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.
Gardabani and Silk Road v. Georgia
ICSID ad hoc Committee grants Georgia’s request for non-conditional stay of enforcement of USD 76 million award
ICSID Case No. ARB/17/29
Institution: ICSID (International Centre for Settlement of Investment Disputes)
Tribunal: Henri C. Álvarez (President), Stanimir A. Alexandrov (Appointed by the investors following the resignation of Horacio A. Grigera Naón), Zachary Douglas (Appointed by the State)
Ad hoc Committee: Alexis Mourre (President), Michael D. Nolan, Colm Ó hOisín (Members)
In a decision that has only recently surfaced*, an ICSID ad hoc Committee has ruled in favour of unconditionally continuing the stay of enforcement of the award in Gardabani and Silk Road v. Georgia pending the outcome of the annulment proceedings.
The award, issued in October 2022, found Georgia liable under the Netherlands–Georgia BIT for USD 76 million in a dispute over energy tariffs (“ICSID award“).
The dispute has also given rise to a contractual claim at the SCC which concluded with a USD 112 million award in September 2022 (“SCC award”).
Georgia filed for annulment of the ICSID award in February 2023 and requested the continuation of the stay of enforcement of the award in May 2023.
On August 8th, the ICSID ad hoc Committee ruled that the enforcement of the award shall continue to be stayed without conditions until the conclusion of the annulment proceedings.
The Committee first affirmed that the ICSID Convention grants ad hoc committees broad discretion to determine the appropriateness of a stay based on the specific circumstances of each case. It emphasized that the Convention does not establish a presumption either in favour of or against a stay.
The Committee then assessed different circumstances in order to reach its decision.
1. Whether the application for annulment is manifestly frivolous, unfounded, or dilatory
The Committee did not consider Georgia’s annulment application, which contended that the tribunal exceeded its powers by granting monetary relief already compensated by the SCC awards, to be manifestly unfounded or frivolous.
However, the Committee noted that the investors’ arguments supporting the award’s validity—that the legal basis for relief in the ICSID award and SCC awards differ, and that multiple awards compensating the same loss result from a coordination of the arbitrations agreed by Georgia—are equally not prima facie frivolous.
Consequently, the Committee determined that analysing the annulment application’s likelihood of success would yield no conclusive outcomes.
Likewise, the Committee found no evidence suggesting that Georgia’s application solely aimed to stall enforcement of the award.
2. Evidence that, in case of annulment, recoupment of the funds paid based on the Award would be abnormally difficult
Georgia argued that lifting the enforcement stay would expose it to the risk of non-recoverable payments made under the award. It contended that the investors might distribute funds to Russian company Inter RAO, the indirect owner of their shares, and raised the spectre of Inter RAO facing sanctions, rendering recoverability of funds “impossible.” Additionally, Georgia raised concerns about the award’s potential assignment to a third party.
The Committee remained unconvinced that fund distribution or award assignment significantly heightened the risk of non-recovery, compared to similar cases involving entities in analogous transactions. It highlighted that Georgia did not suggest that the financial situation of the investors or Inter RAO might deteriorate in the near future, or that it met its burden of proving the likelihood of the investors being subject to sanctions.
3. Whether, in case of a stay, enforcement of the award would become more difficult
In assessing whether the stay would place an excessive burden on the award creditor, the Committee first assessed whether there is evidence that Georgia would refuse to comply with the award if the annulment application is rejected.
The Committee noted that a letter sent from the Minister of Economy of Georgia to the ICSID Secretary-General affirmed that Georgia would “abide by and comply with the terms of the award except to the extent that enforcement shall have been stayed pursuant to the relevant provisions of this Convention”.
Dismissing the investors’ claims that the letter was “generic in nature” and should have been personally addressed to them, the Committee acknowledged Georgia’s confirmation of its obligations under Article 53(1) of the ICSID Convention.
Next, the Committee considered whether post-award interest adequately compensated the investors for losses caused by the stay of enforcement.
The Committee confirmed that any loss deriving from the delay of payment of the award is adequately compensated by post-award interest, and that any additional loss, such as loss of opportunity alleged by the investors, needs to be separately proven.
Consequently, the Committee concluded that enforcing the award wouldn’t become more difficult if the stay was continued.
4. Whether continuance of enforcement proceedings would be unduly burdensome for Georgia
The Committee analysed whether the continuance of the enforcement proceedings would unduly burden Georgia with exceptionally high costs and complexities.
Noting the complexity of enforcement proceedings in this case due to the investors obtaining multiple awards for the same loss on different legal bases, the Committee acknowledged the ongoing annulment, recognition, and enforcement proceedings for both the SCC and ICSID awards.
The Committee considered that the co-existence of the ICSID and SCC awards, generating a multiplicity of enforcement proceedings in multiple jurisdictions, is unduly burdensome for Georgia.
It also noted that there exists a possibility that the annulment of the SCC awards may lead to the annulment of the ICSID award.
On the risk of double recovery, the Committee acknowledged the investors’ undertaking not to pursue recovery beyond its loss but noted that there exists a risk that Georgia’s assets may be attached or seized for amounts significantly higher than what is due based on the awards.
The Committee considered that a continued stay would remedy these problems, as it would prevent the risk of multiple enforcement proceedings and maintain the status quo. It also highlighted that Georgia does not have a “a pattern of non-compliance with its international obligations”.
The Committee thus concluded in favour of maintaining the stay of enforcement of the award.
Finally, the Committee deemed it inappropriate to condition the stay to the posting of a security. It is considered that there is no real risk of non-payment of the award and that the loss deriving from the passage of time will be compensated by post-award interest. It further noted that the investors are free to continue the SCC awards’ enforcement proceedings.
Ongoing enforcement proceedings
The investors initiated enforcement proceedings for the ICSID award in the US District Court for the District of Columbia in February 2023.
Additionally, they secured an ex parte order from a DIFC Court enforcing the ICSID award in February 2023.
In August 2022, Gardabani obtained an ex parte order from the District Court of Nicosia in Cyprus, freezing the shares of a Cyprus company owned by the Georgian Government based on the second SCC award on damages.
*The decision was made public in the context of the US enforcement proceedings.
Related documents:
ICSID Case No. ARB/17/29
- Award and Dissenting Opinion by Arbitrator Zachary Douglas, 27 October 2022
SCC Case No. V2018/039 (administered by ICSID as ICSID Case No. ADM/18/1)
- Partial Award (Redacted) and Partial Dissenting Opinion of Professor Zachary Douglas QC (Redacted), 19 April 2021
- Second Partial Award on Damages, 23 November 2021
- Final Award (Redacted), 9 September 2022
JSC Tashkent and others v. Kyrgyzstan
Uzbek investors and Kyrgyzstan settle ICSID Additional Facility award and discontinue set aside proceedings
ICSID Case No. ARB(AF)/16/4
Institution: ICSID (International Centre for Settlement of Investment Disputes)
Tribunal: Bernardo M. Cremades Sanz-Pastor (President), Gary B. Born (Appointed by the investors), Zachary Douglas (Appointed by the State)
Seat of Arbitration: Washington D.C., United States
Kyrgyzstanand Uzbek investors have discontinued set aside proceedings of a USD 33 million award in the US District Court for the District of Columbia after reaching a settlement.
Both parties have filed a Joint Stipulation of Dismissal on November 30th stating that “on the mutual agreement of the Parties, that Award has now been satisfied and extinguished and there remains no basis to set aside, vacate, and or/enforce the Award”, and that each party shall bear its own costs.
Following this agreement, a Minute Order was entered on December 1st, dismissing the case with prejudice.
The dispute concerned several Soviet-era recreational facilities owned by the investors and situated on the shores of Lake Issyk-Kul in northern Kyrgyzstan.
In a May 2023 Award, the tribunal majority upheld jurisdiction and found that Kyrgyzstan had unlawfully expropriated the investments under the Kyrgyzstan-Uzbekistan BIT and Kyrgyzstan’s Foreign Investment Law. The majority held the State liable for USD 33 million in damages plus interests (pre and post-award at the rate of LIBOR +4%) and around USD 10 million in legal fees and arbitration costs.
Arbitrator Zachary Douglas issued two dissenting opinions arguing that the tribunal lacked jurisdiction and that the interest rate awarded was tantamount to punitive damages.
In August 2023, Kyrgyzstan filed a petition to vacate the award in the US District Court for the District of Columbia. It argued that the tribunal majority exceeded its powers when it upheld jurisdiction over the claims and acted in manifest disregard of the law in awarding interest synonymous with punitive damages.
Mercuria Energy v. Poland (II)
Poland faces enforcement of USD 33 million SCC award
SCC Case No. V 2019/126
Institution: SCC (Stockholm Chamber of Commerce)
Tribunal: Klaus M. Sachs (President), Juliet Blanch (Appointed by the investor), Laurence Boisson de Chazournes (Appointed by the State)
Seat of Arbitration: Stockholm, Sweden
On November 30th, Cyprus-based energy and commodity trading group Mercuria Energy filed for enforcement of a USD 33 million Energy Charter Treaty (“ECT”) award in the US District Court for the District of Columbia.
The dispute stems from a financial penalty that the Polish Material Reserves Agency imposed on Mercuria’s subsidiary, J&S Energy S.A. (“JSE”), in 2008. Although the Polish administrative courts overturned the penalty in 2009, the government never fully reimbursed Mercuria.
Mercuria launched the first arbitration against Poland at the SCC in 2008, also under the ECT. The case was dismissed on its merits in 2011.
From 2009 onwards, JSE sought legal recourse through various Polish courts and administrative channels. Yet, none yielded favourable results. Consequently, Mercuria launched a second ECT arbitration against Poland in 2019 to recover the outstanding portion of the penalty along with accrued statutory interest.
In a December 2022 Final Award, the tribunal upheld Mercuria’s claims and ordered Poland to pay around USD 33 million in damages plus interest and legal costs.
On jurisdiction, the tribunal dismissed Poland’s intra-EU objection. The tribunal also did not find an abuse of process by Mercuria, reasoning that the dispute has been ongoing for over a decade and that there exists no risk of double recovery since the Polish administrative courts have not yet paid JSE.
Poland contended that the arbitration claims mirrored those in domestic proceedings and invoked the ECT’s fork in the road provision to challenge the tribunal’s jurisdiction. However, the tribunal rejected this argument, delineating that the arbitration claims were based on ECT protections while the domestic claims are “rooted in Polish law”.
Addressing the merits, Mercuria alleged a breach of the ECT’s effective means standard. of Article 10(12) of the ECT. The tribunal upheld this claim, finding that “local enforcement remedies have proven to be ineffective” contrary to the requirements of article 10(12).
The tribunal found that “the proceedings were unduly delayed” by Poland and made an analogy with White Industries v. India. Further, the tribunal highlighted that “there is no guarantee of a final outcome of the case in the future, making the means offered to [Mercuria] by [Poland] truly ineffective”.
The tribunal concluded that Mercuria was “not afforded effective local remedies to enforce its rights” and that “the lack of an enforcement mechanism for administrative court judgements vis-à-vis the corresponding administrative authority” constitutes a breach of Article 10(12) of the ECT.
Mercuria also alleged a breach of the ECT’s fair and equitable treatment standard. The tribunal, observing Poland’s actions leading to the violation of the effective means standard, established grounds for breaching the FET standard. The tribunal explained that the administrative authorities “lacked transparency and respect for procedural property” in regard to Mercuria.
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.
