Yegiazaryan v Vitaly Ivonovich Smagin

A contractual term which permits one party to file an arbitration claim against the other ordinarily carries the implied agreement of the latter to submit to that tribunal’s jurisdiction. Where contractual language is unclear, construction remains objective and must reflect the document, commercial background and apparent purpose. In a poorly drawn commercial agreement, a fair contextual reading may be more reliable than detailed linguistic analysis.

The Court of Appeal’s residual discretion to entertain an unpermitted jurisdiction appeal under Arbitration Act 1996 is exceptionally narrow. It cannot be used to bypass statutory finality or introduce a new, mixed question of law and fact which was not raised in the arbitration claim or before the first-instance judge.

Mr Smagin commenced LCIA arbitration against Kalken Holdings Ltd and Mr Yegiazaryan concerning arrangements intended to protect his interest in the Europark development. Mr Yegiazaryan was not a party to the earlier Shareholders’ and Escrow Agreements, but he was a party to the subsequent 2008 Agreement.

The tribunal held that Article 2.10 of the 2008 Agreement gave it jurisdiction over Mr Yegiazaryan and awarded Mr Smagin US$72,243,000. Teare J dismissed Mr Yegiazaryan’s jurisdiction challenge under section 67 of the Arbitration Act 1996: [2015] EWHC 1994 (Comm). The appeal concerned whether Article 2.10 was an arbitration agreement and whether a new jurisdiction ground could be advanced for the first time in the Court of Appeal.

1. The appeal was dismissed unanimously. Beatson LJ, with whom Elias LJ and the Master of the Rolls agreed, refused permission to introduce the additional jurisdiction ground. It had not formed part of the section 67 challenge or the application for permission below. It was not merely a question about construction of Article 2.10, but raised a distinct, mixed question of law and fact about the basis on which the arbitration had been commenced.

   The residual discretion described in Republic of Kazakhstan v Istil Group Ltd (No 2) [2007] EWCA Civ 471 is exercisable only in exceptionally rare cases. There was no procedural unfairness or failure by the judge to engage with an argument. Section 70(3) of the Arbitration Act 1996 and CPR Part 62.4(1)(a)(ii) also supported finality: the new ground had not been identified in an arbitration claim within the required period. The possibility that an enforcing court might later address excess of jurisdiction did not justify circumventing that scheme.

2. Article 2.10 was unclear if read literally. It referred to enforcing rights under the Shareholders’ Agreement, although Mr Yegiazaryan was not a party to it, while also providing for a claim against him as “Partner 2”. The judge correctly construed the term objectively, against the commercial background and purpose of the 2008 Agreement.

   That agreement was intended to resolve the parties’ earlier difficulties and to protect Mr Smagin if Mr Yegiazaryan did not perform the new arrangements. Article 2.10 was therefore a guarantee and enforcement mechanism, not a mistaken aspiration by Mr Smagin. Mr Yegiazaryan had effectively undertaken to procure Kalken’s performance of the relevant obligations. Where he agreed that Mr Smagin could file an LCIA arbitration claim against him, submission to that tribunal’s jurisdiction was implied.

3. The informal and incomplete drafting of the 2008 Agreement did not prevent Article 2.10 from being an arbitration agreement. Following the contextual approach in Trust Risk Group SpA v AmTrust Europe Ltd [2015] EWCA Civ 437, its apparent commercial purpose and the document as a whole were more important than formal differences from the detailed earlier arbitration clauses. A contrary construction would render the protection intended by Article 2.10 illusory.

4. The Court also applied the strong presumption from Fiona Trust & Holding Corporation v Primalov [2007] UKHL 40 that commercial parties intend disputes arising from their legal relationship to be resolved in the agreed forum. The presumption applied, at least by analogy, despite the differing formal parties to the connected agreements. The 2008 Agreement was designed to address the earlier dispute and expressly pointed to LCIA arbitration.

• Court of Appeal (Civil Division): Appeal dismissed. The Court upheld Teare J’s conclusion that Article 2.10 of the 2008 Agreement was an arbitration agreement binding Mr Yegiazaryan: [2016] EWCA Civ 1290.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Teare J dismissed Mr Yegiazaryan’s challenge under section 67 of the Arbitration Act 1996 to the LCIA award: [2015] EWHC 1994 (Comm).