25/04/2024
Keeping options open: Commercial Court dismisses challenge to ICC award in Kosovo power plant dispute
Charles Kimmins KC and Mark Tushingham, instructed by Three Crowns LLP, acted for the defendant, ContourGlobal Kosovo LLC (CG), and successfully resisted a challenge to an ICC award brought by the claimant, the Government of the Republic of Kosovo (GOK), under section 68 of the Arbitration Act 1996.
The Court’s judgment in Republic of Kosovo v ContourGlobal Kosovo LLC [2024] EWHC 877 (Comm) addressed three key issues:
- the proper approach to interpreting procedural orders issued by arbitral tribunals
- the scope of a tribunal’s duty to act fairly in determining the quantum of damages payable by one party to another
- the evidence which an applicant must adduce in order to establish that it has suffered substantial injustice.
Background
The underlying dispute arose from a series of agreements by which CG was to design, construct, operate and maintain a power plant in the Republic of Kosovo. Under one of the agreements, GOK was required to perform various conditions precedent by a defined date. CG maintained that GOK had failed to comply with those conditions precedent and terminated the agreements. CG claimed that GOK was obliged to pay CG for its development costs, as defined in the agreements, up to a contractual cap of €19.7 million. GOK declined to pay the sums claimed and maintained that it was not liable to CG.
The dispute was referred to arbitration under the ICC rules, seated in London. GOK disputed CG’s claim, both in relation to liability and quantum. The parties filed numerous rounds of written pleadings, which were followed by a final hearing and post-hearing briefs. In support of its claim on quantum, CG relied on various documents to prove that it had incurred development costs, including quarterly reports and invoices. However, GOK contended that CG had failed to prove any of the costs it was claiming.
After the parties filed their post-hearing briefs, but prior to the final award, the tribunal issued a procedural order (PO5) and summoned the parties to produce additional documents under article 25(4) of the ICC rules for the purposes of assisting it in relation to the liability issues which arose for determination. At paragraph 9 of PO5, the tribunal also stated as follows:
“The Tribunal has not decided issues of liability and may not reach damages issues. Should it do so, however, the Tribunal considers that analysis and organisation of the existing record regarding claimant development costs and the costs of GOK studies is not sufficiently complete and it may decide to appoint an expert to investigate and report on those matters pursuant to Article 25(3). If so, the Tribunal will consult with the parties regarding the terms of reference for such an expert and the identification of an appropriate expert.”
In the end, the tribunal did not appoint an expert and declared the record closed. On 28 August 2023, the tribunal issued its final award in which the majority found in favour of CG on both liability and quantum. In relation to quantum, the majority found that there were “indicia of regularity” sufficient to accept the evidence relied on by CG to prove its case on quantum. The majority held that CG had therefore established it had incurred development costs of not less than €19.7 million and that GOK was required to pay CG that amount.
GOK’s section 68 challenge
In its challenge to the award under section 68 of the Arbitration Act 1996, GOK argued that the language of paragraph 9 of PO5 created a reasonable expectation that the tribunal had concluded that the evidence relied upon by CG on its quantum case was not complete and that the tribunal would not proceed to determine quantum without calling for further evidence or submissions. GOK argued that, in order to comply with its duty to act fairly under section 33(1)(a) of the Arbitration Act 1996, the tribunal only had three options available to it after it had issued PO5, namely to (i) dismiss CG’s claim for damages, (ii) appoint an expert or (iii) summon the parties to provide further evidence or submissions.
The Court rejected GOK’s challenge, holding that it was an “after-the-event construct” [22].
1. Interpreting procedural orders
On the proper approach to apply when interpreting a procedural order, HHJ Pelling KC held that it was necessary to consider “what a reasonable person, reading that paragraph in its relevant context, would have concluded the Tribunal was saying” [24]. It was also necessary to read the language used by the tribunal in a “reasonable and commercial way” rather than trying to find “technical inconsistencies and faults” [21].
Applying that approach, HHJ Pelling KC concluded that no reasonable person, reading the language of PO5 in its relevant context, would have concluded that the tribunal was making any determination concerning CG’s quantum case, as GOK had contended. All that the tribunal was doing was reserving its position as to whether to appoint an expert and alerting the parties as to how the tribunal would proceed if it decided to adopt that course.
2. No breach of the duty to act fairly
As to whether the tribunal had complied with its duty to act fairly under section 33(1)(a), HHJ Pelling KC referred to the well-known principles set out by Popplewell J (as he then was) in Terna Bahrain Holding Company WLL v Al Shamsi [2012] EWHC 3283 (Comm), [2013] 1 Lloyd’s Rep 86 at [85]. Applying those principles, GOK failed to establish that the tribunal breached its duty to act fairly. HHJ Pelling KC rejected GOK’s argument that there were only three options available to the tribunal after PO5 was issued. Once it was accepted that the tribunal was merely reserving the right to appoint an expert – if thought necessary, if and when it came to consider the quantum issues that arose – there was no requirement for the tribunal to do anything unless and until it decided to appoint an expert, which in the end it did not do.
3. Evidence required to prove substantial injustice
As to substantial injustice, it was common ground that GOK needed to show that, but for the alleged irregularity, the outcome of the arbitration “might well have been different”. Applying that test, HHJ Pelling KC held that GOK had made no attempt to demonstrate what additional evidence it would have adduced, or what additional submissions it would have made, in the arbitration. All of the arguments which GOK had floated in support of its challenge were points which either the tribunal was already aware of, or which had been or could reasonably have been the subject of evidence and/or submissions by GOK during the arbitration. It was therefore “entirely unreal” to suppose that, if the tribunal had summoned the parties after PO5, then it might well have dismissed CG’s claim. HHJ Pelling KC also observed that “[n]o attempt has been made, whether by draft expert report or otherwise, to advance any new point or analysis, much less to explain why it was not addressed at any earlier stage” [23]. GOK therefore failed to prove it had suffered substantial injustice.
Download a copy of the judgment.
