The Court of Appeal has held that a fraud defence did not give rise to an independent claim and could not survive the discontinuance of proceedings to enforce a foreign award.

Background

In Stati and others v Republic of Kazakhstan [2018] EWCA Civ 1896, the claimants were awarded damages in a Swedish arbitration. They obtained an enforcement order in England, which Kazakhstan applied to set aside on a number of grounds.

As a result of disclosure in another arbitration, Kazakhstan then discovered documents suggesting that part of the award had been obtained by fraud and applied to the Swedish court to set the award aside. However, the court determined that if there was a fraud, it did not have a sufficient influence on the outcome to invalidate the award under Swedish law.

Meanwhile, Kazakhstan applied to amend its grounds for resisting enforcement in England to add an argument that the alleged fraud rendered enforcement contrary to English public policy. Knowles J allowed the amendment and directed that the fraud issue should proceed to trial “as if commenced under CPR (Civil Procedure Rules) Part 7”. The claimants then served notice of discontinuance and offered an undertaking not to enforce the award in England. Knowles J set aside the notice of discontinuance on the grounds that Kazakhstan had an interest in having the fraud issue decided on the merits. Such a decision could assist foreign courts considering enforcement of the award in their jurisdiction.

The decision

The Court of Appeal reinstated the notice of discontinuance, making the following points:

  1. The fraud allegation was not an independent claim. It could not be brought in England except as a defence to the enforcement proceedings, as England would not be the appropriate forum. Knowles J’s reference to CPR Part 7 simply applied the appropriate procedural framework and did not create separate proceedings.
  2. The court’s discretion to set aside a notice of discontinuance was not limited to cases of abuse of process or collateral tactical advantage. The court had to consider all the circumstances of each case. However, once there was no possibility of enforcement or other effective relief in England, exceptional circumstances would be required to justify continuing proceedings. The mere possibility of assisting a foreign court was not sufficient.
  3. The court had the power to require proceedings to continue in order to determine whether its processes had been knowingly abused, but the facts in the present case were incapable of establishing such abuse. It could never be a fraud on the court to seek to enforce an award that was valid under the law of the arbitral forum.

This decision illustrates the traditional deference of the English courts to the courts of other jurisdictions. The English courts will be reluctant to decide on factual issues for which another court is a more natural forum unless the decision will have a meaningful effect within the English jurisdiction.

The case also clarifies the circumstances in which the court will set aside a notice of discontinuance that appears to have been served for tactical reasons which are collateral to the proceedings themselves. This aspect of the decision is likely to be relevant beyond the arbitration context.