(1) a provisional charging order pursuant to section 3(1) of the Charging Orders Act 2020 and/or rule 48.5(1) Civil Procedure Rules 2000 ('CPR’);
(2) injunctive relief against registered agents and the Registrar of Corporate Affairs, and the Third to Fifth Respondents, who are PIA Investments Limited, Minhal Incorporated, and PIA Hotels Limited (together, the BVI Companies);
(3) a receiver to be appointed;
(4) an order to seal the Court file.
(1) permission to register and recognise and enforce an International Centre for Settlement of Investment Disputes ('ICSID') arbitration award pursuant to section 1(2) of the UK Arbitration (International Investment Disputes) Act 1966, as extended to the BVI and amended by the UK Arbitration (International Investment Disputes) Act 1966, Order (SI 1967/159), or alternatively, to sections 81 and 82 of the Arbitration Act 2013;
(2) orders that service of the Claim Form on the Defendants, being the First and Second Respondents (the Islamic Republic of Pakistan and Pakistan International Airways Corporation Limited) be dispensed with.
(1) a commercial mortgage in respect of the New York hotel had recently been acquired by the National Bank of Pakistan, giving Pakistan, which ultimately owns and controls the National Bank of Pakistan, the ability to foreclose on the hotel and thereby to shield it from enforcement action; and
(2) a Certificate of Good Standing had been issued for the Third Respondent, suggesting a possible re-domiciliation and/or asset or share transfer could be imminent.
(1) a breach of duty on the part of the Applicant to give full and frank disclosure and fair presentation;
(2) state immunity on the part of the First Respondent;
(3) in respect of the Second to Fifth Respondents, that they are not to be treated as the First Respondent's assets; and
(4) no solid evidence of a real risk of dissipation.
(1) TCC has not advanced a pleaded case for provisional charging order relief on any basis other than the Charging Orders Act 2020; and
(2) The statutory basis for the Court’s jurisdiction to make provisional charging orders is Part XIV of the English Judgments Act 1838, as imported into the Territory of the Virgin Islands ('BVI') by section 7(1) of the Eastern Caribbean Supreme Court Act, Cap 80. Counsel for PIA Pakistan submitted that that scheme does not help TCC because it engages in respect to the property of a person 'against whom any judgment shall have been entered in any of Her Majesty's Superior Court’. That is not PIA Pakistan.
Lawrence Collins LJ described the treatment of immunity at an ex parte hearing in ETI Euro Telecom International NV v Republic of Bolivia & Anor1 at paragraph 110, as being 'of the greatest importance’.
"(1) A state is immune from the jurisdiction of the Courts of the BVI, except as provided for in the following provisions of this Part of the Act.
(2) The Court shall give effect to the immunity conferred by this section even though the State does not appear in the proceedings in question."
A defining feature of the current law on state immunity is the distinction between and the separate treatment of immunity from adjudication (in other words, the court's hearing a case and taking a decision on the merits) and immunity from enforcement or execution (in other words, the court's taking a forcible measure either before or during the adjudication, or following and in execution of a judgment), with the consequent principle that loss of immunity from adjudication whether due to a waiver of immunity by the defendant foreign state or because of a denial of immunity by the Court, does not entail loss of immunity from enforcement or execution.
A State is not immune as respects proceedings relating to [...] a commercial transaction entered into by the State.
And section 9(1) of the SIA:
Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the Courts of the [BVI] which relate to the arbitration.
Subject to subsections (3) and (4) below [...] the property of a State shall not be subject to any process for the enforcement, and
not recognition or registration, but solely enforcement of a judgment or arbitration award.
"Subsection (2) above does not prevent the giving of any relief or the issue of any process with the written consent of the State concerned; and any such consent (which may be contained in a prior agreement) may be expressed so as to apply to a limited extent or generally; but a provision merely submitting to the jurisdiction of the Courts is not to be regarded as a consent for the purposes of this subsection."
In light of the fact that TCC knew that Pakistan was pursuing arguments on adjudicative immunity in two other jurisdictions, it was incumbent upon TCC to bring this to the Court's attention. This is clear from the decision of Teare J in the English High Court case of Gold Reserve Inc v Bolivarian Republic of Venezuela.3 I should also add, that even if TCC had advanced a case at the ex parte stage that there was submission by agreement by reason of the ICSID Convention, this was not a matter which TCC could unilaterally decide was so hopeless that they had no need to mention it to the Court under its obligation of full and frank disclosure.
What then is a 'step in the proceedings'? It has been discussed in several cases. On principle it is a step by which the defendant evinces an election to abide by the Court proceedings and waives his right to ask for an arbitration. Like any election, it must be an unequivocal act done with the knowledge of the material circumstances.
On these authorities, it seems to me that in order to deprive a defendant of his recourse to arbitration a 'step in the proceedings' must be one which impliedly affirms the correctness of the proceedings and the willingness of the defendant to go along with a determination by the Courts of law instead of arbitration.
Applying this principle, the defendants here were presented with a writ endorsed with a statement of claim which was very defective. They applied, quite properly, to strike it out. That was not an affirmation of the correctness of the proceedings. Quite the contrary. It was a disaffirmation of them. It was not a 'step in the proceedings' such as to debar the defendants from applying for a stay.
Moreover, Article 54(1) of the Convention imposes on Pakistan, as a contracting state, an obligation to allow recognition and enforcement of the award before its own courts. Article 54(1) places no obligation on Pakistan, at all, before the BVI courts and so it cannot constitute a waiver by Pakistan of its immunity or anything else.
TCC's ex parte presentation adverted only to potential issues of enforcement immunity. It ignored potential issues of adjudicative immunity. That was a significant failure of TCC's duty of full and frank disclosure and fair presentation. As Burnton LJ in E.T.L Euro Telecom International N.V. v Bolivia et al.6 said at paragraph 128:
"Any claimant who wishes to bring proceedings against a state must be in a position to address the issue as to the jurisdiction of the Court when he seeks to invoke the jurisdiction of the Court. If he seeks an injunction against the state on an application without notice he must do so then. The Court must then consider the question of state immunity. Since it is required by section 1, subsection (2) of the 1978 Act, to give effect to the immunity, even if the state does not appear, where injunctive relief is sought the claimant must deal both with the immunity from the adjudicative jurisdiction of the Court and with the immunity from enforcement. It is simply not open to such a claimant to complain that he is not in a position to deal with such jurisdictional issues on its application without notice, and this is even more so on an application on notice. In a case such as the present, the Court must consider and decide the question of state immunity at as early a stage on the proceedings as practicable."
TCC had submitted that service was not necessary because, first, our CPR envisages that an ex parte application is to be supported by an affidavit in order to achieve registration and subsequent enforcement of an arbitration award and, secondly, there are two English cases, General Dynamics United Kingdom Ltd v State of Libya7 and Union Fenosa Gas SA v Arab Republic of Egypt8 which support a proposition that service is not required.
The general rule is that an application -
(a) for permission to enforce an award; or
(b) to register an award;
may be made without notice but must be supported by evidence on affidavit."
"The applicant must -
(a) exhibit to the affidavit the award or a copy of it;
(b) give an address for service on the person against whom the applicant seeks to enforce the award; and
(c) (if the award is for the payment of money) certify the amount remaining due to the applicant."
(1) There is documentary evidence that the Government of Pakistan treats PIA Pakistan and subsidiaries as national assets.
(2) The Government of Pakistan is recorded as holding at least 92 percent of the shares in PIA Pakistan and possibly more than 94 percent.
(3) Its CEO is an Air Marshall of the Pakistan Air Force. Although he is now reportedly retired from that post, he combined the role of acting CEO with his senior military service.
(4) Several other Pakistan Air Force officers are senior members of PIA Pakistan's management team, and senior members of the Government of Pakistan and civil servants serve as directors of PIA Pakistan.
(5) PIA Pakistan is reportedly dependent upon government financial support to maintain itself as a going concern, with 'constant support' being given.
(6) It is said that it still operates as a government department, and that, too, as a highly bureaucratic one.
(7) PIA Pakistan is run on manifestly uncommercial lines, with a disproportionately large personnel complement compared to the number of working aircraft.
(8) There is evidence of reference to constant interference by political superiors of those charged with running PIA Pakistan.
(9) There is evidence that decisions are taken in relation to the business of PIA Pakistan by politicians without reference to those who are supposed to be running it.
(10) PIA Pakistan has a hundred percent controlling interest in the Third Respondent. The Third Respondent is the sole shareholder in the Fifth Respondent. PIA Pakistan is reported to have a hundred percent effective ownership and voting power in respect of the Fifth Respondent.
(11) PIA Pakistan’s 2017 board minutes have described the two hotels, that is, the one in Paris and the one in New York, which are ultimately held through the BVI Companies, as 'national assets', and that PIA Pakistan is not at liberty to sell or borrow against those assets.
(12) Possible dealings in the hotels were required to be submitted to a Pakistan cabinet body on privatisation, suggesting that they are de facto public assets.
(13) TCC observes that the hotel properties are held through vertical multi-jurisdictional holding structures which have no apparent commercial or tax reasons.
Both sides rely in this regard upon the Privy Council case of La Générale des Carrières et des Mines v FG Hemisphere Associates LLC,12 ('Gécamines'). This case specifically addresses the approach the Court should take when considering whether or not assets of a state or assets of state entities are to be treated as amenable to enforcement. It is important to consider what the Court was, and was not, told about Gécamines at the ex parte hearing on 3rd December 2020.
(1) cases such as the present, where creditors seek to enforce against state-owned entities, are rare in this Jurisdiction;
(2) a superficial reading of Gécamines gives the impression that the test may be somewhat more flexible than it in fact is; and
(3) it is a long decision which differentiates previous authority and weaves together principles of company law and international law.
Mr. Willins took the Court at the substantive return date hearing through the case. From the report the following is apparent. The key paragraphs are 29, 30 and 54. These contain pronouncements by Lord Mance. At paragraph 29, Lord Mance said the following:
Separate juridical status [of an entity] is not however conclusive. An entity's constitution, control and functions remain relevant: paragraph 25 above. But constitutional and factual control and the exercise of sovereign functions do not without more convert a separate entity into an organ of the State. Especially where a separate juridical entity is formed by the State for what are on the face of it commercial or industrial purposes, with its own management and budget, the strong presumption is that its separate corporate status should be respected and that it and the State forming it should not have to bear each other's liabilities. It will in the Board's view take quite extreme circumstances to displace this presumption. The presumption will be displaced if in fact the entity has, despite its juridical personality, no effective separate existence. But for the two to be assimilated generally, an examination of the relevant constitutional arrangements, as applied in practice, as well as of the State's control exercised over the entity and of the entity's activities and functions would have to justify the conclusion that the affairs of the entity and the State were so closely intertwined and confused that the entity could not properly be regarded for any significant purpose as distinct from the State and vice versa. The assets which are (subject to waiver and to the commercial use exception in section 13(4) of the 1978 Act) protected by State immunity should be the same as those which against the State's liabilities can be enforced. This was, rightly, recognised by Pleming JA in the Court of Appeal at paragraph 255.
And paragraph 30:
"There may also be particular circumstances in which the State has so interfered with or behaved towards a state-owned entity that it would be appropriate to look through or past the entity to the State, lifting the veil of incorporation. But any remedy should in that event be tailored to meet the particular circumstances and need. That is the position under domestic law (as to which see Munby J's final point in his paragraph 164 quoted in paragraph 23 above). It must equally be so in the Board's view under international law. Merely because a State's conduct makes it appropriate to lift the corporate veil to enable a third party or creditor of a state-owned corporation to look to the State does not automatically entitle a creditor of the State to look to the state-owned corporation. Lifting the veil may mean that a corporation is treated as part of the State for some purposes, but not others."
And paragraph 54:
"Those in day-to-day charge of Gécamines' affairs were vulnerable to having any important decisions which they took, reviewed and vetoed by other State authorities. But that does not mean that Gécamines had no real existence as a separate entity, or that it should be viewed for all purposes as assimilated to the DRC.”
(1) Is the entity wholly owned by the State?
(2) Where does the entity's income flow from?
(3) How much power and potential control is given to the state in the entity's articles of incorporation?
(4) Do government actors have a power of veto over decisions to dispose of or deal in the entity's property?
(5) Is the entity subject to separate accounting audits?
(6) Is it treated as a separate entity by tax authorities?
(7) What is the origin of the entity's assets?
(8) How do the entity's accounts treat its assets and activities?
(9) How are loans to the entity treated?
(10) Is the entity a sham entity?
(11) Is it a real and functioning corporate entity?
(12) Has it substantial assets?
(13) Has it a substantial business?
(14) Has it its own budget and accounting?
(15) Has it its own borrowing, its own debt, its own tax and other liabilities?
(16) Has it its own differences with government departments?
The Court was not told that it was such an in-depth investigation that would be required before a conclusion could be formed that there is, in reality, identity between the entity and the State. These questions go to the question whether, as expressed at paragraph 74 of Gécamines, the circumstances proved show that its juridical personality and its, apparently separate, commercial assets and business are so far lacking in substance and reality as to justify assimilating the entity and the State for all purposes.
The Privy Council also cautioned against according too much weight to the characterisation of politicians, and it is reasonable to suppose, other laymen, that an entity's assets are the State's assets, when legally they are not. See, for example, paragraph 69 in Gécamines.
In relation to lifting the corporate veil to look through the entity to the state for enforcement purposes, on the grounds of state interference, there is paragraph 77 of Gécamines. Lord Mance said:
The alternative way in which Hemisphere puts its case is to submit that, if Gécamines is otherwise accepted as a separate juridical entity, the facts found justify the lifting of the corporate veil to enable Hemisphere to pursue Gécamines as well as the State. In the Board's view, this involves a misapplication of any principles upon which the corporate veil may be lifted under domestic and international law. Assuming for the sake of argument that the unceremonious" subjecting of Gécamines to the controlling will of the State involved a breach by the State of its duty to respect Gécamines as a separate entity, that might conceivably justify an affected third party, possibly even an aggrieved general creditor of Gécamines, in suggesting that the corporate veil should be lifted to make the State, which had deprived Gécamines of assets, liable for Gécamines' debts. The Board need express no further view on that possibility. It represents the inverse of the present situation. There is no basis for treating the State's taking or Gécamines' use of Gécamines' assets for state purposes, at which Hemisphere directs vigorous criticism, as a justification for imposing on Gécamines yet further and far larger burdens in the form of responsibility for the whole of the debts of the DRC. In international law as in domestic law, lifting the corporate veil must be a tailored remedy, fitted to the circumstances giving rise to it."
Moreover, in paragraphs 23 to 27 of Gécamines, the Privy Council explained that 'there may not always be a precise equation between factors relevant to the lifting of the corporate veil under domestic and international law'. The Privy Council noted, at paragraph 23, the basic propositions pertaining to lifting the corporate veil in domestic law, as conveniently summarised in the case of Ben Hashem v Ali Shayif.13 As is trite, the corporate veil is not lifted lightly. The circumstances in which the Court will do so are very narrow. They basically require five conditions to be satisfied:
(1) sufficient ownership and control;
(2) there has to be some impropriety;
(3) the impropriety must be linked to use of the corporate structure to avoid or conceal liability;
(4) the company must be used by the wrongdoers of the impropriety in question at the time of the relevant transactions as a device or facade to conceal their wrongdoing; and
(5) the veil will be lifted only so as to provide a remedy for the particular wrong in question.
It is necessary to take account of all the circumstances of the case including (without attempting an exhaustive list): (i) the importance of the facts not disclosed to the issues which the judge making the freezing order had to decide; (ii) the need to encourage proper compliance with the need for full and frank disclosure and to deter non-compliance; (iii) whether or to what extent the failure to disclose was culpable; and (iv) the injustice to a claimant which may occur if an order is discharged leaving a defendant free, for example, to dissipate assets, although a strong case on the merits will never be a good excuse for a failure to disclose material facts.17
(1) the provisional charging orders over the shares in the BVI Companies;
(2) the injunctions against the BVI Companies and the Sixth, Seventh and Eighth Respondents;
(3) the receivership order over the shares in the Third and the Fifth Respondents;
(4) the application that service on PIA Pakistan of the Claim Form and further documents in these proceedings be dispensed with; and
(5) the application for permission to serve the Claim Form on PIA Pakistan out of the jurisdiction and by way of alternative service.
(1) refusing to grant a mining lease to TCC after TCC and/or its predecessor had spent upwards of about US$250 million in prospecting for mineral deposits, with such refusal allegedly constituting breach by Pakistan of its fair and equitable treatment obligations under a treaty;
(2) unlawful expropriation of TCC's investment, as well as unlawful impairment of TCC’s investment, and using TCC’s work product as its own.
(1) The orders of 10th December 2020 are set aside with effect from 4pm on 4th June 2021, save that the receivership order over the shares of the Third and the Fifth Respondents is discharged immediately.
(2) The parties have leave to appeal, save in respect of the Charging Orders Act 2020.
(3) The incidence and quantum of costs is to be addressed at a further hearing.
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