A High Court decision has reiterated the difficulties international parties face in enforcing in England awards set aside by courts at the seat of arbitration. In Maximov v OJSC Novolipetsky Metallurgichesky Kombinat[1] the Claimant had applied for enforcement of an award made by the International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation (‘ICAC’), notwithstanding that the award had been annulled by the Russian courts. The Claimant had argued that the perverse nature of the decisions annulling the award meant that they should not prevent the award being enforced in England. The High Court dismissed the application holding that the Claimant had failed to discharge the high threshold required in these circumstances to warrant enforcement of the award. There was no evidence that the annulment had been procured by actual bias and the decisions were not so extreme or incorrect as to lead to the conclusion that they had not been made by the Russian court in good faith.

Background

The award arose out of a dispute as to the proper purchase price payable by the Respondent under a share purchase agreement between the parties in respect of the Claimant’s holding in OJSC Maxi-Group. On 31 March 2011, the ICAC Tribunal found in favour of the Claimant and ordered the Respondent to pay the sum of RUB 8.9 billion plus interest. On 21 June 2011, the award was set aside by an order of Judge Shumilina of the Moscow Arbitraszh Court on three grounds. First, two of the arbitrators had failed to disclose links to two expert witnesses, giving rise to reasonable doubts as to their impartiality and independence which could not be waived as a matter of Russian law. Secondly, the award was held to be “in conflict to the public order of the Russian Federation” as the arbitrators had failed to calculate the price payable to the Claimant in accordance with the terms of the share purchase agreement. Thirdly, the subject matter of the arbitration, as a corporate dispute, was not arbitrable as a matter of Russian law. Of these grounds, only the first had been raised by the Respondent in its annulment application. The second and third grounds were not raised by either party at the hearing before the judge (or by the judge herself) and appeared for the first time in her judgment. This decision was subsequently upheld on appeal by the Federal Arbitraszh Court of Moscow District on 10 October 2011 and again by the Supreme Arbitraszh Court of the Russian Federation on 30 January 2012. Having exhausted avenues for appeal in Russia, the Claimant sought enforcement of the award in France, the Netherlands and in England.

The Claimant argued that the annulment decisions did not prevent enforcement of the award in England. The perverse nature of the Russian courts’ conclusions and the manner in which they were reached meant that the English court should infer that they were procured by bias and accordingly should not be afforded recognition. The Claimant’s case was that bias should be inferred not only because the decisions were manifestly wrong as a matter of Russian law but because of a number of contextual matters and instances of procedural unfairness.

Decision of the English High Court

The Court noted that no evidence had been adduced that the Russian courts’ decisions were tainted by actual bias. In these circumstances, the Claimant was required to show that the decision of the foreign court was so extreme and incorrect as not to be open to a court acting in good faith. Cogent evidence was required, particularly where the decision under challenge has been considered on appeal as was the case here. The mere demonstration of error or incompetence was not sufficient to refuse recognition.

The Court accepted expert evidence that the Moscow Court’s reasoning with respect to the first and second ground for annulment was manifestly wrong as a matter of Russian law. The Court characterised the conclusion that the arbitrators’ non-disclosure could not be waived as “shaky” and the appeal courts’ upholding of the ground as “flawed”. The second annulment ground was similarly criticised as “hopeless” and the reasoning of the appeal court on this ground as “fragile”. The Court did however accept that the third annulment ground may be arguable, although it was “adventurous” given that it was contrary to recent judicial authority. The Court also noted that the second and third grounds had unfairly not been canvassed at first instance and had effectively become “writ in stone” by the time they were considered on appeal.

Notwithstanding these criticisms, the Court held that the annulment decisions were not sufficiently extreme and perverse to indicate that were the result of bias against the Claimant. Importantly, Judge Shumulina had rejected one of the two grounds put forward by the Respondent for annulment, which she would not have done if she was determined to find against the Claimant. The Court held that in the absence of any cogent evidence of bias against the Claimant, enforcement should be refused.

Comment

This decision reinforces the challenges international parties face in seeking to enforce annulled awards in the English courts. Unless there is evidence that the annulment was procured by actual bias or the decision was so extreme that it could not have been reached by a court acting in good faith, the award will not be enforced even if the decisions are patently wrong as a matter of law. This case presents a stark reminder to parties of the importance of the choice of the seat of arbitration and the need to carefully consider the attitude of domestic courts to international arbitration when selecting the seat.