Yukos Universal v. Russia

(1) Whether the provisional application of the Energy Charter Treaty ('ECT') by the Defendant pursuant to Article 45(1) of the ECT means that the Defendant had offered to submit disputes arising under the ECT to arbitration pursuant to Article 26 of the ECT.

(2) Whether, as a matter of the construction of the ECT, Articles 1(6) and 1(7), the Claimants were 'Investors', whether there was a relevant 'investment', and whether the Claimants were entitled to invoke the dispute resolution provisions of Article 26 of the ECT.

(3) Whether Article 21 of the ECT (relating to 'taxation measures'), when read together with Article 26 of the ECT, means that there was no written agreement to submit the parties' dispute to arbitration.

By a judgment of 20 April 2016, The Hague District Court (being a court of the Netherlands which was the seat of the arbitration) set the Awards aside. This was on the sole ground that the Defendant was not bound by the dispute resolution provisions of the ECT under the regime of provisional application contained in Article 45 of the ECT. In light of that decision, and given that it was being appealed to the Court of Appeal of The Hague, the parties agreed that the English proceedings should be stayed. The Order of Leggatt J of 8 June 2016, which was made to give effect to that agreement, and which was made by consent, was in part as follows:

'1. The proceedings are stayed from the date of this order (the "Stay").

...

3. The parties each have liberty to apply, without showing a change of circumstances, to lift the Stay following the handing down of the judgment of the Court of Appeal of The Hague. …'

On 18 February 2020, The Hague Court of Appeal, after considering the matter de novo, handed down judgment quashing The Hague District Court's decision and reinstating the Awards. On 15 May 2020, the Defendant initiated a cassation appeal before the Supreme Court of the Netherlands ('the Dutch SC'). That was declared admissible on 19 June 2020.

The Claimants' application to lift the stay came before Henshaw J for a hearing in March 2021. At that point, the cassation appeal to the Dutch SC was still pending. In his judgment, handed down on 14 April 2021, ([2021] EWHC 894 (Comm)), Henshaw J dismissed the application. The judgment is thorough and meticulous. I will have to consider its reasoning in somewhat more detail hereafter but, in brief:

(1) Henshaw J held that the Defendant's challenge to the jurisdiction, brought by the Jurisdiction Application, would have to be determined as a preliminary matter, and that, unless and until it was dismissed, the Court's power under s. 103(5) of the 1996 Act to adjourn the enforcement proceedings and/or to require the provision of security as a condition of such adjournment, would not arise.

(2) Henshaw J considered that parts of the Defendant's challenge to the Awards in the courts of the Netherlands had a real prospect of success. Those grounds included a challenge to the jurisdiction of the arbitral tribunal, on bases which overlapped substantially with the Jurisdiction Application; and an argument that The Hague Court of Appeal had erred in refusing to consider certain allegations of procedural fraud in the underlying arbitration.

(3) Henshaw J concluded, having weighed up the competing factors, that the stay should be continued. The prejudice to the Claimants arising from further delay in potential enforcement measures, without security in the meantime, was 'outweighed in the present case by the advantages referred to in §213(viii) and 213(ix) above of awaiting the ultimate outcome of the viable challenge which Russia is bringing in the courts of the Netherlands' (para. 214). The matters referred to by reference to paragraphs 213(viii) and (ix) were: (213(viii)), 'the advantages, where a challenge in the curial court has a realistic prospect of success, of allowing that process to run its course, in the interests of comity, avoidance of inconsistent decisions and efficiency'; and (213(ix)), 'the specific risk of unfairness that would arise if Russia were to be unable to advance (or to fail in) its full case on state immunity as a result of a binding effect of the decision of the Hague Court of Appeal on essentially the same issues, only for that decision to be later reversed by the Dutch Supreme Court (with or without a reference to the CJEU).'

Since Henshaw J's decision, the Dutch SC has, on 5 November 2021, given its judgment in the cassation appeal. By that judgment, the Dutch SC dismissed the grounds of challenge to the Awards which went to the arbitral tribunal's jurisdiction. I will consider this aspect in somewhat more detail below. The Dutch SC, however, found in favour of the Defendant on one ground, namely that The Hague Court of Appeal had erred in refusing to allow it to advance certain allegations that the Awards were contrary to Dutch public policy because of alleged frauds perpetrated by the Claimants in the course of the arbitration. That matter has been referred to, and is currently being litigated before the Amsterdam Court of Appeal. The parties have served various statements of case. The expert report on Dutch law served by the Defendant in this action estimates that the proceedings before the Amsterdam Court of Appeal will last at least until mid-2023, and may conclude in late 2023 or early 2024.

(1) That at the directions hearing on 1 April 2022 Henshaw J had indicated that a future change of the Defendant's legal representation was unlikely to result in a postponement of the hearing once listed.

(2) The Defendant had failed to provide proper particulars of the efforts it had made to obtain alternative representation.

(3) The Defendant itself is not subject to sanctions, and as far as Stephenson Harwood LLP were aware, there were no sanctions in England and Wales which would prevent a solicitor or barrister from acting for the Defendant in connexion with the present proceedings.

(4) The Claimants would be prejudiced by an adjournment of a hearing which had been fixed since 5 April 2022.

(5) Any prejudice to the Defendant fell well short of a reason for an adjournment. The Defendant had already served its evidence. The Defendant could, if it wanted to, avail itself of English qualified assistance in Russia. The letter enclosed a list of solicitors registered with the Law Society who are based in Russia. Further, the Defendant could represent itself. Moreover, the hearing was procedural in nature, being only concerned with whether the stay should be lifted.

(6) In any event, any difficulties faced by the Defendant were of its own making. It had invaded Ukraine. If it withdrew and paid reparations, doubtless sanctions against Russian entities would be lifted.

'The Court rejects the … argument of FKP and the Russian Federation. In the setting aside proceedings, The Hague District Court reversed the arbitral awards on the ground that there was no valid arbitration agreement (Section 1065(1)(a) (old) Dutch Code of Civil Procedure). On appeal, this Court ruled that no ground for setting aside existed in this respect and the grounds for cassation directed against this were rejected by the Supreme Court. In its ruling of 5 November 2021, the Supreme Court only found ground for cassation I to be well-founded. According to this ground for cassation, this Court should not have rejected on formal grounds the argument that the arbitral awards are contrary to public policy (Section 1065(1)(d) (old) Dutch Code of Civil Procedure) because HVY is alleged to have acted fraudulently in the arbitration proceedings. After cassation and referral, only this assertion is still to be handled in the setting aside proceedings, which are now being conducted before the Amsterdam Court of Appeal. No court charged with the setting aside has yet ruled on the merits of this assertion. There are therefore pending setting aside proceedings, whereby the basic principle applies that these do not suspend enforcement (Section 1066(1) Dutch Code of Civil Procedure). The lapse of the leave for enforcement by operation of law on account of the setting aside of the arbitral award, as referred to in Section 1064(4) Dutch Code of Civil Procedure, is not at issue in this situation either.'

In the Dutch proceedings, the Defendant had taken a number of points going to the question of whether the arbitral tribunal had had jurisdiction to determine the dispute, and as to whether the Awards should be set aside. There were seven main points which were considered and rejected by The Hague Court of Appeal:

(1) That the Awards were procured by a fraud on the tribunal, including by the adducing of false evidence and the failure to disclose key documents.

(2) That the tribunal had no jurisdiction because the Defendant did not ratify the ECT; it had only applied it on a provisional basis, and that, pursuant to Article 45 of the ECT, provisional application was only to the extent not inconsistent with the Defendant's constitution, laws or regulations, which Article 26 would have been.

(3) That the Claimants were not 'investors' and their interests in Yukos were not 'investments' and so the tribunal had lacked jurisdiction.

(4) That the Claimants had acquired their shares in Yukos illegally and that their investments were not protected by the ECT and the tribunal had lacked jurisdiction.

(5) That the dispute related to Taxation Measures. It was therefore within the Article 21 ECT carve out, which qualified the Defendant's offer to arbitrate, and was thus a dispute which could not be referred to arbitration; alternatively that the tribunal had violated its mandate in not referring the dispute to the relevant Competent Tax Authorities under Article 21(5)(b)(i) of the ECT.

(6) That the tribunal had violated its mandate and been irregularly composed because parts of its role were delegated to an 'assistant'.

(7) That the tribunal wrongly overlooked evidence.

The Hague Court of Appeal decided all these points against the Defendant's arguments. The Defendant's cassation appeal to the Dutch SC sought to challenge most of them. An exception was the argument that Article 21 qualified the Defendant's offer to arbitrate, which was a point which went to the tribunal's jurisdiction. In relation to Article 21 the Defendant had pursued a cassation appeal only in relation to the allegation of a violation of mandate.

I consider that this is a matter of considerable significance as to whether the stay of the present proceedings should be lifted, at least to the extent of permitting the Defendant's Jurisdiction Application to be determined. This is particularly so for the following reasons:

(1) The fact that the Defendant's Jurisdiction Application overlapped with the jurisdictional points which were raised by the Defendant's cassation appeal to the Dutch SC was a matter heavily relied upon by the Defendant at the hearing in front of Henshaw J last year as a reason for the stay being continued until the Dutch SC had given judgment. Thus in Mr Goldberg's Third Witness Statement, served on behalf of the Defendant and dated 6 November 2020, there is, at paragraphs 48 – 57, an analysis of the basis for the Defendant's jurisdiction challenge here, and of how it overlaps with the issues which were then before the Dutch SC.

(2) In Henshaw J's judgment the extent of the overlap is recognised at paragraphs 45-50. As is said in paragraph 50, the first two of the Defendant's grounds in its Jurisdiction Application are the same as Grounds 2 and 3 in the cassation appeal. The third ground, as Henshaw J put it, 'overlapped' with Ground 5 in the cassation appeal. In fact, as I have set out, when the unappealed decision of The Hague Court of Appeal in relation to Article 21 is also taken into account, it can be seen that the Defendant's third point in its Jurisdiction Application has been the subject of a determination by the Dutch courts.

(3) An important part of Henshaw J's reasoning as to why the stay should not be lifted was the concern that, if the English proceedings were allowed to proceed, the Defendant might be unable to present to the English court its full case on state immunity, because it could be said to be bound by the decision of The Hague Court of Appeal, notwithstanding that that decision might itself later be reversed by the Dutch SC (see para. 213(ix)). The position in relation to this has now changed.

The one point which has been raised by the Defendant as to why the decision of the Dutch SC may not be final, is that it has been suggested that there could be a reference by the Amsterdam Court of Appeal to the CJEU of the question of the proper construction of Article 45 of the ECT. I do not consider that the risk that this may happen is one which can be regarded as sufficiently great for it to play any role in the decision which I have to make. The Dutch SC considered the question of whether a reference would be required, and decided that it would not, because even on the Defendant's interpretation of Article 45, there was no inconsistency between the applicability of Article 26 and Russian law (see paragraphs 5.2.10 – 5.2.21 of the Judgment of the Dutch SC). There is no evidence before me which indicates that there is any realistic prospect that, in light of that, the Amsterdam Court of Appeal will make a reference. While Prof. Van den Berg refers to the point having been raised, it is conspicuous that he does not say that it stands any significant prospect of success. By contrast, the expert report submitted by Prof. Cohen Jehoram, on behalf of the Claimants, opines that there is no possibility of a reference by the Amsterdam Court of Appeal of any relevant question to the CJEU.

In the light of the above, I turn to consider the issue of whether the stay should be lifted, looking at the matter in the round. The factors mentioned by Henshaw J in paragraph 213 (i)-(iv), (vii) and (x) of his judgment continue to apply, as matters favouring the lifting of the stay. For reasons I have given, the force of factor (v), as counting against the lifting of a stay, has been reduced by reason of the invasion of Ukraine and the international response thereto. Point (ix) has, significantly, fallen away. The points which Henshaw J was considering as being pursued in the Dutch courts and having a realistic prospect of success which are referred to in point (vi) have been reduced to one.