THE AUTHOR:
Zeyad Abouellail, Senior Legal Officer at Jus Mundi
Arbitration Aftermath with Zeyad Abouellail and Esen Aydın: Your trusted source for the latest post-award developments in the dynamic world of investor-State and commercial arbitration. Back with a fresh perspective, Zeyad focuses on cases involving States, ministries, and public entities, while Esen handles disputes between private parties. From settlements and compliance with awards to recognition, enforcement procedures, annulment, and beyond. Each week, we bring you global insights and updates to navigate this ever-evolving landscape.
GBC Oil v. Ministry of Infrastructure and Energy of Albania, the National Agency of Natural Resources and Albpetrol
Funder Enforces USD 12 Million Award Against Albania in the US
ICC Case No. 22676/GR
Institution: ICC (International Chamber of Commerce)
Tribunal: Christophe Seraglini (President), Sabine Konrad, Loretta Malintoppi (Appointed by the institution)
Seat of arbitration: Zurich, Switzerland
On 14 February, the United States District Court for the District of Columbia granted third-party funder Omni Bridgeway’s request for default judgment and confirmed a USD 12.6 million ICC Award against Albania’s Ministry of Infrastructure and Energy (“MIE”), National Agency of Natural Resources (“AKBN”) and the Albanian national oil company Albpetrol.
Background
The dispute stemmed from agreements under which AKBN and Albpetrol, representing the Albanian Ministry of Energy (now the Ministry of Infrastructure and Energy), granted Cayman Islands-based GBC Oil’s (“GBC”) licences to operate three state-owned oil fields in southwestern Albania.
Following Albpetrol’s issuance of termination notices and takeover of two fields in 2017, GBC initiated ICC arbitration against MIE, AKBN and Albpetrol (“the respondents”) in March 2017, initially claiming USD 113 million in damages – a figure later reduced to around USD 87 million.
GBC alleged breach of a fiscal stabilisation clause within the licence agreements, contending that MIE and AKBN were obligated to implement all necessary measures to eliminate the negative economic impact of legislative changes on GBC. Additionally, GBC sought compensation for the confiscation of the oil fields.
In July 2020, the tribunal rendered its Final Award, affirming its jurisdiction over all respondents and dismissing their illegality objections. The tribunal determined that MIE and AKBN had breached their obligations to implement fiscal stabilisation measures under the licence agreements, awarding GBC approximately USD 12.6 million in damages. However, the tribunal declined jurisdiction over GBC’s claim regarding the confiscation of the oil fields.
In May 2023, GBC assigned its rights under the award to the third-party funder Omni Bridgeway (“Omni”), which subsequently commenced enforcement proceedings in the US in July 2023. The enforcement proceedings were initiated against MIE, AKBN and Albpetrol.
Omni attempted to effect service upon the respondents through the Albanian Ministry of Justice via FedEx and email. Despite multiple attempts, the Albanian authorities provided no acknowledgement of service.
In February 2024, the Clerk of the Court entered default against the three respondents. Omni attempted to serve the respondents with the default order by FedEx but received no confirmation of service. Subsequently, Omni filed a petition for entry of default judgment.
Court Enters Default Judgment and Confirms the Award
In its Memorandum Opinion, the United States District Court for the District of Columbia (“Court”) first explained that Omni had complied with the two steps of Federal Rule of Civil Procedure 55 required for entry of default. However, the Court clarified that entry of default is not automatic, particularly when a foreign sovereign is involved, as such cases are governed by the Foreign Sovereign Immunities Act (“FSIA“).
The Court stated that “a court must satisfy itself that it has both subject-matter jurisdiction over the claims, personal jurisdiction over the absent parties, and that the plaintiff has established its right to relief under federal or state law.”
Subject-Matter Jurisdiction
The Court initially established that the respondents, being Albanian government entities, are presumptively immune from US courts’ jurisdiction under the FSIA.
Omni invoked both the waiver exception and the arbitration exception of the FSIA.
In examining the arbitration exception, the Court determined that three jurisdictional elements necessary to establish subject-matter jurisdiction were present (an arbitration agreement, an arbitral award, and a treaty potentially governing the enforcement of the award, i.e. the New York Convention of 1958). Having found the arbitration exception applicable, the Court deemed it unnecessary to address the waiver exception.
Personal jurisdiction
The Court explained that it must establish personal jurisdiction over the respondents, noting that “subject matter jurisdiction plus service of process equals personal jurisdiction“. It emphasised that the FSIA requires strict adherence to prescribed service of process procedures for foreign sovereigns. The Court outlined that the FSIA “prescribes four methods of service, in descending order of preference”, noting that “only the first two methods of service are at issue“.
Regarding the first method, Omni had no special arrangement for service with the respondents. Proceeding to assess the second method, the Court noted that both the United States and Albania are signatories to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (1965) (“Hague Convention”). The Court determined that Omni had satisfied the criteria for default judgment entry under Article 15(2) of the Hague Convention.
Having established Omni’s compliance with the requirements of the Hague Convention, the Court concluded it had personal jurisdiction over the respondents.
Right to relief
Finally, the Court required Omni to demonstrate its entitlement to relief on the merits of its enforcement claim under the New York Convention. The Court noted that Omni had timely initiated the enforcement action within a three-year period and had furnished a certified copy of both the award and the arbitration agreement.
The Court explained that Article V of the New York Convention requires respondents to provide evidence supporting the application of any of the exceptions to enforcement. Given the respondents’ default, the Court reasoned that its obligation is to verify that the dispute was arbitrable under US law and that award enforcement would not contravene US public policy. It concluded that the contractual breach dispute was arbitrable under US law and that the public policy exemption was “inapplicable in light of the United States’ strong commitment to arbitral dispute resolution“.
Consequently, the Court found Omni entitled to judgment on the merits. A separate Order was issued concurrently, granting Omni’s motion for default judgment and confirming the award.
Yukos Universal v. Russia
Hulley Enterprises v. Russia
Veteran Petroleum v. Russia
UK Court of Appeal Upholds Prior Judgment of the High Court, Holding that Issue Estoppel Applies to Issues of Sovereign Immunity
PCA Case No. 2005-04/AA227
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
On 12 February, the Court of Appeals of England and Wales dismissed Russia’s appeal against a judgment of the High Court of Justice of England and Wales that held that the state is estopped from re-litigating the question of whether it had agreed to submit the dispute to arbitration.
Background
In a Judgment dated 1 November 2023, Justice Cockerill of the High Court of Justice of England and Wales (“High Court”) ruled that Russia cannot invoke sovereign immunity to resist enforcement. Cockerill J determined that Russia’s jurisdictional defence had already been litigated in the Dutch set aside proceedings and that the state is estopped from relitigating the question of whether it had agreed to submit the dispute to arbitration (see our previous digest here).
Russia appealed the judgment, contending that issue estoppel does not apply to the determination of whether a State enjoys immunity under the State Immunity Act (“SIA“). Russia argued that under the SIA, an English court must assess state immunity de novo, independently evaluating all arguments and evidence.
Dismissal of Russia’s Appeal
The Court of Appeal (“Court”) dismissed Russia’s contentions and upheld the High Court’s decision that issue estoppel applied to the question of whether Russia had agreed in writing to submit the dispute to arbitration.
Application of Issue Estoppel to Issues Sovereign Immunity
The Court held that the SIA does not prescribe how a court should determine whether an exception applies. Consequently, the ordinary principles of English law, including issue estoppel, must be applied. It explained that “an issue estoppel creates a substantive right which is recognised and protected in English law” and that “there is nothing in the [SIA] which is capable of depriving a party of that right”.
The Court rejected Russia’s assertion that “both state immunity and issue estoppel are principles of public policy, and that the principle of issue estoppel should give way to state immunity because the latter is of a higher order of importance”. It reasoned that the UK’s public policy regarding state immunity is reflected in the SIA provisions. An English court must therefore determine whether an immunity exception applies by implementing the ordinary rules of English law.
Special Circumstances
Russia argued that special circumstances should prevent the application of issue estoppel, citing the pending procedural fraud challenge before the Dutch Supreme Court and a possible reference to the Court of Justice of the European Union (“CJEU”) by the Dutch court.
Regarding the pending procedural fraud challenge, the Court explained that the fraud allegations pertained to the conduct of the arbitration rather than the question of whether Russia had agreed to arbitrate. Therefore, it did not affect the applicability issue estoppel. The Court emphasised that the question of interpretation of the Energy Charter Treaty (1994) (“ECT”) had been conclusively determined before the Dutch courts, making it “very difficult to see how a question of interpretation requiring a reference to the ECJ could arise“.
Russia further contended that the exceptional nature of sovereign immunity constituted special circumstances. The Court dismissed this argument, stating that it “amounts to saying that issue estoppel will never apply to an issue of state immunity”.
The Court explained that giving effect to the issue estoppel arising from the Dutch judgment “rather than putting the award creditor to the trouble and expense of litigating the issue all over again, seems to me to be in accordance with the demands of justice”. It added that this approach aligned with the principle that arbitral awards, “even against states, should be honoured without delay and without the kind of trench warfare seen in the present case”.
The Court of Appeal accordingly upheld the High Court’s judgment, concluding that Russia had agreed in writing to submit the dispute to arbitration and was, therefore, not immune from the English courts’ jurisdiction.
AES Solar and others (PV Investors) v. Spain
Amsterdam District Court Finds that Intra-EU ECT Award Constitutes State Aid and Orders Investors to Repay Any Compensation Recovered
PCA Case No. 2012-14
Institution: PCA (Permanent Court of Arbitration)
Tribunal: Gabrielle Kaufmann-Kohler (President), Charles N. Brower (Appointed by the claimants), Bernardo Sepúlveda-Amor (Appointed by the State)
Seat of arbitration: Geneva, Switzerland
On 5 February, the Amsterdam District Court ruled that the arbitral award granted to Dutch-based AES Solar Energy (“AES“) and Ampere Equity Fund (“AEF“) constitutes state aid under EU law, and consequently, its enforcement is subject to approval of the European Commission.
Background
The arbitration proceedings arose from Spain’s legislative and regulatory reforms in the renewable energy sector. A consortium of 26 investors in photovoltaic power plants, including AES and AEF, commenced arbitration proceedings under the ECT in 2011.
In an Award on Jurisdiction in 2014, the tribunal rejected Spain‘s intra-EU objection. In February 2020, the tribunal determined that Spain had breached the ECT and ordered payment of approximately EUR 90 million to the claimants. AES and AEF were awarded EUR 15.4 million and EUR 11.1 million respectively.
The Swiss Federal Tribunal subsequently rejected Spain’s request to set aside the final award.
Thereafter, both AES and AEF assigned their award rights to Blasket Renewable Investment. In the US, enforcement proceedings remain stayed following the US Court of Appeals for the District of Columbia’s August 2024 ruling that the intra-EU nature of the disputes could not support Spain’s immunity arguments and that district courts possess jurisdiction to enforce the awards under the FSIA’s arbitration exception (See our previous digest here).
In the Netherlands, Spain instituted proceedings before the Amsterdam District Court seeking a declaration that the award constituted unauthorised state aid and could not be lawfully enforced until the European Commission (“EC”) had assessed its compatibility with EU law.
Findings on State Aid and Return of Payments
In its Order, the Court determined that the payment to be made by Spain pursuant to the award fulfilled the criteria for State aid within the meaning of Article 107(1) Treaty on the Functioning of the European Union (2016) (“TFEU”). The Court established that the payment would be disbursed through Spain’s public funds; that it would confer a selective advantage on AES and AEF over other renewable energy sector investors; and that it had the potential to distort the EU internal market, as other energy investors who had not participated in the arbitration would not receive similar compensation.
The Court held that the standstill obligation under EU state aid rules was applicable. It elaborated that Article 108(3) of the TFEU mandates that any state aid measure must receive approval from the EC prior to implementation. Given that Spain’s payment obligation under the arbitral award lacked the approval of the EC, the Court concluded that any payment would contravene EU law.
Consequently, the Court held that Spain had acted lawfully in withholding payment to AES and AEF pending the EC’s determination of the award’s compatibility with EU state aid law. Therefore, any enforcement action undertaken by AES and AEF (or their assignee) to recover the compensation was deemed contrary to EU law. The Court further ruled that if Spain had previously made payments under the arbitration award, AES and AEF (or their assignee) were required to return such funds.
AES and AEF contended that the award did not constitute new state aid, but rather represented compensation for regulatory changes. The Court dismissed this argument, reasoning that the award created an additional financial benefit beyond that received by other investors under Spain’s renewable energy subsidy schemes. Moreover, the compensation altered AES and AEF’s economic conditions in a manner that could distort competition, rendering it equivalent to a state aid measure.
The Court ultimately determined that Spain was not obligated to honour the award until the EC deemed it compatible with EU law, and that any enforcement attempts, whether within the EU or internationally, would violate EU law.
Vento Motorcycles v. Mexico
Ontario Court of Appeal Sets Aside NAFTA Award Due to Appearance of Bias of Arbitrator
ICSID Case No. ARB(AF)/17/3
Institution: ICSID (International Centre for Settlement of Investment Disputes)
Tribunal: Andrés Rigo Sureda (President), David A. Gantz (Appointed by the claimant), Hugo Perezcano Díaz (Appointed by the State)
Seat of arbitration: Toronto, Canada
On 14 February, the Ontario Court of Appeal set aside a NAFTA award rendered against Mexico in favour of US-based Vento Motorcycles Inc. (“Vento“), finding that reasonable apprehension of bias of the state-appointed arbitrator warranted the set aside of the award.
Background
The dispute arises from Mexico’s denial of North American Free Trade Agreement (“NAFTA”) preferential tariff treatment to motorcycles that Vento was marketing in Mexico. Vento initiated arbitration under the ICSID Additional Facility Rules (2006) in August 2017. In July 2020, the tribunal issued its Award, dismissing Vento’s claims on the merits, concluding that Mexico had neither breached the FET and MFN provisions of the NAFTA nor had its actions been arbitrary or discriminatory (See our previous digest here).
Vento sought to set aside the award, contending that it was denied the opportunity to present its case and that the state-appointed arbitrator, Mr Hugo Perezcano Diaz, had demonstrated reasonable apprehension of bias. Vento alleged that during the arbitration, Mexico had offered Mr Perezcano potential lucrative opportunities for appointment to the panel of arbitrators of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) and United States-Mexico-Canada Agreement (“USMCA”), and that these discussions remained undisclosed.
The Ontario Superior Court dismissed Mexico’s application to set aside the award in October 2023, determining that the investor had failed to establish that fair hearing requirements were not met, and that Vento had been afforded sufficient opportunity to present its case. Whilst the Court found that the conduct of the state-appointed arbitrator did give rise to reasonable apprehension of bias, it exercised its discretion and declined to set aside the award (See our previous digest here).
Subsequently, Vento appealed the Ontario Superior Court’s decision. In response, Mexico did not contest the finding of reasonable apprehension of bias but maintained that the Ontario Superior Court had properly exercised its discretion in declining to set aside the award.
Decision
In its Judgment, the Ontario Court of Appeal (“Court“) determined that the Superior Court erred in failing to set aside the award.
The Court first explained that the two pillars of natural justice – the requirement of a fair hearing and the requirement that the decision maker be impartial or unbiased “are basic features of the common law, so important that their existence goes without saying“. The Court further elaborated that Canadian law adopts an objective approach to establishing bias. The question is not whether bias existed but whether there exists a reasonable apprehension of bias.
The Court reaffirmed that upon establishment of a reasonable apprehension of bias, the arbitrator must be disqualified. Moreover, if a decision has already been rendered, that decision is void. This principle applies equally to judicial and arbitral proceedings, safeguarding fairness and maintaining confidence in the adjudicative process. The rule against bias is strict, and its breach cannot be excused based on perceived lack of impact on the final outcome or concerns regarding the cost and inconvenience of recommencing arbitration.
The Court held that the Superior Court erred in concluding that the Tribunal’s award remained valid because the other two arbitrators were presumed impartial. The Court emphasised that it is impossible to determine the extent of a biased arbitrator’s influence on the tribunal’s decision. A tribunal must maintain independence and impartiality in its entirety, not merely in its majority. Drawing upon Canadian and international jurisprudence, the Court affirmed that the participation of a biased arbitrator “poisons the well” and vitiates the entire tribunal’s decision, even in cases of unanimous decisions.
The Court therefore found that the Superior Court had incorrectly characterised the apprehension of bias as a “procedural error” subject to discretionary review. Instead, bias constitutes a fundamental violation of natural justice requiring automatic remedy.
The Court concluded by stating that “this result is unfortunate, to be sure, given the importance of finality and economic efficiency in commercial arbitration. But it is the only result that is appropriate in the circumstances. It is the only result that guarantees the integrity of the commercial arbitration process.”
Accordingly, the Court set aside the award.
ABOUT THE AUTHOR
Zeyad Abouellail is a Senior Legal Officer at Jus Mundi and a PhD candidate & teaching assistant at Paris-Saclay University. His doctoral research focuses on the post-award phase in investment arbitration, alongside his teaching responsibilities in civil and contract law. Zeyad regularly speaks on the intersection of Artificial Intelligence and law. He holds Master’s Degrees in International Business Law from both Paris-Saclay University and Paris 1 Panthéon-Sorbonne University. Before joining Jus Mundi, Zeyad interned at several law firms in international arbitration and corporate law in Cairo, Egypt.
