#5100 - Aes Ukh V. Aes - Conflict of Laws BCL

AES UKH v. AES

Facts

The owner and the operator of hydroelectric facilities in Kazakhstan entered into a concession agreement which contained an arbitration clause governed by English law and which provided for arbitration in London. In proceedings relating to the concession, the Kazakhstan Supreme Court held that the arbitration clause was contrary to Kazakhstani public policy and thus invalid. Subsequently the defendant, the successor in title to the owner which had entered into the agreement, brought proceedings in the Kazakhstan Economic Court against the claimant, the successor of the operator which had entered into the agreement, for information as to the value of the concession assets. That court, in light of the Supreme Court's decision as to the invalidity of the arbitration clause, allowed the claim to proceed. The claimant continued to deny the jurisdiction of the Kazakhstani court but defended the merits of the claim since unless it did so, under Kazakhstani law, it was precluded from appealing the court's decision on jurisdiction. The claimant commenced proceedings in England for a declaration as to the validiity of the arbitration clause and obtained without notice an interlocutory anti-suit injunction in respect of the Kazakhstani proceedings, which it brought to the attention of the Kazakhstani court.

In the present proceedings, the essential dispute concerns the jurisdiction of the English court. In this connection the following issues remain disputed on appeal: (i) the owner submits that the operator lacks a proper jurisdictional gateway for service of its proceedings out of the jurisdiction upon it in Kazakhstan; (ii) the owner submits that there is no power in the English court to intervene in arbitration in the absence of existing or prospective arbitration proceedings in England; and (iii) the owner submits that the English court ought in any event to recognise and/or enforce the decision of the Economic Court, inter alia because the operator had submitted to the jurisdiction of that court in the Kazakhstan proceedings.

Supreme Court’s finding on the arbitration clause: The first was that clause 32 did not exclude tariff disputes within clauses 17.8 and 17.9 but included them: this would put such disputes beyond the control of the republic in matters which concerned monopolist pricing and ran counter to statutory provisions. The second was that the arbitration clause was unenforceable in practice, both because it senselessly required that disputes not related to tariffs would first have to go through the procedures relating to disputes which did concern tariffs, and because clause 32's reference to the rules of the ICC was not a reference to the ICC itself and thus left the arbitral body unspecified.

Questions

Whether the English court ought to recognise the decision of the Kazakhstan Economic Court that clause 32 of the concession contract, which contains the parties' arbitration agreement, is void as being against Kazakhstan public policy.

Whether the operator submitted to the jurisdiction of the Kazakhstan Economic Court in the 2009 litigation in Kazakhstan.

Holding

Rix LJ

General Principles: Enforcement – breach of arbitration agreement

(i) Section 32(1)(a) states the general rule that a judgment of a foreign court in proceedings brought contrary to an agreement under which the dispute in question was to be settled otherwise than in the courts of that country “shall not be recognised or enforced in the United Kingdom”. Thus the general rule is that a judgment of a foreign court in proceedings which ought instead to have been brought in arbitration in London shall not be recognised or enforced here.

(ii) That general rule, however, is subject to the special provision that it does not apply where the person against whom the judgment is given has submitted to the jurisdiction of the foreign court: section 32(1)(b)(c). In such a case, it would seem to follow that the judgment of the foreign court may be recognised or enforced, and the question becomes whether it “should” be.

(iii) The general rule is subject to another special provision, contained in section 32(2) , to the effect that the section 32(1) general rule “does not apply” where the agreement for the settling of the dispute otherwise than by proceedings in the courts of the foreign country whose judgment is in question was “illegal, void or unenforceable or … incapable of being performed for reasons not attributable to the fault of the party bringing the proceedings”. The merits of that exception appear to speak for themselves. In such a case it would again appear to follow that the judgment of the foreign court may be recognised or enforced here, and the question is whether it should be.

(iv) The statute next addresses the question as to which court, namely the foreign court or the English court, should have the decisive say as to whether any of the factors which are relevant to the general rule or its exceptions obtain or not. For instance, is there an agreement for the settling of the relevant dispute otherwise than in the courts of the foreign country? Has the person against whom the judgment was given submitted? Is the agreement illegal, void, unenforceable etc? In respect to that question as to which court has the decisive say, section 32(3) states that the UK court “shall not be bound” by the decision of the foreign court. It appears to follow that the UK court can make up its own mind about such issues, presumably applying relevant and applicable principles of conflict of laws. For these purposes, it appears to be irrelevant to the rule that the UK court “shall not be bound”, that the person against whom the foreign judgment has been given may have submitted to the foreign court or may in any event have been subject to the jurisdiction of the foreign court: see (ix) below. Thus the statute does not say that the UK court is bound if that person had submitted to, or was otherwise within the jurisdiction of, the foreign court. However, it would seem to be reasonable to suppose that on either basis the foreign court's jurisdiction over that person would be relevant to the question whether the UK court “should” recognise or enforce the foreign court's judgment.

(v) In this connection section 32(3) also states that in such a case, ie in a case where the general rule does not apply—for where it does the rule is that the foreign judgment “shall not” be recognised or enforced—it is for the UK court to decide “whether a judgment given by a court of an overseas country should be recognised or enforced”. It was common ground before the judge, and it has been common ground in this court, that section 32(3) gives to the English court a discretion whether to recognise or enforce in circumstances where the general rule does not apply. I am not sure that discretion is the right concept here; it may be that it would be better to say that whether the foreign judgment should be recognised or enforced is a matter for evaluative judgment. I will revert to this below.

(vi) Section 33 then gives to the UK court further guidance on the question of submission to the foreign court. It states that certain matters which might otherwise be thought of as amounting to a submission, for instance appearing in the foreign court for the purpose only of contesting its jurisdiction, “shall not be regarded” as a submission.

(vii) Section 33 also picks up and repeats the opening language of section 32(3): “For the purposes of determining whether a judgment … should be recognised or enforced …” Therefore, if, applying section 33, there is no submission to the foreign court, then, unless the section 32(2) exception applies, the UK court “shall not” recognise or enforce the foreign judgment. If, on the other hand, there has been a submission, then it would seem that the UK court may recognise or enforce it and perhaps should do so, but is not bound to do so. For section 32(3) says that the decisions of the foreign court on the specified matters do not bind the court.

(viii) Nothing in sections 32 or 33 tells the UK court that in certain circumstances it is bound to recognise or enforce the foreign judgment. Nothing states that, if there has been a submission to the foreign court, the English court is bound to recognise or enforce the foreign judgment. I suppose that in circumstances where the UK court is not bound not to recognise or enforce the foreign judgment, it will be guided by general principles relating to the recognition or enforcement of foreign judgments.

(ix) It is not at all clear to me how the special provisions of sections 32 and 33 concerning submission to the jurisdiction of the foreign court relate to the underlying question of the territorial jurisdiction of such a court. Thus, in the present case, the operator was a Kazakhstan company present in Kazakhstan and at all times within the “domestic” jurisdiction of the Kazakhstan courts. Moreover, since such jurisdiction based on presence would normally be recognised internationally, it might also be said that the operator was within the “international” jurisdiction of those courts. On the other hand, section 32 would seem to indicate that where jurisdiction and arbitration clauses are concerned, English public policy exerts a view about such “international” jurisdiction to the effect that it can only be established in accordance with the autonomous choice of the parties. Thus section 32(3) 's “shall not be bound by any decision of the overseas court relating to any of the matters mentioned in...