Yukos Capital SARL v OJSC Rosneft Oil Company

The foreign act of state doctrine does not prevent an English court from examining whether a foreign judicial decision, or the foreign judicial system that produced it, failed to provide substantial justice. Judicial acts are not acts of state for that purpose. Comity requires cogent evidence before an English court finds that a foreign court was partial, dependent or corrupt, but it does not create an immunity from adjudication.

A decision of a third-country court that a foreign judgment was partial and dependent does not necessarily create an issue estoppel in England. Recognition depends on English public policy and English standards of substantial justice, which the English court must determine for itself.

Yukos Capital SARL sought in England to enforce Russian arbitral awards, including post-award interest, after the Russian supervisory courts had set the awards aside. In Dutch enforcement proceedings, the Amsterdam Court of Appeal had declined to recognise the Russian annulment decisions because it considered them likely to result from a partial and dependent judicial process.

Hamblen J held that Rosneft was issue estopped by the Dutch decision and that neither the foreign act of state doctrine nor non-justiciability prevented Yukos Capital from advancing allegations of state interference and judicial bias. His decision is reported at [2011] EWHC 1461 (Comm) and [2012] All ER (Comm) 479.

Rosneft appealed on both preliminary issues. The central questions were whether the pleaded allegations were justiciable in England and whether the Dutch decision precluded a trial of the partiality and dependency of the Russian annulment decisions.

1. Appeal allowed in part. The court upheld Hamblen J’s conclusion that the act of state doctrine and non-justiciability did not bar Yukos Capital’s pleaded case. It allowed Rosneft’s appeal on issue estoppel. The question whether the Russian annulment decisions were partial and dependent therefore remained for trial.

2. The foreign act of state doctrine does not apply to judicial acts. An English court may examine whether a foreign court’s decision, or a foreign judicial system in cases involving state interests, failed to meet standards of substantial justice. Such an inquiry is governed by judicial standards, including bias, independence and due process. Comity requires cogent evidence before an adverse finding is made, but it does not remove the court’s jurisdiction to make one.

3. The conclusion extended to the allegations concerning the alleged campaign against Yukos. The tax assessments were capable of being characterised as executive or administrative acts, but they operated within a legal and judicial process. They could not sensibly be separated from the tax decisions relied upon as evidence that the annulment decisions were corrupt or dependent. The alleged political motives for using that system did not convert the judicial inquiry into a protected challenge to sovereign executive action.

4. The court rejected a formula which confined the doctrine to challenges labelled as challenges to an act’s “validity”. The material question is whether the English court is being asked to adjudicate on the legal effectiveness of a foreign legislative or executive act. Mere proof that an act occurred will not engage the doctrine; however, the present case was ultimately decided on the distinct ground that the challenged issue was recognition of foreign judicial decisions.

5. The Dutch judgment did not create an issue estoppel. Although the requirements identified in The Sennar (No 2) [1985] 1 WLR 490 were accepted in principle, the issue was not the same. The Dutch court had decided recognition by Dutch public order; the English court had to decide recognition by English public policy, including its own requirements of comity and cogent evidence. The court also held that, if necessary, it would have refused to apply any estoppel in the exercise of the residual special-circumstances discretion.

• Court of Appeal (Civil Division) Allowed Rosneft’s appeal on issue estoppel, but upheld the ruling that the foreign act of state doctrine and non-justiciability did not bar the claim: [2012] EWCA Civ 855.

• Commercial Court Hamblen J held that Rosneft was issue estopped by the Amsterdam Court of Appeal’s decision and that Yukos Capital’s allegations were justiciable: [2011] EWHC 1461 (Comm); [2012] All ER (Comm) 479.