In the recent decision of Vale v Balda & Nysco [2020] EWHC 3501 (Comm), Andrew Baker J dismissed an application for summary judgment by the Defendants. The claim arises out of a joint venture to exploit mining licenses in the Republic of Guinea. The underlying Joint Venture Agreement (JVA) had previously been rescinded and damages of US$ 1.2 billion awarded on account of fraudulent misrepresentation in an LCIA arbitration between Vale and BSGR. The Claimants have brought proceedings inter alia for the traceable proceeds of the Initial Consideration payment of US$ 500 million (made by Vale International on behalf of Vale under JVA) held by Balda and Nysco.
The Defendants applied for summary judgment dismissing the claim on the basis that (i) any such recission trust claim was incompatible with an (earlier) arbitration Award; (ii) a Share Purchase Deed (SPD) precluded any such recission trust claim; and/or (iii) Vale International had no claim because the recission equity was Vale’s alone.
Andrew Baker J found in favour of the Claimants on the first and second points, further holding that there was no basis that these points would be any different at trial and accordingly ordering the striking out of those parts of the defence.
In making that finding on the first point, Andrew Baker J held:
- The Award establishes “as a legal fact, that […] the JVA was rescinded ab initio, even though non-parties are not bound by the arbitrators’ findings on their way to pronouncing that rescission.”
- “[T]he recission of the JVA is by nature an ‘all or nothing’ remedy, the JVA was either rescinded or not, and it was sufficient to trigger, by operation of law (not by exercise of arbitral judgment), the rescission trust now relied upon.”
- Consequently, the “classification by the arbitrators of the legal basis for their monetary award could [not] affect the creation by operation of law of a recission trust over BSGR’s then current assets”, let alone could it “affect the creation by operation of law of a rescission trust over Balda’s or Nysco’s assets, they not being party to the LCIA Award.”
Andrew Baker J held that the third point raised “a novel and important point of law of general application”: “[I]f a contract between A and B obliging B to procure a transfer of property by C to A is rescinded at the instance of B because it was induced to enter into the contract by a misrepresentation by A, and A has in the meantime transferred the property to D who is not equity’s darling, does D hold the property on trust for B or on trust for C?”
- The Defendants argued that D would hold the property on trust for B as “C was not a party to the voidable contract, therefore C had no rescission equity, therefore C had no equity capable of binding any third party.” However, Andrew Baker J considered that there is “no a priori reason why the fact that it is B’s equitable right, not C’s, to have the voidable contract rescinded, has to mean that the exercise of the right creates equitable interests only in B, not in C.”
- The Claimants submitted, inter alia, that where the “voidable contract induced C to part with its property” it is “logical that any equitable title created by the avoidance of the contract should be vested in C.” Andrew Baker J acknowledged that the use of the language “re-vesting” in the case law may “more naturally point[] to C rather than B as the rescission trust beneficiary.” However, he also pointed out that the language of ‘re-vesting’ has on been used where B and C were the same individual or entity and “may not indicate even an obiter view as regards the case now at hand.”
Andrew Baker J held that as there was no practical advantage in determining the point now and as Vale International had a real prospect of succeeding on that point at trial, it was better to leave its final determination to trial.
Sonia Tolaney QC acted for the Claimants, instructed by Cleary Gottlieb Steen & Hamilton LLP.
The full judgment is available here.