By Tobias Thienel
A recent case in the English courts – until now the High Court and the Court of Appeal – has raised absolutely central points about the act of state doctrine, and in so doing has neatly explained the doctrine. (I know this doctrine is not actually a rule of international law, but it is not unrelated.)
The case is interesting also at a political level. The names of the parties are telling: Yukos Capital Sarl v OJSC Rosneft Oil Company [2012] EWCA Civ 855. Yukos famously used to be the company of Mikhail Khodorkovsky, the businessman and billionaire who has fallen foul of the Kremlin and has spent the last few years in prison. His company, too, has been largely broken up and rid of its assets. The respondent in the English proceedings, on the other hand, Rosneft, is a Russian state-controlled company.
Yukos Capital Sarl had won an arbitral award against Rosneft. This had later been annulled in Russian state court proceedings. However, a court in the Netherlands (the Gerechtshof Amsterdam at second instance) later still recognised the arbitral award and declined to recognise the judgment annulling it. The court held that the Russian court had not been impartial and independent owing to the strong political elements of the case (Decision of 28 April 2009, Case No. 200.005.269/01, available via http://zoeken.rechtspraak.nl/default.aspx).
The case then moved to England. As in the Netherlands, Yukos sought recognition and enforcement of the award in its favour. Also as in Amsterdam, Yukos argued that the Russian annulment should be refused recognition because it had constituted ‘a travesty of justice’.
Rosneft resisted this argument on the basis of the English act of state doctrine. This doctrine holds,in the broadest outline, that English (like U.S.) courts ‘will not sit in judgment on the acts of the government of another done within its own territory‘ (Underhill v Hernandez, 168 U.S. 250, 252 (1897)) or ‘will not adjudicate upon the transactions of foreign sovereign states‘ (Buttes Gas Oil Co v Hammer (No 3) [1982] AC 888, 931G). On this basis, Rosneft said that the decision of the Russian courts, as a sovereign act, could not be questioned in an English court.
The Court of Appeal revisited the very nature and substance of the act of state doctrine. It held, in the end, that the doctrine did not apply to foreign judicial acts. The decisions of foreign courts therefore could be reviewed for their basic fairness, with a view to whether they could be recognised or not. No decision was ultimately made on the fairness of the Russian proceedings; the Court of Appeal only denied that Rosneft was bound in England by the judgment from Amsterdam (by way of issue estoppel). The question of the unfairness of the Russian proceedings was therefore remitted to the High Court.
The Court reviewed all the leading authorities on the act of state doctrine from both sides of the Atlantic. It reiterated that the doctrine was not a variant of state immunity under international law, although it provides ‘a form of immunity ratione materiae‘ and ‘is founded on analogous concepts of international law, both public and private, and of the comity of nations’ (para 66). But above all, the case was about the limitations of the act of state doctrine.
— It was clear that the act of state doctrine was subject to an ordre public exception. Foreign acts of state would not be recognised where they were ‘in breach of clearly established rules of international
law, or are contrary to English principles of public policy, as well as
where there is a grave infringement of human rights‘ (para 69).
— Another such supposed limitation was the idea that the doctrine only precluded judicial inquiry into the validity of actual, past acts of a foreign state. The doctrine was said not to apply to an assessment of a risk of future acts that might yet be committed by another state. There was some limited authority for this view. The Court of Appeal in Yukos v Rosneft, however, dismissed the theory as unprincipled (para 86).
— Just like state immunity in international law does not protect a state from suit in respect of its commercial acts, the act of state doctrine likewise does not apply in relation to such acts (paras 92 et seq).
— the foreign act of state has to be ‘at the heart of a case, and not be a matter of merely ancillary or collateral aspersion’ (para 109). Indeed, the doctrine is not a rule taking away jurisdiction as a matter of procedure, but rather provides a substantive ‘rule of decision’. It determines that foreign acts of state are valid. Thus, foreign statutes or governmentl acts can be cited in support of something, but cannot be attacked as ineffective or invalid on any legal grounds (aside from considerations of ordre public). What matters therefore is ‘the difference between citing a foreign statute (an
act of state) for what it says (or even for what it is disputed as
saying) on the one hand, something which of course happens all the time,
and on the other hand challenging the effectiveness of that statute on
the ground, for instance, that it was not properly enacted, or had been
procured by corruption, or should not be recognised because it was
unfair or expropriatory or discriminatory‘ (para 110).
Particularly this last limitation on the act of state doctrine did not assist Yukos, because it was – in effect, if not completely expressly – praying in aid the invalidity of the Russian judgment annulling the award in its favour. However, Yukos won on the central holding of the Court of Appeal, which was that the act of state doctrine had no application at all to foreign judicial acts. The Court’s reasoning is incapsulated in this passage in para 87 of the judgment:
‘[W]hy should acts of a foreign judiciary be treated
differently from other acts of state, and what is the basis of that
difference? – the answer, in our judgment, is that judicial acts are not
acts of state for the purposes of the act of state doctrine. The
doctrine in its classic statements has never referred to judicial acts
of state, it has referred to legislative or executive (or governmental
or official) acts of a foreign sovereign. […]. It is not hard to understand why there should be a distinction.
Sovereigns act on their own plane: they are responsible to their own
peoples, but internationally they are responsible only in accordance
with international law and internationally recognised norms. Courts,
however, are always responsible for their acts, both domestically and
internationally. Domestically they are responsible up to the level of
their supreme court, and internationally they are responsible in the
sense that their judgments are recognisable and enforceable in other
nations only to the extent that they have observed what we would call
substantive or natural justice, what in the United States is called due
process, and what internationally is more and more being referred to as
the rule of law. In other words the judicial acts of a foreign state are
judged by judicial standards, including international standards
regarding jurisdiction, in accordance with doctrines separate from the
act of state doctrine, even if the dictates of comity still have an
important role to play.‘ (And in para 128: ‘[o]nly the more normal restraints of judicial comity hold sway in that judicial context.’)
Speaking for myself, I can readily see the force of this distinction. Foreign legislative and governmental acts are further removed from the ‘judicial and manageable standards’ whose absence triggers the application of the act of state doctrine (Buttes Gas, at 938) than are foreign judicial decisions. All judicial decisions are, at heart, bound by more or less the same standards of due process, and all justify themselves according to exclusively legal standards.
I wonder, however, why the Court of Appeal has not simply applied the ordre public limitation on the act of state doctrine. It has endorsed the existence of this limitation but appears not to have applied to the case before it. Yet a denial of justice based on undue governmental interference should be fairly easily regarded as offending the English ordre public. It certainly offends Article 6 ECHR, and the Convention has been regarded as part of the English and a European ordre public (Loizidou v Turkey (Article 50), para 48; In re J [2005] UKHL 40, [2006] 1 AC 80, para 44); the Convention is also, in any event, based also on age-old rules of English law (cf. Brown v Stott [2003] 1 AC 681, per Lord Steyn). Moreover, there is even a duty under the ECHR not to recognise foreign judgments that have been made in disregard of Article 6 standards: Pellegrini v Italy, para 40.
There is some difficulty in applying the ordre public approach here, it must be admitted. This is because the case is not about a recognition of the Russian judgment as such, which may be granted or withheld in the usual manner. Rosneft is not asking that the Russian judgment be enforced in England; in fact, the judgment probably cannot be enforced in England simply because it does not oblige Yukos to do anything. It has only anulled the arbitral award in Yukos’s favour. The case in England is only about the recognition of the arbitral award. In deciding on this, the question arises incidentally whether the Russian judgment has removed the award as a matter of Russian law (under which the arbitration was held). It is this effect in Russian law that Yukos attacks, not any effect of the Russian judgment in English law. If, therefore, an ordre public approach was to be applied, it would not be the traditional one of refusing recognition and enforcement of a judgment for violation of the ordre public. Rather, the English ordre public would be given a form of indirect application. It would not bar the enforcement of the judgment, because that is not being sought, but rather the incidental recognition of the judgment as having annulled the award. The principle of defending one’s own ordre public in decisions on the enforcement of foreign judgments would seem to support this indirect application, as well. However, the Court of Appeal appears not to have considered this issue; the matter may not have been put to it by Yukos.
In any event, the duty under the ECHR not to recognise judgments emanating from unfair trials (Pellegrini v Italy) opens the way to another (probable) limitation on the act of state doctrine: As regards other rules of non-justiciability (principally relating to the Royal Prerogative), English courts have held that while certain areas were forbidden to them, they coud venture into them if their inquiry had a sufficient ‘foothold‘ in domestic law, particularly in statute law. In other words: if a statute mandated or allowed the courts to tackle a question that usually would be non-justiciable, the limit on the courts’ institutional competence fell away: Marchiori v Environment Agency [2002] EWCA Civ 3, para 40: Occidental Exploration & Production Co v Republic of Ecuador [2005] EWCA Viv 1116, [2006] QB 432, para 31; R (Gentle) v Prime Minister [2006] EWCA Civ 1689, [2007] QB 689, paras 30, 34-5; R (CND) v Prime Minister [2002] EWHC 2777 (Admin), para 40; Harrow Community Support Ltd v Secretary of State for Defence [2012] EWHC 1921, para 25. This is true in particular where the statute in question is the Human Rights Act 1998; the litigation of human rights law therefore will not be encumbered by issues of justiciability; see Marchiori and Gentle, ibid.
If this is accepted in relation to the act of state doctrine as well, the relevant ‘foothold‘ in cases like Yukos v Rosneft would be not only the principle of defending the English ordre public (applied indirectly as explained above), but by the same token Article 6 ECHR as applied in Pellegrini v Italy (read with s. 6 of the Human Rights Act 1998, which applies the ECHR to UK courts). I think this limitation on the act of state doctrine should be recognised. Not only is is axiomatic that Parliament can take away limits of justiciability (because it can do anything), but because the act of state doctrine is not a rule of international law but a reflection of the relative institutional competence of the courts and the executive, a legal ‘handle’ on a case provided by a statute should put the case firmly within the province of the courts.
In the end, I have no doubt that this case will go to the Supreme Court. Its political relevance should see to that. (But then, I have been wrong in such an assumption before…) The Supreme Court may well come to the same conclusion as the Court of Appeal, but it just might take a different route to get there.