English Commercial Court rejects U-turns at the enforcement stage

In Carpatsky Petroleum Corp v PLSC Ukrnafta [2020] EWHC 769 (Comm), the Commercial Court dismissed the defendant’s application to set aside an order to enforce a 2010 Stockholm Chamber of Commerce (“SCC”) award. The case is a clear illustration that, in seeking enforcement of an award in England, there is little room for a party to diverge from positions it has taken before the tribunal and supervisory courts of the seat.

Background

The case concerned a joint activity agreement (“JAA”), governed by Ukrainian law, in relation to a gas field in Ukraine. The JAA was originally entered into by two parties: (i) Carpatsky Texas (“CT”); and (ii) SE Potavanaftogaz (“PNG”). In 1998 an addendum (the “1998 Addendum”) was concluded, replacing PNG with Ukrnafta and amending the arbitration clause such that disputes would be referred to the SCC, with the seat in Stockholm. Each contract/amendment had been signed by the “President” of ‘Carpatsky Petroleum Corporation’, stamping with the CT seal. However, CT had ceased to exist as of June 1996, merging into another company, Carpatsky Delaware (“Carpatsky”). From that point, Carpatsky purportedly assumed all CT’s rights and liabilities.

The arbitration and related proceedings

A dispute arose when Ukrnafta refused to allow Carpatsky to participate in the gas field on an equal basis. Therefore, in 2007, Carpatsky filed a request for arbitration with the SCC, pursuant to the 1998 Addendum’s arbitration agreement. Ukrnafta’s “answer” was served without reservation as to jurisdiction and explained that the parties had agreed to proceed with the arbitration.

Statements of claim and defence were exchanged during 2008. At the end of that year, however, Ukrnafta challenged the tribunal’s jurisdiction, stating there was no valid arbitration agreement under Swedish law, as the contracts had been with CT and it was unaware of the merger between CT and Carpatsky. The tribunal rejected this, finding that: (i) the parties had unreservedly engaged in the arbitration (evidencing an arbitration agreement); and (ii) Ukrnafta’s jurisdictional objection was out of time (with no objection raised in its defence). 

The result of the arbitration was that the tribunal issued an award in favour of Carpatsky for $145.7 million. 

Ukrnafta had also brought proceedings in the Swedish courts (as the supervisory courts of the seat)  contending the tribunal: (i) lacked jurisdiction; (ii) had exceeded its mandate; and/or (iii) had committed a procedural error.  Applying Swedish law, these complaints were rejected.

The English enforcement proceedings and the Commercial Court’s decision

Carpatsky sought to enforce the award in England. As Sweden is party to the New York Convention, the only grounds for resisting enforcement were those in s.103 Arbitration Act 1996 (which reflect that Convention). Two of the grounds relied upon by Ukrnafta were as follows:

• s.103 (2)(b) – No valid arbitration agreement under the law the parties subjected it to or, failing any indication thereon, under the law of the country where it was made

This required the Court to consider whether a valid arbitration agreement had been concluded at any point between Carpatsky and Ukrnafta. The first possibility was in the 1998 Addendum. For this, the initial question was whether Ukrainian or Swedish law applied to that arbitration agreement (the parties not having made an express choice in the 1998 Addendum). The Court held that Ukrnafta was estopped from arguing that it was Ukrainian law. Before the tribunal and the Swedish courts, Ukrnafta had repeatedly and without reservation argued that Swedish law applied to the arbitration agreement in the 1998 Addendum. Applied to the facts of the case, there was an arbitration agreement formed therein.

The second and third possibilities were in Ukrnafta’s filing of an answer (as described above) and its subsequent participation in the arbitration by exchange of pleadings. The Court held that, in the circumstances, any arbitration agreement formed would be governed by Swedish law and, as such, either of these actions formed a valid arbitration agreement under Swedish law. Both could also be considered an agreement in writing, for the purposes of s.5 Arbitration Act.

• s.103(2)(c)/(e) – Unable to present its case / procedure was not in accordance with agreement of the parties

In this regard, Ukrnafta stressed the tribunal’s reliance on a point which Ukrnafta alleged had not been not been advanced by either party and had to be dealt with in post-hearing submissions. Urknafta asserted this was a serious irregularity. However, it had made a substantially similar complaint in the Swedish court proceedings (and also in enforcement proceedings in the US).

The Court therefore found issue estoppel, preventing Ukrnafta from raising this point again and stressed the public interest in “sustaining the finality of decisions of the supervisory courts on properly referenced procedural issues arising out of the arbitration”. Additionally, by reference to Henderson v Henderson, any refinements Ukrnafta may have wished to make to the same argument would have been precluded as they should have been put forward in the Swedish proceedings. The court rejected a complaint that this approach was inconsistent with the decision of the UK Supreme Court in Dallah. Allowing (as in Dallah) a party to challenge enforcement of an award in circumstances where it has not challenged that award in the supervisory courts at all was entirely different from the circumstances in this case (where, having been unsuccessful in challenging the award in the supervisory courts, Ukrnafta attempted to rely on another aspect of such a challenge that it could have put to the Swedish courts).

Comment

The Commercial Court’s judgment clearly indicates that parties seeking to resist enforcement of an award in England cannot expect to easily re-open questions that have already been determined. Should an award be challenged in the supervisory courts, English courts may refuse to re-open the same questions (or even unpleaded questions that could have been raised), instead finding issue estoppel. Equally, a party will be estopped from relying on a governing law in the supervisory courts and amending its position at the enforcement stage. 

The decision also encourages parties to raise objections as to a tribunal’s jurisdiction as early as possible – a party’s participation in the proceedings can evidence an arbitration agreement in writing and may also indicate a waiver of possible objections. 

A copy of the judgment is available here.