International Arbitration Newsletter - December 2020 | Regional Overview: Europe

Bosnia and Herzegovina

Bosnia defeats Indian investors in a treaty claim

Bosnia and Herzegovina has prevailed in a US$ 40 million treaty claim filed by Indian investors, Neete Gupta and Naveen Aggarwal and their New Delhi-based chemicals company, Usha Industries, who alleged they were induced fraudulently into the privatisation of an insurance company. The state was also awarded US $1 million in costs.

The investors filed their claim in 2017 under the India-Bosnia BIT before the Permanent Court of Arbitration under UNCITRAL arbitration rules. The dispute related to the investors’ acquisition of over 50% of the shares of a state-owned insurance company after Bosnia’s Ministry of Finance sought to attract private investors by issuing a prospectus containing representations about the insurer’s financial condition and performance. The investors claimed that they had become aware of the prospectus’ “purposeful misrepresentations” regarding the company’s financial situation as these significantly understated both the amount of assets owned by the insurer and the liabilities associated with pending litigation against the insurer. Initially, the investors obtained a judgment from a local court in 2016 concluding that the prospectus was fraudulent. When this judgement was presented to the State, the Investors allege that Bosnian officials answered with a series of punitive actions in order to devalue their investment.

NETHERLANDS

Yukos set-aside challenge is rejected

Following a preliminary assessment of Russia’s arguments for setting the awards aside, the Dutch Supreme Court has rejected the State’s arguments for overturning the US$ 57 billion Yukos Oil Company awards as they do not justify a stay of the enforcement while the petition is heard.

In 2014, an UNCITRAL tribunal issued a series of awards concluding that Russia had breached the Energy Charter Treaty (ECT) with politically motivated expropriations against Yukos. The District Court of The Hague set aside the awards in 2016 on the basis that Russia was not bound to provisionally apply the ECT as it had never ratified it. However, the Hague Court of Appeal reinstated the awards. Russia appealed before the Dutch Supreme Court including a request to refer questions of interpretation of the ECT to the European Court of Justice. The Supreme Court has not decided on this request of referral.

In this final appeal, the Supreme Court explained that the Hague Court of Appeal provided two reasons why the ECT’s limitation clause did not apply that had not been questioned by Russia and that, therefore, the State’s single challenge lacked importance.

Spain

Sole arbitrator liable for gross negligence

The Court of Appeal in Asturias has upheld a lower court’s decision that found a sole arbitrator liable for gross negligence and has ordered him to pay €339,635 in damages after concluding that he had offered legal services separately to two parties to an arbitration he was conducting. This amount covers all legal fees in the arbitrations, the costs of one of the party’s bankruptcy procedure following one of the awards and the costs of the proceedings before the Spanish Courts.

The sole arbitrator had been appointed in two arbitrations arising out of different syndication agreements between the shareholders of two funeral services companies in the north of Spain, where he had claimed €800,000 in fees. In addition, he had dismissed the challenges made against him in both arbitrations.

The lower court of first instance decided to set aside the awards in April 2018, finding that the sole arbitrator had breached his duty of independence and impartiality. After this decision, the shareholders then filed another suit before the same court alleging that the arbitrator was in breach of Article 21 of Spain’s Arbitration Law, which makes arbitrators personally liable for damages caused by bad faith, recklessness or fraud. The claimants estimated this personal liability at more than €500,000. The lower court found in favour of the claimants reducing, however, the damages to €339,635.80.

After the arbitrator appealed this decision, the Court of Appeal affirmed the lower court’s ruling confirming that the sole arbitrator was guilty of gross or serious negligence, precisely the standard required for liability under Article 21. The Court of Appeal also referred to the IBA’s guidelines on conflicts of interest, demonstrating that the arbitrator’s behaviour would fall within the non-waivable red list of situations that give rise to a conflict of interest.

Ukraine

Philip Morris threatens Ukraine with treaty claim

Philip Morris, the US tobacco powerhouse, has threatened Ukraine with an ICSID claim after the Antimonopoly Committee of Ukraine imposed a €44 million fine alleging that the company was engaging in a conspiracy in the Ukrainian tobacco market.

The company has stated that, as the the six-month cooling off period since the submission of the notice of dispute is due to expire shortly, it is ready to take legal actions in order to annul the fine or seek its repayment, arguing that the fine is nothing but arbitrary. Other tobacco companies that were also fined for allegedly creating artificial barriers that prevented the entrance of other competitors are now joining Philip Morris with similar threats.

The US tobacco company has already had similar experiences dealing with Ukraine in this type of disputes as the State’s Antimonopoly Committee imposed a similar fine in 2018. However, the fine was finally dropped after the parties reached a settlement.

UNITED KINGDOM

UK Supreme Court clarifies law on arbitrator’s duty to disclose

This long anticipated judgment deals with the duties of disclosure and impartiality of a president of an arbitral panel hearing a case related to an insurance claim arising from the 2010 Deepwater Horizon incident. The explosion and the resulting fire occurred on a drilling rig in the Gulf of Mexico and caused loss of life, extensive oil pollution and property damage. This disaster led to a series of claims against BP, lessee of the rig, Transocean, owner of the rig, and Halliburton Co (Halliburton), who provided cementing and monitoring services to BP.

After a series of claims, a US federal court distributed blame between the parties and Halliburton settled its civil claims paying civil penalties. Halliburton then sought to claim the amounts back from Chubb Bermuda Insurance Ltd. under the Bermuda Form liability policy the parties had signed insuring Halliburton’s activities. In parallel, Transocean, who was also insured with Chubb by a Bermuda Form policy, settled its civil claims in the US and made a similar claim against the insurer. Chubb refused to pay these two claims arguing that both settlements were unreasonable.

Both policies provided for any dispute to be resolved by arbitration. Halliburton was the first to start arbitration proceedings against Chubb where the parties were unable to agree on the appointment of the chairman. Following a contested hearing before the High Court in London, one of the candidates proposed by Chubb was appointed.

After this appointment, Transocean commenced its own arbitration and, without Halliburton’s knowledge, the recently appointed chairman accepted Chubb’s new nomination in this second arbitration. Subsequently and, again, without informing Halliburton, the arbitrator accepted another joint appointment in another arbitration related to the Deepwater Horizon incident.

Upon discovery of the chairman’s later appointments, Halliburton applied to remove him invoking section 24 of the Arbitration Act 1996. The High Court rejected the application. Halliburton appealed the decision, but the Court of Appeal dismissed the appeal concluding that an objective observer would not consider the chairman to be biased. Halliburton then appealed before the Supreme Court.

In a unanimous decision (with one concurring opinion), the Supreme Court dismissed the appeal.

As a starting point, the Supreme Court accepted that an arbitrators’ duty of impartiality is a fundamental principle of arbitration law and that the test to establish whether an arbitrator suffers from an apparent bias must be objective; that is whether a fair-minded and informed observer would conclude that the arbitrator might be biased. To promote this principle of impartiality, every arbitrator has a legal duty to disclose any potential conflicts of interests that can give rise to justifiable doubts about their impartiality and any failure to disclosure is a factor that the objective observer may take into account when assessing the existence of bias.

The Supreme Court also accepted that, in some circumstances, an apparent bias could exist if an arbitrator accepts multiple appointments involving a common party and a related subject matter. In any case, the Court explained that this will depend on the specific field, institution and/or practice within the arbitration arena. In light of these conclusions and in the particular context of a Bermuda Form arbitration, the Supreme Court found that the chairman had a legal duty –which he breached– to disclose that he had been appointed by Chubb in a subsequent and related arbitration as this was a circumstance that might be seen to affect his impartiality.

However, on the particular facts of this case, the Court concluded that a fair-minded and informed observer would not infer that there was a real possibility of unconscious bias on the arbitrator’s part at the time of the hearing on his removal, moment when the assessment about impartiality must be made.

In particular, the Supreme Court found that, at that time, the duty of disclosure under English law was not clear. In addition, the Court said that both subsequent arbitrations had commenced several months after the Halliburton arbitration and were likely to be resolved on preliminary issues where no overlap in evidence or legal submissions would exist. Finally, the fact that the arbitrator did not receive secret financial benefits from his later appointments also convinced the Supreme Court that no real possibility of unconscious bias had existed.