Albion Energy Ltd v Energy Investments Global BRL

The claimant, Albion, sought summary judgment for the final instalment of the purchase price ($13.3m) under a sale and purchase agreement dated 31 January 2018. The defendant, EIGL, relied on an arbitration clause in a later escrow agreement and asserted an equitable set-off based on an intended unfair prejudice petition in Jersey arising from alleged improper payments identified by an Alvarez & Marsal review.

The court held that the escrow agreement's ICC arbitration clause was confined to disputes arising out of that escrow letter and did not displace the English jurisdiction clause in the SpA for Albion's debt claim. The court interpreted the SpA releases and a specific carve-out for matters reported by Alvarez as preserving EIGL's substantive claims but rejected EIGL's contention that those claims could provide a realistic equitable set-off to defeat Albion's summary judgment application.

On the merits the court concluded there was no real prospect that an unfair prejudice petition would produce an order requiring Albion to pay EIGL such that an equitable set-off could be established. Accordingly the court refused the s.9 Arbitration Act 1996 stay and granted summary judgment for Albion for the balance and interest.

Background and nature of the application. Albion sold its remaining 20% interest in Heritage to EIGL under a sale and purchase agreement (SpA) for $100m. Two initial instalments were paid; the final instalment became the subject of dispute after allegations arising from an Alvarez & Marsal review of Heritage’s payments. The parties entered into an escrow agreement for part of the outstanding sum. Albion applied for summary judgment for the escrowed balance of $13.3m. EIGL applied for a stay under s.9 of the Arbitration Act 1996 relying on the escrow agreement arbitration clause, alternatively for leave to defend and for a stay pending proposed Jersey proceedings for unfair prejudice.

Issues framed by the court. The court first addressed whether the arbitration clause in the escrow agreement compelled a mandatory stay under s.9. If not, the court considered whether Albion was entitled to summary judgment or whether EIGL had a realistic defence by way of equitable set-off founded on a prospective unfair prejudice petition in Jersey. The court also considered whether the SpA releases precluded EIGL’s claims and whether a right of set-off was excluded by the SpA.

Facts and documentary background. The SpA contained a general English jurisdiction clause. The escrow agreement (entered subsequently by three of the six SpA parties) contained an ICC arbitration clause limited to disputes "arising out of or in connection with this letter". The SpA contained termination and release clauses (clauses 7 and 8) and a specific carve‑out preserving claims "which relate to any matter reported by Alvarez and Marsal". The Alvarez review identified a number of payments and expense items (Nigerian consultancy payments, payments to a Turkish company, director expenses, and jet costs) which EIGL characterised as the "Disputed Payments".

Reasoning on the arbitration stay. Applying authorities on overlapping dispute resolution clauses and a commercial, purposive construction (including BNP Paribas v Trattamento and related authorities), the court concluded the arbitration clause in the escrow agreement was focused on obligations created by that agreement, not on the separate debt claim under the SpA. The court relied on the wording of the arbitration clause, the preservation clause in the escrow agreement, the fact that only three SpA parties were signatories to the escrow agreement, and the commercial implausibility of supplanting the SpA forum for the debt claim. Accordingly the s.9 stay was refused.

Reasoning on the summary judgment and equitable set-off. The court applied the established summary judgment test and analysed the legal basis for EIGL's proposed equitable set-off. The court accepted for present purposes that the Disputed Payments raised serious factual issues to be tried, but rejected EIGL's attempt to re-package Heritage's claims as the basis for an equitable set-off against Albion's debt. Key reasons were (i) EIGL was in control of Heritage throughout the relevant period and could have caused Heritage to pursue the claims, (ii) the essence of EIGL's complaint was misconduct simpliciter rather than ongoing unfair management of the company’s affairs such that relief against Albion personally was unlikely, (iii) EIGL had substantial knowledge of the matters before the SpA and had preserved such claims by carve-out in the SpA, and (iv) EIGL did not demonstrate a realistic basis to quantify any compensation exceeding Albion's claim. The court therefore found no realistic prospect of succeeding with the set-off defence and allowed Albion's summary judgment claim.

Procedural and wider observations. The court noted authorities dealing with the allocation of dispute resolution clauses between principal and ancillary/security documents and observed that different forums for principal and security matters are common and commercially explicable.

This was a first instance disposal. EIGL’s application for a stay under s.9 of the Arbitration Act 1996 and for a stay under the court's inherent jurisdiction was refused. Albion’s application for summary judgment for the balance of the purchase price and interest was allowed. The court reasoned that the escrow arbitration clause was confined to the escrow letter, the SpA jurisdiction clause governed Albion’s debt claim, and EIGL had no realistic equitable set-off founded on an anticipated unfair prejudice petition.