The United States Court of First Instance affirmed the enforcement of a foreign arbitration award, rejecting arguments it said the arbitration tribunal was inequitable, and that the enforcement of the award was in violation of US public policy.

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Summary of Facts

The case started when Pao Tatneft initiated an arbitration proceeding against the Ukrainian government. The dispute arose from the joint ownership of CJSC Ukrtatnafta Transnational Financial and Industrial Oil Company (“Ukrtatnafta”) (Pao Tatneft vs. Ukraine, Civil Action No 17-582, (D.D.C. 2020).

Beginning in 1998 and 1999, Tatneft made an agreement with other Ukrtatnafta shareholders to cast a 56% majority vote. In January 2007, the Ukrainian Privat Group received a 1% interest in Ukrtatnafta. A ruling was subsequently passed by Ukraine citing that the shareholder resolution was deemed to be invalid as Tatneft benefited from Ukrtatnafta. The ruling resulted in Tatneft being excluded from the administration of Ukrtatnafta and ownership of Ukrtatnafta shares

Later on, when negotiations failed, Tatneft filed an arbitration claim in which Tatneft claimed that Ukraine had violated the Russian-Ukraine Bilateral Investment Treaty (the “Russian-Ukraine BIT”) by not providing legal protection and agreeing to unfair discrimination against Russian investors, such as Tatneft.

The Russian-Ukraine Bilateral Investment Treaty required for an adhoc arbitration which is in accordance with the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules. It also specified steps for the establishment of an arbitration tribunal where each party is required to choose an arbitrator. Professor Orrego Vicuña was selected as the third arbitrator and chairman of the panel.

Once the arbitrator had been appointed, the arbitration tribunal stated “a jurisdictional award”, which confirms the jurisdiction of the arbitration tribunal in such a case. The court also specified a merit award for Tatneft to receive $112 million inclusive of interest, on the claim.

In the midst of these two awards, Tatneft’s law firm had also appointed Vicuña as an arbitrator in the DP World vs. Republic of Peru case, the appointment of which was not affiliated with the previous case. However, this appointment was not disclosed in the Tatneft-Ukraine arbitration process. Later on, during the same period, the Ukraine law firm also appointed Vicuña as an arbitrator in another unrelated arbitration process, i.e. South American Silver Ltd. vs. Bolivia, where the appointment of the arbitrator was also not disclosed.

However, after the merit award was accorded, Ukraine submitted a petition to the Paris Court of Appeals in France to overturn both the awards (the jurisdictional and merit award). Among other things, Ukraine argued that Vicuña had failed to disclose his arbitration appointment in the DP World case, which was reasonable grounds to revoke the merit award. However it was rejected by the Paris Court of Appeals based on the reason that, a single arbitration appointment in seven years does not imply a business relationship between the arbitrator and Tatneft’s law firm to raise sufficient doubts about Vicuña’s autonomy and impartiality.

While Ukraine’s appeal of the award is pending, Tatneft has filed a petition to the US Court of First Instance in the District of Columbia to confirm and enforce the arbitral award. Simultaneously, Tatneft has also begun filing his petition in the UK to request for the enforcement of the arbitral award as well.

During the litigation process in the United States, Ukraine argued that the enforcement of the ruling due to Vicuña was deemed to be unfair. It also argued that the ruling enforcement would be against US public policy. Ukraine stated that, Vicuña’s failure to disclose the arbitration appointment, which brought him nearly $ 300,000, demonstrated evident partiality, as provided for in Section 10 (a) (2) of the Federal Arbitration Act (FAA). However, the United States Court of First Instance rejected both Ukrainian arguments.

The Court’s Rulings

The court determined that, as an arbitration award is not a ruling made only within the United States, thus, the argument regarding the principle of FAA’s evident partiality is not enforceable. However, even if in this case, the FAA principle of evident partiality may be brought into consideration, the evident partiality requires more than mere speculation of potential biasness. In addition, there has been no evidence to suggest that a single appointment of an arbitrator in an unrelated arbitration process would create sufficiently reasonable skepticism or doubts of impartiality or autonomy of the arbitrator.

Moreover, the court also rejected Ukraine’s argument which referred to Article 5 (1) (d) of the New York Convention, which allowed it to reject an arbitral award in the event that the arbitration tribunal was not appointed pursuant to the Agreement of both parties. In this case, the UK courts also rejected the argument, and whereby the US courts was also of the same opinion. This is due to the basis that the Russian-Ukraine Bilateral Investment Treaty concerning conflict of interest in international arbitration, or on the advice of the International Chamber of Commerce (ICC), did not specify a disclosure of the appointment of an arbitrator under such case. Furthermore, Ukraine was also informed of the appointment of Vicuña prior to the final ruling.

The court eventually rejected the argument that Ukraine wanted to reject the enforcement of the award under Article 5 (1) (d) of the New York Convention, in which Ukraine claimed that its acceptance and enforcement would violate US public policy in which the violations would manipulate the structured process in establishing arbitral jurisdiction and general delinquency. The court found Ukraine’s claims to be unreasonable and established that there was no ground that it would destroy US public policy in any way. Therefore, the court rejected the argument, while both the French and English courts were of the same opinion.

Source:

https://globalarbitrationnews.com/district-court-confirms-enforcement-of-foreign-arbitral-award-denying-arguments-that-tribunal-was-not-impartial-and-enforcement-was-contrary-to-u-s-public-policy/

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The United States Court of First Instance affirmed the enforcement of a foreign arbitration award, rejecting arguments it said the arbitration tribunal was inequitable, and that the enforcement of the award was in violation of US public policy.