Anatolie Stati v The Republic of Kazakhstan
| Jurisdiction | England & Wales |
| Judge | Lord Justice David Richards,Leggatt LJ,Patten LJ |
| Judgment Date | 10 August 2018 |
| Neutral Citation | [2018] EWCA Civ 1896 |
| Docket Number | Case No: A4/2018/1309 |
| Court | Court of Appeal (Civil Division) |
| Date | 10 August 2018 |
[2018] EWCA Civ 1896
Lord Justice Patten
Lord Justice David Richards
and
Lord Justice Leggatt
Case No: A4/2018/1309
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
THE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Robin Knowles
CL-2014-000070
Royal Courts of Justice
Strand, London, WC2A 2LL
David Foxton QC, Thomas Sprange QC and Kabir Bhalla (instructed by King & Spalding International LLP) for the Appellants
Joe Smouha QC, Christopher Harris and Dominic Kennelly (instructed by Herbert Smith Freehills LLP) for the Respondent
Hearing date: 31 July 2018
Introduction
This appeal is against an order made by Robin Knowles J on 21 May 2018 whereby he set aside a notice of discontinuance filed by the Appellants as claimants in proceedings under section 101 of the Arbitration Act 1996 to enforce a New York Convention award. He directed that the allegations made by the Respondent of fraud by the Appellants in respect of the award should proceed to trial.
The award was dated 19 December 2013. The Respondent (the State) was ordered to pay damages in excess of US$500 million to the Appellants (the claimants). The arbitration had been instituted pursuant to the Energy Charter Treaty and had its seat in Sweden. The arbitral tribunal found that the claimants' companies in Kazakhstan and their businesses had been the subject of “a string of measures of a coordinated harassment by various institutions” of the State, including tax assessments and criminal penalties leading ultimately to the seizure of the claimants' investments. The tribunal held that this amounted to a breach of the obligation to treat investors fairly and equitably as required by the Treaty.
The damages awarded to the claimants by the tribunal included a sum of US$199 million in respect of the loss of a nearly-completed liquified petroleum gas plant near Borankol in Kazakhstan. The State's allegations of fraud relate to the evidence of the value of this plant adduced before the tribunal by the claimants.
The award is an “arbitral award” for the purposes of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) and steps have been taken by the claimants to enforce the award in numerous jurisdictions, including the United States, Belgium, the Netherlands, Luxembourg, Italy and Sweden.
Procedural history
In February 2014, the claimants issued an arbitration claim form in the Commercial Court seeking permission to enforce the award pursuant to section 101(2) of the Arbitration Act 1996 (the 1996 Act) and judgment in the terms of the award pursuant to section 101(3). Permission to enforce the award was granted by Burton J by an order dated 28 February 2014, which, as provided by CPR 62.18 and is usually the case, was made without notice to the State. In accordance with CPR 62.18, the order was served on the State which had a period of 21 days in which to apply to set aside the order. The order provided, again as required, that the award must not be enforced until the end of that period of 21 days “or until any application made by the Defendant within that 21-day period has been finally disposed of”.
The order (the enforcement order) was served on the State in January 2015 and the State issued an application to set it aside. Permission to enforce the award therefore, by the terms of the order, continued to be suspended and, as a result of later events detailed below, it has never come into effect and will not do so in the future.
The State's application was based on a number of grounds under sections 102 and 103 of the 1996 Act which it is unnecessary to detail. In August 2015, the State applied for permission to amend its application to add a further ground, that enforcement would be contrary to public policy under section 103(3) because the award had, in so far as it relates to the liquified petroleum gas plant, been obtained by fraud. This allegation was made following the disclosure of documents from a related arbitration.
In the meantime, in March 2014, the State had commenced proceedings in Sweden, as the seat of the arbitration, to set aside the award on a variety of grounds. In October 2015, the State added its allegations of fraud in relation to the award. The application was heard by the Svea Court of Appeal (the Swedish court) over 13 days in September-October 2016. Judgment was given in December 2016, refusing the application to set aside the award.
The Swedish court did not determine the truth or otherwise of the fraud allegations. It is sufficient for the purposes of this judgment to say that the court held that they did not provide a ground in Swedish law for setting aside the award. It is not that under Swedish law fraud can never provide grounds for setting aside an award but that the allegedly false evidence must either have been directly determinative of the outcome of the arbitration or, if it had an indirect influence, it must be obvious that it had been of decisive importance for the outcome. In October 2017, the Swedish Supreme Court rejected the State's application to quash the Swedish court's decision and no further appeal is possible.
The English enforcement proceedings were stayed pending determination of the State's application to set aside the award in Sweden. Following the end of the stay, Knowles J heard the State's application to amend the grounds of its application to set aside the enforcement order.
In his judgment given on 6 June 2017 ( [2017] EWHC 1348 (Comm); [2017] 2 Lloyd's Rep 201), Knowles J gave permission to the State to amend its application to include the fraud allegations. He held that the twin tests established by this court in Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd [1999] EWCA Civ 1401; [2000] 1 QB 288 for permitting a party to pursue an allegation that a New York Convention award had been obtained by fraud were satisfied: the evidence to establish the fraud was not available to the party alleging the fraud at the time of the arbitration hearing and there was a sufficient prima facie case of fraud to overcome the extreme caution of the court in setting aside an award on grounds of public policy. He rejected the claimants' submission that the Swedish court's decision gave rise to an issue estoppel precluding the State from advancing its fraud case in the English proceedings. The Swedish court had not made any findings of fact as regards the fraud allegations and, if they were established as a matter of fact, it was for the English court as the enforcing court to decide the application of English public policy. He gave detailed case management directions to which it will be necessary to refer later in this judgment. The claimants applied to the Court of Appeal for permission to appeal, but it was refused on the ground that the application was made out of time.
The English proceedings thereafter continued in accordance with those directions, with both parties serving pleadings as directed and taking other steps. By consent, the directions were varied on 30 January 2018. On 22 February 2018, the State served its disclosure list and the claimants requested an extension of time to 1 March 2018 to provide standard disclosure, to which the State agreed.
On 26 February 2018, the claimants served notice of discontinuance of the enforcement proceedings under CPR 38.2. On 2 March 2018, the State issued an application seeking case management directions with respect to its claim that the award was obtained by fraud or, alternatively, for the notice of discontinuance to be set aside. The application was framed in this way to reflect the State's position that its “fraud claim” was an independent, free-standing claim that was unaffected by the claimants' notice of discontinuance. It sought in the alternative to set aside the notice of discontinuance, if it were wrong on its first point.
The State's application was heard by Knowles J on 26 March 2018 and he handed down judgment on 11 May 2018. By his order dated 21 May 2018, the judge set aside the notice of discontinuance and gave further case management directions for the State's fraud allegations, with a view to a trial to commence on 31 October 2018 with an 8-day estimate.
The present appeal is against the order of 21 May 2018, with permission granted on limited grounds by Leggatt LJ. The State has served a respondent's notice seeking to uphold the order on additional grounds.
Issues on the appeal
The issues arising on this appeal may be summarised as follows. First, does the State's “fraud claim” stand as a claim independent of the enforcement proceedings brought by the claimants, so that the notice of discontinuance does not apply to them? This is a point raised by the State in its respondent's notice and is described as its primary position. If that is well-founded, it provides a complete answer to the appeal. Second, assuming the State fails on the first point, what is the proper approach to the exercise of the power under CPR 38.4 to set aside a notice of discontinuance? By ground 3 of their grounds of appeal, the claimants challenge the approach adopted by the judge. Third, was the judge right to hold that the State had a legitimate interest in the pursuit in the English courts of its fraud allegations, notwithstanding that the award could not now or at any time in the future be enforced in this jurisdiction on account of undertakings offered by the claimants, and, if he was wrong, does that provide grounds for setting aside his order? This forms grounds 1 and 2 of the claimants'...
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