Hulley Enterprises Ltd (a company incorporated in the Isle of Man) v The Russian Federation

Hearing date: 15 January 2025

Approved Judgment

This judgment was handed down remotely at 10.30am on 12 February 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

The issue on this appeal is whether the principle of issue estoppel applies to the determination by an English court whether one of the exceptions to state immunity set out in sections 2 to 11 of the State Immunity Act 1978 applies. Specifically, when a foreign court has decided that a state has agreed in writing to submit a dispute to arbitration, and the usual conditions for the application of issue estoppel are satisfied, can the English court treat that decision as giving rise to an issue estoppel or must it determine the issue for itself without regard to the decision of the foreign court?

Mrs Justice Cockerill held that there was an issue estoppel precluding the Russian Federation (‘Russia’) from re-arguing the question whether it had agreed to submit the dispute to arbitration, with the consequence that Russia's challenge to the jurisdiction of the English court on the ground of state immunity should be dismissed. Russia challenges that conclusion, contending that issue estoppel has no application in these circumstances.

I have concluded that the appeal should be dismissed. In short, I accept the submission of Mr Jonathan Crow CVO KC for the respondent claimants that although the State Immunity Act 1978 sets out comprehensively the exceptions to state immunity, it does not prescribe how the court should decide whether any of the exceptions applies in any given case. That question must be decided applying the ordinary principles of English law, both substantive and procedural, and those principles include the principle of issue estoppel.

Background

Although this dispute has a long and complex history, the facts relevant to this appeal can be stated relatively shortly. I can take them from the judgment.

On 18 ^th July 2014 an arbitral tribunal (comprised of L. Yves Fortier CC QC, Dr Charles Poncet and Judge Stephen Schwebel) issued three materially identical awards declaring that Russia had breached its obligations under Article 13(1) of the Energy Charter Treaty and ordering it to pay damages exceeding a total of US $50 billion plus interest to the claimants (the respondents to this appeal), who are the former majority shareholders in OAO Yukos Oil Company.

On 10 ^th November 2014 Russia commenced proceedings to set aside the awards in the courts of the Netherlands, the arbitral seat. It did so on various grounds, including challenges relating to the jurisdiction of the tribunal and the conduct of the arbitration. One such challenge was that the tribunal did not have jurisdiction because there was no binding arbitration agreement between the claimants and Russia (‘the no agreement issue’). Another was that the awards were vitiated by fraud as a result of the claimants having effectively bribed a witness to give evidence in their favour and failed to disclose key documents (‘the procedural fraud issue’).

On 30 ^th January 2015 the claimants issued proceedings in England seeking the recognition and enforcement of the awards pursuant to section 101 of the Arbitration Act 1996 which gives effect in this jurisdiction to the New York Convention. Russia challenged the jurisdiction of the English court by an application filed on 25 ^thSeptember 2015. It contended that it was immune from such jurisdiction pursuant to section 1 of the State Immunity Act 1978.

On 20 ^th April 2016 the awards were set aside by the District Court of the Hague. The claimants appealed from that decision to the Hague Court of Appeal. While the appeal was pending, on 8 ^th June 2016, the English enforcement proceedings were stayed by consent.

In February 2020 the Hague Court of Appeal allowed the claimants' appeal and reinstated the awards. Among other things, it rejected Russia's challenge to the awards on the basis that there was no binding arbitration agreement between the claimants and Russia, holding there was such an agreement. This is the decision which is said by the claimants and was found by the judge to give rise to an issue estoppel.

Russia challenged the decision of the Hague Court of Appeal to reinstate the awards by a cassation appeal to the Dutch Supreme Court. While this challenge was pending, on 6 ^th July 2020, the claimants applied to lift the stay of the English enforcement proceedings. Russia resisted that application, including (ironically in view of its present stance) on the basis that its arguments in the cassation appeal overlapped substantially with its challenge to the English jurisdiction, which was inefficient and created a risk of inconsistent judgments on the same issues. The application to lift the stay was rejected by Mr Justice Henshaw by a judgment dated 14 ^th April 2021 ( [2021] EWHC 894 (Comm)).

The judgment of the Dutch Supreme Court was delivered on 5 ^th November 2021. The court found that the Hague Court of Appeal's rulings on Russia's challenges to the jurisdiction of the arbitral tribunal did not result in cassation (i.e. the decision of the Court of Appeal on these issues, including whether there was a binding arbitration agreement, was upheld), but that the Court of Appeal had erred on the issue of procedural fraud. Accordingly, the Supreme Court quashed the Court of Appeal's judgments and referred the case to the Amsterdam Court of Appeal for further consideration and decision.

Following the handing down of the Dutch Supreme Court judgment, the claimants applied again to lift the stay of the English enforcement proceedings. In October 2022, Mr Justice Butcher acceded to that application in part, lifting the stay ‘solely for the purpose and to the extent necessary for the resolution of the Defendant's Jurisdiction Application’, and giving directions for the determination of two preliminary issues:

‘ Issue 1: Whether and to what extent [Russia] is, by reason of certain judgments of the Dutch courts, precluded from rearguing the question of whether it has agreed in writing to submit to arbitration the disputes that are the subject of the Awards; and

Issue 2: Whether, if the answer to Issue is that [Russia] is so precluded from rearguing the relevant question, the Jurisdiction Application ought to be dismissed forthwith.’

Mr Justice Butcher granted permission for expert Dutch law evidence on the following issue:

‘whether and to what extent the determinations in the Dutch Judgments are final and/or conclusive as a matter of Dutch law as between the Claimants and the Defendant.’

Those preliminary issues came before Mrs Justice Cockerill. On 1 ^st November 2023 she handed down the judgment which is the subject of this appeal.

Since her judgment, there have been further developments in the Dutch proceedings. The Amsterdam Court of Appeal has rejected Russia's case on procedural fraud and has declined to make a reference to the CJEU. There is, however, a further appeal by Russia from that decision on cassation grounds to the Dutch Supreme Court, which is still pending.

State immunity

The general rule, set out in section 1 of the State Immunity Act 1978, is that a state is immune from the jurisdiction of United Kingdom courts and that effect must be given to this immunity even if the state does not appear to claim it:

‘ General immunity from jurisdiction

(1) A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.

(2) A court shall give effect to the immunity conferred by this section even though the State does not appear in the proceedings in question.’

However, as section 1(1) itself makes clear, this general rule is subject to a series of exceptions, which are set out in sections 2 to 11. If none of those provisions apply, the court lacks adjudicative jurisdiction over the state.

The burden of proving that the claim falls within one of the exceptions to the general immunity provided by section 1 lies on the claimant. This must be established on the balance of probabilities as a preliminary issue: JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1989] Ch 72, 193–194 (Lord Justice Kerr) and 252 (Lord Justice Ralph Gibson); Shehabi v Kingdom of Bahrain [2024] EWCA Civ 1158 at [8]. As Lady Justice Simler put it in Zu Sayn-Wittgenstein-Sayn v His Majesty Juan Carlos de Borbón y Borbón [2022] EWCA Civ 1595, [2023] 1 WLR 1162 at [21], ‘it is for a claimant to establish, to the civil standard, an exemption to that immunity ….’ This results in a final, and not merely interlocutory, decision whether the state is immune: The Prestige (Nos. 3 & 4) [2022] EWCA Civ 1589, [2022] 1 WLR 3434 at [54].

It is sometimes said that the court must ‘satisfy itself’ that one of the exceptions applies. Thus in Fang v Attorney General [2023] UKPC 21, 26...