JCT BTA Bank v Mukhtar Ablyazov & Ors
JSC BTA Bank v. Mukhtar Ablyazov & Ors
English High Court; Clarke J;  EWHC 587 (Comm), 28 March 2011
Stephen Smith QC and Ruth Den Besten (instructed by Hogan Lovells LLP) for the Claimant, JSC BTA Bank
Richard Handyside QC (instructed by Simmons & Simmons) for the 3rd and 7th Defendants, CJSC Tekhinvest and Colligate Investments Ltd.
INTERNATIONAL ARBITRATION: STAY OF COURT PROCEEDINGS: AGREEMENT NULL AND VOID: SEPARABILITY: CASE MANAGEMENT GROUNDS
Clarke J stayed English court proceedings against CJSC Tekhinvest (“CJSC”) pursuant to Section 9 of the Arbitration Act 1996 (“the Act”) because JSC BTA Bank (“the Bank”) failed to show that the arbitration agreement was null and void, inoperative or incapable of being performed. Clarke J also stayed proceedings commenced by the Bank against Colligate Investments Ltd. (“Colligate”) pending the result of the CJSC arbitration on what was described as ‘case management grounds’ – the Bank’s claims against Colligate were inseparable from those against CJSC.
This case note has been contributed by Justin Gan Boon Eng, LLB (Hons) (NUS), an advocate and solicitor of the Singapore Bar
The present case is part of a series of seven proceedings brought in English Courts arising out of financing for the development of the Moscow International Business Centre. From 2004 – 2008, the Bank provided loan facilities of approximately USD 300 million to CJSC and three other Defendants. These facilities were initially secured by various share pledges. The Bank’s Regional Credit Committee subsequently removed the facilities’ security requirements with a view to obtaining a substitute pledge over the shares of Colligate.
No such pledge was executed, and the Bank brought the present action seeking a declaration that the various facilities were invalid under Kazak law and/or return of the monies provided.
It was not alleged that the sums drawn down were improperly applied.
The third and seventh Defendants, CJSC and Colligate (sole shareholder of CJSC), sought a stay of the present action in favour of arbitration. The Bank alleged that the Bank-CJSC arbitration agreement was invalid because of the first Defendant’s (i) inadequate disclosure of his interest in the various other Defendants, and (ii) purported failure to seek approval from the Bank’s board of directors for the facilities.
There was a valid arbitration agreement. The proceedings against CJSC and Colligate were stayed pending arbitration.
The CJSC stay
Clarke J stated that courts faced with Section 9 applications could (i) decide on affidavit evidence whether there was an agreement to arbitrate, (ii) stay proceedings for the arbitrator to decide the existence of an arbitration agreement, or (iii) direct a trial of the issue under CPR 62(8).
The Bank argued that the court could decline to make any order if the validity of the agreement was also the principal issue in the action, especially if the arbitration agreement did not encompass all the parties involved in the parallel court proceedings. Clarke J rejected this argument, reasoning that (i) the party seeking a stay pursuant to Section 9 only has to establish the existence of an arbitration agreement in writing, (ii) Section 5 defines ‘agreement in writing’ very widely, and (iii) therefore declining to make any order would be to sidestep the Act.
Clarke J also referred to the principle of separability, citing Fiona Trust and Holding Corp. v. Privalov,  Bus LR 1719 (HL). In the present context, separability required the attack upon the validity of the arbitration agreement to be presented in terms, and based on facts, specific to the arbitration agreement and not the underlying contract.
The Bank argued that its attack on the arbitration agreement was ‘parasitical’ upon its attack on the underlying loan agreement. However, the Bank’s evidence and arguments at their strongest only showed that it was arguable whether the agreements were entered into without authority, that is, voidable by the court, and not that the agreements were not binding upon the Bank. The action against CJSC was stayed.
The Colligate stay
The Bank’s underlying claim against Colligate, CJSC’s parent company, was for assisting four other Defendants to procure the removal of security initially given for the loan facilities. Clarke J reasoned that in any case, the claim against Colligate was inseparable from that against CJSC. If the Bank’s claim that the loan agreement with CJSC was invalid succeeded at arbitration, the Colligate action would fall away. If the Bank failed, the quantum of loss caused by Colligate would be determined by the amount recoverable from CJSC.
Therefore Clarke J stayed the action against Colligate on ‘case management grounds’, noting that Colligate had expressed willingness for its dispute with the Bank to be determined in the Bank-CJSC arbitration.
Insofar as the CJSC stay is concerned, the decision reaffirms judicial support for arbitration, rejecting a suggestion that the validity of arbitration agreements should be determined at trial of the main issues if both are closely linked, and emphasizing the need for specificity in pleadings when attacking arbitration agreements.
More importantly, proceedings against Colligate were stayed on ‘case management grounds’ alone. Although the decision will doubtless result in significant cost and time savings for Colligate and the Bank, note that (i) Colligate is not a party to the arbitration agreement pursuant to which proceedings were stayed, and (ii) the decision means that the dispute will proceed in parallel in both arbitration (against CJSC) and in court (against the first, second, fourth, fifth and sixth Defendants).
Further, it is unclear whether Colligate was required to undertake to abide by the result of the Bank-CJSC arbitration, or to continue court proceedings without further delay upon the release of the Bank-CJSC award. To avoid non-parties to the arbitration agreement utilizing ‘case management grounds’ to delay resolution of their disputes, where necessary, parties obtaining a stay pending the result of an arbitration involving other parties should be required to give the undertakings described above.
Finally, the Defendants in the case were all related – the corporate Defendants (third and seventth) were either owned or controlled by the first Defendant. The second Defendant was the first Defendant’s close associate, and submitted to the court’s jurisdiction without objection. Therefore it appears that the stays granted would not prejudice, or be inequitable to, any party to the action. The extent to which English courts are willing to grant stays on ‘case management grounds’ if such stays do prejudice any party to the action remains unclear. At the very least, such prejudice will be taken into account – it appears that American courts consider prejudice to other parties to the action a strong factor against granting stays on ‘case management grounds’ alone: see e.g. Dependable Highway Exp., Inc. v. Navigators Ins. Co., 498 F.3d 1059 (9th Cir. 2007).