Yukos Oil Company v Dardana Ltd

JurisdictionEngland & Wales
JudgeThorpe,Mance L JJ,Neuberger J
Judgment Date18 April 2002
CourtCourt of Appeal (Civil Division)
Date18 April 2002
Yukos Oil Co
and
Dardana Ltd.

Thorpe and Mance L JJ and Neuberger J.

Court of Appeal (Civil Division).

Arbitration — Conflict of laws — Recognition and enforcement of New York Convention award — Swedish arbitration panel concluded that appellant had become party to contract and made award against it — Appellant issued Swedish proceedings to have award set aside — Respondent obtained without notice order giving permission to enforce arbitration award as judgment — Appellant applied to set aside order or for a stay pending outcome of Swedish proceedings — Respondent resisted applications and sought an order for security — Judge adjourned decision on enforcement and ordered appellant to give security — Extent of basis of challenge to enforcement under statutory provisions — Whether judge right to adjourn decision on enforcement — Whether judge right to order security — Arbitration Act 1996, s. 5, 100-104.

This was an appeal against a deputy judge's order adjourning the court's decision on enforcement of a Swedish arbitration award pending the outcome of Swedish proceedings to have the award set aside and ordering the appellant to give security pursuant to s. 103(5) of the Arbitration Act 1996.

In March 2000 a Swedish arbitration panel made an award against the appellant, “ Yukos”, in favour of the respondent, “Dardana”, in the sum of $6m plus interest, on the basis of a finding that Yukos had become party by assignment to a 1995 contract in writing containing the arbitration clause under which the panel acted. Yukos issued proceedings in Sweden to have the award set aside on the ground of lack of jurisdiction. Dardana obtained an order in the High Court without notice to Yukos giving permission to enforce the award as a judgment pursuant to s. 101 of the Arbitration Act 1996. Yukos applied to set aside that order under s. 100 and/or 102 of the 1996 Act, alternatively for a stay under s. 103(5) pending determination of the Swedish proceedings. Dardana sought an order for security consequential on Yukos's alternative application for a stay. The judge adjourned the decision on enforcement and made an order for security in the sum of $2.5m. Yukos appealed.

Held allowing the appeal in part:

1. Section 103(2)(b) enabled Yukos to challenge the recognition and enforcement of the Swedish award by maintaining that it never became a party to the 1995 contract. It could not also resist recognition and enforcement on the basis that it was for Dardana under s. 100 and 102 to show a valid arbitration agreement in writing. Any challenge to the existence or validity of the agreement had to be pursued solely under s. 103(2)(b). Under s. 102(1) Dardana had to produce the arbitration award and agreement but it was irrelevant at that stage whether the award was as a matter of law invalid on any of the grounds in s. 103(2). The agreement which had to be produced was only an apparently valid agreement or documentation complying with s. 5 of the 1996 Act. The use of the word “ may” in s. 103(2) did not introduce an open discretion to allow enforcement even if one of the following matters was proved. The discretion must have been intended to cater for the possibility that despite the original existence of one or more of the listed circumstances the right to rely on it had been lost by for example another agreement or estoppel.

2. The judge was wrong to treat the adjournment as having been made on Yukos's alternative application. By the end of the hearing it was clear that Yukos was seeking determination of its application to set aside under s. 103(2) and Dardana was submitting that the matter should be adjourned under s. 103(5) because it had realised that its case on the merits was not as strong as it had thought. The power to adjourn granted by the first part of s. 103(5) was expressed generally and could be exercised by the court of its own motion or on the application of either party. In this case the reality was that it was Dardana which in the end wished to have the decision on enforcement adjourned. The judge was right to conclude that although the relevant principles of Swedish law were agreed it was still preferable for Swedish law to be applied by a Swedish court.

3. The order for security was wrongly formulated on the basis that if Yukos did not provide the security then enforcement would be ordered unconditionally against it. That was not a legitimate sanction because of the outstanding application under s. 103(2). The question was whether the court should have made an unconditional order for security. The judge's approach was flawed because he considered that it was Yukos which was making the application for an adjournment rather than Dardana as was in fact the case. The court would therefore exercise the discretion afresh. There did not seem to be any significant likelihood that during the adjournment Yukos would take steps to make enforcement of the award more difficult and on the merits Yukos's case seemed to be substantially the stronger. For those reasons this was not a case in which security was necessary or appropriate.

The following cases were referred to in the judgment of Mance LJ:

Peter Cremer GmbH & Co v Co-operative Molasses Traders LtdDLRM [1985] ILRM 564.

Soleh Boneh International Ltd v Government of the Republic of UgandaUNK [1993] 2 Ll Rep 208.

SPP (Middle East) Ltd v Arab Republic of Egypt (1985) X Yearbook Commercial Arbitration 506.

Ali Malek QC (instructed by Reid Minty) for the appellant.

Anthony de Garr Robinson (instructed by CMS Cameron McKenna) for the respondent.

JUDGMENT

Mance LJ:

Introduction

1. This is an appeal against an order dated 2 May 2001 made by HHJ Chambers QC, sitting as a deputy judge in the Commercial Court. Permission to appeal was granted by Tuckey LJ on 18 June 2001. By a majority award dated 21 March 2000, a Swedish arbitration panel concluded that the appellants had become party to a contract in writing dated 17 January 1995 which contained the arbitration clause under which the panel purported to act, and which was made originally between “WAII” and AO Yuganskenftegas (“YNG”). The respondents have succeeded to WAII's interest as a result of three assignments, the first of which was to PetroAlliance Services Co Ltd (“PetroAlliance ”). The appellants held under 50 per cent of the shares in YNG until the start of the arbitration (although they appear at all times to have had control over YNG) and have, subsequent to the arbitration, increased their shareholding on the evidence to about 90 per cent (and now, we are told by the respondents, 100 per cent). In consequence of its conclusion that the appellants had become party to the contract, the panel made an award against the appellants in the sum of $6m plus interest, making a total of around $12m. In a previous arbitration, conducted separately, the same panel had made a like award dated 7 May 1999 against YNG, rejecting complaints made by YNG about PetroAlliance's performance of the contract. The appellants on 22 May 2000 issued proceedings in the Stockholm district court to have the award against them set aside on the grounds of lack of jurisdiction. These proceedings to set aside are still in progress.

2. Pursuant to s. 101 of the Arbitration Act 1996, the respondents on 27 June 2000 obtained an order from Steel J without notice to the appellants, giving permission to enforce the award against the appellants in this jurisdiction in the same manner as a judgment. Steel J's order gave the requisite liberty to apply to set aside his order within 21 days after its service under Arbitration Practice Direction para. 31.9 and concluded (mirroring the same provisions):

“and the award shall not be enforced until after the expiration of that period or, if the respondent applies within that period to set aside the order, until the application is finally disposed of.”

3. By application notice dated 21 September 2000, the appellant applied, first, for an order setting aside Steel J's order under s. 100 and/or 102 of the 1996 Act, and, secondly and alternatively, for a stay pursuant to s.103(5) of the respondents' application to enforce the award pending the determination of the Stockholm proceedings. By a second witness statement made by their American lawyer, Mr Stinemitz, on 20 November 2000, the respondents resisted both these applications, and “further and in any event” invited the court to make an order for security in the full amount of the award. In counsel's skeleton on behalf of the respondents before the judge, this application was explained as consequential upon the appellants' alternative application for a stay pursuant to s. 103(5). The appellants' application was argued on 31 January and 1 February 2001. On 21 March 2001 HHJ Chambers handed down a written judgment in which he said that “Yukos has chosen the Swedish courts as its battleground” and that “ Dardana's position is that an order should be made under s. 103(5) including an order for security for costs”; and, in those circumstances, he went on to say that he would “adjourn the applications before me to a date that will be the subject of further argument or agreement between the parties and upon condition that Yukos provides security in the sum of $2.5m”.

4. Following 21 March 2001, there was disagreement between the parties as to the form in which an order should be drawn up. A conference telephone call took place between the judge and the parties, during which the judge decided in favour of the respondents' submissions. The order drawn up as a result recited that the appellants' alternative application was,

being treated by the court as an application, alternative to Yukos' application that [Steel J's] order be set aside immediately, for an order pursuant to s. 103(5) of the Arbitration Act adjourning the decision on enforcement of the award pending the determination of [the appellants' application in...

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