Whether Parties Agreed to Arbitrate Is Jurisdictional and Requires Independent Analysis by a U.S. Court in a Recognition Proceeding

In a precedential decision that will impact numerous recognition proceedings in the U.S., the United States Court of Appeals for the District of Columbia Circuit held that whether an arbitration agreement exists is a jurisdictional question that must be independently considered by a district court without giving a binding effect to the arbitral tribunal’s determination of this jurisdictional fact. See Hulley Enters. Ltd., et. al. v. Russian Federation, No. 23-7174 (D.C. Cir. Aug. 5, 2025)

Hulley Enterprises arose from a recognition proceeding commenced by several shareholders of OAO Yukos Oil Co. (“Yukos”) against the Russian Federation in the United States. Shareholders of Yukos challenged the expropriation of Yukos by the Russian Federation by commencing an arbitration proceeding in the Permanent Court of Arbitration (PCA) in the Hague. The Yukos shareholders argued in the PCA that the Russian Federation violated their rights under the Energy Charter Treaty (the “Treaty”), which the Russian Federation signed in 1994, and which contains an arbitration provision for resolution of any disputes arising thereunder between investors and the signatory country. The Russian Federation argued in the PCA throughout the proceedings that the arbitral tribunal lacked jurisdiction over the dispute because, while the Russian Federation signed the Treaty, the Russian Parliament never ratified it, and a provisional application of the Treaty by the Russian Federation without the parliamentary ratification was inconsistent with the country’s constitution, laws, or regulations. The arbitral tribunal issued an interim award in November 2009, rejecting Russia’s jurisdictional challenge, and issued final awards in July 2014, finding that Russia violated the Treaty and awarded the shareholders over $50 billion in damages. The Russian Federation challenged the award in the Dutch courts, and the Dutch Supreme Court ultimately affirmed that the arbitral tribunal had jurisdiction over the dispute.

While proceedings were pending in the Dutch courts, Yukos shareholders brought suit in the United States District Court for the District of Columbia to confirm and enforce the arbitral PCA award. Russia moved to dismiss the suit, arguing the arbitration provision in the Foreign Sovereign Immunities Act (FSIA) did not apply because there was no valid arbitration agreement between Russia and the shareholders. The district court denied Russia’s motion to dismiss and concluded it had subject matter jurisdiction because the FSIA’s arbitration exception applied. See Hulley Enters. Ltd. v. Russian Federation, No. 14-cv-1996, 2023 WL 8005099, at *12 (D.D.C. Nov. 17, 2023). The district court reasoned that the terms of the Treaty demonstrated the existence of the arbitration agreement but that if there was any doubt as to this fact, the arbitral tribunal’s determination of this fact was “binding” on the court. 

On appeal, the District of Columbia Circuit stated that, unless one of the nine exceptions enumerated in the FSIA applied, the federal courts lack subject matter jurisdiction against foreign sovereigns. The court continued that the arbitration exception in the FSIA requires a finding that an arbitration agreement exists, that there is an arbitration award, and that there is a treaty that may govern the award. Citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94 (1998), the District of Columbia Circuit emphasized that jurisdictional questions must be independently analyzed by district courts and the latter “may not defer to an arbitral tribunal or otherwise outsource the obligation to determine jurisdictional facts that go to the waiver of sovereign immunity under the FSIA.” Hulley, Slip Op. at 7. The court then considered whether Russia’s arguments challenge the existence or validity of an arbitration agreement, which questions are jurisdictional, or whether an arbitration agreement covers a particular dispute, which is not jurisdictional. The Court of Appeals concluded Russia’s arguments presented jurisdictional questions.

The Court of Appeals observed that “an arbitration provision in an investment treaty can constitute an agreement for the benefit of a private party that ‘operates as a unilateral offer to arbitrate’ and may become an arbitration agreement with a private party when the private party accepts the offer.” Id. at 9 (internal citations omitted). Because Russia claimed it never made an offer to arbitrate to anyone through Russia’s signing of the PCA, and even if it did, the provisional signing of the arbitration clause was inconsistent with Russian law, the district court on remand must independently decide these questions. 

In contrast, with respect to Russia’s argument that the Yukos shareholders were not investors withing the meaning of the arbitration clause in the PCA, the Court of Appeals observed that this argument was not jurisdictional because it was about the scope of the agreement, and the district court was correct to rely on the determination of this issue by the arbitral tribunal. 

The District of Columbia Circuit also addressed another issue of great import to the arbitration community: whether a U.S. court should give preclusive effect to a decision by a foreign court that a valid arbitration agreement existed. The Court of Appeals noted that U.S. courts give preclusive effects to jurisdictional decisions by other U.S. courts, but the Court of Appeals was aware of no case, and the parties pointed to none, in which a U.S. court has given preclusive effect to a foreign judgment in order to exercise jurisdiction over a foreign sovereign under the FSIA. Id. at 14. The Court of Appeals said that if the district court decides to address this issue, the district court must apply the factors set out in Hilton v. Guyot, 159 U.S. 113, 163-67 (1895) and should invite the United States to express the government’s position on this issue.

The Hulley decision presents an important reminder to the arbitration community that U.S. courts must independently determine their jurisdiction to decide whether to recognize and to enforce foreign arbitral awards. The Hulley case may also present an opportunity for U.S. courts to address whether to give preclusive effect to foreign courts’ determinations of facts that go to U.S. courts’ jurisdictional analysis.