English court allows challenge to New York Convention award based on contravention of public policy arising from fraud
In Stati v Kazakhstan  EWHC 1348 (Comm), the High Court allowed an allegation that a New York Convention award had been obtained by fraud to proceed to trial, even where the award had already been upheld in the jurisdiction in which it was rendered.
In December 2013, an arbitral tribunal seated in Sweden awarded the Claimants, Moldovan father-and-son investors Anatolie and Gabriel Stati and their companies, damages of US$506 million for breaches by Kazakhstan (the Respondent) of the Energy Charter Treaty involving the seizure of the Claimants’ oil and gas operations in Kazakhstan.
In February 2014, the Claimants were granted permission to enforce the award, which fell within the New York Convention, in England and Wales. In September 2014, the Claimants also applied to enforce the award in the US.
Meanwhile, the Respondent applied to the Swedish Court of Appeal to set aside the award. It also applied to the English court to set aside the permission to enforce the award in England, relying on a number of grounds (the “English Application”).
Shortly thereafter, through a US procedural application, the Respondent obtained documents which it alleged proved fraud on the part of the Claimants in obtaining the arbitral award. Shortly put, it was alleged that these showed that the Claimants inflated the value of one of their Kazakh plants upon which the tribunal had assessed damages.
In September 2015, the English court stayed the set aside application pending a decision of the Swedish court. In May 2016, the US court refused a motion by the Respondent to amend its defence to enforcement to make reference to the alleged fraud, although in doing so it observed that having reviewed the award it did not think that the tribunal had relied on the allegedly fraudulent evidence. Finally, in December 2016, the Swedish court dismissed the Respondent’s application to set aside the award, the issue of the alleged fraud having been put before it. Returning to the English proceedings, the Respondent accepted that the decision of the Swedish court precluded it from pursuing a number of points it originally relied upon but it requested that the English court allow the allegation of fraud, and any consequent contravention of English public policy, to proceed to a full trial.
The English Application
On 6 June 2017, Knowles J handed down his judgment as to whether these matters should be allowed to proceed to trial in England.
Knowles J began by making a number of observations concerning challenges to New York Convention Awards in England on the basis of public policy. These included the observations that Section 103 of the Arbitration Act 1996 sets out limited grounds on which enforcement of New York Convention awards can be refused, including where enforcement would be contrary to public policy (section 103(3)). However, English courts must exercise extreme caution when invited to set aside an award on grounds of public policy, and section 103 embodies a pre-disposition towards respecting and enforcing New York Convention awards rendered in other jurisdictions (IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation  EWHC 726 (Comm)). There were also certain conditions to be fulfilled before the English court would permit trial of allegations that a New York Convention award was obtained by fraud.
In this case, and despite the Swedish court upholding the award, Knowles J accepted that the allegations of fraud should proceed to trial.
Knowles J concluded that there was sufficient prima facie evidence of fraud by the Claimants (by withholding documents), and that there was sufficient evidence that the fraud would have made a difference to the tribunal in making its award.
Knowles J further held that he was not estopped from considering the fraud issue by the US and Swedish court decisions. He found that the US court did not decide the question whether the alleged fraud had actually occurred. With respect to the Swedish decision, he found that, whilst the Swedish court concluded the withholding of evidence had not had a direct impact on the tribunal’s ruling, it did not conclude on whether it had had an indirect impact. Moreover, public policy differs from country to country, and the Swedish court had ruled on Swedish public policy; not English public policy. Whether an award contravenes English public policy is, Knowles J held, ultimately a matter for the English courts.
This is an example of a case in which the English court will go on to consider refusal of the enforcement of a New York Convention award on grounds of public policy, even where the award has been upheld in the jurisdiction in which it was rendered. In permitting this, the English court found that there was no issue estoppel which arose from either the US or Swedish judgments. In the public policy context, that can be a situation which arises given the differing views that different jurisdictions may take on the topic. Thus, in that context, a party seeking to enforce an award in more than one jurisdiction might find itself facing challenges which need to be tried in more than one court, and which ultimately may lead to different results being obtained in different jurisdictions.