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Arbitration case law update

Abuse of process & collateral attacks on arbitral decisions: Interesting questions regarding the interplay between arbitration and litigation

Citation: Michael Wilson & Partners Ltd v Sinclair, Sokol Holdings Inc, Eagle Point Investments Ltd and Butterfield Bank (Bahamas) Ltd [2012] EWHC 2560 (Comm).

This case has been the subject of a successful appeal: Michael Wilson & Partners Ltd v Sinclair, Sokol Holdings Inc and Emmott [2017] EWCA Civ 3. Click here to read more.

Itochu: Appeals and the appointment of Arbitrators under s. 18 of the Arbitration Act 1996

Citation: Itochu Corp v Johann MK Blumenthal GmbH & Co KG [2012] EWCA Civ 996

In this case the Court of Appeal (Maurice Kay, Stanley Burnton and Gross LJJ) refused Itochu permission to appeal an order of Mr Justice Andrew Smith which, amongst other things, provided for the appointment of a sole arbitrator to determine a dispute that had arisen between the parties.

Andrew Smith J had found, inter-alia, that by the operation of s. 15(3) and s. 18(3)(d) of the 1996 Act, where there was a dispute as to the number of arbitrators to be appointed (and the arbitration agreement did not clarify the issue) on a proper application by a party a court was to appoint a sole arbitrator. The Judge refused Itochu permission to appeal.

One of the points taken on behalf of the Respondent was that, where the Judge had refused permission to appeal, the Appeal Court lacked jurisdiction to entertain the appeal.

The Court of Appeal observed that, where s. 18(5) of the 1996 Act (“The leave of the court is required for any appeal from a decision of the court under this section”) applied,if permission to appeal was refused by the first instance Judge, the Court of Appeal could not itself grant the necessary permission [17].

Notwithstanding those attractive submissions raised on behalf of Itochu that Andrew Smith J had not made an order under s. 18 (thus leaving the Court of Appeal in a position to grant permission if so minded),the Court of Appeal found that he had. In the circumstances, it found that it lacked jurisdiction to entertain the appeal and permission to appeal was refused.

For further information, view the full judgment in Itochu Corp v Johann MK Blumenthal GmbH & Co KG [2012] EWCA Civ 996

Yukos Capital v OJSC Rosneft Oil Company

Citation: Yukos Capital S.A.R.L v OJSC Rosneft Oil Company [2012] EWCACiv 855

A Court of Appeal consisting of Rix, Longmore and Davis LJJ allowed in part an appeal by Rosnefton two preliminary issues in English proceedings brought by Yukos Capital to enforce Russian arbitral awards which had been set aside by the Russian courts (where the arbitration had been seated).

Notwithstanding the decisions of the Russian courts, Yukos Capital had brought enforcement proceedings in the courts of Amsterdam. Overturning the first instance decision, the Amsterdam Court of Appeal had recognised the awards and given Yukos Capital permission to enforce them. In so doing, the Amsterdam Court had refused to recognise the Russian courts’ set aside decision, on grounds that it could be inferred, from the general nature of the subservience of the Russian courts to state influence in matters of state importance, that the decision of the Russian court was "partial and dependent" - or dictated by bias or intimidation [6]. Further leave to appeal in Amsterdam was refused. Rosneft paid the principal sums due under the awards. However, interest remained outstanding and Yukos Capital sought to enforce the awards in England to recover it.

A key issue in the English enforcement proceedings was whether or not the Russian courts’ annulment decision should be recognised. Accordingly, the Court of Appeal was called upon to consider the scope of the act of state doctrine (the concept that the English courts will not sit in judgment on the acts of the government of another country carried out within its own territory).

The Court of Appeal held that the act of state doctrine does not prevent an investigation of, or adjudication upon, the conduct of the judiciary of a foreign state. In particular, it found that the acts of a foreign judiciary are not acts of state for the purposes of the doctrine and, accordingly, "comity only cautions that the judicial acts of a foreign state acting within its territory should not be challenged without cogent evidence" [see further Lord Justice Rix at paragraphs 86, 87 and 90].

In the event, the Court found that Yukos Capital must be entitled to seek to show that the judicial decisions setting aside the material arbitration awards were not themselves worthy of recognition by the English court [134].

The Court also considered Yukos Capital’s argument that the Amsterdam Court of Appeal’s finding- that (in essence) the annulment decisions were partial and dependent- created an issue estoppel binding on Rosneft in the English proceedings that estopped it from objecting to the enforcement of the awards in England. Ultimately, the Court rejected that argument, finding (and differing from Hamblen J in the court below on the point) that Rosneft was not issue estopped from  contradicting in England Yukos Capital’s assertion that the Russian court’s decisions were partial and dependent [157].

Fundamentally, the Court found that the Dutch Appeal Court’s decision that the Russian decisions were "partial and dependent" had been an issue determined by reference to concepts of Dutch public order: the English courts would necessarily determine the issue by reference to English public policy - which is (or may well be) different - and not (in essence) by reference to those considerations of Dutch public order [156]. As such there was no overlap of issues and Rosneft was not issue estopped.

While judicial dicta, the Court further observed that even if it had found there was an issue estoppel in the case, it would have been inclined to invoke its discretion [explored at 147] to refuse to give effect to the Dutch judgment (there being special circumstances making it unjust to recognise the decision).

The Court observed that, "it must ultimately be for the English court to decide whether the recognition of a foreign judgment should be withheld on the grounds that that foreign judgment is a partial and dependent judgment in favour of the state where it was pronounced. That is a question so central to the respect and comity normally due from one court to another that to accept the decision of a court of a third country on the matter would be an abdication of responsibility on the part of the English court" [160].

For further information, view the full judgment in Yukos Capital S.A.R.L v OJSC Rosneft Oil Company [2012] EWCACiv 855