• Copy the reference
  • Tutorial video

GF Financial v. Aldamisa

GF Financial Corporation v. Aldamisa Entertainment LLC, LCIA Case No. 163290
Nature of the proceedings:
International
Type of case:
Commercial Arbitration
Economic sector:
Financial and insurance activities
Financial service activities, except insurance and pension funding
Date of introduction:
31 Jan 2016
Status of the case:
Concluded
Claimant’s country of origin:
Liechtenstein
Respondent's country of origin:
United States
Institution:
LCIA (London Court of International Arbitration)
Rules of arbitration:
Seat of arbitration:
London
Applicable law:
England and Wales

Documents of the case

profile picture Stephen Houseman President
profile picture Simon Greenberg Appointed by the Appointing Authority
profile picture Stavros L. Brekoulakis Appointed by the Appointing Authority
Picture of partner

This document was contributed under the IBA x Jus Mundi Exclusive Partnership for Commercial Arbitration.

Contributor(s):

  • logo organization

    Jus Mundi

Lawyers, other representatives, expert(s), tribunal’s secretary

Final Partial Award

A. INTRODUCTION

1.
This arbitration was commenced by the Claimant against the Respondent by Request for Arbitration submitted on 31 March 2016. The arbitration has London seat and is being conducted pursuant to the 2014 LCIA Rules ("LCIA Rules") pursuant to the parties' arbitration agreement contained in clause 9 of the Guarantee, as described and defined below.
2.
The Claimant is a BVI-registered company. It is wholly-owned by Grand Financial Foundation ("GFF" for short) a Liechtenstein foundation holding assets for a number of beneficiaries. The Respondent is a Limited Liability Corporation based in California, USA.
3.
In outline, the Claimant seeks indemnification, including accrued and accruing interest, from the Respondent pursuant to the terms of a written instrument entitled "Guarantee and Indemnity Restrictive Covenant Letter" dated 30 October 2013 ("Guarantee") between the Respondent (as Guarantor), the Claimant (as Lender) and Sous Chef LLC (as Borrower). The Guarantee is expressly governed by English law (clause 9.1) and contains an arbitration agreement (clause 9.2) pursuant to which this arbitration takes place under the LCIA Rules.
4.
The Guarantee forms one component in a tripartite contractual matrix. The other two components are as follows: a written Term Sheet Agreement with effective date 30 October 2013 between the Claimant (as Investor) and Sous Chef LLC (as Producer) ("Term Sheet"); and a Loan Agreement between the Claimant (as Lender) and Sous Chef LLC (as Borrower) ("Loan Agreement"). We refer to these three contracts together as the "Financing Arrangements".
5.
This award ("Award") contains the reasoning, conclusions and orders of the arbitral tribunal ("Tribunal") on all of the claims raised in this arbitration. A hearing on all issues arising for determination was conducted at the offices of Clifford Chance LLP in London on Friday 21 October 2016 ("October Hearing"). Prior to issuing this Award, and in order to set directions for the conduct of this arbitration, the Tribunal made Procedural Order No.1 on or about 29 July 2016 ("Procedural Order").
6.
The Claimant has been represented throughout this arbitration by London solicitors, Dorsey & Whitney (Europe) LLP ("D&W"), and at the hearing also by counsel, Mr Matthew Parker of 3VB. References to any written communication from or on behalf of the Claimant within this arbitration means from/through D&W.
7.
The Respondent has been represented throughout by its Co-Chairman, Mr Sergei Bespalov ("SB" for short), whose name appears on the Statement of Defence and the Respondent's Answer to the Claimant's Request for Documents, as described below. References in this Award to the Respondent having taken any step or made any communication in this arbitration means having done so through SB, unless the contrary is stated.
8.
Despite being given full opportunity to participate in this arbitration, and in particular at the October Hearing, the Respondent confined its participation to a series of communications with or copied to the Tribunal (as described in Section B below) and submission of the two formal documents referred to in the preceding paragraph. The Respondent specifically confirmed by email on 7 October 2016, pursuant to a direction contained in the Procedural Order, that it would not attend the October Hearing through any authorised or legal representative and did not, therefore, require the Claimant's only witness (Mr Hemy) to attend the hearing for crossexamination. The Respondent has failed or refused to pay its share of the costs of this arbitration, despite requests to do so by the LCIA.
9.
The Tribunal has approached its procedural and substantive decision-making functions by reference to its duties set out in section 33 of the Arbitration Act 1996 ("1996 Act") and Article 14 of the LCIA Rules. In particular, in reaching its conclusions expressed in this Award, the Tribunal has given full consideration to the contentions made on behalf of the Respondent in its Statement of Defence and other written communications, by reference to the available documentary and witness evidence relevant to such issues and the allocation of burden of proof on such issues or allegations.

B. PROCEDURAL SUMMARY

10.
This arbitration has proceeded on a relatively swift basis. This is in some part due to the very limited active participation of the Respondent, as noted above and explained more fully below.
11.
As already noted, the Claimant commenced this arbitration by serving a Request for Arbitration ("RfA") on 31 March 2016. In the absence of any steps taken by or on behalf of the Respondent to progress the constitution of a tribunal, the LCIA Court selected all three members of the Tribunal who were duly appointed on or about 20 May 2016.
12.
The Claimant confirmed on 25 May 2016 that it elected to have its RfA treated as its Statement of Case ("SOC") pursuant to the LCIA Rules.
13.
The Tribunal first communicated with the parties by letter from the Chairman dated 3 June 2016 This letter sought to establish lines of communication between each of the parties and the Tribunal for the purposes of the arbitration. It also invited the Respondent to confirm whether or not it intended to submit a Statement of Defence within the prescribed time, i.e. by 22 June 2016, pointing out the Tribunal's powers under Article 15.8 of the LCIA Rules in the event that the Respondent did not do so.
14.
The Claimant responded to the Tribunal's letter on 8 June 2016. It proposed procedural directions that (amongst other things) provided for determination of the dispute without a substantive hearing.
15.
The Respondent did not submit a Statement of Defence by the deadline (22 June 2016) or seek any extension or provide any explanation.
16.
On 6 July 2016, the Claimant accordingly sought a procedural telephone hearing to consider directions in the arbitration. By email in response the same day (6 July 2016) SB stated that "a settlement agreement has been reached by the principals and such agreement is being currently documented". SB stated that any further use of the arbitration proceedings was therefore unnecessary.
17.
There ensued a series of email communications between the parties and the Tribunal on 7 July 2016 in which the Claimant denied the existence of any settlement agreement and the Respondent provided details of what it said constituted such settlement agreement. As to the latter, SB asserted that the Claimant sent two documents to him on 24 June 2016 "confirming that the settlement agreement was reached by the principals indeed" following a six month negotiation, and further asserting that he (SB) had already (i.e. "[I]mmediately") "communicated the acceptance of the terms of these final settlement agreements". In the same email chain, also on 7 July 2016, the Tribunal invited the parties' availability to attend a procedural telephone hearing in the arbitration the following day, Friday 8 July 2016.
18.
SB replied to the Tribunal's invitation the following day (8 July) embedding his answers in red in the text of the Tribunal's 7 July email. SB confirmed he was not available to attend any procedural hearing He indicated, for the first time, that the Respondent was prepared to retain a local attorney to file a Statement of Defence in the arbitration, but reiterated that the Respondent saw no point taking further part in the arbitration after reaching a settlement of the dispute, as alleged. As to giving details of the alleged settlement agreement, SB asserted that Mr Sergei Seldin (copied in on SB's prior email) was "General Counsel of the Claimant and the attorney with whom settlement had been negotiated". SB went on to say that "the settlement term sheet was received by us on June 24th. We have accepted the terms of the proposed settlement on the same day". (Pausing there, we observe that the Respondent's case as to formation of the settlement agreement was, at this stage, one of a fully concluded agreement on 24 June 2016.)
19.
Further emails ensued between the Tribunal and the parties in which the Claimant was invited to provide and did (on 12 July 2016) provide a draft Procedural Order containing directions sought from the Tribunal. These draft directions included provision for the Claimant to submit an Amended SOC by 15 July 2016, the Respondent to submit a Statement of Defence by 29 July 2016, document production requests, and an oral substantive hearing of the dispute including the issue of the alleged settlement agreement. With minor alterations to the draft provided, the Tribunal made the Procedural Order on or about 29 July 2016. The Respondent made no comment upon or objection to the content of that Procedural Order.
20.
Prior to the making of the Procedural Order, the Claimant served its Amended SOC, whilst the Respondent sought and was granted an extension to submit its Statement of Defence. Pursuant to such extension, the Respondent submitted its Statement of Defence ("SOD") on 4 August 2016. The Amended SOC and the SOD set out the parties' respective positions as to the alleged settlement agreement, referred to for convenience in this Award as the "SettlementDefence". By the Amended SOC, the Claimant sought a declaration that no settlement agreement had been reached in respect of its claim under the Guarantee.
21.
Pursuant to paragraph 5 of the Procedural Order, the Claimant made a request for document production on 12 August 2016. The Respondent made no document production requests.
22.
The Respondent provided its Answer to Claimant's Request for Documents ("Documents Answer") on 26 August 2016 in accordance with paragraph 7 of the Procedural Order.
23.
By email to the parties of 9 September 2016, the Tribunal then sought to make arrangements for fixing the substantive hearing in this arbitration, indicating that Friday 21 October 2016 was available. For his part, on 17 September 2016, SB simply asked whether the Settlement Defence would be ruled upon by the Tribunal, indicating the Respondent's desire that the Settlement Defence (comprising the Respondent's only communicated line of defence to the claim against it) should be determined in this arbitration.
24.
The deadline for exchanging witness statements was 16 September 201.6, pursuant to paragraph 10 of the Procedural Order. On that date, the Claimant served/filed the Witness Statement of Geoffrey Piers Hemy, a Director of the Claimant. The Respondent did not provide any witness statements then or later.
25.
In an email exchange between SB and the Tribunal on 17 September 2016, SB indicated that he would only attend an oral hearing if the "Principal of the Claimant" was physically present at such hearing and made available to testify. In his email of that date received by the Chairman at 18:50 London time, SB stated that "we have provided ample evidence confirming that there has been a settlement of the matter by both parties", whilst in his later email (received by the Chairman at 21:49 London time) SB stated that "we have already submitted all of the evidence for the tribunal to consider the issue". The Tribunal treats these statements made on behalf of the Respondent as a reference to the documents annexed or attached to the SOD and Documents Answer submitted by the Respondent in this arbitration.
26.
The Tribunal then made arrangements for the October Hearing to take place. In advance of the hearing, the Tribunal invited the Claimant to provide a draft List of Issues for consideration. The Claimant provided a draft on 29 September 2016. The Respondent was invited to comment on such draft, but did not do so. The Tribunal settled and circulated the List of Issues on 10 October 2016. The Respondent has never made any comment upon or objection to the List of Issues. (The List of Issues is set out in Section D below.)
27.
The Claimant's solicitors invited the Respondent on 7 October 2016, by reference to paragraph 13 of the Procedural Order, to confirm (amongst other things) whether it required Mr Hemy to attend the hearing for cross-examination. SB replied by email on the same day, confirming that the Respondent would not be attending or legally represented at the hearing and did not require Mr Hemy to attend the hearing to give evidence.
28.
Final arrangements were then made for the October Hearing at the London offices of Clifford Chance LLP on Friday 21 October 2016. At the Tribunal's request, the Claimant provided a Procedural Chronology on Tuesday 18 October, cross-referenced using the pagination of the hearing bundle provided by the Claimant. The Respondent was invited to comment on the Procedural Chronology, but did not do so. The Claimant's Counsel submitted a short written skeleton argument on the afternoon before the hearing itself ("Pre-Hearing Note") The Claimant also submitted a Second Witness Statement of Mr Hemy, which is dealt with in Section E below, and justified the timing of its production at the hearing itself to the satisfaction of the Tribunal. The Respondent did not file any comments on either the Pre-Hearing Note or the Second Witness Statement of Mr Hemy.
29.
The Claimant attended the October Hearing through Mr Hemy, D&W and Mr Parker. As indicated in advance, the Respondent did not attend or participate The Claimant's legal team produced and circulated to SB and the Tribunal on 27 October 2016 a 7-page Note of the October Hearing ("Hearing Note") at the request of the Tribunal. After having reviewed and approved the Hearing Note, the Tribunal confirmed to the parties on 2 November 2016 that Respondent had been granted until 3 November 2016 to make any comments on the Hearing Note. It did not do so.
30.
The Tribunal raised a series of matters at the outset of the hearing, which were addressed in turn by Mr Parker on behalf of the Claimant. As a result of this discussion, the Claimant subsequently provided a more detailed breakdown of its legal costs claimed in this arbitration, as well as a revised interest calculation. The Respondent did not comment on any of these matters, despite the fact that the Tribunal offered it the opportunity to do so by email of 2 November 2016. As noted below, the Tribunal subsequently sought and obtained clarification as to the scope of the Claimant's claim for accruing interest.
31.
Mr Hemy gave evidence on affirmation to the Tribunal. He confirmed that the contents of his two signed witness statements were correct, subject to one correction or clarification of his First Witness Statement recorded in the Hearing Note. Mr Hemy answered questions from Mr Parker and members of the Tribunal, mostly addressing the issue of his authorisation to sign the Guarantee at the relevant time on behalf of the Claimant, a matter to which we return in Section E below.
32.
By email dated 7 December 2016, the Tribunal sought clarification as to the scope of the Claimant's claim for accruing interest, specifically whether the Claimant sought interest postaward or only up to the date of award. The Claimant confirmed by email dated 7 December 2016, by reference to paragraph 5.1(3) of the Amended SOC, that its claim for accruing interest extends post-award until the date of payment. The Respondent was given opportunity to make observations about this aspect of the claim, but did not do so.
33.
Finally, so far as the Tribunal understands the position, the Respondent has not paid its share of the costs of this arbitration. The Claimant has borne the full cost of the arbitration to date, something reflected in its claim for legal costs considered in Section E below.

C. BACKGROUND

34.
There is relatively little factual background impacting the substantive issues in dispute, save for the allegation that the Respondent's liability under the Guarantee has been released or discharged pursuant to the terms of an alleged settlement agreement reached between the parties during the course of this arbitration, i.e. Settlement Defence.
35.
As regards the contractual matrix, as noted above, the claim is made pursuant to the terms of the Guarantee and by reference to an underlying indebtedness on the part of Sous Chef LLC (qua primary debtor, hereafter "Borrower") arising from the Term Sheet and Loan Agreement. Pursuant to those arrangements, the Claimant advanced the principal sum of US$1.5 million to the Borrower on 6 November 2013 on terms requiring repayment after one year, i.e. on 5 November 2014, and subject to simple interest at a rate of 20% per annum. (The Claimant did not produce documentary evidence showing the advance of principal on that date, but the same was confirmed by Mr Hemy in his first witness statement and has not been disputed at any time by the Respondent or the Borrower.)
36.
The Guarantee, like the Term Sheet and the Loan Agreement, was signed on behalf of the Claimant by Mr Hemy, one of three directors of the Claimant at all material times. SB signed all three contracts on behalf of the Respondent and the Borrower (as the case may be).
37.
The Guarantee is expressly governed by English law (clause 9.1). Such choice extends to the arbitration agreement (clauses 9.2 & 9.3) as well as all "non-contractual obligations arising in any way whatsoever out of or in connection with" such instrument.
38.
Pursuant to the terms of the Guarantee, and in summary given the absence of any dispute on such matters, the Respondent irrevocably and unconditionally guaranteed the full, prompt and complete performance by the Borrower of all of its obligations under the Loan Agreement and Term Sheet, subject to an agreed interest rate of 12% per annum (clause 1.2(a)). The Respondent also agreed to indemnify the Claimant upon demand against all losses, claims, costs, charges and expenses incurred by the latter by reason of inter alia any breach by the Respondent of the Guarantee (clause 1.2(b)(i))
39.
No issue has been taken by the Respondent as to the validity or enforceability of the Guarantee No dispute exists as to the meaning or effect of any provision of the Guarantee.

D. THE ISSUES

40.
The List of Issues settled by the Tribunal prior to the October Hearing comprises the following seven questions:

(1) Is the Respondent under an obligation to indemnify the Claimant pursuant to the terms of the Guarantee?

(2) Were the terms of a settlement agreed and concluded between the Claimant and the Respondent, such as to discharge the Respondent's obligations under the Guarantee, as alleged by the Respondent?

(3) Did the Claimant accept by performance the terms of a settlement discharging the Respondent's obligations under the Guarantee, as alleged by the Respondent?

(4) Did the Respondent by performance accept the terms of a settlement discharging the Respondent's obligations under the Guarantee, as alleged by the Respondent?

(5) Is there otherwise a valid and binding settlement agreement such as to discharge the Respondent's obligations under the Guarantee?

(6) If the Tribunal finds there to be no valid or binding settlement agreement, is the Respondent liable to the Claimant for interest? If yes, what is the rate of interest and what is the date such interest started to accrue?

(7) What are the costs of the arbitration and how are they to be allocated?

41.
Before addressing the issues, we make some observations about them and their interplay.
42.
Issues (2)-(5) above encapsulate the single line of defence advanced by the Respondent to the present claim, i.e. the Settlement Defence, comprising an allegation that the parties concluded a legally binding settlement agreement which released or discharged the Respondent from accrued liability under the Guarantee For its part, the Claimant disputes the existence of any concluded settlement agreement, including on the distinct basis (if arising) that Mr Seldin was not authorised on its behalf to conclude any settlement of the present dispute. (For the avoidance of doubt, we treat the question as to Mr Seidin's alleged authority as falling within Issue (2) as formulated.)
43.
It is or should be uncontroversial, and in any event we proceed on the basis as a matter of English law as expressly chosen by the parties to govern their relationship, that the Respondent bears the burden of proof on all elements constituting the Settlement Defence, just as the Claimant bears the burden of proof on its claim represented by Issues (1) and (6) above. By way of qualification to that position, it was accepted on behalf of the Claimant's counsel at the October Hearing that, formally speaking, it should bear the burden of proof in respect of its claim for a declaration that no valid or binding settlement agreement exists whether as alleged by the Respondent or otherwise, which is subsumed within Issue (5).
44.
As already noted, the Respondent advances no objection against underlying liability both as to principal (Issue (1)) or interest (Issue (6)).
45.
As for Issue (7), the Respondent has not made any representations or observations as to the allocation or apportionment or assessment of costs related to this arbitration, despite being given reasonable opportunity to do so before and after the October Hearing

E. ANALYSIS OF THE ISSUES

46.
Before considering the issues, as identified above, we address a preliminary point that has arisen concerning the validity/enforceability of the Guarantee.
47.
As noted above, there is no dispute as to the validity or enforceability of the Guarantee. Indeed, as noted below, the Respondent has effectively acknowledged the existence of its liability under the Guarantee during the course of this arbitration, and such pre-existing liability is presupposed in terms by the Settlement Defence.
48.
As a result of investigations in advance of the October Hearing, the Claimant or its legal advisors became aware that there was no filed record of any resolution of the board of directors of the Claimant authorising Mr Hemy at the relevant time to sign or execute the Guarantee on behalf of the Claimant. According to Mr Hemy's evidence, including as clarified during oral testimony at the October Hearing, he was not specifically authorised by a resolution of the Claimant's board to sign or execute the Guarantee at the relevant time.
49.
The Claimant sought to address this apparent omission in two ways, in order to demonstrate on the balance of probabilities (albeit not specifically in dispute) that the Guarantee is legally enforceable as against the Respondent, namely through (a) Mr Hemy's ostensible authority on behalf of the Claimant, alternatively (b) retrospective authorisation or ratification of the Guarantee by the Claimant.
50.
As to (a) above: The Claimant contended that Mr Hemy as a known director of the Claimant was held out by or on behalf of the Claimant as having authority to sign or execute the Guarantee on its behalf at the relevant time. No evidence was relied upon to support any 'holding out' as such, rather the existence of ostensible authority was grounded in the fact that Mr Hemy as a director of the company (as was known to SB at the time) would be reasonably expected to have authority to sign or execute such a contract on its behalf. The Claimant also drew attention to language appearing in the first recital of the Draft MOU (as described and defined below) stating that the Guarantee had been "duly executed", although the language of that first recital is not particularly clear in this regard.
51.
As to (b) above: The Claimant contended that by advancing the principal to the Borrower on 6 November 2013, the Claimant effectively ratified the Financing Arrangements including the Guarantee. Further, the Claimant put in evidence, through Mr Hemy's Second Witness Statement with attached exhibit, a resolution of the board of directors of the Claimant dated 13 October 2016 said to confer authority to enter into each of the contracts comprising the Financing Arrangements and/or constitute ratification of such contractual arrangements on the part of the Claimant. The Claimant thus contended that it has retrospectively authorised and in any event effectively ratified the Guarantee irrespective of whether Mr Hemy lacked actual or ostensible authority to sign or execute such contract at the relevant time.
52.
The Tribunal considers, so far as necessary in light of the position taken by the Respondent in this dispute, that the Claimant has discharged its burden of demonstrating that the Guarantee is valid and legally enforceable against the Respondent. The Tribunal does not feel it necessary to express a view on the ostensible authority analysis (addressed in (a) above) Because on the balance of probabilities it is persuaded that the Claimant has taken sufficient steps to retrospectively authorise and/or ratify the Guarantee (addressed in (b) above). This disposes of the preliminary point raised voluntarily by the Claimant.
53.
We turn now to consider Issues (1) to (7) as set out above.

Issue (1): Liability under the Guarantee

54.
As noted above, the Settlement Defence is the only stated basis for the Respondent seeking to resist or defeat the existence of liability on its part to the Claimant pursuant to the terms of the Guarantee. As appears from the procedural chronology set out in Section B above, the Respondent was afforded numerous opportunities to advance whatever defences to the claim it wished to raise. The Respondent relies solely upon the Settlement Defence.
55.
So far as relevant or necessary, the Tribunal notes that the underlying indebtedness was originally acknowledged on behalf of the Borrower in a letter entitled "REPLY TO CLAIM" dated 13 October 2015 from Complex Legal Solutions, responding to the Claimant's letter before action dated 4 September 2015 sent to SB on behalf of both the Borrower and the Respondent. In the context of subsequent negotiations towards a potential settlement, addressed in more detail in the next section, SB sent an email on 6 June 2015 to Mr Seldin and others referring in two places to "the debt for the movie Chef".
56.
There can be no doubt, therefore, that - subject to the Settlement Defence - the Respondent became liable to the Claimant under the Guarantee in respect of the principal amount, namely US$1,500,000, plus interest, pursuant to clause 1.2(a) of the Guarantee. Such liability did not depend upon any demand being made on the Guarantee (cf. clause 1.2(b)) and, accordingly, arose when the underlying loan became repayable, namely 5 November 2015.
57.
As discussed in Issue (6) below, interest had accrued on the loan amount as at the date of repayment ("Pre-Accrued Interest") and further interest accrued on the Lability as from the date of repayment when liability under the Guarantee was triggered according to its terms and continues to accrue at the agreed rate ("Post-Accrued Interest"). As clarified, the Claimant seeks accruing interest post-award until the date of payment.

Issues (2)-(5): Settlement Defence

58.
The Respondent has alleged, as its sole line of defence to the present claim, that the parties entered into a valid and binding settlement agreement in mid-2016 which (amongst other things) discharged and released the Respondent from any accrued liability under the Guarantee. The Respondent's case is that such agreement was reached in negotiations between SB (on behalf of the Respondent) and Mr Seldin (on behalf of the Claimant) as evidenced by emails and attached documents from the material period, all provided to the Tribunal by SB.
59.
The Claimant disputes this allegation on two independent grounds: first, absence of any or sufficient agreement by the parties as to settlement terms (including, absence of signature or execution of a written agreement as contemplated by the participants in the relevant negotiations) ("Formation Issue"), and, further, lack of actual or ostensible authority on the part of Mr Seldin to conclude a settlement agreement on behalf of the Claimant at any material time ("Authority Issue").

Applicable Law

60.
Before addressing the substantive issues comprising the Settlement Defence, we address the prior issue of applicable law.
61.
As noted above, the parties expressly stipulated for English law to govern their relationship enshrined within the Guarantee and any non-contractual obligations arising out or in connection with such agreement: clause 9.1 of the Guarantee. The Respondent has asserted, or at any rate been content to assume, that the existence (and, if existing, the effect) of any settlement agreement is a matter to be determined according to English law: see Section (C) of the Respondent's Statement of Defence ("English law require parties act in good faith (sic), with honesty, and reasonableness") as well as reference to the Statute of Frauds in Section (A). For its part, the Claimant contended that the question of whether any valid and binding settlement agreement had been concluded between the parties falls to be determined by reference to English law, no other system of law having been identified as applicable or put in evidence by either side.
62.
The Tribunal accordingly proceeds on the basis that English law is to be applied in determining the Settlement Defence.

Substantive Analysis

(i) Formation Issue

63.
The Respondent has the burden of proving the existence of a valid and binding settlement agreement with the effect of releasing or discharging its accrued liability under the Guarantee. Leaving aside the Authority Issue for present purposes, the Tribunal must adopt an objective approach to ascertaining whether the parties entered into a valid and binding agreement, in accordance with well-settled principles of English law summarised in Chitty on Contracts (31st ed. 2012) Chapter 2 (Formation of Contract).
64.
The Respondent has fallen some way short of discharging its burden by reference to English law principles of contract formation.
65.
The Respondent's case is articulated in its Statement of Defence, primarily within Section (A). There are essentially three parts to its analysis. First, it is alleged that the parties entered into an oral and subsequent written settlement agreement (referred to as the "actual Settlement Agreement") in the form of an unsigned document in draft form entitled "MEMORANDUM OF UNDERSTANDING" bearing the date 15 June 2016 ("Draft MOU"). Secondly, it is alleged that the parties commenced performance of (some or all of) the terms of such alleged settlement agreement by taking various steps in relation to the production of at least two other film titles, thereby constituting acceptance of the terms of such alleged settlement. (We refer to this second contention for convenience as the "Acceptance by Performance" point/argument.) Thirdly, it is alleged that the Claimant is estopped from denying the enforceability of the alleged settlement agreement.
66.
As to the Acceptance by Performance point, it is not clear from the Respondent's case whether these matters are said to constitute (a) acceptance of an existing and current offer, thereby creating a valid and binding settlement agreement where one did not otherwise exist or (b) performance of the term(s) of an actual or anticipated settlement agreement, thereby corroborating its existence if otherwise in doubt. Our analysis below covers both possibilities by reference to the available evidence evaluated objectively. In doing so, we accept - in favour of the Respondent - that the relevant steps took place as a matter of fact (albeit without any specificity as to when or by whom, etc. having been provided by the Respondent, still less any evidence proving that such steps took place) although it appears that Claimant disputed such events as having occurred: paragraph 12(d) of Claimant's Pre-Hearing Note.
67.
As for the estoppel argument, this appears to turn on essentially the same conduct relied upon in the context of the Acceptance by Performance argument. It is accordingly dealt with in that context below.
68.
The Respondent provided a number of documents pursuant to the Claimant's Request for Documents, including email communications and the Draft MOU itself. As noted in Section B above, in emails sent to the Tribunal on 17 September 2016, SB stated the Respondent's position that no oral hearing in this arbitration was necessary "as we have provided ample evidence confirming that there has been a settlement of the matter by both parties" and reiterating "we have already submitted all of the evidence for the tribunal to consider the issues".
69.
Despite opportunity to do so, the Respondent did not submit or seek to rely upon any witness evidence in support of its case on the Settlement Defence. The Respondent did not seek to avail itself of the opportunity to test the evidence of Mr Hemy, either at the October Hearing or otherwise. This was so notwithstanding its own allegation that the alleged settlement agreement was concluded orally in the first instance. (We have noted above the Respondent's original position that it accepted the terms of the Draft MOU on the same day, i.e. 24 June 2016, presumably by non-written means. The Respondent provided no evidence in support of that position.)
70.
The documents provided by the Respondent in support of its case do not come close to establishing the existence of a valid and binding settlement agreement between the parties, as alleged. The Draft MOU is said by the Respondent to have comprised one of two attachments to an email dated 24 June 2016 from Mr Seldin to SB, a copy of which was disclosed by the Respondent. This email stated in terms that "settlement is subject to discuss". (The other attachment to this email is said to have been a draft personal guarantee from SB, the execution of which was contemplated by the terms of the Draft MOU, but not itself disclosed by the Respondent in this arbitration.) No document was disclosed indicating assent to the terms of the Draft MOU on the same day or subsequently.
71.
The Draft MOU is a working draft document. It is heavily marked with proposed amendments in 'track changes' format. There is no evidence explaining who made such proposed changes to or comments upon the draft text. No subsequent version of the draft is said to have been produced. No subsequent draft document has been disclosed in this arbitration. It is therefore to be inferred that no version of the Draft MOU (or any subsequent document) was signed or executed by the parties.
72.
The Draft MOU identified four parties, namely the Respondent (as Guarantor), the Borrower, SB personally (as Personal Guarantor) and the Claimant (as Lender). It contains two bullet point paragraphs under the heading "WHEREAS" the first of which refers to the Guarantee as having been "duly executed" and the second of which refers to this arbitration. Under the heading "RECITALS" there are six bullet points containing draft text for what appear to be substantive terms of an agreement - suggesting that the heading itself is something of a misnomer. Proposed alterations to the draft text appear (in 'track changes' format) in respect of all six paragraphs. It is not necessary to rehearse the text of the Draft MOU more fully, save to mention the sixth (final) bullet point in this context.
73.
The sixth bullet point states (in language that appears to have formed original draft text, without any proposed change or comment in the marked up version disclosed in this arbitration) as follows:

"Parties have agreed [that] this Memorandum of Understanding becomes binding upon signing by all parties and long form contracts reflecting the terms of this agreement will be executed at a later time..."

74.
As noted above, there is no evidence or suggestion to the effect that the MOU was finalised or signed. Nor is there any evidence that either (still less both or all) of the contemplated "long form contracts" was/were drawn up, let alone signed and executed. No draft of any such contract was disclosed in this arbitration. The Tribunal accordingly finds as a fact that such step(s) never took place, so far as may be relevant to the Formation Issue. Likewise, the Tribunal finds as a fact that neither the Draft MOU nor any other version of it was signed or executed by any, still less all, of the four named parties. Nor was there any contention to this effect by the Respondent.
75.
The Claimant contended, amongst other things, that by reason of the above-quoted words in the sixth bullet point of the Draft MOU, the parties agreed - subject to any subsequent waiver or variation of such requirement - that no valid and binding settlement agreement could exist without signature by all parties of that document, or more accurately signature/execution of a subsequent/final version of such document. (We refer to this as the "Condition Precedent" point or argument.) The Claimant also contended, in the alternative, that such wording should inform the Tribunal's approach to evaluating the evidence relied upon by the Respondent in support of the Acceptance by Performance point, i.e. requiring a higher degree of assurance that steps taken by the parties establish the existence of a valid and binding settlement agreement notwithstanding absence of contemplated contractual signatures.
76.
As noted above, the Respondent's primary contention is that the parties reached a concluded settlement agreement on 24 June 2016 in the terms of the Draft MOU attached to Mr Seidin's email to SB of that date. For the reasons given above, the Tribunal finds that no such agreement was concluded at that time or later, by those means or otherwise. This finding extends to the bare allegations of an oral contract preceding any alleged written agreement. There is no evidence (documentary or testimonial) to support such oral contract. The available documentary record is inconsistent with any understanding at the time of an existing contract having been concluded orally or otherwise.
77.
Turning then to the Respondent's further argument based on Acceptance by Performance, and assuming (as noted above) that all steps identified by the Respondent took place as a matter of fact:

(a) In so far as the relevant steps are said to constitute or evidence acceptance of an offer, thereby creating a valid and binding contract where one did not otherwise exist, the Tribunal rejects that contention. The wording of the Draft MOU, as noted above, was clearly intended to encompass the essential terms of any such agreement, but was never finalised or agreed. Importantly, the parties did not sign such document despite the express contemplation in the Draft MOU that they would have to do so in order to give legal force and effect to such agreement. Whilst some of the steps taken may appear to be consistent with agreed terms of settlement, they are likewise consistent with the parties working towards such agreement and showing good faith as part of that negotiating process. Put another way, there is no clear and sufficient 'offer' that such conduct could 'accept'. Further, it is telling in this context that the proposed personal guarantee from SB, contemplated as a key component of any settlement package, was never finalised or executed (We note also that SB has not proffered any personal guarantee in performance of what is, on his own case, his express and strict legal obligation.)

(b) In so far as the relevant steps are said to constitute performance by the parties of the terms of an actual or anticipated settlement agreement, thereby corroborating its existence, the Tribunal rejects that contention. The reasons set out in (a) above are broadly applicable to this alternative analysis of the same evidence. Put simply, and so far as necessary by reference to the Condition Precedent point, the Respondent has failed to demonstrate that the relevant steps taken by the parties clearly and unequivocally show that the parties had reached a valid and binding settlement agreement on (or including) such terms. The conduct in question is equivocal: it is consistent with the parties cooperating and working towards a contemplated settlement agreement, rather than being explicable only on the basis that the parties had reached such agreement. In any event, the relevant steps, viewed objectively in conjunction with the evidence of negotiations, do not support the existence of a legally binding and enforceable settlement agreement.

(c) In so far as the relevant steps are said to create an estoppel preventing the Claimant from denying the enforceability of the alleged settlement agreement, the Tribunal rejects that further contention for essentially the same reasons. The Respondent has failed to establish the essential ingredients to raise an estoppel, including the need for a clear and unequivocal representation made by or on behalf of the Claimant to the Respondent. This requirement is all the more difficult for a party alleging an estoppel with the effect of holding another party to a contract which, according to the principles of contract formation, has (by definition) not come into existence. Put simply, there is no basis for finding in the present case an estoppel to 'create' a contract that would not otherwise exist.

(d) Finally, and for good measure, in so far as the relevant steps are said to constitute or evidence a waiver or variation of the signature requirement in the wording of the Draft MOU, the Tribunal rejects that contention. The conduct in question does not come close to establishing an agreed departure from the express language of the sixth bullet point in the Draft MOU. The Tribunal covers this point out of fairness to the Respondent, no such allegation of waiver or variation having been advanced.

78.
In summary, the Tribunal finds that there was no concluded settlement agreement on terms discharging or releasing the Respondent from its accrued liability under the Guarantee. The Tribunal does not feel it necessary to draw any adverse inferences generally against the Respondent by reason of it having elected not to adduce any witness evidence to support its case on the Settlement Defence. Where the Tribunal has made specific findings of fact, including by reference to the absence of witness evidence on a specific matter, these have been explained above, for example in the context of the Respondent's unsubstantiated allegation of an agreement having been concluded orally in the first instance.
79.
The Tribunal's finding on the Formation Issue is dispositive of the Settlement Defence as against the Respondent. In light of this, is not necessary to deal with the Authority Issue in terms of answering Issues (2)-(5). The Tribunal nevertheless addresses this issue below for good measure and on this stated basis.

(ii) Authority Issue

80.
The Respondent's case is that Mr Seldin had actual or ostensible authority on behalf of the Claimant to conclude the alleged settlement agreement discussed in (a) above. The Respondent has the burden of proof as to the existence of Mr Seidin's authority at the relevant time As to ostensible authority, the Respondent alleges that Mr Seldin was held out as having negotiating authority on behalf of the Claimant in an email dated 4 April 2016 and then again in unspecified telephone conversations involving "the Principals of the Claimant".
81.
The Claimant disputes Mr Seidin's authority, including by reference to the witness testimony of Mr Hemy. As noted above, the Respondent was given opportunity to test Mr Hemy's evidence at the October Hearing, but elected not to do so for its own reasons.
82.
In his First Witness Statement, Mr Hemy explains the corporate structure surrounding the Claimant, his own role and capacity, as well as that of Mr Seldin. In light of this evidence, and whilst it is clear that Mr Seldin was involved in some representative capacity in exploratory negotiations concerning this dispute, the Tribunal finds that Mr Seldin did not have actual authority to conclude a settlement agreement on behaif the Claimant at any material time.
83.
This leaves the question of ostensible authority. For the Respondent to succeed on this analysis, it would need to establish that (i) Mr Seldin was 'held out' by the Claimant (including someone with actual authority on its behalf to do so) as having relevant authority and (ii) the Respondent reasonably relied upon such representation (i.e. 'holding out') in proceeding to enter a contract on such basis. Both ingredients must be established.
84.
As to (i): The 4 April 2016 email from Mr Seldin to SB does not constitute a relevant form of 'holding out' for the purposes of establishing ostensible authority. No evidence was adduced by the Respondent as to the timing or content of the alleged telephone conversations relied upon in support of its case. There is no evidence that the Claimant represented to the Respondent that Mr Seldin had authority to conclude a settlement agreement on its behalf.
85.
As to (ii): The Respondent adduced no evidence of reliance. If SB happened to believe that Mr Seldin was imbued with negotiating/contracting authority on behalf the Claimant (as to which, the Tribunal makes no finding) such understanding was not engendered or induced by any relevant representation made by or on behaif of the Claimant, and is not relevant (still less, sufficient) to establish ostensible authority on the part of Mr Seldin as alleged. Further, as contended by the Claimant, the sixth bullet point of the Draft MOU, contemplating signature by an officer of the Claimant as a condition precedent to a legally binding agreement, negates any reasonable reliance on the part of SB, if indeed there was any such reliance or understanding in the first place.
86.
If it had become necessary to decide the matter in order to dispose of the Settlement Defence, the Tribunal would have found that Mr Seldin lacked any authority to conclude an agreement on behalf of the Claimant at the material time. In reaching such conclusion, it would not have been necessary to draw any adverse inferences against the Respondent from its omission to adduce any witness evidence. The Tribunal's conclusion on these matters is based upon its appraisal of the evidence before it, by reference to the burden of proof which rests upon the Respondent. This deals with the Authority Issue.

Claim for Declaration

87.
The Tribunal is satisfied that the Claimant has a sufficient legitimate interest in obtaining a declaration to the effect that there was no settlement agreement, as alleged or otherwise, releasing or discharging the Respondent from liability under the Agreement. Such declaration serves a practical purpose, namely legal certainty. In so far as the Claimant has the burden of proof in respect of establishing this negative position, by reason of seeking a remedy, the Tribunal is satisfied on the available evidence that the Claimant has discharged its burden The Tribunal accordingly makes the declaration sought by the Claimant.

Issue (6): Interest

88.
Clause 1.2(a) of the Guarantee sets the rate of interest at 12% per annum from the date of drawdown of the loan, in effect overriding the 20% interest rate appearing in the Loan Agreement. The Claimant seeks interest at the 12% rate under the Guarantee.
89.
At the invitation of the Tribunal at the October Hearing, the Claimant's solicitors provided a revised interest calculation by email later the same clay. The liquidated amounts claimed by way of interest (up to 21 October 2016) are as follows:

89.1. Pre-Accrued Interest (6 November 2013 to 5 November 2014): US$180,000.

89.2. Post-Accrued Interest (6 November 2014 to 5 November 2015): US$180,000.

89.3. Further Post-Accrued Interest. (6 November 2015 to 21 October 2016): US$172,622.95, being 351 days at a daily rate if US$491.80.

90.
These figures are not disputed by the Respondent. The Tribunal has verified that the daily rate claimed for 2016 is correct. The year 2016 being a leap year, the daily rate is US$180,000 divided by 366 days, which gives US$491.80 (rounded down to the nearest cent).
91.
As clarified after the October Hearing, the Claimant also seeks continuing interest through to the date of payment. Paragraph 5.1(3) of the Amended Statement of Case seeks "further interest accruing at the rate of 12% per annum until payment is made". This claim, as clarified, is not disputed by the Respondent
92.
The Tribunal accordingly awards interest to the Claimant as follows:

92.1. Interest from 6 November 2013 through to and including the date of this Award (16 December 2016), amounting to a total of US$560,163.80 That figure comprises (i) three full years of interest at US$180,000 per year, ending on 5 November 2016, plus (ii) 41 days of interest from 6 November to 16 December 2016 at the daily rate of US$491.80.92.2. Simple interest on the sum of $1,500,000 from 17 December 2016 until the date of payment at 12% per annum.

Issue (7): Costs

93.
As clarified at the October Hearing, the Claimant seeks its costs of the arbitration both as a matter of contractual entitlement (pursuant to clause 1.2(b)) and pursuant to the applicable provisions of the LCIA Rules and the 1996 Act. The Claimant accepts that the former basis of claim should yield the same amount as the latter, i.e. recovery of reasonable costs incurred in relation to the arbitration.
94.
At the invitation of the Tribunal at the October Hearing, the Claimant's solicitors provided a detailed Statement of Costs on 27 October 2016 showing a breakdown of the total figure claimed of £112,990.25, including the LCIA filing fee of £1,750, but excluding the remaining LCIA costs and Tribunal fees and disbursements. The Respondent was invited (on 27 October 2016 by Claimant and on 2 November 2016 by the Tribunal) to comment on the costs claimed by the Claimant and given seven days in which to do so. The Respondent made no comments about the costs claimed, either as a matter of principle or quantum.

Which party should bear the costs?

95.
Section 61(2) of the 1996 Act provides as follows:

"Unless the parties otherwise agree, the tribunal shall award costs on the general principle that costs shall follow the event except where it appears to the tribunal that in the circumstances this is not appropriate in relation to the whole or part of the costs."

96.
Article 28(4) of the LCIA Rules provides as follows:

"Unless the parties otherwise agree in writing, the Arbitral Tribunal shall make its orders on both arbitration and legal costs on the general principle that costs should reflect the parties' relative success and failure in the award or arbitration, except where it appears to the Arbitral Tribunal that in the particular circumstances this general approach is inappropriate"

97.
Pursuant to these applicable provisions, the basic rule is that costs shall be borne by the unsuccessful party. It is clear that the Respondent is the unsuccessful party in this matter, and that there are no particular circumstances that would warrant a departure from the basic rule that costs should be borne by the unsuccessful party.

Which costs are recoverable?

98.
Recoverable costs include both the costs of the arbitration and the legal or other costs incurred by the parties in the course of this matter.
99.
Section 63(1) of the 1996 Act provides that the parties are free to agree what legal costs of the arbitration are recoverable Section 63(5) provides that the recoverable amount of legal or other costs shall be determined on the basis of a reasonable amount in respect of all costs reasonably incurred.
100.
Article 28(3) of the LCIA Rules provides as follows:

"The Arbitral Tribunal shall also have the power to decide by an award that all or part of the legal or other expenses incurred by a party (the "Legal Costs") be paid by another party. The Arbitral Tribunal shall decide the amount of such Legal Costs on such reasonable basis as it thinks appropriate." (emphasis added)

101.
In this case, the parties have not agreed what type and amount of legal costs would be recoverable. We determine the costs on such reasonable basis as we think appropriate, pursuant to the applicable provisions identified above.
102.
The Claimant seeks payment of the total amount of £112,990.25 for legal fees as well as disbursements in respect of this arbitration, and including the LCIA filing fee. Although we have been provided with a break -down of the legal fees and costs incurred by the Claimant, we have not been provided with either narratives or timesheets in relation to the amounts of hours spent by the Claimant's legal team on this arbitration. That said, the Respondent did not comment on the Claimant's costs schedule when given an opportunity to do so.
103.
The Tribunal considers that £100,000 represents a reasonable amount for legal fees and disbursements in the circumstances of these proceedings, given the amount at stake and the steps required to bring the matter on for relatively speedy determination during the course of this year. The Tribunal accordingly awards the Claimant the sum of £100,000 by way of legal fees and disbursements.
104.
In addition the Tribunal orders the Respondent to pay to the Claimant the full amount of the LCIA’s administrative costs as well as the Tribunal's fees and disbursements being the costs of the Arbitration. In accordance with Article 28(3) of the LCIA Rules, these costs (other than the legal or other costs incurred by the parties themselves) have been determined by the LCIA Court as follows:

104.1. Filing fee of £ 1,750.00

104.2 LClA's administrative costs of £ 7,406.64

104.3.Tribunal's fees and disbursements of £40,641 39

104.4.Total costs of the Arbitration £49,798.03

Towards these costs the Claimant has paid £49,798.03 which includes the Registration fee, deposits and interest accrued. The Respondent did not lodge any funds.

105.
Therefore, Respondent must reimburse Claimant the sum of £49,798.03 in respect of the LCIA costs and the Tribunal's fees and disbursements.
106.
The Claimant has not requested interest (whether pre-award or post-award) on its costs claims. Accordingly the Tribunal awards none.

F. CONCLUSIONS

107.
The Tribunal has considered all of the issues submitted to it for determination in the List of Issues, by reference to the evidence disclosed and relied upon by the parties as identified above. The Tribunal rejects the Settlement Defence advanced by the Respondent. The Tribunal accordingly finds that the Respondent is liable to pay principal and interest to the Claimant pursuant to the terms of the Guarantee, together with costs of this arbitration as assessed above.

We therefore DECLARE and AWARD as follows:

1. The Respondent shall pay to the Claimant the following sums:

(1) US$1,500,000

(2) Interest accrued as at the date of this Award, namely US$560,163.80

(3) Post-Award simple interest on the sum of $1,500,000 from 17 December 2016 until the date of payment at 12% per annum.

2. It is declared that no legally binding or enforceable settlement or discharge or release of the Respondent's accrued liability to the Claimant under the Guarantee was concluded as alleged or otherwise.

3. The Respondent shall pay the sum of £100,000 to the Claimant in respect of its legal costs and associated disbursements incurred in respect of this arbitration.

4. The Respondent shall pay the sum of £49,798.03 to the Claimant in respect of the LCIA's administrative costs as well as the Tribunal's fees and disbursements

5. All other claims and requests are denied.

Subsequent citations of this document as a whole:
Subsequent citations of this excerpt:
Click on the text to select an element Click elsewhere to unselect an element
Select a key word :
1 /

This feature requires a subscription

Get access to the most extensive & reliable source of information in arbitration

REQUEST A FREE TRIAL

Already registered ?