Carpatsky Petroleum Corporation v PKSC Ukrnafta

Enforcement of a New York Convention award is mandatory unless an exhaustive statutory ground for refusal is established. The resisting party bears the burden of proof. A jurisdictional challenge requires the English court to determine the issue afresh, although decisions of the supervisory court may create an issue estoppel on substantially the same procedural complaint. A party may be bound by its unreserved acceptance of the law governing the arbitration agreement. Arbitration agreements may be formed by conduct and may satisfy the writing requirement through written communications or conduct referring to written terms. Errors in an arbitral tribunal’s assessment of evidence or damages do not, without more, establish procedural irregularity or justify non-enforcement.

Carpatsky sought to enforce a Stockholm Chamber of Commerce award of US$145.7 million against Ukrnafta. Ukrnafta applied to set aside orders granting permission to enforce, relying on sections 103(2)(b), (c) and (e) of the Arbitration Act 1996.

It argued that no arbitration agreement existed, that the tribunal had dealt unfairly with a contractual limitation of liability, and that it had materially departed from the agreed damages methodology. The award had previously been considered by the Swedish supervisory courts and by enforcement courts in other jurisdictions. The central questions were whether the statutory grounds for refusing enforcement were made out and whether issue estoppel or abuse of process prevented the procedural challenges.

1. Application dismissed. The statutory exceptions to enforcement of a New York Convention award were exhaustive. The burden lay firmly on Ukrnafta, and the award enjoyed a presumption of validity.
2. Ukrnafta was estopped by its conduct from changing its position that Swedish law governed the existence and validity of the arbitration agreement. Alternatively, applying English conflicts rules, the parties’ choice of Stockholm as the seat strongly indicated Swedish law. The three-stage enquiry was express choice, implied choice and, failing either, the law with the closest connection, generally the law of the seat.
3. Under Swedish law, an arbitration agreement could be formed by acceptance, conduct, silence or inactivity. The 1998 Addendum objectively evidenced an agreement between Ukrnafta and the existing Delaware successor. In any event, agreements to arbitrate were formed by the parties’ written agreement to proceed under SCC Rules and by Ukrnafta’s unreserved participation in the arbitration. These agreements satisfied the writing requirement in sections 5 and 100(2)(a) of the Arbitration Act 1996.
4. The Ukrainian and United States decisions did not create an issue estoppel on the Swedish-law question concerning the separable arbitration agreement. Recognition of such an estoppel would in any event have been unjust in the circumstances. However, the Swedish Court of Appeal’s decision created an issue estoppel concerning the substantially identical Article 20.1 procedural complaint. The Henderson v Henderson principle could also prevent refinement of a challenge that should have been raised before the supervisory court.
5. The tribunal’s treatment of intentional breach and Article 20.1 was procedurally fair in any event. Ukrnafta had an opportunity to address the issue, and its failure to seek further evidence or correction did not establish inability to present its case.
6. The damages complaint was likewise barred by issue estoppel. Independently, alleged errors in applying the damages model were substantive complaints about the tribunal’s assessment of evidence, not breaches of the arbitration agreement or grounds for non-enforcement under section 103.