THE AUTHOR:
Zeyad Abouellail, Legal Content Officer at Jus Mundi
Introducing “Arbitration Aftermath” by Zeyad Abouellail: Your guide to the latest post-award developments in the evolving landscape of investor-State and commercial arbitration. Each week, Zeyad explores a range of post-award news involving sovereign States with a global perspective –– from post-award settlements, compliance with awards, to recognition and enforcement procedures, annulment, and more.
Yukos Universal v. Russia
Hulley Enterprises v. Russia
Veteran Petroleum v. Russia
Dutch Advocate-General recommends upholding of attachment of Russian IP assets by Yukos investors
PCA Cases No. 2005-03/AA226, 2005-04/AA227, 2005-05/AA228
Institution: PCA (Permanent Court of Arbitration)
Tribunal: L. Yves Fortier (President), Charles H. Poncet (Appointed by the claimants), Stephen M. Schwebel (Appointed by the State)
Seat of arbitration: The Hague, Netherlands
Documents filed in US enforcement proceedings reveal that Dutch Advocate-General Paul Vlas has recommended that the Supreme Court uphold attachments obtained by investors in Yukos Universal, Hulley Enterprises, and Veteran Petroleum over Russian assets in state-owned FKP Sojuzplodoimport (“FKP”). FKP owns trademarks and copyrights for various Russian vodka brands.
Advocate-General Vlas presented his Opinion on September 22nd at a hearing before the Dutch Supreme Court. He stated that the awards are enforceable in the Netherlands, despite a prior Supreme Court decision that set aside judgments upholding the awards. The case was then referred to the Amsterdam Court of Appeals to determine whether the awards were obtained through fraudulent means and in violation of Dutch public policy.
Background: set-aside proceedings
In April 2016, the Hague District Court granted Russia’s request to set aside the infamous USD 50 billion awards, holding that the tribunal lacked jurisdiction to hear the dispute under the Energy Charter Treaty. After the investors appealed the judgment, the Hague District Court reinstated the awards in February 2020. In November 2021, the Dutch Supreme Court rejected Russia’s jurisdictional challenge to the award, along with most of its other grounds for challenge, but remanded the case to the Amsterdam Court of Appeal to address the State’s fraud arguments.
Attachment of Russian assets in FKP
After the District Court of The Hague granted leave to enforce the awards in April 2020, the investors targeted Russian assets in FKP, attaching trademarks and copyrights used in the marketing of Russian vodka in the Benelux region.
However, the attachments were partially lifted by the the Hague District Court in October 2020. The same court then confirmed in June 2022 its partial lifting of the seizures “to the extent that it has been imposed at the expense of FKP” and to “the copyrights on the design of the products produced and sold under the Brands by or with the permission of FKP and/or the Russian Federation.”
The Hague District Court ruled that the November 2021 Supreme Court decision did not result in the reinstatement of the decisions that had set aside the awards and did not suspend the enforcement of the awards.
It found that FKP did not have full ownership of the attached assets, as Russia had legal and operational control over them. The court also rejected Russia’s sovereign immunity arguments, affirming that the IP rights were intended for purposes other than non-commercial government purposes under Article 19 of the Convention on Jurisdictional Immunities of States and their Property.
Advocate-General Vlas, in his Opinion, confirmed the reasoning of the Hague District Court and recommended that the Supreme Court uphold the partial attachment. He clarified that the November 2021 Supreme Court decision has no bearing on the enforceability of the awards in the Netherlands.
Vlas further explained that the Court of Appeal fully justified its decision to lift the attachment insofar as it was imposed on FKP, which is an independent legal entity with its own independent capital, that did not have operational control over the IP rights.
He also pointed out that the risk of non-recoupment and the duration of the set-aside proceedings were significant factors that the Court of Appeal considered when rejecting Russia’s request for a stay of enforcement.
* Only an unofficial English translation of the Opinion of the Advocate-General was filed in the US enforcement proceedings.
Iraq v. Turkey
Iraq and Turkey are at odds over identifying the correct creditor of ICC award in US enforcement proceedings, while set-aside is pending in Paris
ICC Case No. 20273/AGF/ZF/AYZ/ELU
Institution: ICC (International Chamber of Commerce)
Tribunal: David A.R. Williams (President), Christopher John Greenwood (Appointed by Iraq), Peter Tomka (Appointed by Turkey)
Seat of arbitration: Paris, France
Iraq and Turkey are locked in a debate over the correct party entitled to damages after a disagreement over interest rate calculation in the context of US enforcement proceedings.
Background
In a February 2023 Final Award, an ICC tribunal brought an end to a 9-year dispute relating to the export of crude oil pursuant to a 1973 agreement entered between both States.
Iraq launched the arbitration in 2014 against Turkey and state-owned enterprise BOTAŞ Petroleum Pipeline Corp (“BOTAS”), alleging that Turkey violated the agreement by allowing crude oil from the Kurdistan Region of Iraq to flow through the pipelines without the consent of Iraq’s Ministry of Oil.
Turkey and BOTAS objected to the tribunal’s jurisdiction, which led to a 2016 Partial Final Award on Jurisdiction. The tribunal found that Iraq’s claims under the 1973 agreement are arbitrable but denied jurisdiction over BOTAS, ruling that it is not a party to the arbitration agreement “as it did not act independently or for its own benefit” and that its participation in the agreement “did not extend beyond acting as Turkey’s agent”.
In its final award, the tribunal awarded more than USD 1.9 billion to Iraq plus interests, while also admitting Turkey’s counterclaims and granting more than USD 500 million plus interests.
US enforcement action
In April 2023, Iraq filed a petition for enforcement in the US District Court for the District of Columbia, seeking a judgment of USD 1.4 billion in conformity with the terms of the award.
While Turkey did not object to confirmation of the award, it contended that it should be recognized as the rightful award-creditor, rather than Iraq. Factoring in the prejudgment interest owed, Turkey maintained that it was entitled to net damages of USD 956 million.
According to Turkey, “Iraq fails to account for the impact of the tribunal’s granting of pre-award interest on the respective total amounts of compensation due to each party under the award and the implications of pre-award interest”.
Turkey further disclosed that it sought a partial set-aside of the award at the seat of arbitration in Paris as regards certain damages awarded to Iraq. It argued that if its application to set-aside is upheld, it will be the net award-creditor “regardless of whether the tribunal’s grant of pre-award interest is taken into account.”
In its most recent submission last week, Iraq argued that, with post-award interest calculated as of September 15, 2023, Turkey is liable for USD 601 million in net damages, with interest continuing to accrue until full payment.
Iraq alleged that Turkey’s erroneous interest calculation applied fixed rates to each component of its damages, rather than the average annual rate ordered by the tribunal, thereby inflating its claim.
Related documents:
- Expert Declaration of Annie Emery submitted in support of Iraq’s application, 22 September 2023
- Declaration of Aloysius P. Llamzon submitted in support of Turkey’s application, 7 September 2023
Stati v. Kazakhstan (I)
Dutch Supreme Court confirms lifting of attachments of shares held by Samruk-Kazyna in KMG Kashagan
SCC Case No. 116/2010
Institution: SCC (Stockholm Chamber of Commerce)
Tribunal: Karl-Heinz Böckstiegel (President), David R. Haigh (Appointed by the claimant), Sergei Lebedev (Appointed by the Arbitration Institute of the SCC)
Seat of arbitration: Stockholm, Sweden
On the 25th of September, the Ministry of Justice of Kazakhstan announced in a press release that the Supreme Court of the Netherlands had confirmed a prior decision of the Hague Court of Appeal, which had lifted attachments obtained by the investors on shares held by sovereign wealth fund Samruk-Kazyna (“Samruk”) in KMG Kashagan (“KMG”)
The Stati parties have been seeking enforcement in various jurisdictions in their decade-long pursuit of a USD 500 million award granted under the Energy Charter Treaty (ECT).
In the Netherlands, the investors attached Samruk’s shares in KMG in 2017. This attachment was confirmed by the Amsterdam District Court in January 2018 and the Amsterdam Court of Appeal in May 2019. However, the decision of the Amsterdam Court of Appeal was set aside by the Supreme Court in December 2020.
In June 2022, the Hague Court of Appeal (“Hague Court”) confirmed the lifting of all attachments on shares held by Samruk in KMG.
According to Kazakhstan, the latest decision of the Supreme Court rejected the Statis’ appeal of the Hague Court judgment. It upheld the reasoning that the Stati parties failed to prove that the shares held by Samruk were intended for purposes other than public purposes. The Hague Court had ruled that the participations held by Samruk are managed with the aim of increasing the national welfare of Kazakhstan and contributing to the economic development of the State. It also rejected the assumption that Samruk managing the shares in a commercial manner altered the wider objective of Samruk to contribute to the economic development of Kazakhstan.
Earlier this year, the Amsterdam District Court denied enforcement of the award, finding that the investors committed procedural fraud during the arbitration and that enforcement would be contrary to Dutch public order. The State’s fraud argument also found success in Belgium (see Decision of the Brussels Court of Appeal, November 2021). Meanwhile, Kazakhstan is seeking to overturn enforcement of the award in the US.
Djibouti v. DCT and DP World
US District Court denies Djibouti’s motion to quash subpoenas obtained by award-creditor in post-judgment discovery
LCIA Case No. 142732
Institution: LCIA (London Court of International Arbitration)
Tribunal: Richard Aikens (President), Peter Leaver (Appointed by the State), Leonard Hoffmann (Appointed by the respondents)
Seat of arbitration: London, United Kingdom
On the 21st of September 2023, the US District Court for the District of Columbia upheld subpoenas served by Doraleh Container Terminal (“DCT”) on 10 banks in its effort to enforce LCIA awards against Djibouti.
Background and arbitration proceeding
The dispute concerned a 2006 concession agreement entered between Djibouti and DCT, a joint venture between the Port of Djibouti and DP World, for the development and operation of the container terminal at the port of Doraleh, an extension of the Port of Djibouti located on the Red Sea.
Alleging corruption, Djibouti initiated arbitration in 2014, seeking a declaration that it is entitled to rescind the concession agreement. The respondents brought counterclaims asserting that Djibouti breached the concession agreement by concluding an agreement with Chinese state-owned China Merchants Port Holdings in 2013 to build the new Doraleh multipurpose port. Djibouti later canceled the DCT concession in 2018.
The tribunal dismissed the entirety of Djibouti’s claims in 2017 and awarded the respondents GBP 7 million in costs, which were paid by Djibouti.
The parties failed to settle the dispute regarding the counterclaims, and the tribunal issued its Third Partial Award in 2019, awarding DCT USD 148 million in damages plus interests and costs. However, the tribunal issued an Award correcting the amount of damages to USD 87 million. Later, in 2019, the tribunal awarded DCT USD 11.3 million in compound interest in a Fourth Partial Award.
US enforcement proceeding
In September 2020, DCT filed a petition to confirm the third and fourth awards in the US District Court for the District of Columbia.
In February 2023, the District Court enforced the awards. In a Memorandum Opinion, it established subject matter jurisdiction, finding that Djibouti implicitly waived sovereign immunity under the Foreign Sovereign Immunities Act (“FSIA”) and that it has jurisdiction under the New York Convention (“NYC”).
The court rejected Djibouti’s contentions that enforcement should be denied on the grounds of inadequate notice and violation of due process pursuant to Article V(1)(b) of the NYC. Additionally, it determined that enforcing the awards would not contravene public policy, in accordance with Article V(2)(b) of the NYC.
Djibouti appealed the judgment and moved to stay in enforcement of the award. In April, the District Court refused to stay enforcement absent posting of a bond by Djibouti. The court explained that “Djibouti remains free to secure a stay in this matter by posting a bond”. The appeal proceeding remains pending.
Post-judgment enforcement efforts
As part of post-judgment discovery, DCT has served subpoenas on 10 banks to obtain information regarding transactions allegedly involving Djibouti’s government. This includes dealings with Chinese state-owned companies and government organizations, Djibouti state-owned entities and government organizations, as well as companies in the port and shipping sector. The banks have not challenged the subpoenas and have cooperated with DCT.
Djibouti challenged the subpoenas and on the 21st of September, the US District Court for the District of Columbia denied Djibouti’s motion. Although it found the motion timely, the court ruled that the subpoenas were proportionate to DCT attempts to enforce the awards.
It found that even if the subpoenas require the production of eleven years’ worth of information, they are limited to transactions of at least USD 25,000 and are not unreasonable. The court also rejected Djibouti’s argument that only DCT’s provisional administrator, and not DCT’s counsel, had the authority to serve the subpoenas.
Parallel arbitrations
In 2018, DP World launched an LCIA arbitration against the Port of Djibouti (LCIA Case No. 184063). Sole arbitrator Maxi Scherer rendered an award in 2021 and the Port of Djibouti’s challenged the arbitrator’s jurisdictional findings under section 67 of the 1996 Arbitration Act. The award was upheld by the High Court in London earlier this year.
DP World and DCT initiated another LCIA arbitration in 2018 against Djibouti (LCIA Case No. 183886). In 2022, sole arbitrator Zachary Douglas found Djibouti liable for around USD 180 million in damages and USD 16 million in interests. DP World filed a petition to enforce the award in the District Court of Columbia earlier this year.
ABOUT THE AUTHOR
Zeyad Abouellail is a Legal Content Officer at Jus Mundi and a PhD candidate & teaching assistant at Paris-Saclay University. His research focuses on the post-award phase in investment arbitration, and he also lectures on civil and contract law. He holds two Master’s Degrees in International Business Law from Paris-Saclay University and Paris 1 Panthéon-Sorbonne University. Prior to joining Jus Mundi, Zeyad interned at several law firms in international arbitration and corporate law in Cairo, Egypt.
