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Linde Gmbh And Another v Ruschemalliance Llc

Judgment Cited authorities 23 Cited in Precedent Map Related
Vincent
JurisdictionHong Kong
Judgment Date27 September 2023
Neutral Citation[2023] HKCFI 2409
Subject MatterConstruction and Arbitration Proceedings
Judgement NumberHCCT19/2023
Year2023
HCCT19/2023 LINDE GMBH AND ANOTHER v. RUSCHEMALLIANCE LLC

HCCT 19/2023

[2023] HKCFI 2409

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 19 OF 2023

____________________

BETWEEN
LINDE GMBH 1st Plaintiff
LINDE PLC 2nd Plaintiff
and
RUSCHEMALLIANCE LLC Defendant

____________________

Before: Hon Mimmie Chan J in Chambers
Date of Hearing: 16 August 2023
Date of Decision: 27 September 2023

_____________

D E C I S I O N

_____________

Background

1. Dispassionately considered, this is an application for an anti‑suit injunction to be continued, on the basis of an arbitration agreement contained in a contract made between the 1st Plaintiff and the Defendant on 4 June 2021 for the engineering, procurement and construction of a gas processing plant (“Contract”). The obligations of the 1st Plaintiff as contractor were guaranteed by the 2nd Plaintiff (the parent company of the 1st Plaintiff) under a Parent Company Guarantee (“Guarantee”). Both the Contract and the Guarantee are governed by English law, and each contains an arbitration agreement which provides that any dispute shall be referred to and be finally resolved by arbitration administered by the HKIAC, the arbitration agreement to be governed by Hong Kong law, and the seat of the arbitration shall be Hong Kong.

2. None of the above is disputed.

3. The 1st Plaintiff is headquartered in Germany, and is a subsidiary of the 2nd Plaintiff, a global industrial gases and engineering company, headquartered in Ireland. The 1st Plaintiff formed an unincorporated consortium with Renaissance Heavy Industries (“RHI”) to be, individually and in any combination, the contractor (“Contractor”) in respect of the services undertaken under the Contract with the Defendant. The Defendant is incorporated in Russia and is a special purpose vehicle established for the implementation of a project in a gas processing complex to be constructed in Russia. It was to be the owner of a large scale complex for processing ethane-containing gas in Russia, which includes a liquefied natural gas plant (“LNG Project”) and a gas processing plant (“GPP Project”). The Contract was made between the 1st Plaintiff and RHI as Contractor and the Defendant as Owner of the GPP Project. A substantially similar contract was made between the same parties on 9 September 2021 in respect of the LNG Project.

4. Disputes arose when regulations for sanctions were introduced by the European Union (“EU”) as a result of Russia’s invasion of Ukraine (“Sanctions”), which on the Plaintiffs’ case caused the Contractor to suspend performance of its obligations and works under the Contract.

5. It is not disputed that on 31 July 2014, prior to the Contract made between the parties, Regulation 833/2014 (“Regulation 833”) had been introduced by the Council of the EU, which included prohibitions and restrictions on the sale, transfer and export of certain goods, technologies and services to Russia. On 25 February 2022, Regulation 328/2022 of the EU (“Regulation 328”) extended the prohibition and restrictions to goods and technology suited for use in oil refining (by virtue of “Article 3b para 1” thereof). Article 3b para 2 also extended the prohibition to the provision of technical as well as financing or financial assistance related to the relevant goods and technology. On 8 April 2022, the prohibitions and restrictions on the sale, transfer or export were extended to natural gas in the oil sector.

6. The Contractor in fact applied to the German authority responsible for implementing the Sanctions (“BAFA”) for export permission in respect of the design, export and construction of the natural gas liquefaction plants for the GPP Project and the LNG Project. On 18 May 2022, BAFA issued a decision, declaring that the export of the natural gas liquefaction equipment was prohibited from 28 May 2022, as the plant which was the subject of the Contractor’s application falls within the ambit of the goods and technologies set out in Annex X of Regulation 833, and was prohibited pursuant to Article 3b para 1.

7. On 23 May 2022, the Contractor issued a Sanctions Notice to the Defendant (“1st Sanctions Notice”), notifying the Defendant (as “Owner” under the Contract) of the complete suspension of works in respect of the GPP Project, pursuant to the occurrence of a Sanctions Prevention Event as defined in the Contract, and with effect from 28 May 2022. A similar notice was issued for the LNG Project. Shortly thereafter, on 18 July 2022, the 1st Plaintiff claimed from the Defendant suspension costs in relation to the GPP Project, in an amount equivalent to Euros 7,327,310.45 (“Suspension Costs Claim”).

8. As summarized in the Skeleton Submissions filed on behalf of the Defendant, its case is that the amendments to Regulation 833 had limited impact on the GPP Project, and that the 1st Plaintiff had breached the Contract by suspending those portions of the work that were not affected by the Sanctions. According to the Defendant, the actions of the 1st Plaintiff as Contractor created a deadlock for the parties, as no work could be further performed under the Contract. The Defendant considered that the 1st Plaintiff’s unilateral suspension of works with no definite end date was unlawful and in material breach of the Contract, and on 6 June 2022, the Defendant issued its Notice of Purported Breach pursuant to the Contract. After the 1st Plaintiff failed or refused to remedy its breach pursuant to the notices served by the Defendant, the Defendant issued a termination notice of the Contract on 23 September 2022 (“1st Termination Notice”).

9. Under the Contract, the Defendant had paid to the Contractor a total sum of approximately Euros 962 million as advance payment for the performance of works under the Contract (“Advance Payment”). Approximately Euros 662 million of this was paid to the 1st Plaintiff, and a similar amount was paid for the LNG Project. The Defendant claims that upon its lawful termination of the Contract, it was contractually entitled to reimbursement of the Advance Payment, as well as damages.

10. On 21 November 2022, the Defendant made demands against the 2nd Plaintiff under the Guarantee, for the return to the Defendant of the Advance Payment which had not been accounted for by way of works executed and earned under the Contract, in an amount of Euros 946,543,608 (“Unearned Advance Payment”). The Defendant also made calls for payment under guarantees issued by third party banks for the GPP Project. These demands were not met, the banks notifying the Defendant that they could not make good on the guarantees as a result of the Sanctions and the restrictions imposed under Regulation 833 and in particular, Article 3b(2)(b) in connection with Article 11(1)(a) of Regulation 833.

11. Article 11(1) of Regulation 833 states:

“1. No claims in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation, including claims for indemnity or any other claim of this type, such as a claim for compensation or a claim under a guarantee, notably a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form, shall be satisfied, if they are made by:

(a) entities referred to in points (b) or (c) of Article 5, or listed in Annex III;

(b) any other Russian person, entity or body;

(c) any person, entity or body acting through or on behalf of one of the persons, entities or bodies referred to in points (a) or (b) of this paragraph.”

12. Article 3b was inserted by Regulation 328, and provides as follows:

“Article 3b

1. It shall be prohibited to sell, supply, transfer or export, directly or indirectly, goods and technology suited for use in oil refining, as listed in Annex X, whether or not originating in the Union, to any natural or legal person, entity or body in Russia or for use in Russia.

2. It shall be prohibited to:

(a) provide technical assistance, brokering services or other services related to the goods and technology referred to in paragraph 1 and to the provision, manufacture, maintenance and use of those goods and technology, directly or indirectly to any natural or legal person, entity or body in Russia or for use in Russia.

(b) provide financing or financial assistance related to the goods and technology referred to in paragraph 1 for any sale, supply, transfer or export of those goods and technology, or for the provision of related technical assistance, brokering services or other services, directly or indirectly to any person, entity or body in Russia or for use in Russia.

3. The prohibitions in paragraphs 1 and 2 shall not apply to the execution until 27 May 2022 of contracts concluded before 26 February 2022, or ancillary contracts necessary for the execution of such contracts.”

13. On 25 October 2022, the Defendant issued a Dispute Notice in respect of the 1st Termination Notice, thereby challenging the Contractor’s rejection of the purported termination of the Contract.

14. On 30 November 2022, the Defendant applied to the Russian Court for an injunction to freeze assets owned by the Plaintiffs and their subsidiaries in Russia. The application was stated to be for the grant of preliminary interim measures to secure property interests before the filing of a claim, which can be made by the court at any stage of arbitration proceedings. In the application for interim measures, the Contract and the Guarantee were referred to,...

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