English Commercial Court sets aside claimants' notice of discontinuance ordering that a trial must take place

"If this is an exceptional conclusion, this is an exceptional case" – English Commercial Court sets aside claimants' notice of discontinuance ordering that a trial must take place

In a rare judgment the English Commercial Court has exercised its power to set aside a notice of discontinuance, requiring a trial to proceed.

The Background

A US$500 million arbitration award was made in favour of the Claimants ("the Statis") against The Republic of Kazakhstan ("the State") in December 2013; the arbitration was seated in Sweden. In February 2014, the Statis commenced enforcement proceedings in the courts of England and Wales pursuant to sections 101 to 103 of the Arbitration Act 1998 (dealing with enforcement of New York Convention awards). Similar enforcement proceedings were brought elsewhere in the world which had resulted in attachment orders to the tune of US$28 billion.

As is usual in such cases, the enforcement application was made without notice to the State – it's permission to enforce was granted, with the State being given 21 days to apply to set aside the order.  The State did apply for the order to be set aside on the grounds that the arbitration award had been obtained by fraud.

For an English court to allow a party to pursue to a trial an allegation that a New York Convention Award was obtained by fraud, two conditions must be satisfied:

  1. Firstly, the evidence allegedly establishing the fraud must not have been available to the party alleging fraud at the time of the arbitration hearing; and
  2. Secondly, there must be a prima facie case of fraud.

In June 2017, following two days of argument, the High Court held that there was prima facie evidence of fraud and of fraud by the Statis on the original arbitral tribunal. The court was also satisfied that the State did not have access to, and could not reasonably have discovered, evidence of the fraud prior to the award. As such, the court ordered that the State's claim should proceed to trial as if commenced under Part 7 of the CPR.

A trial date was fixed for October 2018 and disclosure of documents was due to take place on 22 February 2018 but on that very day the Statis sought an extension of time, which was agreed by the State. Subsequently, the Statis served a notice of discontinuance. The State in response asked the court to exercise its power to set aside the notice of discontinuance to allow the trial to proceed. 

The Judgment

Mr Justice Robin Knowles CBE did not accept that Statis' explanation for wanting to discontinue the enforcement proceedings – that they did not have the resources to continue to trial and that the attachment orders secured in other jurisdictions meant that there was no practical need to continue in the English courts. Crucial to his reasoning on this point was the timing of the notice of discontinuance, which did not coincide with the various attachment orders obtained elsewhere, but which was made just shortly before the deadline for disclosure of documents. He therefore held that:

"the real reason for the notice of discontinuance is that the Statis do not wish to take the risk that the trial may lead to findings against them and in favour of the State."

The Judge then went on to consider the authorities on when the court should exercise its power to set aside a notice of discontinuance, noting that the court's approach should be to give effect to the overriding objective of dealing with cases justly and at proportionate cost. He also cited with approval a passage from the judgment in Sheltam Rail Co (Proprietar) Ltd v Mirambo Holdings Limited in which Aikens J said:

"A Court must … be entitled to consider both the circumstances in which the notice of discontinuance was issued and what the claimant is attempting to achieve by issuing and serving the notice."

Guided by these principles, the Judge ordered that the notice of discontinuance be set aside. 

Comment

This case clearly involved exceptional circumstances which are not likely to arise often in practice. Ordinarily where a claimant discontinues its claim this is accepted by the defendant on the basis that its costs are paid on the standard basis. Nevertheless, the judgment helpfully sets out the approach that will be adopted by the English courts where a notice of discontinuance is contested.

The judgment is also a rare example of the English courts declining to enforce a New York Convention Award, which we considered in more detail here. Traditionally the English courts are regarded as very pro-arbitration, and there are very limited circumstances in which they will decline/refuse to enforce an Award, particularly a New York Convention Award. Even where an Award is considered to be contrary to English public policy, the English courts have made it clear that this will need to be balanced against the competing public policy consideration that arbitration awards are final and binding.  

For more information on this judgment please contact Garbhan Shanks, Head of International Arbitration, at garbhan.shanks@michelmores.com / +44 (0)207 659 4636.

Anatolie Stati and others v The Republic of Kazakhstan [2018] EWHC 1130 (Comm)