Companies – application to stay proceedings.
[2014]JRC169
Royal Court
(Samedi)
11 September 2014
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Before :
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J. A. Clyde-Smith, Esq., Commissioner, and
Jurats Morgan and Liston
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Between
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Consolidated Resources Armenia
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Plaintiff
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And
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Global Gold Consolidated Resources Limited
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First Defendant
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And
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Mr Van Krikorian
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Second defendant
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And
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Global Gold Corpopration
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Third Defendant
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Advocate A. Kistler for the Plaintiff.
Advocate C. J. Swart for the Second and Third
Defendants.
judgment
the commissisoner:
1.
The second
and third defendants apply for these proceedings to be stayed pursuant to
Article 5 of the Arbitration (Jersey) Law 1998 (“the Arbitration
Law”), which is in the following terms:-
“5 Mandatory stay of court
proceedings where party proves arbitration agreement
If any party to an arbitration
agreement, or any person claiming through or under the party, commences any
legal proceedings in any court against any other party to the agreement, or any
person claiming through or under him or her, in respect of any matter agreed to
be referred, any party to those legal proceedings may at any time before the
expiration of a period of 3 weeks from the date on which the action was placed
on the pending list or en prevue apply to the court to stay the proceedings;
and the court, unless satisfied that the arbitration agreement is null and
void, inoperative or incapable of being performed or that there is not in fact
any dispute between the parties with regard to the matter agreed to be
referred, shall make an order staying the proceedings.”
Background
2.
The
plaintiff (“Consolidated Resources”) and the third defendant
(“Global Gold” or “third defendant”) entered into a
joint venture agreement on 27th April, 2011, (the “Joint
Venture Agreement”) to conduct and develop mining and exploration rights
in two properties in Armenia. In
very broad terms, the joint venture was to be conducted through a new company
with Consolidated Resources investing an initial US$5M and Global Gold
introducing the mining and exploration rights.
3.
Pursuant
to the Joint Venture Agreement, the parties incorporated the first defendant in
Jersey (which we will refer to as “the Joint Venture Company”) with
the mining and exploration activities in due course being carried on by two
Armenian entities owned through wholly owned holding companies of the Joint
Venture Company incorporated in Delaware.
On the 18th February, 2012, the parties executed a
shareholders agreement (the “Shareholders Agreement”) to regulate
their interests in the Joint Venture Company.
4.
It was
agreed that Global Gold would own 51% and Consolidated Resources 49% of the
equity in the Joint Venture Company, but the powers of the majority shareholder
were heavily prescribed. Each party
can nominate one director for every 20% of the shares held (in practice, only
one director has been nominated by each party so that there are two
directors). Both directors have to
be present for a meeting of the board to be quorate. Even then, there is a comprehensive list
of matters that require the unanimous approval of the directors.
5.
In
addition, the Shareholders Agreement provides for a schedule of
“Fundamental Matters” that require the approval of each nominated
director. Accordingly under the
terms of the Shareholders’ Agreement, there is very little that the Joint
Venture Company can do without the approval of the two directors nominated by
the parties.
6.
The second
defendant, Mr Van Krikorian (“Mr Krikorian” or “second
defendant”) is the chairman and chief executive officer of Global Gold
(which has some 1,300 shareholders and whose shares can be traded over the
counter) and he was appointed executive chairman of the Joint Venture Company
(in addition to being the director nominated by Global Gold). As such he is the chief executive of the
Joint Venture Company in managing its operations. The other director, nominated by
Consolidated Resources, is Mr Caralapati Premraj.
7.
Mr
Krikorian asserts that it was Mr Premraj (with another) who was held out to be
the beneficial owner of Consolidated Resources, but Mr Joseph Borkowski has
made the affirmations in favour of Consolidated Resources and states that he is
the sole director. It would appear
to be the relationship between Mr Krikorian and Mr Borkowski that has broken
down.
8.
The history
of the joint venture is convoluted, but for the purposes of this judgment, we
would refer to the following:-
(i)
On 17th
January, 2012, the Joint Venture Company executed an instrument (the
“Note Instrument”) by which convertible loan notes were issued to Consolidated
Resources (part of the subject matter of the Order of Justice) and, according
to the accounts, to Global Gold.
(ii) In February 2013, it was proposed that the
shares of the Joint Venture Company be listed on AIM and each side blames the
other for that proposal not coming to fruition.
(iii) In September 2013, heads of terms were agreed
with an Australian public company Signature Gold Limited
(“Signature”), the intention of which was for Signature to acquire
the share capital of the Joint Venture Company in return for issuing new shares
in Signature to the Joint Venture Company shareholders. An agreement was entered into on 22nd
November, 2013, but that proposal has not come to fruition, for which the
parties again blame each other. The
problem appears to have been the inability of Consolidated Resources and Global
Gold to agree on the level of debt due to them respectively by the Joint Venture
Company and for which it was proposed Signature would take responsibility.
9.
On 10th
March, 2014, Consolidated Resources obtained ex parte interim injunctions again
all three defendants restraining the Joint Venture Company from in any way
disposing of or encumbering or dealing with or diminishing the value of any of
its assets whether they are in or outside of Jersey. Those injunctions were amended by the
Court on 2nd April, 2014, to allow transactions or arrangements in
the ordinary and proper course of business. The catalyst for Consolidated Resources
seeking those interim injunctions was the issuing by Mr Krikorian of a notice
of a shareholders’ and directors’ meeting to take place on 27th
February, 2014. Mr Premraj did not
attend that meeting and therefore the directors’ meeting could not
proceed. The shareholders’
meeting was adjourned by Mr Krikorian to Friday 7th March,
2014. Consolidated Resources was
concerned that if that adjourned meeting proceeded the assets of the Joint
Venture Company would be put in jeopardy.
10. The defendants applied unsuccessfully for those
interim injunctions to be lifted on the grounds of material non-disclosure but
the Court declined to lift the injunctions for the reasons set out in its
judgment of 5th June, 2014, (Consolidated Resources-v-Global Gold
[2014] JRC 124).
11. Consolidated Resources then applied for
judgment in relation to its monetary claims in default of the filing by the
Joint Venture Company of an answer. The Court rejected that application for
the reasons set out in its judgment of the 18th June, 2014, (Consolidated
Resources Armenia-v-Global Gold and Others [2014] JRC 132). The Court held that status quo in relation to the subject matter of the dispute should
be maintained pending the Court determining the relief sought by Consolidated
Resources, assuming a stay was not granted in the meantime pursuant to this
application.
Order of Justice
12. The claims brought by Consolidated Resources
under the Order of Justice can be summarised as follows:-
(i)
A demand
against the Joint Venture Company for payment of US$1,670,033.44c being the
amount due under the convertible loan notes either issued or which should have
been issued (and if issued, to the extent would by now have matured) pursuant
to the Note Instrument.
(ii) A demand against Global Gold for the same sum,
under the terms of the guarantee entered into by it on 19th February,
2013, in respect of the obligations of the Joint Venture Company under the
convertible loan notes.
(iii) Orders under Article 143 of the Companies
(Jersey) Law 1991 (the “Companies Law”) on the ground that the
affairs of the Joint Venture Company are being or have been conducted in a
manner which is unfairly prejudicial to Consolidated Resources or in the alternative
that the Joint Venture Company be wound up under Article 155. In particular, orders are sought under
Article 143:-
(a) That the defendants purchase the shares of
Consolidated Resources in the Joint Venture Company at a price to be assessed,
or
(b) Consolidated Resources purchase the shares of
Global Gold in the Joint Venture Company at a price to be assessed, or
(c) The defendants to pay damages in a sum to be
assessed.
The Application
13. The second and third defendants by their
summons seek a stay of all of the claims under the Order of Justice on the
grounds that they are the subject of an arbitration agreement. To the extent that the claims under the
Note Instrument are found not to be the subject of an arbitration agreement,
they still seek a stay of those claims in order to avoid a multiplicity of
proceedings. To the extent that
none of the claims in the Order of Justice are found to be the subject of an
arbitration agreement, then they maintain their application for a stay on the
grounds that Jersey is not the convenient forum for these proceedings. We were not addressed by either party on
any of these alternative arguments.
The Agreements
14. Consolidated Resources is an exempt non-resident
Cayman Island company and Global Gold is a Delaware corporation. They were the principal parties to the
Joint Venture Agreement; the remaining parties being affiliated to or wholly
owned by them respectively. The
Joint Venture Agreement is governed by the laws of New York. As its name implies, it establishes the
joint venture between Consolidated Resources and Global Gold and provides for
the formation of the Joint Venture Company, the transfer of assets to it, its
funding and a potential public listing. It expressly contemplates the parties
entering into a shareholders’ agreement and sets out some of the terms
that will be contained within it.
15. At paragraph 9.12 of the Joint Venture
Agreement, it provides the following:-
“9.12 Dispute Resolution
9.12.1 Any dispute, controversy or claim arising out of or relating
to this Agreement, or the breach, termination or invalidity hereof, or any
non-contractual obligations arising out of or in connection with this Agreement
shall be settled through consultation, mediation or by arbitration pursuant to
this section 9.12.
9.12.2 Before any party institutes an arbitration proceeding, it will
use its best efforts to resolve the dispute through consultation with the other
party, although no party shall be obligated to pursue such consultation for
more than ninety (90) days after it has notified the other party of the dispute
9.12.3 In the event the parties are unable to amicably resolve any
such dispute, the matter in dispute will be referred first to mediation and, if
the parties are not able to resolve such dispute through mediation within
thirty (30) days (or such other applicable time frame herein specifically
stipulated to any particular matter or dispute), to arbitration in accordance
with this Section 9.12. Any dispute
not resolved by such negotiation and mediation shall be finally resolved by
arbitration as set out in this Section 9.12.
9.12.4 Any party may refer any dispute arising under this Agreement
for resolution through arbitrations under the supervision of an according to
the procedural rules then in effect of the American Arbitration Association in
New York City in accordance with its Commercial Arbitration rules including the
Optional Rules for Emergency Measures of Protection, and judgment on the award
rendered by a single arbitrator may be entered in any court having jurisdiction
thereof, including, without limitation, the competent courts of the Republic of
Armenia.”
16. The Shareholders’ Agreement was entered
into by Consolidated Resources, Global Gold and the Joint Venture Company on 18th
February, 2012. It is also governed
by the laws of New York. There is
no dispute resolution provision but it provides at Section 14.11:-
“Section 14.11 Entire Agreement
This Agreement constitutes the
entire agreement between the Parties with respect to the matters provided for
herein and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties with respect to the
matters herein, provided, however, that in no event shall any of the following
be superseded by this Agreement (i) the Joint Venture Agreement dated as of
April 27, 2011 by and between GGC and certain of its affiliates, on the one
hand, and CRA and certain of its affiliates, on the other hand, (ii) the
Binding Term Sheet for the Convertible Notes executed on December 29, 20121 by
and between GGC and certain of its affiliates, on the one hand and CRA and
certain of its affiliates, on the other hand, and the Company and (iii) the
Note Instrument creating such Convertible Notes. Should the terms and provisions of this
Shareholder Agreement conflict with any of the terms and provisions of the Convertible Notes,
the Binding Term Sheet, the Note Instrument or the Letter, then the terms and
provisions of the Joint Venture Agreement, the Convertible Notes, the Binding
Term Sheet, the Note Instrument and the Letter (as applicable) shall
prevail. The Joint Venture
Agreement, the Convertible Notes, the Binding Term Sheet, the Note Instrument
and the Letter are hereby incorporated by reference in their entirety into this
Shareholder Agreement including the Remaining Consideration Payable to GGC (the
“Remaining Consideration”).
There are no representations, warranties, conditions or other
agreements, express or implied, collateral, statutory or otherwise, between the
Parties in connection with the subject matter of this Agreement except as
specifically set forth herein and none of the Parties has relied or is relying
on any other information, discussion or understanding in entering into and
completing the transactions contemplated in this Agreement.”
17. On the next day, namely 19th
February, 2012, the parties entered into a Supplemental Letter agreement. We observe that it is expressed as being
supplemental to the Joint Venture Agreement (not the Shareholders’
Agreement). It notes the execution
of the Shareholders’ Agreement and deals with such issues as the
appointment of directors, funding, mining operations and mining licences. It provides as follows at paragraph 8:-
“8. …. This Letter
shall be governed by and construed in accordance with the internal laws of the
State of New York, without regard to the choice of law principles thereof, and
any disputes with regard to the subject matter hereof shall be settled in
accordance with Section 9 12 of the JV Agreement.”
18. Of the other agreements referred to in Section
14.11 of the Shareholders’ Agreement, the Binding Term Sheet, we were
told, contained no governing law or dispute resolution provisions. “The
Letter” is defined as being a side letter to the Binding Term Sheet
and again we understand that there are no governing laws or dispute resolution
provisions contained within that letter.
The Note Instrument is, however, governed by Jersey law and contains the
following provision:-
“12.2 The Jersey courts have exclusive
jurisdiction to settle any dispute arising out of or in connection with this
Instrument and/or the Notes (including a dispute relating to any
non-contractual obligations arising out of or in connection with this
Instrument and/or the Notes) and the Company and the Noteholders submit to the
exclusive jurisdiction of the Jersey courts.”
The Convertible Notes are expressed as
being governed by Jersey law.
First issue: Is there an Arbitration Agreement?
19. The case for the second and third defendants is
that the Joint Venture Agreement is an over-arching agreement between Consolidated
Resources and Global Gold governing their combined investment in the Joint
Venture Company which concerns ultimately the realisation for value of
interests in two gold mining ventures in Armenia. The Joint Venture Agreement has not
concluded and remains binding on and enforceable against the parties to it.
20. The subject matter of the unfair prejudice
claims brought by Consolidated Resources are, submitted Advocate Swart, all
disputes, controversies or claims which arise from or relate to the
parties’ performance and non-performance of the terms of the Joint
Venture Agreement. Consolidated
Resources had to set the scene in the Order of Justice for the basis of its
claims by introducing at paragraph 6 the Joint Venture Agreement which brought
the parties together in the first place and which encapsulates the objectives
of the parties. The matters
Consolidated Resources complains of are all inextricably tied up in the
performance of the Joint Venture Agreement. The evidence filed by Consolidated
Resources continually refers to the Joint Venture Agreement and its
performance.
21. The second and third defendants’ case is
simple. They say that there is an arbitration
agreement in place namely paragraph 9.12 of the Joint Venture Agreement, whereby
the parties agree to arbitrate their differences in the agreed exclusive forum
in New York and the Court should stay the proceedings so that the arbitration
can take place. This dispute
resolution provision is widely drawn and it has been expressly incorporated in
its entirety into the Shareholders’ Agreement. Furthermore, the issues raised in the
Order of Justice relate in the main to the Joint Venture Agreement. There is nothing to show that, as per
Article 5 of the Arbitration Law, the arbitration agreement contained within
the Joint Venture Agreement was “null and void, inoperative or incapable of
being performed or that there is not, in fact, any dispute between the parties
with regard to the matter to be referred”.
22. The starting point for Consolidated Resources is
that the Shareholders’ Agreement, unlike the Joint Venture Agreement and
the Supplementary Letter, does not contain a dispute resolution clause and that
must have been intentional; it would have been plain to the parties, Advocate
Kistler submitted, that the Joint Venture Company was incorporated under Jersey
law, which laws could be enforced in the courts in Jersey. As a matter of construction, he said,
the incorporation of the Joint Venture Agreement into the Shareholders’
Agreement does not result in a transfer of Clause 9.12 of the Joint Venture
Agreement into the Shareholders’ Agreement. The Joint Venture Agreement was one of a
number of agreements incorporated into the Shareholders’ Agreement, which
in some cases have conflicting provisions in relation to their governing law
and dispute resolution. The Note
Instrument, for example, is subject to Jersey law with the Jersey courts having
exclusive jurisdiction over any disputes.
Why then should the dispute provisions of the Joint Venture Agreement
take precedence in this respect?
Decision on First issue
23. An initial point arose as to the law which the
Court should apply to the question of whether there was an arbitration
agreement between the parties; both the Joint Venture Agreement and the
Shareholders’ Agreement being subject to the laws of New York. The parties had agreed upon directions
for the hearing of this application without referring the matter to the
Court. Those directions did not
include provision for the filing of expert evidence as to New York law. Evidence in general had to be filed by
the second and third defendants by 20th June, 2014. On 9th July, 2014, the second
and third defendants purported to serve upon Consolidated Resources an opinion
of New York law by Steven Kayman of Proskauer Rose LLP dated 8th
July, 2014. That was subsequently
attached as an exhibit to an affidavit by Mr Krikorian dated 21st
July, 2014. Leaving aside the
objections that Consolidated Resources had to the alleged lack of independence
of Mr Kayman, the Court was not prepared to admit the same without giving the
plaintiff time to respond, which would have meant an adjournment. After discussion, it was agreed by
counsel that the Court should proceed by not admitting the affidavit and
applying Jersey law on the basis that it did not differ materially from the law
of New York in relation to these matters.
24. The issue was whether paragraph 9.12 of the
Joint venture Agreement applied to the subject matter of the claims in the
Order of Justice. There was no
dispute between the parties as to the principles applicable to the construction
of the agreements, which were summarised recently by the Court of Appeal in Trilogy
Management Limited v YT Charitable Foundation (International) Limited and
others [2012] JCA 152 at paragraphs 37 – 39:-
“37. In La Petite Croatie Limited v Ledo [2009]
JCA 221 the Court considered the approach in this jurisdiction to the
construction of documents generally.
It endorsed the principles set out in the judgment of Commissioner Page
in In Re Internine Trust [2005] JLR 236 at paragraph 62. At paragraph 11, Martin JA, with whom
the other members of the Court agreed, summarised those principles as follows:-
‘The aim is to establish the
presumed intention of the parties from the words used; but the words used must
be construed against the background of the surrounding circumstances, which
means the circumstances that must be taken to have been known to the [parties]
at the time. These circumstances
include anything that would have affected the way in which the language would
have been understood by a reasonable man, except that evidence of subjective
intention is ordinarily inadmissible.
The words must also be read in the context of the document as a whole,
and should so far as possible be given their ordinary meaning; but a different
meaning may have to be given to them if a reading of the document as a whole
and common sense so require.’
38. This
summary is consistent with views recently expressed in the United Kingdom
Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900: see paragraph 14 in the judgment of Lord
Clarke of Stone-cum-Ebony JSC, with whom the other members of the Court agreed.
39. To
the summary by Martin JA the following supplementary points can be added:-
(i) First,
where parties have used unambiguous language the Court must apply it: (per Lord
Clarke in Rainy Sky SA at paragraph 23). The Court cannot rewrite the language
which the parties have used in order to make it conform to business common
sense 9per Hoffmann LJ in Co-operative Wholesale Society Ltd v National
Westminster plc [1995] 1 EGLR 97, cited in Rainy Sky SA at paragraph
23). Loyalty to the text of a
commercial contract, instrument or document read in its contextual setting is
the paramount principle of interpretation (per Lord Steyn in Society of
Lloyd’s v Robinson [1999] 1 WLR 756, cited in Rainy Sky SA at
paragraph 25).
(ii) Second, however, the Court
should be astute to remember that, language being a flexible instrument, if the
words used are capable of more than one construction that which appears most
likely to give effect to the commercial purpose of the agreement should be
chosen (per Hoffmann LJ in Co-operative Wholesale Society Ltd v National
Westminster plc; the Court ought generally to favour a commercially sensible
construction over technical interpretations and undue emphasis on niceties of
language (per Lord Steyn in Society of Lloyd’s v Robinson). If therefore there are two possible
constructions, the Court is entitled to prefer the construction which is
consistent with business common sense and to reject the other: see Rainy Sky
SA at paragraphs 21, 23 and 25.
(iii) The exercise of construction is
therefore essentially one unitary exercise (per Lord Clarke in Rainy Sky SA
at paragraph 212), ‘neither uncompromisingly literal nor unswervingly
purposive’ (per Sir Thomas Bingham MR in Arbuthnott v Fagan [1995]
CLC 1396.”
25. When dealing with the application by the
defendants to set aside the interim injunctions on the grounds of non-disclosure,
Consolidated Resources got the better of the argument in the sense that the
Court (as then constituted) found the dispute resolution provision in the Joint
Venture Agreement was not something which should have been disclosed by the
plaintiff to the Deputy Bailiff when the application was made for the interim
injunctions ex parte. The Court said this at paragraph 18 of
the judgment of 5th June 2014:-
“We do not wish to pre-judge
the issue as it may fall to be determined by the Court in due course but we
agree with Advocate Kistler that this would not have been an argument that the
plaintiff could reasonably have expected to have been raised by the defendants
and which should therefore have been drawn to the attention of the Deputy
Bailiff. The Joint Venture Company
is incorporated in Jersey and what is being invoked, in part, is a specific
remedy given under the Companies (Jersey) Law 1991 to companies incorporated in
Jersey and which would not be available other than in this jurisdiction (see In
the matter of Nasbulk Limited [1913] BVIHCM (Com) 65 of 2012).”
26. The Court was influenced in its approach by the
decision in Nasbulk, a case involving forum, where it was held that the
BVI courts should entertain actions which involved specific remedies given by
the legislature to companies incorporated in the BVI (equivalent to those
available here under Articles 143 and 155 of the Companies Law) and which would
not be available elsewhere (and in particular would not be available in the
natural forum of the People’s Republic of China). The underlying concept was that of an
inalienable right to apply for statutory relief of this kind. That decision has since been overturned,
although no judgment was available at the time of this application.
27. It is now for this Court to judge the issue of
whether or not there is an arbitration agreement. The aim in construing the agreements is
to establish the presumed intentions of the parties set against the background
of surrounding circumstances and that, in our view, is best evidenced by the
Joint Venture Agreement, which is the document by which the entire joint
venture was established. In that
sense, it has an over-arching role as the second and third defendants
argue. Under paragraph 9.12 of the
Joint Venture Agreement, the parties agreed that any dispute, controversy or
claim arising out of “the Agreement” would be settled by
consultation, mediation or by arbitration.
“The Agreement” is the agreement that establishes the joint
venture, provides for the formation of the Joint Venture Company and
contemplates the parties entering into a Shareholders’ Agreement.
28. In the Order of Justice, Consolidated Resources
complains of unfairly prejudicial conduct that is not narrowly confined to the
Shareholders’ Agreement, but is concerned in substantial part with the
conduct of Global Gold as a party to the Joint Venture Agreement, as the second
and third defendants point out. We
will not set out all of the particulars in paragraph 22 the Order of Justice,
but by way of example;-
“(i) On or about
14 April 2011 the Third Defendant filed a form 10-K pursuant to the Securities
and Exchange Act 1934 which materially overstated the total gold reserve in the
Toukhmanuk property. The Defendants
have continued to so overstate those reserves and thereby overstate the value
of the First Defendant’s contingent assets.
(ii) By paragraph 2.3 the third
Defendant and the First Defendant were to complete what is described as the
closing of the joint venture, by reference to which the assets of Mego-Gold LLC
(“Mego-Gold”) and Getik Mining Company LLC (“Getik”),
both being Armenian LLCs and wholly owned subsidiaries of GGC, were to be
transferred to the First defendant.
(iii) On various and diverse dates and
occasions the Plaintiff proposed dates for early closing of the joint venture
but these were not acceded to by the Defendants for undisclosed reasons. Notwithstanding the agreed deadline of
26 April 2012 provided for in the JVA, the Defendants or each of them, without
lawful excuse refused to complete the closing in accordance with the Assignment
and Assumption Agreements for each of Mego-Gold LLC and Getik Mining Company
LLC, which action continues unabated as of this date.
(iv) By paragraph 2.4 of the JVA, the
Plaintiff and the Third Defendant agreed to cause the First Defendant to be
listed as a public company following the Closing. The Defendants or each of them, without
lawful excuse have refused to cause the First Defendant to be listed as a
public company.
(v) Consequential upon the delays
referred to above, the Second Defendant and/or the Third Defendant have sought
to renegotiate the terms of the JVA to secure terms more favourable to the
Third Defendant in respect of preserving the Third Defendant’s equity
interests in the First defendant at the expense of the Plaintiff upon
listing.”
29. Section 14.11 of the Shareholders’
Agreement is in two parts. Under
the first part, it provides that the Shareholders’ Agreement constitutes
the entire agreement between the parties save that it does not in any way
supersede the Joint Venture Agreement, the Binding Terms Sheet for the
Convertible Notes, and the Note Instrument. However, it goes on to provide that in
the event of conflict between the Shareholders’ Agreement and any of
these other agreements, the latter shall prevail. The Shareholders’ Agreement was
therefore to be subsidiary to these other agreements including the Joint
Venture Agreement.
30. It could have been left at that, but the
section then goes on to provide that these other agreements are
“incorporated” into the Shareholders’ Agreement. It is difficult to know precisely what
the parties intended by this additional provision. The agreements so incorporated clearly
cannot be merged into one complete agreement as that would require extensive
re-drafting. In addition, provisions
contained in one agreement cannot be transferred to another. They must all remain distinct agreements
but incorporated in their entirety within the Shareholders’ Agreement,
which itself plays a subsidiary role in the case of conflict.
31. Taking a narrow view, it is true that the
Shareholders’ Agreement contains no dispute resolution provision but
paragraph 9.12 of the Joint Venture Agreement is widely drawn. There is no question that it constitutes
an arbitration agreement binding on the parties and in our view it is wide
enough to encompass the unfairly prejudicial conduct on the part of Global Gold
of which Consolidated Resources now complains. We find that it was the intention of the
parties to the Joint Venture Agreement that all disputes between them arising
out of the joint venture, which would include their conduct as shareholders in
the Joint Venture Company, would be referred to arbitration unless expressly
agreed otherwise.
32. They did agree otherwise in relation to the
Note Instrument issued by the Joint Venture Company (which was not itself a
party to the Joint Venture Agreement). This is a narrowly confined document by
which the Joint Venture Company was to be funded and the debtor being a Jersey
incorporated company, it makes sense for any claims to be brought in Jersey
where any judgment could be directly enforced. In the Note Instrument it expressly
provides that all disputes arising out of or in connection with it will be
subject to the exclusive jurisdiction of the Courts of Jersey to whose
exclusive jurisdiction the note holders (in this case Consolidated Resources)
submitted. The claims of
Consolidated Resources in relation to the convertible loan notes is not
therefore the subject of arbitration agreement.
33. There is no need for us to consider whether the
claims in relation to the convertible loan notes should still be stayed to
avoid a multiplicity of proceedings for the reasons which will become clear. We should make mention at this stage of
the claim brought by Consolidated Resources in the Order of Justice in relation
to the guarantee executed in its favour by Global Gold. Unlike the Note Instrument to which it
relates, it contains no dispute resolution provision. It is merely stated to be subject to the
laws of New York. The issue arises
as to whether the guarantee is the subject of the arbitration agreement. We would require further assistance from
counsel before determining this point but for the reasons which again will
become clear it is not necessary for us to do so.
Second Issue – Arbitrability
34. Advocate Kistler went on to argue that in any
event, the dispute between the parties was not liable to arbitration because
the relief sought under Article 143 of the Companies Law was not within the
power of a private arbitrator to award.
The issues before a New York arbitrator would be limited, he said, to
determining whether the complaints made by Consolidated Resources amount to
breaches of the terms of the contractual documents and any non-contractual
duties which might arise as between the parties. The ability to compel Global Gold to buy
out Consolidated Resources or to compel Global Gold to sell to Consolidated
Resources would not be available.
Most importantly, the principal remedy sought by Consolidated Resources
may not be available - that is a winding up of the company and appointing a
liquidator with statutory powers and authority. The Court had itself in earlier hearings
identified that a winding-up of the Joint Venture Company was a real
possibility because of the deadlock between the shareholders.
35. He referred us to the case of Obelisk Trust
v Grand Circle Safaris 2002/208 (31st October, 2002). In that case, the parties had accepted
that the joint venture had ended and that the Joint Venture Company could no
longer fulfil its original purpose.
On an application by one party to wind up the company under Article 155
of the Companies Law, it was contended by the other party that the matter
should be referred to arbitration under a provision in the agreement which
provided that “any dispute …
in regard to … this agreement … shall be decided by arbitration.” The Court found that any dispute in
connection with the agreement was separate from the question of the legal
existence of the company. Quoting
from the judgment of Birt, Deputy Bailiff at paragraph 8:-
“8. In our judgment the relief sought by
the representation is not a matter covered by the arbitration clause in the
Agreement. The arbitration clause
concerns disputes relating to (“in regard to”) the Agreement. The representation, whilst referring to
the Agreement, does not seek any remedy by reference to the Agreement; it
merely seeks an order that the Court place an end to the legal existence of the
Company by ordering its winding-up.
It is only the Court – or the parties by agreement – who can
alter the legal status of the Company.
Termination of the Agreement or an award of damages for breach of the
Agreement would not affect the legal status of the Company nor the position of
the parties as 50% shareholders.”
36. Whilst it is true that the Court has referred
previously to the apparent deadlock between Consolidated Resources and Global
Gold as shareholders in the Joint Venture Company, Consolidated Resources has
substantially changed its position since the commencement of the
proceedings. The body of the Order
of Justice and the particulars assert only unfairly prejudicial conduct
pursuant to Article 141 of the Companies Law and the remedy sought under
Article 143 is for the purchase or sale of shares in the Joint Venture Company
and damages. It is only in the
prayer to the Order of Justice that Consolidated Resources seeks, in the
alternative, an order that the company be wound up. The Order of Justice does not purport to
set out the grounds upon which an order for a winding-up would be justified. It is in effect relief that has been
tacked on to the prayers in the order of Justice. The current English Practice Direction
49B draws attention to the undesirability of asking, as a matter of course, for
a winding-up order as an alternative to an order under Section 994 of the Companies
Act 2006 (the equivalent of Article 141 of the Companies Law).
37. Advocate Swart referred us to the more recent
decision of the English Court of Appeal in Fulham Football Club v Richards
and another [2012] 1 All ER 414, a decision made in the context of a
similar legislative framework with the English law equivalent of Article 5 of
the Arbitration Law mandating a stay unless the Court is satisfied that “the
arbitration agreement is null and void, inoperative or incapable of being
performed or that there is not in fact any dispute between the parties with
regard to the matter agreed to be referred”. In that case, the company was responsible
for managing the Football Association Premier League. Each of the twenty football clubs who
were its members held one share and the Football Association (“the
FA”) held one non-voting share.
The company’s rules provided that membership of the League
constituted an agreement between it and the twenty clubs and between each of
the clubs to submit all disputes between them to final and binding arbitration
in accordance with the provisions of the Arbitration Act 1996. The FA’s rules also contained an
arbitration agreement. One of the
twenty member clubs brought a petition under Section 994 seeking relief from
alleged unfair prejudicial conduct by the chairman of the company, who had
allegedly intervened in negotiations for the transfer of a football
player. The relief sought by the
club included the removal of the chairman.
The respondents applied for a stay of the petition pending arbitration
under the company’s rules and the FA rules. The High Court granted a stay and the
club appealed.
38. This was not a case where the club was seeking
an order regulating the affairs of the company which bound other shareholders
or for the winding-up of the company.
The inability of an arbitrator to make such orders was however relied
upon to support the argument that claims for that or comparable relief lay
beyond what the law will permit the parties to submit to arbitration. Having considered the judgment of Weeks J
in Exeter City Association Football Club Limited v Football Conference
Limited [2004] EWHC 2304 where it was held that the statutory rights
conferred on shareholders to apply for relief of this kind was inalienable and
could not be diminished or removed by contract or otherwise (following Warren J
in A Best Floor Sanding Party Limited v Skyer Australia Pty Ltd [1999]
VFC 170), Patten LJ said this at paragraph 76:-
“[76] Warren J was, I think, right to regard the arbitration
clause she had to consider as unenforceable in so far as it included within the
scope of the reference the question whether the company should be
wound-up. Such an order lies within
the exclusive jurisdiction of the court and the discretion as to whether or not
to make that order is for the court, not the arbitrator to exercise. But I part company with her if and in so
far as she suggests in para [18] of her judgment that there can be no resort to
arbitration in respect of the dispute between shareholders or the company which
forms the grounds upon which such relief may be sought.
[77] The determination of whether there has been
unfair prejudice consisting of the breach of an agreement or some other
unconscionable behaviour is plainly capable of being decided by an arbitrator
and it is common ground that an arbitral tribunal constituted under the FAPL or
the FA rules would have the power to grant the specific relief sought by Fulham
in its s 994 petition. We are not
therefore concerned with a case in which the arbitrator is being asked to grant
relief of a kind which lies outside his powers or forms part of the exclusive
jurisdiction of the court. Nor does
the determination of issues of this kind call for some kind of state
intervention in the affairs of the company which only a court can
sanction. A dispute between members
of a company or between shareholders and the board about alleged breaches of
the articles of association or a Shareholders’ Agreement is an
essentially contractual dispute which does not necessarily engage the rights of
creditors or impinge on any statutory safeguards imposed for the benefit of
third parties. The present case is
a particularly good example of this where the only issue between the parties is
whether Sir David has acted in breach of the FA and FAPL rules in relation to
the transfer of a Premier League player.
78 Judge
Weeks was therefore wrong in my view to extend the reasoning of Warren J in the
A Best Floor Sanding case to a petition under what was then s 459. The statutory provisions about unfair
prejudice contained in s 994 give to a shareholder an optional right to invoke
the assistance of the court in cases of unfair prejudice. The court is not concerned with the
possible winding-up of the company and there is nothing in the scheme of these
provisions which, in my view, makes the resolution of the underlying dispute
inherently unsuitable for determination by arbitration on grounds of public
policy. The only restriction placed
upon the arbitrator is in respect of the kind of relief which can be
granted.”
He went on to say this at paragraph 83 obiter:-
“I have already set out my
own reasons for preferring the view that disputes of this kind which do not
involve the making of any winding-up order are capable of being
arbitrated. Although not necessary
for the resolution of this appeal, I also take the view, as Austin J did in the
ACD Tridon case, that the same probably goes for a similar dispute which
is used to ground a petition under s 122(1)(g) to wind up the company on just
and equitable grounds. In those
cases the arbitration agreement would operate as an agreement not to present a
winding-up petition unless and until the underlying dispute had been determined
in the arbitration. The agreement
could not arrogate to the arbitrator the question of whether a winding-up order
should be made. That would remain a
matter for the court in any subsequent proceedings. But the arbitrator could, I think
legitimately, decide whether the complaint of unfair prejudice was made out and
whether it would be appropriate for winding-up proceedings to take place or
whether the complainant should be limited to some lesser remedy. It would only be in circumstances where
the arbitrator concluded that winding-up proceedings would be justified that a
shareholder would then be entitled to present a petition under s
122(1)(g). In these circumstances
the court could be invited to lift any stay imposed on proceedings imposed
under s 9(4). In much the same way, it would, I think, be open to an arbitrator
who considered that the proper solution to a dispute between a shareholder and
the company was to give directions for the conduct of the company’s
affairs to authorise the shareholder to seek such relief from the court under s
994. But such cases are likely to
be rare in practice. If the relief
sought is of a kind which may affect other members who are not parties to the
existing reference, I can see no reason in principle why their views could not
be canvassed by the arbitrators before deciding whether to make an award in
those terms. Opposition to the
grant of such relief by those persons may be decisive. Similarly if the order sought is one
which cannot take effect without the consent of third parties then the
arbitrators’ hands will be tied.”
39. The English Court of Appeal accordingly held as
per the headnote as follows:-
“The statutory provisions
about unfair prejudice contained in s 994 gave to a shareholder an optional
right to invoke the assistance of the court in cases of unfair prejudice. The court was not concerned with the
possible winding-up of the company and there was nothing in the scheme of those
provisions which made the resolution of the underlying dispute inherently
unsuitable for determination by arbitration on grounds of public policy. The only restriction placed upon the
arbitrator was in respect of the kind of relief which could be granted. There was no authority which suggested
that an agreement to resolve a dispute between shareholders which might justify
a winding-up order on just and equitable grounds would either infringe the
statute or be void on grounds of public policy. The 1996 Act set out the principle that
parties should be free to agree how their disputes were resolved, subject only
to such safeguards as were necessary in the public interest; it was not
necessary in the public interest that agreements to refer disputes about the
internal management of a company should in general be prohibited or necessary
to prohibit arbitration agreements to the extent that they applied to disputes
as to whether a company’s affairs were being conducted in an unfairly
prejudicial manner to the interests of its members. Accordingly, the appeal would be
dismissed.”
Decision
40. Adopting the rationale in the Fulham
case, we conclude that there is nothing in the Arbitration Law or public policy
which would prevent the allegations of unfairly prejudicial conduct contained
in the Order of Justice being referred to arbitration. Under Article 5 of the Arbitration law
the Court is bound therefore to grant a stay in relation those matters.
41. Obelisk can, we
think, be distinguished on the facts in that the parties in that case agreed
that the joint venture had come to an end and the Joint Venture Company could
no longer fulfil its original purpose.
The application was not concerned with a dispute “in regard to” the agreement
between the parties; no remedy was sought under the agreement. The application was concerned solely
with the legal status of the company, which only the Court, absent agreement
between the parties, could alter.
42. Having successfully surmounted these two
hurdles, namely the existence of an arbitration agreement in relation to the
claims of unfairly prejudicial conduct and the arbitrability of those claims,
the second and third defendants then face a further and we find decisive hurdle.
Allegations of fraud
43. Article 27(2) and )(3) of the Arbitration Law
provides as follows:-
“(2) Where an agreement between any parties
provides that disputes which may arise in the future between them shall be
referred to arbitration, and a dispute which so arises involves the question
whether any such party has been guilty of fraud, the Court shall, so far as may
be necessary to enable that question to be determined by the court, have power
to order that the agreement shall cease to have effect and power to give leave
to revoke the authority of any arbitrator or umpire appointed by or by virtue
of the agreement.
(3) In
any case where, by virtue of this Article, the court has power to order that an
arbitration agreement shall cease to have effect or to give leave to revoke the
authority of an arbitrator or umpire, the Court may refuse to stay any action
brought in breach of the agreement.”
44. As the Court found in Makarenko v CIS
Emerging Growth Limited [2001] JLR 348, the only possible interpretation of
these provisions is that, notwithstanding the mandatory terms of Article 5 of
the Arbitration Law, they allow the Court to refuse to enforce an arbitration
agreement (and therefore not to grant a stay) where a question of fraud arises. Having considered the almost identical
English statutory provisions and case law on the interpretation of those
provisions, Birt, Deputy Bailiff, derived the following principles:-
“31 The principles which we derive from the
cases can be summarized as follows:
(a) Before
a court will refuse a stay where fraud is alleged, there must be a concrete and
specific issue of fraud raised by the case. There must be prima facie evidence to
support the allegation, not a mere bandying about of allegations.
(b) Once
the threshold is crossed, a discretion then arises as to whether to refuse a
stay on the ground that the dispute involves fraud. However, where the party against whom
fraud is alleged opposes the stay so that he may clear his name in public
before the court, the court will, almost as a matter of course, refuse a stay
so that he has that opportunity.
(c) Where
the party alleging fraud opposes a stay, this will not normally be sufficient
of itself, even if the evidence of fraud is strong, for the court to refuse a
stay. As Bingham, L.J. put it in Cunningham-Reid
[1988] 1 WLR at 689:-
‘The parties in this case
incorporated an agreement to arbitrate in their contract at a time when they
did not know who would be claiming what against whom and at a time when they no
doubt reasonably anticipated there would be no claim to arbitrate at all; it
was an agreement which they made for better or worse, for richer or poorer, and
the ordinary duty of the Court is to give effect to the parties’ own
agreement. The desire of a party
alleging fraud against another to have a trial in open Court would not
ordinarily amount to a sufficient reason why the matter should not be referred
in accordance with the agreement so as to bring the case within s4.’
The underlying thinking behind this
approach was well summed up by Jessel, M.R. in Russell when he said (14
Ch D at 477):-
‘Does the party charging the
fraud desire [to exclude arbitration] or the party charged with the fraud
desire it? Where the party charged
with the fraud desires it, I can perfectly understand the Court saying ‘I
will not refer your character against your will to a private
arbitrator’. It seems to me
that case is almost a matter of course to refuse the reference, but I by no means
think the same consideration follows when the publicity is desired by the
person charging the fraud. His character is not at stake, and the other side
may say, ‘The very object that I have in desiring the arbitration is that
the matter shall not become public.
It is very easy for you to trump up a charge of fraud against me, and
damage my character, by an investigation in public.’ There is a very old and familiar proverb
about throwing plenty of mud, which applies very much to these charges made by
members of the same family, or members of the same partnership, against one
another in public. It must be an
injury, as a rule, to the person charged with fraud to have it published, and I
must say that I am by no means satisfied that the mere desire of the person
charging the fraud is sufficient reason for the Court refusing to send the case
to arbitration.’”
45. He went on to find that these principles apply
equally in Jersey save that in this respect:-
“32 It may be argued that this court should
simply adopt these principles as part of Jersey law on the grounds that our
statutory provisions are much the same.
However, there are two matters which would suggest that the approach of
this court should not be identical:
(a) The
English courts were dealing with a discretionary power to stay (s.4 of the
Arbitration Act 1950) whereas art. 6 of the 1998 Law provides for a mandatory
stay where there is an arbitration agreement. The presumption in favour of granting a
stay would therefore appear to be somewhat stronger than in the cases before
the English courts.
(b) Jersey
law places great weight upon the maxim “la convention fait la loi des
parties.” Accordingly, very
good reason needs to be shown why the court should relieve the parties of the
consequences of an arbitration agreement into which they have entered of their
own free will.,
Our view is that the general
principles set out above are equally applicable in Jersey save that the burden
upon the party opposing a stay (whether that be the person alleging fraud or
against whom fraud is alleged) is somewhat higher in Jersey than it is in
England.”
46. In this case, the second and third defendants
have made repeated allegations of fraud against Mr Borkowski and directly and
indirectly against Consolidated Resources, of which he is the sole
director. In resisting the
application by Consolidated Resources for judgment in default against the Joint
Venture Company in relation to its monetary claims, Advocate Swart informed
Commissioner Clyde-Smith that the defences available to the Joint Venture
Company centred around the allegedly fraudulent activities of Mr Borkowski (see
paragraph 27 of the judgment of 18th June, 2014). Advocate Swart informed us that any
answer filed by the second and third defendants in these proceedings would
raise such allegations. They are
summarised in Mr Krikorian’s first affidavit under the heading “The fraudulent activities of ….
JB [Mr Borkowski]” and are repeated in his second, third and fourth
affidavits. At paragraph 70, Mr
Krikorian says that these are very serious issues which go to the heart of the
Joint Venture Agreement. Global
Gold has apparently been advised by its US lawyers that it will be entitled to
set aside all of the arrangements that have been entered into with Consolidated
Resources – the Joint Venture Agreement and all subsequent agreements
will be void ab initio. Allegations of fraudulent actions on
the part of Consolidated Resources and Mr Borkowski and others are also
contained in the first affidavits of Drury Gallagher and Ian Hague, directors
of Global Gold. Furthermore they
are referred to in the US Securities and Exchange Commission filings of Global
Gold, a public document.
47. As the party against whom fraud is alleged,
Consolidated Resources takes issue with the reference of these matters to a
private arbitration in reliance on Article 27 of the Arbitration Law and Advocate
Kistler referred the Court specifically to the comments of Jessel M.R. in Russell
set out above.
Decision
48. We conclude that there is a concrete and
specific issue of fraud raised by the case and that the threshold has been
crossed, so that a discretion arises as to whether the Court should refuse a
stay.
49. Accepting that the burden upon Consolidated
Resources under Jersey law is somewhat higher than it may be in England, it is
the party against whom fraud is alleged and it requires to clear its name and
that of its sole director in public before the Court. The Court should not refer their
character against their will to a private arbitration and will therefore
exercise our discretion in favour of Consolidated Resources. Accordingly, we order that the
Arbitration Agreement shall cease to have effect in relation to the disputes
which have arisen between the parties and we refuse to stay the proceedings
brought by Consolidated Resources in breach of the arbitration agreement.
Conclusion
50. Advocate Swart did not pursue his alternative
argument in relation to Jersey not in any event being the convenient forum. Accordingly and in conclusion the
application by the second and third defendants for a stay is rejected. The case should now proceed to an
expedited hearing for which directions will need to be given when this judgment
is handed down.
Authorities
Arbitration (Jersey) Law 1998.
Consolidated
Resources-v-Global Gold [2014] JRC 124.
Consolidated
Resources Armenia-v-Global Gold and Others [2014] JRC 132.
Companies (Jersey) Law 1991.
Trilogy
Management Limited v YT Charitable Foundation (International) Limited and
others [2012] JCA 152.
Obelisk
Trust v Grand Circle Safaris 2002/208.
Companies Act 2006.
Fulham Football
Club v Richards and another [2012] 1 All ER 414.
Arbitration Act 1996.
Exeter City Association Football Club
Limited v Football Conference Limited [2004] EWHC 2304.
A Best Floor Sanding Party Limited v
Skyer Australia Pty Ltd [1999] VFC 170.
Makarenko
v CIS Emerging Growth Limited [2001] JLR 348.