The best seat in the house?

English Commercial Court considers enforcement of arbitration awards set aside in the seat

In Maximov v Open Joint Stock Co 'Novolipetsky Metallurgichesky Kombinat' [2017] EWHC 1911 (Comm), the English Commercial Court refused to enforce an arbitral award that had been set aside by the courts in the seat of the arbitration – Russia – despite levelling 'severe criticism' against the Russian court's decision, which it said was 'flawed' and based on 'fragile reasoning'.

The judgment confirmed that a party seeking enforcement of an award set aside in the seat bears a 'heavy burden' of showing that the conclusions of the foreign court are 'so perverse … that they could not have been arrived at in good faith or otherwise than by bias'.

Background

Nikolay Maximov, the Russian billionaire, entered into a share purchase agreement (SPA) with steel producer NMLK in 2008. A dispute arose over the calculation of the purchase price. Following an arbitration in Russia, the Moscow International Commercial Arbitration Court (ICAC) awarded Maximov 8.9 billion roubles (approximately £115m), which it calculated to be the outstanding share purchase price, plus interest.

NMLK sought to have the award set aside by the Moscow Arbitrazh (Commercial Court), which granted its application, finding that:

  • two members of the ICAC panel had failed to disclose links to expert witnesses in the arbitration (the non-disclosure ground)
  • the ICAC's calculation of damages breached the Russian Civil Code and, as such, offended public policy (the public policy ground)
  • the claim itself was not arbitrable, as matters involving sales of shares were within the jurisdiction of the commercial courts (the arbitrability ground).

NMLK also applied for a declaration that the SPA had been procured by fraud; but this was not upheld.  Permission to appeal to the Russian Supreme Court was refused.

Enforcement proceedings

Despite the decision of the Russian court, Mr Maximov sought to enforce the award in France (where it was recognised and enforced) and the Netherlands (where enforcement was refused). He then commenced enforcement proceedings before the English Commercial Court.

Mr Maximov argued that the award should be enforced on the basis that the Russian court's decision had been 'perverse'; he also invited the English court to ascribe the decision to bias. The Commercial Court reached the following conclusions:

  • the Russian court's decision on the non-disclosure ground was 'unsupportable'
  • the allegation regarding public policy was 'hopeless'
  • the judgment on the arbitrability ground was not supported by any material judicial authority, certainly none in relation to a similar case.

Despite noting the 'perverse nature' of the Russian court's judgment, the Commercial Court did not consider the judgment to reach the high threshold of being 'so perverse … that [it] could not have been arrived at in good faith or otherwise than by bias' and, consequently, it declined to enforce the award. 

Comment

The judgment is a reminder to parties to consider carefully the seat of their arbitration and, if there are concerns, to select an entirely neutral location. Mr Maximov had raised the 'very influential position' of the majority shareholder of NMLK within the Russian government, and had put forward expert evidence relating to alleged 'favouritism' on the part of the Russian courts in political cases. Such considerations would have made London or Paris more suitable seats for an arbitration, although parties do not always have the bargaining power to demand this.

The decision also highlights the differing approaches taken across Europe to enforcement of judgments which have been set aside in the seat. The discretion left to national courts by the New York Convention leaves the door open to different conclusions in different countries. Where enforcement in multiple jurisdictions is an option, parties would be well advised to consider the different tests applied by the courts in those jurisdictions to determine where enforcement will most likely be granted. 

If you would like to discuss any issues arising from this article please contact Garbhan Shanks at garbhan.shanks@michelmores.com or Harriet Chopra at harriet.chopra@michelmores.com.