SCM FINANCIAL OVERSEAS LTD V RAGA ESTABLISHMENT LTD

[2018] EWHC 1008 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Males, 3 May 2018

Arbitration - Refusal to defer award pending the outcome of legal proceedings in Ukraine - Whether failure to defer constituted serious irregularity - Substantial injustice - Arbitration Act 1996, sections 1, 33 and 68(2)(a)

By a Share Purchase Agreement (SPA) dated 3 June 2013 SCM purchased from Raga the shares in UAT: UAT was the indirect owner of Ukrtelecom, one of the largest fixed line telephone operators in Ukraine which had been privatised in 2011. The SPA was governed by English law and subject to arbitration in London. The first instalment of US$100 million was paid by SCM on 3 July 2013. The second and third instalments totalling US$760,566,951.86, were due in March 2014 and October 2015 respectively but were not paid. Raga commenced arbitration on 20 June 2016. SCM's defence was the risk that the shares in Ukrtelecom would be confiscated by the Ukrainian state because of failures following the privatisation for which Raga was responsible. By the time the arbitration was commenced, investigations into the alleged breaches were under way in Ukraine, but there were no court proceedings at that time. On 10 May 2017, five days before the first day of the hearing in the arbitration, the State Property Fund of Ukraine filed proceedings against ESU in the Kyiv Commercial Court of the City of Kyiv applying for an order returning the Ukrtelecom shares to state ownership. On 26 June 2017 the arbitrators published a Partial Final Award in which they found in favour of Raga. They concluded that there were no breaches. The arbitrators refused to accede to SCMÂ’s submission to defer the award. By an application dated 24 July 2017 SCM challenged the award, contending that the arbitrators' decision not to defer their award constituted a serious irregularity by acting unfairly contrary to sections 33 and 68(2)(a) of the Arbitration Act 1996 and led to substantial injustice, that there was a real risk that the Ukrainian proceedings would result in the confiscation of the Ukrtelecom shares without compensation, and that its decision had caused substantial injustice to SCM.