The D.C. District Court holds that a tribunal's ruling on the existence of an arbitration agreement is binding for purposes of Foreign Sovereign Immunities Act jurisdiction

Hulley holds that a tribunal’s ruling on the existence of an award is binding

The Yukos arbitrations were a series of three arbitrations filed by majority shareholders of the defunct Russian company, Yukos, against Russia. The arbitral tribunals found that they had jurisdiction over the disputes, and, in 2014, issued final awards holding Russia liable. On 17 November 2023, a D.C. District court denied Russia’s motion to dismiss the award confirmation petition for lack of subject matter jurisdiction. Instead, the Court held that where, as in Yukos, disputing parties have clearly and unmistakably delegated to a tribunal the question of whether an arbitral agreement exists, the tribunal’s decision on the matter is binding for purposes of determining the Court’s subject matter jurisdiction under the FSIA.

One exception to the immunity enjoyed by foreign sovereigns is the FSIA’s arbitration exception, 28 U.S.C. § 1605(a)(6), which abrogates a foreign sovereign’s immunity from enforcement of an arbitral award against it made pursuant to an arbitration agreement. In Hulley, Russia argued that the Court lacked subject matter jurisdiction under that exception because no arbitral agreement existed. But as the Court noted, “[f]or the Court’s jurisdiction to attach against a foreign sovereign under the arbitration exception, ‘the existence of an arbitration agreement, an arbitration award and a treaty governing the award are all jurisdictional facts that must be established.’” And the shareholders in Hulley produced the Energy Charter Treaty and their notice of arbitration (which together constituted the arbitral agreement), the arbitral awards, and the New York Convention.

Having been presented with those documents, the Court noted that the burden of persuasion to rebut the prima facie evidence fell on Russia. Russia argued that the Court had to determine de novo whether an arbitration agreement existed. The Court disagreed. Instead, it found that the parties had clearly and unmistakably delegated jurisdictional determinations (including as to the existence of an arbitration agreement) to the tribunals. First, Russia had issued a letter in 2005 accepting the jurisdiction of the tribunals to determine their own jurisdiction. Second, the parties’ agreement to arbitrate under the 1976 UNCITRAL Rules also constituted a clear and unambiguous delegation, as Article 21 of the Rules provides that a tribunal has the power to rule on its jurisdiction, including with respect to the existence of an arbitration agreement.

The delegation was dispositive. Relying on D.C. Circuit precedent in Stileks v. Moldova and Chevron v. Ecuador, the Court specifically held that, because of the delegation, the arbitral tribunals’ determination that an arbitration agreement existed “is [ ] binding on this Court, not only blunting but effectively precluding the Russian Federation from rebutting the presumption to which the Shareholders are entitled.” As the Court explained, “[w]here, as here, ‘clear and unmistakable’ evidence is presented that the parties agreed to delegate determinations about arbitrability to the Tribunal, that agreement will be enforced.’” 

Hulley will likely impact pending enforcement actions

Hulley will be relevant to pending cases in the D.C. Circuit and the D.C. District, as the issue of whether and under what circumstances can a tribunal’s ruling on the existence of an arbitration agreement be reviewed in court is unresolved in this Circuit.

The question is before the D.C. Circuit in three pending cases: Nextera v. Spain, 9REN v. Spain, and Blasket v. Spain, making Hulley relevant supplemental authority. Hulley is in agreement with Nextera and 9REN, and another recent case in the D.C. District, Cube Infrastructure v. Spain, and in effective disagreement with Blasket. In fact, the Court distinguished Blasket, finding it inapposite because the agreement formation issue there was about whether Spain had the legal authority to enter into an arbitration agreement in the first place. But, more importantly, the Court directly rejected the reasoning in Blasket, stating that “the respondents in Chevron and Stileks contested the existence of an arbitration agreement covering the investments at issue, similarly to the Russian Federation here, and the D.C. Circuit rejected consideration of such challenges during the jurisdictional inquiry.’” The four to one split in authority makes it more likely that the D.C. Circuit will take the majority position in Nextera, 9REN, and Blasket.

Additionally, while district court opinions are not binding, they are persuasive. The four to one split thus makes it more likely that D.C. District courts will take the majority position until the D.C. Circuit rules in the Spanish cases.

We must wait to see how courts will rule in pending cases, but Hulley makes it is more likely that D.C. District courts and the D.C. Circuit will hold that where parties have clearly and unmistakably delegated the issue of the existence of an arbitration agreement to a tribunal, its jurisdictional ruling is binding on courts for purposes of determining their subject matter jurisdiction under the FSIA.