Stati & Ors v The Republic of Kazakhstan

The discretion to set aside a notice of discontinuance under rule 38.4 of the Civil Procedure Rules 1998 is general and unqualified. Abuse of process or an attempt to obtain a collateral advantage is neither a necessary nor an exclusive condition. The court must consider all the circumstances, apply consistent principles and further the overriding objective. The defendant bears the burden of justifying the setting aside.

Where proceedings exist solely to enforce a foreign arbitral award, discontinuance and a binding undertaking against future domestic enforcement ordinarily remove the English court’s proper function. Exceptional circumstances may justify continuation, but the possible usefulness of factual findings to foreign courts is insufficient. The court may nevertheless require proceedings to continue where necessary to determine whether its own processes have knowingly been abused.

The appellants obtained a Swedish-seated arbitral award exceeding US$500 million against Kazakhstan and began proceedings under section 101 of the Arbitration Act 1996 to enforce it in England. Kazakhstan alleged that part of the award had been obtained by fraud. Knowles J permitted that allegation to proceed to trial as a defence based on English public policy.

The appellants subsequently discontinued the English enforcement proceedings and undertook never to enforce the award in England. Knowles J set aside the notice of discontinuance and directed a trial of the fraud allegations. The appeal concerned whether those allegations constituted an independent claim, the scope of the discretion under rule 38.4 of the Civil Procedure Rules 1998, Kazakhstan’s continuing interest in obtaining factual findings for possible use abroad, and the alleged public interest in investigating a fraud on the English court.

1. Appeal allowed. Kazakhstan’s fraud allegations were never an independent claim or counterclaim. They were a defence to enforcement of the award. A direction that the issue should proceed as if commenced under Part 7 of the Civil Procedure Rules 1998 merely supplied a procedural framework. Clear words would have been required to create separate proceedings or a counterclaim: paras [18]–[24].

2. The discretion under rule 38.4 to set aside a notice of discontinuance is expressed in general and unqualified terms. It is not confined to abuse of process, collateral tactical advantage or another substantive vice. The court must consider all relevant circumstances, exercise the discretion consistently with principle and further the overriding objective. A notice takes effect without an order unless the defendant applies to set it aside, and the defendant bears the burden of showing that it should be set aside: paras [25]–[32].

3. The English court’s role under the New York Convention and the Arbitration Act 1996 was confined to enforcement of the award in England. Questions about the award’s validity belonged primarily to the law and courts of the arbitral seat. Each enforcing state retained responsibility for applying its own public policy: paras [34]–[38].

4. Once enforcement in England was discontinued, the enforcement order was to be set aside and the appellants had undertaken not to seek future English enforcement, the proceedings could yield no relevant domestic relief. Exceptional circumstances might justify continuing proceedings whose original purpose had ceased, and a binding issue estoppel abroad could potentially be relevant. Here, however, the proposed English findings would merely be of possible assistance to foreign courts. That did not establish a legitimate interest sufficient to justify an eight-day Commercial Court trial: paras [52]–[62].

5. The court has power to require proceedings to continue where necessary to determine whether its processes have knowingly been abused. There was no such basis here. The award remained valid under its curial law, and the fraud allegations provided at most a possible public-policy defence to English enforcement. Applying to enforce the award was therefore incapable, on the case advanced, of constituting a fraud on the English court: paras [63]–[66].

6. The enforcement order was to be set aside and the appellants were to give the undertakings offered below. Leggatt and Patten LJJ agreed with David Richards LJ: paras [67]–[69].

1. Court of Appeal (Civil Division): The appeal was allowed in [2018] EWCA Civ 1896. The enforcement order was to be set aside and the appellants were to provide undertakings against future English enforcement.

2. Commercial Court: By an order dated 21 May 2018, Knowles J set aside the appellants’ notice of discontinuance and directed the fraud allegations to proceed to trial.

3. Commercial Court: In [2017] EWHC 1348 (Comm), Knowles J permitted Kazakhstan to add fraud as a ground for resisting enforcement and directed the issue to trial. Permission to appeal was refused because the application was out of time.