Don’t Estop Me Now: High Court finds no issue estoppel from Swiss set-aside judgment

From Russia, with difficulty

In July 2021, Yukos Capital obtained an arbitral award against Russia for the breach of Article 13 of the Energy Charter Treaty (ECT) of c. USD 2.6 billion plus interest. The arbitration was seated in Switzerland. 

Russia had challenged the tribunal's jurisdiction, but the tribunal ultimately upheld both its jurisdiction and Yukos Capital's claim. 

Following the award, Russia applied to the Swiss courts to set aside the award for lack of jurisdiction. The Swiss court found that two of the grounds for set aside Russia relied upon were inadmissible.  The Swiss court dismissed the other two grounds, which were that: 

1. Article 26 of the ECT did not confer jurisdiction because the Russian Federation had never ratified it and only provisionally applied it; and
2. the loans on which the claims were based were not loans by Yukos Capital but rather from offshore entities that had loaned the money to Yukos Capital, making it merely a conduit for those funds.

Both grounds were dismissed on the basis that they were without merit.

In November 2023, Yukos Capital issued proceedings in England seeking recognition of the award. This was granted in 2024. In April 2025, Russia applied for an order declaring it was immune from the jurisdiction of the English courts pursuant to section 1(1) of the State Immunity Act 1978 and an order setting aside recognition. The judgment concerned a preliminary issue in the recognition proceedings, namely whether the Swiss judgment gave rise to any cause of action or issue estoppel that prevented Russia from denying that it had agreed in writing to submit the dispute to arbitration.

The issues with issue estoppel

Issue estoppel stops a party from raising in new proceedings issues of fact or law that have already been determined in prior proceedings. 

Foreign judgments can give rise to issue estoppel just as English judgments can, when four conditions are met, as set out by Clarke LJ in The Good Challenger: 

1. the judgment was given by a foreign court of competent jurisdiction;
2. the judgment was final and conclusive and on the merits;
3. there is an identity of parties; and
4. there is an identity of subject matter, which means that the issue decided by the foreign court must be the same as that arising in the English proceedings.

Clarke LJ further noted that: 

1. caution is required because the procedures of a foreign court may be different and it may not be easy to determine whether there is a precise identity of issues being determined;

2. the determination of the issue relied on as creating the issue estoppel must have been necessary for the foreign court’s decision; and

3. the application of the principle of issue estoppel is subject to the overriding consideration that “it must work justice and not injustice”.

Issue estoppel does not apply to issues that have not been argued

In the English recognition proceedings, Russia raised four further grounds related to jurisdiction for the first time – they had not been argued either before the tribunal or before the Swiss courts. Yukos Capital claimed that an issue estoppel operated to prevent Russia from bringing these claims for the first time. Russia argued that issue estoppel is only capable of being engaged for issues which were actually argued before the foreign court. 

The judge accepted Russia’s argument. Issue estoppel cannot preclude a party "from arguing something that it could and arguably should have argued in the earlier proceedings but did not". There was also insufficient overlap between the grounds raised in Switzerland and the new grounds raised in England for the issue estoppel to operate.  This distinguished the case from Hulley v Russian Federation, in which Russia was precluded by an issue estoppel from rearguing a point in enforcement proceedings that it was decided against it in challenge proceedings in the Netherlands. 

No issue estoppel therefore arose for the grounds newly raised in England, although Judge Pelling KC accepted that other rules of English law might prevent Russia from relying on them.

Issue estoppel is only available where the issue was decided on the merits

The judge turned next to consider whether any of the grounds raised before the Swiss court could give rise to an issue estoppel. He first ruled that it could only arise in relation to the grounds "that were determined by the Swiss court on their merits", and not to the grounds that the Swiss court found to be inadmissible. This left only two of Russia's objections to jurisdiction as being capable of founding an issue estoppel: its claim that the ECT was only ever of provisional application in Russia, and its claim that Yukos Capital was only a passive conduit for offshore funds from elsewhere. 

No issue estoppel in Switzerland means no issue estoppel in England

Two questions remained for the judge to determine to see whether the two remaining grounds from the Swiss set-aside judgment could have a preclusive effect: whether Switzerland recognised a similar concept to issue estoppel, in which case (as with the Dutch court’s judgment in Hulley) it could operate in England; or if not, whether and to what extent the Swiss judgment had determinative effect, i.e. to what extent, as a matter of Swiss law, its findings were res judicata. 

This point follows from Carl Zeiss-Stiftung (No. 2), in which Lord Reid asserted that it would "verge on an absurdity that we should regard as conclusive something in a German judgment which the German courts [...] would not regard as conclusive." 

On this basis the judge found that "a foreign judgment should not be given any more preclusive effect in England than it has in its home jurisdiction". This means that issue estoppel is only available where the relevant foreign legal system recognises a system of issue preclusion.

Both parties relied on experts as to the preclusive effects of decisions under Swiss law. On cross-examination, Yukos Capital's expert accepted that: (a) Swiss law did not recognise a similar concept to issue estoppel; and (b) only the operative part of a judgment (i.e., in essence, the conclusion) has binding effect. The operative part of the Swiss judgment did not reach a determinative conclusion on the issues but only noted that two of the grounds relied upon by Russia were dismissed on their merits, while the others were inadmissible. Given that "the underlying reasoning had no preclusive effect" and was only relevant for "identifying the arguments that had been advanced", issue estoppel was not available to Yukos Capital "because it is not available as a matter of Swiss law".

Can a civil law judgment ever found an issue estoppel claim?

Following this reasoning, it appears that it may be difficult to support a claim in England for issue estoppel in relation to judgments from jurisdictions in which the operative part of the judgment is narrowly defined and only that part is deemed to have preclusive or res judicata effect. This means that in future, increased emphasis will be placed on foreign law expert evidence regarding the precise nature and extent of res judicata in those jurisdictions and the precise legal effect of the underlying reasoning. This has implications for (among other scenarios) proceedings in England to enforce an arbitral award when there have been previous proceedings to challenge the award in a civil law jurisdiction. It may be possible for award debtors to repeat arguments in resisting enforcement which the award creditor has already defeated in previous challenge proceedings.