English High Court considers interplay between issue estoppel and state immunity in latest Yukos ruling

Hulley Enterprises Ltd v Russia [2023] EWHC 2704 (Comm) marks another significant development in the long-standing Yukos dispute.

In this case (a step in the former shareholders’ enforcement proceedings of their USD 50bn awards), the English High Court rejected Russia’s attempt to re-try jurisdictional questions which had already been settled by the Dutch courts in related set-aside proceedings.

The Court’s decision provides guidance on the application of issue estoppel when questions of state immunity arise in proceedings for the enforcement of an arbitral award.

Background

This case arose out of enforcement proceedings in relation to arbitral awards worth over USD50bn (with interest accruing at c. USD2.5m daily). The underlying awards arose from arbitrations where the former majority shareholders (the “Claimants”) of OAO Yukos Oil Company alleged that Russia had illegally expropriated Yukos’ assets, in breach of the Energy Charter Treaty.

Key issues for determination

The main issue in the case was whether Russia could contest the proceedings to enforce the arbitral awards in the English Courts on the basis of immunity under the State Immunity Act 1978 (“SIA”).

Under the SIA, the starting point was that Russia could have jurisdictional immunity to these proceedings unless one of the exceptions apply. However, one of these exceptions covers court proceedings relating to an arbitration that a state has agreed to submit disputes to (s. 9 SIA).

Therefore, if Russia had agreed to submit the underlying disputes to arbitration, s. 9 of the SIA would apply, and Russia’s claim for immunity would fail.

In summary, the Claimants argued that issue estoppel prevented Russia from re-opening the question of whether it had agreed to arbitration (and so, consequently, preventing Russia from denying that s. 9 applied) because:

• Russia had already challenged the underlying tribunal’s jurisdiction in set-aside proceedings in the Dutch courts (being the courts of the seat);
• that challenge had failed, as the Dutch Supreme Court had found that the tribunal did have jurisdiction as Russia had agreed to submit the underlying disputes to arbitration; and
• the Dutch proceedings had provided a final and conclusive answer to that issue.

On the other hand, Russia argued that issue estoppel could not apply because:

• under the SIA, the Court had a duty to conduct its own analysis of whether the s. 9 exception applied (rather than applying issue estoppel based on a judgment of a foreign court); and
• in addition, the conditions for establishing issue estoppel were not met. In particular, Russia argued that the proceedings raised distinct issues and that the Dutch proceedings were not final.

The Court’s discussion of issue estoppel

Issue estoppel and state immunity

On the relationship between issue estoppel and the SIA, the Court found that:

• While it is uncontroversial that foreign judgments can create an issue estoppel, [20] there was no direct authority on the fundamental premise of this case – namely, the interrelation of state immunity and issue estoppel. [30]
• However, on balance, the authorities supported the Claimants’ assertion that nothing in the SIA indicated that such an estoppel would be impermissible. [36 / 38]
• Similarly, nothing within the SIA itself disapplied procedural rules or substantive rules that would otherwise apply (such as issue estoppel). [39 / 48]
• It was also misconceived of Russia to characterise issue estoppel as involving a preclusion of any consideration of state immunity. The Claimants (rightly, in the judge’s view) accepted that the requirements of s. 31 Civil Jurisdiction and Judgments Act 1982 (“CJJA”) needed to be met. S. 31 sets out the conditions of recognition and enforcement of a foreign judgment against a state in the UK and, in short, requires the court to consider whether the foreign court would have had jurisdiction applying rules akin to the SIA. Here, that requirement was met, as Russia had submitted to the Dutch courts’ jurisdiction by instituting the proceedings to challenge the awards. An attempt by Russia to argue that additional procedural requirements of that section should have been complied with was also rejected; those requirements applied to free-standing actions for recognition and enforcement, not de facto recognition for a common law purpose in proceedings (such as these) to which the state was party. [40 – 53]

Therefore, the Court held that issue estoppel arising from the Dutch proceedings could be applied against Russia in the context of s. 9 SIA, provided that the other general requirements of issue estoppel were met (as set out in The Good Challenger Navegante SA v. Metalexportimport SA [2003] EWCA Civ 1668).

Other conditions of issue estoppel

As to those, the Court found that that the conditions for finding an issue estoppel had been met. [64 – 101] In particular:

• In relation to the requirement of finality and conclusiveness: the Court found that the Dutch judgments had reached a ‘final and conclusive’ determination. The Court’s decision on this point turned on the facts of the case and the strength of the parties’ Dutch law expert evidence.
• In relation to the requirement of identity of the issue / subject matter: the Court found that both sets of proceedings concerned the same central question of whether there was a valid agreement to arbitrate.

No 'special circumstances’

Finally, the Court went on to consider the ‘special circumstances’ exception and concluded that there was no basis for applying the exception in the present case. In particular, the Court was not persuaded that certain novelties of the case (such as applying issue estoppel against a state) were enough to meet the exception. [114 – 119]

Thus, the Court held that Russia’s jurisdiction application should be dismissed.

Comment

The Court’s approach has important implications for proceedings in the UK concerning the enforcement of arbitration awards against states. In particular, it narrows their ability to re-litigate determinations by the courts of the seat as to whether the tribunal had jurisdiction. Specifically, where the conditions of s. 31 CJJA and issue estoppel are met, in the judge’s view, the SIA does not provide an independent basis upon which that question must be revisited.

Click here for a copy of the judgment.

Sersha Godfrey would like to thank Mansi Narayan for her assistance with this article.