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Commercial court decision "shows willingness" of English courts to enforce arbitration awards set aside by Russian courts

The Commercial Court in England has upheld awards made against the Russian-state owned energy company Rosneft by a Russian arbitration, even though those awards had been set aside by a court in Moscow.

Mr Justice Simon had considered the validity of the award as part of a claim by Yukos Capital, on behalf of the former Russian oil company, for interest due between the date that the awards were originally made and when they were eventually paid. The sums in dispute were awarded in September 2006 but, in May 2007, the Moscow 'Arbitrazh' Court annulled them. In April 2009, Yukos was given leave to enforce the awards by the Amsterdam Appeal Court and the sums were eventually paid in 2010.

In his ruling, Mr Justice Simon said that the principle of 'ex nihilo nil fit', meaning "nothing comes of nothing", did not exist in English law. Rosneft had tried to argue that as the awards no longer existed in a legal sense, Yukos could not treat them as valid and binding.

"In my judgment the answer to the question is not provided by a theory of legal philosophy but by a test: whether the court in considering whether to give effect to an award can (in particular and identifiable circumstances) treat it as having legal effect notwithstanding a later order of a court annulling the award," he said.

"In applying this test it would be both unsatisfactory and contrary to principle if the court were bound to recognise a decision of a foreign court which offended against basic principles of honest, natural justice and domestic concepts of public policy," he said.

He went on to find that interest on the awards could not be recovered under the Russian Civil Code as a matter of Russian law. However, interest on the sums claimed in the immediate litigation could be recovered in the English courts in principle, under the 1981 Senior Courts Act, he said.

John Gilbert, an expert in energy disputes at Pinsent Masons, the law firm behind Out-Law.com, said that the judge's approach "may be seen as contributing to the delocalisation of arbitration – that is, that it operates outside the domestic regime of the location of the seat of the arbitration".

"This is another step in the long-running dispute between Yukos and Rosneft, in which both the English and Dutch courts have shown their willingness to enforce awards despite the Russian courts having set those awards aside," he said.

"From a practical perspective, this decision highlights the value of including arbitration agreements in contracts with Russian counterparties which have assets outside Russia. Even if the seat of the arbitration is in Russia so that the Russian courts may hear challenges to the award, the courts of other states may well be prepared to enforce awards that are set aside by the Russian courts," he said.

The former Yukos Oil Company was bankrupted in 2003 as a result of a series of tax claims issued by the Russian government. On liquidation, state-owned companies Rosneft and Gazprom received the vast majority of its assets. A number of court cases are currently underway between Yukos itself and Rosneft, and between former shareholders of Yukos and the Russian government.

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