On August 5, 2025, the U.S. Court of Appeals for the D.C. Circuit penned another chapter in the Hulley Enterprises, Ltd., et al. v. Russian Federation saga,¹ vacating the D.C. District Court’s November 2023 decision denying Russia’s motion to dismiss for lack of subject-matter jurisdiction.²  The D.C. Circuit remanded with instructions for the district court to review de novo Russia’s position, noting that issue preclusion in sovereign immunity determinations under the Foreign Sovereign Immunities Act (“FSIA”)is an issue of first impression in the U.S., with “numerous threshold issues necessary to resolve before giving preclusive effect to foreign judgments[.]”³ 

The Underlying Dispute

At the heart of this dispute is Russia’s expropriation of Yukos, Russia’s largest and first fully privatized oil company.  In 2004, Hulley Enterprises, Ltd., Yukos Universal Ltd., and Veteran Petroleum Ltd. (collectively, the “Shareholders”) initiated an arbitration against the Russian Federation under the Energy Charter Treaty (“ECT”), a multilateral treaty that includes certain protections for foreign investors engaging in energy investments in the territory of a state party to the ECT.  The arbitration proceedings lasted 10 years and culminated in a US$50 billion award in favor of the Shareholders.  Since 2014, the Shareholders have tried to enforce the award in multiple countries, and Russia has argued against enforcement. 

According to the court opinions, Russia had agreed that the arbitral tribunal had jurisdiction to determine whether the claims were subject to arbitration.  Even so, the D.C. Circuit opinion notes that Russia maintained all along that the arbitral tribunal lacked jurisdiction over the dispute.  Russia’s position was based on two arguments.  First, there was no agreement to arbitrate and thus no jurisdiction because provisional application of the treaty violated Russian law.  Second, the Shareholders were not qualified foreign investors of another Contracting (state) Party to the ECT.⁴  The arbitral tribunal rejected Russia’s position, heard the dispute, and issued the award against Russia. 

Russia asked the courts of The Netherlands, the formal place of arbitration, to set aside the award, but ultimately, the Dutch Supreme Court affirmed the award.  Relevant here, that court found that the arbitral tribunal “had jurisdiction over the dispute, that provisional application of the arbitration clause was consistent with Russian law, and that the shareholders were investors within the meaning of the [ECT].”⁵  When the Shareholders sought to enforce the award in the U.S. District Court for the District of Columbia, Russia raised the same jurisdictional arguments.

The FSIA’s Arbitration Exception to Immunity

U.S. Federal Courts are courts of limited jurisdiction.  Foreign states (like Russia here) cannot be sued on civil claims in U.S. courts unless one of the enumerated exceptions to sovereign immunity under the FSIA applies.  If no exception applies, the court lacks subject-matter jurisdiction and cannot hear the case.  To establish subject-matter jurisdiction, the Shareholders relied upon the arbitration exception to sovereign immunity contained in 28 U.S.C. § 1605(a)(6). 

Article 26 of the ECT contains arbitration provisions which courts in the U.S. have construed as a state’s standing offer to arbitrate with a foreign investor.  When a state signs the ECT, “even before it is ratified, [the ECT applies] to the extent such provisional application is not inconsistent with the [signatory’s] constitution, laws or regulations.”⁶  While the Russian Federation’s Vice Prime Minister signed the ECT in 1994, the Russian Parliament never ratified it and ultimately, Russia withdrew from the ECT in 2009.  

Russia’s Jurisdictional Challenges

Russia argued that the district court did not have subject-matter jurisdiction because the arbitration exception did not apply as, in Russia’s view, it never made an agreement to arbitrate.  In support, Russia raised the same arguments as it had in the underlying arbitration: (1) it never made an offer to arbitrate under the ECT because provisional application of the ECT’s arbitration provision would have been inconsistent with Russian law;⁷ and (2) even if Russia were provisionally bound by the arbitration clause such that it constituted a standing offer to arbitrate, the Shareholders were not investors within the meaning of the ECT.

The arbitral tribunal had rejected Russia’s challenges to its jurisdiction in November 2009, as did the Hague Court of Appeal in February 2020, and the Dutch Supreme Court in November 2021.  And, earlier this year, the English High Court determined that the Hague Court of Appeal judgment “estopped” Russia from arguing that it had not agreed to arbitrate.⁸  Reviewing the same challenges to enforcement, the district court deferred to the jurisdictional determinations of the arbitral tribunal, following LLC SPC Stileks v. Republic of Moldova.⁹  In so deferring, the district court determined that Russia had agreed to submit to the arbitrators the question of whether an agreement to arbitrate existed under the ECT.  The district court thus determined that Russia had made an agreement to arbitrate, the FSIA arbitration exception applied, and it had subject-matter jurisdiction.

Federal Courts Cannot Rely on Tribunal Determinations for Jurisdictional Issues

The D.C. Circuit, however, disagreed.  It began its analysis by observing the obvious point that the arbitral award cannot be enforced in the United States if Russia enjoys sovereign immunity from an enforcement action.  And, as the exceptions to the FSIA are the only basis for U.S. courts to obtain jurisdiction over foreign sovereigns in a civil case, the Shareholders had to prove that one of those exceptions applied.  Here, the Shareholders relied on the FSIA’s arbitration exception, which provides:

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case . . . in which the action is brought, either to enforce an [arbitration] agreement made by the foreign state with or for the benefit of a private party  . . . or to confirm an award made pursuant to such an agreement to arbitrate, if . . . the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards.¹⁰

The D.C. Circuit held that the district court had erred in its deference to the arbitral tribunal on the jurisdictional question and applied by mistake the holding from Stileks.¹¹  It remanded the case, instructing the district court to review de novo whether the parties made an agreement to arbitrate. 

Before it could conclude that the arbitration exception applied in this case, the D.C. Circuit confirmed that the district court must “independently confirm three jurisdictional facts: (1) the existence of an arbitration agreement; (2) an arbitration award; and (3) a treaty that may govern the award.”¹²  Importantly, and in contrast to the English Court’s recent decision, the D.C. Circuit noted that “[f]ederal courts 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.”¹³  And in so doing, the district court must determine on its own whether provisional application of the ECT’s arbitration provision is consistent with Russian law.  Thus, it was error for the district court to rely on the tribunal’s determination on these questions.

Another question for the district court—and one of significant interest—is what effect to give the Dutch Courts’ judgments?  The Shareholders have argued that U.S. law on issue preclusion bars Russia from relitigating issues that were decided by the Dutch Courts.  The district court did not reach that issue because it relied on the arbitral tribunal’s findings. 

What’s Next?

The D.C. Circuit ordered that the case be remanded and that the district court apply a de novo review to Russia’s argument that it retained sovereign immunity because there was no valid arbitration agreement triggering a waiver of immunity under the FSIA.  The court made clear that this was a question of the existence or validity of the arbitration agreement, unlike Russia’s argument about whether the Shareholders qualified for protection under the ECT, which was a question of scope.  While the latter is a question about arbitrability that binds the court to the tribunal’s determination, the former is a jurisdictional question that requires independent analysis. 

The D.C. Circuit noted that recognizing foreign judgments (or issue preclusion) in sovereign immunity determinations under the FSIA is an issue of first impression in the U.S.  And since there are “numerous threshold issues necessary to resolve before giving preclusive effect to foreign judgments,” the D.C. Circuit remanded for the district court to fully address the issues firsthand. 

To assist the district court on remand, the D.C. Circuit provided the following guidance:  First, the district court must decide whether issue preclusion applies to jurisdictional questions under the FSIA.  If issue preclusion indeed applies, the district court must next determine whether, under Hilton v. Guyot,¹⁴ principles of comity weigh in favor of recognizing the Dutch judgments upholding the award.  Here, that would mean allowing the decisions of the Dutch courts rejecting Russia’s jurisdictional arguments to bar Russia from relitigating the existence of an arbitration agreement in U.S. courts.  Finally, because applying issue preclusion to foreign judgments “is a novel issue that may implicate foreign relations and international law[,]” on remand, “the district court [should] invite the United States to express the government’s position on this issue.”

A subsequent appeal to the D.C. Circuit can be expected after the district court issues its decision on remand.

Some Takeaways

• In FSIA cases, U.S. courts must independently determine jurisdictional issues; they cannot defer to arbitral tribunals’ determinations thereon even if the parties submitted them to the arbitral tribunal.
• Challenges to the validity or existence of an arbitration agreement are jurisdictional issues, but challenges to the scope of the issues covered by an arbitration agreement are not.
• The preclusive effect of foreign judgments on FSIA jurisdictional issues remains an open and significant issue.
• The outcome of this case may have implications for the enforcement of arbitral awards against foreign states and the role of international comity in U.S. courts.

1. Hulley Enterprises Ltd. et al. v. Russian Federation, No. 23-7174, ]2025 WL 2216545 (D.C. Cir. Aug. 5, 2025).↩
2. Hulley Enterprises Ltd. et al. v. Russian Federation, No. CV 14-1996, 2023 WL 8005099 (D.D.C. Nov. 17, 2023), vacated and remanded, No. 23-7174, 2025 WL 2216545 (D.C. Cir. Aug. 5, 2025).↩
3. 2025 WL 2216545, at *6.↩
4. Id. at *1.↩
5. Id. at *4.↩
6. Id. at *3. ↩
7. As regards the first argument, Russia signed the ECT in 1994 and agreed to apply the treaty on a provisional basis pending its ratification; this provisional application is possible to the extent that it is not inconsistent with the constitution, laws, or regulations of the relevant country.  Russia now contends that its law does not permit arbitration of “public law disputes,” and hence that the ECT’s arbitration provision could not bind it.↩
8. Hulley Enterprises Ltd and others v. The Russian Federation [2025] EWCA Civ 108.↩
9. 985 F.3d 871, 880-81 (D.C. Cir. 2021) (recognizing “the background understanding [] that courts, not arbitrators, decide questions of arbitrability,” but “[t]hat understanding is overcome, however, if the parties clearly and unmistakably provide otherwise” such that “[i]f arbitrability itself is delegated to the arbitrators, ‘the court’s standard for reviewing the arbitrator’s decision about that matter should not differ from the standard courts apply when they review any other matter that the parties have agreed to arbitrate.”)↩
10. 28 U.S.C. § 1605(a)(6).↩
11. 2025 WL 2216545, at *5.↩
12. Id. at *3.↩
13. Id.↩
14. 159 U.S. 113, 163-67, 16 S.Ct. 139, 40 L.Ed. 95 (1895).↩