Yukos Oil Company v Dardana Ltd.

Under Arbitration Act 1996, a party seeking enforcement of a New York Convention award need initially produce the award and apparently valid written arbitration documentation. A challenge that no valid arbitration agreement existed falls for the resisting party to prove under section 103(2).

The court may adjourn enforcement under section 103(5), including on its own initiative or at the enforcing party’s request. Security may be ordered only in connection with an adjournment. It cannot be made a condition of immediate enforcement where an unresolved section 103(2) challenge prevents enforcement. The discretionary security assessment includes the apparent merits of the challenge and the risk that delay will hinder enforcement.

A Swedish arbitral tribunal made an award against Yukos Oil Company after concluding that it had become party to a contract containing an arbitration clause. Dardana Ltd, assignee of the original contracting party’s interest, obtained without-notice permission in England to enforce the award.

Yukos applied to set aside that permission, principally under section 103(2) of the Arbitration Act 1996, while also pursuing proceedings in Sweden to set aside the award for want of jurisdiction. HHJ Chambers QC adjourned the English challenge pending the Swedish proceedings and required Yukos to provide US$2.5 million security.

Yukos appealed. The central issues were the evidential burden governing enforcement, the power to adjourn, and whether security could properly be ordered in the circumstances.

1. Appeal allowed in part. Mance LJ, with whom Thorpe LJ and Neuberger J agreed, upheld the adjournment of Yukos’s section 103(2) challenge pending the Swedish setting-aside proceedings. The order for security was set aside.

2. Sections 100 and 102 establish a first-stage prima facie right to recognition and enforcement. The enforcing party need produce an authentic award and apparently valid written documentation containing the arbitration agreement under which the arbitrators purported to act. It need not prove at that stage that a valid arbitration agreement actually existed. Any challenge to the existence or validity of that agreement falls exclusively within section 103(2)(b), and must be proved by the party resisting enforcement.

3. The first limb of section 103(5) gave the court a general power, where proper, to adjourn the decision on recognition or enforcement. That power could be exercised even without an application by the party resisting enforcement. On the facts, the respondents had in reality sought the adjournment after deciding not to pursue an immediate determination of Yukos’s section 103(2) challenge. The judge was entitled to adjourn so that Swedish law could be applied to the facts by the Swedish court.

4. Section 103(5) also authorised an order for suitable security on the enforcing party’s application. However, the security could not lawfully be made a condition of avoiding immediate enforcement, or of obtaining an adjournment sought by Yukos, because Yukos opposed the adjournment and retained an unresolved section 103(2) application. Such a condition would wrongly fetter that application and conflict with paragraph 31.9 of the Arbitration Practice Direction.

5. The court re-exercised the discretion. Following the approach in Soleh Boneh v Republic of Uganda [1993] 2 Ll.R. 208, the relevant considerations included the apparent strength of the challenge to the award and whether delay would make enforcement more difficult. Yukos’s challenge appeared substantially stronger than Dardana’s case, and the evidence disclosed no real risk that Yukos would dissipate or conceal assets. Security was therefore unnecessary and inappropriate.

• Court of Appeal (Civil Division): By [2002] EWCA Civ 543, allowed Yukos’s appeal to the extent of setting aside the security order, while leaving the adjournment pending the Swedish proceedings in place.
• Commercial Court: HHJ Chambers QC, sitting as a deputy judge, adjourned Yukos’s challenge to enforcement pending the Swedish setting-aside proceedings and ordered US$2.5 million security.
• Commercial Court: Steel J had granted Dardana permission without notice to enforce the Swedish award as a judgment, subject to Yukos’s liberty to apply to set aside the order.