OJSC Ukrnafta v. Carpatsky Petroleum Corporation

At a glance

Parties

OJSC Ukrnafta (Ukraine), plaintiff-appellant, v. Carpatsky Petroleum Corporation (Delaware, USA), defendant-appellee

Case no.

U.S. Court of Appeals, Fifth Circuit, No. 19-20011; S.D. Tex. Civil Action H-09-891

Forum and rules

U.S. federal courts; recognition under the New York Convention (9 U.S.C. §§ 201–08)

Court

Fifth Circuit: Circuit Judges Jolly, Smith and Gregg Costa (opinion by Costa). District Court: Judge Gray H. Miller

Underlying award(s)

Final award of 24 September 2010 in an arbitration under the Arbitration Institute of the Stockholm Chamber of Commerce, UNCITRAL Arbitration Rules, seated in Stockholm

Treaty

Contract arbitration clause (1998 amendment to the 1995 Joint Activity Agreement); New York Convention

Sector

Oil and gas

Outcome

Confirmation of the award affirmed, and Ukrnafta's state-law tort claims held barred by claim preclusion (6 April 2020).

Amount

Award: close to USD 147 million in favour of Carpatsky, with the JAA declared terminated.

The dispute

Carpatsky Petroleum Corporation, then a Texas company, entered into a joint venture with Ukraine's state oil-and-gas enterprise OJSC Ukrnafta in 1994. In 1995 the two signed a Joint Activity Agreement (JAA) to develop a gas condensate field in Ukraine. In July 1996 Carpatsky merged into a new Delaware company of the same name. Its president, Leslie Texas, went on signing amendments with the Texas corporate seal, including the 1998 amendment that moved arbitration from Kiev to Stockholm. Carpatsky started a Stockholm arbitration over Ukrnafta's refusal to let it restore its 50% interest, and won close to USD 147 million. Ukrnafta sued in Texas, claiming that every amendment signed after the merger was void. It relied on Ukrainian court rulings that those agreements were never concluded. It resisted confirmation of the award under Articles II, IV and V of the New York Convention and on the ground of manifest disregard of the law.

Key holdings

1. Removal was proper under 9 U.S.C. § 205. It is enough that the defendant asserts a nonfrivolous connection to an arbitration agreement falling under the Convention, whether or not the agreement turns out to govern the dispute. Fifth Circuit, Part II
2. Sweden has primary jurisdiction, because the award was made there and under Swedish arbitration law. The JAA's choice of Ukrainian law does not displace the strong presumption that the seat's law governs the arbitration. Ukraine and the United States are secondary jurisdictions, so the Ukrainian rulings that the agreement is invalid are no ground to refuse enforcement. Fifth Circuit, Part III; District Court, pp. 20–22
3. The Article V(1)(a) defense fails. Capacity is governed by Delaware law, under which the use of the Texas seal was irrelevant and Mr. Texas, as an authorised officer, bound the company. In any case Ukrnafta waived its objection, and made a new written agreement to arbitrate, by accepting arbitration and filing its statement of defense without contesting jurisdiction after Carpatsky twice identified itself as a Delaware company. Fifth Circuit, Part III.A
4. No due process violation under Article V(1)(b). Ukrnafta argued against the tribunal's holding that Article 614 of the Ukrainian Civil Code voids the limitation of liability for intentional breach, and it was able to do so. A tribunal may calculate damages by its own method. Excluding late evidence on gas price regulation did not deny a fair hearing. Fifth Circuit, Part III.B
5. The challenge to the award of lost profits despite the limitation-of-liability clause is a merits challenge, not an excess of the submission under Article V(1)(c). The Article V(1)(d) argument fails because of the waiver. Fifth Circuit, Parts III.C–D
6. Public policy (Article V(2)(b)) does not bar enforcement. Comity concerns are a wash given the conflicting Swedish and Ukrainian rulings. A party's home court cannot veto recognition. Manifest disregard of the law is not a ground for refusal under Article V. Fifth Circuit, Parts III.E–F
7. Ukrnafta's tort claims (negligent misrepresentation, fraud, misappropriation of trade secrets, tortious interference, unjust enrichment) are barred by claim preclusion. They arise from the same nucleus of operative facts as the arbitration and could have been brought there. Fifth Circuit, Part IV

Procedural history

1. 28 September 2007Carpatsky (Delaware) refers the dispute to the Arbitration Institute of the Stockholm Chamber of Commerce.
2. 26 March 2009Carpatsky removes Ukrnafta's Harris County, Texas suit to the U.S. District Court for the Southern District of Texas. On 7 April 2009 the court stays the case pending the arbitration.
3. 22 April 2009The arbitral tribunal upholds its jurisdiction.
4. 14 October 2009The High Commercial Court of Ukraine holds that the agreements signed after the merger were never concluded.
5. 24 September 2010Final award: close to USD 147 million for Carpatsky, and the JAA is declared terminated.
6. 13 December 2011 – 9 December 2016Swedish courts reject Ukrnafta's challenges. The Stockholm District Court rules on 13 December 2011, the Svea Court of Appeal on 30 November 2012 and 26 March 2015, and the Swedish Supreme Court on 14 June 2013 and 9 December 2016.
7. 2 October 2017The District Court confirms the award and denies without prejudice the motion to dismiss Ukrnafta's claims.
8. 6 April 2020The Fifth Circuit affirms the confirmation and the dismissal of Ukrnafta's claims on preclusion grounds.

Tribunal, counsel and experts

Decided by

• Gray H. Miller Judge, U.S. District Court, Southern District of Texas
• Gregg Costa Judge, U.S. Court of Appeals, Fifth Circuit (author of the opinion)

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Keywords

• New York Convention
• recognition and enforcement
• Ukrnafta
• Carpatsky
• primary jurisdiction
• secondary jurisdiction
• Article V(1)(a)
• waiver of jurisdictional objection
• corporate merger
• corporate seal
• limitation of liability
• Article 614 Ukrainian Civil Code
• lost profits
• public policy
• international comity
• manifest disregard
• claim preclusion
• removal 9 U.S.C. § 205
• Stockholm Chamber of Commerce
• oil and gas

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