Key takeaways
English court grants temporary stay
Pending Dutch appeal on Russia’s arbitration challenge
Validity of award under close scrutiny
Three of Russia’s four arguments deemed plausible
Balancing delay with enforcement fairness
Court considers fairness, timing, and global impact
JSC DTEK Krymenergo -v- The Russian Federation [2025] EWHC 1060 (Comm)
In an investment treaty dispute that resulted in UNCITRAL arbitration proceedings seated in the Hague, the English Commercial Court has concluded that enforcement of the award against Russia should be suspended until such time as the Hague Court of Appeal rules on Russia’s challenge to the award. This was because three out of Russia’s four grounds of challenge had a real prospect of success.
The background facts
The claimant in both the arbitration and the litigation proceedings was a Ukrainian company, JSC DTEK Krymenergo (JSC), that was part of a Ukrainian energy group. The defendant/respondent was the Russian Federation (Russia).
The underlying arbitration proceedings seated in the Hague related to alleged breaches by Russia of certain articles of an investment treaty between Russia and Ukraine (BIT). In essence, JSC owned the formerly State-owned electricity network in Crimea, buying electricity from a Ukrainian state-owned wholesaler, and then selling the electricity to industrial and domestic customers in Crimea. It alleged that it held an investment protected under the BIT and that Russia took a series of measures that led to the dispossession and nationalization of its electricity network and associated assets in Crimea without any compensation. JSC sought compensation for its expropriated assets in the amount of about US$ 421 million.
Russia raised a number of jurisdictional objections, but the tribunal dismissed these, found in favour of JSC and awarded it damages of around US$208 million plus interest and costs. Russia thereafter applied to the Hague Court of Appeal to set aside the award on the basis that the tribunal did not have jurisdiction to hear the dispute because it did not fall within the scope of the arbitration provision in the BIT. Those annulment proceedings are ongoing.
JSC obtained an order from the English Court to enforce the award. Russia sought to have the enforcement award set aside on the grounds of state immunity or for a stay of the immunity application until the annulment proceedings had been finally determined by the Dutch courts and no further appellate recourse was available to the parties.
Among other objections that JSC raised to the requested stay were that Russia had no intention to pay the award, that the annulment proceedings could take up to 5 ½ years to conclude and that the delay would be prejudicial to JSC, whereas there would be no real prejudice to Russia if the stay was refused because there was no risk that JSC would dissipate the proceeds of enforcement.
Relevant legal principles
The English Court may order a temporary stay where there are parallel proceedings in another jurisdiction, raising similar or related issues between the same or related parties, where the earlier resolution of those issues in the foreign proceedings would better serve the interests of justice than by allowing the English proceedings to continue without a temporary stay. However, this would be justified only in rare or compelling circumstances.
Under s.103 Arbitration Act 1996, the Court may refuse to recognise or enforce a New York Convention arbitration award in certain circumstances. Pursuant to s.103(5), where an application to set aside or suspend an award has been made to “a competent authority,” the English Court that is asked to recognise and/or enforce the award may, if it considers it appropriate, adjourn the decision on the recognition or enforcement of the award. It may also, on the application of the party claiming recognition or enforcement of the award, order the other party to give suitable security.
In Hulley -v- The Russian Federation [2021] EWHC 894 (Comm), the Court highlighted two important factors that must, among others, be considered on an application for a stay. The first was the strength of the argument that the award was invalid, as perceived on a brief consideration by the Court which was asked to enforce the award while proceedings to set it aside were pending elsewhere. If the award was manifestly invalid, there should be an adjournment and no order for security. If it was manifestly valid, there should either be an order for immediate enforcement or else an order for substantial security. In between, there would be various degrees of plausibility in the argument for invalidity and the Court should be guided by its preliminary conclusion on the point.
The second factor was that the Court should consider the ease or difficulty of enforcing the award and whether it would be rendered more difficult if enforcement was delayed. If that was likely to occur, the case for security was stronger. If, on the other hand, there were and always would be insufficient assets within the jurisdiction, the case for security would necessarily be weakened.
The Commercial Court decision
Having considered the merits of Russia’s challenge and the strength of its four arguments that the award was invalid, the Court concluded that while one argument was weak, the remaining arguments had a real prospect of success in the sense of not being fanciful. It was enough for Russia to succeed on any one of those three grounds of challenge before the Dutch Court of Appeal for the award to be annulled.
A potentially lengthy delay was a very significant factor in the exercise of the Court’s discretion. A stay in this case could add a delay to the resolution of the dispute which could be in the region of four to five years. The Court had to decide whether such a delay should be countenanced when weighed against the other factors in favour of granting a stay.
While the Court did not think that Russia was seeking a stay as part of a calculated strategy to maximise delay, it was not sufficient to submit that JSC could be compensated for any delay by the payment of interest because of the size of the debt. Additionally, the Court should ensure that, as far as practicable, disputes were dealt with expeditiously and that included the process of enforcement.
However, the ability of Russia, as a state, to pay its debts was not affected by the passage of time in the way that a corporate entity could be affected. There was no evidence that Russia would be less able to pay its debt due to JSC as a result of any delay occasioned by the stay.
There was also no evidence before the Court that would suggested that a stay would result in JSC having access to a diminishing pool of accessible assets by reason of Russia taking steps in the future to place as many of their assets as possible out of the reach of the sanctions regime, bearing in mind that Russia was currently subject to sanctions and had now been subject to sanctions for several years.
As to the pro-enforcement philosophy behind the New York Convention, JSC had chosen to start arbitration under UNCITRAL rules and having done so, it should allow that process to run its course prior to any determination by the English courts. There was a risk of inconsistent judgments if this were not done.
The Court concluded that it should grant the stay but for a limited time only, namely up till the determination of the annulment proceedings by the Hague Court of Appeal and not beyond (i.e. not to include any further appeal to the Supreme Court). JSC was given liberty to apply so that if the Dutch proceedings were not pursued with due expedition, the stay application could be brought back before the Court.
The Court further stated that it had no power under the civil procedure rules to make the stay conditional upon a payment into court where the purpose of such payment would be to support the enforcement of the judgment debt and not the stay or immunity applications. That was an attempt to exercise a substantive power before the issue of state immunity had been determined.
Comment
Notwithstanding the English Court’s pro-enforcement stance with regard to New York Convention arbitration awards, the Court in this case acknowledged that the risk of inconsistent judgments was capable of amounting to a very strong reason for granting a stay of enforcement.