Hulley Enterprises Limited & Ors. v The Russian Federation

Where an arbitral award is challenged in the courts of the seat, an English enforcement stay remains discretionary. The court should assess the challenge under English principles, including its realistic prospects, bona fides, delay, prejudice, comity, efficiency and the risk of inconsistent judgments. A viable challenge may justify awaiting the final outcome in the curial courts, even where enforcement is presumptively favoured and delay prejudices the award creditor.

Where state immunity remains unresolved, the court must determine that issue as a preliminary matter. It cannot exercise the enforcement powers in section 103(5) of the Arbitration Act 1996, including ordering security, before jurisdiction over the state has been established.

The claimants sought recognition and enforcement in England of arbitral awards exceeding US$50 billion against Russia under the Arbitration Act 1996. The proceedings had been stayed by consent pending the judgment of the Hague Court of Appeal.

That court reinstated the awards, but Russia appealed to the Dutch Supreme Court. The claimants applied to lift the English stay, alternatively seeking an adjournment conditional on security under section 103(5) of the 1996 Act. Russia sought continuation of the stay pending final resolution of the Dutch proceedings and relied on state immunity.

The issues were whether Russia’s Dutch appeal had a realistic prospect of success, whether it was bona fide, the comparative prejudice and comity considerations, and whether security could be ordered while the immunity challenge remained unresolved.

1. The stay continued. The application to lift it was dismissed. The court held that Russia’s cassation appeal had realistic prospects of success on its first three grounds, concerning alleged fraud, the provisional application of ECT Article 45, and the scope of the ECT’s investor and investment provisions.
2. The English court applied its own principles governing stays and adjournments of enforcement proceedings. The relevant considerations included the strength of the foreign challenge on a sliding scale, whether it was bona fide rather than merely delaying, the likely delay, prejudice to both parties, the risk of inconsistent decisions, comity, duplication and the suitability of the curial court to determine issues concerning the award.
3. Russia’s challenge was pursued in good faith in the sense that it believed its legal case to be justified and had realistic prospects. Its broader unwillingness to pay following an adverse decision was relevant but did not convert the challenge into a mere delaying tactic.
4. The continuation of the stay was not considered materially likely to increase the risk of dissipation by Russia. Any risk concerning recovery by Russia from the claimants could potentially be addressed later through payment into court or escrow.
5. The risk of inconsistent or unfair determinations was particularly important. If the English court decided state-immunity issues by reference to the Hague Court of Appeal’s judgment and that judgment were later reversed, Russia might be unable to restore its position. Comity and fairness therefore favoured awaiting the final outcome in the Netherlands.
6. Section 103(5) of the Arbitration Act 1996 was not available. Under section 1 of the State Immunity Act 1978, immunity from adjudicative jurisdiction had to be determined first. Exercising section 103 powers before rejecting immunity would assert jurisdiction not yet shown to exist.
7. Even if section 103(5) had been available, security would not have been ordered. Russia had a properly arguable challenge, the stay was not shown to increase enforcement risk materially, and security would have given the claimants an unwarranted enforcement advantage while Russia’s immunity case remained capable of being affected by the Dutch appeal.

First-instance decision on an application to lift a stay in English enforcement proceedings. The judgment records that the Hague Court of Appeal had reinstated the awards and that an appeal to the Dutch Supreme Court was pending, but this court did not determine that appeal.