Anatolie Stati, Gabriel Stat, Ascom Group S.A., Terra Raf Trans Traiding Limited v The Republic of Kazakhstan

England and Wales Court of Appeal (Civil Division)
Lord Justice Patten, Lord Justice David Richards and Lord Justice Leggatt
10 August 2018, 28 May 2018

Civil Procedure – Arbitration – Arbitration Act 1996 – enforcement of award against assets located within the jurisdiction of the English court – application to set aside enforcement of arbitration award based on fraud allegation – notice of discontinuance of the enforcement proceedings – whether the fraud claim was an independent claim – the correct approach to applications under CPR 38.4 – whether the State had a legitimate interest in a continuaton of the proceedings – whether there was fraud on the English court.

The Appellants were known as Anatolie Stati, Gabriel Stat, Ascom Group S.A., Terra Raf Trans Traiding Limited.

The Respondent was known as The Republic of Kazakhstan. 

This appeal case was against an order made by Robin Knowles J in May 2018 whereby he set aside a notice of discontinuance filed by the Appellants as claimants in proceedings under section 101 of the Arbitration Act 1996 to enforce a New York Convention award in England and Wales. He directed that the allegations made by the Respondent of fraud by the Appellants in respect of the award should proceed to trial. Knowles J concluded that the State had a legitimate interest in a continuation of the proceedings.

The dispute was between the parties related to investments in Kazakhstan. The arbitration had been instituted in Sweden pursuant to the Energy Charter Treaty. The award was made in December 2013. The Respondent (the State) was ordered to pay damages in excess of US$500 million to the Appellants (the claimants). The arbitral tribunal found that the claimants' companies in Kazakhstan and their businesses had been the subject of "a string of measures of a coordinated harassment by various institutions" of the State, ultimately to the seizure of the claimants' investments. The tribunal held that this amounted to a breach of the obligation to treat investors fairly and equitably as required by the Treaty.

The damages awarded to the claimants by the tribunal included a sum of US$199 million in respect of the loss of a nearly-completed liquified petroleum gas plant in Kazakhstan.

The issues involved: (1) whether the fraud claim was an independent claim; (2) the correct approach to applications under CPR 38.4; (3) whether the State had a legitimate interest in a continuaton of the proceeding; and (4) whether there was fraud on the English court.

Held, appeal allowed, that the enforcement order was set aside:

  • The Judge’s order was doing no more than giving case management directions for the disposal of the allegation of fraud made by the State which, if well-founded, would arguably provide a basis in English public policy for not enforcing the award in this jurisdiction.
  • If it had been intended to create a separate proceeding or a counterclaim, clear words would have been required and would have been used. The fraud claim was a defence to the enforcement claim.
  • The right of a claimant to discontinue was subject to the need to obtain the permission of the court in certain cases not relevant to the present appeal and the right under Civil Procedure Rule 38.4 of a defendant to apply to have the notice of discontinuance set aside.
  • The discretion conferred by CPR 38.4 was not confined to cases of abuse of process or collateral tactical advantage. It was a discretion expressed in general, unqualified terms and there was no ground for limiting it by reference to implied gateways or restrictions. It was a judicial discretion to be exercised by reference to the relevant circumstances of the particular case and the application of consistent principles.
  • A claimant was entitled to serve a notice of discontinuance which will have the effect of discontinuing a claim without any order, unless a defendant applies to set the notice aside, in which case the burden lies on the defendant to satisfy the court that it should be set aside.
  • The only purpose of the claimants' proceedings was to enforce the award against assets of the State located within the jurisdiction of the English court. The only purpose of the case of fraud raised by the State was to defend those proceedings and set aside the enforcement order. There was otherwise no connection with this jurisdiction. The parties are foreign, their dispute relates to investments in Kazakhstan, the arbitration was held in Sweden and was subject to the supervision of the Swedish courts in accordance with Swedish law, and the law applicable to the parties' dispute was not English law.
  • The judge was wrong to conclude that the State had a legitimate interest in seeking to have the enforcement order set aside "on the merits". Once that order was set aside, there was no continuing interest on the part of the State to justify a trial of the fraud issue in the English courts.
  • This appeal was not put forward on the basis that there was material non-disclosure on the application without notice for the enforcement order. The claimants had the benefit of an award which was valid under its curial law and which they were entitled to seek to enforce in other countries, including England. The State's allegations of fraud were insufficient to invalidate the award. They were therefore incapable of establishing that the original application was a "fraud on the English court". In the present case, where the Swedish court had ruled that the State's allegations do not invalidate the award, enforcement in Sweden was clearly not a fraud on the court, and it was difficult to see how it could nonetheless be so in England.

Accordingly, the appeal was allowed, and the enforcement order was set aside.