Arbitration Team of the Month #03
Shearman & Sterling needs no introduction. It has acquired a reputation as a go-to advisor for complex and high-stakes disputes and has an impressive track record in both commercial and investment treaty arbitrations.
Following the firm’s extraordinary victory in 2014 against the Russian Federation on behalf of the majority shareholders of former Yukos Oil Company, the US$ 50 billion historic awards rendered by a Tribunal comprising Yves Fortier (Chair), Charles Poncet, and Judge Stephen Schwebel, speak volumes about the firm’s reputation in high-stakes international disputes. After the awards were set aside by The Hague District Court in 2016 on questions of jurisdiction, the Hague Court of Appeal overturned that judgment on appeal on February 18, 2020.
In commercial arbitration, the firm is known, among other things, for securing a record US$ 2.47 billion award in a commercial arbitration for Dow Chemical against a Kuwaiti state-owned entity over a failed joint venture in 2012.
Earlier this year, the firm secured a victory for Algeria in Ortiz v. Algeria, an ICSID case brought under the Spain-Algeria bilateral investment treaty. The Tribunal dismissed the US$ 46 million claims in their entirety.
More recently, in what is a significant development in the field of international arbitration, the firm secured a major victory for Algeria when an ICSID ad hoc Committee chaired by Judge Peter Tomka dismissed Orascom’s application to set aside an award rendered in 2017 by a Tribunal chaired by Professor Gabrielle Kaufmann-Kohler, which had found the investor’s claim to be inadmissible on the ground, inter alia, that it constituted an abuse of rights. In a decision dated September 17, 2020, the Committee refused to annul the Tribunal’s award and found no excess of powers, failure to state reasons, or breach of a fundamental rule of procedure.
Key facts of the case and legal rationale in Orascom TMT Investments v. Algeria
- Luxembourg-based Orascom TMTI (OTMTI), owned and controlled by Egyptian billionaire Naguib Sawiris, was seeking US$4 billion in damages from the Algerian Government for the alleged harassment and interference in the conduct of its business in the Algerian telecom industry, namely Orascom Telecom Algérie (OTA), which operates as Djezzy.
- Mr. Sawiris made his fortune in the telecommunications sector, notably through his ownership interest in OTA since 2002. In 2008, the Algerian Government took actions against OTA, in which Mr. Sawiris’ OTMTI held an indirect stake, for various breaches of Algerian law. Mr. Sawiris in turn alleged that the Algerian Government’s measures against the company were part of a political vendetta against him. He repeatedly expressed his resentment against Algeria in the media, accusing the State of having “broken his dreams”, and proclaimed that he would pursue his claim “no matter how long it takes”, calling it “a matter of principle”.
- As part of the strategy against this alleged persecution, Mr. Sawiris submitted Orascom TMTI’s complaint to ICSID in October 2012. The company claimed that Algeria repeatedly breached its international legal obligations under the 1991 investment treaty between Algeria and the Belgium-Luxembourg Economic Union (Algeria – BLEU BIT), including in the alleged failure to protect OTA’s premises during riots in Algeria.
- Earlier that year, in April 2012, OTA’s Egyptian direct shareholder, Orascom Telecom Holding (OTH), had initiated a $16 billion UNCITRAL arbitration against Algeria in relation to the same dispute, under the 1997 Algeria-Egypt bilateral investment treaty. The arbitral proceedings, administered by the Permanent Court of Arbitration in The Hague, were eventually settled in 2014. Whereas Algeria argued that this had a critical impact on OTMTI’s ICSID case, Orascom TMTI, OTH’s former indirect shareholder, argued that the 2014 settlement had no impact on its parallel, distinct proceedings.
- In an award issued on May 31, 2017, a Tribunal comprised of Gabrielle Kaufmann-Kohler (President), Albert Jan van den Berg, appointed by Orascom TMTI, and Brigitte Stern, appointed by Algeria, held that while it had jurisdiction over the dispute, Orascom TMTI’s claims were inadmissible.
- The Tribunal considered that the dispute at hand was identical to the one brought to arbitration by OTH and that Mr. Sawiris had caused the corporate organs of OTH to crystallize the dispute at the level of OTH when sending the first notice of the dispute to Algeria. The Tribunal further held that by exercising its right to arbitrate against Algeria, OTH had placed itself in the position of being made whole for the alleged harm. Following an in-depth analysis of the relief sought by the Luxembourg-based company, the Arbitral Tribunal concluded that Orascom TMTI’s ICSID claims were either covered by the requests raised in the UNCITRAL arbitration or had or should have been taken into account at the time of the sale of its investment. The Tribunal then found that the settlement agreement put an end to the dispute brought before it in the same way as if an award in the UNCITRAL arbitration had ended the dispute. In the absence of any harm incurred by Orascom TMTI itself, it could not have availed itself of the dispute, irrespective of the content of the settlement agreement and of the sale of its investment prior to the settlement.
- The Arbitral Tribunal further ruled that Orascom TMTI’s conduct constituted an abuse of process: “[Orascom TMTI had] availed itself of the existence of various treaties at different levels of the vertical corporate chain using its rights to treaty arbitration and substantive protection in a manner that conflicts with the purposes of such rights and of investment treaties. For the Tribunal, this conduct must be viewed as an abuse of the system of investment protection”.
- Given the outcome of the case and Orascom TMTI’s abuse of process, the Tribunal ordered Orascom TMTI – which had already incurred legal fees and expenses in excess of US$ 20 million – to pay the entirety of the costs of the proceedings and to reimburse 50% of the fees and expenses which Algeria had incurred in connection with the arbitration, for a total amount of over US$ 3.5 million.
- In September 2017, Orascom TMTI filed an application for partial annulment of the award, seeking to annul the portions of the award relating to admissibility and costs. Orascom TMTI argued that the Tribunal (i) manifestly exceeded its powers, (ii) seriously departed from a fundamental rule of procedure, and (iii) failed to state the reasons upon which the award is based.
- In a decision dated September 17, 2020, an ad hoc Committee chaired by ICJ Judge Peter Tomka and including Ms. Bertha Cooper-Rousseau and Dr. Klaus Sachs rejected the application for partial annulment of the award and ordered Orascom TMTI to bear the costs of the annulment proceedings, amounting to US$ 755 000. The Committee also lifted the stay of enforcement over the award.
- In dismissing Orascom TMTI’s claim that the Tribunal had manifestly exceeded its powers by disregarding the Algeria – BLEU BIT and inventing new “putative rule[s] of law”, the Committee held that “[e]ven when the consent has been granted, there may be situations in which it would be inappropriate for an international court or tribunal to exercise its jurisdiction”. In the Committee’s view, “[i]n the absence of specific provisions on admissibility in the applicable legal instruments”, the rules on admissibility can either be derived from “general international law, in particular from its principles”, or found in the tribunal’s “inherent powers”. The Committee also confirmed that “[d]eriving [a] rule on admissibility from the purpose of investment treaty arbitration was a legitimate exercise by the Tribunal of its function”.
- By reference to the case-law of the International Court of Justice, the Committee further held that having considered that the harm caused by the measures complained of was remedied, “the Tribunal did not need to postpone its examination of OTMTI’s claims to the merits stage of the proceeding” since “[n]o purpose would have been served by continuing the litigation which the Tribunal knew was ‘bound to be fruitless’”.
- The Committee further confirmed that, in dismissing Orascom TMTI’s claim as abusive, “the Tribunal relied on an established legal concept under international law and did not invent any new legal concept in this regard”. The Committee approved the Tribunal’s approach to determining the existence of an abuse of rights “in light of all circumstances of the case”, noting that the Tribunal had applied “a predominantly objective standard”.
Interview with Emmanuel Gaillard and Yas Banifatemi
What do you think of the approach of the Arbitral Tribunal concerning parallel arbitral proceedings brought by different shareholders at different levels of an integrated corporate chain?
The Tribunal tackled the problem squarely, by showing that, depending on the circumstances, parallel claims can be dismissed in their entirety even at the admissibility level. This was a particularly complex case, especially because the arbitral case law had, starting with Lauder, gone down a path that allowed abusive conduct by focusing on each action and each treaty in isolation, without considering the broader factual and legal context involving the same parties and same economic interests. This is the first time a tribunal has effectively captured the entire context and viewed arbitration as a whole, rather than from the isolated viewpoint of each tribunal, notwithstanding that each tribunal is constituted on the basis of a distinct treaty and may have jurisdiction under that treaty.
We are also immensely pleased that the Committee confirmed the Tribunal’s landmark award and stance on this issue. The Committee’s decision is very well-reasoned, in particular with respect to the concept of admissibility. The Committee confirms that deriving rules of admissibility from principles of international law, the tribunal’s inherent powers, and/or the purpose of investment arbitration as a process constitutes a legitimate exercise of the tribunal’s judicial function. This is a very welcome confirmation of the powers of investment tribunals and of their role in the development of investment law.
What impact do you think the Orascom case will have on the issue of “abuse of process” in investment arbitration?
Recognizing abuse of process sends a very strong signal to the investment arbitration community and will no doubt contribute to reducing the growing number of instances of abuse in international arbitration. This is a very welcome development. Absent any recognition of the phenomenon of abuse of process and of legal tools to address situations of abuse, tribunals would be deprived of an effective means to tackle the growing instances of abuse in arbitration. The Orascom award is bound to become a reference, not only in relation to abuse of process but also in its consideration of investment arbitration as a system.
Speaking of Africa, you have recently been engaged by the OHADA to develop and shape the Private International Law regime in the OHADA region with a Uniform Act on conflict of laws, conflicts of jurisdictions, and the circulation of judicial and extrajudicial documents. Could you tell us the meaning of this engagement for Shearman & Sterling?
This opportunity is yet another feather in the cap of our leading Africa practice. Shearman & Sterling is working with a network of highly competent lawyers in various African countries to develop the most appropriate private international law regime that will replace local private international law rules currently applicable in those States. We are proud to bring our experience and expertise to this important project that aims to create a safer investment climate in the 17 OHADA countries.
Shearman & Sterling has the largest team in Paris and continues to branch out globally. What is the secret for the firm to maintain one of the prime choices for clients?
Shearman & Sterling’s international arbitration team was established in Paris in 1987. It was then one of the first specialist teams on the market. Demand for our services grew rapidly and exponentially and we expanded our team to have an additional presence in leading business centers and arbitration hubs such as New York, Washington DC, London, Frankfurt, Singapore, Abu Dhabi, Hong Kong, and Beijing. We thus have broad experience in disputes conducted in accordance with a large variety of rules. This blend of local and international experience, together with our unique track record and thought leadership, makes us the firm of choice for clients around the world.
Congratulations on the new partnership with the UK-based charity human rights at sea to develop an international arbitration-based system of redress for victims of human rights abuses at sea. What motivated the firm to engage in this initiative? How will this initiative change the current state of human rights at sea?
Our principal motivation behind this initiative is our strong belief in the rule of law and our desire to promote its application using international arbitration and public international law, both of which feature among Shearman & Sterling’s foremost areas of expertise.
The initiative itself, which we are calling “Human Rights at Sea Arbitration”, is focused on providing victims of human rights abuses at sea with an effective remedy, which they are utterly lacking under the current legal regimes. Taking inspiration from the investor-State arbitration model, in which the rule of law has been strengthened by individual investors having access to a direct right of claim against the host State, the Human Rights at Sea Arbitration initiative rests on the idea that putting enforcement of human rights in the victim’s hands – again, through a direct right of claim – will significantly improve victims’ access to justice.
Can you tell us about the role of the “human rights at sea” arbitral institution under the initiative? How are States’ and companies’ consent for arbitration obtained?
The ultimate goal is to set up a standalone, institutional system of international arbitration that is readily accessible by victims of human rights abuses at sea. The initiative envisages a self-contained system much like ICSID’s role in the context of the investor-State disputes, but which is specifically tailored to deal with the unique set of issues that human rights abuses at sea entail. These include accessibility, cost-effectiveness, and striking the right balance between confidentiality and transparency.
One of the biggest challenges, as you rightly note, will be how to secure the necessary participants’ consent to arbitrate human rights claims raised by victims. This would include flag States and coastal States with jurisdiction over the victims and/or abusers, as well as companies active in the maritime sphere. Innovative solutions, including ways to incentivize offers of consent – for example, by having ESG-minded banks offer preferential financing arrangements to consenting States and companies – are under development, as are draft model arbitration clauses and offers of consent.
How are the costs of arbitration managed to keep it accessible for victims?
Accessibility would be a key feature of the self-contained, institutional system that we envisage – both in terms of cost and geographic accessibility (which itself can have cost implications). Among the innovative features, we are considering implementing to these ends are a mechanism providing for pro bono representation of victims (something akin to the public defender in some jurisdictions’ criminal justice systems) and a set of procedures for the conduct of virtual or remote hearings. Regarding the latter, the COVID pandemic has provided us with a good deal of experience as to best practices and pitfalls to avoid.
What are the key challenges you see to enforce Human Rights at Sea awards, and what are the potential solutions?
One of the big challenges that enforcement poses is the possibility that a human rights victim, once successful in an arbitration that was specifically tailored to the needs of the human rights at sea context, is left having to seek enforcement before a court. This would bring into play all of the accessibility and cost concerns (as well as others) that the Human Rights at Sea initiative seeks to address. It is also why we have in mind a self-contained system like ICSID, in which the need to seek recourse from a court or other body is minimized to the extent possible.
Do you foresee arbitral tribunals playing a more active role in Human Rights at Sea arbitrations, given the significant imbalance of power between the parties?
This is precisely the goal we seek to accomplish with the Human Rights at Sea initiative. One does not need to look very far to see that the current system (if one can even call it that) is failing. Human rights abuses at sea seem to get worse and worse all the time and with no end in sight, so we are certain that something needs to change.
The idea of having arbitral tribunals involved in this way is, as I mentioned, inspired to a large extent by what we have seen in the context of the investor-State disputes. There, and even more so with human rights abuses at sea, we can see a tremendous imbalance between the parties.
The hope is that an institutional system dedicated to Human Rights at Sea Arbitration will help to level the playing field somewhat – among other ways, by giving both parties a say in their choice of the decisionmaker, increasing accessibility and minimizing costs in the ways mentioned and providing mechanisms for direct pro bono support to victims.
Presentation of the law firm
Shearman & Sterling is one of the world’s premier international arbitration firms. The practice is one of the historic players in the field. The elite team has been repeatedly distinguished for its illustrious track record, the unsurpassed quality of its work and its contributions to the development of arbitration and investment law. It is instructed by companies, States and State-owned entities on many of the most sensitive commercial and investment disputes globally. It is known for acting on disputes that few firms can effectively tackle, either because of the legal or factual complexity of the case, the magnitude of the dispute, or the strategic interests at stake. The team handles multibillion-dollar disputes in virtually all industry sectors, with a focus on investment, energy, construction, and M&A disputes. Recognized globally for its strategic perspective and considerable expertise in arbitration processes and comparative law, Shearman & Sterling’s International Arbitration Practice is ranked band 1 global-wide, Europe-wide, Africa-wide, and in France in the 2020 edition of Chambers Global.
Key clients of Shearman & Sterling include a number of sovereign States, including China, Algeria, Egypt, Lithuania, Ukraine, Georgia, Colombia; State-owned entities, such as Sonatrach, EGAS, Sonangol, ADNOC, OCP, PetroVietnam, Sinopec or Ecopetrol; and numerous companies in France (e.g., EDF, Thales, Bolloré, Lacoste, Sportfive EMEA) and elsewhere (e.g., The Dow Chemical Company, Obrascon Huarte Lain S.A., Eldorado Gold, Hyundai Engineering).
In addition to its work on behalf of Algeria, the firm is acting for Egypt in a US$2 billion claim over a petrochemical plant before a Tribunal under the PCA. It has acted on behalf of the Egyptian Republic and its entities in over 15 major international disputes.
On the company side, Shearman & Sterling recently helped long-standing client Turkish construction company Enka obtain the full satisfaction of a US$47 million ICC award against Gabon in relation to the construction of the presidential palace.
The firm has been acting as co-counsel for Alpiq as it seeks to revive a US$450 million Energy Charter Treaty claim against Romania.
It also represents Togo Terminal in an ICSID claim against Togo.
Table of arbitration cases involving Shearman & Sterling (Recent victories/pending cases)*
Shearman & Sterling is currently acting as counsel in multiple ICSID cases, notably representing Algeria, Panama, Georgia, and Egypt, and others. The Abu Dhabi office has been defending OHL in an ICC case brought by a Qatari foundation.
To see all types of cases (investor-state, inter-state, commercial arbitration) involving Shearman & Sterling available on Jus Mundi, please click here.
Shearman & Sterling earns its spot to be the ATOM for its extensive track-record of arbitration cases & clients. We selected a few recent victories and ongoing cases in the table below.
(Note*: This table is not exhaustive and only includes the most famous cases)
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Spotlight: The Orascom case team
Founder of Shearman & Sterling’s 100-lawyer International Arbitration practice, Professor Gaillard is the Firm’s Global Head of Disputes and Global Head of the International Arbitration Practice Group. He has advised and represented corporations, States, and State-owned entities in international arbitration cases for over 30 years. In addition to the USD 50 billion award secured for the former Yukos Oil Company’s majority shareholders, he acted on the ICC arbitration brought by The Dow Chemical against Petrochemical Industries, which led to a USD 2.47 billion award in favor of Dow.
Partner and co-Head of Sherman & Sterling’s International Arbitration practice, Dr. Banifatemi also serves as Public International Law Team Leader and Energy Industry Leader. She advises and represents States, State-owned entities, and companies on both public international law and international arbitration issues. She acts as both counsel and arbitrator in international arbitrations conducted under a variety of arbitration rules, with particular focus on investment protection, oil & gas, and general commercial matters.
Partner in the International Arbitration and Public International Law practices, Benjamin Siino focuses on the energy, investment, and general commercial arbitrations, as well as arbitrations related to Africa. He also acts as counsel in litigation proceedings before French courts, with a focus on proceedings to seek the recognition and enforcement of arbitral awards and foreign judgments.
Associate in the International Arbitration practice, Pierre Viguier’s experience includes ad hoc and institutional arbitrations with a focus on investment and general commercial disputes. He also focuses on sports arbitration.
Associate in the International Arbitration practice, Teresa Vega has worked on international arbitration proceedings conducted in accordance with ICC and ICSID arbitration rules, as well as arbitration-related proceedings before national courts.
Associate in the International Arbitration practice, Peter Petrov’s experience includes ad hoc and institutional arbitration proceedings, with a focus on energy and investment disputes.
The team involved in the Human Rights at Sea initiative
Counsel in the International Arbitration practice, Alexander represents companies and States in commercial, investor/State, and maritime arbitrations carried out under the auspices of a variety of institutional rules. His practice focuses particularly on disputes in the energy and maritime sectors.
Counsel in the International Arbitration practice, Elise represents States and companies in international arbitrations under the auspices of the ICC, SCC, LCIA, and ICSID, as well as in proceedings conducted in accordance with the UNCITRAL Rules, with a focus on investment disputes as well as arbitrations related to the energy sector in Eastern Europe.
Associate in the International Arbitration practice based in Paris, Sandrina’s experience includes international commercial and investment arbitrations conducted under the ICSID, ICC, HKIAC, and UNCITRAL Rules, concerning energy, construction, and commercial disputes.
Mariia is an associate in the International Arbitration practice of Shearman & Sterling’s Paris office. A Ukrainian national, she focuses on investment treaty arbitrations related to Eastern Europe.
For more information on Shearman & Sterling’s International Arbitration practice, click here.
Congratulations to the team again for being the ATOM, and good luck with the upcoming cases!