English Commercial Court Rejects Russia's Public Policy Objections In Latest Yukos Enforcement Decision, Upholding US$50bn Awards

In the latest instalment of the Yukos saga, a case that has spanned over a decade and generated litigation across multiple jurisdictions, the English Commercial Court has granted leave to enforce three UNCITRAL arbitration awards against Russia worth over US$ 50 billion (plus compound interest). The Court did, however, decline to enforce the costs element of the awards.

This judgment confirms the English Court's pro‑enforcement approach and provides a detailed analysis of the public policy exception in s103(3) of the English Arbitration Act 1996 (the Act). It also considers the extent to which a party may re‑run allegations at the enforcement stage that were already raised—and decided—before the arbitral tribunal. Making clear that the judgment involved no moral assessment of the parties, Mr Justice Bright observed that the provisions implementing the New York Convention "can be relied on by sinners no less than by saints".

Background

The background is summarised in our original post reporting on the outcome of the underlying arbitrations back in 2014 (see here).

This was the trial of preliminary issues concerning the Claimants' (Hulley, Yukos Universal Limited (or Yukos) and Veteran, referred to collectively as HVY) application to enforce three arbitration awards (the Final Awards) against Russia. It proceeded on the basis of assumed facts, which HVY will have the opportunity to challenge at trial if necessary.

Russia resisted enforcement under s103(3) of the Act, which provides that recognition or enforcement of an award "may…be refused if the award is in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to recognise or enforce the award". 

Russia's raised two types of public policy objection:

1. The "Yukos Allegations": These related to historic conduct and events relating to the subject-matter of the arbitrations and were a series of allegations about the acquisition and operation of Yukos, including that Yukos was operated illegally through fraudulent tax evasion schemes. These arguments overlapped with arguments that had been raised in the arbitration proceedings. 
2. The "Fraud Allegations": These were objections founded on conduct and events that occurred during the course of the arbitration proceedings.Russia alleged that HVY had intentionally concealed documents from Russia and the Tribunal and that HVY had made improper payments to a witness.

General Principles on the Public Policy Exception

The Court reaffirmed that English law strongly favours the enforcement of New York Convention awards, and that the threshold for a public policy objection to succeed is high. The grounds for refusing enforcement are to be construed narrowly and the burden is on the party resisting enforcement to establish that one of the exceptions applies. Russia had to establish that enforcement of the Final Awards would be contrary to the public policy of England and Wales. Even if it did make out its public policy objection, the Court nonetheless had discretion as to whether to refuse or allow enforcement. The Court also noted that it is bound by the findings of fact and law made by the Tribunal (in the absence of fraud or vitiating factors). 

On the Yukos Allegations, the question was whether the enforcement of the awards—not the underlying subject-matter—would offend English public policy. The Court emphasised that where a tribunal has found the contract legal under its proper law but it would be affected by illegality under English law, enforcement of an award can only be refused if the English illegality reflects "international public policy" rather than purely domestic public policy. In terms of defining "international public policy", the judge referred to recent case law and referred to the concept of "universal principles of morality" (see for example Alexander Brothers Ltd v Alstom Transport SA  [2020] EWHC 1584 (Comm), at [157]-[158]). Although allegations of fraud and corruption arise most frequently, this would include other "universally-condemned international activities" such as terrorism, drug-trafficking, prostitution and paedophilia. Importantly, the judge stressed that the Court will only consider enforcement to be contrary to public policy if the degree of connection between the fraud/corruption and award is sufficiently great to justify this (see RBRG Trading Ltd v Sinocore International Co. Ltd.  [2018] EWCA Civ 838). 

On the Fraud Allegations, the Court recognised that where an award has been obtained by fraud or other means contrary to public policy, this is a basis for invoking s103(3) of the Act, as the rules of international public policy are engaged. The Court clarified that the conduct in question must be fraud, in the sense of dishonest conduct intended to mislead, and that this can include dishonest omissions (see for example Gater Assets v Nak Naftogaz Ukrainiy (No. 2) [2008] EWHC 237 (Comm)). The Court also commented that there should be a requirement that substantial injustice has been caused in order for public policy concerns to be engaged. In setting out this test, the judge acknowledged that he was borrowing from the words of s68 of the Act (though the same words do not appear in s103). Indeed, where substantial injustice has been caused, there is likely to be a strong public policy interest against enforcement. The alleged misconduct must also have a sufficiently close "degree of connection" with the award. 

The Yukos Allegations

Russia's case was that the Yukos shareholdings were stolen from the Russian people, and that HVY's acquisition of the relevant shareholdings—even if legal in itself (as the Tribunal had found)—was an attempt to conceal and launder the criminal origins. The Court distinguished between a contract to bribe or commit illegality and a contract procured by bribery or resulting from illegality. On the facts, this case fell into the latter category and did not justify refusing enforcement. Russia was also precluded from raising its allegations regarding HVY's acquisition of its shares in Yukos on the basis of the Henderson v Henderson principle – either Russia had relied on these points but the Tribunal found that they had not been violated, or alternatively Russia did not rely on these points but should have done so.

The Fraud Allegations

Russia alleged misconduct in relation to Yukos's tax affairs, but the Court concluded that Russia had not raised in its pleadings any allegations beyond that on which the Tribunal had already ruled. Russia had not made it clear in its pleadings that the Tribunal should have gone further. Although Russia sought to argue that the Tribunal's finding of misconduct was capable of rendering enforcement of the Awards contrary to public policy, the Court noted that the Tribunal had already reduced the Awards by 25% to reflect this "contributory fault", such that enforcement would not compensate or reward HVY in respect of fraudulent tax evasion. 

Russia also alleged that HVY had intentionally and unlawfully concealed documents from it and the Tribunal. Russia argued that if the Tribunal had known about these documents, it would have concluded that HVY were owned and controlled by the Russian Individuals, that there was a close connection between the Russian Individuals and HVY and that the HVY acquisition was itself illegal or in bad faith. Russia argued that the claim was inadmissible and/or HVY was at contributory fault for all or most of their loss. However ultimately the Court held that the issue of the control that the Russian Individuals exercised over HVY was not relevant to the outcome of the arbitrations, except as to the Tribunal's discretionary decision on costs. The Court held that the award of US $50 million on costs would not have been made had the Tribunal known that Hulley had intentionally and dishonestly concealed disclosable documents, and that this would cause substantial injustice. On this basis, the Court did not recognise or enforce the Tribunal's award on costs and interest on costs.

Finally, Russia alleged that HVY had dishonestly bribed a witness to give favourable testimony. However, Russia had not pleaded in its defence that this testimony was untruthful. Although it sought to advance untruthfulness in its oral submissions, the Court found that it was not open to Russia to do this (save on one small point, which was not relevant to the outcome of the arbitrations). In any event, the Court found that the witness in question gave his bona fide opinion, which happened to be correct. Russia also alleged that a payment made to this witness was wrongful under English law, Dutch law and/or international arbitration rules, but this too was rejected.

Accordingly, the Court found that HVY were entitled to judgment against Russia in respect of damages of over USD$50 billion plus compound interest awarded on those damages, which had accrued since July 2014. The only exception was the award on costs, which the Court refused to enforce.

Comment

This decision reinforces the narrow scope of the public policy objection under s103(3), and the high threshold required to resist enforcement of New York Convention awards, even in cases involving politically sensitive allegations. It also highlights the English courts' reluctance to allow parties to recast or expand arguments already put before the tribunal. 

The Court's analysis of the Yukos Allegations underscores the distinction between unlawful contracts and contracts procured by bribery or resulting from illegality. It also confirms the circumstances in which the Court can look at considerations of "international public policy" in addition to principles of English public policy. 

The Court's refusal to enforce the award of costs demonstrates that public policy arguments may succeed where the alleged wrong would have affected the outcome. However, it also illustrates the limits of such objections given that the core damages award was left untouched and costs represented a small fraction of the total amount awarded. 

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