The Court of Appeal has handed down judgment in Vale SA & Ors v Steinmetz & Ors [2021] EWCA Civ 1087, dismissing the appeal brought by the Seventh and Eighth Defendants (“Balda” and “Nysco”).
The appeal concerned two novel points of law, which Balda and Nysco submitted should be summarily determined in their favour.
The issues arose in the following circumstances: A enters a contract with B, pursuant to which A causes A2 (another company in the same group) to make a payment to B, which then pays the money on to C. The contract was induced by fraud on the part of B to the knowledge of C. A pursues B in arbitration, successfully obtaining an award of rescission and damages. However, the tribunal concludes (perhaps erroneously) that B has no personal restitutionary liability to A in respect of the funds received, because it was A2 and not A which paid the money to B. On those facts:
(a) Can A maintain a proprietary claim against C, notwithstanding that the tribunal held that A had no personal claim against B?
(b) Is it A (the contracting party) or A2 (the party who paid the money) which has the proprietary claim against C?
The Court of Appeal accepted the Claimants’ arguments on both points, upholding the decision of Andrew Baker J at first instance.
In particular, Males LJ (with whom Bean and Lewis LJJ agreed) held that:
(a) Party A could maintain the proprietary claim against C, irrespective of the terms of any arbitral award between A and B. An arbitration award cannot affect a claimant’s rights against third parties: “an award between A and B has no binding effect in proceedings between A and C” (at [34]). There is no wider principle by which a third party can take the benefit of an award, even in a claim concerning equitable rescission, which remained a “purely contractual matter” (at [45]). There could also be no suggestion that A’s position constituted an abuse of process or collateral attack on the arbitral award (at [49]).
(b) It was not necessary to determine which of A or A2 had the proprietary claim, which was a matter which ought to be determined at trial (at [51]).
As a result, the Court held that the proprietary claims made by A (Vale) and A2 (Vale International) should proceed to trial against C (Balda and Nysco).
The underlying dispute arises out of a joint venture to exploit mining licenses in the Republic of Guinea. The Joint Venture Agreement (JVA) was between Vale and BSGR, a company owned by Nysco and Balda, under which Vale International made an Initial Consideration payment of US$500 million to BSGR. In an LCIA arbitration, BSGR was found to have induced Vale to enter the JVA by fraudulent misrepresentations concerning bribery and corruption. Damages of US$1.2 billion were awarded in favour of Vale by the Tribunal. BSGR did not pay any of the sums due under the award. As a result, Vale and Vale International have brought Commercial Court proceedings against individuals and entities associated with BSGR, including Nysco, Balda.
The matter is listed for an 8 week trial commencing in January 2022.
Sonia Tolaney QC and James Ruddell acted for the Claimants, instructed by Cleary Gottlieb Steen & Hamilton LLP.
The full judgment is available here.