The Hague District Court sets aside a USD 50 billion award against Russia

In an award dated 18 July 2014, an arbitral tribunal formed under the auspices of the Permanent Court of Arbitration in the Hague held unanimously that the Russian State had expropriated from the Yukos Oil Group in violation of its international obligations under the Energy Charter Treaty ("ECT").  Accordingly, the Court ordered Russia to pay a historical amount in damages of USD 50 billion to the former shareholders of Yukos.

In an appeal brought by Russia, the Hague District Court has now set aside the award on the basis that the arbitral tribunal had no jurisdiction.

The Court found that Russia never gave its unconditional agreement to arbitrate disputes pursuant to article 26 of the ECT. Based on the fact that Russia was only a signatory to the ECT, and had never ratified it, Russia only had the obligation to apply the ECT provisionally pursuant to article 45 of the ECT.  Russia successfully argued that the provisional application of the ECT only meant that it was bound by provisions of the ECT reconcilable with its national law.  However, pursuant to the Russian Federation Constitution and the principle of the separation of powers, Russia could not give its consent to arbitration without the ratification of its Parliament.

Currently, this first instance decision is solely applicable within the territory of the Netherlands. Therefore, the seizures made against Russia remain valid until a release is ordered.

In any case, the decision does not prevent the beneficiaries of the award pursuing its enforcement in more lenient jurisdictions.

(Hague District Court, 20 April 2016)

A waiver of recourse to set aside an award is not incompatible with the right of access to a court

In the case of Tabbane v. Switzerland, the European Court of Human Rights has ruled that the waiver of recourse against an award is compatible with the right to a fair trial and the right to access to a court, which two rights are fully recognized and protected by the European Convention on Human Rights.  The Court considered that this freedom offered to the parties was in pursuit of a legitimate interest, namely, the promotion of Switzerland as a venue for arbitration, and the de-bottlenecking of cases before the Swiss Supreme Court.

The Court also noted that in the hypothetical case that an award contained serious irregularities, the waiver would not prevent the parties from resisting its enforcement pursuant to section 192 of the New York Convention.

(ECHR, Tabbane v. Switzerland, 4 April 2016)

The ICC issues guidance on the disclosure of conflicts of interest by arbitrators

The ICC continues to grapple with the thorny question of arbitrators’ duty to disclose conflicts of interest, particularly in light of French case law on the matter.

In February, the ICC issued  guidance to meet the legitimate needs of parties to an ICC arbitration for more transparency and complete information on all elements which could affect arbitrators' independence and impartiality.

Arbitrators are invited to consider, with utmost vigilance, situations (such as a conflict of interest due to the structure of their law firm, business or personal relationship with other arbitrators, etc.) that may fall within their duty of disclosure throughout the course of arbitration proceedings.  These guidelines are incorporated in the Note to Parties and arbitral tribunals issued by the ICC for arbitrations conducted under its auspices.

(ICC Publication, 12 February 2016)

Meanwhile, the Paris Court of Appeal issues a series of awaited decisions

  • Arbitrators have a duty to disclose but the parties must remain vigilant

The Paris Court of Appeal has issued a further decision in the famous case Tecnimont v. J&P Avax, where, until now, J&P Avax has in vain been attempting to have set aside the ICC's partial award upholding its liability towards Tecnimont.

J&P Avax claims that M. Jarvin, who acted as Chairman of the arbitral tribunal appointed by its two co-arbitrators, failed to disclose links between his law firm, Jones Day's Paris office, and Tecnimont, which potentially raised doubts about his impartiality towards Avax.

In 2009, the Court of Appeal severely denounced the conduct of  M. Jarvin in not disclosing his firm's advisory activities even where (i) these activities concerned Tecnimont's subsidiary; and (ii) the activities were carried out not by the firm's Paris office but by an office in Asia.  The Paris Court of Appeal held that the tribunal was constituted with irregularities and set aside the award.

Seven years later, the case was sent back to the Paris Court of Appeal for a second time after the decision was quashed by the French Supreme Court.  This time, in a major about turn, the Court of Appeal criticized Avax for its lack of reactivity during arbitration proceedings.  More specifically, the Court criticized Avax for not raising the alleged irregularities within the 30 days provided for under the ICC Rules to file a challenge, and this especially so because the information was easily and publicly available.  Avax was therefore deemed to have waived its rights.

But the story is perhaps not over…the saga continues as a third appeal is already underway.

(Paris Court of Appeal, 12 April 2016, n°14/14884)  

  • Electricity supply does not constitute an investment

The Paris Court of Appeal has set aside an arbitral award in the case Komstroy (Ukraine) v. Republic of Moldova on the grounds that the arbitral tribunal had no jurisdiction.  The ad hoc arbitral tribunal had ordered the Republic of Moldova to pay USD 49 million to Komstroy, successor-in-interest to Energoalians, for violation of its international obligations under the Energy Charter Treaty ("ECT").

The Court of Appeal considered that the ECT subordinates the concept of investment to a contribution in the energy sector.  However, in this case, the energy supply agreement, which did not give a right to exercise an economic activity in the sector, did not constitute a contribution.  Therefore, in the absence of an investment, the arbitral tribunal had no jurisdiction since the matter no longer concerned a dispute between a contracting party and an investor under Article 26 of the ECT.

(Paris Court of Appeal, 12 April 2016, n°13/22531)  

  • The adversarial principle remains relevant

The Paris Court of Appeal has set aside an arbitral award in which a sole arbitrator, in response to a claim for payment of a principal sum by a party, had instead awarded a sum in compensation for lost profits, a claim which was not made by the party in question.

The Court of Appeal held that the two claims were of a different nature and based on different legal grounds. It logically considered that the arbitrator, in substituting one legal basis for another, should have invited the parties to debate the matter.

The French judge recalled that an arbitrator is bound by the parties' claims which constitute the basis of the dispute and must allow the parties to express their views if he wishes to consider different legal arguments than those put forward by the parties.

(Paris Court of Appeal, 15 March 2016, n°14/19164)

Quote of the month:

"The extreme parts of time extremely forms, all causes to the purpose of his speed, and often at his very loose decides that which long process could not arbitrate"

William Shakespeare, Love's Labour's Lost