In an important, unanimous judgment for cross border enforcement cases against sovereign states, the English Court of Appeal has clarified that issue estoppel applies in the context of deciding whether exceptions to state immunity apply under the State Immunity Act 1978 (the "State Immunity Act").
In this case, the former majority shareholders of Yukos are seeking to enforce in England three New York Convention arbitration awards against the Russian Federation. The seat of the underlying arbitrations was the Netherlands, where Russia applied to set the awards aside. In doing so, it argued that it had not agreed to arbitrate its disputes with the claimants. The Dutch Courts made a final determination that Russia had agreed to submit those disputes to arbitration.
In the parallel enforcement proceedings in England, which had been temporarily stayed pending the outcome of the Dutch litigation, Russia argued that it was entitled to re-argue whether it had agreed to arbitrate in the context of asserting immunity. In England, pursuant to section 1 of the State Immunity Act, states are immune from the jurisdiction of the English Court, unless one of the exceptions in sections 2 to 11 apply. Pursuant to the exception in section 9, a state is not immune from enforcement proceedings where it "has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration". Russia argued amongst other things that issue estoppel cannot apply in respect of a foreign judgment against a state, when determining whether a state is immune pursuant to the State Immunity Act. It argued that if the English Court were to give effect to an issue estoppel as to the existence of an arbitration agreement, this would be a failure by the Court to make its own determination on immunity.
Lord Justice Males (with whom Lord Justice Lewison and Lord Justice Zacaroli agreed), held that in giving effect to an issue estoppel the English Court was not failing to make its own determination. Rather, it was making a decision in accordance with ordinary principles of substantive law, and nothing in the State Immunity Act excludes the principle of issue estoppel when determining whether the exceptions in the Act apply.
Against an increasing trend of sovereign award debtors resisting enforcement of awards, award creditors will welcome this clarification of the law. It makes clear that, at least in England, states will not be permitted to re-argue issues which have been finally determined by other courts, provided that those decisions meet the requirements of English issue estoppel. This judgment will be relevant to sovereign states and parties contracting with or arbitrating against them, when it comes to deciding on the seat of an arbitration, given that any application to set aside awards now has the potential to give rise to issue estoppel on issues underpinning the set aside application.
This judgment sets out an important precedent as it shows that while the English courts will, in appropriate circumstances, stay the recognition proceedings pending the outcome of setting-aside proceedings, there is a price that the award creditor will have to pay. As such, it implements, in its own words, “another important public policy, recognised internationally in the New York Convention, which is that awards, even against states, should be honoured without delay and without the kind of trench warfare seen in the present case.”
A team from Stephenson Harwood LLP led by Ros Prince, assisted by Tom Spackman, Philipp Mueller and Leila Parry, represented the claimants both in the High Court and before the Court of Appeal. Counsel for the Claimants were Jonathan Crow CVO KC of 4 Stone Buildings, David Peters KC of Essex Court Chambers and Naomi Hart of Essex Court Chambers.
The full judgment is here.
