The Court of Appeal (Rix, Longmore and Davis LJJ) gave a unanimous judgment on 27 June 2012 allowing in part Rosneft’s appeal on two preliminary issues in a case concerning the enforcement by Yukos Capital of Russian arbitral awards which have previously been set aside by the courts of Russia (the seat of the arbitration).
The first preliminary issue concerned the scope of the act of state doctrine, which precludes an English court from sitting in judgment on acts of a foreign state within its territory. The issue arose because of Yukos Capital’s contention that the Russian state, through its tax authorities and courts, had pursued an unlawful conspiracy to destroy Yukos Oil Company. Rosneft contended that this allegation was barred by the act of state doctrine. At first instance, Hamblen J had held that the act of state doctrine applied only where a litigant was challenging the validity or effectiveness of a foreign act of state, but not where the act of state was alleged to be unlawful, wrongful or improper. In a landmark judgment, the Court of Appeal unanimously disagreed, holding that the doctrine extended to questions of unlawfulness and wrongfulness. However, the Court of Appeal held for the first time that the act of state doctrine does not prevent examination of the substantial justice available in the courts of foreign jurisdictions, on the ground that court decisions do not constitute acts of state for the purposes of the doctrine. Cogent evidence will, nevertheless, be required for any allegation that a foreign court should not be recognised because of a failure of substantial justice. The Court further held that, while tax assessments were probably executive or administrative acts, they function within a tax code which is designed to operate according to law and subject to judicial rulings, and so were to be treated as within the judicial sphere for the purposes of the act of state doctrine.
The second preliminary issue concerned issue estoppel, namely the effect of a decision of the Dutch courts in earlier enforcement proceedings holding the annulment decisions of the Russian courts to be “partial and dependent”, i.e. not impartial and not independent. Yukos Capital contended that the Dutch court’s decision created an issue estoppel binding on Rosneft in the English proceedings. Hamblen J had accepted this contention, but the Court of Appeal unanimously reversed it, holding that the Dutch court’s decision, being guided by considerations of Dutch public order rather than English public policy, was not on the same issue as would arise in England. The Court further indicated that it would have been inclined to invoke the special circumstances discretion laid down in Arnold v National Westminster Bank [1991] 2 AC 93 on the grounds that it would be an abdication of responsibility for the English court to defer to the decision of a foreign court on the question whether to withhold recognition of the decision of the courts of a third country.
Lord Grabiner QC and Conall Patton acted for Rosneft on the appeal, instructed by Travers Smith LLP.
Read the full text of the judgment.