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.
Nachingwea and others v. Tanzania
ICSID ad hoc committee renders decision on stay of enforcement of USD 109 million award
ICSID Case No. ARB/20/38
Institution: ICSID (International Centre for Settlement of Investment Disputes)
Tribunal: Cavinder Bull (President), Doak Bishop (Appointed by the claimants), Sanji Mmasenono Monageng (Appointed by the State)
Ad hoc committee: Rolf Knieper (President), Githu Muigai, Bertha Cooper-Rousseau
On November 3rd, Australia-based Indiana Resources (the parent company of the claimants in the arbitration) announced in a press release that an ICSID ad hoc committee has rendered a decision on the continuation of the stay of enforcement of the award.
Background
The dispute concerns Tanzania’s expropriation of Indiana’s investment in the Ntkaka Hill Nickel Project for the exploration of nickel sulphide deposits in the Nachingwea property in southern Tanzania. After Tanzania began passing new regulations in 2017 and 2018, revoking all prior mining licenses, the investors filed for arbitration in 2020. The claim was funded by Litigation Capital Management.
In a July 2023 award, the tribunal found Tanzania’s actions in breach of the UK – Tanzania BIT and awarded the investors USD 109.5 million in damages, plus interests and costs. The State filed for an annulment later in the same month.
Decision on Stay of Enforcement
Indiana said that the ad hoc committee agreed to continue the stay of enforcement of the award on the condition that Tanzania provides an undertaking that, in case of dismissal of the annulment request,:
- it will recognise the award as final and binding, and comply with its terms;
- it will not subject payments to any enforcement proceedings or to the scrutiny of Tanzanian courts;
- it will pay the full amount of the award (including interest) within 45 days of the notification of the ad hoc committee’s decision on annulment.
The committee also ordered that Tanzania’s undertaking be executed by an official with full power to bind the State.
According to Indiana, in case of failure to provide such undertaking by Tanzania, the ad hoc committee will lift the stay of enforcement on the condition that Indiana, as majority shareholder of the claimants, provides an undertaking that it will enable the claimants to reimburse Tanzania if the award is annulled; and unless Tanzania “provides the claimants financial security in the form of either an unconditional and irrevocable bank guarantee or a funded escrow account with a reputable international bank with no principal establishment in Tanzania to the value of the full amount of the Award that is acceptable to the claimants.”
Indiana says the award is accruing around USD 1 million per month in interest and is now worth USD 113 million.
In September, Indiana had announced that it will resist Tanzania’s annulment bid and had started identifying assets of interest (see our previous digest here).
Yukos Universal v. Russia
Hulley Enterprises v. Russia
Veteran Petroleum v. Russia
UK High Court rejects Russia’s immunity defence against enforcement, finding that the question of the tribunal’s jurisdiction was already addressed in the Dutch set aside proceedings
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 1st, the High Court of Justice of England and Wales ruled that Russia cannot invoke sovereign immunity in the Yukos awards enforcement proceedings. The court found that the State’s jurisdictional defence had already been litigated in the context of set-aside proceedings in the Netherlands.
Background
In November 2014, Russia challenged the three USD 50 billion awards in The Hague. The awards are accruing interest at a rate of USD 2.5 million per day.
As part of a multi-jurisdictional enforcement strategy, the investors initiated enforcement proceedings in the UK in 2015. These proceedings were suspended in 2016 pending the conclusion of the annulment proceedings in the Netherlands.
In April 2016, the Hague District Court set aside the ECT awards, asserting that the tribunal lacked jurisdiction to hear the dispute. However, 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.
Most recently, Dutch Advocate-General Paul Vlas recommended that the Supreme Court uphold the attachments obtained by the investors over Russian assets in the state-owned FKP Sojuzplodoimport (see our previous digest here).
In the UK, the stay of proceedings was partially lifted in October 2022 to hear Russia’s defence on jurisdiction.
Russia contended that the Dutch courts’ determinations on the tribunal’s jurisdiction cannot be considered res judicata. It asserted that the English courts are not bound by foreign court findings on treaty interpretation. Additionally, it maintained that the Amsterdam Court of Appeal is still considering whether to set aside the awards due to fraud, meaning that the prior Dutch decisions not final and irreversible. Therefore, it argued that the English court must conduct a de novo review of the tribunal’s jurisdictional decision.
The investors countered that the question of whether Russia agreed to submit to the tribunal’s jurisdiction has already been settled by the Dutch courts, even with the State’s fraud arguments pending. Thus, the decisions on the tribunal’s jurisdiction are final and conclusive, and the State is precluded from re-litigating the issue in English courts.
High Court’s Dismissal of Russia’s Jurisdictional Defence
Justice Cockerill first addressed whether issue estoppel can arise from a foreign judgment against a State. She noted that previous judgments in Dallah v. Pakistan [2010] UKSC 46 and Diag Human v. Czech Republic [2014] EWHC 1639 implicitly recognize the possibility of issue estoppel against a State. She also found nothing in the Sovereign Immunities Act of 1978 that precludes issue estoppel in this context.
Cockerill J found that Russia’s immunity defence centres on the validity of the arbitration agreement, which mirrors the issue raised in the Dutch proceedings regarding the tribunal’s jurisdiction. She pointed out that this was exactly Russia’s stance when it argued that the stay of the UK proceedings should be extended due to the overlap with the set-aside proceeding.
The judge highlighted that the involvement of a multilateral treaty and the novelty of the issue of application of issue estoppel against a State are not special circumstances that would exclude the application of issue estoppel.
She concluded that the Dutch courts’ decision on the tribunal’s jurisdiction is final and conclusive, constituting res judicata. She determined that the potential success of the fraud arguments could not alter the jurisdictional findings. The judge also saw no real likelihood of a reference to the CJUE by the Amsterdam Court of Appeal regarding the interpretation of the ECT.
Cockerill J noted that in addressing questions of Dutch law, she considered expert evidence from both parties. She emphasized that the investors’ expert evidence was more compelling, provided by a person with “manifest” expertise (a Professor of Dutch law and substitute justice of the Dutch Court of Appeals). Russia presented evidence from its own counsel in the Dutch proceedings, which the judge deemed not to be independent, although she acknowledged that Russia’s counsel and expert was directly appointed to represent the State by way of the Dutch Counsel Act.
CC/Devas v. India (I)
Hague District Court upholds quantum award holding India liable for USD 111 million, dismissing the State’s fraud allegations
PCA Case No. 2013-09
Institution: PCA (Permanent Court of Arbitration)
Tribunal: Marc Lalonde (President), David R. Haigh (Appointed by the claimants), Anil Dev Singh (Appointed by the State, replaced Francisco Orrego Vicuña)
Seat of Arbitration: The Hague, Netherlands
On October 25th, the District Court of the Hague dismissed India’s application set aside a USD 111 million award on the basis of fraud.
The decision came a day after the Federal Court of Australia upheld jurisdiction over India in enforcement proceedings of the same award (see our previous digest here).
The dispute stems from India’s cancellation of a contract for the procurement of S-band satellites. This protracted legal battle has spawned over three treaty arbitrations (CC/Devas v. India (I), CC/Devas v. India (II), Deutsche Telekom v. India) and an ICC arbitration between Devas Multimedia (“Devas”) and Antrix (the commercial arm of the Indian Space Research Organisation). It also saw the liquidation of Devas by the National Company Law Tribunal of India in 2021, a decision later confirmed by the Supreme Court of India in 2022.
In CC/Devas v. India (I), brought forth by three Mauritian shareholders of Devas under the Mauritius – India BIT, a 2016 Award on Jurisdiction and Merits partially upheld jurisdiction over the claim. It found that the State’s decision to terminate the contract was partly directed towards safeguarding essential security interests. Nevertheless, it ruled that India’s actions amounted to unlawful expropriation and violated the BIT’s FET provision.
The partial award was upheld by the Dutch Supreme Court in February this year.
In an October 2020 Award on Quantum, the tribunal awarded the investors USD 111 million plus interest and USD 10 million in legal costs.
India later applied to set aside the quantum award before the Hague District Court. The State also sought the revocation of both the merits and quantum awards, based on allegations of fraud, before the Hague Court of Appeal. These revocation proceedings are still pending.
Hague District Court Finds no Grounds to Set Aside the Award on Quantum, Noting that the Fraud Allegations Were Decided in Earlier Challenge to the Award on Jurisdiction and Merits
The Court determined that the prior decisions of the Hague Court of Appeal regarding the setting aside of the merits award constituted res judicata. It found that India’s fraud allegations in these proceedings closely mirrored the claims in the prior merits award proceedings.
India argued that it should be allowed to present the claims pertaining to the quantum award on the grounds that, in the initial proceedings, the fraud allegations were focused on the merits award. The Court rejected this argument and emphasized that the key consideration was whether there was a new aspect to the dispute.
The State also contended that the judgment of the Indian Supreme Court was not yet available at the time of the setting aside proceedings for the merits award. However, the Court determined that no new basis for the claim had been established with the introduction of new evidence, which merely served to substantiate the previously dismissed allegations.
India further alleged that the Devas shareholders engaged in procedural fraud during the arbitration, relying on two arguments.
First, the State claimed that the Devas shareholders committed procedural fraud by failing to submit documents related to their intellectual property rights. The Court dismissed this argument and noted that India had never requested this information during the arbitration.
India’s second argument was that the Devas shareholders had falsely denied receiving payments from Devas, but it was later revealed that they did receive indirect payments. The Court acknowledged that the shareholders were “strictly speaking correct” and clarified that in any case, the tribunal’s knowledge of this indirect payment would not have impacted the amount of damages, as asserted by India.
The Court thus rejected both of India’s arguments regarding procedural fraud committed during the arbitration.
The judges underscored that they were not required to re-evaluate India’s arguments due to the res judicata effect of the prior Court of Appeals decision. Nevertheless, they felt compelled to conduct their own assessment of the alleged fraud, as it may involve violation of “fundamental mandatory law”, especially in the context of public policy.
However, the Court affirmed that India had not demonstrated “strong indications of corruption” and ultimately concluded that the State’s fraud allegation was unfounded.
* The citations were taken from the English translation of the decision, filed in US enforcement proceedings.
Vento Motorcycles v. Mexico
Ontario Supreme Court dismisses investor’s bid to set aside NAFTA award, despite finding that arbitrator’s conduct gave rise to reasonable apprehension of bias
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 October 23rd, the Ontario Superior Court of Justice refused to set aside a NAFTA award that dismissed Vento Motorcycles’ (“Vento”) claims on the merits and ordered it to pay Mexico around USD 1 million in costs.
Background
The dispute concerns Mexico’s denial of NAFTA preferential tariff treatment to motorcycles that Vento was selling in Mexico. In 2001, Vento had entered into a joint venture agreement with a Mexican company for the sale and marketing of motorcycles in Mexico. The motorcycles were imported by the joint venture from China, assembled in the US, then sold in Mexico and were labelled “Made in the USA”. After concerns arose about the origins of the products, the motorcycles were denied NAFTA preferential ad valorem import tariffs. The case involved long legal and administrative battles in Mexico before Vento filed for arbitration under the ICSID Additional Facility Rules in August 2017.
In July 2020 the tribunal rendered its award, upholding jurisdiction over the joint venture as an investment but finding that Vento’s loans did not constitute an investment according to NAFTA Article 1116.
The tribunal dismissed Vento’s claims on the merits, finding that Mexico did not breach the FET and MFN provisions of the NAFTA nor that its actions were arbitrary or discriminatory.
Vento applied to set aside the award on two grounds:
- First, it argued that it was unable to present its case, as the tribunal refused to allow one of its witnesses to testify in rerecording used to impeach his credibility.
- Second, it contented that arbitrator Hugo Perezcano Diaz, Mexico’s appointee, had demonstrated reasonable apprehension of bias as he did not disclose communications between him and the State that occurred during the arbitration.
Ontario Superior Court dismisses both set aside grounds, notwithstanding the finding that the arbitrator’s conduct gave rise to a reasonable apprehension of bias
On the first ground, Vento argued that the tribunal “allowed Mexico to impeach the credibility of Vento’s key and most important witness in writing, through an incomplete telephone recording made without the witness’ knowledge or consent and admitted into evidence without context”.
As a result of the tribunal’s refusal to strike out the telephone recording from the record in Procedural Order No. 7 (“PO 7”), the investor contented that it was unable to present its case.
Justice Marie-Andrée Vermette dismissed Vento’s arguments, finding that the investor did not establish that the requirements of a fair hearing were not met, and that PO 7 did not offend the basic notions of morality and justice under Ontario law. The judge noted that Vento had “ample opportunity” to present its case. Citing Ontario case law, she explained that “the subjects not touched in cross-examination but later contradicted are of little significance in the conduct of the case and the resolution of critical issues of fact”.
On the second ground, Vento contented that during the arbitration, Mexico had offered Mr. Perezcano potential lucrative opportunities to be listed in the panel of arbitrators of the CPTPP and USMCA and that neither disclosed the discussions. It argued that after the arbitration it “had to fight to obtain disclosure of the communications”.
Vermette J explained that the IBA Guidelines on Conflicts of Interest do not cite the situation of being nominated to a roster of arbitrators in any of the red, orange, or green lists; but emphasized that the general standards impose disclosure of any direct or indirect relationship. She also considered the UK Supreme Court decision in Halliburton [2020] UKSC 48.
She found that the conduct of Mr. Perezcano did give rise to reasonable apprehension of bias. On disclosure, she explained that the appointments to the rosters “conferred upon him a professional benefit and the potential for future financial benefit” and that the communications should have been disclosed, even if unrelated to the arbitration.
Yet, the Court exercised its discretion and refused to set aside the award.
Vermette J explained that reasonable apprehension of bias with respect to one of arbitrators does not necessarily “taint” the award and the entire tribunal. Even if the statement of costs implies that Mr. Perezcano “appears to have spent significantly more time on the case than the other two arbitrators and, inferentially, may have done a significant part of the drafting of the Award”, she noted that applying such a view would be contrary to the presumption of impartiality and independence of the other arbitrators. She also emphasized that the communications between Mexico and Mr. Perezcano were “generic in nature”.
She concluded that “ordering the parties to redo the arbitration would result in significant wasted time, resources and fees, and would raise serious concerns regarding the impact of a considerable amount of time on witnesses’ recollections”.
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.
