A Man Of Many Claims: Recent Decisions On Challenging Or Resisting Enforcement Of Arbitral Award

During 2015 the Commercial Court handed down four judgments in cases arising out of London-seated arbitrations concerning the complicated business affairs of Ashot Egiazaryan (or Yegiazaryan) - a Russian banker, politician and former member of Russia's parliament. In this article, I have discussed the legal principles in the four cases, but have also tried to say something about the factual context, so far as this can be derived from publically available sources, in the hope that it might make the judgments somewhat easier to follow.

Overview

Mr. Yegiazaryan has been involved in (at least) three recent London-seated LCIA arbitrations. In one he was respondent and two he was a claimant. In the arbitration where Mr. Yegiazaryan was the respondent it was claimed that he had carried out a "corporate raid" in order to steal from a former business partner called Vitaly Smagin an interest in a Moscow shopping mall called "Europark". The arbitral tribunal made an award ordering Mr. Yegiazaryan and a company called "Kalken Holdings" to pay Mr. Smagin a sum in excess of $79m. This arbitration award against Mr. Yegiazaryan and Kalken Holdings has been the subject of at least three English court judgments. The three judgments are anonymised, but an unredacted version of the 233 paragraph award (Final Award 11 November 2014 Case No. 101721) has become public, and it is obvious that this is what the judgments relate to.

In the other two arbitrations Mr. Yegiazaryan was the claimant. He claimed that, at the very same time that he was taking Mr. Smagin's interest in Europark, another (more powerful) oligarch called Suleyman Kerimov was in turn conspiring to steal Yegiazaryan's own interest in a Moscow hotel development called the "Hotel Moskva". It has been reported in the press that, in the first of the two "Hotel Moskva" arbitrations, Mr. Kerimov was ordered to pay Mr. Yegiazaryan $250m - but that award has not been the subject of any English court judgment and has not been made public.

The second of the "Hotel Moskva" arbitrations concerns claims by Mr. Yegiazaryan and his assistant Mr. Gogokhiya. The respondents are the City of Moscow and its subsidiary "OEC Finance", said by the claimants to have been Mr. Kerimov's co-conspirators. The tribunal in that arbitration made an award finding that it lacked jurisdiction to hear the claims against the City of Moscow and OEC Finance. The 629 paragraph award has (so far) been the subject of at least one court judgment, but the award itself has not become public.

The English court judgments are:

(a) Y v S [2015] EWHC 612 (Comm) (Eder J) (13 March 2015). Mr. Yegiazaryan issued a challenge to the "Europark" award, alleging that the tribunal had lacked jurisdiction. This first judgment concerned a dispute as to whether, and to what extent, Mr. Smagin should be prevented from taking steps to enforce the award pending determination of Mr. Yegiazaryan's challenge. The judgment concerns a narrow (albeit important) point of procedure, and so is only discussed briefly below.

(b) A v B [2015] EWHC 1944 (Teare J) (9 July 2015). In this judgment, the court dismissed Mr. Yegiazaryan's challenge to the "Europark" award. The A v B decision is the least interesting since it really turns on its own facts - whether Mr. Yegiazaryan's signature on the contract containing the arbitration clause was genuine, and the construction of the specific arbitration clause.

(c) K v S [2015] EWHC 1945 (Teare J) (9 July 2015). Kalken Holdings had also issued a challenge to the "Europark" award, alleging that the Tribunal lacked jurisdiction. In this judgment, the court dismissed Kalken Holdings' challenge on the grounds that it had been brought outside the statutory time limit. The K v S decision has a slightly wider application, in that it illustrates how the statutory time limit for challenging an award operates when a party has sought a correction or clarification from the tribunal. It also provides a reminder of the factors which are to be taken into account when considering an application to extend that time limit, and the kind of evidence that will be required.

(d) Ashot Egiazaryan and Vitaly Gogokhiya v OJSC OEK Finance and The City of Moscow [2015] EWHC 3532 (Burton J) (4 December 2015). This concerns the award on jurisdiction in the second of the "Hotel Moskva" arbitrations. The court found that the tribunal did have jurisdiction over the claims against OEK Finance and the City of Moscow, and remitted the case to the tribunal. This judgment is the most interesting of the four. In the past decade only a handful of cases about arbitration law (six in fact) have gone all the way to the Supreme Court / House of Lords, and the issues in Egiazaryan are reminiscent of two of those cases, namely: Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46; and Premium Nafta Products Limited and others v Fili Shipping Company Limited and others [2007] UKHL 40 (also known as "Fiona Trust v Privalov"). The Egiazaryan v OEK Finance judgment, however, contains frustratingly very little detail about the factual background, with several references to people, places, contracts and events which are never defined or explained.

Europark

In early 2000 a Russian businessman called Vitaly Smagin, together with two business partners, started to develop a shopping complex in Moscow called "Europark". They developed the complex through a company called "Centurion". In 2002 Smagin's partners wished to withdraw from the project, and new investors - Mr. Yegiazaryan and a Mr. Garkusha - came onboard. Mr. Smagin, Mr. Garkusha and Mr. Yegiazaryan entered a contract (known as the "2003 Agreement") which, Mr. Smagin would later argue, regulated how profits from the Europark development were to be divided, and entitled Mr. Smagin to 20% of those profits. The 2003 Agreement did not contain any arbitration clause. Europark was completed in 2005 and opened in January 2006.

Deutsche Bank loan

In 2006 Mr. Yegiazaryan approached Mr. Smagin and asked to be allowed to use the Europark property as security for a loan from Deutsche Bank which Mr. Yegiazaryan wanted to invest in the redevelopment of the Hotel Moskva. Mr. Smagin agreed. It was envisaged that, once the shopping centre part of the Hotel had been completed, it would take the place of Europark as security for the Deutsche Bank loan.

In order to obtain the loan, the ownership structure of Europark was changed. Ownership of Centurion (which owned Europark) was transferred to a Cyprus company called "Doralin". Doralin was owned by a BVI company called "Tufts". Tufts was owned 73% by "Kalken Holdings" (a company controlled by Mr. Yegiazaryan), 20% by Mr. Smagin and 7% by Mr. Garkusha.

Kalken Holdings, Mr. Smagin and Mr. Garkusha entered into a "Shareholders' Agreement". This required Kalken Holdings' shares in Tufts to be placed in escrow, on terms that they would be transferred to Mr. Smagin if the Deutsche Bank loan was not repaid. Mr. Smagin could then sell those Tufts shares and use the monies realised to repay the Deutsche Bank loan. Any excess realised from the sale of the shares would be repaid to Kalken Holdings, and Kalken Holdings also stood the risk of any shortfall. The terms on which the shares would be held in escrow were defined in a further contract (to which Deutsche Bank was also a party) called the "Escrow Agreement". The purpose of this arrangement was to protect Mr. Smagin's investment in Europark. The Shareholders' Agreement and Escrow Agreement contained arbitration clauses, providing for LCIA arbitration in London.

2008 Agreement

Kalken Holdings did not put its Tufts shares into escrow as the Shareholders' Agreement required and, come 2008, the Deutsche Bank loan had not been repaid and was still secured on Europark. Mr. Smagin raised these concerns with Mr. Yegiazaryan. As a result, Mr. Smagin and Mr. Yegiazaryan entered an agreement which (in effect) required Mr. Yegiazaryan to procure that the Shareholders Agreement and Escrow Agreement be performed, and the Tufts shares be transferred into escrow. The 2008 Agreement contained an unusually worded arbitration clause, discussed further below.

Corporate raid on Tufts

Kalken Holdings still did not put its 73% shareholding in Tufts into escrow. Instead, on 23 November 2009 Kalken Holdings unilaterally amended Tufts' Articles of Association to reduce the voting threshold required to remove a director from 75% to 50%. It then voted to remove Mr. Smagin as a director (without informing him). Kalken Holdings then appointed an entity called "MPH Law", which was controlled by Mr. Yegiazaryan, as Tufts' sole director. MPH Law caused Tuft's shares in Doralin (the company which owned Centurion and so, ultimately, Europark) to be transferred to two other companies, one controlled by Mr. Yegiazaryan and the other by Tashir Group (a Russian real estate investor owned by Samvel Karapetyan - another oligarch - to whom Mr. Yegiazaryan had apparently agreed to sell Europark).

Europark arbitration

In October 2010 Mr. Smagin commenced an LCIA arbitration against Kalken Holdings and Mr. Yegiazaryan seeking to recover damages in respect of the interest in Europark, which Mr. Yegiazaryan had taken from him in that corporate raid. The arbitrators were Michael Lee, Per Runeland and Dr Kaj Hobér. The award is now in the public domain.

In the Europark arbitration, Mr. Yegiazaryan argued that the 2008 Agreement was a forgery which he had never actually signed. The Tribunal held it was not a forgery. Mr. Yegiazaryan argued that, if he had signed the 2008 Agreement, it was of the nature of a draft or "letter of intent", and was not binding. Again, the arbitrators rejected this.

Mr. Yegiazaryan argued that, on its proper construction, the 2008 Agreement did not contain an arbitration agreement. The 2008 Agreement had provided:

"2.10 If Partner 2 [Mr. Yegiazaryan] fails to...