Issue estoppel, state immunity and the role of national courts: Hulley Enterprises v Russia

Summary

In 2014, an arbitral tribunal seated in the Netherlands issued three awards which each declared that Russia had breached its obligations under the Energy Charter Treaty. Russia commenced proceedings in the Dutch courts to set aside the awards on the grounds that (i) there was no binding arbitration agreement between the claimants and Russia so the tribunal lacked jurisdiction, and (ii) the claimants had bribed a witness and as such the awards were vitiated by fraud.

In 2015, the claimants sought recognition and enforcement of the awards in England under the Arbitration Act 1996. Russia challenged the English courts' jurisdiction, contending that it was immune from such jurisdiction under s1 of the State Immunity Act 1978 (SIA 1978), and in particular that s9 of the SIA 1978 did not apply as there was no binding arbitration agreement between the parties. These proceedings were stayed pending a conclusive determination of the validity of the awards by the Dutch courts.

In 2020, the Hague Court of Appeal dismissed Russia's challenge to the awards determining that that there was a valid agreement between the parties. Its decision on this specific issue was upheld by the Dutch Supreme Court, though its decision on other issues – including procedural fraud – were quashed and remain pending.

The claimants applied to lift the stay on the recognition and enforcement of the awards.  The application was granted in part, to determine the preliminary issue of whether, and to what extent, Russia was precluded from rearguing the question of whether there was a binding agreement between the parties such that it had agreed in writing to submit to arbitration. At first instance ([2023] EWHC 2704 (Comm), discussed in our blog post here), Cockerill J agreed with the claimants, finding that the Hague Court of Appeal judgment fulfilled the requirements of issue estoppel. Consequently, Russia could not require the English court to reconsider the issue afresh. Russia appealed against this decision to the Court of Appeal ([2025] EWCA Civ 108).

Judgment

In the Court of Appeal, Russia accepted that (i) in principle an issue estoppel can arise against a state from the decision of a foreign court on a matter other than the question of immunity from jurisdiction (at [51]); and (ii) the requirements for an issue estoppel were satisfied in this case (at [52]). Accordingly, the issue to be determined was the narrower question of whether there is 'something in the nature of the decision which the court has to make when deciding one of the exceptions to immunity applies… which rules out the application of issue estoppel in that particular context'? Among other things, Russia argued that that the English court has an obligation contained in section 1 of the State Immunity Act 1978 to give effect to a state's immunity from jurisdiction unless it determines that one of the exceptions in sections 2 to 11 applies, and that a conclusion based on an issue estoppel arising from a foreign judgment is not a determination at all.

The Court of Appeal rejected Russia's arguments, finding that when an English court decides that a valid issue estoppel has arisen, it is not declining to make a determination on whether the state benefits from immunity under the SIA 1978. There being nothing in the SIA 1978 which prescribes how the court is to determine whether an exception under the SIA 1978 applies, the court must simply apply English law to that question, including the law on issue estoppel. In this case, in determining that Russia had agreed in writing to submit the dispute to arbitration, the court had applied the substantive principle of English law that when the requirements for an issue estoppel are satisfied, the previous decision of a competent court is conclusive on the issue. The Court of Appeal reiterated that, an issue estoppel creates a substantive right which is recognised and protected in English law and that there is nothing in the SIA 1978 which deprives a party of that right.

In terms of Russia's other arguments, the Court of Appeal accepted that an estoppel cannot enlarge a jurisdiction created by statute, or create jurisdiction where statute provides the court has none but distinguished issue estoppel from other forms of estoppel, on the basis that the label "estoppel" was convenient shorthand for the legal principle that a previous decision of a court of competent jurisdiction creates an enforceable legal right in English law, which principle is based on the important public policy of finality in litigation. It also rejected Russia's submission that both state immunity and issue estoppel are principles of public policy, and the latter should give way to the former.  The court is simply obliged to give effect to the provisions in the SIA 1978, and decides whether an exception to immunity applies, applying the ordinary rules of English law (including on issue estoppel), without choosing between competing public policies.

While it is an accepted principle of English law that issue estoppel will not apply if there are "special circumstances" (essentially, that issue estoppel must work justice and not injustice), the Court of Appeal rejected Russia's alternative case that the exceptional nature of state immunity amounts to "special circumstances". This would amount to saying that issue estoppel will never apply to an issue of state immunity, so that the exception for "special circumstances" would swallow the general rule.

Comment

This decision confirms that, although the SIA 1978 is considered a 'complete code' of exceptions to state immunity, when considering issues of state immunity, other rules of English law will continue to apply unless the statute clearly disapplies them. Consequently, an English court will apply its own procedural and substantive rules in deciding whether an exception to state immunity applies. As such, parties seeking to rely on arguments relating to state immunity cannot ignore or side step "ordinary principles of English law, both substantive and procedural".

Specifically, this case provides comfort to parties seeking to enforce an award against a State that if a foreign court has already found that the State has agreed to arbitration and issue estoppel applies, the State will not be able to relitigate the question and the exception to immunity in s. 9 of the SIA 1978 will apply. This is particularly relevant where a party is pursuing multi-jurisdictional enforcement efforts against a State.

The authors would like to thank Kristy Chan for her contribution to this post.