International Arbitration Newsletter - April 2020 | Regional Overview: Europe

Ukraine

Ukraine’s Ukrnafta loses its last two battles over Stockholm Chamber of Commerce award

The Commercial Court in London has declined an application by Ukraine’s largest oil and gas producer, Ukrnafta, to set aside an order enforcing a US$ 147 million award in favor of Carpatsky Petroleum Corp.,a U.S.based subsidiary of Kuwait Energy.

The award was rendered in 2010 as a result of the claim filed in 2007 by Carpatsky against the Ukranian oil company –which is controlled by Ukraine’s national oil and gas company Naftogaz– at the Stockholm Chamber of Commerce.

Carpatsky sought termination for breach of the 1995 agreement with Ukrnafta to exploit the Rudivsky-Chervonozavodsky gas condensate field in Ukraine. The alleged breaches were Ukrnafta's failure to meet financing commitments and the unilateral exploitation of the field, excluding Carpatsky from operations.

The court granted the American company's request to terminate the agreement for Ukrnafta's breach, but granted Carpatsky only about a third of what it had claimed, US$ 147 million.

Ukrnafta applied to the Svea Court of Appeal for annulment of the award, which was dismissed in 2015. Since then, the award has not only been enforced in England, but also in France, the Netherlands and in a district court in Texas, subject to appeal.

On 6 April 2020 the U.S. Court of Appeals for the Fifth Circuit has upheld the confirmation of the award.

The court concluded that it was irrelevant that Carpatsky, in amendments to an initial 1994 agreement with Ukrnafta, continued using a Texas corporate seal even after it changed its place of incorporation from Texas to Delaware. The decision follows from the court's finding that Carpatsky’s signatory, the President of the company, was an authorized officer of the corporation and thus had authority to enter into the amendment on behalf of the Delaware entity.

Ukrnafta thus loses its second battle in less than a week over the $147 million Stockholm Chamber of Commerce award.

Spain

New application for enforcement of renewables award against Spain

The UK investment fund InfraRed Capital Partners has filed an application for enforcement in the US courts of the award rendered by an ICSID tribunal against Spain over the reforms in the renewable energy sector.

The investors are asking the US courts to rule on the recognition of the award, which ordered Spain to pay €28.2 million in damages, plus interests and claimant’s legal costs. However, they acknowledge that, insofar as Spain has appealed the award with the aim of setting it aside, enforcement should be suspended until the annulment is resolved, so that no assets can be collected until then.

The enforced award is the result of an arbitration followed before ICSID that derives from a claim filed by five affiliated of InfraRed Capital Partners that invested €31 million in two solar energy plants in Spain. These UK investors decided to go to arbitration in order to claim the damages suffered due to the reforms of the renewable energy subsidy regime in Spain.

Spain faces application for annulment of solar award filed by German investors

ICSID has registered a request for the annulment of the award issued as a result of the €420 million Energy Charter Treaty (ECT) claim filed in 2015 by a group of German investors against Spain.

The award, issued in early December 2019, was one of the first to be won by Spain over reforms to its renewable energy subside regime after 11 defeats, which have now increased to 20.

The German claimants were Munich public electricity company Stadwerke München; RWE Innogy (RWE); RheinEnergie, which is owned by the city of Cologne and RWE; as well as two companies of the Ferostaal Group. The last claimant was the Spanish Marquesado Solar, S.L., which was the company that channeled the investment of these German companies in a solar plant in Granada, which gave rise to the arbitration.

The claimants sought a €460 million compensation resulting from a levy imposed by Spain on energy producers in 2012.

In the award, the arbitral tribunal refused to grant this compensation on the grounds that this fee fell within a carve-out for tax disputes in the ECT. It also held that Spain did not violate the ECT's standard of fair and equitable treatment, ruling that the investors had not submitted enough evidence that Spain guaranteed a stable remuneration in relation to the plant.

Norway

Norway hit by its first investment treaty claim

ICSID has registered the first known investment arbitration against  Norway.

The claim, brought by Latvian businessman Peteris Pildegovics and his company SIA North Star, is based on alleged violations of the promotion and protection of investments, most-favoured-nation treatment, and expropriation and compensation clauses of the 1992 Latvia-Norway Bilateral Investment Treaty.

The claim stems from the Norwegian government's seizure of one of four vessels belonging to SIA North Star that was engaged in harvesting snow crabs in Norwegian waters. The seizure was the result of criminal proceedings conducted in Norway as a consequence of the company's refusal to pay a series of fines imposed by a Norwegian coast guard for not having valid permits to harvest snow crabs in waters where Norway exercises jurisdiction.

The company believes that the legal proceedings in Norway were not fair, that the state's actions are arbitrary and discriminatory and constitute a "campaign of harassment" against SIA North Star and other EU investors who have been affected by the restrictions, destroying the value of their investments.