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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Yukos Capital SARL v OJSC Rosneft Oil Company [2014] EWHC 2188 (Comm) (03 July 2014) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2014/2188.html Cite as: [2014] EWHC 2188 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Rolls Building Fetter Lane London, EC4A 1NL |
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B e f o r e :
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Claimant |
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and |
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OJSC Oil Company Rosneft |
Defendant |
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Lord Grabiner QC, Mr Conall Patton and Mr Ciaran Keller (instructed by Travers Smith LLP) for the Defendant
Hearing dates: 13-16 May 2014
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Crown Copyright ©
Mr Justice Simon:
Introduction
The procedural history
(1) The Claimant has pleaded that the Defendant has breached its obligation under the arbitral agreement (including the ICAC rules) to honour the Awards, and is therefore liable in debt and/or damages for the amount of the Awards, together with interest on such debt/damages under Article 395 of the Russian Civil Code and/or s. 35A of the Senior Courts Act 1981.
(2) The Defendant has pleaded (among other points) that, as a consequence of the Russian Set-aside Decisions, (a) the Awards no longer exist in a legal sense (under the principle ex nihilo nil fit, or, 'nothing comes of nothing'), and (b) that the Claimant is precluded from asserting that the Awards are valid and binding on the parties. It has also advanced a number of other reasons why post-award interest is not recoverable.
(3) By its Re-Re-Re-Amended Reply, the Claimant contends that the Set-aside Decisions should not be recognised by the English court on the basis that they were (a) tainted by bias, (b) contrary to natural justice, in that the Russian courts deliberately misapplied the law, (c) procured in circumstances violating Article 6 of the European Convention on Human Rights, and (d) formed part of an illegitimate campaign of commercial harassment waged against the Claimant by the Russian Federation for political reasons. The Claimant denies the defences based on the ex nihilo nil fit principle and issue estoppel. There are also denials of specific defences regarding interest (§10A).
The Enforcement Preliminary Issue
In the absence of authority in England it is suggested that where [an award] has been set aside in the court of the seat, an arbitral award should be enforced only if recognition of the order setting aside the award would be impeachable for fraud or as being contrary to natural justice, or otherwise contrary to public policy, in accordance with Rules 50 to 52.
Finally, I bear in mind ... the problem of an award perhaps improperly set aside in the courts of the country of origin. This is a delicate matter. However, it seems to me that this is not something which can be dealt with simply as a matter of an open discretion. The improper circumstances would, I think, have to be brought home to the court asked to enforce in such a way as either, in effect, to destroy the defence based on article V.1(e), or, which is perhaps effectively the same thing, to prevent an issue estoppel arising out of the judgment of the courts of the country of origin. In this connection see Carl Zeiss Stiftung v. Rayner & Keeler Ltd (N.2) [1967] 1 AC 853, 947 and Dicey, Morris & Collins, 14th Ed. at Rules 41 to 45.
[30] I start with [the defendant's] threshold submission that, since the Ukrainian courts have set aside the lower court's judgment it must by definition be set aside. This, to my mind, simply begs the question. The issue is not so much the enforcement of the original judgment but the recognition of the judgment setting it aside. If the judgment setting aside the judgment of the lower court lacked due process then the default judgment [enforcing the foreign lower court judgment] will stand ...
[31] It is well established that a foreign judgment is impeachable on the ground that its recognition would be contrary to public policy: Dicey & Morris: The Conflict of Laws, 14th Ed, Rule 44 ...
It is very tempting to resolve this difficult issue, and, indeed, in light of the obvious common sense merit of [claimant's case], to do so on the ground adopted by David Steel J.
He in fact decided on the narrower basis referred to above.
The disregard of annulment of the award… involves basic legal concepts. When an award has been annulled in the country of origin, it has become non-existent in that country. The fact that the award has been annulled implies that the award was legally rooted in the arbitration law of the country of origin. How then is it possible that courts in another country can consider the same award as still valid? Perhaps some theories of legal philosophy may provide an answer to this question, but for a legal practitioner this phenomenon is inexplicable. It seems that only an international treaty can give a special legal status to an award notwithstanding its annulment in the country of origin.
The Interest Preliminary Issues
The claim for interest under Article 395 of the Russian Civil Code.
If the law is contained in a code or written form, the question is not as to the language of the written law, but what the law is as shown by its exposition, interpretation and adjudication: so in effect it was laid down by Coleridge J in Baron de Bode's case (1845) 8 QB 208, 266; in the Sussex Peerage case (1844) 11 Cl. & F. 85, 116, Lord Denman stated his opinion to the same effect as he had done in Baron de Bode's case. He said that if there be a conflict of evidence of the experts, 'you (the judge) must decide as well as you can on the conflicting testimony, but you must take the evidence from the witnesses.' Hence the Court is not entitled to construe a foreign code itself: it has not 'organs to known and to deal with the text of that law' (as was said by Lord Brougham in the Sussex Peerage case). The text of the foreign law if put in evidence by the experts may be considered, if at all, only as part of the evidence and as a help to decide between conflicting expert testimony.
... to interpret its legal effect, in order to convey to the English Court the meaning and effect which a Court of the foreign country would attribute to it, if it applied correctly the law of that country to the questions under investigation by the English Court.
(3) The degree to which the English Court can put its own construction on the foreign code arises out of and is measured by its right to criticise the oral (or written evidence) of the expert witness; and once the foreign law is before the Court, the Court is free to scrutinise the witness and what he says as it can on any other issue of fact. (4) If there is a clear decision of the highest foreign court on the issue of foreign law other evidence will carry little weight against it, see also Lord Sumner in Bankers and Shippers Ins Co of New York v. Liverpool Marine & General Ins Co (1926 24 Ll. Rep 85 (HL) at p.93.
Considerable weight is usually given to the decisions of foreign courts as evidence of foreign law ... But the court is not bound to apply a foreign decision if it is satisfied, as a result of all the evidence, that the decision does not accurately represent the foreign law. Where foreign decisions conflict, the court may be asked to decide between them, even though in the foreign country the question still remains to be authoritatively decided.
Russian law – the evidence and the issue
Russian law - common ground
Article 395. Liability for the non-performance of a monetary liability.
1. Use of someone else's monetary funds as a result of their unlawful withholding, refusal to return them, or other delays in their payments or unjustified receipts or savings at the expense of another person is subject to payment of interest on the amount of these funds…
…
3. Interest for using someone else's funds shall be charged through the day of payment of the amount of these funds to the creditor, unless the law, other legal acts or contract establishes a shorter time period for calculation of interest.
Article 307. Concept of an obligation and grounds for its emergence.
1. By virtue of an obligation, one person (debtor) is obligated to perform a certain action in favour of the other person (creditor), such as transfer property, perform work, pay money, etc., or to refrain from a certain action, and the creditor has the right to demand the performance of his responsibility from the debtor.
2. Obligations arise from contract, from causing harm and from other grounds specified in the present Code.
Article 8. Grounds for creation of civil rights and responsibilities [sources of obligations].
1. Civil rights and responsibilities arise on the grounds provided by law and by other legal acts, as well as from the actions of citizens and legal persons which, although not specified by law or similar acts, but due to the general principles and sense of civil legislation give rise to civil law rights and responsibilities.
In accordance with this, civil law rights and responsibilities arise:
(1) From contracts and other transactions provided by law, as well as from contracts and other transactions, which even though not provided for by law, do not contradict it.
(2) …
(3) From the judgment of a court which establishes legal rights and responsibilities.
Russian law - the cases
OJSC Kurba v. Slavneftstroy
… when establishing the moment from which interest on the specified amount should accrue, the court of cassation court assumed that this moment is the date when the arbitration [award] became [binding] on the parties in accordance with the provisions of the law on arbitration tribunals. However, [based on] Article 16(1) of the Arbitrazh Procedure Code of the Russian Federation, taking into account the position of the Constitutional Court of the Russian Federation and of the Supreme Arbitrazh Court of the Russian Federation, such interest may not accrue before the date that the ruling issuing a writ of execution for mandatory performance of the arbitration [award] came into force.
The interpretation of legal provisions contained in this judgment of the Presidium of the Supreme Arbitrazh Court of the Russian Federation is universally binding and shall be applied by arbitrazh courts reviewing similar cases.
Resolution 10-P
Therefore the subject matter considered by the Russian Federation Constitutional Court in this case consists of the provisions of Article 11(1) of the Russian Federation Civil Code, Article 1(2) of the Federal Law 'On Arbitral Tribunals in the Russian Federation,' Article 28 of the Federal Law 'On the State Registration of Real Estate Rights and Transactions,' Article 33(1) and Article 51 of the Federal Law 'On Mortgage (the Pledge of Real Estate),' [to the extent that] such provisions taken together, regulate the question of the authority of the arbitral tribunal's to hear civil law disputes concerning real estate (including in regard to a levy of execution pledged under a mortgage agreement) and of the state registration of real estate rights on the basis of [awards] issued on such disputes by arbitration tribunals.
This does not mean, however, that the Russian Federation Constitution thereby precludes the possibility that civil-law disputes may be resolved between private persons under arbitral proceedings through arbitral tribunals acting as institutions of civil society that are vested with publicly meaningful functions.
... in particular by filing an application for the quashing of a judgment of the arbitral tribunal or for the issuance of a writ of execution to enforce a judgment of the arbitral tribunal.
Under [the Federal law 'On Arbitral Tribunals in the Russian Federation'] an arbitral tribunal shall resolve disputes on the basis of the Russian Federation Constitution, laws and other regulatory legal acts in effect in the Russian Federation and shall issue a judgment in accordance with the terms and conditions of the contract and with due regard for customary business practices (article 6); arbitral proceedings shall be administered on the basis of the principle of legality, confidentiality, independence and impartiality of arbitral courts, discretion, adversarial procedure and equality of the parties (article 18); the judgments of an arbitral tribunal shall be implemented voluntarily; they may be challenged by filing an application with a competent court to quash the judgment, and may be reviewed by means of consideration of an application for enforcement of a judgment; enforcement of a judgment by an arbitral tribunal shall be imposed on the basis of a writ of execution issued by a competent court.
In the system of current legal regulation, judgments of arbitral tribunals not only create the obligation for participants in the arbitral proceedings to implement them but are also the basis for other parties to take certain legally significant actions.
For example, if a judgment by an arbitral tribunal, issued as a result of hearing a dispute concerning real property, has established rights to said property, the registration agency must take actions to execute their state registration …
Subsequent decisions
Conclusion on the Russian law issue
English law - the issue
(1) A claim for interest on the amount of the Awards (including principal, interest accrued up to the date of the Awards, and costs) from the various dates in 2006 that those sums fell due in accordance with the Awards until the date of payment (10 August 2010). This is claimed primarily under Article 395 of the Russian Civil Code; alternatively under s. 35A of the Senior Courts Acts 1981 (Period 1).
(2) A claim for interest not on the Awards but on the accrued Period 1 interest, from 11 August 2010 until judgment (Period 2). This Period 2 claim is (a) made exclusively under s. 35A and (b) only in the event that the claim for Period 1 interest succeeds by virtue of Article 395. If interest in respect of Period 1 is only available by virtue of s.35A (or not at all), then the Claimant makes no claim for Period 2 interest.
(1) Subject to rules of court, in proceedings (whenever instituted) before the High Court for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest ... on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and -
(a) in the case of any sum paid before judgment, the date of the payment ...
5.1 All disputes and differences arising out of or in connection with the present Agreement shall be settled by means of negotiations. Should the parties fail to come to an agreement by negotiations then such unsettled dispute shall be submitted to the International Commercial Arbitration Court at the Chamber of trade and Industry of the [Russian Federation] in accordance with its rules and procedures. The argument shall be considered in the Russian language, and the laws of the Russian Federation shall be applicable at the settlement of dispute.
The Plaintiff's request to compel the Defendant to pay interest on the amounts payable in favour of the Plaintiff, up to the date of the actual payment of these amounts, cannot be considered by the ICAC, since the request implicates - as it does in all other cases concerning material demands - an advance payment of the arbitration fees - [a] thing that has not been done in this case.
The parties, it has to be assumed, have deliberately agreed to give jurisdiction to an arbitrator to decide on the rate of interest, including interest for the period between the award and payment of the amount awarded. The arbitrator has so decided. His decision, to revert to a point which we have decided in [the claimant's] favour in an earlier part of the case, is not merely 'provisional'. It is conclusive. In this international arbitration award, the governing law of which, in general, is Indian law, an English Court, even if it had a discretion to do so, ought not to do something which, in effect, would be to substitute its own decision for the arbitrator's decision on a matter within the arbitrator's jurisdiction. No sophistry or subtlety of phrasing can alter the reality. If the English Court were to do what [the claimant] asks it to do, it would be altering the arbitrator's decision on a matter which, for good or for ill, the parties by their arbitral agreement have left for him to decide.
I do not see how the defendants can be under two concurrent liabilities for different rates of interest at the same time. I cannot alter the awards, or get rid of the rates of interest for which they provide 'until actual payment.' In these circumstances I do not see how the defendants can also be subjected to a concurrent obligation to pay a commercial rate of interest from some date when they failed to honour the awards 'without delay.'
Conclusion
(1) There is no principle of ex nihilo nil fit in English law such as to prevent the English court giving effect to the Awards in the circumstances set out in the Re³-Amended Reply.
(2)(a) Interest on the Awards cannot be recovered as a matter of Russian law under Article 395 of the Civil Code of the Russian Federation, prior to the date on which an exequatur takes legal effect.
(2)(b) Interest on the sums claimed in the English proceedings can be recovered under s.35A of the Senior Courts Act 1981, in principle. Whether it should be awarded as a matter of discretion is for later determination.