The British High Court of Justice recently decided not to enforce an arbitral award in a dispute over the calculation of the purchase price of a Russian metallurgical company where a Russian court set aside that award and Russian appellate courts affirmed the decision. The plaintiff had argued the British court should not recognize the Russian judgments setting aside the award because it was the result of bias, while the defendant argued under the doctrine of ex nihilo nihil fit that because the award had already been set aside there was nothing for the British court to enforce.
The court started its analysis by observing the heavy burden borne by the party challenging the foreign court decision. Not only must the party show the decision is wrong or manifestly wrong, they must also show the decision is “so wrong as to be evidence of bias, or be such that no court acting in good faith could have arrived at it.”
The original Russian judge decided to set the award aside on three grounds: (1) the non-disclosure of potential bias because of the arbitrator’s relationships with expert witnesses was non-waivable; (2) the arbitrators’ method of calculating the purchase price violated public policy because it did not follow the purchase agreement’s terms; and (3) the dispute involved a “corporate claim” which is non-arbitratable under Russian law. It is noteworthy that the latter two grounds were not ones raised by the parties and were only raised by the judge in her written opinion.
In a lengthy opinion, the British High Court criticized the Russian court’s decision on all three grounds. On the non-disclosure issue, the British court took issue with the Russian court’s failure to address the appropriate test for waiver (actual or constructive notice), and failure to reach any factual conclusions. The court also took issue with the sua sponte nature of the latter two grounds. On the public policy issue in particular, the court found it difficult to see how the arbitrators acted in contravention of the agreement terms in arriving at a price calculation. Moreover, even if it were in contravention, that would amount to an error of law at most, not an act against public policy. On the non-arbitrability issue, the court determined that the Russian judge might have been a pioneer in concluding that corporate disputes are not arbitrable, because it could not find any record of cases holding applying that rule. However, a number of Russian courts since have followed her ruling.
Despite taking issue with the “shaky” grounds upon which the Russian court decided to set aside the award, and with the Russian appellate courts’ decisions affirming, the High Court nevertheless refused to enforce the award. It held that the decisions were not “so extreme and perverse that they can only be ascribed to bias” against the Plaintiff. For that reason, the court dismissed the application to enforce the award and did not reach the ex nihilo nihil fit argument.