between the parties and in general terms that remained intact and effective at commencement of the arbitration notwithstanding the cessions. Any capacity to arbitrate lost by the cessions was restricted to the particular rights assigned ….
10.2 MAK's challenge on locus standi should be considered having regard to South African law ….
10.3 South African law allows discretion to be exercised in certain circumstances where a claimant having commenced proceedings with a locus standi defect subsequently rectifies that defect ….
10.4 ….
10.5 ….
10.6 I am left with the question, is this a right case for the exercise of discretion on locus standi, and if it is should I exercise that discretion.
10.7 Having regard to my findings that:
1. the challenge to Protech's locus standi relates not to a fundamental lack of capacity but to a temporary loss of some rights of claim.
2. the lost rights did not include all rights to arbitrate.
3. the lost rights were restored within 2 months of the challenge being mounted.
I hold that this is a case where the exercise of discretion is appropriate and that in the circumstances I should exercise my discretion in Protech's favour.
10.8 For all of the above reasons my answer to the issue at D33.1 – "Does Protech have locus standi in this Arbitration" is YES."
The fifth (costs) award
13. The arbitrator noted (paragraphs 2.4 and 2.5) that the Terms of Reference provided for the proceedings to be governed by the ICC Rules of Arbitration in force as from 1 January 1998 and that in Section D of the Terms of Reference Issue 32(x) of "The Issues to be Decided" was:
"Who should pay the costs of the arbitration (including the Arbitrator's fees and expenses, the administrative charges of the ICC and the reasonable legal costs of the parties)?"
"The CFA's entered into by Protech in respect of its solicitor's fees and its senior counsel's fees are subject to English law but to be lawful they must comply with the Conditional Fee Agreement Regulations 2000 (CFAR). MAK contends that the CFA's fail to comply with mandatory requirements for the proportion of the success fee relating to the costs of postponement of fee recovery to be stated and accordingly the CFA's are unenforceable."
"11.2 In its Cost Submissions served on 16 August 2004 MAK disputed liability under the CFA's arguing that there was no established practice of ICC arbitrators allowing recovery of success fees which were, in effect, the doubling of standard fees. MAK also argued that to the extent that a CFA included compensation for deferred payment (albeit within the 100% success fee) such compensation was not recoverable as cost in the arbitration. Protech, in its Reply to MAK's Submissions, disputed that there was any bar to the recognition of CFA's in ICC arbitrations.
11.3 In my letter to the parties, dated 5 September 2004, issued after the Hearing on Principles of Costs on 1 and 2 September 2004, I stated:
The provisional conclusions I have reached on contingency [conditional] fee agreement issues are:
(a) costs arising from such agreements should not be disallowed as a matter of principle.
(b) Whether uplifts above normal rates should be allowable is subject to the 'reasonable' cost test."
"1. The costs of the arbitration shall include … the reasonable legal and other costs incurred by the parties for the arbitration.
2….
3. The final Award shall fix the costs of the arbitration and decide which of the parties shall bear them …."
"11.7. In the circumstances of the present case, where I have decided that my powers to award costs derive from Article 31 of ICC Rules, it seems to me that issues as to the legal enforceability of CFA's are secondary to issues as to whether the CFAs meet the reasonableness test of Article 31.
11.8. The first question I propose to consider, therefore, in respect of the CFA's (and the bonus agreement) is do they meet the test of 'reasonable' costs as set out in Article 31.1 of ICC Rules. In my view they do not. These are not CFA's where work is undertaken below normal rates but uplifted on success. These are CFA's which effectively double normal fee rates. The justification given in Corbett & Co's letter of 13 March 2002, (quoted in paragraph 11.1.1 above) is:
- risks involved in international arbitration
- risks in enforcement of awards overseas
- postponement of fee recovery.
I am not persuaded that the risks in international arbitration justify, and/or make reasonable, fee uplifts of the amounts claimed in this arbitration. Nor am I persuaded that enforcement risks justify, and/or make reasonable, such uplifts. As to postponement of fee recovery I am not persuaded that the costs of such an arrangement are costs within the ambit of Article 31 of ICC Rules whether they be included within a CFA or otherwise.
In the light of the above, issues as to the legal enforceability of the CFA's are moot.
11.9. My decision is that the CFA's and bonus agreement which Protech relies on in this arbitration to recover success fees as costs in the arbitration do not meet the 'reasonable' cost test in Article 31.1 of ICC Rules."
The present Proceedings
Section 68 of the 1996 Act
"Challenging the award: serious irregularity
68. (1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award. A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).
(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant-
(a) …
(b) …
(c) …
(d) failure by the tribunal to deal with all the issues that were put to it;
(e) …
(f) …
(g) the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy;
(h) …
(i) …
(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may-
(a) remit the award to the tribunal, in whole or in part, for reconsideration,
(b) set the award aside in whole or in part, or
(c) declare the award to be of no effect, in whole or in part.
The court shall not exercise its power to set aside or declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.
(4) The leave of the court is required for any appeal from a decision of the court under this section."
i) "Serious irregularity" and "substantial injustice" are to be reserved only for extreme cases.
ii) Section 68 is not concerned with whether an arbitral decision is "correct". A challenge which could have been brought under Section 69 ought not to be allowed under Section 68.
Authority of the Liquidators of Protech
Lack of Standing
i) There is nothing unconscionable or inherently wrong about the various Cessions, Releases, and Proceeds Recessions into which Protech entered; the non-disclosure was inadvertent albeit it plainly should not have occurred.
ii) The distinction between a Cession of Claims and a Cession of Proceeds of Claims may be one of interest to lawyers and have significant legal consequences but it does not have much to do with justice.
iii) There is no evidence that what occurred caused any prejudice to Kharafi. If, as has been vaguely suggested, there were any limitation issues, not only would that be surprising in view of the further Request for arbitration submitted by Protech (paragraph 11) but it could have been expected that had they been of any substance such issues could and would have been kept available by an appropriate form of ruling on the standing issue.
iv) At the very worst for Protech, I think production of the Proceeds Recession might have led the arbitrator to consider exercising the discretion he held he had in a different way. But that would have been pointless and a waste of costs as Protech could and no doubt would have pursued the further Request.
v) The arbitrator's decision that he had a discretion cannot be challenged under section 68 and a challenge under section 69 is not available to Kharafi.
vi) There is no other basis on which Kharafi can challenge the second, substantive award which resulted in an award to Protech of a substantial sum. It would, I think, involve a serious injustice to Protech if they were to be deprived of the award on the merits, to which it must be taken they were fully entitled, by issues of standing and disclosure such as those now sought to be raised.
The CFAs and the Fifth Award
i) I think, on balance, Mr Kuschke is right in his submission that Kharafi's case seeks to dress up as an irregularity what is in reality a question of law. The relevant Issue, Issue 32(x), as defined by the parties, was "Who should pay the costs of the Arbitration" (paragraph 13). That issue the arbitrator addressed and determined: see World Trade Corporation v C. Czarnikow Sugar Ltd [2005] 1Ll Rep 422 at 426 to 427 per Colman J. Sub-section 2(d) therefore does not apply.
ii) The arbitrator's decision that the issue was governed by the ICC Rules and that the enforceability of the CFA was therefore "moot", is one which Mr Reese criticised with some force. Mr Reese submitted Rule 31.1 refers to "costs incurred", albeit Issue 32(x) did not use that language. I agree with Mr Reese that "incurred" means incurred by the party (or client) and carries the connotation of actual payment or an obligation to make payment. That is analogous to the indemnity principle familiar to English lawyers. It follows that it is strongly arguable that costs which cannot be enforced against a client are not "incurred" by the client. But, even if that is right, it remains, I think, the case that the arbitrator would at most have made a mistake but not committed a serious irregularity within sub-section (2)(d). He has concluded that he does not need to address an argument, which was undoubtedly addressed to him, because of his view that whatever the answer to the argument it will not affect the outcome. If he was mistaken, such a case if it belongs anywhere belongs in Section 69 not Section 68. If he was not mistaken of course there is nothing in the point.
iii) Further, I see no substantial injustice to Kharafi in having to meet the award of costs the arbitrator in fact made which excised any mark-up or success fee from the costs claimed. Those costs, as he held, had been reasonably charged. Kharafi must have anticipated, if it lost, that at least such costs would have been recoverable from it. To be deprived of an unexpected and unearned bonus is not readily seen as a substantial injustice.
iv) Any unenforceability of the claims for costs derives from the Regulations as they apply to success fees, yet no success fees were awarded. It could reasonably be thought that the stringent all or nothing consequences of the English law applicable to CFAs could work injustice.
v) There are reasonable arguments to be made that the CFAs were not unenforceable. The Court of Appeal has decided in Sharrat v London Bus Co Ltd [2003] EWCA Civ 718 that a CFA would only be unenforceable if in the circumstances of the particular case the conditions applicable to it by virtue of section 58 of the 1990 Act had not been sufficiently complied with in the light of their statutory purpose to safeguard the administration of justice and afford protection to the client and so that the question to be asked is whether the particular departure or departures from the Regulations had had a materially adverse effect upon the protections afforded to the client or upon the proper administration of justice. In Spencer v Wood [2004] EWCA Civ 352 the Court held that a failure to specify how much of the percentage increase in a CFA related to the postponement of payment was such as to render the claim for costs unenforceable. But that was a personal injuries action which was settled for £30,000 plus reasonable costs. In such a case, the materiality to the client of a percentage mark-up which is payable by the client and cannot be recovered under such a settlement is plain and was indeed conceded. In a commercial arbitration of the present magnitude and in which Protech, despite its liquidation, has powerful backers, I think, without intending to decide, that different considerations at least arguably may apply. More importantly, those considerations are, I think, of some relevance to the overall consideration of "substantial injustice" with which this court is ultimately concerned.