Finding by foreign court can be relied upon when determining claim to state immunity

The HC decision

We covered the HC decision in our previous post, which also outlined the background to the USD 50bn + damages awards against Russia in 2014 and the set-aside / enforcement battles that followed in the Netherlands and the UK. 

Before the HC, Russia resisted enforcement of the awards claiming immunity under the State Immunity Act 1978 (SIA). The former majority shareholders of Yukos, in whose favour the awards had been given, maintained that Russia could not claim such immunity. This was on the basis that Section 9 of the SIA, which provides an exception to immunity where a state has agreed to submit the dispute to arbitration, applied. The shareholders claimed that the final and conclusive judgment of the Dutch Supreme Court, that a valid arbitration agreement existed between the parties, prevented Russia from arguing that no such agreement existed (i.e., “issue estoppel” applied).

The HC rejected Russia’s argument that there was a freestanding duty under the SIA which required the English court to determine for itself whether there was a valid and binding arbitration agreement, and held there was nothing in the SIA that prevented issue estoppel from applying.  It also found that the requirements for establishing issue estoppel were met.  Russia’s immunity objection was therefore dismissed. 

The CA decision

Russia did not challenge the HC’s conclusion that the requirements for issue estoppel were satisfied on the facts. Instead, it argued that the English courts have an obligation under the SIA to give effect to a state’s immunity from jurisdiction unless they determine that one of the exceptions to immunity applies, and that common law doctrines like issue estoppel cannot override this obligation.  Russia argued that it followed that a conclusion based on an issue estoppel arising from a foreign judgment “is not a determination at all”. 

The CA disagreed. It found that issue estoppel does not mean that a court declines to make a decision. Rather, because of the issue estoppel, evidence to contradict a previous judgment is simply not relevant.  This was found to be an application of the ordinary principle that the substantive law (English law on this point of state immunity) determines what evidence is relevant to decide an issue. The CA also repeated the HC’s observation that there was nothing in the SIA which prescribed how the court was to determine whether an exception to immunity applied. There was, therefore, nothing to prevent the English court from applying any substantive principles of English law, including issue estoppel.

Finally, the CA held that there were no ‘special circumstances’ which would displace a finding of issue estoppel. The CA noted that the ‘special circumstances’ exception is generally invoked when new evidence not discoverable by due diligence becomes available (which was not the case before the CA).

Comment

This decision should limit creative arguments by states regarding sovereign immunity that would allow them a second bite at the cherry in the English courts at the enforcement stage. The CA’s pro-arbitration approach can be seen from its comment that “awards, even against states, should be honoured without delay and without the kind of trench warfare seen in the present case”.

While non-state parties will welcome this decision, they should remain cognisant of the fact that the English court will exercise caution before treating a foreign judgment as giving rise to an issue estoppel. As the CA noted, the need for caution is greater where it is unclear precisely what the foreign court has decided or what the effect of its decision is, where the procedure of the foreign court is unfamiliar or the applicable law is very different from English law. These are not insurmountable obstacles, however, and the English courts may get comfortable in finding issue estoppel, particularly where they are supported by robust evidence from foreign law experts.

The former majority Yukos shareholders are now one step closer to enforcement against any Russian assets in the UK.