International Arbitration Newsletter - May 2021 | Regional Overview: Asia Pacific

ICSID award against a Chinese-owned oil company enforced

Andes Petroleum (Andes), a joint venture incorporated by Chinese state-owned enterprises named China National Petroleum Corp and Sinopec, has applied to enforce an American Arbitration Association award which ordered Occidental Petroleum (Oxy) to pay it over US$ 392 million, which represents 40% of a payout it had received from the Ecuador government in 2015.

In 1999, Oxy won a contract to exploit oil resources in Ecuador and then agreed to transfer 40% interest of the contract to a predecessor of a Canada-based entity named Encana Corporation; while the ownership of the contract shall be 100% held by Oxy until Ecuador approved the transfer. Subsequently, Andes purchased said 40% the interest of the contract. In 2006, Ecuador terminated the contract by decree. Consequently, Oxy filed an ICSID claim against Ecuador based on the U.S.-Ecuador Bilateral Investment Treaty. In the same year, Oxy agreed that if it received “any monetary award” from Ecuador in connection with the termination of the contract, 40% of the “net amount” it received will be shared to its partner.

In 2012, Ecuador was ordered to pay Oxy nearly US$ 1.8 billion plus interest, an amount that was reduced to US$ 1.06 billion three years later. In 2016, Ecuador paid Oxy US$ 980 million to satisfy the award. Oxy, however, refused to pay Andes the corresponding portion, causing Andes to file a claim for that portion in 2017. In November 2019, the tribunal issued a partial final award accepting Andes’ claims against Oxy, as well as a subsequent final award rejecting Oxy’s defenses and ordering Oxy to pay Andes nearly US$ 392 million, equivalent to 40% of the amount Oxy received from the Ecuadorian government plus interest. Meanwhile, Oxy was also ordered to pay Andes’ portion of the arbitration expenses. Andes has disclosed that US$ 540 million remains unpaid as of 25 April 2021.

Chinese chain restaurants founder’s paintings seized again

La Dolce Vita Fine Dining (La Dolce Vita), a subsidiary of CVC Capital Partners (CVC), the largest private equity firm in Europe based in Luxembourg, has filed a new application against Zhang Lan, the founder of the chain restaurants South Beauty, before the U.S. District Court for the Southern District of New York to enforce two CIETAC awards valued at US$ 142 million. The application seeks to seize two paintings by Andy Warhol and Martin Kippenberger.

The dispute originates from a transaction in 2014, in which CVC purchased approximately 83% shares of South Beauty with US$ 287 million, following Zhang Lan’s resignation from the board of directors of South Beauty after the failure of flotation in China and Hong Kong. However, La Dolce Vita subsequently accused Zhang Lan and South Beauty of breaching the sale agreement and consequently launched CIETAC claims against Zhang Lan and South Beauty. In 2019, the tribunal ruled that the defendants shall be held liable for their breach of contract as well as for negligent misrepresentation.

La Dolce Vita disclosed that a judgment issued by the Second China International Commercial Court in February 2021 supported the two CIETAC awards. Earlier in 2020, the Hong Kong court had requested Zhang Lan to pay US$ 57 million as security for a three-month stay of enforcement of the awards, when it was uncertain whether Zhang Lan’s challenge to the awards in the Chinese courts would succeed.

INDIA

New retrospective taxation claim launched against India

Earlyguard, a subsidiary of Japanese conglomerate Mitsui & Co, has filed a claim against India under the UK-India bilateral investment treaty, regarding a retroactive tax bill valued US$ 324 million, which was imposed by Indian Tax Bureau on Earlyguard.

Mitsui & Co asserted that the tax bill was issued in connection with a transaction carried out by Earlyguard in 2007, consisting in the sale of its shares in a UK-domiciled entity called Finsider International Company (Finsider) with capital gains. Finsider owned 51% shareholding in Sesa Goa, an Indian iron ore company. Mitsui believes that Earlyguard has fully complied with the relevant provisions of the then applicable tax laws with respect to the capital gains Earlyguard obtained in that transaction.

This is not the first time India has issued a retroactive tax bill and then obtained adverse rulings from a tribunal proceeding before the Permanent Court of Arbitration for issuing such bill. Specifically, India was found liable for the US$ 3.32 billion taxation that the Government levied on Vodafone and then a few months later, India was ordered to pay US$ 1.2 billion plus interest to Scotland’s Cairn Energy to remedy its retroactive levy on that company.

SINGAPORE

Singapore High Court rejects the annulment of an award based on counsel´s lack of duty to correct an opposing party´s misunderstanding

A recent judgement of the Singapore High Court has denied the duty of counsel to intervene and correct the opposing counsel when the latter misunderstands issues in trial, despite the misunderstanding deriving from rhetorical or common purposes. The Court heldthat “counsels are responsible for arguing their own case, not for ensuring that the other side meets their case”.

The case involves two parties that had entered into a long-term purchase contract of clinker at a fixed price. The purchaser launched arbitration before the Singapore International Arbitration Center over the supplier’s failure in delivery, claiming the latter shall bear liability for the former’s loss of approximately US$ 1 million. In 2020, an award in favor of the purchaser was issued.

This award was later challenged by the supplier before the Singapore High Court, holding that it should be revoked for violation of natural justice of awards and excess of arbitration scope, since its counsel had obviously misunderstood the purchaser’s arguments regarding obligations of good faith prior to the hearing thus was deprived of an opportunity to defend itself, while no intent of correction was showed by the purchaser’s counsel.

However, the Court stated that the silence of the purchaser’s counsel was objectively insufficient to make a difference to the fact that they were unfolding. Moreover, the purchaser’s counsel would face a “heavy burden of interpretation” if the supplier’s challenge were upheld. It is unfair to request the purchaser’s counsel to infer whether a misunderstanding from the counterparty is authentic when the supplier’s counsel may have been “deliberately mischaracterizing her opponent’s case” to weaken it.