Yukos Capital S.a.r.L v OJSC Oil Company Rosneft
| Jurisdiction | England & Wales |
| Judge | Mr Justice Simon |
| Judgment Date | 03 July 2014 |
| Neutral Citation | [2014] EWHC 2188 (Comm) |
| Docket Number | 2010 Folio: 315 and 316 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 03 July 2014 |
[2014] EWHC 2188 (Comm)
The Hon Mr Justice Simon
2010 Folio: 315 and 316
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Rolls Building
Fetter Lane
London, EC4A 1NL
Mr Gordon Pollock QC, Mr Jonathan NashQC and Mr James Willan (instructed by Byrne and Partners LLP) for the Claimant
Lord Grabiner QC, Mr Conall Patton and Mr Ciaran Keller (instructed by Travers Smith LLP) for the Defendant
Hearing dates: 13–16 May 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This hearing was concerned with preliminary questions relating to the entitlement of the Claimant to recover interest on principal sums awarded in four awards made on 19 September 2006 by arbitration tribunals with a Russian seat ('the Awards'). The Claimant seeks to recover interest on the principal sums awarded (Rbs 12,935,858,470 and US$ 857,507). The awards were paid on 16 August 2010; and the Claimant seeks to recover interest in relation to the awards on two alternative bases as set out later in this judgment.
The issue arises because on 23 May 2007, the Moscow Arbitrazh Court (which was the relevant supervisory court) annulled each of the Awards in judgments which were upheld on appeal, and in which the Claimant participated ('the Set-aside Decisions').
Despite the annulment of the Awards, the principal sums came to be paid because the Claimant identified assets of the Defendant within the jurisdiction of the Dutch Courts. Although the Dutch District Court initially refused leave to enforce the Awards, in April 2009 the Amsterdam Appeal Court reversed this decision and gave leave to enforce them. Applying principles of private international and domestic law it refused to recognise the Set-aside Decisions of the Moscow Arbitrazh Court.
The Awards were not paid and in March 2010 the Claimant commenced actions in the English High Court seeking to enforce them at Common Law and under the New York Convention. It also obtained a without-notice Freezing Order against the Defendant. This was subsequently discharged in exchange for the provision of acceptable security to meet a final judgment of either the English or Dutch Courts. In June 2010, the Dutch Supreme Court dismissed the Defendant's appeal from the decision of the Amsterdam Appeal Court, and the sums awarded were paid on behalf of the Defendant.
The Awards did not contain provision for the payment of interest, and no interest was paid in respect of the delay in paying the principal sums which had been awarded. Since the date of payment of the principal sums, the English proceedings have continued on the Claimant's claim for post-award interest. These claims have been advanced under Article 395 of the Russian Civil Code and/or s.35A of the Senior Courts Act 1981.
The procedural history
Although the statements of case have been amended many times, the present state of the pleadings is as follows.
(1) The Claimant has pleaded that the Defendant has breached its obligation under the arbitral agreement (including the ICAC rules) to honour the Awards, and is therefore liable in debt and/or damages for the amount of the Awards, together with interest on such debt/damages under Article 395 of the Russian Civil Code and/or s. 35A of the Senior Courts Act 1981.
(2) The Defendant has pleaded (among other points) that, as a consequence of the Russian Set-aside Decisions, (a) the Awards no longer exist in a legal sense (under the principle ex nihilo nil fit, or, 'nothing comes of nothing'), and (b) that the Claimant is precluded from asserting that the Awards are valid and binding on the parties. It has also advanced a number of other reasons why post-award interest is not recoverable.
(3) By its Re-Re-Re-Amended Reply, the Claimant contends that the Set-aside Decisions should not be recognised by the English court on the basis that they were (a) tainted by bias, (b) contrary to natural justice, in that the Russian courts deliberately misapplied the law, (c) procured in circumstances violating Article 6 of the European Convention on Human Rights, and (d) formed part of an illegitimate campaign of commercial harassment waged against the Claimant by the Russian Federation for political reasons. The Claimant denies the defences based on the ex nihilo nil fit principle and issue estoppel. There are also denials of specific defences regarding interest (§10A).
This is not the first trial of preliminary issues in this case. In Yukos Capital Sarl v. OJSC Rosneft Oil Co (No.2) [2011] 2 Lloyd's Rep 443, Hamblen J decided that (1) the Defendant was estopped by the decision of the Amsterdam Appeal Court from denying that the Russian Arbitrazh Court decisions were the result of a partial and dependent judicial process, and (2) the Claimant was not prohibited from alleging, and the Court was not prevented from adjudicating on, any of the points raised by the Claimant on the basis that they constituted acts of state or were otherwise non-justiciable. The Defendant appealed, and the Court of Appeal (Rix, Longmore and Davis LJJ) upheld Hamblen J's decision on the second point, but allowed the Defendant's appeal on the first point, holding that the Defendant was not subject to an issue estoppel, see Yukos Capital Sarl v. OJSC Rosneft Oil Co (No.2) [2014] QB 438.
The parties then agreed on the trial of further preliminary issues: (a) whether the ex nihilo nil fit principle precluded the enforcement of the Awards in the light of the Set-aside Decisions, and (b) the availability of an award of interest under Russian and/or English law. These have been characterised respectively as 'the Enforcement Preliminary Issue' and 'the Interest Preliminary Issues.' If the Claimant is successful on the Enforcement Preliminary Issue and at least partially successful on the Interest Preliminary Issues, it is common ground that there would need to be a trial determining, among other things, the Claimant's allegations that the Set-aside Decisions should not be recognised, and (to the extent permissible) the Defendant's 'public policy' defence based on an allegation of tax fraud.
The Enforcement Preliminary Issue
The issue is whether the Set-aside Decisions have the effect that the Awards cannot be enforced at Common Law because they no longer exist in a legal sense.
For the Defendant, Lord Grabiner QC submitted: first, that an action on an award is founded on the implied obligation to comply with the award or to comply with the agreement to submit the dispute to arbitration, see Bremer Oeltransport v Drewry [1933] 1 KB 753 (CA: Slesser and Romer LJJ). This obligation has its own lex causae. Secondly, English law does not recognise the concept of 'arbitral procedures floating in the transnational firmament, unconnected with any municipal system of law', see Bank Mellat v Helliniki Techniki SA [1984] QB 291 (CA: Waller, Kerr and Goff LJJ). It therefore follows that an arbitral award is necessarily made under, and exists pursuant and subject to, the laws of a particular jurisdiction: in the present case, Russia. Thirdly, this approach has been adopted in the Claimant's pleaded case, which contends that the obligation to honour the Awards arises either as an implied term of the arbitration agreements or under the rules of the International Commercial Arbitration Court at the Chamber of Trade and Industry of the Russian Federation: in either case the governing law being Russian law. Fourthly, since the Awards have been set aside by the Russian courts in the Set-aside Decisions, they no longer exist as a matter of Russian law; and consequently there is no obligation under Russian law to comply with them. It therefore follows that there is no longer any extant obligation on which the Claimant can bring an action in the English court. Accordingly, there is no basis for awarding interest, whether under Article 395 of the Russian Civil Code or s. 35A of the Senior Courts Act 1981. This is so, irrespective of the circumstances in which the Set-aside Decisions came to be made.
For the Claimant, Mr Pollock QC submitted that English law approaches the question in a different way. At Common Law a foreign award can be enforced provided that it is made in accordance with a valid agreement to arbitrate, and is final and binding according to its governing law, see Dicey, MorrisandCollins, (2012) 15th Ed. Rule 66 at §§ 16R-103 and 16–111 to 16–113. It is not, however, necessary for the award to be enforceable under the law governing the arbitration (for example, if the foreign law requires an exequatur of the award and no exequatur has been obtained), see Dalmia Dairy Industries Ltd v. National Bank of Pakistan [1978] 2 Lloyd's Rep 223, (Kerr J) at 249–250. The Claimant's claim is advanced on the basis of the agreements to arbitrate and awards made pursuant to that agreement. The Defendant has pleaded in its Defence that the Awards are without legal effect by reason of the Set-aside Decisions. It follows that an initial question arises as to whether the Defendant has established this defence. This in turn depends on whether the English Court will recognise the Set-aside Decisions. If it does, it follows that there are no final and binding awards. Since the parties by their agreement to arbitrate have necessarily submitted to the supervisory jurisdiction of the curial courts, the decisions of such court will normally be determinative. However, it is open to a party to contend that the decisions of the foreign court should not be recognised.
In my judgment the determination of this issue depends on where one...
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