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<xTITLE>District Court Confirms Enforcement of Foreign Arbitral Award, Denying Arguments that Tribunal was Not Impartial and Enforcement was Contrary to U.S. Public Policy</xTITLE>

District Court Confirms Enforcement of Foreign Arbitral Award, Denying Arguments that Tribunal was Not Impartial and Enforcement was Contrary to U.S. Public Policy

by Jacob Kaplan, Thomas Tysowsky
February 2021

This article first appeared on Global Arbitration News by Baker McKenzie, here.

Petitioner Pao Tatneft (“Tatneft”), previously OAO Tatneft, initiated arbitration against the Ukrainian government. The case arose out of the parties’ joint ownership of CJSC Ukrtatnafta Transnational Financial and Industrial Oil Company (“Ukrtatnafta”) (Pao Tatneft v. Ukraine, Civil Action No. 17-582, (D.D.C. 2020) [click for opinion]).

In 1998 and 1999, Tatneft made agreements with other Ukrtatnafta shareholders to vote as a 56% majority bloc. In January 2007, the Ukrainian Privat Group acquired a 1% interest in Ukrtatnafta, and subsequently obtained Ukrainian judgments purporting to invalidate the shareholder resolutions by which Tatneft had obtained its interests in Ukrtatnafta. This resulted in Tatneft being barred from the management of Ukrtatnafta and ownership of its shares.

After dispute negotiations failed, Tatneft filed an arbitration demand. In it, Tatneft alleged that Ukraine had violated a Russia-Ukraine Bilateral Investment Treaty (the “Russia-Ukraine BIT” or “BIT”) by failing to grant legal protection to, and allowing discrimination against, investors from Russia such as Tatneft.

The Russia-Ukraine BIT provided for arbitration by an ad hoc arbitration tribunal in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL”). The BIT also set out a procedure for selecting members of the arbitral tribunal. Following those procedures, each party chose one arbitrator, who in turn chose Professor Orrego Vicuña as a third arbitrator and presiding member of the panel.

Once appointed, the tribunal issued a “jurisdictional award,” where it confirmed its jurisdiction over the matter. The tribunal then separately issued a “merits award,” in which it awarded Tatneft $112 million, plus interest, for its claims.

In between these two awards, Tatneft’s law firm appointed Vicuña as an arbitrator in DP World v. Republic of Peru, an unrelated arbitration. This appointment was not disclosed in the Tatneft-Ukraine arbitration. During this same period, Ukraine’s law firm appointed Vicuña as an arbitrator in another unrelated arbitration, South American Silver Ltd. v. Bolivia. This appointment was also not disclosed.

After issuance of the merits award, Ukraine brought an action in the Paris Court of Appeal in France to annul the merits award and the jurisdictional award. Among other things, Ukraine argued that Vicuña’s failure to disclose his appointment in the DP World case was grounds for vacating the merits award. This argument was rejected by the Paris Court of Appeal, which found that a single appointment in the course of a seven-year arbitration did not indicate a business relationship between the arbitrator and the law firm sufficient to raise a reasonable doubt about Vicuña’s independence and impartiality.

While Ukraine’s appeal of this decision was pending, Tatneft petitioned the U.S. District Court for the District of Columbia to confirm and enforce the arbitration award. Tatneft also commenced parallel proceedings in the United Kingdom seeking enforcement of the award.

In the U.S. proceedings, Ukraine argued against enforcement based on Vicuña’s alleged partiality and claimed that enforcement would violate U.S. public policy. The district court denied both of Ukraine’s arguments. First, the court denied Ukraine’s argument that Vicuña’s failure to disclose an arbitration appointment—that Ukraine claimed earned Vicuña nearly $300,000—demonstrated “evident partiality” as defined in Section 10(a)(2) of the Federal Arbitration Act (the “FAA”).

The court recognized that because the award at issue was not a domestic award, the FAA standard of “evident partiality” would not be applicable. However, even if it were, the court found that Ukraine did not meet this standard. “Evident partiality” requires more than a mere appearance of potential bias, and no sources suggested that a single appointment in an unrelated arbitration could give rise to justifiable doubts as to impartiality or independence.

The court also considered and rejected Ukraine’s argument that Article V(1)(d) of the New York Convention—which allows refusal of enforcement of awards where the tribunal was not constituted in accordance with the agreement of the parties—prevented enforcement. The UK courts had already rejected this argument, and the U.S. court agreed. Nothing in the IBA Guidelines on Conflicts of Interest in International Arbitration or in the International Chamber of Commerce guidance required disclosure of this appointment. Ukraine would also have had to show substantial prejudice—that had Vicuña disclosed the appointment, it would have been disqualifying. The court found that it would not have been disqualifying and that Ukraine was on notice of the appointment before the final award.

Finally, the court denied Ukraine’s arguments that the award should be refused enforcement under the public policy exception in Article V(2)(b) of the New York Convention. Ukraine argued that recognition and enforcement of the merits award would violate U.S. public policies against abuse of process, manipulation of corporate structures to create jurisdiction, and general wrongdoing. The court held that Ukraine’s claims were conclusory and did not outweigh U.S. public policy favoring enforcing awards. The court thus followed the French and UK courts’ rejection of these arguments and confirmed the merits award.

 

 

 

Biography


Jacob Kaplan

 

Jacob M. Kaplan is a partner in Baker McKenzie, New York. He focuses on international litigation and arbitration and has participated in several high-profile contract and financial services cases. Before joining the firm, he clerked for the Honorable Milton Pollack of the Southern District of New York and interned for the Honorable Sonia Sotomayor of the Second Circuit Court of Appeals. Jacob serves as counsel in disputes concerning contract, energy, investment, construction, commodities, financial services, insurance, and intellectual property, among other matters. He has appeared in state and federal courts as well as a variety of institutional and ad hoc arbitral forums.

 

Jacob serves as counsel in disputes concerning contract, energy, investment, construction, commodities, financial services, insurance, and intellectual property, among other matters. He has appeared in state and federal courts as well as a variety of institutional and ad hoc arbitral forums.

 

Thomas Tysowsky

 

Tom is a member of the North America Litigation & Government Enforcement Practice Group in Baker McKenzie's Los Angeles office. He joined the Firm in 2019 upon graduating from Vanderbilt Law School. Previously, he spent his summers at law school as a law clerk with the Firm’s offices in Houston in 2017 and San Francisco in 2018. Before law school, Tom was a Division I athlete, worked in client relations for a wealth management firm in Malaysia, and coached professional ice hockey in Norway.

 

Tom focuses his practice on class actions, state and federal commercial litigation, and arbitration. At Vanderbilt, his studies focused on complex litigation in particular. He has defended class actions for a range of clients during his time at the Los Angeles, San Francisco, and Houston offices. He has represented domestic and multinational corporations involved in nearly all aspects of litigation and advises clients in all litigation phases. Tom’s diverse experiences provide him with the background knowledge that he brings to the benefit of his clients.