Since the Final Awards, no payment has been made and over US$7 billion in interest has accrued. Russia is challenging the Final Awards and previous interim awards on admissibility and jurisdiction dated 30 November 2009, together the "Awards", in the courts of the arbitral seat, the Netherlands. On 20 April 2016 Russia was successful before the District Court of The Hague (the "Hague District Court"). On 18 February 2020 the Court of Appeal of The Hague (the "Hague Court of Appeal") reinstated the Awards. An appeal to the Supreme Court of the Netherlands (the "Dutch Supreme Court") is pending.
"the Russian authorities were conducting 'a ruthless campaign to destroy Yukos, appropriate its assets and eliminate Mr. Khodorkovsky as a political opponent.'"
However, by its judgment of 20 April 2016 the Hague District Court set the Awards aside, and the Claimants filed an appeal to the Hague Court of Appeal. The Claimants at that stage, in May 2016, wrote stating that "the only appropriate course now is to stay the English proceedings in their entirety" since the proceedings in the Netherlands "may render the entire argument in England nugatory". Russia agreed, and on 8 June 2016 Mr Justice Leggatt ordered (by consent) the Stay, giving both parties liberty to apply to lift the Stay following the judgment of the Court of Appeal "without showing a change of circumstances". That reflected a compromise, Russia having proposed that the proceedings be stayed until the final outcome of the proceedings in the Netherlands, and the Claimants that the Stay should remain in place only until the judgment of the Hague Court of Appeal.
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 17 April 2020 the Claimants requested leave to enforce the Awards in the Netherlands, which was granted on 28 April 2020.
The Defendant also applied to suspend enforcement of the Awards in the Netherlands pending the outcome of the Cassation Appeal (the "Suspension Application"). On 13 November 2020 Procurator General Vlas issued an Opinion recommending the Suspension Application be dismissed (the "PG Opinion"). The Dutch Supreme Court denied the Suspension Application on 4 December 2020 (the "Suspension Judgment").
Secondly, Russia contends that the Tribunal had no jurisdiction because Russia did not ratify the ECT. It agreed only to apply it on a provisional basis under Article 45(1) of the ECT, and pursuant to that Article the ECT's provisions apply to Russia only "to the extent that such provisional application is not inconsistent with its constitution, laws or regulations." Russia argues that the dispute resolution provision in ECT Article 26, pursuant to which the Awards were made, is inconsistent with Russian law, including because disputes of a public law nature cannot be arbitrated in Russia. The Hague District Court accepted this argument.
i) that the Claimants' investments in Yukos were prima facie protected by the ECT notwithstanding these allegations of wrongdoing (which it did not determine): Russia says it cannot have been the intention of the contracting states to confer protection on illegal investments, noting that the purposes of the ECT are to promote "long-term cooperation in the energy field, based on complementarities and mutual benefits" and "to strengthen the rule of law", and citing a statement by the European Commission that "Investment" within the ECT includes all investments "made in accordance with the applicable law and the domestic law of the host Contract Party";
ii) that there was insufficient link between the Individuals' alleged wrongdoing and the Claimants' acquisition of shares in Yukos: Russia says the Hague Court of Appeal wrongly focused only on the final prior transaction by which the Claimants acquired their shares even though each stage in the chain of transactions was controlled by the Individuals, and even though (according to Russia) the main motivation for incorporating two of the Claimants in Cyprus was to evade tax; and
iii) that the alleged unlawful conduct did not justify setting aside the Awards as contrary to Dutch and EU law public policy because it was too distant from the Claimants' acquisition of shares in Yukos.
Fifthly, Russia argues that the Tribunal failed to refer any of the issues in dispute in the arbitration to the relevant Competent Tax Authorities within the meaning of ECT Article 21(5)(b)(i), and therefore exceeded its mandate. The Tribunal accepted that Article 21(5)(b)(i) was engaged, but refused to make such a reference on the basis that any such reference would be "an exercise in futility". The Hague Court of Appeal considered that failure not to be sufficiently serious to justify setting aside the Awards. I should record in this context a specific point made by the Claimants, namely that Russia has chosen not to challenge the Hague Court of Appeal's conclusion that Article 21 is not a provision that qualifies Russia's offer to arbitrate, and is therefore incapable of affecting the Tribunal's jurisdiction under the ECT. On that basis, the Claimants submit that any argument over the precise meaning of Article 21 is academic for the purposes of the Cassation Appeal.
"3.3 As regards the assessment of the suspension application, therefore, the standard to be applied breaks down into two independent elements of which the suspension court will have to form a picture. First of all, the court will need to assess the probability of success of the claim for setting aside. Secondly, the court must balance the parties' interests. I will discuss these two elements in succession.
3.5 Accordingly, the suspension court must exercise reticence in its provisional decision. A comparison can be made with the test to be applied in assessing whether the leave to enforce an arbitral award should be refused (Article 1063(1) DCCP). The purpose of that provision, too, is to prevent an arbitral award that might be set aside from being enforced without the court having to conduct an extensive examination to that end. Article 1063(1) DCCP read[s] as follows:
'1. The president of the District Court may only refuse enforcement of an arbitral award if the award, or the manner in which it was made, manifestly violates public policy or good morals (…)'
It follows from the legislative history of this provision that the examination to be conducted by the president must be 'summary'. The violation of public policy or good morals will need to be prima facie evident from the arbitral award. This is also apparent from the use of the word 'manifestly' in the provision quoted. With effect from 1 January 2015, Article 1063(1) DCCP was amended. This amendment was not intended as a substantive change, but was an attempt to express the summary nature of the examination in the legislative text as well. Article 1063(1) (new) DCCP currently read as follows:
'1 The Preliminary Relief Judge of the District Court may only refuse enforcement of the arbitral award if a summary examination has led him to conclude that it is likely that the award will be set aside on one of the grounds mentioned in Article 1065(1), (…)' (my italics, Advocate General)
3.6 How does the fact-finding court perform the assessment of Article 1066 DCCP? In case law, the assessment of Article 1066 DCCP and that of Article 1063 DCCP are fairly in tandem. For example, in a 1993 judgment, the Groningen District Court used as its point of departure that the assessment of a suspension application must go into the question of 'to what extent the claim to set aside the arbitral award has any probability of success, in which respect the District Court may confine itself to a summary estimation of the probability of success'. The Court of Appeal of The Hague assessed whether the applicant had 'provisionally, had plausibly' that its claim for setting aside had 'a high probability of success'. According to the Court of Appeal, this was not the case because a very complex issue was presented in the setting-aside proceedings that concerned a special situation without precedents. Another aspect taken into consideration was that one of the positions argued by the applicant had already been examined and rejected by various arbitral tribunals and a judicial body. The Amsterdam Court of Appeal did consider a suspension application eligible for award, because the arbitral award had not been signed by all arbitrators and a new page had been added to the award after it had been rendered, regarding which it was unclear whether all arbitrators had agreed to it. The Breda District Court granted a suspension application because no reasons whatsoever were stated for a specific division. In these latter two cases, the flaws in the arbitral award could be established in a summary examination.
"3.7 The probability of success of the setting-aside claim should therefore not be examined thoroughly in the context of a suspension application; only whether the reliance on a setting-aside ground already appears justified at first glance needs to be considered … suspension will only be an option when it is plausible that setting aside will follow, in other words where there is a high probability of setting aside. There is no reason for the suspension in the event that the grounds put forward for setting aside pertain to a position that was already previously rejected in the proceedings or in the event of a very complex issue that cannot be assessed without thorough examination." (footnotes omitted)
The Dutch Supreme Court set the test out in slightly shorter form in its suspension judgment:
"3.3.2 The suspension application on the basis of Article 1066(2) (old) DCCP is aimed at obtaining a provisional measure. In its decision on that suspension application, the court must make a provisional assessment of the claim for setting aside the arbitral award and, in addition, balance the interests of the parties. In making this provisional assessment, the court will have to assume that the claim for setting aside can only succeed if a ground for setting aside as referred to in Article 1065 (old) DCCP is present.
If, in the setting aside proceedings, the court in the previous instance has already rendered a decision on the claim for setting aside, the court that decides on the suspension application must take that decision into account. This entails that in the event that the court in the setting aside proceedings denied the claim for setting aside, the court deciding on the suspension application must observe more restraint than in the case in which the court in the setting aside proceedings has not yet given a decision." (footnotes omitted)
i) the Court of Appeal's reasoning is internally inconsistent or incomprehensible, for example where the reasoning is based on a logical fallacy such as a non sequitur, where the established facts and circumstances allowed one irrefutable conclusion to be drawn, or where the Court of Appeal wrongly assumed that certain facts or arguments compelled or precluded a certain conclusion;
ii) the Court of Appeal's reasoning contains an obvious mistake; or
iii) the Court of Appeal failed to address essential arguments advanced by the parties.
"I believe that the matter is irrelevant in the context of the assessment of the suspension application, as the issue at hand is not whether fraud is a setting-aside ground … but whether such reliance would have been successful and would have led to the setting aside of the arbitration awards. Nothing can be said on this provisionally, because the Court of Appeal did not assess this matter at all. For that reason as well, it is not provisionally plausible that this part has a high probability of success."
I was provided with a sworn English translation of the Suspension Judgment of 4 December 2020. This sets out provisional views on the merits of the Cassation appeal, which I consider in more detail later in relation to Grounds 1 to 3. In very brief overview, the court's provisional assessments were that:
i) Ground One : the Supreme Court notes the Hague Court of Appeal's reasoning on the different time limits and competent courts under the two procedures, and that the procedural mechanisms would be circumvented by allowing the additional fraud claim to proceed; it concludes that the probability that this complaint will succeed and lead subsequently to setting aside the Awards is not sufficient to justify suspension of the enforcement;
ii) Ground Two : bearing in mind that Article 79 prevents the Supreme Court from annulling the Court of Appeal's findings as to Russian law, this Ground is assessed provisionally as not having the requisite probability of success to suspend the awards;
iii) Ground Three : the Court of Appeal provisionally did not incorrectly interpret the ECT, and provisionally its judgment is not incomprehensible;
iv) Ground Four : the Hague Court of Appeal gave two independent reasons as to why illegal conduct at the time of acquiring Yukos' shares did not lead to a lack of jurisdiction on the part of the Tribunal;
v) Ground Five : it is not "plausible" that Russia suffered a disadvantage because matters were not referred to the Russian tax authorities; as to referrals to the UK and Cyprus tax authorities, the Hague Court of Appeal decided that these were not "relevant" tax authorities, a finding not challenged on cassation;
vi) Ground Six : the Court of Appeal assumed that the assistant had written some of the award, but that does not mean they were involved in the decision-making; and
vii) Ground Seven : the Court of Appeal provided two grounds on which it based its conclusion, and it cannot be said that the Court of Appeal's judgment did not provide a valid explanation for rejecting Russia's contention that Yukos used low-tax jurisdictions to evade tax.
Russia submits that it did not agree in writing to submit the present dispute to arbitration because:
i) Russia did not ratify the ECT but agreed to apply it provisionally under Article 45(1) to the extent that such provisional application was not inconsistent with Russian law. The dispute settlement clause in ECT Article 26 is inconsistent with Russian law, which does not permit the arbitration of disputes involving issues of public law or tax. Russia therefore did not agree to arbitrate;
ii) the Claimants are not "Investors" and their acquisition of Yukos did not involve "Investments" within the meaning of ECT Articles 1(6) and 1(7), and there is not a dispute "between a Contracting Party and an Investor of another Contracting Party" under Article 26, because the Claimants are shell company proxies for the Individuals and they did not inject any foreign capital into Russia in acquiring Yukos; and
iii) the Tribunal had no jurisdiction pursuant to ECT Article 21(1), which provides that "Except as otherwise provided in this Article, nothing in this Treaty shall create rights or impose obligations with respect to Taxation Measures of the Contracting Parties". Key issues in the arbitration involved considering whether Russia's actions in assessing and enforcing Yukos' tax liabilities were legitimate, and the arbitration therefore fell outside the scope of the ECT. The issues in the Arbitration fall outside the exception provided for in Article 21(5); alternatively, if prima facie within that provision, the jurisdiction of the Tribunal was conditional on it referring questions to the relevant tax authorities, which it failed to do. (Article 21(5) applies the expropriation bar in Article 13 to taxes, but goes on to provide a mechanism for referral of issues to the relevant competent tax authorities whenever an issue arises under Article 13 as to whether a tax constitutes an expropriation or whether a tax alleged to constitute an expropriation is discriminatory.)
i) the court has a general power under CPR rule 3.1(7) to vary the 8 June Order so as to lift the Stay;
ii) the manner in which that power ought to be exercised necessarily depends on the relevant circumstances in which it was made, namely that (a) the Stay was agreed on the basis that it was to be imposed pending the Hague Court of Appeal decision, and (b) that decision having been made, the Awards have been reinstated and are presently enforceable (and are being enforced) in the arbitral seat;
iii) as a result, the substance of the issues now before the court is identical to that which would arise upon a defendant's application for an adjournment under section 103(5). The question is whether proceedings to enforce an arbitration award in this jurisdiction ought to be put on hold (either generally, or subject to a condition that the defendant put up appropriate security) by reason of an unresolved challenge to that award in the courts of the seat;
iv) as an alternative to lifting the Stay and allowing proceedings to continue, the court has the power under section 103(5) of the 1996 Act to keep the proceedings in abeyance and to require the provision of security as the price for doing so;
v) although section 103(5) is a power to "adjourn" enforcement proceedings, there is no reason of syntax or principle to treat that wording as being inapplicable where the court is considering whether to continue an existing adjournment rather than whether to impose a new one;
vi) there is also no significance to be attributed to the distinction between a "stay" and an "adjournment". Given that section 103(5) gives effect in English law to the provisions of the New York Convention (which were not drafted with peculiarities of English procedure in mind), it would be inappropriate to adopt a construction which resulted in the applicability of the section being dependent upon the precise procedural route by which the relevant issue of substance happens to come before this court;
vii) once section 103(5) is engaged (which it is in this case), the court has the power to order security "on the application of the party claiming recognition or enforcement" (i.e. the Claimants), and such an application is before the court; and
viii) alternatively, the court can and should arrive at a position which is materially identical to that which would have arisen on an application under section 103(5): if it concludes that any continuation of the Stay ought (in principle) to be conditional upon the provision of security, then it should (a) lift the Stay; and (b) if requested to do so by Russia, immediately adjourn these proceedings under section 103(5), conditional upon Russia providing appropriate security.
"103.— Refusal of recognition or enforcement.
(1) Recognition or enforcement of a New York Convention award shall not be refused except in the following cases.
(2) Recognition or enforcement of the award may be refused if the person against whom it is invoked proves—
(a) that a party to the arbitration agreement was (under the law applicable to him) under some incapacity;
(b) that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made;
(c) that he was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
(d) that the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration (but see subsection (4));
(e) that the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country in which the arbitration took place;
(f) that the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made.
(3) Recognition or enforcement of the award may also be refused if the award is in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to recognise or enforce the award.
(5) Where an application for the setting aside or suspension of the award has been made to such a competent authority as is mentioned in subsection (2)(f), the court before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the recognition or enforcement of the award.
It may also on the application of the party claiming recognition or enforcement of the award order the other party to give suitable security."
Section 103 reflects Articles V and VI of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The 1996 Act as a whole gives effect to the New York Convention, and comprises an overall scheme for the facilitation of the enforcement of arbitration awards. The scheme reflects a "pro-enforcement bias" ( per Gross J ("IPCO"); per Eder J; and PAO Tatneft v. Ukraine  EWHC 3161 (Comm) § 72 (Sir Andrew Smith). A creditor to a New York Convention award "has a prima facie right to recognition and enforcement" (Yukos Oil Company v. Dardana Limited  EWCA Civ 543,  CLC 1120, per Mance LJ at ). The Claimants point out that by abolishing "double exequatur" (the principle that an arbitral award must have been enforced by the courts of the seat in order for it to be enforceable in other jurisdictions), the New York Convention eschews an approach based on automatic deference to the courts of the seat, in favour of one where the award creditor is presumptively entitled to enforcement, unless the award debtor is able to demonstrate that the case falls into any of the specific categories identified in Article V (which categories are themselves to be construed narrowly: see Diag § 12).
The strength of the presumption in favour of enforcement is underlined by the approach underlying the Convention and hence the 1996 Act:
i) Recognition and enforcement are mandatory, subject only to the stated exceptions (as emphasised in Gater Assets Ltd v. Nak Naftogaz Ukrainiy  EWCA Civ 988 § 11 per Rix LJ).
iii) Even where there is an unresolved challenge to the award in the court of the seat, Article VI of the NY Convention provides that the enforcing court (a) "may, if it considers it proper" adjourn recognition/enforcement; and (b) "may also … order [the award debtor] to give suitable security". Thus the existence of an extant challenge to the relevant award in the court of the seat is not determinative as to whether there should be an adjournment.
The principles relevant to granting a stay under section 103(5) were summarised by Gross J in IPCO at - (references removed):
"s.103(5) achieves a compromise between two equally legitimate concerns. On the one hand, enforcement should not be frustrated merely by the making of an application in the country of origin; on the other hand, pending proceedings in the country of origin should not necessarily be pre-empted by rapid enforcement of the award in another jurisdiction. Pro-enforcement assumptions are sometimes outweighed by the respect due to the courts exercising jurisdiction in the country of origin—the venue chosen by the parties for their arbitration.
… the Act does not furnish a threshold test in respect of the grant of an adjournment and the power to order the provision of security in the exercise of the court's discretion under s.103(5). In my judgment, it would be wrong to read a fetter into this understandably wide discretion (echoing, as it does, Art. VI of the New York Convention). Ordinarily, a number of considerations are likely to be relevant:
(i) whether the application before the court in the country of origin is brought bona fide and not simply by way of delaying tactics;
(ii) whether the application before the court in the country of origin has at least a real (i.e., realistic) prospect of success (the test in this jurisdiction for resisting summary judgment);
(iii) the extent of the delay occasioned by an adjournment and any resulting prejudice.
Beyond such matters, it is probably unwise to generalise; all must depend on the circumstances of the individual case. As it seems to me, the right approach is that of a sliding scale, in any event embodied in the decision of the Court of Appeal in Soleh Boneh v Uganda Government  2 Ll Rep 208 [ ("Soleh Boneh")] in the context of the question of security:
'… two important factors must be considered on such an application, although I do not mean to say that there may not be others. The first is the strength of the argument that the award is invalid, as perceived on a brief consideration by the Court which is asked to enforce the award while proceedings to set it aside are pending elsewhere. If the award is manifestly invalid, there should be an adjournment and no order for security; if it is manifestly valid, there should either be an order for immediate enforcement, or else an order for substantial security. In between there will be various degrees of plausibility in the argument for invalidity; and the Judge must be guided by his preliminary conclusion on the point.
The second point is that the Court must consider the ease or difficulty of enforcement of the award, and whether it will be rendered more difficult … if enforcement is delayed. If that is likely to occur, the case for security is stronger; if, on the other hand, there are and always will be insufficient assets within the jurisdiction, the case for security must necessarily be weakened.'"
My attention was drawn also to further factors that courts have previously considered when exercising the discretion under section 103(5) of the 1996 Act, particularly in the context of prejudice to either party arising from there being parallel proceedings ongoing in the courts of the seat. Again, the parties differ on their relevance and weight in the present case. These factors include:
i) The risk of inconsistent or conflicting decisions: it has been emphasised several times that "[i]f possible, the court should avoid the risk of conflicting decisions, which would occur if the English court enforces the award and the [curial] court subsequently decides to set it aside" (Travis Coal Restructured Holdings LLC v Essar Global Fund Ltd  EWHC 2510 (Comm) ("Travis Coal") § 73; see also ;  9 WLUK 5 ; and AIC Limited v The Federal Airports Authority of Nigeria  EWHC 2212 (TCC) ("AIC") § 54).
ii) Avoiding inconvenience and inefficacy: for example, a stay was held to be appropriate in Stati in light of "not only the interests of the parties but the interests of other court users and the efficient use of court resources", in circumstances where the English proceedings "may turn out to be unnecessary or may be the subject of duplication" and may "result in considerable waste of time and costs" (§§ 2-5).
iii) Whether there is a significant overlap of issues between the English and the foreign proceedings in the court of the seat, particularly where those issues are more suitable for determination by the curial court. For example, in Stati where one issue concerned the interpretation of the SCC arbitration rules and the Swedish courts were the curial courts, this court noted that the English Court "may very well be assisted by what the [curial] court has to say on those issues" (§ 3); and in IPCO the court stated that "proper deference, going beyond lip service, must be shown to the pending [curial] proceedings" (§ 52).
iv) As well as assessing the difficulty of enforcing the award, consideration may also be given to the difficulty of the Defendant being unable to recover the security it has given if the award is set aside (IPCO at § 52). It is for the court to assess the extent of any such prejudice by reference to the evidence before it (Soleh Boneh § 52). However, the court does not require detailed evidence as to the existence of assets and their likely dissipation – see, for example (a) Soleh Boneh, where security was awarded in the reduced sum of US$5 million against an award of US$29 million; (b) IPCO, in which the existence of assets within the jurisdiction was assumed from the claimants' trading activities (§ 52(vi)); and (c) AIC, in which the possible (but disputed) existence of third-party debtors led to the conclusion that the court was "not satisfied" that "there are no assets within the jurisdiction" for enforcement purposes. Despite only having limited evidence, the court in AIC considered it was "more than likely" that there were assets (in the form of debtors) (§ 51).
v) Delay in enforcing the award is an important factor (see, e.g., Dowans Holding SA v. Tanzania Electric Supply Co Ltd  EWHC 1957 (Comm) ("Dowans") § 46 referring to the "considerable delay" in Soleh Boneh). Dowans also indicates that the relevance of delay is not dependent upon establishing that it is the intended consequence of a deliberate step (§ 47). In Travis Coal, the relatively short period of delay pending resolution of the challenge before the New York courts was one of the factors which persuaded the court to grant an adjournment on terms that security be provided in the full amount of the award. One way of assessing the level of prejudice is the amount of interest on the award (for example, the remarks of the High Court in AIC at , and of Burton J in Naftogaz at ).
vi) When considering any prejudice to the claimant, an award of interest can "both act as an incentive for the Defendant to cooperate in speedy resolution and as some substantial compensation for the claimant" (Naftogaz § 22).
vii) However, entitlement to such interest is not necessarily an answer to any prejudice caused by delay. Russia refers to Prifti v Musini Sociedad Anonima de Seguros y Reaseguros  EWHC 832 (Comm) ("Prifti"), a non-arbitration case where Christopher Clarke J did not regard delay in payment as a ground for refusing a stay, given that the relevant party if successful would recover interest, and simple interest would be sufficient compensation for the delay (§§ 29-30). In Reichhold Norway ASA v Goldman Sachs International  1 WLR 173 ("Reichhold") (stay of proceedings pending arbitration), Lord Bingham MR quoted with apparent approval the first instance judge's statement that
"the only prejudice which Reichhold is likely to suffer if this action is stayed is a delay of about a year. Since delay of that kind can be compensated by an award of interest if Reichhold is ultimately successful, that might be considered a small price to pay for the prospect of avoiding complex and costly litigation." (p.181)
On other hand, in the arbitration enforcement case IPCO Gross J said:
"Given the size of the award, it may be inferred that any delay in enforcement is likely to prejudice IPCO. Very few commercial entities would not be prejudiced by delay in the availability of US$152 million. It must be right to seek to minimise any such prejudice, so far as it is practicable and appropriate to do so." (§ 52(v))
Similarly, in Continental Transfert Technique v. Nigeria  EWHC 780 (Comm) Hamblen J said "given the very large amounts at stake, it is apparent that any delay in being able to obtain the fruits of the judgment is likely to cause significant prejudice" (§ 28).
Thus a right to interest can be viewed as merely a quantification of one form of prejudice which the award creditor suffers as a result of delay to payment of its award.
"The English courts have wide case management powers, and they include the power to impose a temporary stay on proceedings where to do so would serve the Overriding Objective: see CPR 1.2(a) and 3.1(2)(f). … A temporary stay may be ordered where there are parallel proceedings in another jurisdiction, raising similar or related issues between the same or related parties, where the earlier resolution of those issues in the foreign proceedings would better serve the interests of justice than by allowing the English proceedings to continue without a temporary stay [see Reichhold Norway ASA v Goldman Sachs International  1 WLR 173]. But this would be justified only in rare or compelling circumstances …"
i) The risk of inconsistent decisions in proceedings in different jurisdictions is "always capable of amounting to a very strong reason for granting a stay, as the cases … show and emphasise": Bundeszentralamt v Heis  EWHC 705 (Ch) § 113; Ferrexpo AG v Gilson Investments Ltd  EWHC 721 (Comm) § 155.
ii) The "costs and inconvenience of duplicated proceedings" to the parties, the court and other court users may favour a stay: Citigroup Global Markets Ltd v Amatra Leveraged Feeder Holdings Ltd  EWHC 1331 (Comm) § 76; Reichhold at p.182; Department of Trade and Industry v British Aerospace plc and Rover Group Holdings plc  1 CMLR 165 §§ 12-13.
iii) The existence of issues that are more appropriate for determination in the foreign proceedings is a factor favouring a stay. For example:
a) In Bundeszentralamt, Hildyard J granted a stay pending parallel litigation in Germany involving issues of systemic importance to German law, holding that:
"[T]he 'potential disaster from a legal point of view', as in The El Amria … Brandon LJ (as he then was) described the risk of inconsistent decisions in concurrent proceedings in different jurisdictions, is the more acute when in one of the jurisdictions the issue is a systemic one, or may be decided in a manner which has systemic consequences." (§ 116)
b) In Department of Trade and Industry v British Aerospace plc, the validity of a decision of the EC Commission was regarded as more appropriate for determination by the CJEU than by the English court (§§ 12-13).
c) In Prifti it was held to be "inherently inappropriate" for the English court to determine questions of Spanish law bearing on the validity of the first instance Spanish judgment while a Spanish appeal remained pending (§ 22).
iv) A stay is more likely to be appropriate where there is a greater degree of overlap of issues between the English proceedings and the foreign proceedings, or where the foreign proceedings are likely to be determinative of all or part of the English proceedings: Department of Trade and Industry v British Aerospace §§ 12-13; Prifti §§ 21 and 34.
v) The grant of a stay is more likely where any prejudice to the party resisting a stay can adequately be compensated by an award of interest, or is outweighed by the prejudice which would be caused by refusing a stay: Prifti § 34; Reichhold p.181 (see § 62.vii) above).
i) The New York Convention and the 1996 Act are pro-enforcement. The Stay was in place until the Hague Court of Appeal judgment. That judgment has been handed down, and the awards can be and are being enforced in the arbitral seat.
ii) The Claimants have suffered and continue to suffer prejudice by being kept out of their very substantial Awards for an extended period of time.
iii) Russia has taken a public stance of refusing to pay the Awards. It has a history of non-payment of previous awards against it relating to Yukos, including non-payment of just satisfaction awarded by the European Court of Human Rights. It has also sent notes verbales to the Governments of France, Belgium and the United States threatening diplomatic measures if the Awards were enforced by their states' courts. The Claimants submit that Russia "will stop at nothing to avoid paying the Awards", and so "would be unlikely to have any reservations about taking steps to dissipate or conceal assets, so as to render them immune from enforcement". Extending the Stay would give it a further opportunity to do so.
iv) Russia's prospects of success in the Cassation Appeal are slim, though the Claimants accept it is not manifestly bound to fail. This is indicated by the refusal to stay enforcement of the Awards in the Netherlands, and what the Claimants describe as the structural difficulties with Russia's appeal (arising in part from the limited scope of review by the Dutch Supreme Court) and the breadth of issues on which it will need to win.
v) As Russia has no intention of paying the award, it cannot be said that the Cassation Appeal is truly for the purpose of discovering its legal obligations in good faith. The appeal is therefore not brought bona fide, and is a delaying tactic.
vi) Though there is a risk of inconsistent judgments, that will inevitably arise in these types of circumstances and is not prohibited by the New York Convention. Further, Russia has in correspondence refused to accept that it will consider itself bound by the findings in the Cassation Appeal for the purpose of the present proceedings here. In essence, it is reserving its right to argue for inconsistent judgments at a later date.
i) Its Cassation Appeal has at the very least a real prospect of success. The test for staying enforcement in Dutch law is 'obvious error' in the appealed judgment. The Procurator General said a stay would only be justified in the Netherlands if there were a 'considerable likelihood' the Awards would be set aside; and found that four of Russia's grounds of appeal involved questions too complex to be assessed at the preliminary stage (Grounds 1-4). That is a different test to the one I have to apply. Further, the fact the Cassation Appeal was declared admissible indicates that it has some merit.
ii) The Cassation Appeal is not simply a delaying tactic. It has reasonable prospects of overturning the Awards, and Russia is seeking in good faith to pursue its legal remedies in the Netherlands. Moreover, Russia's grounds of appeal raise a number of legal issues of first impression for the Dutch Supreme Court, including novel and important questions of Dutch procedure, Dutch public policy and the interpretation of various provisions of the ECT. Since EU law requires a uniform interpretation of the ECT, these novel points may merit a preliminary reference to the CJEU. The Paris Court of Appeal in parallel proceedings between the parties raised of its own motion the prospect of referring eight questions to the CJEU, which overlap substantially with Grounds 2, 3, 4 and 5 of Russia's appeal to the Dutch SC (although the Claimants then withdrew those proceedings and no reference was made).
iii) Russia's second ground of appeal has already been accepted by an experienced panel of three judges in the Hague District Court, which found in Russia's favour that there was no valid arbitration agreement pursuant to Article 45(1) of the ECT. The interpretation of that provision has now been determined on three occasions in these proceedings – by the Tribunal, the Hague District Court, and the Hague Court of Appeal – and on each occasion a different interpretation has been adopted. Russia has at least a real prospect of persuading the Dutch Supreme Court to adopt the same approach as the Hague District Court, and that alone would be sufficient to overturn the Awards.
iv) Russia's jurisdiction challenge under SIA section 1 still remains to be determined. The arguments it will advance in the Cassation Appeal overlap substantially with its English jurisdiction application. This is inefficient and creates a risk of inconsistent judgments on the same issues. The validity of the Awards is more appropriate for the curial courts to decide, and for the English court to decide before the Dutch Supreme Court on the Awards' validity would raise serious issues of comity.
v) It appears that the Claimants will argue that all three grounds of Russia's challenge to jurisdiction are barred by issue estoppel arising out of the Hague Court of Appeal judgment. If the Stay is lifted, there is a real risk that Russia will be precluded from advancing part of its immunity case based on the decision of the Hague Court of Appeal, which is liable to be overturned by the Dutch Supreme Court. If that were to happen, Russia's justified immunity before this court would have been removed on a false basis, which would cause Russia to suffer irremediable prejudice if (as may be the case) that immunity can no longer be restored.
vi) If enforcement of the awards is granted in England and then the Awards are overturned, Russia will be unlikely to be able to recover any moneys paid. The Claimants are part of a complex offshore structure in opaque jurisdictions, and there is a real risk of dissipation by the Claimants.
vii) There is no significant delay. The Cassation Appeal judgment is likely to be handed down at the end of 2021 or beginning of 2022. Any reference to the CJEU will extend the proceedings to late 2024 or early 2025, but a reference will indicate Russia's appeal has significant merit. In any event, interest would be sufficient compensation for the delay.
viii) Russia has been on notice of these proceedings for six years. It has had ample time to dissipate any assets but has not done so. There is no risk of dissipation. Russia intends to fight these awards using all legal means. There is no intention not to pay, if that is what is required by law. The notes verbales contain no intention to dissipate assets, and were a proportionate response to attachment of diplomatic assets and premises, not to enforcement per se.
i) The court has jurisdiction to require security under that provision because these are proceedings under the 1996 Act, within which there is a question about state immunity. Section 103(5) is a form of case management power, using which the court would decide when to have that argument about state immunity. An adjournment with security under section 103(5) would not violate Russia's sovereign immunity, because such an order is not akin to an order mandating money be paid into court, or to a freezing injunction: it would simply state the price of the Stay or adjournment continuing. That would not limit Russia's access to this court or assertion of immunity.
ii) Security should be imposed as 'the price of the Stay', for essentially the same reasons as the Claimants give for lifting the Stay, in order to protect the Claimants' legitimate interests and to give effect to the principles underlying the New York Convention and the 1996 Act.
iii) If the court lacks the power to order security, so that one compromise which the court could normally arrive at between enforcement and awaiting the outcome of the challenge in the curial court is unavailable, then that should be a factor in favour of lifting the Stay.
i) Russia's assertion of state immunity is a threshold issue, to be decided before any part of the substantive action can proceed, including making an order for the provision of security. Whether Russia is immune from suit is a prior question to whether the section 103(5) power arises at all.
ii) Russia has not so far challenged the recognition or enforcement of an arbitration award. It has only asserted immunity. There is thus no relevant challenge for the purpose of section 103(2)(f), which is a threshold condition for the application of section 103(5).
iii) Further, in the circumstances of the present case a requirement for security under section 103(5) would (by reason of the issue estoppel point) in substance make security the price for the hearing of a properly arguable challenge, as opposed to merely the price of an adjournment. The authorities make clear that the provision cannot be used in that way.
iv) In any event, the court should not order security even if it has jurisdiction to do so for the same reasons it should not lift the Stay. The Cassation Appeal is not an abuse of process, and has a real prospect of success. A continued stay would not make enforcement more difficult or be prejudicial to the Claimants. On the contrary, the lifting of the Stay would result in an inappropriate opportunistic advantage for the Claimants.
"1 Only the legal remedies of setting aside and revocation pursuant to this section are available against a full or partial final award that is not subject to arbitral appeal or that has been made on arbitral appeal.
2 A claim for setting aside will be presented to the District Court at whose registry the original of the award must be filed in accordance with Article 1058(1).
3 A party may present a claim for setting aside as soon as the award has acquired res judicata effect. The right to do so lapses three months after the day the award was filed at the registry of the District Court. If, however, the award with leave for enforcement is served on the other party, then that party may, notwithstanding the expiry of the time limit of three months mentioned in the previous sentence, still present a claim for setting aside within three months of such service.
"1 Setting aside of the award can take place only on one or more of the following grounds:
a. absence of a valid arbitration agreement;
b. the arbitral tribunal was constituted in violation of the applicable rules;
c. the arbitral tribunal has not complied with its mandate;
d. the award is not signed in accordance with the provisions of Article 1057 or does not provide reasoning;
e. the award, or the manner in which it was made, violates public policy or good morals.
2 The ground referred to in paragraph (1)(a) above cannot constitute a ground for setting aside in the case referred to in Article 1052(2).
3 The ground referred to in paragraph (1)(b) above cannot constitute a ground for setting aside in the cases referred to in Article 1052(3).
4 The ground referred to under c of the first paragraph, cannot lead to the setting aside if the party invoking this ground took part in the proceedings without putting this forward, even though it was known to it that the arbitral tribunal did not comply with its mandate.
5 If the arbitral tribunal has made an award in excess of, or different from, the relief sought, the arbitral award will be partially set aside, insofar as that which is in excess of or different from the relief sought may be separated from the remaining part of the award.
6 If and insofar as the arbitral tribunal has not rendered judgment on one or more matters presented to it, the claim for setting aside on the ground referred to in paragraph (1)(c) above will be admissible only if an additional award referred to in Article 1061(1) has been made, or the request for an additional award referred to in Article 1061(1) has been wholly or partially denied.
7 At variance with the provisions of the second sentence of Article 1064(3), the time limit for presenting a claim for setting aside referred to in the preceding paragraph will expire three months after the day of the filing at the registry of the District Court of the additional award or of the copy of the notice of denial referred to in Article 1061(5)."
"1 The claim to set aside does not suspend the enforcement of the award.
2 However, the court which decides on a claim to set aside may, at the request of any party, if there are grounds to do so, suspend enforcement until a final decision has been made on the claim to set aside.
5 In the event that the request is granted, the court may order the petitioner to provide security. In the event that the request is rejected, the court may order the other party to provide security.
"1 Revocation can only take place on one or more of the following grounds:
a. the award is wholly or partially based on fraud discovered after the award was made and committed during the arbitral proceedings by or with the knowledge of the other party;
b. the award is wholly or partially based on documents which, after the award was made, are discovered to have been forged;
c. after the award was made, a party obtains documents which would have had an influence on the decision of the arbitral tribunal and which were withheld as a result of the acts of the other party.
2 A claim for revocation will be brought before the Court of Appeal that would have jurisdiction to decide on the setting-aside claim on appeal, referred to in Article 1064, with analogous application of Article 1064(3) or, if the resulting date is later, within three months of the fraud or forgery of documents becoming known or of the new documents being obtained by a party....
3 If the court finds the ground or grounds for revocation presented to have merit, it will set aside the award in whole or in part...."
i) a fraud on the Tribunal is a serious violation of public policy which merits setting aside the award, and therefore falls within Article 1065(1)(e), a proposition said to be supported by Dutch authority and by the approach of a number of other legal systems;
ii) there is a well-established principle of Dutch law that, where two statutory remedies are on the face of it capable of applying to the same facts, a party is free to choose between them unless the contrary is explicitly stated or follows inevitably from their meaning and effect; and
iii) the Hague Court of Appeal's approach would have required Russia to bring new proceedings under Article 1068, even though evidence of the Claimants' fraud was not uncovered until Russia's existing proceedings to set aside the Awards under Article 1065 were already underway and had succeeded at first instance. Indeed, because the Hague District Court had at that stage already set the Award aside, there was arguably no extant Award in relation to which an Article 1068 revocation application could be commenced.
"many previous judicial decisions by the Dutch Supreme Court, the Parliamentary history of both the DCCP and the Dutch Civil Code, and a number of leading commentaries, when the Dutch legal system provides for two or more alternative statutory remedies, the party seeking to rely on the relevant remedy – whether claimant or defendant – is free to choose between them unless "exclusivity" is explicitly stated in these statutory provisions or follows inevitably from their purport."
Russia has signed but not ratified the ECT. ECT Article 45(1) provides that in these circumstances:
"Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations."
Russia argues that the investor-state dispute settlement provision in ECT Article 26, pursuant to which the Claimants' arbitration claims were brought, is inconsistent with Russian law for a number of reasons, including because Russian law does not permit arbitration for disputes involving issues of public law or taxation.
The Hague District Court accepted that argument, rejecting the Tribunal's view that Article 45 requires signatory States to apply the whole of the ECT unless the concept of provisional application of an unratified treaty is itself inconsistent with their constitution, law or regulations. The Hague District Court considered that Article 45 aims to achieve a balance between giving effect to the ECT and respecting national constitutional arrangements for the ratification of treaties. The court also had regard to Article 45(2), which provides:
"(2) (a) Notwithstanding paragraph (1) any signatory may, when signing, deliver to the Depository a declaration that it is not able to accept provisional application. The obligation contained in paragraph (1) shall not apply to a signatory making such a declaration. Any such signatory may at any time withdraw that declaration by written notification to the Depository.
(b) Neither a signatory which makes a declaration in accordance with subparagraph (a) nor Investors of that signatory may claim the benefits of provisional application under paragraph (1).
(c) Notwithstanding subparagraph (a), any signatory making a declaration referred to in subparagraph (a) shall apply Part VII provisionally pending the entry into force of the Treaty for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its laws or regulations."
Part VII of the ECT, referred to in Article 45(2)(c), deals with ECT structure and institutions, including (for example) provision for signatory states to participate in Energy Charter Protocols and Declarations in order to pursue the objectives and principles of the ECT. Article 45(2)(c) arguably envisages that the provisional application of part only of the Treaty may be consistent with a signatory state's constitution, laws or regulations. Such a possibility would sit uneasily with the notion that "such provisional application" refers solely to the situation where provisional application of an unratified treaty is per se inconsistent with national law. Moreover, the words "to the extent" in their natural meaning imply that, for any given signatory state, provisional application may be inconsistent with national law in some instances but not in others.
The Hague Court of Appeal, reversing the Hague District Court, did not support the Tribunal's approach but instead concluded that Article 45(1) required Russia to apply the ECT provisionally "except to the extent that provisional application of one or more provisions of the ECT is inconsistent with national law in the sense that the laws or regulations of that state preclude provisional application of the Treaty for certain treaty provisions (or types or categories of provisions)" (§ 4.5.33). The Hague Court of Appeal indicated that it favoured the Claimants' alternative position on Article 45 (Judgment § 4.5.33), which was that:
"even if it should be assumed that the Limitation Clause does not relate to the principle of provisional application, the question is in any event whether the provisional application of one or more provisions of the ECT is incompatible with national law, not whether any provision of the ECT is in itself inconsistent with national law." (as recorded in § 4.5.4).
It thus appears that on the Hague Court of Appeal's approach, the application of Article 45 depends on "whether there are provisions of national law that exclude the provisional application of certain (categories or types of) treaty provisions" (Judgment § 4.5.12) or, in other words, "what the national rules on provisional application of treaties are … and to what extent they preclude provisional application of the ECT" (§ 4.5.27). Hence, the Hague Court of Appeal noted:
"If national law makes provisional application of certain types of treaty provisions impossible, this leads to a limited provisional application, specifically to the extent that the provisions of the treaty are not covered by that prohibition. This interpretation is also in accordance with the words 'regulations' in 'constitution, laws or regulations'. A large number of states with a variety of legal regimes and legal traditions are party to the ECT. It certainly cannot be excluded in advance that rules that exclude certain (categories of) treaty provisions from provisional application may (in any case in part) be found in regulations of a lower hierarchy than a statute adopted by parliament, for example in (lower) regulations based on such a statute. Until recently, an example of this could be found in Spanish law, where the provisional application of treaties was regulated by a Decree of the Minister of Foreign Affairs until 2014." (§ 4.5.13)
Russia contends on this issue that the correct interpretation of Article 45 is that it requires states to apply only such provisions of the ECT as are not inconsistent with their national law. It argues that:
i) that interpretation is consistent with the wording of Article 45(1), whereas the Hague Court of Appeal's approach involves reading into Article 45(1) a reference to 'specific categories of treaty provision' that is not found in the text;
ii) the Hague District Court's interpretation gives the words "to the extent that such provisional application is not inconsistent with …" a consistent interpretation as between Articles 45(1) and 45(2), where the same words are repeated in identical form; by contrast, the Court of Appeal's approach requires those words to be given a different meaning in these two consecutive sub-clauses of Article 45; and
iii) the interpretation favoured by the Hague District Court is also consistent with the purpose of Article 45, namely to achieve a balance between giving effect to the ECT and respecting national constitutional arrangements for the ratification of treaties. That principle is supported by the drafting history and state practice in relation to this provision. By contrast, the Hague Court of Appeal's interpretation would result in Russia being bound by the Article 26 dispute settlement provision even if that provision is inconsistent with Russian law.
"… this element of the ground for cassation concerns a complex matter of interpretation of a treaty provision. This matter is not suitable for a provisional and summary examination in the context of the assessment of this suspension application."
The Hague Court of Appeal accepted a submission by the Claimants that Russia's interpretation of Article 45 was inconsistent with its natural meaning:
"4.5.11 … HVY rightly point out that in the interpretation of the Russian Federation and the District Court the words 'such provisional application' have no meaning, or a meaning other than that which follows from the ordinary meaning of these words. According to the Russian Federation, the question is whether one or more treaty provisions are inconsistent with national law. If the contracting parties had intended this, it would have been obvious that the Limitation Clause [Article 45] would have read: "to the extent that one or more provisions of this Treaty are not inconsistent with its constitution, laws or regulations", but this is not how the Limitation Clause reads. The wording of the Limitation Clause, as it does read, clearly indicates that the issue is whether 'such provisional application' is irreconcilable with the law of a contracting party.
4.5.12 The alternative statement of HVY concerning the interpretation of the Limitation Clause is that the question is whether the provisional application of any provision of the ECT is incompatible with a rule of national law, not whether any provision of the ECT is in itself inconsistent with national law. According to HVY, it should be examined whether there are provisions of national law that exclude the provisional application of certain (categories or types of) treaty provisions. HVY refer in this respect to the opinions of Professor Schrijver, Professor Klabbers and Professor Pellet, who remark that some countries exclude the provisional application of treaties altogether, but that it is also possible that the exclusion of provisional application relates only to certain types of treaty provisions…" (emphasis in original) and the Hague Court of Appeal went on to accept that alternative construction.
The Hague Court of Appeal also expressed concern that Russia's approach might give rise to uncertainty, in circumstances where provisional application could continue for years (§§ 4.5.26 and 27). However, a counter-argument might be made that where a state has not yet ratified the treaty, a degree of uncertainty is inherent in (and a price which has to be paid for) the ECT's arrangements for provisional application.
The first aspect ("public law nature") is that the Hague Court of Appeal concluded that a dispute between a foreign investor and the host country is not of a public law nature, therefore Russia's point that Russian law does not permit arbitration of public law matters, only civil disputes, did not assist it (§ 4.7.35). Russia's cassation document makes the point that that conclusion was based on academic sources considering international investment treaties with arbitration clauses; it contends that the argument is thus circular, since it assumes that the Claimants' dispute is arbitrable under ECT Article 26, that being the matter to be decided (§ 66).
The second aspect ("inconsistency") is that the Hague District Court concluded that even if the dispute were of a public law nature, international arbitration under Article 26 is not 'inconsistent' with Russian law. In reaching that view, the Court of Appeal took as its "point of departure" that:
"the meaning of the term 'inconsistent' should be interpreted as any case where a treaty provision and a specific rule of national law cannot be simultaneously applicable because application of one rule constitutes a violation of the other, and that a possible other inconsistency depends on the context (see para. 4.5.48)." (§ 4.7.33)
On that basis, the Hague Court of Appeal found there to be no inconsistency:
"Article 26 ECT provides for international arbitration in accordance with the UNCITRAL rules in investment disputes related to violation of the rules of the ECT. An arbitral tribunal appointed pursuant to Article 26 ECT should decide a dispute put before it "in accordance with this Treaty and applicable rules and principles of international law". It cannot be seen why, and it does not follow from the Russian Federation's statements that, such a form of international arbitration cannot exist alongside the legal provisions referred to by the Russian Federation. The fact that Russian law, in purely domestic situations, only provides for the option of arbitration in civil law disputes is not inconsistent with the circumstance that the ECT, in cases regulated by the ECT, does provide for international arbitration besides and in addition to the options offered under Russian national law. The fact that Russian law can readily exist side by side with international investment arbitration is confirmed, moreover, by the fact that the Russian Federation is party to many bilateral investment treaties ('bilateral investment treaties' or 'BITs') in which international arbitration is agreed as a (possible) form of dispute resolution. The model BITs from 1992 and 2001/2002 drawn up by the Russian Federation, which it uses as a point of reference in its negotiations on bilateral investment treaties with other states, include international arbitration in accordance with the UNCITRAL rules or the ICSID rules as one of the options for resolving disputes between an investor and the host state (Article 6 and 8, respectively, of those model BITs). The BITs referred to earlier and those model BITs impose no limitations as to the nature (either civil or public law) of which types of dispute may be subjected to arbitration, nor can any limitation to the effect that arbitrators should only be allowed to decide on the amount of damages be read into them. The Russian Federation's approach to treaties thus shows no hesitation in respect of the international arbitration of disputes about investment treaties. The Russian Federation's argument that said BITs were ratified and, as such, constitute derogations by federal law from the supposed injunction on arbitration of public law disputes, is contrived in addition to missing the point. A state that regularly agrees to the international arbitration of investment disputes and explicitly takes that form of dispute resolution as a point of departure in its negotiations with other states cannot credibly maintain that this form of arbitration is incompatible with the provisions of national law that limit such arbitration to civil law disputes or is otherwise inconsistent with Russian law." (§ 4.7.37, footnotes omitted)
Russia contends, as regards this second aspect, that the Hague Court of Appeal was wrong because:
i) it was based on an incorrect interpretation of the word "inconsistent" used in Article 45: the correct approach is that taken by the Hague District Court, which held that a provision of the ECT is inconsistent with Russian law where "there is no legal basis for" it, or "it does not harmonise with the legal system or is irreconcilable with the starting points and principles";
ii) it proceeded on the basis that Russia had signed the ECT and therefore Article 26 was a part of Russian law, which was a circular argument: the correct approach is to proceed on the basis that the ECT (including Article 26) is not a part of Russian law, and then to ask whether there is an inconsistency between Russian law and Article 26; and
iii) (if necessary) the Hague Court of Appeal's findings on Russian law were incomprehensible and should be set aside on that ground.
The Dutch Supreme Court in its suspension ruling said:
"3.7.2 The Court of Appeal rejected the Russian Federation's argument presented above in 3.7.1, based on the consideration that the dispute between HVY and the Russian Federation is not of a public law nature (para. 4.7.35). The Court of Appeal then, superfluously, assessed whether – if it is assumed that under Russian law arbitration is only possible for civil law disputes and that the present dispute is not of a civil law nature – arbitration under Article 26 ECT is 'inconsistent' with Russian law, and answered this question in the negative (paras. 4.7.36-4.7.58).
In the provisional assessment of the Supreme Court, these considerations of the Court of Appeal also relate to the interpretation and application of Russian law. On the basis of Article 79(1), opening words and (b) of the Judiciary Organisation Act, the Supreme Court cannot annul the Court of Appeal's judgments on account of violation of Russian law. This rule also bars reasoning complaints that cannot be assessed without also assessing the correctness of the Court of Appeal's decision on the substance and interpretation of Russian law. Also considered in this light, the Supreme Court provisionally does not consider the probability that the complaints referred to above in 3.7.1 will succeed to be such that this justifies the suspension of the enforcement of the Yukos Awards."
i) there is an element of circularity in the view that the application of Article 26 would not result in arbitration of a dispute of a public law nature because investor-state disputes are not so regarded (including in the Russian Federation): a coherent argument could be made that, in testing the consistency issue, it is appropriate to leave aside the fact (assuming it to be such) that where an investor-state treaty is fully in force, dispute resolution thereunder is regarded as falling outside the purview of public law;
ii) the point made in (i) above, insofar as it might be regarded as relating to Russian law, concerns what might be argued to be a logical fallacy in relation to which the Dutch Supreme Court would be permitted to review the Hague Court of Appeal's conclusions;
iii) the correctness of the Hague Court of Appeal's conclusions as to inconsistency (on the footing that the dispute would be of a public law nature) are not merely findings as to Russian law but also turn critically on the meaning of "inconsistent" which the court adopted, that being a question not of Russian law but of the interpretation of the ECT; and
iv) the Hague Court of Appeal's stated test for inconsistency was too narrow, and that adopted by the Hague District Court should be preferred.
Russia argues that the Tribunal and the Hague Court of Appeal erred in law by finding that the Tribunal had jurisdiction: the correct analysis is that the Claimants did not make a foreign "investment" and are not foreign "investors" within the meaning of ECT Articles 1(6), 1(7) so as to fall within Article 26.
"every kind of asset, owned or controlled directly or indirectly by an Investor and includes:
(a) tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges;
(b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise;
(c) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment;
(d) Intellectual Property;
(f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector.
"(a) with respect to a Contracting Party:
(i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law;
(ii) a company or other organisation organised in accordance with the law applicable in that Contracting Party;
(b) with respect to a "third state", a natural person, company or other organisation which fulfils, mutatis mutandis, the conditions specified in subparagraph (a) for a Contracting Party."
Russia notes that the preamble to the ECT confirms that its subject-matter is cross-border cooperation and investment, referring as it does to "the objective of progressive liberalisation of international trade and … the principle of avoidance of discrimination in international trade as enunciated in the Agreement Establishing the World Trade Organization and as otherwise provided for in this Treaty". Similar concepts are reflected in the language of Article 10(1):
"Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations. Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party."
The Hague Court of Appeal took the view that the ECT's provisions left no room for any such argument:
"188.8.131.52 … the ECT opted for "the law of the country under the laws of which the investor is organised" in order to determine the nationality of an investor. This is a common criterion in investment treaties, which is easy to apply and predictable. A drawback of this criterion is that the place of incorporation does not guarantee that the investor has a genuine link with the country under whose law the company is incorporated. There are therefore investment treaties in which the siège social, i.e. the place where the activities take place, is used as a connecting factor for determining the nationality of companies. And there are investment treaties that use additional criteria or conditions to determine the nationality of a company, such as the criterion of who controls the company or the requirement that a company actually conducts business activities in the country of which it is a national. These criteria, combined with the internal affairs doctrine and the siège social, may ultimately contribute towards limiting the scope of the treaty to companies which have a genuine link with the country in which they are established. The drafters of the ECT could have chosen to include such additional conditions in Article 1(7) ECT which would have made it possible to determine whether HVY have a genuine link with Cyprus or Isle of Man, respectively. They did not do so.
184.108.40.206 As regards the Russian Federation's reliance on the purpose of the Treaty, the Court of Appeal considers as follows. Indeed, the purpose of the ECT includes (also) - as the Russian Federation rightly argues - (in short) the promotion of international cooperation in the field of energy and the protection of international investments. Contrary to what the Russian Federation assumes, however, the ECT determines exactly when there is an investor and an investment and when an investment dispute has an international character that falls within the scope of Article 26 ECT. It follows from the wording of Article 26 ECT that this is the case if the legal person making the investment is incorporated under the law of one (contracting) state and the investment referred to in Article 1(6) ECT takes place in another (contracting) state. …" (footnotes omitted)
The court also discussed ECT Article 17, cited by Russia in this context, under which:
"Each Contracting Party reserves the right to deny the advantages of this Part to:
(1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized. …"
"… Article 17 ECT gives contracting parties the right to deny the protection of part of the treaty to a well-defined category of investors, i.e. investors who are established in a contracting state only on formal grounds, but are to a large extent materially linked to a non-contracting state. This circumstance does not mean that Article 1 [sc. 17] ECT is to be understood as meaning that it is to be read as an exception for another category of investors, namely sham companies and/or investors controlled by nationals of the contracting party in which they make investments." (§ 220.127.116.11)
The Hague Court of Appeal further rejected Russia's reliance on what it said was a rule of customary international law prohibiting a national from bringing an international law action against his own state, and also applying to companies in which nationals of the defendant state have a controlling interest. Russia suggested that that rule had been confirmed by several arbitral tribunals. The Hague Court of Appeal said:
"18.104.22.168 The Court of Appeal rejects the statement that there is a rule of customary international law in the sense referred to by the Russian Federation. The arbitral awards cited by the Russian Federation do not sufficiently support this statement. The awards cited by the Russian Federation cover situations in which the claimant in the international arbitration proceedings has acquired a foreign investment in the with the (primary) purpose of gaining access to international arbitration, or equivalent situations in which a domestic investment acquires an international character after the conflict with the state where the investment was made has already arisen. …
It has neither been stated nor shown that HVY acquired their investments with the main object of bringing international arbitration under the ECT. …"
"4.12 The issues raised by these parts are complex to such an extent that they are not suitable for a provisional and summary decision within the context of the assessment of the suspension application. That this is complex subject matter is also evident here from the Russian Federation's position that questions about the interpretation of the ECT should be referred to the ECJ for a preliminary ruling. That is why these parts cannot provisionally be said to have a high probability of success. With regards to part 3, the Court of Appeal, for example in paras. 22.214.171.124 through 126.96.36.199 of the final judgment, also extensively dealt with the question of how the terms 'investment' and 'investor' should be interpreted in the context of the ECT. The Court of Appeal also considered in that respect whether 'U-turn investments' enjoy ECT protection and extensively discussed the Russian Federation's argument on this point. In para. 4.2.1 et seq., the Court of Appeal also provided a description of the standards to be applied in the interpretation of the ECT in accordance with Articles 31 and 32 of the Vienna Convention on the Law of Treaties, including the terms of the treaty considered in their context, and its object and purpose. In doing so, the Court of Appeal applied the right standard. It is therefore not provisionally plausible that the complaints of part 3 about the treaty interpretation and the standards applied in that respect will have a high probability of success. The same applies to the complaints of part 4 regarding the question of whether 'illegal investments' fall within the scope of the term 'investment'". (footnote omitted)
The interpretative principles to which the Procurator General refers, as set out by the Hague Court of Appeal, include the following points arising from the Vienna Convention on the Law of Treaties:
General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
3. There shall be taken into account, together with the context:
(c) any relevant rules of international law applicable in the relations between the parties.
Supplementary means of interpretation
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of Article 31, or to determine the meaning when the interpretation according to Article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable."
4.2.2 Yukos Universal Limited (Isle of Man) v. The Russian Federation - Judgment of the Hague Court of Appeal (Unofficial English Translation) - Tuesday 18th February 2020 When applying the rules set out in these provisions, the Court of Appeal takes the following guidelines as a starting point. Interpretation of a treaty is always aimed at discerning the contracting parties' intention, to the extent that this intention is adequately expressed in the text of the treaty. Textual interpretation has the most important role in the interpretative process, because the wording is deemed to be an authentic expression of the intention of the parties. The International Court of Justice (hereafter: ICJ) has therefore considered that treaty interpretation should be based 'above all upon the text of the treaty'.
4.2.3 This does not mean that treaty interpretation is merely a grammatical exercise. The text of a treaty must be understood in its context as well as in light of its object and purpose, in respect of which Article 31(2) VCLT defines how (in any case) the context of the treaty is to be understood. The interpretation of a treaty provision in accordance with the treaty's 'object and purpose' may not result in an interpretation that is contrary to the clear text of the provision in question. Article 31(1) VCLT prescribes one rule of interpretation comprised of three integral elements (text, context, and 'object and purpose'); interpretation is a process in which these elements are applied - in good faith - in one joint exercise. That the interpretation must be performed in good faith means that it must comply with the fundamental principle of reasonableness and must not lead to a meaning that is manifestly absurd or unreasonable.
4.2.4 … Pursuant to Article 31(3)(c) VCLT, it is also necessary to take into account any 'relevant rules of international law' applicable in the relations between the contracting parties. The rules of international law as referred to in Article 31(3)(c) VCLT include (in any event) the law of treaties, customary international law and internationally recognised principles of law."
The Dutch Supreme Court, after summarising the Hague Court of Appeal's findings on this ground, said:
"3.10.3 These decisions do not provisionally reveal an incorrect interpretation of the law. The fact that the Russian Federation argues a different position on the interpretation of Article 26 ECT or Article 1 (6) and (7) ECT does not change this. Furthermore, the extensive assessments of the Court of Appeal are provisionally not incomprehensible, also in light of the arguments put forward in the suspension application on this point.
In view of this, in the provisional assessment of the Supreme Court, the probability that the complaints presented above in 3.10.1 will succeed – and that after referral this will lead to the setting aside of the Yukos Awards – is not such that this justifies the suspension of the enforcement of the Yukos Awards."
It further appears arguable that, whilst on one view ECT Article 17 could be regarded as an exhaustive statement of the extent to which the framers of the ECT permitted the withholding of benefits from entities lacking a real connection with a contracting state, it might alternatively be viewed as merely an expression of the broader point that the treaty aims to protect genuine cross-border investment between nationals of different contracting states. The case for excluding claims by entities owned or controlled by nationals of the 'host state' might be regarded as being at least as strong as that in relation to third country nationals.
i) Russia regards this dispute as having a political significance going well beyond its (very substantial) financial value;
ii) Russia is absolutely determined not to pay a penny to the Claimants, and will use any and all means at its disposal to avoid having to do so;
iii) Russia is therefore resisting enforcement of the Awards, not pursuant to any bona fide desire for an adjudication of the parties' rights and obligations, but simply to delay the point at which its determination to avoid paying the Awards, and its contempt for any foreign court that does not do as it wishes, become apparent; and
iv) Russia's intentions in relation to the Awards is a factor which weighs heavily in favour of allowing the Claimants to continue with these proceedings.
"Our clients are due to file and serve their reply to the Evidence by 4pm on 15 January 2021. In order to effectively prepare that reply evidence, our clients require clarification on a number of aspects of your client's case. This is because in a number of material respects, your Evidence asserts disagreement with our clients' evidence, but does not explain what your client's case is.
Clarification of the Evidence
Paragraphs 79-129 of the First Witness Statement of Rosamund Prince dated 6 July 2020 ("Prince 1") in support of the Application make clear that our clients' case is that your client has no intention of voluntarily paying the sums due under the arbitration awards that are the subject of these proceedings (the "Awards"), even if your client's current cassation appeal to the Dutch Supreme Court (the "Cassation Appeal") fails.
Your Evidence (at paragraph 99 of Mr Goldberg's third witness statement) states that our clients "would not suffer any significant prejudice from being kept out of money for a limited period" and that "any such prejudice which may arise could readily be compensated by an award of interest in due course". This statement only makes sense on the basis that your client (a) will pay the sums due under the Awards if its Cassation Appeal fails (and an order enforcing the Awards in England is made in due course), and (b) has sufficient assets (against which no sovereign immunity is or will be asserted) to pay the sums due under the Awards plus accrued interest.
However, none of your Evidence explains your client's position on either of these questions. It is silent on both points.
Accordingly, please clarify your client's position on the following:
1 Is your client willing to confirm that if its Cassation Appeal fails, and the English Court grants an order for recognition and enforcement, your client will comply with that order and make payment?
7 Please confirm whether it is your client's position that, if its Cassation Appeal fails:
7.1 Your client's application dated 25 September 2015 to challenge the jurisdiction of the English Court would necessarily fall to be dismissed. …
7.2 In relation to these English enforcement proceedings generally, your client agrees that it would not be permitted to re-run any point which had been determined against it in the Cassation Appeal (or before the Dutch Court of Appeal in so far as your client has chosen not to appeal those determinations). If so, is it willing to accept now that all matters finally determined in the Dutch setting-aside proceedings should stand as res judicata and that your client will not challenge any of those matters in England?"
"For the avoidance of doubt, nothing in this letter should be read as a submission to the jurisdiction of the English Court or waiver of immunity, whether within the meaning of section 2 or section 9 of the State Immunity Act 1978 or otherwise. Russia maintains its objection to the jurisdiction of the English Court in full.
We refer to your letter of 30 November 2020, in which you request various information which you assert is required in order for your clients to prepare their reply evidence.
We do not accept you are entitled to the information you seek, nor that it is required in order for your clients to prepare their reply evidence. Our client's position is set out clearly and in detail in its evidence. Your clients appear to be seeking information that they would like to have, not information that they actually require in order to respond to our client's evidence.
The remainder of your questions do not address factual matters at all, but instead ask us to confirm now what our client's future instructions will be, based on a series of hypothetical assumptions which may never materialise. An example is paragraph 7, where you assert that it is "not possible properly to address" our client's evidence without understanding our client's position as to the effect of a decision in the Cassation Appeal in the Netherlands. We do not accept that contention. Instead, the questions at paragraphs 1, 4 and 7 appear intended to induce our client to take a particular position now in respect of future hypothetical circumstances which may never arise. That is neither necessary nor appropriate."
"The RF has been asked three times if it will pay if the Awards are upheld. …. I recall what my history teacher once said about the beginning of the First World War. France was asked at that time whether it would mobilise or wait. The answer came: La France s'inpirera de ses intérêts - France will always act in its own interests. In our case, too, the answer to the question posed will only become apparent when the moment is at hand."
The Claimants draw attention to the fact that, in the list of factors set out in IPCO (§ 60 above), the question "whether the application before the court in the country of origin is brought bona fide and not simply by way of delaying tactics" is a free-standing one, separate from the question of the challenge's prospects of success.
"We have to defend ourselves. If they start arresting our assets, there will be countermeasures. There are Western assets in our territory. To introduce sanctions against us, to demand no one knows what, to impose penalties for a breach of a charter to which we have not acceded - it is an outrage."
"Russian government officials who are responsible for protecting foreign government assets are calm so far. Thus, the press secretary of the head of the Department of Presidential Affairs of the RF, Viktor Khrekov, explained to "Sovershenno Sekretno" that the Kremlin will start discussing how to save their assets when ex-Yukos shareholders "make their claims clear". "As they get started, then we will discuss it. But we are ready to defend our property." The fact is that Russian assets abroad are divided into three parts (jurisdictionally – ed. note).
The main thing is the Ministry of Foreign Affairs. These are embassy institutions to which no lawsuit applies. Then there's the Ministry of Economic Development, which owns foreign trade areas and other property, and the Administrative Department, on whose balance there are about a thousand objects, mostly real estate. And we are ready to defend assets in the jurisdiction of each of the countries where the lawsuits will be filed. After all, these shareholders' lawyers will have to appeal to courts in each country, and Themis will make her decision." As the official added, in any case, this situation will not be similar to the "Not case", when lawyers were hired to hunt for any Russian assets abroad and immediately tried to seize them.
By the way, when the Hague court delivered its unprecedented decision in a lawsuit by ex-Yukos shareholders, some Russian politicians even considered it a veiled sanction against Russia (it was good timing). Thus, the head of the Federation Council Committee on Constitutional Legislation, Andrei Klishas, stated that the decision in The Hague was "politically motivated." According to his assessment, the arbitrators rushed to get into the general outline "anti-Russian sanctions in the wake of anti-Russian propaganda." As the senator expected, the judges can even come to their senses and cancel their decision.
"Hopefully, they will move away from political demagogy and return to the legal field," the parliamentarian suggested."
"Russia is increasing its gold holdings because gold is a reserve asset that is free from legal and political risks, a senior central banker said on Tuesday.
The comments by Dmitry Tulin, who manages monetary policy at the central bank, reflect Russian fears that the country's overseas assets could be frozen as part of a possible toughening of Western sanctions over the Ukraine crisis.
"As you know we are increasing our gold holdings, although this comes with market risks," Tulin told lawmakers in the lower house of parliament.
"The price of it (gold) swings, but on the other hand it is a 100 percent guarantee from legal and political risks."
According to central bank data, Russia's gold reserves rose to 40.1 million troy ounces as of May 1 compared with 39.8 million ounces a month earlier.
Russia increased its gold holdings for many months in a row last year, as shown by central bank and International Monetary Fund figures.
Western sanctions imposed because of Russia's actions in Ukraine have not targeted government assets abroad, but Russia has been reducing its holdings of assets such as U.S. Treasury bills, fueling speculation that it regards them as vulnerable.
Russia also faces over $50 billion in claims from former shareholders of oil company Yukos, who have vowed to target Russian state assets in the West.
The Claimants invite the inference that although the main focus of the article is on Russia's response to sanctions, their own claim, referred to in the final paragraph quoted above, is one of the legal and political risks in response to which Russia reduced its overseas assets in favour of gold holdings.
"Russia completely rules out the possibility of paying compensation under a lawsuit of former Yukos shareholders, Economic Development Minister Alexey Ulyukayev said on Thursday.
"I completely rule this out," he said.
The economy minister said, however, risks existed that claims to Russia's property as enforcement of the European court's ruling in the Yukos case might be presented not only in Belgium and France but also in some other countries.
"Indeed, we may also expect this sort of unfriendly actions in other jurisdictions. We must assess the risks and we believe this risk exists," the economy minister said.
At the same time, the volume of Russia's state assets seized abroad was insignificant but this very fact was unpleasant, the economy minister said.
The Kremlin gave no comment on Belgium's move to seize some Russian assets as part of the procedure for enforcing the court ruling on the Yukos case.
Kremlin spokesman Dmitry Peskov said lawyers and the government were now dealing with this issue.
"The corresponding unit in the Russian government and also, in the first place, lawyers are now dealing with this matter and so I wouldn't like to comment on anything," the Kremlin spokesman said.
"We still need to clarify some details to get a full picture," he added.
"No doubt, we're now carefully and attentively learning all the circumstances of this lawsuit," Peskov said.
Russia, which signed but did not ratify the Energy Charter Treaty, has repeatedly said it categorically disagrees with the Hague tribunal's ruling.
The Russian Finance Ministry said in late July last year the conclusions by the Arbitration Tribunal ran counter to the conclusions of the European Court of Human Rights.
"The European Court of Human Rights has concluded twice that Yukos committed large-scale tax evasion and its management was aware of violations, that all extra tax payments required from Yukos were lawful and legitimate and that Yukos was not discriminated against and the actions by the Russian authorities were not politically motivated," the Russian Finance Ministry said in a statement at that time.
Also, the Hague Arbitration Court had no jurisdiction to examine issues raised before it, the Russian Finance Ministry said.
"The Russian Federation will vigorously appeal the decision of The Hague Court of Appeal to reinstate the annulled arbitration awards in favour of the former majority Yukos shareholders, which had held the Russian Federation liable for US$50 billion in damages plus interest.
The Russian Federation believes that The Hague Court of Appeal has erred in its decision, and will avail itself of all its rights to pursue justice in this case. The Hague District Court took the correct approach when it annulled the awards -correctly applying Russian law - and the Russian Federation is confident that the Supreme Court of the Netherlands will reinstate this decision upon appeal"
and that was also the context of Mr Kondakov's comment:
"We are very disappointed with the Dutch Court's decision but strongly believe that it will only give short-lived relief to the former Yukos shareholders, because the Supreme Court of the Netherlands will no doubt reverse this finding riddled with legal flaws. The former Yukos shareholders … must not be permitted to hold the Russian people to ransom with these fatally flawed arbitration awards. We will appeal the decision because anything paid to the former majority Yukos shareholders will mean they commit further theft against Russian taxpayers."
"We raised the political alarm long ago and not only over this matter. As you know, Russia has stated more than once that the International Arbitration Court does not have the power to hear this case, and its decision is politically motivated and has been adopted in violation of the legal procedure. We have announced that we will appeal against it at the Supreme Court of the Netherlands. Our lawyers are analysing the means of giving a practical form to our concerns."
The Claimants say the assertion that the Tribunal's decision was politically motivated was scandalous. Absent any responsive evidence, the Claimants submit that Ms Zakharova's comments provide an accurate reflection of the contempt with which Russia regards any foreign tribunal or court which has the temerity to find against it in relation to these claims.
"The situation is very difficult and serious. Indeed, a legal war has been declared on Russia. Russia must adequately defend itself, and sometimes even attack back."
"The decisions of the International court of arbitration in the Hague of 18 July 2014 on the claims of "Hulley Enterprises LTD", "Yukos Universal LTD", and "Veteran Petroleum LTD", against the Russian Federation constitute an unjust and politically motivated act, rendered in obvious violation of applicable legal norms and are incompatible with the ideas of law and cause damage to the ideas of the rule of law, independent, impartial and professional international justice.
In relation to this, the Russian Federation has initiated proceedings aimed at setting it aside before the competent court.
The Hague arbitral tribunal did not have jurisdiction to hear this dispute. The decisions were rendered on the basis of an international treaty to which the Russian Federation was not a party, and with respect to a dispute which does not fall within the scope of that treaty. During their examination of the case, the arbitrators committed numerous grave mistakes, which included denial of the fundamental right to due process.
In light of the above, the Ministry considers that the recognition and enforcement of the abovementioned verdicts on the territory of the French Republic would be contrary to the spirit and wording of the New York convention on the recognition and enforcement of foreign arbitral awards of 1958, and may adversely affect [NB: literally in Russian "shake"] the authority of the respected French court.
Any attempts to perform interim or enforcement measures with respect to Russian property located on the territory of the French Republic will be considered by the Russian Federation as a ground for taking adequate and proportionate responsive measures against the French Republic, its citizens, and its legal entities.
The Ministry would be grateful for the content of this note to be communicated to the competent French court."
This Note appears to have been sent after the commencement of proceedings in France to recognise the Awards, but before any enforcement steps. Later, in June 2015 and January 2016, two of the Claimants obtained attachments over assets which the French courts subsequently held to be either subject to sovereign immunity (including a state cathedral near the Eiffel Tower) or funds belonging to third party entities.
"On June 18, the Foreign Ministry summoned Alex Van Meuwen, Ambassador Extraordinary and Plenipotentiary of the Kingdom of Belgium to Russia, to hand him a letter of protest over freezing the accounts of the Russian Embassy in Belgium, Russia's permanent missions to the EU and NATO in Brussels, as well as several other Russian organisations in Belgium.
The Belgian Ambassador has been notified that Russia considers these actions by the Belgian authorities to be openly unfriendly and in direct violation of the generally accepted standards of international law, and that it demands that the Belgian authorities take immediate measures to restore the sovereign rights of the Russian Federation, which have been disregarded in Belgium, and to provide for the normal operation of Russian organisations and legal entities. Otherwise, Russia will be forced to consider an appropriate response with regard to the property of the Kingdom of Belgium in Russia, including the property of the Belgian Embassy in Moscow and Belgian legal entities."
The word "unfriendly", which the Note thus deployed to characterise the Belgian authorities' actions, is normally used in diplomatic language to refer to a threat of armed hostilities.
"The awards of the Hague International Court of Arbitration of July 18, 2014, regarding the claims of Hulley Enterprises LTD, Yukos Universal LTD, and Veteran Petroleum LTD against the Russian Federation constitute an unjust and politically motivated act rendered in overt violation of applicable legal provisions and are incompatible with the ideas of the rule of law, independent, impartial and professional international justice.
In this regard the Russian Federation initiated proceedings in the competent court of The Hague with a view to reverse the above awards. The Hague arbitration tribunal had no jurisdiction to consider the dispute related to decisions taken on the basis of an international agreement to which the Russian Federation is not a party. Moreover, that international agreement does not apply to the above dispute.
Investigating the case, the arbitrators committed numerous gross violations, including denial of the fundamental right to appropriate legal procedure.
In view of the foregoing, the Ministry believes that recognition and enforcement of these awards in the United States would not comply with the letter and spirit of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, and could seriously undermine the credibility of a reputable American court.
The Ministry also considers it appropriate to emphasize that if, in spite of the aspects outlined above, the legal proceedings initiated in the Federal Court for the District of Columbia over recognition and enforcement in the United States of The Hague arbitration awards are supported by U.S. government authorities, US-Russia bilateral relations will once again suffer a heavy blow.
Any attempt to use injunctive remedies or execution measures against Russian property in the USA will be considered by the Russian Federation as grounds for taking adequate and proportionate retaliatory steps in relation to the USA, its citizens, and legal entities.
The Ministry would be grateful if you would bring the contents of this note to the attention of the competent American court."
"As recently as 3 July 2020, the Russian Ministry of Justice has further confirmed that, in accordance with the decisions of the ECtHR and the Constitutional Court, Russia is seeking "to find a legitimate compromise" regarding the payment of additional amounts to YUKOS minority shareholders. The Russian authorities have publicly committed "to searching additionally for mutually acceptable solutions" as soon as possible." (footnotes omitted)
i) a statement reportedly made on 14 July 2015 by Mr Sergei Marvin, a member of Russia's Constitutional Court, that "[s]hould Russia's Constitutional Court find a decision by the Strasbourg-based court to be in violation of the Constitution, it will not be enforced" ;
ii) amendments to the Federal Law on the Constitutional Court signed by President Putin on 14 December 2015 in order to establish a procedure pursuant to which the Constitutional Court can declare decisions of international courts unenforceable;
iii) a ruling on 19 January 2017 by the Constitutional Court (C/98/A4084-A4115), following a referral made by Russian Ministry of Justice, that Russia was not bound to enforce the ECtHR judgment and stating that
"payment of such a huge monetary sum, awarded by the European Court of Human Rights, to former shareholders of a company having built illegal schemes of evasion of taxation, their heirs and legal successors from the budget system... in itself contradicts constitutional principles of equality and justice in tax relations...";
iv) official documents recording comments made at a working group on 26 February 2020, just after the Hague Court of Appeal's decision in the present case, made by the Chairman of the Federation Council Committee on International Affairs (Mr Konstantin Kosachev) and endorsed by President Putin, which were critical of the Tribunal's decision and (it appears) that of the Hague Court of Appeal upholding it; and
v) Constitutional amendments signed by President Putin on 14 March 2020 granting the Russian Constitutional Court the power "to decide... on the possibility of enforcing a binding decision by a foreign or international (interstate) court or arbitration, if this decision contradicts the tenets of public order in the Russian Federation" and stating that "decisions taken by supranational bodies in keeping with the provisions of the Russian Federation's international treaties shall not be enforced in the Russian Federation if they contradict the Constitution of the Russian Federation". These amendments have been widely viewed as being directed at the Awards in the present case.
i) The principal value of the Awards is enormous. As a result, the interest accruing on them is larger than the sums at stake in the vast majority of cases which come before this court.
ii) Interest under the Awards is calculated and compounded annually, by reference to the prevailing yield on 10-year US Treasury Bonds. Over the 6 years from 15 January 2015 to 14 January 2021, approximately US$7 billion of interest has accrued on the Awards.
iii) Russia's responsive evidence asserts that the Claimants can be compensated for any delay by "an award of interest in due course". However, that is only the case if Russia has both the intention and the ability to pay the full value of the Awards, plus all accrued interest. The Claimants have asked the Russia to confirm whether this is the case, and have been rebuffed. The court ought therefore to proceed on the basis that further delay to these proceedings will prejudice the Claimants in an amount not less than the value of the interest which would accrue on the Awards during any delay. Given the figures set out above, that prejudice will be worth many billions of US dollars.
i) It cannot realistically be doubted that Russia is likely to have very substantial assets in this jurisdiction.
ii) For reasons considered in section (G)(2) above, the court can and should proceed on the basis that (a) Russia will stop at nothing to avoid paying the Awards; (b) it would be unlikely to have any reservations about taking steps to dissipate or conceal assets, so as to render them immune from enforcement; and (c) the sheer scale of the Awards provides Russia with a considerable financial incentive to do so.
iii) Russia's determination not to pay the Awards, combined with its coyness about its assets, in themselves give reason to infer a risk of dissipation should Russia be given further time to do so by reason of the Stay remaining in place.
iv) An illustration of Russia taking steps to avoid enforcement measures is Ms Prince's evidence, from information provided by Shearman & Sterling (who represent the Claimants in France), that after two of the Claimants attached certain properties in France and Belgium, Russia "affixed diplomatic plates to some of these properties in order to render legitimate enforcement efforts against these properties significantly more difficult".
v) Russia has not, in its evidence to this court, denied any intention to dissipate assets.
vi) It is therefore legitimate to infer a sufficient risk that the Claimants' ability to enforce the Awards is likely to be materially prejudiced by any further delay to these proceedings.
Russia makes the point that it has been on notice of the present proceedings for six years since they were issued on 30 January 2015. The evidence relied on by the Claimants to support their allegation that Russia has dissipated assets, discussed mainly in section (G)(2) above, does not indicate that any dissipation of assets has occurred, nor any threat of dissipation. The fact that Russia has properly resisted enforcement efforts does not amount to dissipation. Indeed, even if and to the extent that Russia's resistance to enforcement might merit criticism, it still does not amount to dissipation of assets. Russia notes that the US District Court of the DC Circuit, as part of its ruling (after the Hague Court of Appeal decision though prior to the suspension opinion and decision) refusing the Claimants' application to lift a stay of proceedings in that court, stated that "[a]bsent any additional proof that challenges to execution are mounting, this purported hardship about increasing the difficulties faced by the Shareholders in executing on Russian Federation assets is unconvincing" (Hulley Enters. v. Russian Fed'n, Civil Action No. 14-1996 (BAH) 2020 U.S. Dist. LEXIS 219208, at  (D.D.C. Nov. 20, 2020)).
"It seems to me that the following principles relevant to the present application can be discerned from those two cases. (1) The mere fact of delay in bringing an application for a freezing injunction or that it has first been heard inter partes, does not, without more, mean there is no risk of dissipation. If the court is satisfied on other evidence that there is a risk of dissipation, the court should grant the order, despite the delay, even if only limited assets are ultimately frozen by it. (2) The rationale for a freezing injunction is the risk that a judgment will remain unsatisfied or be difficult to enforce by virtue of dissipation or disposal of assets (see further the citation from Congentra AG v Sixteen Thirteen Marine SA, The Nicholas M  EWHC 1615 (Comm),  1 All ER (Comm) 479 below). In that context, the order for disclosure of assets normally made as an adjunct to a freezing injunction is an important aspect of the relief sought, in determining whether assets have been dissipated, and, if so, what has become of them, aiding subsequent enforcement of any judgment. (3) Even if delay in bringing the application demonstrates that the claimant does not consider there is a risk of dissipation, that is only one factor to be weighed in the balance in considering whether or not to grant the injunction sought." (§ 156)
Similarly, in Ras Al Khaimah Investment Authority v Bestfort Development LLP  EWCA Civ 1014 the Court of Appeal said:
"Delay on the part of a party applying for a freezing injunction gives rise to rather more elusive considerations. It can be said that any serious delay means that an applicant does not genuinely believe there is any risk of dissipation or conversely (and more cynically) that, if a defendant is prone to dissipate his assets, such dissipation will have already occurred by the time a court is asked to intervene. This latter argument assumes that a defendant is already of dubious probity and it is a curious principle that would allow such a defendant to rely on his own dubious probity to avoid an order being made against him. The former argument is also open to the objection that it is the fact of the risk rather than a claimant's apprehension of it that should govern the court's decision." (§ 55)
"There is no basis for inferring that during the period of the adjournment, the defendant would seek to dissipate those assets or remove them from the jurisdiction in order to seek to defeat enforcement or would otherwise deal with the assets other than by way of normal trading. Indeed, were the defendant to be minded to deal with assets so as to avoid execution pursuant to an English Judgment, it has had ample opportunity to do so prior to this hearing, which it envisaged would proceed to a resolution of its application, and the possibility of that application being dismissed." (§ 15)
First, there is a risk of inconsistent judgments being given by the English courts and the Dutch Supreme Court, the curial court, on the same issues. As noted earlier, the risk of inconsistent judgments has been described as a "potential disaster from a legal point of view", and is "always capable of amounting to a very strong reason for granting a stay", whether in the context of the Court's case management powers under the CPR (see Bundeszentralamt § 116; Prifti § 22; Citigroup § 76; Ferrexpo § 199) or of an adjournment under Arbitration Act section 103(5) (see Travis § 73; Stati § 3; and AIC § 54). In the present case, both the state immunity issues and any application for recognition and enforcement of the Awards are likely to involve the English court determining issues that will also be determined by the Dutch courts. Moreover, it is particularly important to avoid creating a risk of inconsistent judgments in circumstances where the question of the validity of the Awards is more appropriate for determination by the Dutch courts as the curial courts: see IPCO § 51(iii); British Aerospace § 13; Bundeszentralamt §116 and Prifti § 22.
Secondly, there is a risk of inconvenience and inefficiency for the parties, the court and other court users if the Stay is lifted now. Significant time and expense would be spent by the parties in the present proceedings to determine issues which will in large part be finally determined by the curial court in the Dutch proceedings in any event (cf Bundeszentralamt § 113). This is a paradigm case where the English proceedings "may turn out to be unnecessary or may be the subject of duplication" and may "result in considerable waste of time and costs", which should be avoided "not only the interests of the parties but the interests of other court users and the efficient use of court resources": Stati §§ 2 and 5. The more efficient course is for the English proceedings to await the outcome of the Dutch proceedings, at which point the English Court "may very well be assisted by what the [curial] court has to say on those issues" (ibid.).
i) if the English court were to find against Russia on state immunity, by reason of an issue estoppel or otherwise based on the Hague Court of Appeal's decision, then that would simply reflect the proper application of English laws on issue estoppel and/or abuse of process; and
ii) the English court could 'factor in' any such risk of unfairness as part of the process of determining the immunity issue (including its decision on any issue estoppel or abuse of process argument).
As to the existence of the risk, Russia notes that according to the authorities:
i) factual findings of other courts or arbitral tribunals that a party has carried out unlawful schemes involving concealment or dissipation of assets can provide strong evidence of a risk of dissipation: see Great Station Properties v UMS Holding Limited  EWHC 3330 (Comm) §§ 7, 10-11 and 51; ArcelorMittal USA LLC v Essar Steel Ltd  EWHC 724 (Comm) § 38; Ras Al Khaimah Investment Authority v Bestfort Development LLP  EWCA Civ 1014 §§ 25 and 54; Madoff Securities International Ltd v Raven  EWHC 3102 (Comm) §§ 169 and 180-181; and
ii) the fact that a party has "links to complex and offshore complex structures and the potential to transfer value rapidly and invisibly through corporate reorganization could contribute" to a risk of dissipation alongside other evidence of such a risk: see Holyoake § 59; VTB Capital Plc v Nutritek International Corp  EWCA Civ 808 §§ 174 and 178; Madoff Securities §§ 174-181.
Russia cites findings by courts in various jurisdictions to the effect that the Individuals, the Claimants and other companies in the wider corporate structure of which they form part have participated in unlawful tax evasion schemes, in particular:
i) the Moscow High Court's finding in 2005 that Yukos had operated an unlawful tax evasion scheme using numerous special purpose entities in low tax jurisdictions, which had allowed it to evade tax by falsely accounting for income as though it had been earned in certain low tax regions of Russia;
ii) the ECtHR's conclusion in 2012 that the above scheme was "obviously aimed at evading the requirements of the Tax Code" by the use of "letter-box companies in domestic tax havens in Russia", and "unilateral gifts between the trading companies and the applicant company through its subsidiaries, which were incompatible with the rules governing the relations between independent legal entities" (OAO Neftyanya Kompaniya Yukos v Russian Federation, ECtHR App No 14902/04 (Judgment, 20 September 2011));
iii) the conclusion by a second chamber of the ECtHR in 2013 that the same arrangements involved tax evasion, and that two of the Individuals knowingly submitted false data in order to reduce the overall tax burden of the company (Khodorkovskiy & Lebedev v Russian Federation, ECtHR App Nos 11082/06 & 13772/05 (Judgment, 25 October 2013));
iv) the Amsterdam Court of Appeal's decision in 2017, after examining evidence of the schemes mentioned above, held that "[i]t has been established and explained by the ECHR that there has been large ‐ scale and long ‐ term tax evasion in respect of the profit tax using legal entities without actual activities (the sham entities, hereinafter also referred to as front subsidiaries), which only served to facilitate and conceal the conduct of Yukos Oil" (judgment dated 9 May 2017 in case numbers 200.002.097/02 and 200.002.104/02); and
v) the finding of the Tribunal in the present case that the First Claimant "appears to the Tribunal to have falsely declared on Cypriot withholding tax forms that 'income' - dividends from Yukos – 'was not connected with activities carried on in the Russian Federation' despite Mr. Lebedev's activities in Moscow" (Award § 1620).
"established in Cyprus [and the Isle of Man], being notably … indirect subsidiar[ies] of GML Limited, a company registered in Gibraltar, which is itself owned directly or indirectly by the managers of seven trusts in Guernsey, the Russian Federation rightly claims the absence of a guarantee that property likely to be seized will be returned if the enforcement orders are overturned and thus has justified the risk of severe prejudice to its rights if the award[s] is enforced [in France]…"
i) the fact that the Claimants have secured Awards for very large sums, which have been upheld by the Hague Court of Appeal;
ii) the pro-enforcement philosophy underlying the New York Convention and the 1996 Act;
iii) the prejudice to the Claimants arising from being kept out of their money, or at least delayed in the enforcement steps they could otherwise take in England and Wales (or overseas but in reliance on an English judgment), possibly for several more years;
iv) the fact that any risk of dissipation by the Claimants could probably be overcome by paying any recoveries into court or escrow;
v) conversely, the fact that I am not persuaded that continuation of the Stay will create or materially increase the risk of dissipation of assets by Russia, or of other events that would likely make enforcement more difficult, though it is always possible that events over time could have such an effect (see e.g. § 187 above);
vi) the fact that Russia's appeal to the curial court has, in my view, realistic prospects of success, and is not being pursued merely as a delaying tactic;
vii) the evidence of lack of good faith in the broader sense I identify in § 169 above;
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;
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 the 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); and
x) the fact that, as I conclude later, I could and would not order security as a condition of continuing the Stay, therefore the Claimants would lack that element of protection or advantage.
i) an order for security under section 103(5) would not violate Russia's sovereign immunity because it could not be treated as analogous to an injunction, citing Soleh Boneh at p. 213;
ii) an order for security is simply the price of an indulgence which a defendant wishes the court to grant, namely an adjournment of the relevant enforcement proceedings. Here, the question of security only arises because Russia wishes these proceedings to be kept on hold pending the determination of the Cassation Appeal. Russia cannot ask this court to exercise a discretion in its favour, whilst simultaneously asserting immunity in respect of the proper price of that exercise of discretion;
iii) such an order would not limit Russia's access to this court or impede its ability to assert sovereign immunity: if Russia were ordered to provide security as the price of an adjournment but failed to do so, then these proceedings would continue and the first matter requiring determination would then be Russia's challenge to the jurisdiction based on its assertion of sovereign immunity;
iv) despite the fact that a number of cases decided under section 103(5) have involved awards against sovereign states, the Claimants are unaware of any recorded example of an order for security under that section being refused on the grounds of sovereign immunity;
v) ad hoc committees considering annulment applications under the ICSID Convention have similarly not refrained, on sovereign immunity grounds, from conditioning stays of enforcement on the provision of security; and
vi) in any event, even if Russia were right on this point, it would leave the court with a stark choice between no adjournment, and an unconditional adjournment. If the court is forced into that position, then (a) the balance of prejudice between the parties becomes decisive; and (b) that balance falls decisively in the Claimants' favour.
"Where an application for the setting aside or suspension of the award has been made to such a competent authority as is mentioned in subsection (2)(f), the court before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the recognition or enforcement of the award.
It may also on the application of the party claiming recognition or enforcement of the award order the other party to give suitable security."
"(1) A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.
(2) A court shall give effect to the immunity conferred by this section even though the State does not appear in the proceedings in question."
"However, in the end I was persuaded that the judge's conclusion in favour of a good arguable case could not be supported. Although not a decision under the Act of 1978, that was the conclusion of Robert Goff J. in I Congreso del Partido  Q.B. 500, 535-537, in a similar context of an issue as to the court's jurisdiction in the face of a claim to sovereign immunity. Mr. Pollock also pointed to the complications which would arise if a "good arguable case" in favour of an exception to immunity under, say, section 3 were then to lead directly to a trial of the merits of the action, as Mr. Kentridge contends. The defendant state could in that event not defend the substantive claims without taking steps in the proceedings, which would involve a submission to the jurisdiction under section 2(3)(b).
In the upshot, therefore, I am persuaded that whenever the question arises under the Act of 1978 whether a defendant state is immune by virtue of section 1 or not immune by virtue of one of the exceptions, then this question must be decided as a preliminary issue in favour of the plaintiff, in whatever form and by whatever procedure the court may consider appropriate, before the substantive action can proceed." (p.194)
Ralph Gibson LJ said:
"If a state claims immunity then, in my view, the statute requires that the issue be determined before the court can try the proceedings. It was objected that Parliament cannot have intended that there be what, in some cases, would amount to the trial of the action before the plaintiff could be permitted to go to trial. I do not think that there is any substance in that objection. I would accept Mr. Pollock's submission that, if proof of the exception to state immunity turned upon issues of fact - as in this case upon the matters dealt with by Staughton J. it did not - the court could give directions for the trial of those issues, including directions for discovery, for the calling of witnesses, and for cross-examination of witnesses upon affidavits. The sovereign state could not be placed under any sanction with reference to discovery but, in deciding issues of fact, the court could have due regard to any failure to disclose relevant documents. I see no reason why issues of fact, such as whether the foreign state is shown to have entered into a commercial transaction, should not be disposed of by trial of the issue in this way. If the plaintiff succeeds on the issue then any remaining issues, such as breach of contract and damages, would be tried thereafter in the normal manner." (p.252)
"Mr Joseph for the State submitted that this was not so. In his submission the Plaintiffs' argument confused two separate kinds of jurisdiction, namely the jurisdiction to decide whether jurisdiction exists and the jurisdiction to try the matter on the merits. In his submission both the forum non conveniens question and the State Immunity question involved only the exercise of the first type of jurisdiction, so that there could be no question of the State submitting or being deemed to submit to the second type of jurisdiction.
In support of his argument Mr Joseph relied upon the decision of the House of Lords in William & Glyn's Bank v Astro Dinamico Compania Naviera SA  1 All ER 760,  1 Lloyd's Rep 453. In that case the Plaintiffs had brought proceedings in this country on guarantees allegedly provided by foreign Defendants which contained English law and jurisdiction clauses. The Defendants denied the validity of the guarantees and contended that since they were invalid the English Court lacked jurisdiction over them; and they applied to set aside service of the proceedings on them on this ground. The Defendants had themselves brought proceedings in Greece against the Plaintiffs which raised the same issues as to the validity of the alleged guarantees. The Defendants relied upon these latter proceedings in support of a simultaneous application to stay the English proceedings until the outcome of the proceedings in Greece. Bingham J (as he then was) considered that he could not entertain the latter application before dealing with the former, for to do so would be to assume a jurisdiction which, if the Defendants were right on their first application, did not exist.
Both the Court of Appeal and the House of Lords disagreed with this view on the grounds that in dealing with the second application the Court would not be assuming a jurisdiction to deal with the merits of the claim, but merely exercising the jurisdiction to decide whether the Court did have jurisdiction to deal with the merits. In considering whether or not to stay the proceedings pending the outcome in Greece the Court was merely deciding at what stage it would be appropriate to consider the challenge to the jurisdiction -- and not in any way exercising or assuming a jurisdiction to try the case on the merits. For the same reasons the House of Lords rejected the argument that by applying for a stay the Defendants had waived their objection to the "merits" jurisdiction of the Court. In the view of the House of Lords, the error into which Bingham J had fallen was to confuse two quite different types of jurisdiction, namely "jurisdiction" jurisdiction and "merits" jurisdiction.
In my judgment it is the argument advanced by the State and not that of the Plaintiffs which contains a very similar error, by confusing the jurisdiction of the English Court to decide whether a State is immune from its process with another quite different kind of "jurisdiction" jurisdiction. If under the State Immunity Act a foreign sovereign is immune from the jurisdiction of the United Kingdom Courts, that is the end of the matter. In such a case the Court has no power to decide whether or not, for example, England is the convenient forum, nor any other questions (whether of jurisdiction or otherwise) that might arise in the context of litigation between non-sovereign bodies. Unlike the circumstances in the case cited, the forum non conveniens application cannot be described as being part and parcel of the exercise of the relevant jurisdiction, for the question whether a State is immune from suit has nothing whatever to do with the question whether England is the proper forum for the resolution of the dispute between the parties.
It is for this reason that I concluded in A v Republic of X  2 Lloyd's Rep 520 at 524-525, that when a question of state immunity arises it must be finally determined at the outset, relying on the decision of the Court of Appeal in JH Rayner v Department of Trade  Ch 72,  3 All ER 257. It is not permissible to proceed on the basis that the point can be determined later, for if immunity in fact exists the Court would ex hypothesi be purporting to exercise powers which it does not possess.
In view of the foregoing it seems to me to be clear that (leaving aside the original Order 12 rule 8 Summons itself) the State, by thereafter making and pursuing its applications for the forum non conveniens question to be dealt with before the State Immunity question, has taken a step in the proceedings otherwise than for the purpose only of claiming immunity. Of course, by making such applications, the State has not submitted to the "merits" jurisdiction of the Court, nor did the Plaintiffs suggest that it had, since the applications concern a different challenge to the jurisdiction, but that is not the point. By applying to the Court to deal first with this other jurisdictional challenge the State, as expressly appears from the answer to the questions I posed, is necessarily accepting that the Court has power over the State in this regard and is asking the Court to exercise this power. In my judgment it inevitably follows that the State has done something by way of a step in the proceedings which cannot be described as only for the purpose of claiming State Immunity." (pp. 3-5)
"Section 13(2)(a) of this Act provides:
... relief shall not be given against a State by way of injunction or order for specific performance or for the recovery of land or other property.
Mr. Burton submits that the order of the Deputy Judge in this case did grant relief by way of an injunction. He points to the fact that a copy of the order was endorsed with a penal notice, directed at the High Commissioner of Uganda in the United Kingdom personally.
Mr. Brodie submits that the order is plainly not an injunction and that is the end of the point. Had he elaborated his robust submission, he might have added that O.23 of the Rules of the Supreme Court enables the Court to order a plaintiff to give security for costs, and is not a sub-head of O.29 which deals with interlocutory injunctions.
In the context of s. 13(2)(a), and despite the doubts of Sir John Donaldson M.R. in the SPP (Middle East) Ltd. case, I would not hold that a simple order for the payment of money from no specified source is an injunction. It is no different from a monetary judgment. But in case I am wrong on that, l would vary the form of the Deputy Judge's order. He ordered (1) that the proceedings be adjourned for three months, and (2) that the employers provide security in the sum of $29m. within four weeks, I would substitute an order that, unless the employers provide security in the sum of $5m. within four weeks there be leave to enforce the award as a judgment; and that if security is so provided, there be liberty to apply in the Queen's Bench Division after a further period of nine months has elapsed. There should be no penal notice." (p.213)
I agree with Russia that the Claimants' reference to ICSID ad hoc committee decisions does not assist. As a matter of public international law, "[t]he rules of State immunity are procedural in character and are confined to determining whether or not the courts of one State may exercise jurisdiction in respect of another state" : Jurisdictional Immunities of the State (Germany v Italy; Greece intervening)  ICJ Rep 99 § 93. ICSID ad hoc committees are international tribunals, exercising appellate jurisdiction, to which the law of state immunity does not apply. Further, in the cases the Claimants cite, it was the state who had instituted proceedings before the ad hoc committee, thereby waiving any relevant immunity.
i) section 103 is intended to reflect Article VI of the New York Convention, so questions of English procedural law cannot affect the test or the power to order security, and
ii) the state immunity issue is merely the first issue which arises in the Claimants' arbitration claim, and the court has the power to case manage the proceedings as a whole, including by requiring security as a condition of a stay or adjournment.
i) the lack of jurisdiction referred to above derives not from English procedural rules but from the SIA (which itself reflects international conventions); and
ii) it is true that the court can case manage the resolution of state immunity issues, but it does not follow that in doing so it is exercising or can exercise the powers set out in section 103(5) of the 1996 Act.
"Were it otherwise, the construction for which Mr. Sprange contends would have at least two curious consequences. The first is that the court would have power to grant security irrespective of whether an application had ever been made for enforcement of the award under s.101. If s.103(5) is to be interpreted as a freestanding provision whose only prerequisite is that an application has been made to the competent court to set aside the award, it would not be necessary for the court to be asked to recognise or enforce the award under s.101 before it could exercise a power to order a defendant to give security for the award. That would be a surprising consequence. Secondly, if Mr. Sprange were right, then the court would have power to grant security under s.105(3), where an award were enforced pursuant to s.101 without challenge, including circumstances in which a judgment was entered in the terms of the award pursuant to s.101(3). That would involve the court having the power to grant security in relation to a judgment which had been entered in the terms of the award by way of recognition and enforcement, thereby bypassing all other enforcement procedures with all their safeguards, including jurisdictional safeguards. In that respect, the court would be doing more in support of a judgment given to enforce a New York Convention award obtained abroad than that which it would be prepared to do by way of post-judgment enforcement of a judgment which it had given itself, having decided the merits of a dispute over which it had substantive jurisdiction. The grant of security in favour of a judgment entered on an award in that way would be contrary to principle. It would be to grant security for a judgment, rather than the most which the courts will do by way of post-judgment freezing order, which is to restrain assets for the purposes of assisting enforcement processes." (§ 53)
Russia's other further contention is that security cannot be ordered as the price of a defendant being entitled to oppose enforcement. It can be ordered only as the price of an adjournment of the decision on enforcement: see the Supreme Court's judgment in IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation  UKSC 16 at §§ 30, 41 and 43. The point made there by Lord Mance (with whom the other members of the court agreed) was that Articles V and VI of the New York Convention provide an internationally-agreed balancing of interests between the prima facie right to enforce an award and rights of challenge. Taken together, they exclude requiring security for a properly arguable challenge under one of the grounds set out in Article V (which include, at (e), where "[t]he award … has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made"); and instead allow security to be required only where Article VI applies (viz, where the court asked to enforce an award adjourns its decision following a mere application of the kind referred to in Article V(1)(e) i.e. to the curial court).
Thus, Russia argues, an order for payment of security would in substance amount to requiring security as the price for advancing a properly arguable case under Article V based on lack of arbitral jurisdiction. It would have to choose between paying security and maintaining the Stay, or to allow the stay to lapse with the result that – on the Claimants' case – Russia would be barred by issue estoppel from pursuing all or part of its case on immunity.
i) it follows from Russia's own submission, that the prejudice to the Claimants being kept out of their money can be compensated by an award of interest, that interest is a legitimate means of measuring at least some of that prejudice;
ii) Russia is, taking account of the prospect of a reference to the CJEU, seeking a delay to these proceedings of approximately 4 years;
iii) according to Russia, US$7 billion of interest accrued on the Awards in the five years from 2015 to 2020 – equivalent to about US$1.4 billion a year – which would suggest that further interest in the sum of around US$5 billion would have accrued by the conclusion of the Cassation Appeal;
iv) the court should subject this sum to an uplift to reflect the clear risk that Russia will take steps to make enforcement more difficult during the period of the delay, and considering everything in the round the figure of US$7 billion is appropriate;
v) although that is a very large amount of money, it represents a relatively modest proportion of the total sums at stake (amounting to just over 12% of the total sums currently due to the Claimants under the Awards); and
vi) if the Court decides to keep these proceedings on hold, then it ought to do so only on the basis that Russia pay a sum of US$7 billion into court.
i) The section 103(5) security power is permissive, like the corresponding wording in Article VI of the New York Convention.
ii) Section 103(5) gives a wide discretion to the enforcing court to determine whether enforcement proceedings should be adjourned and/or security ordered: Soleh Boneh (above). Each case must turn on its own facts, "[t]here is certainly no question of granting security automatically" (J (Lebanon) v K (Kuwait)  EWHC 899 (Comm) § 60), and the award creditor must demonstrate a "need" for security (Yukos Oil Company v Dardana Ltd  EWCA Civ 543, § 35-37).
iii) In every case on which the Claimants rely aside from Soleh Boneh, the award debtor's challenge in the curial courts was found by the English court in the relevant part to be hopeless or subject to serious obstacles. In Soleh Boneh, the Court of Appeal regarded the challenge as seriously arguable. However, the challenge in the Swedish curial court had been commenced some 19 years previously, and remained unresolved. The Court of Appeal felt that the claimants could understandably feel aggrieved by the lack of progress there, even though it had been partly their fault, and "could reasonably expect the English Court to attempt to inject some sense of urgency" (p. 212 rhc). It is not surprising in those circumstances that the court decided to order security in a significant sum to "provide a real incentive for the [defendants] to proceed with their Swedish application expeditiously, and also some protection for the [claimants] against any deterioration of their prospects of enforcement here" (p.213 lhc).
iv) The travaux préparatoires to Article VI of the New York Convention reflect the same concerns as motivated the Departmental Advisory Committee in respect of section 70(7), namely to "avoid the risk that while the appeal is pending, the ability of the losing party to honour the award may (by design or otherwise) be diminished". Moreover, the Chairman of the Working Group defined the purpose of what became Article VI as:
"to permit the enforcement authority to adjourn its decision if it was satisfied that an application for annulment of the award or for its suspension was made for good reason in the country where the award was given. At the same time, to prevent an abuse of that provision by the losing party which may have started annulment proceedings without a valid reason purely to delay or frustrate the enforcement of the award, the enforcement authority should in such a case have the right either to enforce the award forthwith or to adjourn its enforcement only on the condition that the party opposing enforcement deposits suitable security."
v) The same objective – to permit the grant of security as a mechanism to prevent abusive and dilatory challenges in the curial courts – is reflected in the test stated in Soleh Boneh set out at the end of the quotation in § 60 above, focussing on the strength of the challenge as perceived on a brief consideration, and whether delay is likely to make enforcement more difficult e.g. by movement of assets or improvident trading.
vi) In the present case the court should not require security, because (a) Russia's appeal to the Dutch Supreme Court has substantial prospects (and at the very least a real prospect) of success, and (b) continuation of the Stay is not likely to render enforcement of the Awards more difficult or otherwise prejudice the Claimants – on the contrary, to require security would simply improve the Claimants' position on enforcement compared to the present position.
i) at least some of Russia's grounds of challenge have a realistic prospect of success;
ii) I do not consider that Russia is advancing its challenge in bad faith or simply as a delaying tactic, though I note the evidence of lack of good faith in the broader sense identified earlier;
iii) the evidence does not indicate, in my view, that the continuation of the Stay creates a risk or augmented risk of dissipation of assets, or of other events that would likely make enforcement more difficult, though (as also noted earlier) there is always a chance that events over time could have that effect. Rather, a requirement for security would probably in effect give the Claimants the bonus of a significant enforcement advantage; and
iv) to require security would in substance force Russia to put up security in order to be able to advance its full case on state immunity with a 'clean slate', i.e. without the potentially conclusive adverse effect of the conclusions reached in the proceedings in the Netherlands as they currently stand pending Russia's appeal to the Dutch Supreme Court.
I mention only for completeness that there also appears in my view to be some force in the view that where an award defendant has a properly arguable challenge that goes to the jurisdiction of the tribunal, then an analogy may be drawn with challenges under section 67 of the 1996 Act. In that context, section 70(7) permits the court to order that any money payable under the award be brought into court or otherwise secured pending the determination of the application or appeal. In that situation it has been held that security should be ordered only where the challenge is "flimsy" and any delay caused by the challenge will prejudice enforcement of the award, and security should not be used simply to help the claimant enforce the award (see Peterson Farms Inc v C&M Farming Ltd  EWHC 2298 (QB) § 30, IPCO (Supreme Court) § 43 and X v Y  EWHC 1104 (Comm) § 32).
The analogy seems appropriate, because in a case like the present one where state immunity is claimed based on lack of arbitral jurisdiction, the court makes a de novo decision without presuming the award to be valid, just as it does on a section 67 jurisdiction challenge (see e.g. Gold Reserve Inc v Bolivarian Republic of Venezuela  EWHC 153 (Comm) § 12, cf ). However, Russia did not in oral submissions press the analogy in the context of section 103(5) and I do not think it appropriate to comment further on it.
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