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The three Houston lawyers on our cover are not the buttoned-up Europeans that one would expect to dominate a survey of international arbitration. Mark Baker of Fulbright & Jaworski is notorious for having shown up to a last-minute hearing dressed in official Boy Scouts of America shorts. A similar sartorial preference earned King & Spalding Houston partner Doak Bishop the nickname Daisy Doak — in homage to Daisy Duke on the TV show “The Dukes of Hazzard” — for his habit of wearing cutoff blue jeans while working weekends in the office. Michael Goldberg’s taste in trousers is more conventional, but the Baker Botts partner enjoys quoting a journalist who called him a “pit bull with cast-iron cojones.” And yet, when the time came to photograph these Texans, Bishop joked, “It would probably be easier to get the three of us together in London.” Our third biennial survey of international arbitration reveals why. One of the most marked recent trends is a surge in energy disputes, with the oil, gas and utility sectors accounting for more than a third of this year’s survey. Another is a surge in Latin American cases, which now represent 34 percent of the survey, including 48 percent of treaty-based disputes between states and foreign investors. As a result, these Houston arbitration stars find themselves on airplanes weekly, not only to Latin America, but also to Washington, D.C., the new hub of treaty arbitration, and to Europe, where the purely commercial contract-based arbitrations still tend to be heard. Meanwhile, the practices of these Houston lawyers have shot up the Arbitration Scorecard charts. King & Spalding dominates the list of treaty arbitrations (18 appearances as counsel), while Baker Botts and Fulbright have pulled into the top five law firms for contract disputes (boasting eight entries apiece). Thanks to its energy roots and southern exposure, Houston has become more than a dot on the arbitration map. This year, our survey includes more arbitrations than ever before. The universe of reported disputes has expanded impressively since our last survey in 2005. No fewer than 63 cases worth at least $1 billion are detailed in this issue of Focus Europe. Overall, we collected details on 228 arbitrations, including those that were unresolved in our 2005 survey. Among them are 117 treaty disputes with stakes of at least $100 million, and 111 contract disputes with stakes of at least $200 million. All rankings of law firms and arbitrators draw on the full sample of 228 entries. The 2007 Arbitration Scorecard covers international arbitrations (not limited to Europe) that were active between January 2005 and June 2007. We relied primarily on information supplied by lawyers involved in the cases, supplemented in some cases by arbitration or court papers, securities disclosures, and media reports. We should caution readers that in many cases we have had to rely on information from only one side in the dispute. The cooperating lawyers are not identified. The “amount in controversy” in a case represents the sum of claims and counterclaims, and is necessarily an approximation. The sample of contract arbitrations is fragmentary because of poor representation for secretive industries such as insurance and aerospace. Outside of the Texas surprise, the list of law firms with the most appearances in the 2007 Arbitration Scorecard includes the usual suspects. Joining King & Spalding in the first tier are Freshfields Bruckhaus Deringer, Shearman & Sterling, and White & Case. At the head of the second tier, Debevoise & Plimpton, Winston & Strawn, Cleary Gottlieb Steen & Hamilton, Clifford Chance, and Fulbright reaffirm their strength in the field. Beyond the energy sector and Latin America, the hot spots in this year’s survey include telecommunications, accounting for 12 percent of entries; and the former Soviet sphere, accounting for 24 percent. Telecom is especially well represented in the billion-dollar-plus set. Reflecting the rise in value of cellular telephone assets, parties have been struggling for control of mobile phone companies in, among other places, Nigeria, Brazil, Turkey, Poland, Serbia, Kazakhstan, Ukraine, and Russia (where arbitrations may swing control of both the second- and third-largest mobile phone companies). Struggles in the telecom industry, as well as the energy and mining sectors, rage across the former Communist world, from central Europe to central Asia, often fueled by accusations of corruption and political intrigue. The fight for OAO Megafon between a Russian oligarch and (apparently) a Russian minister is possibly the dirtiest of all, with industrial spies diving through one arbitrator’s garbage, and perhaps trying to entrap two others. (The sordid details are available in The Global Lawyercolumn of June’s The American Lawyer.) The sheer color and variety of international arbitration is often worthy of a Fleet Street tabloid. We have allegations revolving around an American investor’s perhaps ill-advised marital split with the Uzbek president’s daughter (ROZ Trading LTD v. Coca-Cola Export Corporation); Iranian gunships’ attack on a Romanian oil rig (Oriental Oil Corp. v. Grup Servise Petrolere); the financing of a failed Azeri coup (Barmek Holdings AS v. Azerbaijan); a Venezuelan forgery scam (I&I Beheer v. Bolivian Republic of Venezuela); and an apocalyptic mud volcano that buried the Indonesian countryside in a million drums of mud a day (PT Medco E&P Brantas v. PT Lapindo Brantas). In the oddest sign of Houston’s rising stature, the Indonesian mudslide (allegedly set off by a gas accident) pits two Indonesian companies against each other in New York�but with a Houston legal team on either side (Baker Botts versus the Houston office of King & Spalding) and three Houston arbitrators presiding. Where the hydrocarbons bubble out of the ground is a mere detail. Houston remains the capital of energy arbitration. No Houston arbitration practice has been busier than that of King & Spalding’s Bishop, who is the leading investment treaty lawyer for claims based on the Argentine peso crisis of 2001�02, with ten anti-Argentine claims appearing in the survey. Bishop argues that Argentina rendered foreign investments worthless when it broke its promise to pay investors in dollars. In July 2006 he won an early bout on behalf of Azurix Corp. with an award of $165 million plus interest. A trio of clients that invested in Argentine gas pipelines, Sempra Energy International, Camuzzi International, and Enron Corporation (along with indirect investor Ponderosa Assets L.P.), were hoping, as this survey closed, to win claims valued collectively at half a billion dollars. Another early winner in the Argentine sweepstakes is Freshfields, which obtained $133 million plus interest on behalf of another utility investor, CMS Energy Corp., in May 2005. M. & M. Bomchil Abogados, the leading Buenos Aires firm for investors, had a hand in both the Azurix and CMS victories, while winning $218 million plus interest on behalf of Siemens AG in February 2007, an award based on Siemens’s contract to design government information systems. Argentina still hopes that these three early awards will be annulled on a variety of grounds, and that it can minimize future damages. It can find a silver lining in an otherwise discouraging October 2006 arbitration award in the LG&E Energy case. Argentina, represented by attorney general Osvaldo Guglielmino, argued that economic crisis compelled it to break its promises to investors as a matter of political necessity. The panel accepted the validity of this argument�but only for the duration of the nation’s 16-month crisis. It remains to be seen to what extent this rationale will reduce damages under long-term contracts in the LG&E case and others. Overall, the Arbitration Scorecard this year reports 32 treaty claims against Argentina, with a collective amount in controversy of just over $20 billion. A new gusher of disputes is flowing from renationalization, or, at any rate, from new terms that are being dictated to foreign investors by resource-rich states. This trend may be seen not only in the oil and gas sector worldwide�in locations as diverse as Algeria and Ecuador�but also in metals and mining, which has generated 17 survey disputes. Gold mines have been a gold mine for arbitration, on a variety of grounds, in places like Kyrgyzstan, Uzbekistan, Armenia, and Venezuela. Baker Botts’s Goldberg attributes the newly aggressive treatment of foreign investors to a combination of high-priced commodities and resource nationalism. Prices have spiked due to the demand from growing markets like China. Meanwhile, popular hostility to foreign investors gives political cover to national leaders who covet a bigger share of revenue from national resources. “Leaders like [Venezuelan president] Hugo Ch�vez have the economic power to take control because prices are so high,” says Goldberg, “and they have the political power because there is a great nationalistic fervor behind them.” Although Ch�vez may be the most avid nationalizer, Venezuela has so far inspired only four treaty disputes that qualify for this survey. “Ch�vez has managed to avoid claims,” says Bishop. “There’s no question about that.” That’s mostly because foreign oil companies have been quick to make deals with Ch�vez. Thirty of the 32 foreign producers of “light” Venezuelan crude have agreed to renegotiated terms, in a move that feisty litigators liken to appeasement of the sort famously practiced by the umbrella-toting Neville Chamberlain. “We have heard the faint tapping on the cobblestones in Munich,” says Fulbright’s Baker. Baker cites three factors that have kept arbitration hostilities in check. First, the West’s publicly traded oil companies know that shareholders will punish them harshly for any loss of reserves. Second, foreign investors find it easier to accept a smaller share of pie in an era when surging oil profits mean a bigger pie for everyone. Third, Western firms are less confrontational because they know that new players, notably the national oil companies from Asia, are eager to enter resource-rich markets on whatever terms are offered. The negotiating investors need only look at Ecuador, where, after a failed arbitration with the state over tax increases, the Canadian oil company EnCana Corp. sold its oil interests in early 2006 to the two Chinese oil giants, China Petroleum & Chemical Corporation (Sinopec) and China National Petroleum Corporation (the parent of Petrochina). Nonetheless, a stubborn few have refused to appease Ch�vez and have filed for arbitration over alleged expropriation. The most prominent are the Italian oil company ENI SpA, represented by Freshfields, and an American fund called Brandes Investment Partners LP, an investor in the renationalized Venezuelan phone company and a client of Milbank, Tweed, Hadley & McCloy. The biggest actions may be yet to come, with Ch�vez demanding renegotiation of the huge lucrative contracts in Venezuela’s “heavy crude” Orinoco belt. Dozens of oil companies are studying their options�including some clients of all three Houston guns. Resource nationalism is hardly confined to Latin America, nor is the Houston arbitration practice. Baker Botts is suing Yemen in arbitration for $2.9 billion, on behalf of longtime client Hunt Oil Company and its joint venture with Exxon Mobil Corporation, for pulling the plug on their pioneering Yemeni oil venture. Yemen, represented by London’s Clyde & Co, demands $8 billion to compensate for Hunt’s and Exxon’s perceived failures to comply with environmental and tax rules and to “Yemenize” the project by training local personnel. Meanwhile, Fulbright and Baker Botts work opposite sides of the fence in Russia: Fulbright represents the bankrupt oil company OAO NK Yukos, while Baker Botts acts for the Russian state entities that have fed on its carcass, OAO Gazprom and OAO Rosneft Oil Company, as well as Rosneft chairman Igor Sechin, who is among the favorites to succeed Vladimir Putin as Russia’s president. Early results in the arbitrations surrounding Yukos include both a big claimant win and a big respondent win. Emmanuel Gaillard of Shearman won a $655 million award in September 2005 against Yukos on behalf of Yukos’s majority shareholders, based on a loan that the shareholders had made to the company to finance its planned merger with OAO Sibneft. Shearman is seeking in Dutch courts to recover damages from Yukos, which was driven into bankruptcy by a Russian tax prosecution before the Sibneft merger was consummated. Meanwhile, Shearman pursued a parallel claim against Rosneft, which now owns the Yukos production unit that ostensibly guaranteed the loan. In April 2007 Rosneft, represented by Goldberg, persuaded a London panel to dismiss the claim on the grounds that the guarantee was invalid. These arbitrations are only the opening skirmishes in a multifront war that promises to last for years. Cases filed by Yukos or its shareholders continue to lead both our treaty and contract lists: Shearman’s Gaillard is handling a $50 billion claim against Russia for expropriation, while Fulbright’s Baker has brought a $19 billion claim against Sibneft shareholders. Although big demands command high rankings on our charts, precious few result in nine-figure awards, let alone ten-figure awards. The defense victories are too numerous to list here in full. A sampling from the second half of 2006: Sanofi-Aventis S.A., represented by Cleary, turned back an $850 million claim from Rhodia S.A.; Freshfields and Kenya sent World Duty Free Limited and its $500 million claim packing; Debevoise neutralized AK Capital’s demand for $400 million from Hanbo Iron & Steel Co.; and Bredin Prat, acting on behalf of Egypt, dashed the $350 million hopes of Champion Trading Corporation. Kudos are due to the law firms that succeed in converting eyebrow-raising demands into eye-catching awards. Beyond the treaty triumphs over Argentina, a pair of large contract awards came down within a few months of our 2005 survey. Squire, Sanders & Dempsey, representing Gas Natural SDG S.A., secured a declaration reducing the price by more than a half billion dollars of liquefied natural gas from Nigeria LNG Ltd. Steptoe & Johnson won a $2 billion Zurich award for Motorola Credit Corporation against the Turkish cell phone firm Telsim. This award laid the groundwork for a $900 million recovery in Motorola’s investor-state settlement with Turkey, after Turkey seized and auctioned Telsim’s assets. More recently, in January 2007, Sullivan & Cromwell obtained an order for Cukurova Holding AS to sell the swing stake in Turkey’s leading cell phone operator to Sonera Holding BV for $3.1 billion [see " Ten Big Awards" ]. Taking the final step from award to collection can be a long and uncertain journey. It took barely two years from filing for Karaha Bodas Company to obtain a December 2000 award against the Indonesian oil firm Pertamina for terminating KBC’s project. After years of collection battles, however, KBC was only able to distribute to shareholders their $320 million (including interest) in February 2007, after the U.S. Supreme Court denied an emergency application from the lifting of a disbursement injunction. And Pertamina won’t give up, still trying to pursue a fraud action in the Cayman Islands and a tangential appeal to the U.S. Court of Appeals for the Second Circuit. And yet, KBC does not win the prize for most arduous arbitration. The oldest suit in our survey belongs, appropriately, to another doughty Texas litigator. William Knull of the Houston office of Mayer, Brown, Rowe & Maw defended Turkmenistan in a breach of contract arbitration filed by Bridas S.A. of Argentina in April 1996. The claim matured into a $580 million award by 2001. Knull’s challenge to the award in the federal courts was finally beaten back by Akin, Gump, Stauss, Hauer & Feld in November 2006, when the U.S. Supreme Court denied certiorari. Now all Akin Gump needs to do is seize some Turkmen assets, or persuade Turkmenistan to settle. It is too early to judge the worth of the multibillion-dollar claims that Goldberg has brought against Yemen, or Baker has brought against Sibneft shareholders, or Bishop has brought against Argentina. If the past is any guide, all three lawyers will be frequenting Houston’s international airport for some time to come. Perhaps with some cutoff shorts in their luggage. The Charts
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