Tatneft v. Ukraine, No. 17-582 (D.D.C. Mar. 19, 2018) [click for opinion]

On July 4, 1995, Tatarstan and Ukraine entered into an agreement to create CJSC Ukrtatnafta Transnational Financial and Industrial Oil Company (“Ukrtatnafta”), a Ukrainian joint stock company that operates the largest oil refinery in Ukraine. Ukraine, Tatarstan, and PAO Tatneft, a publicly-traded open joint stock company established under the laws of the Russian Federation (“Tatneft” or “Plaintiff”), were the three major shareholders of Ukrtatnafta.

In 1998 and 1999, U.S.-based Seagroup International, Inc. (“Seagroup”) and Switzerland-based AmRuz Trading Co. (“Am Ruz”) acquired shares in Ukrtatnafta, and, together with Tatneft and Tatarstan, owed the majority of Ukrtatnafta’s shares (the four entities are collectively referred to as the “Tatarstan Shareholders”). They agreed to vote as a bloc. In January 2007, the Ukrainian Privat Group acquired a 1% interest in Ukrtatnafta. The Privat Group subsequently obtained Ukrainian judgments that purportedly invalidated the shareholder resolutions by which Tatarstan and Tatneft obtained their interests in Ukrtatnafta, and resulted in the Tatarstan Shareholders being barred from management of Ukrtatnafta and ownership of its shares.

On May 21, 2008, Tatneft served Ukraine with a Notice of Arbitration and Statement of Claim, alleging that Ukraine had violated its obligations with regards to granting legal protection to and disallowing discrimination against investors from Russia (such as Tatneft) under the Russia-Ukraine Bilateral Investment Treaty (“Russia-Ukraine BIT”). The tribunal found that it had jurisdiction over Tatneft’s claims. On July 19, 2014, the tribunal issued an award on the merits (the “Merits Award”), whereby it concluded (1) that Ukraine’s actions resulted in a “total deprivation of [Tatneft’s] rights as a shareholder of Ukrtatnafta” and (2) that Ukraine had failed under the Russia-Ukraine BIT to provide “fair and equitable treatment” to Tatneft. The arbitral tribunal ordered Ukraine to pay Tatneft damages of US$ 112 million, plus interest.

On August 27, 2014, Ukraine brought an action before the Paris Court of Appeal to annul both the Merits Award and the earlier jurisdiction decision. The Paris Court of Appeal rejected Ukraine’s annulment request, upheld both the jurisdiction decision and the Merits Award, and ordered Ukraine to pay fees and costs to Tatneft. On December 29, 2016, Ukraine filed a subsequent appeal to the French Court of Cassation.

On March 30, 2017, Tatneft filed a Petition to confirm the Merits Award pursuant to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“) before the U.S. District Court for the District of Columbia. In response, Ukraine requested that the court stay its determination of the Petition pending the decision of the French Court of Cassation. Ukraine also filed an opposition to Tatneft’s Petition, as well as a motion to dismiss. Ukraine argued that the district court lacked subject matter jurisdiction because Ukraine was entitled to immunity under the Foreign Sovereign Immunities Act of 1976 (the “FSIA“), and that dismissal was warranted on the grounds of forum non conveniens. If the district court denied the motion to dismiss, Ukraine sought jurisdictional discovery.

Tatneft argued that the district court may exercise subject matter jurisdiction in this case because the FSIA provides an exception to foreign sovereign immunity for actions to confirm arbitration awards that are made pursuant to an agreement to arbitrate and are governed by an international treaty in force in the United States calling for the recognition and enforcement of arbitral awards. The district court agreed, finding that the Merits Award was made pursuant to the Russia-Ukraine BIT and was governed by the New York Convention.

The district court also found that it had jurisdiction under the implied waiver exception to sovereign immunity. The district court reasoned that Ukraine agreed to arbitrate in the territory of a state that has signed the New York Convention, and Ukraine is also a signatory to the Convention; thus, it should have anticipated enforcement actions in signatory states. As to forum non conveniens, the district court noted that Tatneft raised questions about whether it would be able to obtain justice in Ukraine and, thus, Ukraine failed to show that an alternative forum existed (a pre-requisite for prevailing on a forum non conveniens motion).

The district court also declined to stay the action while the appeal in France progressed. The district court noted that the proceeding in France had been dismissed without prejudice for refiling if Ukraine paid the outstanding legal fees owed to Tatneft, and, while Ukraine had pledged to challenge the dismissal order, that was not a “parallel proceeding” that would have an immediate effect on a lower French court decision affirming the Merits Award. However, with respect to the argument that the Merits Award should be denied as contrary to U.S. public policy and on the ground that the tribunal was improperly constituted, the court ruled that it would require further briefing.