A billion here, a billion there. Pretty soon, it adds up to a real justice system–or at any rate one worth writing about. The world’s patchwork system of private dispute resolution, better known as international arbitration, has produced more than 100 disputes with stakes of at least $1 billion that were active during 2009 and 2010. The object of this survey is to follow the money.
ALM’s 2011 Arbitration Scorecard shines a light on 113 billion-dollar cases: 65 based on old-fashioned contracts and 48 based at least in part on investment treaties or legislation. The full survey, available online at americanlawyer.com/focuseurope, captures a total of 261 eligible disputes: treaty cases with stakes of at least $100 million and contract cases with stakes of at least half a billion. Information on these often-confidential cases is drawn from attorney questionnaires, supplemented by reporting and the harvesting of public sources. Arbitration’s dirty secret is that the biggest cases are rarely secret; they leak out in domestic court actions, securities disclosures, the local press, and the trade press.
The subjects in dispute range from the Almaty Monorail and Bosphorus tunnel projects to Mongolian gold mines, Uruguayan cigarettes, and Zimbabwean farms seized by the thugs of Robert Mugabe. But more than anything else, the fights are about oil and gas. Because when it comes to the hydrocarbon sector, the numbers get high in a hurry.
Oil and gas account for more than a third of the billion-dollar cases–and eight out of the 11 survey awards of $350 million or more in the two-and-a-half years since January 2009. According to ALM Media, LLC’s VerdictSearch, the U.S. courts also produced exactly 11 verdicts of at least $350 million during the same period–with oil and gas accounting for none. International arbitration can match U.S. litigation jackpot for jackpot, but due to the nature of global economic flows, the disputes are markedly different.
Leading our list are a pair of natural gas awards, valued at about $2.1 billion apiece. Matthew Saunders of DLA Piper, who has developed a specialty in gas repricing claims, won one of them for the Gazprom affiliate RosUkrEnergo AG; and recently followed up with a half-billion-dollar win for the same client. His practice has benefited from a drop in natural gas prices that is driven by two trends, Saunders says: “We’ve seen a perfect storm of economic crisis lowering demand and technology increasing supply.” In particular, the new accessibility of American shale gas has diverted to Europe shipments of liquefied natural gas that would otherwise have gone to North America. Disputes result because in Europe gas prices are set by long-term contracts, which are subject to repricing arbitration. “This is a practice niche that has grown out of all proportion,” says Saunders.
The RosUkrEnergo wins also embody the new prominence of Russian parties, who turn up in more than 10 percent of the survey’s billion-dollar cases, typically hiring London lawyers to sue in Stockholm because of cultural ties. “Russian clients treat global legal disputes like Stalin treated World War II,” says an anonymous London lawyer with Russian clients. “More troops, more tanks, more planes . . . and if there’s a 10 percent chance of success, that’s fine.”
Saunders adds: “We’re seeing a new generation of in-house lawyers in the former Soviet Union who are comfortable with arbitration, and Stockholm has been a huge beneficiary.” Indeed, Stockholm garners more survey entries than New York, and the Stockholm Chamber of Commerce appears more than the Permanent Court of Arbitration in The Hague. (The newsiest Russian dispute in Stockholm–the arbitration brought by Skadden, Arps, Slate, Meagher & Flom on behalf of Russia’s AAR Consortium to disrupt the $15.6 billion stock swap between BP plc and OAO Rosneft–began too late to qualify for the survey.)
It’s been a bad stretch for treaty claimants, who account for only one of the survey’s top ten wins, as opposed to six of the survey’s ten billion-dollar losses. Lately, even the most successful state-investor claimants seem cursed. Skadden won an award of more than $100 million against the Republic of Georgia for expropriating a pipeline project from businessman Rony Fuchs, only to have Fuchs caught on video allegedly agreeing to pay a kickback to Georgian officials to help settle the case. (Fuchs maintains that he was entrapped; he is now in Georgian jail appealing a conviction on bribery charges.) King & Spalding obtained a $133 million award against Egypt for seizing a tourist resort from businessman Waguih Siag, only to see its client cut his own settlement deal in a dustup over fees that has since settled confidentially ["How Much is Too Much?," The American Lawyer, June 2010].
In our last survey, in 2009, six of the largest 12 awards arose from investments in Argentina, but those claimants have had their own run of bad luck. Two of the big Argentine awards—in favor of Enron Corporation and Sempra Energy International Co.—were annulled, in the World Bank arbitration court’s equivalent of a limited appeal. When Siemens A.G. settled massive corruption charges with U.S. authorities in 2008, it admitted that its Argentine award was based on a corrupt contract; Argentina later withdrew its request for annulment, presumably because Siemens abandoned its award. (Neither side has commented publicly.) Meanwhile, two-thirds of the Italian bondholders suing Argentina have accepted a haircut of about 30 cents on the dollar. Two sets of water utilities won new awards against Argentina, but these have yet to be quantified.
Lost in the lights of the massive natural resource claims are the two North American Free Trade Agreement awards won by Cargill, Inc., and Corn Products International, Inc., in summer 2009, based on Mexico’s corn sweetener tax ["The Ties That Bind," The American Lawyer, August 2009]. These awards, for about $77 million and $58 million, respectively, set records for arbitration awards under NAFTA. They represent impressive victories for claimants counsel Steptoe & Johnson and Mayer Brown–but their relatively modest size also indicates that old fears of NAFTA effecting vast wealth transfers across borders were exaggerated.
Venezuela and Ecuador are at the vanguard of the current wave of resource nationalism—and account for fully 25 survey entries. Disappointed investors in those countries hope for a significant showing in our next Ten Big Awards list, but have so far seen only two significant monetary results. Debevoise & Plimpton obtained a $650 million settlement from Venezuela for nationalizing the cement operations of Switzerland’s Holcim Ltd. King & Spalding won an award of uncertain size for Chevron Corporation against Ecuador, based on old, unresolved court claims that Ecuador had cheated Chevron out of oil revenue. An initial award of nearly $700 million is subject to a large tax setoff, yet to be fixed. (At press time Occidental Petroleum Corporation’s $3 billion claim against Ecuador was expected to be resolved imminently.)
Chevron’s other arbitration–alleging fraud in the $18 billion Ecuadorian court judgment won against Chevron by local plaintiffs for harms flowing from historical Amazon oil operations–has surely seen more ink spilled than any other arbitration. Another essay in this issue considers whether it belongs to a larger phenomenon of domestic court abuse.
Outside Latin America, which accounts for over 40 percent of treaty cases, the claims have a wide geographic spread. Investments have soured for Turks in Jordan and Georgia, Israelis in Uzbekistan, Lebanese in Congo, and Chinese and Russians in Mongolia. But most treaty cases in the survey still involve at least one European party, which lends weight to the recent rumblings by the European Union about overhauling state-investor arbitration involving E.U. countries.
Who’s getting the business? The four law firms handling the most arbitrations remain unchanged for the third straight survey. Freshfields maintains a comfortable lead with 39 arbitrations. White & Case, King & Spalding, and Shearman & Sterling make up the rest of the quartet. Together they threaten to solidify into a Big Four of international arbitration.
Clocking in at fifth is Curtis, Mallet-Prevost, Colt & Mosle, which rocketed up from seventeenth in the survey. With about 250 lawyers, Curtis, Mallet-Prevost is a fraction of the other firms’ size, but firm chairman George Kahale III says: “Pound for pound we think we match up with any law firm in the world in arbitration.” Another comparative pip-squeak, the 211-lawyer Foley Hoag, is the other dramatic mover on our charts, with a surge from twenty-fifth to tenth place. It’s no coincidence that these two overachieving firms work primarily for the increasingly feisty sorority of sovereign clients and share one of the feistiest, Venezuela.
Among arbitrators, Charles Brower of London’s 20 Essex Street defended his top rank with 25 appearances in our survey. Gabrielle Kaufmann-Kohler of Geneva’s Lévy Kaufmann-Kohler and Brigitte Stern of Université de Paris I notched 18 entries apiece. Just behind are Bernard Hanotiau and Albert Jan van den Berg of Brussels’s Hanotiau & van den Berg and William Park of Boston University, all of whom made our top ten list last time.
Another constant is the scarcity of female arbitrators, whose number declined from ten to nine since our last survey ["Deciding Women," Summer 2009]. Once again, no woman other than Stern and Kaufmann-Kohler appears even twice.
Bringing a billion-dollar claim is no longer enough to stand out in a survey of international arbitration. Nor is it enough to win a measly $100 million. Attention, arbitration lawyers: What it takes to distinguish yourself these days is a $350 million award, minimum. Submissions are due January 2013.
Chart: Ten Big Awards
Chart: Top Arbitration Firms
Chart: Top Ten Arbitrators
Chart: Ten Big Defense Wins