PAO Tatneft v. Ukraine

At a glance

Parties

PAO Tatneft (formerly OAO Tatneft), Russia, v. Ukraine

Case no.

High Court of England and Wales, Commercial Court, Claim No. CL-2017-000252, [2020] EWHC 3161 (Comm); related: U.S. District Court for the District of Columbia, Civil Action No. 17-582 (CKK); D.C. Circuit No. 18-7057; Arbitrazh Court for the Moscow District, Case No. A40-67511/2017

Forum and rules

Proceedings to recognise and enforce a New York Convention award (Arbitration Act 1996, ss. 101–103; U.S. FAA, 9 U.S.C. §§ 201–208; Russian Arbitrazh Procedure Code, ch. 31)

Treaty

Russia–Ukraine BIT of 27 November 1998 (Article 9); New York Convention 1958

Court

High Court: Sir Andrew Smith (sitting as a Judge of the High Court). U.S. District Court: Judge Colleen Kollar-Kotelly. D.C. Circuit: Wilkins and Katsas, Circuit Judges, and Randolph, Senior Circuit Judge. Moscow District: S.V. Nechaev (presiding), N.D. Denisova, E.A. Petrova

Underlying award(s)

Jurisdiction Award of 28 September 2010 and Merits Award of 29 July 2014, UNCITRAL Rules 1976, PCA-administered, seated in Paris; tribunal: Francisco Orrego Vicuña (President), Charles N. Brower, Marc Lalonde

Sector

Oil refining; shareholding (Ukrtatnafta)

Outcome

The High Court (23 November 2020) refused Ukraine's application to set aside enforcement of the USD 81 million part of the award. It accepted that the underlying investments were illegal under Ukrainian law, but held the challenge barred by abuse of process and issue estoppel, and waived because Ukraine had not raised it before the tribunal. The U.S. District Court confirmed the award on 24 August 2020.

Amount

Award: USD 112 million (USD 31 million claim plus USD 81 million claim), with interest at U.S. dollar LIBOR plus 3%, compounded every three months. Each party bore its own costs and half the costs of the arbitration.

The dispute

Tatneft, a Russian oil company, held shares in Ukrtatnafta, a Ukrainian company that operates Ukraine's largest oil refinery. It held some shares directly and others indirectly, through its acquisition of interests in Seagroup (a U.S. company) and AmRuz (a Swiss company). In 2007–2008 Ukrainian court judgments invalidated the shareholdings, and the Tatarstan shareholders lost control of Ukrtatnafta. Tatneft brought an UNCITRAL arbitration under Article 9 of the Russia–Ukraine BIT. In 2014 the tribunal found that Ukraine had breached fair and equitable treatment and awarded USD 112 million plus interest. The Paris Court of Appeal refused to annul the awards, and Tatneft sought enforcement in England, the United States and Russia. Ukraine resisted on several grounds: state immunity, non-disclosure by the presiding arbitrator, public policy, and, in the 2020 English application, the argument that the USD 81 million claim fell outside the arbitration agreement because Seagroup's and AmRuz's 1999 share acquisitions, paid for with promissory notes, were not made in accordance with Ukrainian legislation.

Key holdings

1. The illegality argument succeeds on Ukrainian law. Paying for founding shares with promissory notes breached Article 13 of the Law on Business Entities, and also Article 33 of that law read with Article 8(3) of the Law on Securities and Stock Exchange. The Ukrainian Supreme Court's decisions of 18 March 2008 are given very great weight on the point. High Court ¶¶ 36–50
2. Tatneft's timing argument fails. The investments behind the USD 81 million claim are Seagroup's and AmRuz's 1999 acquisitions. The legislation did not change, and the 2008 decisions explained it, so it does not matter what the Ukrainian court decisions in force in December 2007 had said. High Court ¶ 53
3. Ukraine was aware of the illegality argument but deliberately did not raise it in its State Immunity Application, which Butcher J decided in 2018. Raising it now is an abuse of process under Henderson v Henderson and is barred by issue estoppel. It also amounts to a collateral attack on Butcher J's decision, and significant weight is given to the Paris Court of Appeal's rejection of the same argument. High Court ¶¶ 67–75, 91
4. Waiver. Ukraine challenged the tribunal's jurisdiction on other grounds but never on this one, and it argued the merits. Under a widely accepted principle of international arbitration, and Article 21 of the UNCITRAL Rules, failing to raise a specific jurisdictional plea waives it. Enforcement therefore falls within the court's restricted discretion under section 103(2) of the 1996 Act, even though the USD 81 million claim fell outside the submission to arbitration. High Court ¶¶ 79, 84–90
5. U.S. jurisdiction. Under the FSIA, Ukraine is not immune: both the arbitration exception and the implied-waiver exception apply. By signing the New York Convention, Ukraine waived immunity from enforcement actions in other signatory states. The D.C. Circuit affirmed on the waiver exception. D.C. Circuit Judgment, pp. 1–2
6. The award was confirmed in the United States. Professor Orrego Vicuña did not disclose a single appointment by Tatneft's counsel in an unrelated case. That failed to show partiality under either the evident-partiality standard or Article V(1)(d). Ukraine's public policy defences (abuse of process, manipulation of corporate structure, illegality) were speculative and contradicted by the tribunal's findings. D.D.C. Memorandum Opinion of 24 August 2020, pp. 13–23
7. Russia. The Moscow District cassation court held that Ukraine had waived immunity from recognition and enforcement by agreeing to arbitration under Article 9 of the BIT and taking part in the arbitration. It set aside the first-instance ruling that had terminated the proceedings and sent the case back for a new hearing. Moscow District judgment of 29 August 2017, pp. 7–12

Procedural history

1. 21 May 2008Tatneft served a Notice of Arbitration under the Russia–Ukraine BIT, after sending a Notice of Dispute on 11 December 2007.
2. 28 September 2010Jurisdiction Award: the tribunal upheld its jurisdiction and the admissibility of the claims.
3. 29 July 2014Merits Award: Ukraine was ordered to pay USD 112 million plus interest.
4. 29 November 2016The Paris Court of Appeal rejected Ukraine's annulment action, which had been filed on 27 August 2014. Ukraine's later appeal to the Court of Cassation was removed from the docket by a radiation order on 9 November 2017.
5. 9 August 2017Teare J granted Tatneft permission, without notice to Ukraine, to enforce the Merits Award in England.
6. 29 August 2017The Arbitrazh Court for the Moscow District set aside the first-instance ruling of 4 July 2017, which had upheld Ukraine's immunity, and sent the case back for a new hearing.
7. 19 March 2018The U.S. District Court for D.C. denied Ukraine's motions to dismiss, for jurisdictional discovery and for a stay.
8. 2018–2019In England, Butcher J refused the State Immunity Application (13 July 2018), and Cockerill J rejected the challenge based on arbitrator non-disclosure (20 December 2019). In the United States, the D.C. Circuit affirmed the denial of immunity (28 May 2019), and the Supreme Court denied certiorari on 13 January 2020.
9. 24 August 2020The U.S. District Court granted the petition and confirmed the Merits Award. It had earlier, on 13 May 2020, refused Ukraine leave to add an Article V(1)(c) defence.
10. 23 November 2020The High Court (Sir Andrew Smith) rejected Ukraine's section 103(2)(d) application on the USD 81 million claim.

Tribunal, counsel and experts

Decided by

• Andrew Smith Judge, High Court of England and Wales, Commercial Court
• Colleen Kollar-Kotelly Judge, U.S. District Court, District of Columbia
• S.V. Nechaev Judge, Arbitrazh Court for the Moscow District (presiding judge)
• N.D. Denisova Judge, Arbitrazh Court for the Moscow District
• E.A. Petrova Judge, Arbitrazh Court for the Moscow District
• Francisco Orrego Vicuña President, Arbitral Tribunal (underlying award) — chosen by the co-arbitrators (non-disclosure challenge rejected by enforcement courts)
• Charles N. Brower Co-arbitrator, Arbitral Tribunal (underlying award) — appointed by the claimant (replaced Rudolph Dolzer after Ukraine's challenge was sustained)
• Marc Lalonde Co-arbitrator, Arbitral Tribunal (underlying award) — appointed by the respondent
• Rudolph Dolzer Co-arbitrator, Arbitral Tribunal (underlying award) — appointed by the claimant (challenge by Ukraine sustained; replaced by Charles N. Brower)

For the claimant

Cleary Gottlieb Steen & Hamilton LLP · Ricky Diwan · Emily Wood · M.A. Akchurina · E.E. Sergeeva · D.S. Denisov

For the respondent

Winston & Strawn LLP · King & Spalding LLP · Grischenko & Partners · Ministry of Justice of Ukraine

Experts

Yuliya Chernykh (respondent) · Sergiy Gryshko (claimant)

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Keywords

• Tatneft
• Ukrtatnafta
• Russia–Ukraine BIT
• New York Convention
• enforcement
• state immunity
• FSIA waiver exception
• arbitration exception
• section 103 Arbitration Act 1996
• illegality of investment
• promissory notes
• issue estoppel
• abuse of process
• Henderson v Henderson
• waiver of jurisdictional objection
• arbitrator disclosure
• Orrego Vicuña
• oil refinery

Summary generated with AI from the published documents — refer to the award for the authoritative text.