Anatolie Stati and Others v The Republic of Kazakhstan
| Jurisdiction | England & Wales |
| Judge | Knowles J |
| Judgment Date | 06 June 2017 |
| Neutral Citation | [2017] EWHC 1348 (Comm) |
| Docket Number | Case No: CL-2014-000070 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 06 June 2017 |
[2017] EWHC 1348 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Knowles CBE
Case No: CL-2014-000070
Thomas Sprange QC and Ruth Byrne (instructed by King & Spalding) for the Claimants
Ali Malek QC, Christopher HarrisandPaul Choon Kiat Wee (instructed by Herbert Smith Freehills) for the Defendant
Hearing dates: 6–7 February 2017
Introduction
On 19 December 2013 in arbitral proceedings seated in Sweden ("the Arbitration"), the Defendant ("the State") was ordered to pay damages in excess of US$500 million to the Claimants ("the Award").
The Arbitration was instituted pursuant to the Energy Charter Treaty ("the ECT"). The arbitral tribunal ("the Tribunal") comprised Professor Karl-Heinz Bockstiegel, Mr David R Haigh QC and Professor Sergei Lebedev.
The Award is within the New York Convention (the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958). The Claimants sought permission to enforce the Award in this jurisdiction and on 28 February 2014 permission was initially granted, on the Claimants' 'without notice' application. On 30 September 2014 the Claimants also commenced proceedings in the United States District Court for the District of Columbia ("the US Court") to enforce the Award in the United States.
Meanwhile in the country of the seat, the State applied to the Svea Court of Appeal ("the Swedish Court"), to set aside the Award.
On 7 April 2015 the State issued an application ("the English Application") to set aside the permission that had been granted to enforce the Award in this jurisdiction. At that time, the State took three points. First that there was no valid arbitration agreement. Second that the Tribunal was invalidly constituted. Third that there had been a number of serious procedural errors which had the effect of preventing the State from presenting its case to the Tribunal.
Shortly after the English Application was issued, the State was successful in an application in the United States for judicial assistance ("the US Disclosure Proceedings"), an application that had been contested by the Claimants but resulted in a subpoena against a third party compelling the production of documents. It is the State's case that the documents produced revealed fraud by the Claimants. On 27 or 28 August 2015 the State applied to amend the English Application to add the contention that enforcement of the Award would contravene English public policy by reason of fraud by the Claimants.
On 3 September 2015 Popplewell J stayed the English Application pending the determination of the proceedings before the Swedish Court to set aside the Award. The grounds before the Swedish Court were amended to add the contention that the Award should be declared invalid on the basis that it would contravene Swedish public policy by reason of fraud by the Claimants.
In due course on 9 December 2016 the Swedish Court decided the amended application before it and dismissed that application. Meanwhile on 11 May 2016 the US Court had refused a motion by the State to amend to add the alleged fraud to its grounds.
The State accepts that the decision of the Swedish Court precludes it from pursuing the three points it originally took in the English Application. The Claimants' position is that there is no sufficient basis for the State to pursue the allegation of fraud that remains. Moreover, argue the Claimants, the decisions of the Swedish Court and of the US Court preclude the State from pursuing the contention that enforcement would contravene English public policy by reason of that alleged fraud.
On this hearing the Claimants request that I dismiss the English Application. The State requests that I allow the English Application (duly amended) to proceed to a trial.
Approach
The following principles from the authorities cited by the parties sufficiently summarise the approach to be taken:
(1) "Recognition or enforcement of a New York Convention award shall not be refused except in the following cases …if it would be contrary to public policy to recognise or enforce the award": section 103(1) and (3) Arbitration Act 1996.
(2) "[T]he public policy exception in section 103(3) is confined to the public policy of England (as the country in which enforcement is sought) in maintaining the fair and orderly administration of justice: Mustill & Boyd, at pp. 91–92."; IPCO (Nigeria), Ltd v Nigerian National Petroleum Corporation [2005] EWHC 726 (Comm); [2005] 2 Lloyd's Rep 326 at [13] per Gross J.
(3) When addressing the question whether an award has been obtained by fraud or the award or the way in which it was procured is contrary to public policy the Court will normally look to see whether "some form of reprehensible or unconscionable conduct has contributed in a substantial way to the obtaining of the award": see Double K Oil Products 1996 Limited v Neste Oil OYJ [2009] EWHC 3380 (Comm); [2010] 1 Lloyd's Rep 141 at [33] per Blair J; and see Gater Assets Ltd v Nak Naftogaz Ukrainiy [2008] 1 CLC 141 at [41] per Tomlinson J ("That means conduct which we would be comfortable in describing as fraud, conduct dishonestly intended to mislead").
(4) It may be sufficient to show that a party "had deliberately and dishonestly failed to disclose [material] in the arbitration and made submissions or called evidence which deliberately and dishonestly continued that concealment and misled the tribunal" and that the material would have had "an important influence on or would probably have affected the result of the arbitration": Chantiers de l'Atlantique SA v Gaztransport & Technigaz SAS [2011] EWHC 3383 (Comm) at [58] and [311] per Flaux J.
(5) "[C]onsiderations of public policy, if relied upon to resist enforcement of an award, should be approached with extreme caution": IPCO (Nigeria), above, at [13].
(6) "[T]here can be no realistic doubt that s. 103 of the [Arbitration] Act embodies a pre-disposition to favour enforcement of New York Convention Awards, reflecting the underlying purpose of the New York Convention itself": IPCO (Nigeria), above, at [11].
(7) For the English Court to permit a party to pursue to a trial of the issues an allegation that a New York Convention award was obtained by fraud, normally two conditions will require to be fulfilled: Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd [2000] QB 288 (CA) at 309F per Waller LJ (dissenting in the result).
(8) The first condition is "that the evidence to establish the fraud was not available to the party alleging the fraud at the time of the hearing before the arbitrators": Westacre, above, at 309F, but noting the qualification at G-H.
(9) The second condition is that "there is a prima facie case of fraud which is sufficient to overcome the extreme caution of the court when invited to set aside an award on the grounds of public policy": IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2015] EWCA Civ 1144; [2016] 1 Lloyd's Rep 5 at [191] per Christopher Clarke LJ.
(10) And "where perjury is the fraud alleged, i.e., where the very issue before the arbitrators was whether the witness or witnesses were lying, the evidence must be so strong that it would reasonably be expected to be decisive at a hearing, and if unanswered must have that result.": Westacre, above, at 309G.
I add that as a Judge of this Court, I should accord the greatest respect to the Swedish Court, as to the US Court. I do so willingly in both cases. If anything, the importance of mutual respect between courts that have responsibilities in relation to commercial arbitration that is of international reach – whether responsibilities in relation to oversight or enforcement — is increasing all the time as commerce becomes more globalised and interconnected.
The LPG Plant
The business subject matter of the Arbitration concerned the exploration and extraction of hydrocarbons.
The damages awarded included damages for the value of a liquefied petroleum gas plant ("the LPG Plant"). Tolkynneftegaz LLP ("TNG") was the owner of the equity interest in the LPG Plant. By 2002 the Claimants had acquired the whole of TNG.
On the question of the level of damages, the Claimants argued in the arbitration that the LPG Plant should be valued as a going concern. The State argued that the LPG Plant should be valued as scrap because, they contended, the project behind it had failed.
Before the Tribunal, the Claimants claimed to have invested more than US$245 million in the development and construction of the LPG Plant. This was the evidence of the first Claimant himself, and of Mr Artur Lungu called by the Claimants, each by witness statement and in oral evidence before the Tribunal. It carried through into expert reports and into statements from arbitration counsel. The figure was not broken down, but did appear in audited or reviewed financial statements of TNG.
The Claimants also relied in the Arbitration on a number of indicative bids for the acquisition of the LPG Plant, within a bidding process in 2008 known as Project Zenith. One of the indicative bids had been submitted by a subsidiary of KazMunaiGas ("KMG"), an oil and gas company controlled by the State, in September 2008. For the LPG Plant the bid estimated a value of US$199 million ("the KMG Indicative Bid").
As shown below, the Tribunal decided to base its assessment of the valuation of the LPG Plant on the KMG Indicative Bid, awarding damages of US$ 199 million in respect of the LPG Plant.
The Award
The essential parts of the Award are as follows:
"1743. First, in addition to...
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