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Arbitration Scorecard 2009: One Battleground Isn't Enough
Latest Focus Europe survey examines more than 200 multimillion-dollar commercial and treaty disputes
Focus Europe
June 29, 2009
To describe international arbitration as three-dimensional chess is something of an understatement. Take the fight over Poland's top mobile operator among Vivendi, Elektrim SA and Deutsche Telekom AG, which has played out in forums across Europe.
The trouble started when a French-Polish joint venture chose an English dispute resolution clause, then partnered with a German company under an Austrian arbitral clause, and negotiated a settlement with a Swiss arbitral clause. To top it all off, Poland's Elektrim went bankrupt, adding a subtle overlay of European Union law. The key EU question is whether to apply Polish law, which would dismiss the bankrupt firm from all arbitrations, or the law of the arbitral forum, which might not. A Swiss tribunal dismissed Elektrim under Polish law, but an arbitration panel in England kept Elektrim in the case under English law (while yet more arbitration raged in Vienna). This year the English panel held that Elektrim must pay Vivendi nearly $2.5 billion for intentional breach of their investment agreement -- topping our list of big awards. Now the English Court of Appeal is weighing the EU question and might refer it to the European Court of Justice. "This situation inevitably lends itself to the use of arbitration in a strategic manner," says Vivendi counsel Caline Mouawad of Salans.
And how. The nearly 250 cases in the 2009 Arbitration Scorecard -- all either commercial disputes with stakes of at least $500 million or treaty disputes with stakes of at least $100 million -- overspill the bounds of their charts in every direction. The grandest battles, whether waged over cell towers or oil derricks, often cannot be contained on one battlefield, and multifront war has become the norm for the largest cases. [See "Treaty Arbitrations" and "Contract Arbitrations."]
"If enough money is involved, venues pop up everywhere," says Balz Gross of Homburger, who counseled LV Finance Group Ltd. in a dispute with Alfa Group Consortium over the Russian cell phone operator Megafon OAO. Before it settled, that billion-dollar case engaged tribunals or courts in Geneva, Zurich, Stockholm, Amsterdam, the United States, British Virgin Islands and Bahamas.
Our Arbitration Scorecard survey features at least a half-dozen pairs of parallel contract and investment arbitrations (pitting Exxon Mobil Corp. against Venezuela, Nomura Bank Holdings Inc., against the Czech Republic, German airport and Hong Kong rail investors against the Philippines, Newmont Mining Corp. against Uzbekistan, and Société Générale against the Dominican Republic). On top of that list is the case of the investor Hussein Nuaman Soufraki, who filed a delayed contract arbitration against Dubai's port authority, after losing an earlier treaty claim. Then there are a bevy of arbitrations with parallel actions in U.S. courts. (Among them are Asahi Kasei Pharma Corp. v. Actelion Ltd., KaZaA B.V. v. StreamCast Networks, Inc., Shimmick Construction Co. v. Befesa Construccion y Technologia Ambiental SAU, RSM Production Corporation v. Grenada; and sovereign bondholders against the Argentine Republic.)
The interplay between courts, tribunals, and -- potentially -- treaty panels is showcased in the contest for Russian mobile phone operator VimpelCom between Alfa and Norway's Telenor ASA. So far the VimpelCom case has led to a full house of two Swiss arbitrations and three New York disputes (one in arbitration, two in court). But the real action has been in Siberian court, where a tiny shareholder that Telenor calls an Alfa stalking horse obtained a $1.7 billion judgment against Telenor. This twist invites speculation that Telenor will eventually file an investment treaty claim against Russia itself, turning a contract dispute into a treaty claim. Telenor counsel Robert Sills of Orrick, Herrington & Sutcliffe won't comment, but he is attuned to the possibility. "I think we're going to see a lot more second-round claims where an investor that loses a commercial dispute goes after the state," he says.
Chevron Corporation v. Ecuador -- which is possibly the most twisted dispute of all -- could be headed in the same direction. Indigenous villagers claim that Chevron's predecessor Texaco despoiled the Amazon basin. They originally sued in U.S. court in 1993. After ten years of praising Ecuadorian justice, Chevron had the case removed to Ecuadorian court. Then Chevron filed a contract arbitration (itself removed to U.S. court), arguing that Ecuador is on the hook for any Chevron liability. Now Chevron's luck has turned. The villagers' underlying claim has been valued by an Ecuadorian court expert at $27 billion; and the U.S. courts have initially rejected Chevron's theory that Ecuador must cover any Chevron liability. Meanwhile, Chevron has filed a factually distinct treaty arbitration against Ecuador, where -- to come full circle -- it aims to discredit Ecuadorian justice. Such a precedent would come in mighty handy, if the company loses a jackpot verdict in the Amazon.
Telenor and Chevron will both be closely watching the OAO NK YUKOS cases, which are likely to define the state of the law on denial of justice. Having pledged a lifetime of litigation to avenge what they see as the seizure of their company by Russia, former Yukos shareholders have pressed their claim for tens of billions of dollars in U.S. court (where it has been dismissed), the European Court of Human Rights (where it has been admitted), and in several investment treaty forums. In the test case of Renta 4 Sociedad de Valores, S.A. v. The Russian Federation, arbitrators recently accepted jurisdiction over a bilateral treaty claim brought by Yukos' former minority shareholders. The former majority shareholders, having incorporated in jurisdictions without Russian bilateral treaties, seek arbitration under a pan-European investment agreement called the Energy Charter Treaty. The latter claims await a ruling on jurisdiction.
Comparing these globe-straddling disputes to 3-D chess only begins to describe them. Even a self-contained case can require thinking in multiple dimensions. Arbitrators at the cutting edge are repeatedly asked to balance states' investor guarantees with other international obligations -- whether they relate to economics or human rights. For instance, in at least five cases, investors demand compensation for steps taken by Eastern European states to harmonize their laws with the European Union. (See AES Corporation and Electrabel S.A. v. Hungary, Micula v. Romania, Cargill Inc. v. Poland, and Eastern Sugar B.V. v. Czech Republic.) The question in a nutshell: Do investment treaties trump all others?
