The Court of Appeal has enforced an arbitral award that was set aside by the courts in the jurisdiction where the award was made. The case is the latest decision in the longstanding dispute between Yukos and Rosneft which has given rise to numerous arbitral and court proceedings in various jurisdictions following the expropriation of Yukos's oil assets.
The case (A3/2011/1790) concerned the enforcement of four arbitral awards issued by a tribunal in September 2006 in an arbitration between Yukos Capital SARL and OJSC Rosneft Oil Company. The dispute concerned a contract to be performed in Russia and governed by Russian law. The seat of the arbitration was in Russia.
The awards were set aside by the Russian Arbitrazh courts in May 2007. Yukos had enforced the awards in the Netherlands under Dutch law and the New York Convention. The Amsterdam Court of Appeal refused to recognise the annulment decision of the Russian courts, which it condemned as partial and dependent.
Yukos sought to enforce the award in England under the New York Convention. Rosneft resisted enforcement, invoking the act of state doctrine.
There were two issues before the court:
- Could the English court review the Russian annulment decisions in light of the doctrines of act of state, non-justiciability or comity?
- Did the Dutch court decision create an issue estoppel binding the English court?
The act of state doctrine provides that an English court will not sit in judgment on the sovereign acts of a foreign government or state.
The Court of Appeal examined the act of state doctrine at considerable length, reviewing its development in the United Kingdom and the United States. It emphasised that the doctrine is increasingly defined by its limitations, due to the increasing interaction of global business across multiple jurisdictions, involving courts and international arbitral tribunals, as well as an increasing number of international conventions. The doctrine does not apply to:
- acts that take place outside the territory of the foreign state (with a few exceptions);
- judicial acts (it applies only to executive or legislative acts);
- acts that are in breach of international law or contrary to English public policy;
- commercial activities of states (consistent with the modern approach to sovereign immunity); and
- circumstances where the issue is not the validity of the acts, but whether the acts occurred (known as the 'Kirkpatrick exception').
Yukos argued that the annulment decision fell within these limitations, as it was a judicial act and constituted an abuse of process. Yukos also invoked the Kirkpatrick exception.
The court held that judicial acts are not subject to the act of state doctrine. Rather, judicial acts are circumscribed by other principles, such as comity, estoppel and the rules of recognition and enforcement of court decisions. In any event, the doctrine does not apply to judicial acts that constitute an abuse of the judicial process.
The acts in question were judicial acts (ie, the Russian court's annulment decision). Also, those acts had been "brought about by judicially corrupt means". Hence, the doctrine did not apply.
The court did not accept Yukos's argument that it was concerned not with the validity of the act at issue, but rather with whether the acts occurred. The court's view was that Yukos was concerned with demonstrating that the annulment decisions (and any related acts) were invalid or ineffective. The court emphasised that had these acts occurred and been valid or lawful, Yukos's argument would be undermined. Rather, Yukos wanted to show that the "whole campaign" was unlawful.
For the English court to follow the Dutch court decision on the basis of issue estoppel, Yukos had to demonstrate that the issue in the two proceedings was exactly the same.
The court held that the issue before it was different from that before the Dutch court. The issue before the English court was whether the Russian annulment decisions were partial and dependent according to English principles of public policy. That issue had been determined by the Dutch courts according to Dutch principles of public policy. On that basis, the English court found that it was not bound by the Dutch court decision.
The court's decision has been welcomed by the international arbitration community. By enforcing an award that was wrongly set aside by the courts of the jurisdiction in which it was made, the English courts have confirmed their willingness to abide by and enforce the fundamental principles underlying international arbitration law and practice. Doctrines such as the English act of state doctrine play no role in the efficient and effective resolution of international disputes that span multiple jurisdictions and involve numerous courts and tribunals.