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Stati v Kazakhstan [2017] EWHC 1348 (Comm)
The English Commercial Court (the ‘English Court’) has granted the Republic of Kazakhstan (‘RoK’) permission to amend its application to set aside permission to enforce a Swedish arbitral award to include allegations of fraud, notwithstanding contrary decisions by the Swedish and US courts.
The subject matter in the arbitration, which was instituted pursuant to the Energy Charter Treaty (ECT), concerned the development and construction of a liquefied petroleum gas plant in Kazakhstan (LPG Plant), in which Anatolie Stati et al. (Stati) claimed to have invested in excess of US$245m. In Swedish arbitral proceedings, RoK was found to have breached the ECT causing a delay and ultimately the failure to complete the LPG Plant. RoK was ordered to pay Stati damages in excess of US$500m.
Stati applied to enforce the Award in the US and English courts and permission was initially granted by the English courts. In the meantime, RoK applied to the Svea Court of Appeal in Sweden to have the Award set aside. During the course of the US proceedings, RoK obtained evidence which it said showed that Stati had fraudulently overstated the amount of its investment in the LPG Plant.
Ultimately the Swedish Court of Appeal declined to set aside the Award and the US court refused to allow RoK to allege fraud in the enforcement proceedings.
The question before the English court was whether RoK should be allowed to amend its application to set aside permission to enforce, to include the allegations of fraud.
The general approach, noted by the English court, was that enforcement of a New York Convention Award should only be refused in limited circumstances. One of those circumstances is where enforcement would be contrary to public policy (section 103(3) of the Arbitration Act 1996).
The court confirmed that the public policy in question was confined to the public policy of England. It noted that for an English court to permit a party to pursue to a trial of the issues an allegation that a New York Convention award was obtained by fraud, two conditions must be fulfilled:
Knowles J stressed that he accorded ‘the greatest respect’ to both the Swedish and US courts but noted that neither court had decided the question of whether the alleged fraud had occurred, nor could either court have decided whether enforcement of the award would be contrary to English concepts of public policy.
The court found that the decisions of the Swedish and US courts did not therefore create an estoppel. Further, new evidence had been obtained since the Award and there was a prima facie case that the Award had been obtained by fraud. RoK’s application was allowed.
The judgment provides a useful summary of the English courts’ approach to enforcement of arbitration awards and challenges based on public policy grounds. It confirms the English courts’ general ‘pre-disposition to favour enforcement of New York Convention Awards‘. The English courts have previously made it clear that the principle that arbitration awards are final and should not be reopened is itself a matter of public policy, so it has been said:
“The court is in this instance performing a balancing exercise between the competing public policies of finality and illegality.” (Westacre v Jugoimport [2000] Q.B. 288)
The crucial factor for RoK was that the evidence of fraud had only been obtained after the Swedish arbitral proceedings. In those circumstances, and where there was a prima facie case of fraud, Knowles J said:
“It will do nothing for the integrity of arbitration as a process or its supervision by the Courts, or the New York Convention, or for the enforcement of arbitration awards in various countries, if the fraud allegations in the present case are not examined at a trial and decided on their merits…”
The case is also a reminder for arbitrating parties that public policy may vary between jurisdictions and enforcement of an award in one state or country does not necessarily mean that the same Award will be enforced in another.