By William Grazebrook Associate, White & Case LLP
English court refuses enforcement of Russian award set aside at the seat of the arbitration
On 27 July 2017, the High Court of England and Wales refused to enforce an award which had been set aside at the seat of the arbitration in Russia. While the Court was highly critical of the grounds on which the award had been set aside in Russia, it held that the decision was not “so extreme and incorrect” that it could only have been procured through bias. The decision is a reminder of the difficulties a party will face in enforcing an award in England that has been set aside at the seat of the arbitration.
Background
Russian proceedings
In 2011, the Russian ICAC issued an award of 8.9 billion rubles in favour of Mr Nikolay Maximov, arising out of a dispute over the calculation of the purchase price under an SPA entered into in 2008 between Mr Maximov and global steel producer NLMK (the “Award”). The Award was subsequently set aside by Judge Shumilina in the Moscow Commercial Court on three grounds:
(i) Two of the ICAC arbitrators, Professors Zykin and Belykh, had failed to disclose that they held subordinate positions at the Russian Academy of Sciences and Ural State Law Academy, respectively, to two of the experts instructed by the claimant (the “Non-Disclosure Ground”);
(ii) The arbitrators’ method of quantifying damages breached Article 424 of the Russian Civil Code, rendering enforcement of the Award contrary to Russian public policy; (the “Public Policy Ground”); and
(iii) The claimant’s claim for the purchase price under the SPA was a non-arbitrable corporate dispute which under Russian law could only be brought in the Commercial Court (the “Non-Arbitrability Ground”).
An appeal court upheld the Commercial Court’s set-aside and Maximov was denied permission to appeal to Russia's Supreme Court.
Enforcement application in England
Following enforcement proceedings in France and the Netherlands, in 2017 Maximov applied to the High Court to enforce the Award in England.
Maximov sought to enforce the Award on the ground that the Moscow Commercial Court’s decisions were “perverse” and must on this basis have been procured through bias. Maximov also noted the influential position in Russia of NLMK’s owner, Mr Lisin, and provided evidence that a letter in support of NLMK from the offices of certain influential individuals had been placed before Judge Shumilina in the Commercial Court proceedings.
Decision
In the judgment of 27 July 2017, Burton J agreed with Maximov’s skepticism about the grounds on which the Award had been set aside, noting the “perverse nature of the Russian court’s conclusions”. Burton J held that the Non-Disclosure Ground relied on "an unsupportable conclusion that...non-disclosure could not be waived", while the Public Policy Ground was “hopeless”. The Non-Arbitrability Ground, Burton J held, was “adventurous, in the sense that there has been no or no material prior judicial decision in favour of it."
Furthermore, Burton J expressed his discomfort that two of the grounds given by Judge Shumilina for setting aside the Award had not even been raised by the parties during the hearing, noting that this could be a potential breach of Article 6 of the European Convention on Human Rights.
Nonetheless, Burton J dismissed Maximov’s application to enforce the Award. He held that it was not enough for the set-aside decision to be wrong or even manifestly wrong. For the Award to be enforced after having been set aside at the seat, the set-aside decisions would have to be "so extreme and incorrect as not to be open to a Russian court acting in good faith".
Burton J said he was “unpersuaded” that the set-aside decisions were “so extreme and perverse that they can only be ascribed to bias”. The harshness of Judge Shumilina’ s award on the “distinguished” ICAC arbitrators, he concluded, was indicative of the courts’ distrust of arbitration rather than of bias against Maximov.
Commentary
English approach
The decision demonstrates the strict approach of the English courts towards the enforcement of awards set aside at the seat of the arbitration. This strict approach is consistent with the requirements of the New York Convention and the majority of jurisprudence under it.
The English courts will not enforce an award that has been set aside at the seat simply on the basis that the set-aside decision is wrong, or even if it is “manifestly wrong”. Absent evidence of actual bias, the applicant must demonstrate that the set-aside decision is so extreme and perverse that it can only be ascribed to bias. Maximov v. NLMK demonstrates that in practice, this is a difficult test to satisfy.
The decision follows the general approach established in Yukos v. Rosneft, [1] where the court held that it would be unsatisfactory and contrary to principle if, when determining whether to enforce an award annulled at the seat, the court was bound to recognize a foreign set-aside decision which offended against basic principles of honesty, natural justice and domestic concepts of public policy.
Enforcement of the Award in France and the Netherlands
The decision also demonstrates the importance of selecting the most favorable jurisdiction for the purpose of enforcing an award that has been set aside at the seat.
The Dutch courts will take a similar approach to the English courts, usually refusing to enforce an award which has been set aside unless the applicant can show that the set-aside was the result of an unfair trial. On this basis, the Amsterdam Court of Appeal refused to enforce the Award in 2016, holding that there were not “sufficiently specific indications” that the setting aside procedure was unfair. The Court distinguished the facts from Yukos v. Rosneft, [2] where it had enforced an award set aside in Russia on the ground that the set-aside proceedings were biased and lacking independence.
The French approach, on the other hand, as established in the well-known Hilmarton case, is that the setting aside of an award at the seat of the arbitration is not in itself a valid basis for refusing enforcement of the award in France. On this basis, in 2014 the Paris Court of Appeal agreed that the Award should be enforced in favour of Maximov without inquiring into the Russian set-aside proceedings themselves.
The French courts will, however, assess whether there is any basis as a matter of French law or international public policy for not enforcing an award. Applying this public policy approach in Kyrgyz Republic v. Belokon [3], the Court of Appeal in Paris recently refused to enforce an award because the arbitral tribunal had failed to consider money laundering and corruption as the source of the investment.
This post is first published on Arbitration Association News Blog.
[1] Yukos Capital SARL v OJSC Rosneft Oil Company [2014] EWHC 2188 (Comm).
[2] Amsterdam Court of Appeal, 28 April 2009, case No. 200.005.269/01, LJN BI2451, JOR 2009/208, TvA 2010/5.
[3] Paris Court of Appeal, 21 February 2017, case No. 15/01650.
