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.
Edmond Khudyan v. Armenia
US Investor Seeks to Enforce Award That Granted Costs Incurred in ICSID Annulment Proceeding Against Armenia
ICSID Case No. ARB/17/36
Institution: ICSID (International Centre for Settlement of Investment Disputes)
Tribunal: Melanie Van Leeuwen (President), Ank Santens (Appointed by the claimants), Zachary Douglas (Appointed by the State)
Ad hoc Committee: Christopher John Greenwood (President), Tina M. Cicchetti, Ucheora Onwuamaegbu (Members)
Armenia is facing the enforcement of an ICSID annulment decision that ordered it to pay USD 438,393 to US investors in respect of the legal and arbitration costs incurred in the annulment proceeding.
On 12 April, Edmon Khudyan filed for enforcement of the Decision on Annulment in the US District Court for the District of Columbia.
Mr. Khudyan was born in Tehran and emigrated with his family to the Armenian Soviet Socialist Republic (ASSR), which at the time formed part of the USSR. In the late 1980s, Mr. Khudyan and his family left the USSR and established their permanent residence in the US, and he later became a US citizen in 1998.
The dispute stems from Mr. Khudyan and Arin Capital & Investments (Arin US) investing in a luxury apartment development through Arin Capital Investments, a company incorporated in Armenia. Mr. Khudyan claims that he and Arin US were victims of a “criminal scheme” that forced Arin Armenia into insolvency.
In 2017, Mr. Khudyan and Arin US initiated arbitration against Armenia under the Armenia – US BIT, claiming that Armenia’s action resulted in losses in excess of USD 10 million.
In December 2021, the tribunal declined jurisdiction. It found that Mr. Khudyan obtained Armenian nationality after Armenia’s 1990 Declaration of Independence and that he did not lose his Armenian citizenship after acquiring US nationality in 1998. The tribunal held that Mr. Khudyan, as a dual national, could not bring the claim under the ICSID Convention and ruled that it lacked jurisdiction ratione personae.
With respect to Arin US, the tribunal found that it has jurisdiction ratione personae but dismissed the claims for lack of jurisdiction ratione materiae, finding that Arin US did not establish direct or indirect ownership of any assets that qualify as protected investments under the BIT.
The tribunal ordered the investors to pay Armenia USD 337,466 in arbitration costs and USD 400,000 in legal fees.
Mr. Khudyan alone filed for partial annulment of the award, challenging the findings on his citizenship and the costs order. He asserted the tribunal manifestly exceeded its powers.
In July 2023, the ad hoc Committee upheld Mr. Khudyan’s application. The Committee disagreed with the tribunal’s finding that it was “common ground” that Mr. Khudyan became a national of Armenia after its Declaration of Independence in 1990. It found that this assumption was a “central building block” in the reasoning of the award.
The Committee explained that the tribunal did not inquire into the important question of whether Mr. Khudyan could have been a national of the USSR but not of the ASSR when he left for the US and before the dissolution of the USSR in 1991.
The Committee also annulled the tribunal’s findings on costs, finding that the tribunal did not distinguish between the two claimants in the costs order and that “the Committee is not in a position to determine for itself what portion of the costs awarded by the Tribunal relate to Mr Khudyan and what part to Arin US”.
It ordered Armenia to bear the costs of the annulment proceedings as well as Mr. Khudyan’s legal fees, totalling USD 438,393.
The Decision on Annulment has been filed in the US enforcement proceeding and is available here.
Lazareva v. Kuwait
Paris Court of Appeal Allows Marsha Lazareva to Remotely Attend Set-Aside Hearings
ICSID Case No. UNCT/19/1
Institution: UNCITRAL arbitration administered by ICSID
Tribunal: David Unterhalter (President), Charles N. Brower (Appointed by the claimants), Gabriel Bottini (Appointed by the State)
Seat of Arbitration: Paris, France
On 4 April, the Paris Court of Appeal ruled that Marsha Lazareva, the claimant in the arbitration and the set aside proceedings, can attend the set aside hearings remotely from the Russian Embassy in Kuwait City, where she is taking refuge.
Background
Ms. Lazareva, a Russian national, was CEO, Vice Chair and Managing Director of Kuwaiti private equity firm KGL Investment (“KGL”). While with KGL, she established and managed an investment fund in which two Kuwaiti state entities – Kuwait Ports Authority (KPA) and Kuwait Public Institution for Social Security (PIFSS) – have invested.
Starting 2012, Ms. Lazareva faced charges of money laundering and embezzlement of public funds. She was arrested in 2017 by the Kuwaiti authorities.
Ms. Lazareva’s USD 60 million bail was lowered after petitions to the UN Working Group on Arbitrary Detention. She was released on bail in June 2019 and took refuge in the Russian Embassy in Kuwait. She is facing a 29-year sentence.
Ms. Lazareva filed for arbitration in 2018 under the Russia – Kuwait BIT alleging an orchestrated campaign against her.
In August 2022, the tribunal held that it lacked jurisdiction over the dispute. Reportedly, it found that Ms. Lazareva had not made a protected investment under the BIT as she had not exercised control over KGL.
Ms. Lazareva then sought to set aside the award. In October 2023, she requested a personal remote appearance in the set aside hearing, which is scheduled for June 2024.
Paris Court of Appeal Allows Remote Participation in Hearing
In its Order, the Paris Court of Appeal accepted the claimant’s request.
The Court first noted that the parties agreed to apply the Procedural Protocol of the International Chamber of the Paris Court of Appeal, under which the Court is empowered to assess the appropriateness of granting the request for participation.
The Court explained that Ms. Lazareva’s set aside grounds relate to violations of due process and her right to a fair trial, as she is arguing that she was imprisoned in Kuwait at the time of the filing of the arbitration and had limited access to evidence and her legal counsel.
Recalling Article 6 of the European Convention on Human Rights, which protects a person’s right to be heard and personally appear in hearings concerning them, the Court found that Ms. Lazareva’s request should be accepted. The Court set out specific arrangements for the remote participation, which will be conducted in English.
Related documents:
- Claimant’s Application for Interim Measures under Article 26(1) of the UNCITRAL Rules, 27 March 2019
- Complaint Concerning Reprisals against Ms. Lazareva and Her Legal Counsel (Communication to the UN Working Group on Arbitrary Detention), 4 September 2019
Triodos v. Spain
Svea Court of Appeal Sets Aside Intra-EU Award Finding that it is Contrary to Swedish Public Policy
SCC Case No. 2017/194
Institution: SCC (Stockholm Chamber of Commerce)
Tribunal: Alejandro A. Escobar (President), Oscar M. Garibaldi (Appointed by the claimant), Christophe Bondy (Appointed by the State)
Seat of Arbitration: Stockholm, Sweden
On 27 March, the Svea Court of Appeal has set aside an ECT award that ordered Spain to pay EUR 10.4 million in damages to a Luxembourg-based investment fund.
Background
The dispute arose out of Spain’s reforms of incentives offered to investors in the renewable energy sector.
Triodos initiated arbitration in 2017 under the Energy Charter Treaty (ECT). In 2022, the tribunal upheld the investor’s claims and found Spain in breach of the ECT. The state was ordered to pay Triodos EUR 10.4 million in damages and more than USD 2.5 million in arbitration costs and legal fees, plus interests.
Svea Court of Appeal Finds that Award is Contrary to Swedish Public Policy
Spain sought to set aside the award. It argued that, as a consequence of the CJEU’s judgments in Achmea, Komstroy, and PL Holdings, the award is incompatible with Swedish public policy. It said that intra-EU investment arbitration undermines the autonomy of EU law and the principle of mutual trust between EU member states. It also argued that such disputes are incompatible with the principle of loyal cooperation.
For these same reasons, Spain said that the dispute is non-arbitrable.
Alternatively, Spain contended that Article 26 of the ECT does not apply between EU member states and accordingly, no offer to arbitrate exists.
The investor countered that the ECT must be interpreted according to international law and the Vienna Convention, and not as an EU legal act, which it said is what the CJEU did in Komstroy.
The Svea Court was not convinced by the investor’s arguments. It emphasised the importance of the CJEU interpretations in Achmea, Komstroy and PL Holdings.
The Court noted that the Swedish Supreme Court, in PL Holdings, has confirmed the CJEU’s interpretation when it set aside another intra-EU award on public policy grounds and considered that intra-EU arbitration clauses are incompatible with the fundamental principles of the EU legal order and the Swedish legal order.
The Court concluded that the award is thus clearly contrary to Swedish public policy and set aside the award. It refused to examine Spain’s other grounds.
Earlier in March, conversely, Spain was unsuccessful in its attempt to annul an ICSID intra-EU ECT award in RWE Innogy v. Spain. On 20 March 2024, the ICSID ad hoc committee upheld the award, finding that the tribunal did not manifestly exceed its powers when it upheld jurisdiction over the claim.
The award held Spain liable for EUR 28 million in damages, plus interests and roughly EUR 3 million in arbitration costs and legal fees. RWE is currently pursuing enforcement in the US.
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.
