English High Court Refuses To Set Aside Award Made Without Awaiting Outcome Of Relevant Domestic Court Proceedings

In its recent decision in SCM Financial Overseas Ltd v Raga Establishment Ltd [2018] EWHC 1008 (Comm) (available here), the English High Court ("Court") refused to set aside an award on the ground of serious irregularity in circumstances where the London-seated tribunal applying the LCIA rules ("Tribunal") proceeded to issue an award rather than await the outcome of domestic court proceedings which could have had a significant impact on the issues before the Tribunal.

The Court's decision is significant because it highlights the wide discretion afforded to tribunals to manage the proceedings as they see fit, and demonstrates that there is an high bar to a successful challenge under section 68 of the Arbitration Act 1996 ("Act"). The decision also provides interesting observations on the relationship between arbitral and domestic court proceedings, and the inherent risk of inconsistent decisions should a party choose to arbitrate.

Background

Pursuant to a sale and purchase agreement ("SPA"), Raga Establishment Ltd ("Raga") agreed to sell to SCM Financial Overseas Ltd ("SCM") shares in UA Telecominvest Limited ("UAT Shares"), which owned 100% of the shares in ESU. ESU, in turn, owned approximately 93% of the shares in Ukrtelecom ("Ukrtelecom Shares"), one of the largest fixed line telephone operators in the Ukraine. The Ukrtelecom Shares had been acquired by ESU from the State Property Fund of Ukraine ("SPFU") pursuant to a privatisation agreement which obliged ESU to make investments to Ukrtelecom's business and to transfer to the Ukrainian state a protected telecommunications network ("Investment and Network Obligations").

The purchase price of US$860 million for the UAT Shares was payable by SCM in three instalments. The principal value of the UAT Shares was the indirect shareholding in the Ukrtelecom Shares. There were terms in the SPA to the effect that ESU had good title to the Ukrtelecom Shares and that Raga would procure ESU's compliance with its obligations in respect of the privatisation agreement.

After the sale (but before all the instalments were paid), the SPFU issued a report claiming that ESU had breached the Investment and Network Obligations and proposed that the Ukrtelecom Shares be returned to the State.

Proceedings before the Tribunal

Raga commenced arbitral proceedings under the LCIA rules in London against SCM seeking the unpaid instalments due under the SPA. SCM argued that ESU had breached the Investment and Network...