Summary

The court determined as preliminary issues that there was no principle of ex nihilo nil fit in English law preventing the court giving effect to arbitration awards granted by the International Commercial Arbitration Court in Russia despite their having been set aside by the Moscow Arbitrazh Court, that interest on the award could not, as a matter of Russian law, be recovered under the Russian Civil Code s.395, and that interest on the sums claimed could be recovered under the Senior Courts Act 1981 s.35A.

Facts

The court was asked to determine preliminary issues relating to the entitlement of the claimant company (Y) to recover interest on sums awarded by arbitration tribunals with a Russian seat.

The awards had been made against the defendant company (R) by the International Commercial Arbitration Court in Russia in September 2006. Afterwards the relevant supervisory court, the Moscow Arbitrazh Court, set them aside in judgments upheld on appeal, and in which Y participated. Y then identified assets of R within the Dutch jurisdiction, and the Dutch Appeal Court, applying principles of private international and domestic law, refused to recognise the set-aside decisions and gave leave to enforce the awards. However, they were not paid and Y brought enforcement proceedings in the English High Court at common law and under the New York Convention 1958. R gave security to meet a final judgment in either England or the Netherlands. In June 2010 the Dutch Supreme Court dismissed R's appeal and the sums awarded were paid out on behalf of R. Y continued the English proceedings to obtain post-award interest. The two preliminary issues were whether (i) on the ex nihilo nil fit principle the awards could not be enforced; (ii) the award of interest was available under the Russian Civil Code art.395 and/or the Senior Courts Act 1981 s.35A.

Y argued that (1) at common law a foreign award could be enforced if it was made in accordance with a valid agreement to arbitrate and was final and binding under its governing law, and it did not have to be enforceable under the law governing the arbitration; (2) interest accrued automatically on an unsatisfied award under art.395 without the need of an enforcement order.

R submitted that (1) as a result of the Moscow set-aside decisions, the awards no longer existed legally under the principle of ex nihilo nil fit and Y was estopped from asserting otherwise; (2) interest only began to accrue once an enforcement order came into effect, and considering s.35A, that the parties had excluded the award of interest by agreeing that their disputes would go to arbitration.

Held

(1) Y was correct that the awards were prima facie enforceable at common law. It was open to Y to argue that no effect should be given to the set-aside decision, based on conventional English conflict of law principles such as that the judgments had been obtained by fraud or breach of natural justice, or that enforcement would be contrary to public policy. That analysis was suggested in Dicey, Morris and Collins on the Conflict of Laws 15th edn (London: Sweet & Maxwell 2012) Rule 66 in the context of the New York Convention, and it accorded with decided cases, Dallah Real Estate & Tourism Holding Co v Pakistan [2009] EWCA Civ 755, [2010] 2 W.L.R. 805 and Merchant International Co Ltd v Natsionalna Aktsionerna Kompaniya Naftogaz Ukrayiny [2012] EWCA Civ 196, [2012] 1 W.L.R. 3036 followed (see paras 12-18 of judgment). R's ex nihilo nilfit argument assumed that there was no valid arbitration award extant. The solution to the problem of annulled awards was provided by the test as to whether the court could, in the particular circumstances, treat the award as having legal effect notwithstanding a later order of a court annulling it. In applying the test it would be unsatisfactory and contrary to principle if the court were bound to recognise a decision of a foreign court that offended against basic principles of honesty, natural justice and domestic concepts of public policy, and there was a considerable body of academic opinion that agreed with that view. There was no ex nihilo nil fit principle precluding the enforcement of the set-aside awards (paras19-22). (2) Regarding the claim for interest under the Russian Civil Code art.395, interest on the awards could not be recovered prior to the date on which an exequatur (writ of execution) took legal effect (paras 41- 42, 63, 67-68). Under English law, interest could be recovered under s.35A as a matter of principle, but its award was a matter of discretion. Interest had not been payable under the awards when made. A claim to enforce the awards was a claim to enforce a debt and although the circumstances in which the arbitrators, and if material the Dutch Appeal Court, declined to award interest might be relevant to the exercise of the court's discretion, there was no absolute bar to the award of interest on the late payment of a foreign award under s.35A (paras 69-79, 81).

Preliminary issues determined