Chasing assets – the importance of the enforcing state

18 Дек

Недавнее решение английского суда (27.06.2012) пролило свет на важные правовые отношения, например, на исполнение арбитражного решения. Кроме того, английский суд продемонстрировал возможность успешного исполнения решения арбитража, принятого в иной юрисдикции, даже если оно было отменено государственным судом. Более того, в решении английского суда была подчеркнута важность законодательства страны, где исполняется решение арбитража, а также признание независимости арбитража.

The enforceability of an arbitral award is critical to the effectiveness of arbitration. It is the law of the enforcing state (often different to the law of the seat of arbitration) which will determine whether an award can be successfully enforced against target assets. This important point is sometimes overlooked when negotiating the terms of an arbitration agreement.

The long-standing dispute between Yukos Capital SARL (“Yukos”) and OJSC Rosneft Oil Company (“Rosneft”) has shone the spotlight on enforcement of arbitral awards. It demonstrates how an award obtained in one jurisdiction can be successfully enforced in another, despite having been annulled by the courts of the seat. The latest judgment in the dispute, from the English Court of the Appeal (27 June 2012), also considered the “Act of State” doctrine in detail and assessed what constitutes foreign issue estoppel. More generally, the decision highlights the importance of the laws of the enforcing state and increasing recognition for the independence of arbitration.

Background

Yukos obtained ICC arbitration awards against Rosneft, a Russian government-controlled entity, in relation to sums due under loan agreements. It began enforcement proceedings under the New York Convention in Amsterdam, where Rosneft’s assets were located. Shortly thereafter, Rosneft obtained an order from the Russian Arbitrazh court for the awards to be annulled.

The Dutch Courts initially refused to enforce the awards on the ground that they had been annulled in Russia. Eventually however, the Amsterdam Court of Appeal refused to recognise the annulment and gave Yukos leave to enforce. This was because the appellate court found that the Russian annulment decisions resulted from a partial and dependent judicial process (that is, not impartial and not independent).

Yukos then obtained payment of the award in full, except that Rosneft did not pay interest. Subsequently, Yukos brought proceedings against Rosneft in the English Commercial Court, seeking permission to enforce the awards under the English Arbitration Act 1996 and bringing a claim for the amount awarded as debt and/or damages, with post award interest (totalling US$160 million), pursuant to article 395 of the Russian Civil Code and/or section 35A of the Senior Courts Act 1981.

Two preliminary issues were to be decided by the Commercial Court:

  1. Following the Amsterdam Court of Appeal’s judgment, did issue estoppel prevent Rosneft from denying that the Russian annulments resulted from a partial and dependent judicial process?
  2. If not, did the Act of State doctrine or the non-justiciability principle prevent Yukos from establishing that the Russian annulments decisions resulted from a partial and dependent judicial process? (The Act of State doctrine provides that an English Court will not adjudicate on the validity or lawfulness of acts by a foreign sovereign state within the limits of its own territory. )

The Commercial Court held that there was an issue estoppel on the question of Russian judicial bias, and also that the Act of State doctrine did not apply. Rosneft appealed. In a unanimous judgment dated 27 June 2012, the English Court of Appeal allowed Rosneft’s appeal in part.

Foreign issue estoppel

Yukos argued that the decision of the Amsterdam Court of Appeal created an issue estoppel in relation to the annulment decisions by the Russian Court. Rosneft disagreed, arguing that the issue should also be decided by the English Court according to English laws of enforcement and in particular, public policy principles.

The Court of Appeal agreed with Rosneft because public policy was typically different in each country. The principles used to determine whether the Russian courts were partial and dependant may vary considerably from country to country.
English public policy requires specific examples of partiality before a decision not to recognise the judgment of a foreign state can be made. Therefore, Rosneft was not estopped from claiming in the English Courts that the Russian Court decisions were impartial. The bias allegation against the Russian Courts will now be heard in the English enforcement proceedings.

Act of State doctrine and its limitations

After a detailed analysis of the law, the Court of Appeal concluded that an English Court is not prevented by operation of the Act of State doctrine from considering whether there has been a substantial injustice in a foreign court. Judicial acts are generally not regarded as acts of the state for the purposes of the Act of State doctrine. The principle of comity cautions that judicial acts of a foreign state should not be challenged without cogent evidence.

Arbitration theory

The English Court of Appeal’s decision demonstrates that an enforcing state will generally approach the question of enforcement by reference to its own laws, without much deference to other national legal systems. It also contributes to the ongoing debate amongst arbitration theorists as to the relationship between the enforcing state and the seat state.

There are two competing theories about this relationship. The delocalised or ‘separate legal order’ theory, popular amongst French scholars, recognises arbitration as a dispute resolution system in its own right, independent from national legal systems except at certain points in the arbitral process. The parties’ consent to arbitration is fundamental, and the role of seat state is less significant. The derogation theory argues that arbitration is only given life by virtue of a national legal system. The parties only participate in the arbitration process in clearly prescribed procedural circumstances. Greater significance is therefore placed on the laws of the seat and the supervisory role of the seat state.

In its finding that an arbitration award should not be subject to clear partiality of the courts of the seat, the Dutch Court’s decision in Yukoseffectively supports the separate legal order theory and the independence of the arbitration process. This may appear controversial given both that the parties chose the courts of the seat to govern the procedure of the arbitration and that one of the grounds for refusing enforcement under the New York Convention is that an award has been set aside by a competent authority of the country where the award was made (Article V.1(e)). However, in circumstances where there is cogent evidence of corruption or partiality by the courts of the seat, an enforcing state will be reluctant to dismiss an enforcement application, preferring to uphold the decision of independent arbitrators.

In this ongoing dispute, the English Court must now reach its own decision, applying English law on enforcement by reference to its own public policy principles after hearing full argument and all evidence. Should it arrive at the same conclusion as the Dutch Court, this would confirm an increasing willingness by enforcing states to uphold the independence of the arbitration process.

Enforcement as a matter for national law – the New York Convention

The Yukos dispute clearly highlights the significance of the laws of the enforcing state. What is the significance of the New York Convention?

There are 147 state parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention. It is widely regarded as successful and effective. States incorporate it into national law by express reference or by relying heavily on its provisions in drafting relevant legislation. Under the Convention, enforcement may be refused (Article V.1) in certain instances, requiring proof:

  1. Incapacity/invalidity of arbitration agreement.
  2. No proper notice of arbitration.
  3. Matters decided outside scope of arbitration agreement.
  4. Arbitral tribunal/process not properly constituted/followed.
  5. The award is not yet binding or set aside/suspended.

There are also two discretionary grounds upon which an enforcing state may refuse enforcement under Article V.2:

  1. The subject matter of the difference/dispute is not capable of arbitration under the law of the enforcing state (ie. arbitrability).
  2. If contrary to public policy.

Some states, including France, have additional specific requirements.

The widespread adoption of the New York Convention does not guarantee uniformity of interpretation by the courts of enforcing states, particularly in respect of the discretionary grounds in Article V.2. For example, in Yukos, the English Court may come to a different view from the Dutch Court because it will approach the public policy issue by reference to its own laws and traditions.

Conclusion

The English Court of Appeal’s judgment in Yukos confirms that the Act of State doctrine does not apply to judicial acts, as well as providing guidance on foreign issue estoppel (which does not apply in this case). The bias allegation against the Russian courts will now be tried in the English enforcement proceedings. If, like the Dutch courts, the English courts give leave to enforce awards that have been set aside by the courts of the seat of arbitration, this would be significant.

Whilst the conflicting decisions in Yukos add to the interesting theoretical debates on arbitration, they will inevitably create unwelcome uncertainty in relation to enforcement. However, there may be some consistent threads to pull together: first, arbitration seems to be continuing to receive increased recognition in its own right; and second, the importance of the enforcing state should not be underestimated.

In respect of international commercial contracts containing an arbitration agreement, it is of course important and prudent to consider where a counterparty’s assets are located and whether it will be possible successfully to enforce an arbitration award in the jurisdiction of those assets. The earlier this assessment is made, the better.

Автор: Luke Zadkovich

Источник: http://www.hfw.com/publications/bulletins/international-arbitration-quarterly-november-2012/international-arbitration-quarterly-november-2012-chasing-assets-the-importance-of-the-enforcing-state

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