PAO Tatneft v Ukraine

In proceedings to enforce a New York Convention award, a party may be barred from raising a jurisdictional objection which it knew of but deliberately withheld during an earlier immunity application or the arbitration. Issue estoppel and the rule in Henderson v Henderson require a broad, merits-based assessment of fairness, efficiency and the public interest. The restricted discretion under section 103 of the Arbitration Act 1996 may permit enforcement despite an established ground for refusal where waiver, estoppel or abuse of process applies. A clear decision of the highest court of the foreign state on the interpretation of its legislation is ordinarily given very great weight. The relevant legality of an investment is assessed by reference to the law governing the investment when it was made, rather than by later judicial descriptions of the law.

PAO Tatneft obtained an order enforcing a New York Convention award against Ukraine. The award included US$81 million for investments made through Seagroup and Amruz in shares in Ukrtatnafta. Ukraine applied under section 103(2)(d) of the Arbitration Act 1996 to set aside enforcement of that part of the award, arguing that the investments were not made in accordance with Ukrainian legislation and therefore fell outside the arbitration agreement in the bilateral investment treaty.

Tatneft relied on issue estoppel, abuse of process, waiver and the timing of the conformity requirement. The central questions were whether the investments were unlawful, whether Ukraine was precluded from raising that argument, and whether enforcement should nevertheless be refused.

1. Issue estoppel and abuse of process. The Ukrainian decisions of 2008 conclusively determined that the share acquisitions by Seagroup and Amruz contravened Ukrainian legislation. The court did not need finally to decide Ukraine’s foreign issue-estoppel argument because the application was independently barred by abuse of process and the principles of issue estoppel.
2. The principles in Good Challenger Navegante SA v Metalexportimport SA [2003] EWCA (Civ) 1668, Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46 and Johnson v Gore Wood [2002] 2 AC 1 require a broad, merits-based assessment. Ukraine knew of the illegality argument, chose not to raise it in the earlier State Immunity Application, and offered no proper explanation. Requiring Tatneft to litigate repeatedly whether the dispute fell within the arbitration agreement was oppressive and inefficient. The later application also constituted a collateral attack on Butcher J’s earlier decision.
3. The reservation of a right to challenge enforcement later did not preserve a right to re-argue matters that should have been raised on the immunity application. Enforcement proceedings should be resolved efficiently, particularly in support of international arbitration. The determination of the supervisory court at the seat was entitled to significant weight.
4. Illegality and foreign law. The court’s task was to determine how Ukrainian courts interpreted and would interpret Ukrainian legislation. The decisions of the Ukrainian Supreme Court were clear and entitled to very great weight. The court accepted that payment for founding shares by promissory notes contravened article 13 of the Law on Business Entities and that issuing promissory notes did not amount to payment of the share price for the purposes of article 8(3) of the Law on Securities and Stock Exchange and article 33 of the Law on Business Entities.
5. Timing. The investments relevant to the US$81 million claim were those made by Seagroup and Amruz in 1999. The fact that Ukrainian court decisions in force in December 2007 had treated the acquisitions as lawful did not alter the applicable Ukrainian legislation. Tatneft’s timing argument therefore failed.
6. Waiver and discretion. Although unnecessary to the result, the court accepted that Ukraine had waived the jurisdictional objection by participating in the arbitration without raising that specific objection. Under article 21 of the UNCITRAL Arbitration Rules, a party must raise specific jurisdictional objections; a general challenge is insufficient. The restricted discretion in section 103(2) of the Arbitration Act 1996 was properly exercised to maintain enforcement.
7. Ukraine’s application to set aside enforcement of the US$81 million part of the award was dismissed. The parties were directed to agree an order giving effect to the judgment.

The judgment records earlier first-instance decisions concerning enforcement and state immunity, including [2018] EWHC 1797 (Comm) and [2019] EWHC 3740 (Comm). The present court dismissed Ukraine’s application under section 103 of the Arbitration Act 1996.