Hulley Enterprises Ltd (a company incorporated in Cyprus) v The Russian Federation
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henshaw |
| Judgment Date | 14 April 2021 |
| Neutral Citation | [2021] EWHC 894 (Comm) |
| Date | 14 April 2021 |
| Docket Number | Case No: CL-2015-000396 |
| Court | Queen's Bench Division (Commercial Court) |
[2021] EWHC 894 (Comm)
THE HONOURABLE Mr Justice Henshaw
Case No: CL-2015-000396
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane,
London, EC4A 1NL
Jonathan Crow QC, Paul McGrath QC, Alison Macdonald QC, David Peters and Naomi Hart (instructed by Stephenson Harwood LLP) for the Claimants
Laurence Rabinowitz QC, Christopher Harris QC, Henry Hoskins, Mark Wassouf and Cameron Miles (instructed by White & Case LLP) for the Defendant
Hearing dates: 8–11 March 2021
Draft judgment circulated to the parties: 3 April 2021
Approved Judgment
| (A) INTRODUCTION | 3 |
| (B) FACTUAL BACKGROUND | 4 |
| (C) THE CASSATION APPEAL | 5 |
| (1) The Cassation Appeal | 5 |
| (2) Procurator General's Opinion | 7 |
| (3) Suspension Judgment | 11 |
| (D) RUSSIA'S CLAIM TO STATE IMMUNITY | 12 |
| (E) APPLICABLE PRINCIPLES | 13 |
| (F) OVERVIEW OF THE PARTIES' SUBMISSIONS | 21 |
| (1) Lifting the Stay | 21 |
| (2) Security | 24 |
| (G) WHETHER THE STAY SHOULD BE LIFTED | 25 |
| (1) Realistic prospect of success | 25 |
| (a) Ground 1: fraud on Tribunal | 25 |
| (b) Ground 2: lack of jurisdiction under ECT Article 45 | 29 |
| (i) Article 45 | 29 |
| (ii) Consistency with Russian law | 33 |
| (c) Ground 3: scope of persons entitled to invoke the ECT | 36 |
| (d) Other grounds of appeal | 44 |
| (e) Conclusion on prospects of success | 44 |
| (2) Bona fide challenge/delaying tactics | 44 |
| (a) General | 44 |
| (b) Public statements | 47 |
| (c) Threats of diplomatic reprisals | 52 |
| (d) Response to ECtHR Yukos decision | 55 |
| (e) International arbitration awards | 56 |
| (f) Changes to Russian Constitution and laws | 57 |
| (g) Russia's conduct in the international sphere | 58 |
| (h) Conclusions to be drawn | 58 |
| (3) Delay and prejudice | 59 |
| (a) Prejudice to the Claimants from the Stay remaining | 59 |
| (b) Prejudice to Russia from lifting the Stay | 64 |
| (i) Legal prejudice | 64 |
| (ii) Risk of dissipation by Claimants | 68 |
| (4) Overall consideration | 71 |
| (H) SECURITY | 72 |
| (1) Whether the power under section 103(5) of the 1996 Act arises | 72 |
| (2) Discretion | 82 |
| (I) CONCLUSION | 85 |
(A) INTRODUCTION
This application arises in proceedings brought under the Arbitration Act 1996 (the “ 1996 Act”) for the recognition and enforcement of certain arbitral awards made against the Defendant (“ Russia”) and subject to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “ New York Convention”). The application is to lift a stay of the proceedings imposed by an order of Leggatt J dated 8 June 2016 (the “ Stay”).
The Claimants are entities incorporated in Cyprus (the First and Third Claimants) and the Isle of Man (Second Claimant). They are former shareholders in OAO Yukos Oil Company (“ Yukos”), which was an oil company based in Russia. By final arbitration awards of the Permanent Court of Arbitration dated 18 July 2014 (the “ Final Awards”) the Claimants were awarded over US$50 billion in compensation, arising out of allegations that Yukos' assets were unlawfully expropriated by Russia.
Since the Final Awards, no payment has been made and over US$7 billion in interest has accrued. Russia is challenging the Final Awards and previous interim awards on admissibility and jurisdiction dated 30 November 2009, together the “ Awards”, in the courts of the arbitral seat, the Netherlands. On 20 April 2016 Russia was successful before the District Court of The Hague (the “Hague District Court”). On 18 February 2020 the Court of Appeal of The Hague (the “ Hague Court of Appeal”) reinstated the Awards. An appeal to the Supreme Court of the Netherlands (the “ Dutch Supreme Court”) is pending.
The present proceedings, seeking recognition and enforcement of the Awards under the 1996 Act, were issued on 30 January 2015. By the Stay, they were stayed pending the judgment of the Hague Court of Appeal, with liberty to apply following that decision.
The Claimants now exercise that liberty, and apply to lift a stay of these proceedings in order to progress enforcement of the Awards. If (contrary to that primary submission) the court considers that it would be more appropriate for the proceedings to remain in abeyance pending determination of the appeal to the Dutch Supreme Court, then the Claimants ask the court to (a) adjourn the proceedings under s. 103(5) of the 1996 Act, and (b) order that the adjournment be conditional upon Russia providing security in an appropriate amount: which the Claimants submit would be US$ 7 billion.
Russia's position is that these proceedings ought to remain subject to an unconditional stay or adjournment until the final resolution of the appeal to the Dutch Supreme Court (including any reference to the Court of Justice of the European Union (“ CJEU”) made in the course of that appeal).
For the reasons set out below, I have come to the conclusion that the Claimants' application should be dismissed, and that the Stay should continue, without the provision of security, pending the final outcome of the proceedings in the Netherlands.
(B) FACTUAL BACKGROUND
Following the collapse of the Soviet Union, Yukos was incorporated in 1993 as a joint stock company, and most of the shares were privatised between 1995 and 1996. This privatisation was of considerable benefit to those who came to own the majority of shares in Yukos. Although the Claimants before me are companies, it is Russia's case that they are ultimately owned and controlled by a small number of Russian nationals (the “ Individuals”).
From 2003 to 2006 the Russian tax authorities issued a series of large tax reassessments for the years 2000–2004 in respect of Yukos, purportedly because of Yukos' misuse of low-tax jurisdictions inside Russia. By the time the Russian tax authorities issued the last of these demands, Yukos faced a tax bill of more than US$24 billion, from a combination of revenue-based taxes, VAT-related taxes, interest and fines.
Yukos was sold at auction on 19 December 2004 for US$9.37 billion to a newly incorporated entity, Baikal Finance Group, which was in turn quickly bought by Rosneft, a company owned by the Russian state. On 4 August 2006 Yukos was declared bankrupt. Nearly all its remaining assets were acquired by two state-owned oil companies, Gazprom and Rosneft. On 21 November 2007 Yukos was liquidated and struck off the register of legal entities.
Following the sale of Yukos, the Claimants in February 2005 initiated arbitration proceedings in the Permanent Court of Arbitration in The Hague (the “ Tribunal”) under the Energy Charter Treaty (“ ECT”) alleging that
“the Russian authorities were conducting ‘a ruthless campaign to destroy Yukos, appropriate its assets and eliminate Mr. Khodorkovsky as a political opponent.’”
In its Final Award, the Tribunal concluded exactly that, quoting the above passage in its decision.
As noted above, the present proceedings were issued on 30 January 2015. On 20 July 2015 Russia acknowledged service and indicated that it would dispute the court's jurisdiction. An application to do so followed on 25 September 2015 (the “ Jurisdiction Application”). On 29 January 2016 Mr Justice Leggatt gave directions for the hearing of the Jurisdiction Application, to be listed for hearing in November 2016.
However, by its judgment of 20 April 2016 the Hague District Court set the Awards aside, and the Claimants filed an appeal to the Hague Court of Appeal. The Claimants at that stage, in May 2016, wrote stating that “ the only appropriate course now is to stay the English proceedings in their entirety” since the proceedings in the Netherlands “ may render the entire argument in England nugatory”. Russia agreed, and on 8 June 2016 Mr Justice Leggatt ordered (by consent) the Stay, giving both parties liberty to apply to lift the Stay following the judgment of the Court of Appeal “ without showing a change of circumstances”. That reflected a compromise, Russia having proposed that the proceedings be stayed until the final outcome of the proceedings in the Netherlands, and the Claimants that the Stay should remain in place only until the judgment of the Hague Court of Appeal.
On 18 February 2020 the Hague Court of Appeal, after considering the matter de novo, handed down judgment quashing the Hague District Court's decision and reinstating the Awards. On 17 April 2020 the Claimants requested leave to enforce the Awards in the Netherlands, which was granted on 28 April 2020.
On 15 May 2020 the Defendant initiated a cassation appeal before the Dutch Supreme Court (the “ Cassation Appeal”). This was declared admissible on 19 June 2020.
The Defendant also applied to suspend enforcement of the Awards in the Netherlands pending the outcome of the Cassation Appeal (the “ Suspension Application”). On 13 November 2020 Procurator General Vlas issued an Opinion recommending the Suspension Application be dismissed (the “ PG Opinion”). The Dutch Supreme Court denied the Suspension Application on 4 December 2020 (the “ Suspension Judgment”).
It is common ground between the Dutch law experts that the Dutch Supreme Court is likely to hand down judgment in the Cassation Appeal by the end of 2021/early 2022. There is the...
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