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.
Russia’s immunity defence against enforcement fails in the US
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
On November 17th, the US District Court for the District of Columbia (“District Court”) ruled that it has jurisdiction over Russia in the Yukos’ enforcement proceedings, dismissing the State’s sovereign immunity defence.
In 2014, a PCA tribunal found Russia liable under the ECT for expropriating the investors’ assets in Yukos Oil. In three awards, the tribunal ordered Russia to pay USD 50 billion in damages. Subsequently, the investors initiated enforcement proceedings in various jurisdictions, including the US, the UK, India, and Belgium.
Russia challenged the three awards in the Hague, which eventually led to a stay of enforcement proceedings in multiple jurisdictions after the Hague District Court set aside the awards in April 2016.
However, the Hague Court of Appeal reinstated the awards in February 2020. In November 2021, the Dutch Supreme Court dismissed Russia’s jurisdictional challenge to the award and most of its other objections. However, the Court remanded the case to the Amsterdam Court of Appeal to address Russia’s fraud arguments.
In the US, the District Court rejected Russia’s attempt to extend the stay of proceedings after the Dutch Supreme Court ruling. Despite Russia’s argument that the Amsterdam District Court still needs to investigate potential fraud in obtaining the awards, the Court clarified that the mounting economic sanctions on Russia resulting from the Russia-Ukraine war compromises the Shareholders’ access to Russian assets in the US if they succeed in enforcing the award, favouring the lifting of the stay.
US District Court’s dismissal of Russia’s immunity defence
Russia contended that the District Court lacked subject matter jurisdiction on the grounds of non-exemption of immunity under the Foreign Sovereign Immunities Act (“FSIA”) and non-applicability of the New York Convention to support the exercise of jurisdiction.
Judge Beryl A. Howell first noted that in order to exercise jurisdiction over a State, a district court must determine that one of the FSIA’s exceptions to sovereign immunity applies.
Judge Howell emphasized that the question of whether the Court has jurisdiction over the enforcement petition is a separate question from the merits concerning the enforceability of an award and that the “district court need not determine the validity of the arbitral award as part of its jurisdictional inquiry”.
She went on to explain that for the FSIA exception to apply, the investors bear the burden of proving the existence of an arbitration agreement, an arbitration award, and a treaty governing the award.
The judge ruled that the ECT substantiated the arbitration agreement. She noted that the parties chose to delegate jurisdiction-related matters to the arbitral tribunal, supported by their mutual agreement and the Terms of appointment they executed. Additionally, Russia actively engaged in the arbitration process. These factors, she stated, “go a long way to establishing the existence of an agreement to arbitrate for the purposes of jurisdiction under the FSIA“.
Judge Howell highlighted that Russia’s procedural conduct in arbitration affirmed its submission to the tribunal’s jurisdiction. Contrary findings, she argued, would imply that Russia “reserved the right to relitigate every issue presented to the Tribunal anew in courts in this and other countries“.
She affirmed the binding nature of the tribunal’s jurisdictional determinations on the Court. She declined to revisit the tribunal’s decision on the provisional application of the ECT and its compatibility with Russian law. She indicated that “the Russian Federation’s arguments that the arbitration clause of the ECT is inconsistent with Russian law would be more properly raised at the enforcement stage of this proceeding and, on their merits, are dubious at best“.
Judge Howell clarified that Russia’s fraud arguments “should not be addressed as part of the jurisdictional inquiry“, citing the Court of Appeals for the Columbia Circuit decision in P&ID v. Nigeria.
Furthermore, she dismissed Russia’s claim that the ECT arbitration clause couldn’t apply to the investors as they were genuinely Russian nationals and hadn’t followed the mandatory tax-dispute referral mechanism under the ECT. She pointed out that the tribunal had already ruled on both matters.
Finally, she found that the New York Convention provides “the requisite treaty basis for the exercise of jurisdiction”, finding that the awards arose out of a commercial relationship between the parties and that the reciprocity condition was fulfilled.
Judge Howell entered an Order the same day denying Russia’s motion to dismiss for lack of subject matter jurisdiction.
The latest on enforcement proceedings in other jurisdictions
In the Netherlands, Dutch Advocate-General Paul Vlas has recently advised that the Supreme Court uphold attachments obtained by the Yukos investors over Russian assets in state-owned FKP Sojuzplodoimport (see our previous digest here).
Meanwhile, in the UK, the High Court of Justice of England and Wales ruled earlier this month that Russia cannot invoke sovereign immunity, finding that the State’s jurisdictional defence had already been litigated in the context of set-aside proceedings in the Netherlands (see our previous digest here).
Swiss company enforces EUR 7.3 million SCAI award against Equatorial Guinea in the US
SCAI Case No. 600413-2015
Institution: SAC (Swiss Arbitration Centre formerly SCAI)
Tribunal: Andrea Meier (President), Felix Fischer (Appointed by the claimant), Melissa Magliana (Appointed by the institution)
Seat of Arbitration: Zurich, Switzerland
On November 17th, the US District Court for the District of Columbia (“District Court”) confirmed a EUR 7.3 million SCAI award against Equatorial Guinea, asserting subject matter jurisdiction and dismissing the State’s defence under article V(1)(c) of the New York Convention.
The dispute arose out of a 2009 management contract between Swiss-based Marseille-Kliniken (“MK”) and Equatorial Guinea for the operation of a medical centre, staff training, and the development of hospital administration software.
Equatorial Guinea terminated the contract in 2011, prompting MK to initiate a first arbitration that same year. By 2014, the first tribunal granted MK EUR 14 million in damages, along with interest and costs. Later in May 2015, both parties reached a settlement agreement.
MK launched a second arbitration in January 2015, introducing claims relating to further assertions from the management contract. In December 2017, the tribunal awarded MK EUR 7.3 million in damages (out of EUR 53.8 million claimed), plus interests and costs.
Equatorial Guinea contested the tribunal’s jurisdiction in the second arbitration, arguing that the management contract mandated submitting disputes to local courts before pursuing arbitration.
Notably, the tribunal determined that within the management contract, which existed in German and Spanish versions, “a second submission to an Arbitration Tribunal [after resorting to local courts] would not be reasonable” as “an Arbitration Tribunal should respect substantive res judicata regarding a previous decision (State Court or Arbitration Tribunal)“.
The tribunal clarified that an “objective interpretation” of the arbitration clause confirms that any party can resort to arbitration without prior submission of the dispute to local courts. The tribunal analysed both the Spanish and German versions of the contract.
Enforcement of the award in the US
In December 2020, MK sought the confirmation of the award from the US District Court in the District of Columbia. Equatorial Guinea opposed, contending that the award is unenforceable under the New York Convention – citing article V(1)(c) – as the parties agreed to submit the dispute to local courts prior to arbitration.
Judge Richard J. Leon initially addressed the Court’s subject matter jurisdiction under the Foreign Sovereign Immunities Act (“FSIA”). He outlined three essential jurisdictional elements for the application of the arbitration exception: the presence of an arbitration agreement, an award, and a treaty governing the award.
Judge Leon concluded that MK sufficiently demonstrated these elements, thus establishing the application of the arbitration exception, and that Equatorial Guinea is not entitled to jurisdictional immunity.
He clarified that Equatorial Guinea’s argument regarding the non-agreement to submit the dispute to arbitration concerns the arbitrability of the dispute, not a jurisdictional issue under the FSIA. He highlighted that Equatorial Guinea, “like many sovereigns before it […] conflates the jurisdictional standard of the FSIA with the standard for review under the New York Convention“.
Judge Leon then assessed the merits of Equatorial Guinea defence under article V(1)(c) of the New York Convention.
He stressed that grounds for refusal of recognition or enforcement under the Convention “are tightly construed, and the burden is placed on the party opposing enforcement”.
Judge Leon determined that the tribunal had previously defined the scope of the arbitration clause, and the court should defer to the arbitrator’s jurisdictional decision. He stated that “the court has not been given any reason to disturb that decision“. He cited BG Group v. Argentina (US Supreme Court, 2014), which involved a local litigation requirement under the Argentina – UK BIT.
Consequently, Judge Leon issued an Order on the same day confirming the award.
- Marseille-Kliniken AG v. Equatorial Guinea (II), SCAI Case No. 600413-2015, Arbitral Award, 17 December 2017
- Marseille-Kliniken AG v. Equatorial Guinea (II), SCAI Case No. 600413-2015, Interim Decision and Procedural Order No. 2, 15 March 2016
- Marseille-Kliniken AG v. Equatorial Guinea (I), ZCC Case No. 600257-2011, Memorandum of Agreement, 28 May 2015
Peru faces enforcement of USD 110 million ICSID award
ICSID Case No. ARB/19/19
Institution: ICSID (International Centre for Settlement of Investment Disputes)
Tribunal: Luca G. Radicati di Brozolo (President), David R. Haigh (Appointed by the investors), Eduardo Siqueiros T. (Appointed by the State)
On November 14th, Singaporean entity Kenon Holdings and its subsidiary IC Power applied to the US District Court for the District of Columbia to enforce a USD 110.7 million ICSID award rendered pursuant to the Singapore – Peru FTA.
In the petition, the investors said they also filed a request for rectification of the award, alleging errors in the calculation of the cost of debt for pre and post-award interest. ICSID registered the request on November 16.
Kenon and IC Power, acting through local subsidiaries, invested in multiple electric power plants in Peru. The dispute centred around retroactive amendments issued by Peru’s mining and energy regulator regarding tenders secured by investors for secondary frequency regulation and transmission tolls.
In an October 2023 award, the tribunal found Peru liable under the Singapore – Peru FTA. It dismissed Peru’s attempt to invoke the denial of benefits provision of the FTA, finding that the investors had substantive business operations in Singapore. Additionally, the tribunal rejected the State’s argument that Kenon’s claims were inadmissible due to the sale of its local subsidiaries shortly after the dispute arose.
Regarding the retroactive amendments to secondary frequency regulation, the tribunal deemed them “seriously arbitrary“, constituting a violation of article 10.5 of the FTA. However, the claim related to transmission tolls was dismissed.
The tribunal awarded the investors USD 110.7 million in damages plus interest and over USD 5 million in legal and arbitration costs.
Kenon said in a press release last month that in case of successful enforcement, funding entity Lomo Investments (controlled by Tenor Capital Management) will be entitled to be repaid the amount committed (USD 12 million) and to receive up to approximately 55% of the net claim proceeds.
- IC Power Ltd and Kenon Holdings Ltd v. Peru, ICSID Case No. ARB/19/19, Award, 3 October 2023
- IC Power Ltd and Kenon Holdings Ltd v. Peru, ICSID Case No. ARB/19/19, Procedural Order No. 2 (on Tribunal’s Decision on Respondent’s Request for Disclosure of Documents), 6 May 2020
- IC Power Ltd and Kenon Holdings Ltd v. Peru, ICSID Case No. ARB/19/19, Request for Arbitration, 12 June 2019
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.