Stati v. #Kazakhstan: Court of Appeal Decision

These proceedings concern the Statis’ attempt to enforce in London a USD 500m arbitral award dated 19 December 2013 rendered against Kazakhstan.  In an earlier judgment dated 6 June 2017, following a two-day hearing, Robin Knowles J held that Kazakhstan had established a prima facie case of fraud by the Statis on the arbitral tribunal.As part of that judgment, Robin Knowles J carefully analysed the judgment of the courts of the seat (Sweden) upholding the Award, and identified that those courts had not determined the factual allegations constituting the fraud claim or the question of indirect effect of the fraud alleged on the arbitral tribunal, having considered Swedish law expert evidence on the issue. The findings on fraud were made after careful review of the evidence of the fraud submitted to the court. The English court offered the Statis an opportunity to address such evidence and ordered a full trial which was scheduled to start in October 2018.

After statements of case had been exchanged and only days before the parties were due to give standard disclosure, the Statis sought to bring the enforcement proceedings to an abrupt end as an 11 May 2018 judgment notes, “an extraordinary development” by serving notice of discontinuance. Kazakhstan opposed discontinuance, since (as recorded in the judgment) “it wishe[d] to complete the opportunity to prove that the Award was obtained by fraud.”  A further extraordinary turn of events occurred when the Statis' legal representatives King & Spalding gave notice shortly afterwards that they were coming off the record and that the Statis would represent themselves going forward. King & Spalding told the court that this extraordinary step was due to the lack of funding. However, King and Spalding continued to appear for the Statis in the London courts and the lack of funding seems to be limited to the fraud trial since all other enforcement proceedings in no less than six jurisdictions continue.

In his judgment of 11 May 2018, Robin Knowles J rejected the Statis’ explanations for seeking to discontinue (namely alleged impecuniosity and progress made in attachment proceedings elsewhere), and concluded that “the real reason for the notice of discontinuance is that the Statis do not wish to take the risk that the trial may lead to findings against them and in favour of the State.”  He observed that Kazakhstan had a legitimate interest in pursuing the determination of its fraud allegations, and that such a determination would not be without use to the courts of other jurisdictions in which the Statis are seeking to enforce the award.  Kazakhstan’s application to set aside the Statis’ notice of discontinuance was accordingly granted and further case management directions were given for the determination of the fraud claim, including directions that the Stati Parties give standard disclosure.

The Statis, represented again by King & Spalding, allegedly on a pro bono basis, appealed the 11 May 2018 order. Pending the hearing of their appeal, the Stati Parties were ordered to disgorge some 75000 documents relating to the fraud claim. Kazakhstan has been given permission by the English Commercial Court to use those documents in other jurisdictions where enforcement proceedings are being taken. The disclosure contains new documentation that further evidences the fraud and indicates that the Statis have deliberately made false statements to courts in the enforcement proceedings commenced.

In its judgment of 10 August 2018, the Court of Appeal rejected the Statis' arguments on the correct approach to setting aside the notice of discontinuance, but finally confirmed that the Statis could abandon the London enforcement proceedings subject to two conditions: (1) the undertaking that the Statis will not seek to enforce the award in England ever again, and (2) that the Statis' consent to the original order granting permission to enforce the Award in England and Wales being set aside so that the existence of that order cannot be used to support applications in other jurisdictions.  The Court of Appeal has so decided on the basis that there can be no prospect of enforcement in England so that a trial is not justified.

The Court of Appeal further decided that the permission to use the new evidence stands despite the Statis' attempt to prevent their further use.Extraordinarily, the Court of Appeal granted no costs to the Statis as a reaction to their acting on a pro bono basis while having come off the record in the fraud trial. Kazakhstan will recover the costs of the English enforcement proceedings started by the Statis in 2014.

The findings of Justice Knowles that there is sufficient prima facie evidence that the award was procured by fraud now stand unrebutted.

Marat Beketayev, Minister of Justice of the Republic of Kazakhstan commented: "We are pleased that the London enforcement proceedings that were commenced more than 4 years ago have been successfully defended. Kazakhstan has achieved its objective in London; the Statis are not able to enforce the award in England now or at any time in the future. Kazakhstan has also secured a prima facie finding of fraud from the English Court following a heavily contested hearing last year at which a substantial amount of evidence was presented. In order to avoid a full trial on the fraud issue on which the Statis have offered no counter evidence and further adverse findings against them, the Stati Parties have been forced to abandon the London proceedings and to give undertakings that there will be no further enforcement action in England. They have done so only after being ordered to provide Kazakhstan with documents that further evidence the fraud. Kazakhstan has been permitted to make this disclosure available to courts in other jurisdictions. We will continue vigorously to resist all and any attempts by the Statis to enforce this award wherever enforcement may be sought.