Stati & Ors v The Republic of Kazakhstan

Under CPR 38.4(1), the court has a discretion to set aside a notice of discontinuance. The discretion is governed by the overriding objective of dealing with the case justly and at proportionate cost. Abuse of process is a powerful factor, but it is neither a necessary nor an exclusive condition. The court must consider the circumstances in which discontinuance occurred, what it seeks to achieve, fairness to all parties, the use already made of court resources, and the wider practical consequences. In an exceptional case, discontinuance may be set aside so that a substantial issue is determined, particularly where proceedings are advanced, the defendant has a legitimate interest in a merits determination, and the judgment may assist related proceedings in other jurisdictions.

The claimants obtained permission under sections 100 to 103, and particularly section 101, of the Arbitration Act 1996 to enforce in England an investment arbitration award made in Sweden against Kazakhstan. The State applied to set aside the enforcement order, alleging that the award had been obtained by fraud. The court directed that the allegation proceed to trial under CPR Part 7.

Before disclosure, the claimants served a notice of discontinuance. The State applied under CPR 38.4(1) to set it aside, seeking a trial of the fraud issue. The central question was whether the court should permit discontinuance or exercise its discretion so that the proceedings continued to a merits determination.

The notice of discontinuance was set aside and the proceedings were to continue to trial. The court’s reasoning was as follows:

1. Nature of the discretion. CPR 38.4(1) gives the defendant a right to apply to set aside a notice of discontinuance. The court must exercise the resulting discretion in accordance with the overriding objective of dealing with the case justly and at proportionate cost. Abuse of process is highly material where present, but its absence does not deprive the court of jurisdiction and it is not the exclusive test.
2. Relevant matters. The court may examine the circumstances in which the notice was served and what the claimant sought to achieve by it. Although the CPR does not ordinarily require an explanation for discontinuance, an application to set it aside permits the court to investigate the reason for the notice. Fairness is owed to all parties, and the court must consider the use and allocation of its resources.
3. Application. The claimants’ explanations concerning funding and overseas attachments were not accepted. The court found that the real reason was an unwillingness to risk adverse findings at trial, rather than inability to continue. The State had a legitimate interest in resolving the fraud allegation after substantial investment in the proceedings.
4. Wider utility and proportionality. The issue remained live because enforcement proceedings continued in several jurisdictions. A judgment after disclosure and full evidence could assist some foreign courts, even though England was not the seat of the arbitration and those courts would apply their own law. The case had reached an advanced stage, court resources had already been committed, the sums and reputational interests were substantial, and a trial could be conducted expeditiously and fairly.
5. The court therefore treated the case as exceptional and ordered that it proceed to trial so that the merits could be determined.

First-instance decision. The judgment records an earlier order of Burton J permitting enforcement, and an earlier decision of the same court directing the fraud issue to proceed to trial, but no appeal from those decisions is stated.