Stati & Ors v The Republic of Kazakhstan

An English court may permit a fraud challenge to a New York Convention award where the evidence was unavailable at the arbitration and there is a sufficiently strong prima facie case that the fraud affected the award. The public-policy exception in section 103(3) of the Arbitration Act 1996 concerns English public policy and is approached with extreme caution. A supervisory court’s decision does not create an issue estoppel where it did not decide the material issue, or where the applicable public policies differ. The enforcement challenge was therefore permitted to proceed to trial.

A Swedish-seated arbitration resulted in an award of more than US$500 million under the Energy Charter Treaty. Permission to enforce the award in England was granted. The defendant later sought to amend its application to allege that the claimants had fraudulently inflated the costs of an LPG plant and concealed material information.

The claimants relied on decisions of the Swedish Court and the United States Court, arguing that the fraud issue was precluded and that there was no sufficient evidential basis for a trial. The central issue was whether the English application should be dismissed summarily or whether the fraud allegation should proceed to trial.

1. Application granted. The defendant was permitted to amend the English Application and pursue the fraud allegations to trial.
2. Section 103 of the Arbitration Act 1996 favours enforcement of New York Convention awards. The public-policy exception concerns English public policy and must be approached with extreme caution.
3. The court applied the conditions identified in Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd: the fraud evidence must have been unavailable at the arbitration, and there must be a prima facie case sufficiently strong to overcome the court’s caution.
4. The defendant established both requirements. The evidence concerning the Perkwood Contract, related-party dealings, management fees, allegedly uninstalled equipment and construction costs provided a sufficient prima facie case. There was also sufficient evidence that the alleged fraud affected the tribunal’s reliance on the KMG Indicative Bid and therefore the award.
5. The evidence could not reasonably have been discovered before the award with reasonable diligence. Concealed fraud may justify a more favourable approach to diligence where relevant evidence lies within the opposing party’s control.
6. Neither the Swedish Court’s decision nor the United States decision created an issue estoppel. The Swedish Court had not decided the issue of indirect decisive impact, and Article V(2)(b) of the New York Convention requires the enforcing court to apply its own public policy.
7. The abuse-of-process argument failed. Directions for trial were to be given, with general liberty to apply.

First-instance decision. The judgment refers to decisions of the Swedish Court and the United States Court concerning the award, but was not an appeal from either decision.