OJSC Tatneft v. Ukraine

Case summary

At a glance

Parties: OAO Tatneft (now PAO Tatneft), Russian Federation, v. Ukraine
Case no.: PCA Case No. 2008-8 (UNCITRAL)
Forum and rules: Ad hoc arbitration under the UNCITRAL Arbitration Rules 1976, administered by the PCA; seat Paris
Treaty: Russia–Ukraine BIT of 27 November 1998; the fair and equitable treatment standard of the UK–Ukraine BIT was applied through the MFN clause in Article 3(1)
Tribunal: Francisco Orrego Vicuña (President), Charles N. Brower (who replaced Rudolf Dolzer after Ukraine's challenge to him succeeded), Marc Lalonde
Sector: Oil refining (Ukrtatnafta, Kremenchug refinery)
Outcome: Jurisdiction upheld (2010). In 2014 Ukraine was held liable for breaching the BIT and ordered to pay USD 112 million plus interest; the oil-delivery claim and all other claims were dismissed. Annulment was refused in Paris, and the award was enforced in the US, England and Russia.
Amount: Claimed: about USD 1.444 billion. Awarded: USD 112 million, plus three-month USD LIBOR + 3%, compounded quarterly. Each party bears its own costs and half of the arbitration costs of USD 2,040,308.12. The US judgment was for USD 172,910,493.00.

The dispute

Tatneft, a Russian oil company, held shares in Ukrtatnafta, the Ukrainian joint venture that owns the Kremenchug refinery. It held them directly (8.61%) and, from December 2007, indirectly (14.09%) through AmRuz Trading AG and Seagroup International Inc. From 2007 Ukrainian courts acted on claims brought by prosecutors and parties linked to the Privat Group. They reinstated Mr Ovcharenko as chairman of the management board, and that reinstatement was enforced by force on 19 October 2007 with the help of Interior Ministry troops. The courts also invalidated the share acquisitions, so that Tatneft and its allied shareholders lost their entire holdings by 2009–2010. Tatneft claimed under the Russia–Ukraine BIT for breach of 'complete and unconditional legal protection', expropriation, and fair and equitable treatment and full protection and security imported through the MFN clause. It also claimed for unpaid oil deliveries. Ukraine argued that Tatneft was a State-controlled entity, that it had acquired AmRuz and Seagroup to manufacture a claim, that the investments were illegal under Ukrainian law, and that the oil debt was not an investment.

Key holdings

Jurisdiction and admissibility upheld. Tatneft's claim as indirect shareholder through AmRuz and Seagroup is admissible: there was no evidence that Tatneft bought them to defeat the BIT's nationality requirement, and similar protection was available to them under the Ukraine–US BIT and the Energy Charter Treaty. Partial Award on Jurisdiction ¶¶ 220–221, 252
The claim for unpaid oil deliveries is admissible as a claim for consequential damages, not a contract claim. In the Award on the Merits the Tribunal held that Ukraine was not liable for Ukrtatnafta's non-payment, so the USD 414.4 million claim was not considered. Partial Award ¶ 237; Award on the Merits p. 185
Damages are valued by reference to the price Tatneft paid for its shareholdings: USD 112 million in total. One arbitrator disagreed and considered that the alternative valuation methods could not produce more than USD 52.3 million. Award on the Merits p. 185
The interest rate in Article 5(2) of the BIT (LIBOR + 1%) applies only to expropriation. Because the breaches found were on other grounds, the Tribunal set interest at three-month USD LIBOR + 3%, compounded every three months. Interest runs on USD 68.44 million from 12 May 2009 and on USD 43.56 million from 27 January 2010, and is suspended for 60 days after the Award. Award on the Merits ¶¶ 624–627, 631–632, 639, 642
The Paris Court of Appeal rejected annulment of both awards. Tatneft is not an emanation of Tatarstan or Russia. Ukraine did not prove abuse of rights in the AmRuz and Seagroup acquisitions. Whether the FET standard applies is a merits question, not a jurisdictional one. Orrego Vicuña's single undisclosed appointment by Cleary Gottlieb raised no reasonable doubt about his independence. Ukraine was ordered to pay EUR 200,000. Paris CA ¶¶ 24, 29–30, 43, 48, 50, 53–56
English High Court: Ukraine is not immune under s. 9 of the State Immunity Act 1978. Abuse of rights is an admissibility issue for the tribunal, not a jurisdictional one. In a later judgment the Court held that the single appointment did not trigger a duty of disclosure and did not show apparent bias. [2018] EWHC 1797 (Comm) ¶¶ 99–100, 111; [2019] EWHC 3740 ¶¶ 84, 99, 105
The D.C. Circuit affirmed confirmation of the award. Ukraine forfeited its illegality defence under Article V(1)(c). The award is not internally inconsistent. Enforcement does not violate US public policy. Vicuña's single appointment raised no 'justifiable doubts' under Article V(1)(d). Forum non conveniens is not available in proceedings to confirm a foreign award. D.C. Cir. Opinion (28 December 2021), pp. 8–18

Procedural history

21 May 2008Tatneft serves its Notice of Arbitration and Statement of Claim, after its Notice of Dispute of 11 December 2007.
19 December 2008The PCA Secretary-General upholds Ukraine's challenge to Rudolf Dolzer. Charles N. Brower is appointed on 16 January 2009.
28 September 2010Partial Award on Jurisdiction: all objections to jurisdiction and admissibility are rejected.
29 July 2014Award on the Merits: Ukraine is ordered to pay USD 112 million plus interest.
29 November 2016The Paris Court of Appeal rejects Ukraine's applications to annul both awards. The French Court of Cassation removes Ukraine's appeal from its docket on 9 November 2017.
19 March 2018The US District Court for D.C. denies Ukraine's motions to dismiss, to stay and for jurisdictional discovery. The D.C. Circuit affirms on 28 May 2019 under the FSIA waiver exception.
13 July 2018English High Court (Butcher J) dismisses Ukraine's state immunity challenge. On 20 December 2019 Cockerill J dismisses its challenge based on arbitrator bias.
11 March 2019After an earlier dismissal in Moscow, a remand and a transfer, the Arbitrazh Court of Stavropol Region recognises and enforces the award. The North Caucasus District Court upholds this on 21 June 2019, and the Russian Supreme Court refuses further review on 21 October 2019.
11 January 2021US District Court enters judgment for USD 172,910,493.00, after confirming the award on 24 August 2020. On 1 June 2021 it denies a stay of execution without bond.
28 December 2021The D.C. Circuit affirms the confirmation judgment.

Tribunal, counsel and experts

Decided by: Francisco Orrego Vicuña President — chosen by the co-arbitrators
Charles N. Brower Co-arbitrator — appointed by the claimant (replaced Rudolf Dolzer on 16 January 2009)
Marc Lalonde Co-arbitrator — appointed by the respondent
Rudolf Dolzer Co-arbitrator — appointed by the claimant (challenge sustained on 19 December 2008)
Dominique Guihal Judge, Paris Court of Appeal (presiding)
O.Yu. Lezhneva Judge, Arbitrazh Court of the City of Moscow
Colleen Kollar-Kotelly Judge, US District Court for the District of Columbia
A.M. Yakovlev Judge, Arbitrazh Court of Stavropol Region
V.E. Epifanov Judge, Arbitrazh Court of the North Caucasus District
I.V. Sidorova Judge, Arbitrazh Court of the North Caucasus District
E.G. Solovyev Judge, Arbitrazh Court of the North Caucasus District
N.V. Pavlova Judge, Supreme Court of the Russian Federation
Karen LeCraft Henderson Judge, US Court of Appeals for the D.C. Circuit
For the claimant: Cleary Gottlieb Steen & Hamilton LLP · SCP Regnier-Bequet-Moisan · David Foxton · Emily Wood
For the respondent: King & Spalding LLP · Grischenko & Partners · Winston & Strawn LLP · Sabine Konrad · Philip Edey · Philippa Webb · Anton Dudnikov · Jacques Pellerin · Luca De Maria · Geoffrey P. Eaton
Experts: Mark Bezant (other) · Baker & O'Brien, Inc. (other) · Jacobs Consultancy Limited (other)