Award - Enforcement - Arbitration finding repudiatory breach of contract

Dowans Holding SA and another company v Tanzania Electric Supply Co Ltd: QBD (Comm) (Mr Justice Burton): 27 July 2011

In June 2006, the defendant Tanzanian electricity company and the claimant companies entered into an agreement under which the defendant would ­supply power to an area of Tanzania (the agreement).

In June 2008, the defendant informed the second claimant that the agreement had been void ab initio, in that it had been entered into in contravention of prohibitions in Tanzanian law. The second claimant treated that purported termination of the agreement as repudiatory breach of contract.

By an arbitration award of November 2010, the court found the agreement to have been valid, and the defendant was ordered to pay to the claimants sums totalling over $65m plus interests and costs (the award). By an order of January 2011, the claimants were granted permission under section 101(2) of the Arbitration Act 1995 (the act) to enforce the award in England and Wales.

Also in January 2011, the award was filed with the High Court of Tanzania under section 17 of the act. The defendant made applications in the Tanzanian and English courts to set the award aside and to adjourn the issue of recognition or enforcement of it to November 2011, which if granted would make December 2011 the earliest date from which the claimants could enforce the award. The claimants made applications for orders, in the event that there was an adjournment, for partial recognition and enforcement of the award under section 103(5) of the act.

The defendant contended that it was not possible for the award to be binding while an impediment persisted, in the sense that the award was not ready or inchoate for enforcement. It contended that the pending petitions to set aside the award in the home jurisdiction of Tanzania meant that the award was not yet binding within the meaning of section 103(2)(f) of the act. It relied upon the Indian case of Oil & Natural Gas Commission v Western Company of North America AIR 1987 SC 674, in which the Indian Supreme Court had ruled that an arbitration award in London would be unenforceable until it was made a rule of the Indian court. The claimant submitted that the decision as to whether the award was binding would be a matter for the English court, and the fact that the Tanzanian court might find the decision of the Indian Supreme Court persuasive was not directly relevant.

Three issues arose, inter alia: (i) whether the fact that there were pending petitions to set aside the award in Tanzania (the home jurisdiction) meant that the award was not yet binding within the meaning of section 103(2)(f) of the act; (ii) whether the discretion to adjourn ought to be exercised; and (iii) if the matter was adjourned whether, ­pursuant to section 103(5) of the act, an order for security in a substantial amount ought to be made.

The court ruled: (1) The issue of whether the award had become binding on the parties was one for the court, and not by way of assessment of whether the Tanzanian court would consider it to be binding (see [24] of the judgment).

There would be no doubt that the parties had agreed that the decision of the arbitrators would be binding. In any event, on the case law there was no authority of the Indian Supreme Court that would be more binding on or persuasive to the Tanzanian court than the English court.

There was no logical difference between whether steps had been taken to enforce the award (or make it ready for enforcement) in its home jurisdiction and whether it was not binding as a result of some challenge or impediment in the home jurisdiction. In either case it would have to be defeasibly binding.

The binding effect of an award would depend on whether it was or remained subject to ordinary recourse. Once it was binding, it would not cease to be so as a result of some event in the home jurisdiction, and the absence of such impediment would not make it so. The answer would be, and ought to be, the same in both courts (see [24] of the judgment). The award would be binding on the parties (see [27] of the judgment).

(2) It was established law that, in considering the issue of adjournment, two factors had to be considered: first, the strength of the argument that the award was invalid; and second, the ease or difficulty of enforcement of the award, especially if enforcement were to be delayed. If the award was manifestly valid, there ought to be immediate enforcement or an order for substantial security. If it was likely that enforcement would be rendered more difficult by the movement of assets or improvident trading, enforcement ought not to be delayed.

For an adjournment to be refused, there had to be a real risk that there were assets in relevant European countries which might have been the subject of execution and/or in relation to which, were the requested length of time to pass, other arrangements so as to make them secure from execution might be taken (see [42], [53] of the judgment).

It would make no difference between whether steps had been taken to enforce the award (or make it ready for enforcement) in its home jurisdiction and whether it was not biding as a result of some challenge or impediment in the home jurisdiction. On the facts, it would be impossible to say that the defendant’s chances of success of setting the award aside were fanciful. There were substantial hurdles for the defendant to clear, however (see [44], [53] of the judgment). It would be appropriate for an adjournment to be made (see [53] of the judgment).

(3) It was quite apparent that an important factor in cases where security had been ordered was that the grant of security was in the context of, and as an incentive against, continued delay. In considering delay, it was important to look at the issue in the round, irrespective of any deliberate cause or acquiescence in delay (see [45], [46] of the judgment).

An adjournment would only be granted where there was a real risk that, if the case were adjourned to November 2011, that in the period before December, which would be the earliest time when the claimants would be in a position to enforce, there would be assets in relevant countries which might have been the subject of execution and/or in relation to which, if another five months were to pass by, other arrangements so as to make them secure from execution might be taken.

In the circumstances, the appropriate way to safeguard the claimants in relation to their loss of opportunity and prejudice suffered by the adjournment would be to order security as a condition for the grant of an adjournment (see [53] of the judgment). The defendant would be required to provide security for the adjournment to be granted (see [53] of the judgment).

Ricky Diwan and David Davies (instructed by Stephenson Harwood) for the claimant; Antony White QC (instructed by Reed Smith) for the defendant.