Hulley Enterprises Ltd v The Russian Federation
| Jurisdiction | England & Wales |
| Judge | Mr Justice Butcher |
| Judgment Date | 26 October 2022 |
| Neutral Citation | [2022] EWHC 2690 (Comm) |
| Docket Number | Case No: CL-2015-000396 |
| Court | King's Bench Division (Commercial Court) |
In the Matter of the Arbitration Act 1996
And in the Matter of an Arbitration Claim
[2022] EWHC 2690 (Comm)
THE HON Mr Justice Butcher
Case No: CL-2015-000396
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF
ENGLAND AND WALES
COMMERCIAL COURT (KBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Jonathan Crow KC and David Peters (instructed by Stephenson Harwood LLP) for the Claimants
The Defendant did not appear and was not represented at the hearing but put in written submissions
Hearing date: 11 October 2022
Approved Judgment
This was an application by the Claimants for the lifting of the stay on the proceedings which the Claimants have brought to seek to enforce arbitral awards (‘the Awards’) against the Defendant.
Introduction
By way of very brief introduction, the Awards were issued by the Permanent Court of Arbitration on 18 July 2014. By those Awards, the Claimants, who are former shareholders of OAO Yukos Oil Company (‘Yukos’) were awarded over US$50 billion in compensation, arising out of allegations that the assets of Yukos had been unlawfully expropriated by Russia.
The present proceedings, seeking recognition and enforcement of the Awards under the Arbitration Act 1996 (‘the 1996 Act’), were issued on 30 January 2015. On 25 September 2015 the Defendant issued an application (‘the Jurisdiction Application’) disputing the court's jurisdiction on the basis that it was immune pursuant to s. 1(1) of the State Immunity Act 1978 (‘the 1978 Act’). The Claimants' position was (and is) that the exception in s. 9(1) of the 1978 Act is applicable, on the basis that the Defendant had agreed to submit the dispute to arbitration.
In early 2016 a List of Issues was agreed between the Claimants and the Defendant of the issues arising on the Defendant's Jurisdiction Application. They were, in summary, as follows:
(1) Whether the provisional application of the Energy Charter Treaty (‘ECT’) by the Defendant pursuant to Article 45(1) of the ECT means that the Defendant had offered to submit disputes arising under the ECT to arbitration pursuant to Article 26 of the ECT.
(2) Whether, as a matter of the construction of the ECT, Articles 1(6) and 1(7), the Claimants were ‘Investors’, whether there was a relevant ‘investment’, and whether the Claimants were entitled to invoke the dispute resolution provisions of Article 26 of the ECT.
(3) Whether Article 21 of the ECT (relating to ‘taxation measures’), when read together with Article 26 of the ECT, means that there was no written agreement to submit the parties' dispute to arbitration.
By a judgment of 20 April 2016, The Hague District Court (being a court of the Netherlands which was the seat of the arbitration) set the Awards aside. This was on the sole ground that the Defendant was not bound by the dispute resolution provisions of the ECT under the regime of provisional application contained in Article 45 of the ECT. In light of that decision, and given that it was being appealed to the Court of Appeal of The Hague, the parties agreed that the English proceedings should be stayed. The Order of Leggatt J of 8 June 2016, which was made to give effect to that agreement, and which was made by consent, was in part as follows:
‘1. The proceedings are stayed from the date of this order (the “Stay”).
…
3. The parties each have liberty to apply, without showing a change of circumstances, to lift the Stay following the handing down of the judgment of the Court of Appeal of The Hague. …’
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 15 May 2020, the Defendant initiated a cassation appeal before the Supreme Court of the Netherlands (‘the Dutch SC’). That was declared admissible on 19 June 2020.
The First Application to Lift the Stay
On 6 July 2020, the Claimants issued an application to lift the stay of these proceedings which had been imposed by the order of 8 June 2016. They sought that the proceedings should be permitted to continue; alternatively they sought that any continuation of the stay should be made conditional on the Defendant's providing security in an appropriate amount, which they proposed should be US$7 billion. The Defendant submitted that the stay should continue pending the outcome of the cassation appeal to the Dutch SC and that no security could or should be ordered.
The Claimants' application to lift the stay came before Henshaw J for a hearing in March 2021. At that point, the cassation appeal to the Dutch SC was still pending. In his judgment, handed down on 14 April 2021, ( [2021] EWHC 894 (Comm)), Henshaw J dismissed the application. The judgment is thorough and meticulous. I will have to consider its reasoning in somewhat more detail hereafter but, in brief:
(1) Henshaw J held that the Defendant's challenge to the jurisdiction, brought by the Jurisdiction Application, would have to be determined as a preliminary matter, and that, unless and until it was dismissed, the Court's power under s. 103(5) of the 1996 Act to adjourn the enforcement proceedings and/or to require the provision of security as a condition of such adjournment, would not arise.
(2) Henshaw J considered that parts of the Defendant's challenge to the Awards in the courts of the Netherlands had a real prospect of success. Those grounds included a challenge to the jurisdiction of the arbitral tribunal, on bases which overlapped substantially with the Jurisdiction Application; and an argument that The Hague Court of Appeal had erred in refusing to consider certain allegations of procedural fraud in the underlying arbitration.
(3) Henshaw J concluded, having weighed up the competing factors, that the stay should be continued. The prejudice to the Claimants arising from further delay in potential enforcement measures, without security in the meantime, was ‘outweighed in the present case by the advantages referred to in §213(viii) and 213(ix) above of awaiting the ultimate outcome of the viable challenge which Russia is bringing in the courts of the Netherlands’ (para. 214). The matters referred to by reference to paragraphs 213(viii) and (ix) were: (213(viii)), ‘the advantages, where a challenge in the curial court has a realistic prospect of success, of allowing that process to run its course, in the interests of comity, avoidance of inconsistent decisions and efficiency’; and (213(ix)), ‘the specific risk of unfairness that would arise if Russia were to be unable to advance (or to fail in) its full case on state immunity as a result of a binding effect of the decision of the Hague Court of Appeal on essentially the same issues, only for that decision to be later reversed by the Dutch Supreme Court (with or without a reference to the CJEU).’
Events since Henshaw J's Decision
Since Henshaw J's decision, the Dutch SC has, on 5 November 2021, given its judgment in the cassation appeal. By that judgment, the Dutch SC dismissed the grounds of challenge to the Awards which went to the arbitral tribunal's jurisdiction. I will consider this aspect in somewhat more detail below. The Dutch SC, however, found in favour of the Defendant on one ground, namely that The Hague Court of Appeal had erred in refusing to allow it to advance certain allegations that the Awards were contrary to Dutch public policy because of alleged frauds perpetrated by the Claimants in the course of the arbitration. That matter has been referred to, and is currently being litigated before the Amsterdam Court of Appeal. The parties have served various statements of case. The expert report on Dutch law served by the Defendant in this action estimates that the proceedings before the Amsterdam Court of Appeal will last at least until mid-2023, and may conclude in late 2023 or early 2024.
Also since Henshaw J's decision, on 24 February 2022, the Defendant launched its invasion of Ukraine. This, and the international reaction to it, has, according to the Claimants, significant implications for the present proceedings.
The Claimants have also been pursuing attempts to enforce the Awards in other jurisdictions. Thus, on 13 April 2022, the US District Court for the District of Columbia refused an application by the Defendant to reinstate a stay of the proceedings to enforce the Awards which had automatically expired upon the conclusion of the proceedings before the Dutch SC. Further, on 28 June 2022, The Hague Court of Appeal reinstated attachments against certain Russian assets in the Netherlands. The Defendant is appealing that decision to the Dutch SC.
The Current Application
The application which is presently before me was issued by the Claimants on 3 March 2022. It seeks the lifting of the stay, alternatively an order that the Defendant should pay security as a condition of not lifting the stay, either under s. 103(5) of the 1996 Act or under the court's general case management powers. The grounds of the application are two-fold: first, that the Dutch SC has given judgment in the Defendant's cassation appeal; and, second, that the Defendant's invasion of Ukraine, and responsive steps taken by other governments, will make enforcement of the Awards in this jurisdiction materially more difficult and will encourage the Defendant to remove from this jurisdiction such assets as it is able to.
At the point that this application was issued, the Defendant was represented by White & Case LLP. On 11 March 2022, White & Case LLP issued a press release stating that it would be ceasing representation of Russian and Belarusian state and state-owned entities. It nevertheless continued to act for...
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