18/07/2018

Judgment: Commercial Court rules on State Immunity as regards enforcement of an arbitral award

The English Commercial Court has, in the 13 July judgment in PAO Tatneft v Ukraine [2018] EWHC 1797 (Comm), ruled in a case concerning an effort to enforce a US$112 million investment BIT award in favour of Russian oil producer Tatneft against Ukraine.

The case involved arguments on state immunity in respect of whether a state is precluded from raising jurisdictional points in a domestic court that it had raised in some form before the arbitral tribunal; the applicability of the arbitration exception in section 9 of the UK State Immunity Act (SIA) 1978; and the requirements of the duty of full and frank disclosure in an ex parte application in a case where state immunity was likely to be in issue.

Mr Justice Butcher held Ukraine was correct to say that it was not precluded by what occurred before the arbitral tribunal from raising the points at the hearing. By reason of section 1(1) SIA, it is immune from the jurisdiction of the Court unless an exception provided in the SIA applies, and the Court is obliged to give effect to that immunity even if the state does not appear. He observed that “[t]here is nothing in the SIA which suggests that there can be a foreclosure of the points which the State may raise as to the applicability of the immunity afforded by the SIA by reason of what may have occurred in front of an arbitral tribunal in a way similar to that provided for by the Arbitration Act”.

On the other points, Mr Justice Butcher denied Ukraine’s application to overturn an ex parte enforcement order issued last year in Tatneft’s favour, finding that the section 9 arbitration exception to state immunity was applicable because Ukraine had agreed in the Russia-Ukraine Bilateral Investment Treaty (BIT) to arbitrate any dispute in connection with the relevant investments, including disputes over what protections were conferred by the BIT and whether the claims brought were abusive.

However, Mr Justice Butcher granted Ukraine permission to appeal on whether Tatneft had made “qualifying investments” (within the meaning of the BIT) by buying shares of Swiss and American minority shareholders in Ukrtatnafta, a joint venture with the Ukrainian government that owned the country’s largest oil refinery. Ukraine has reserved its right seek permission to appeal on other grounds.

Philip Edey QC and Philippa Webb of 20 Essex Street acted for Ukraine alongside Anton Dudnikov of Essex Court Chambers.