In the case of Cukurova Holdings AS v Sonera Holding BV [2014] UKPC 15, the Privy Council considered an appeal from the Court of Appeal of the BVI. The appellant (Cukurova) argued that permission to enforce an ICC arbitration award as a judgment should be set aside on the following grounds: (i) the tribunal lacked jurisdiction to grant the relief awarded to the claimant (Sonera); (ii) Cukurova was unable to present its case; and (iii) enforcement of the award would be contrary to public policy of the BVI.

In a pro-enforcement decision, the Privy Council dismissed Cukurova’s appeal on all three grounds and restated that the role of an enforcing court is not to evaluate whether or not, based on the reasons given, the arbitral tribunal got it right.

Background

Turkcell Iletisim Hizmetleri AS (Turkcell) is a mobile phone operator in Turkey. Prior to the events giving rise to the dispute, the Cukurova group and Sonera respectively held 52.91% and 47.09% of the shares in a holding company (Turkcell Holding),which in turn held 51% of the shares in Turkcell. In 2005, Cukurova and Sonera entered into a letter agreement (Letter Agreement) regarding the potential purchase by Sonera of Cukurova’s entire shareholding in Turkcell Holding. The Letter Agreement and the Share Purchase Agreement (SPA) provided for disputes to be resolved by ICC arbitration in Geneva. The SPA was not signed within the period prescribed in the Letter Agreement.

Sonera commenced arbitration proceedings under the Letter Agreement, alleging that the parties should be deemed to have agreed the terms of the SPA, that Cukurova was therefore in breach of its obligations under the Letter Agreement to sign and deliver the SPA, and that Cukurova was in breach of the agreed SPA. Cukurova challenged the jurisdiction of the tribunal on the basis that the claim was brought under the Letter Agreement yet sought relief under the SPA.

Following several partial awards, the tribunal issued a final award on 1 September 2011 which found that Cukurova was liable to pay damages to Sonera in the sum of US$932million. Sonera sought to enforce the award in a number of jurisdictions, including England and the BVI. The enforcement proceedings in England were stayed by agreement on the express basis that the parties would be bound by the judgment of the Privy Council.

Challenge to the tribunal’s jurisdiction

Cukurova’s appeal was based on three grounds. The first ground was that enforcement should be refused pursuant to the power contained in section 36(2)(d) of the BVI Arbitration Ordinance 1976 (Ordinance)(which is analogous to section 103(2)(d) of the Arbitration Act 1996 in England (Act) and Article V(2)(c) of the New York Convention (Convention)), being that “the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration“).

The parties agreed that the arbitration agreements in both the Letter Agreement and the SPA were governed by Swiss law. The Privy Council referred to the expert evidence given at first instance and agreed with Bannister J that Cukurova had failed to provide authority under Swiss law to prevent Sonera (in circumstances in which Cukurova was denying the existence of a concluded SPA) from having the whole dispute between the parties dealt with under the arbitration agreement in the Letter Agreement. The arbitration clauses in the Letter Agreement and the SPA were very similar and Cukurova did not contest Sonera’s right to commence proceedings under the Letter Agreement. The Privy Council held that it would make no commercial sense (and found no reason to believe that this was the parties’ intention) to require Sonera to bring initial proceedings under the Letter Agreement and, if successful, to initiate fresh proceedings under the SPA.

Although acknowledging that the BVI courts were required to consider the issue for themselves, and having considered the reasoning and conclusions of the judge and the Court of Appeal, the Privy Council noted that it was “relevant” to consider the view of the tribunal in this regard and was satisfied that the first instance decision was in line with it.

Cukurova’s ability to present its case and the public policy exception

Cukurova argued that the tribunal violated the rules of natural justice by: (i) deciding the case on a basis that was never put to Cukurova and on which it was not given an opportunity to respond; and/or (ii) ignoring key evidence on quantification, which resulted in much higher damages being awarded. Cukurova argued that enforcement of the award ought to have been refused on the grounds that Cukurova was unable to present its case and/or that it would be contrary to public policy in the BVI to enforce the award. The Privy Council dealt with these two issues together.

Section 36(2)(c) of the Ordinance is in the same terms as section 103(2)(c) of the Act. They reflect Article V(1)(b) of the Convention which says that enforcement can be refused if a party “was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case“.

Applying Minmetals v Ferco [1999] CLC 647, 658, the Privy Council held that for Cukurova to rely on the exception under 36(2)(c) of the Ordinance, it must have been prevented from presenting its case by matters outside its control.

However, on the facts, the Privy Council held that there was no breach of natural justice, that Cukurova had every opportunity to present its case but failed and/or decided not to do so. The Privy Council held that the basis on which the tribunal reached its decision was clear, that it did not ignore any issues and that, as such, it was not the role of the enforcing court to consider whether the decision was correct either in law or on the facts.

Section 36(3) of the Ordinance is in the same terms as section 103(3) of the Arbitration Act. They reflect Article V(2)(b) of the Convention and provide that enforcement may be refused if it would be contrary to public policy in the place of enforcement. The Privy Council urged “extreme caution” when approaching this public policy exception and reiterated that the general approach to enforcement of an arbitral award should be pro-enforcement. The Privy Council held that there must be good reasons for refusing to enforce a Convention award and refused to apply the public policy exception as a catch-all if the more formalistic grounds for refusing enforcement were not met.

Comment

The Privy Council’s judgment reiterates that the limited options for resisting enforcement of an arbitral award under the Convention (the wording of which is reflected in both the Ordinance and the Act) cannot be used to challenge findings of fact or law made by a tribunal. Any application to resist enforcement of an award in England, the BVI or any other jurisdiction where the Privy Council sits in final judgment will be given short shrift where it is viewed as an attempt to reopen the matters decided in the arbitral award.

This judgment further reinforces the high threshold set by the English courts when looking at an application of this nature. The decision confirms that courts will look at whether the applicant’s conduct contributed to the situation that is complained of and that the public policy exception cannot be used to make good a failed attempt to rely on the other exceptions under the Convention (as incorporated in the Ordinance and the Act).