Arbitration Team of the Month #14
International tribunals are increasingly called upon to adjudicate issues relating to corruption. In doing so, they often face evidentiary hurdles and abusive procedural tactics. Overcoming these challenges can be difficult. However, through the publication of arbitral awards, general principles can be identified and developed and guide arbitrators dealing with corruption issues in the adjudicatory process.
This month, with a recent landmark victory for Sonangol to repatriate the company’s assets embezzled under the regime of the former President of Angola, Jus Mundi is pleased to bring light to Gaillard Banifatemi Shelbaya Disputes, along with an interview with the firm’s founding partner Dr. Yas Banifatemi.
Victory analysis: Exem v. Sonangol (I)
In an award dated 23 July 2021, a tribunal constituted under the Netherlands Arbitration Institute (NAI) Arbitration Rules (2015) dismissed the claims raised by Exem after finding that the SPA transaction was “tainted by illegality” and therefore null and void as being contrary to public policy.
The 2006 SPA
- In 2005, Mr. Americo Amorim, a Portuguese entrepreneur, wished to acquire a shareholding in Galp Energia SA (“Galp”), Portugal’s partly State-owned oil and gas company.
- In the autumn of 2005, Sonangol, Angola’s State-owned oil and gas company and the second largest oil producer in Sub-Saharan Africa, was contacted by Ms. Isabel dos Santos, the daughter of Angola’s then President, on behalf of Mr. Amorim, to take part in an investment in Galp.
- In December 2005, the corporate holding structure was established by Amorim Group. Amorim Energia BV (“Amorim Energia”) was a shelf company acquired by Amorim Group. 45% of its shares were transferred to Esperaza Holding BV (“Esperaza”), a Dutch entity holding an indirect interest in Galp.
- In January 2006, the entire shareholding in Esperaza was transferred to Sonangol following a €189 million payment by Sonangol throughout 2006. As a result of this investment, Sonangol held 100% of Esperaza, which held 45% of Amorim Energia BV, which, in turn, held 33.34% in Galp.
- In December 2006, a Dutch entity Exem Energy BV (“Exem”) concluded a Share Purchase Agreement (“SPA”) with Sonangol and Esperaza to acquire 40% of Esperaza’s share from Sonangol with around €75 million (15% of which was paid immediately; the remaining 85% should be set-off through dividends from Esperaza by 31 December 2017).
- After the Galp IPO success in October 2006, the SPA price that Exem paid for Esperaza’s share was substantially inferior to its real value.
The 2017 Payment Agreement
- By mid-2017, in an attempt to circumvent Exem’s repayment obligations given the absence of available funds, Isabel dos Santos, then Sonangol’s Chairwoman, purportedly amended the SPA through an exchange of letters with Exem. Exem wrote to Sonangol’s “President of the Board of Directors” (i.e., Isabel dos Santos) to ask Sonangol to accept payment of the outstanding amount in Angolan Kwanzas, a relatively weak and volatile currency, instead of the contractually agreed currency of Euros.
- By way of a letter dated 31 August 2017 from Isabel dos Santos’ office at Sonangol and signed on her behalf, she purported to grant Exem’s request. After Exem made a payment to Sonangol in Angolan Kwanzas, at a conversion rate that was much lower than what was commercially practiced in Angola, Isabel dos Santos (again acting as Chair of Sonangol) wrote to Exem stating that Exem’s obligations under the SPA had been discharged and its title over Esperaza’s shares had been secured.
- A few days later, on 14 November 2017, the day prior to Isabel dos Santos’ dismissal as Sonangol Chair, Isabel dos Santos convened a meeting of the Esperaza shareholders consisting of only Exem’s nominee directors representing and, herself, purportedly representing Sonangol. Despite the obvious conflict of interest and lack of authority, Isabel dos Santos and her associates purported to enter into four resolutions at the shareholder and Esperaza board level, extracting Esperaza’s cash assets and dissolving Esperaza within two and a half months.
- In January 2018, Sonangol returned the Kwanzas payment to Exem, explaining in a subsequent letter that there was no legal or contractual basis to justify receiving the amount due in Euros under the SPA.
- In October 2018, Exem submitted its request for arbitration under the SPA, seeking a declaration that it had complied with its obligations and was thus in possession of 40% of Esperaza’s share. Sonangol counterclaimed a declaration that the SPA and the transactions were null and void for being contrary to public policy and good morals on account of corruption.
Whether the SPA and the Deed of Transfer are null and void as contrary to public policy or good morals.
- Prof. Christiaan Schwarz (Appointed by the respondent)
- Prof. Filip de Ly (Appointed by the claimant)
- Prof. Arthur Hartkamp (President)
- The Tribunal declared the SPA and the Deed of Transfer to be null and void, and that Sonangol has remained at all times the rightful owner of 100% of the shares in Esperaza.
- The Tribunal also determined that Exem shall bear the costs of the arbitration and ordered Exem to pay Sanangol’s legal and other costs.
- In its award, the Tribunal entirely vindicated Sonangol’s position on the validity of the Esperaza transaction. Specifically, the Hartkamp Tribunal held that Exem’s acquisition of an interest in Esperaza was “tainted by illegality, enabling Ms. Isabel dos Santos directly or through her husband Mr. Dokolo, while using her position as daughter of the Angolan President who had a direct control over the State owned oil and gas company Sonangol, to reap an extraordinary financial gain to the detriment of Sonangol and, consequently, of the State of Angola.” (Award, para. 8.3).
- Having reviewed the documentary record and relevant witness testimonies, the Tribunal concluded that there could be no plausible explanation for the nature and size of Exem’s purported investment in Esperaza other than “grand corruption by the daughter of a head of state and her husband” (Award, para. 8.18).
- The Tribunal also concluded that “kleptocratic transactions by the ruling elite or establishment” (Award, para. 8.17) such as the Esperaza transaction are contrary to Dutch public policy, as expressed in Article 3:40 para 1 of the Dutch Civil Code, and as confirmed by the adoption by The Netherlands of various international conventions regarding corruption.
- Accordingly, the Tribunal held that the SPA is null and void. As a result, the Tribunal declared that Sonangol had at all times held 100% of the shares in Esperaza, such that Exem never held a shareholding in that company.
- In reaching this conclusion, the Tribunal highlighted, among other things, the following:
- The Amorim Group had invested in Galp with Sonangol’s nearly €190 million investment through Amorim Energia’s 45% shareholder Esperaza, which Sonangol had acquired from Amorim. In the Tribunal’s view, Exem did not share the risk of Galp’s IPO, as it acquired its 40% share in Esperaza from Sonangol after Galp’s IPO when it knew that the IPO of Galp shares was highly successful.
- In light of the whole transaction, requiring Exem to only pay 15% of the purchase price of the Esperaza shares upfront and the remaining 85% should be set-off through dividends from Esperaza by 31 December 2017, this cannot be considered as a serious risk on Exem’s side. In the system of the SPA, Exem would have had to pay the remainder even in the absence of dividends. However, what if Exem would be unable or unwilling to pay? It did not have sufficient equity. Since there were no other securities in place, Sonangol could only have taken recourse against the shares using its right of pledge. In case the shares would not have sufficient market value or yield sufficient proceeds for Sonangol to cover its claim, the risk would be for Sonangol.
- Isabel dos Santos’s conduct (the payment in Kwanzas, the non-payment of the interest, and the distribution of dividends) confirmed the uncommercial character of the SPA.
- Isabel dos Santos is the daughter of the Angolan President, who had a significant influence on Sonangol. Ms. Isabel dos Santos also had direct access to Sonangol’s former President, Mr. Manuel Vicente (who signed the SPA).
- The SPA transaction had never been made public or been disclosed in Galp’s IPO. It also observed a general background of corruption in Angola.
- Isabel dos Santos’s close relation with Exem. Her late husband, Mr. Sindika Dokolo, was Exem’s director and ultimate beneficial owner. Her participation from the initial negotiations and the following stages of the Galp investment and the SPA transaction to the dividend distribution and the 2017 Payment Agreement clearly identified a conflict of interests on her side.
Interview with Dr. Yas Banifatemi
- Congratulations on the Exem v. Sonangol case! Why do you consider this to be a landmark award?
Thank you very much! We are very proud to have secured this award, both for the value it brings to our client, Sonangol, but also given its broader significance regarding the duty and ability of international arbitrators to contribute effectively to the global fight against kleptocracy and grand corruption.
We all agree that corruption is an “insidious plague that has a wide range of corrosive effects on societies” (Kofi Anan). The Exem v. Sonangol award shows that international arbitration can effectively be used to bring to justice the most entrenched kleptocrats and to sanction even the largest acts of grand corruption. Until recently, Isabel dos Santos paraded herself as the richest woman in Africa; that façade now appears to have been—with the assistance of a group of Western banks, professionals and, sadly, lawyers—a pattern of embezzlement of large amounts of Angolan State wealth while leveraging her position as daughter of the then President of Angola. To the best of our knowledge, the Exem v Sonangolaward is the first time that a civil court or international tribunal sitting in any jurisdiction has been directly confronted with and has directly sanctioned the grand corruption from which Ms. dos Santos acquired her fortune. Importantly, the Tribunal has done so in no uncertain terms, directly identifying Ms. dos Santos as the fountainhead of corruption in the present case, and observing that she misused her relationship with her father to facilitate her personal enrichment. The Tribunal’s award is thus pathbreaking and will set a precedent for future decisions around the world.
- How will this award set a precedent for future decisions?
By essence, corruption is hidden, and often masterfully so. Evidence of corruption is therefore extremely difficult to bring. This is the background against which the Exem v. Sonangol award was rendered, as a powerful precedent paving the way to other international arbitrators to display courage in identifying, naming and sanctioning acts of corruption, not only in those extremely rare situations where there is clear and direct evidence of corruption, but in the vast majority of other situations where corruption can be demonstrated only through indirect evidence. This award is thus extremely important for international arbitration as a global system of justice that can tackle and sanction corrupt conduct.
This award is also significant because it shows that corruption is not merely an opportunistic defence that parties may resort to in order to avoid compliance with contractual or treaty obligations. Instead, a finding of corruption may be used offensively, to recover State assets stolen by members of a previous regime. This ensures that powerful individuals such as Ms. dos Santos are not immune from the operation of the rule of law. Everyone agrees that corruption is contrary to international public policy, but this award gives teeth to that understanding.
- Is there something in the Arbitral Tribunal’s reasoning that you would like to highlight?
With regard to the Tribunal’s reasoning, I would like to highlight two points:
First, the Tribunal implicitly endorsed the red flags approach to evidentiary issues in cases concerning corruption. In doing so, the Tribunal refused to adopt a “see no evil, hear no evil” approach to the issues at hand, and instead recognised the various indicia of corruption for what they were. The Tribunal’s approach is consistent with the emerging consensus that corruption is contrary to international public policy.
Second, the Tribunal also did not accept Exem’s contention that a criminal offence had to be made out in order to prove corruption. This is significant because we often see tribunals getting tripped up on how to prove corruption. This Tribunal has shown that it is important to analyse the available evidence in context and with common sense, and to not allow parties to hide behind technicalities.
- What about the other cases between Sonangol and Exem? How did those cases impact the conduct of this proceeding?
Exem commenced three separate proceedings against Sonangol as part of its aforementioned campaign of legal harassment. Exem also insisted that these proceedings not be consolidated, and continued to maintain separate proceedings.
Of the two other proceedings commenced by Exem against Sonangol, one has been stayed pending a final award on the merits by the Hartkamp tribunal. The first was an emergency arbitral proceeding commenced in an abusive attempt to circumvent the Hartkamp Tribunal’s jurisdiction and undermine Sonangol’s due process rights. In essence, Exem asked the emergency arbitrator to help Exem avoid the Hartkamp Tribunal’s enquiries into the illegality of the transaction at issue in that case and the legal consequences of that illegality. Put differently, Exem asked the emergency arbitrator to help perfect Isabel dos Santos’ fraud on Sonangol before the Hartkamp Tribunal was given a chance to intervene.
Exem’s guerrilla tactics and decision to commence parallel summary arbitral proceedings were so obviously abusive that Sonangol secured an injunction from the Hartkamp Tribunal limiting the claims that could be placed before the emergency arbitrator. To our knowledge, this is only the second anti-arbitration injunction issued by one arbitral tribunal against a parallel arbitration proceeding, and a further example of how the Hartkamp Tribunal kept a firm grip on proceedings. Because of the injunction, Exem withdrew—in four separate stages—seven of the eight substantive requests for relief that were initially presented in the emergency arbitral proceedings. The only remaining request (viz. that Sonangol be compelled to negotiate a way to perfect Exem’s embezzlement) was rejected by the emergency arbitrator.
- How can arbitrators contribute to the global fight against corruption?
As I noted previously, it is trite that corruption is offensive to the values of the international community and is a core component of international public policy. Accordingly, the fight against corruption is something which all arbitral tribunals are duty bound to take seriously.
The late Professor Gaillard was particularly invested in the fight against international corruption and believed that arbitrators were “perfectly placed” to take this fight forward. This is reflected in his extensive writings on the topic. One of Professor Gaillard’s most prominent contributions to the topic is “The Emergence of Transnational Responses to Corruption in International Arbitration” (Arbitration International, Vol 35, Issue 1, March 2019, pp 1–19). In his own words,
“as the global fight against corruption will continue to intensify, arbitrators, whose role is to adjudicate disputes in the international sphere, are perfectly placed to uphold the values of the international community and to contribute to this fight by continuing to develop responses to the difficult issues that arise in cases raising corruption issues.”
In the Sonangol v Exem cases, we were confronted by corruption on a truly grand scale concerning the embezzlement of State assets. By taking a firm stand against this corruption, the Hartkamp Tribunal has sent a message that no one, no matter how powerful, is immune from the operation of the rule of law. This is an incredibly positive development, and one that would have pleased Professor Gaillard immensely.
- What inspired you (and your colleagues) to establish an international arbitration practice? What’s the main challenge with establishing/managing the firm?
The decision to establish our own firm was triggered by a number of considerations, chief among which the growing difficulty of managing a practice in the face of increasing conflicts of interests that come with a large and growing platform, as well as the desire to streamline operations with a light touch and as little bureaucracy as possible. Having the striking power of a truly international firm composed of recognized experts in the field, combined with the agility and freedom that comes with a singular focus (international arbitration): this is what appealed to us and what was also recognized by the market, as shown by the fact that we were celebrated as an institution almost overnight, upon the establishment of our firm.
- We would also like to take this opportunity to pay tribute to the contributions of Professor Emmanuel Gaillard to the development of international arbitration. Can you share with us the legacy of Professor Emmanuel Gaillard and tell us more about the launch of The Emmanuel Gaillard Debate?
The idea of The Emmanuel Gaillard Debate came about as Professor Cohen and the Arbitration Academy’s Bureau very kindly offered to celebrate Professor Gaillard—a co-founder and the first President of the Academy—through a yearly event of the Academy. One of Professor Gaillard’s many skills was that he was an outstanding and fearsome debater; he also had inaugurated the debate format at the Academy in 2019, debating with Dame Gloster on the topic “English and French arbitration laws: which will stand the test of time?” It became soon obvious to us that the format of a debate, in which two experts of international arbitration would cross swords over a complex question of international arbitration, would be a very appropriate way to commemorate Professor Gaillard and his skills as a duellist.
It is simply impossible to list the extremely significant contributions of Professor Gaillard to international arbitration and, more generally, to the legal field. I hope to be able to write about his contributions in the Liber Amicorum that will be published in 2022 but, in the meantime, I can say that his work as a practitioner cannot be dissociated from his work as a teacher and a thinker. His legacy comes with all of those hats. The way in which he practiced the art of international arbitration was to never look at a question or situation in a standardized manner, to assess a tricky situation with a new prism that would ultimately become the winning strategy, to never take anything for granted, and to simplify the most complex questions. But that art of simplification was possible because he was the ultimate thinker, even managing, with his inspiring book on the Legal Theory of International Arbitration, to offer an understanding of the field that could explain how and why we each take a view (both generally and on the tiniest question) given our deep and subconscious bias towards (or, as he said, “representation of”) the field. And he was the most generous, compassionate, patient teacher and mentor, while having and expecting the highest rigor and ethics, both of himself and those working with him. He was and will remain unsurpassed.
Presentation of the firm
Launched in early 2021 by Shearman & Sterling’s practice group leaders, late professor Emmanuel Gaillard and Dr. Yas Banifatemi, Gaillard Banifatemi Shelbaya Disputes is one of the world’s leading international arbitration practices with eight partners, three counsel and over twenty-five associates, based in three major arbitration centers (Paris, London and New York). The team’s landmark victories include Dow v. PIC, the then-largest commercial arbitration award ever rendered, and Yukos, the largest investment arbitration award in history (USD 50 billion) as well as a number of full dismissals of multibillion-dollar claims against different States and State-owned entities. The firm represents companies, States, and State-owned entities in investment treaty and commercial arbitrations under all major arbitration rules regarding disputes across all industries governed by a wide range of applicable laws.
- Sovereign States: Algeria, Egypt, Lithuania, Georgia, and Colombia.
- State entities: Angola’s Sonangol and Algeria’s Sonatrach, Mubadala, and the Abu Dhabi National Oil Company.
- Private corporations: clients appearing in publicly known matters include EDF, GML Limited, Bolloré Group, and Alpiq.
Track-record and pending institutions
- In June 2021, the firm helped Angola knock out an imprisoned businessman’s request for relief against the State ahead of a BIT claim. The emergency arbitrator Sabine Konrad appointed by the SCC has declined jurisdiction.
- The firm is defending Egypt in an ICSID claim brought by an Emirati company under the Egypt – United Arab Emirates BIT concerning a natural gas concession. The claimant’s subsidiary lost its ICSID claim against the State five years ago on jurisdictional grounds.
- The firm is representing the European Commission in a commercial arbitration. In June 2021, a Belgian court refused to set aside the ICC partial award rendered in February 2020 in favor of the European Commission.
- The firm is acting for World Natural Resources (WNR), a UK energy company, in a US$450 million ICSID claim against the Republic of Congo under the Congo – United Kingdom BIT over its investment in an oil block. WNR also instructs the firm in a US$200 million ICC claim against Mercuria and Energy Complex.
- After securing the largest win in the history of arbitration in Yukos, the firm continues to support the former Yukos majority shareholders in setting aside proceedings before the Dutch Supreme Court and enforcement in the UK and US. In April 2021, Dutch Advocate General Paul Vlas has recommended that Russia’s set-aside application should be rejected and that the Netherlands Supreme Court should uphold all three Yukos awards (Yukos Universal Limited (Isle of Man) v. Russia, Veteran Petroleum Limited (Cyprus) v. Russia, and Hulley Enterprises Limited (Cyprus) v. Russia), finding Russia breached the ECT and liable for over 50 billion USD in damages to the claimants. In 2016, these awards were set aside by the District Court in The Hague. However, in early 2020, the Hague Court of Appeal reinstated the awards.
- Algeria has retained the firm for a US$900 million investment treaty claim brought by two Egyptian entities before an ad hoc tribunal under the Algeria – Egypt BIT over their investment in two cement projects.
Table of international arbitration cases involving GBS Disputes
GBS Disputes is currently acting as counsel in multiple investor-State and commercial arbitration cases.
We selected a few recent ongoing cases of GBS Disputes in the table below.
Please click here to see all types of cases (investor-State, inter-State, and commercial arbitration) involving GBS Disputes available on Jus Mundi.
[table id=26 /]
(Note*: This table is not exhaustive.)
Spotlight – the Exem v. Sonangol team
Dr. Yas Banifatemi is a founding partner of GBS Disputes and is widely recognized as one of the most prominent international arbitration and public international law specialists worldwide. She advises and represents States, State-owned entities, and companies on public international law and international arbitration issues. She acts as both counsel and arbitrator in arbitrations conducted under the major arbitration rules, focusing on investment protection, oil & gas, and general commercial matters.
James Herbert is a counsel at GBS Disputes. His experience includes investment and international commercial arbitrations under various arbitration rules and spans a broad range of sectors, including energy (oil and gas, power and district heating), construction, pharmaceuticals, mining, commodities, private equity, and finance.
Anders Junker-Nilsson is a senior associate at GBS Disputes. He specializes in international commercial arbitration and represents private multinational corporations, States, and State-owned entities in various institutional and ad hoc proceedings. He also acts as counsel in arbitration-related proceedings before Swedish courts.
Peter Frilay is a senior associate at GBS Disputes. His experience includes investment and international commercial arbitrations under various arbitration rules.
Ashish Mitter is an associate at GBS Disputes. His experience includes investment and international commercial arbitrations under various arbitration rules.
Professor Gaillard was the founding partner of GBS Disputes and was universally regarded as one of the top practitioners worldwide and a leading global authority in commercial and investment treaty arbitration. Through his work as counsel and his scholarly writings, he helped shape the theory and practice of international arbitration as it is known today. He acted as lead counsel, arbitrator, and expert witness in hundreds of international arbitrations.
For more information on GBS Disputes, click here.
Congratulations to the team again. Jus Mundi wishes them good luck for the future!