Opinion

English High Court applies issue estoppel to prevent Russia arguing that the English courts lacked jurisdiction to enforce a USD 60bn arbitral award

Published Date
Dec 8, 2023
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The English High Court has held that the Dutch courts’ ruling on the validity and enforceability of the arbitration clause in the Energy Charter Treaty (ECT) created an issue estoppel preventing Russia from re-opening the matter before the English courts. This case is the first time the English courts have found issue estoppel applied notwithstanding the court’s duty to give effect to immunity under the State Immunity Act 1978 (SIA). It opens the door to claimants to rely on the doctrine in future enforcement proceedings against states when the same issue has already been decided by a court in another country.

Russia ordered to pay the largest ever arbitral award to Yukos’ shareholders

In the early 2000s, Yukos Oil Company (Yukos) emerged as the largest private oil company in post-Soviet Russia. However, in 2005, three former Yukos majority shareholders (the Shareholders) initiated arbitration proceedings, seated in the Netherlands. They claimed that Russia violated the ECT by imposing excessive tax and enforcement measures, harassing and arresting Yukos executives, and facilitating the sale of Yukos assets to state-owned entities. In 2014, the tribunal awarded the shareholders over USD 50bn in damages. The sums owed under the awards have since swelled to USD 60bn due to interest.

The enforcement battle

Russia challenged the awards in the Hague District Court (being the court of the seat) on the basis that, inter alia, the tribunal did not have jurisdiction over the claims. Specifically, Russia contended that it had not agreed in writing to submit the disputes that were the subject of the awards to arbitration. The dispute went up to the Dutch Supreme Court which, in November 2021, rejected Russia’s jurisdictional challenge and concluded that Russia had agreed to submit the underlying dispute to arbitration.

Separately, the shareholders had commenced enforcement proceedings in England. These proceedings were initially stayed in light of the parallel Dutch proceedings. However, the stay was lifted in October 2022, following the Dutch Supreme Court judgment. Once again, Russia sought to raise a jurisdictional challenge, including on immunity grounds. 

Russia argues lack of jurisdiction on grounds of sovereign immunity

Russia resisted enforcement in England on the basis that the English courts had no jurisdiction as a result of the jurisdictional immunity afforded to Russia pursuant to the SIA. S. 9 of the SIA provides an exception to jurisdictional immunity where a State has agreed to submit the dispute to arbitration. Yukos maintained that the exception applied because (i) there was a valid arbitration agreement, and (ii) Russia was prevented from arguing to the contrary by reason of the Dutch Supreme Court judgement (also known as the doctrine of “issue estoppel”).

Previous case law had not determined whether issue estoppel could arise with respect to questions of state immunity. Russia asserted that issue estoppel could not apply because s.1(2) of the SIA confers “a positive duty to give effect to the immunity conferred”. It argued that this was a freestanding duty which required the English court to determine for itself whether there was a valid and binding arbitration agreement, and that therefore the English court could not just rely on a prior judgment of a foreign court under the issue estoppel doctrine. Russia also challenged whether the conditions to find an issue estoppel were satisfied and argued that the case raised special circumstances that would render a finding of issue estoppel unjust because it involved a state and a multilateral treaty, which was a novel application of issue estoppel.

High Court applies issue estoppel to state immunity

The court confirmed that issue estoppel could arise out of a foreign judgment. It further found that issue estoppel could arise against a state, including where (i) the SIA is engaged, and (ii) the question is one of public international law. 

Therefore, the fact that Russia was a state did not preclude the finding of an issue estoppel, provided the other necessary conditions were satisfied.  In this case, the Dutch court had reached a final decision on the same issue between the same parties, and so an issue estoppel could arise. The court dismissed Russia’s argument that this case raised special circumstances.

Comment

This decision demonstrates that issue estoppel could be a useful tool in enforcement proceedings, including those involving state parties. The case also clarifies that sovereign immunity does not permit states to have a second bite at the cherry and relitigate the same issue in multiple jurisdictions until they obtain the result they want. Non-state parties would say that this promotes efficiency and fairness. However, the court emphasised the need for caution when considering whether foreign judgments give rise to issue estoppel, particularly those that touch on the English court’s determination on state immunity. As such, issue estoppel will not be a silver bullet in all cases.

This case also highlights that parties should be mindful of the strategic benefits and potential pitfalls in their challenge and enforcement strategy. Enforcement proceedings, and particularly those against states, often occur in parallel across multiple jurisdictions. As such, the potential interplay between decisions from different jurisdictions is an important factor to be taken into account. In this instance, it was Russia’s decision to actively challenge the award, rather than resist on jurisdictional grounds when an enforcement action arose, which gave rise to the Dutch judgements. While this proved detrimental to Russia in the context of English enforcement proceedings, it is worth noting that a recent decision from the US District Court for the District of Colombia recently rejected Russia’s position on jurisdictional immunity on separate grounds.

Parties will typically pursue enforcement in jurisdictions where there are available assets. In this case, Yukos sought enforcement in England because the British government has frozen billions of pounds worth of Russian assets. Therefore, we may well see similar actions pursued against Russia as sanctions continue to apply.  

 
 
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