PAO Tatneft v Ukraine
| Jurisdiction | England & Wales |
| Judge | Mr Justice Butcher |
| Judgment Date | 13 July 2018 |
| Neutral Citation | [2018] EWHC 1797 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000252 |
| Date | 13 July 2018 |
[2018] EWHC 1797 (Comm)
Mr Justice Butcher
Case No: CL-2017-000252
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
David Foxton QC and Emily Wood (instructed by Cleary Gottlieb Steen & Hamilton LLP) for the Claimant
Philip Edey QC, Philippa Webb and Anton Dudnikov (instructed by Winston & Strawn) for the Defendant
Hearing dates: 28–29 June 2018
This is an application by the Defendant (“Ukraine”) to set aside an order made by Teare J ex parte on 9 August 2017 under s. 101 Arbitration Act 1996 (“the Arbitration Act”). By that order Teare J granted leave to the Claimant (“Tatneft”) to enforce an arbitration award dated 29 July 2014 (“the Merits Award”), and judgment was entered against Ukraine for US$112 million (the total amount awarded against Ukraine by the Merits Award) plus interest.
On the present application Ukraine seeks to set aside that order on two grounds:
(1) That Ukraine has not lost the state immunity to which it is otherwise entitled under s. 1 of the State Immunity Act 1978 (“the SIA”) by virtue of s. 9 of the SIA, because it did not agree to submit the disputes (alternatively, all the disputes) in respect of which the Merits Award has been made, to arbitration. On this basis this court has no jurisdiction over Ukraine in this matter (alternatively, no jurisdiction over it in relation to part of the Merits Award).
(2) That Tatneft failed in its duty of full and frank disclosure both when it made its original application for an order enforcing the Merits Award, and thereafter.
Ukraine reserves the right to contend that the Court should refuse to recognise and enforce the Merits Award under s. 103 Arbitration Act, if it is unsuccessful at the present hearing. The parties have agreed that such objections will be considered at a future hearing if necessary. In the meantime Ukraine has not submitted to the jurisdiction.
The Bilateral Investment Treaty
Central to the issues which arise on this application are the provisions of a bilateral investment treaty, namely the Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the encouragement and mutual protection of investments dated 27 November 1998 (the “BIT”). The BIT contained, amongst others, the provisions which I have set out in the Appendix to this judgment, and to a number of which I will revert below.
Factual Background
The parties and other relevant entities
Tatneft is one of Russia's largest oil producing companies. In 1995 Tatneft, along with the Republic of Tatarstan (a constituent republic of the Russian Federation) and Ukraine became the major shareholders in a new Ukrainian company, CJSC Ukrtatnafta Transnational Financial and Industrial Oil Company (“Ukrtatnafta”). Ukrtatnafta owned and operated the Kremenchug Refinery, which was the largest oil refinery in Ukraine.
In 1999 two other entities, Seagroup International Inc. (a US company) (“Seagroup”) and AmRuz Trading AG (a Swiss company) (“Amruz”) acquired shareholdings, of 9.96% and 8.336% respectively, in Ukrtatnafta in return for promissory notes.
From about 2001, the legality and validity of Amruz's and Seagroup's acquisition of shares were the subject of challenge before the courts of Ukraine. Until 2007, these challenges had not prevailed.
In May 2007, however, a Ukrainian court made an order that their shares should be held in custody by Naftogaz, Ukraine's state-owned energy company. In September 2007, the Kiev Economic Court declared the share purchase agreements invalid and that decision was upheld by the Kiev Economic Court of Appeals in October 2007. In subsequent litigation this position was confirmed. Amruz's and Seagroup's shares were ultimately returned to Ukrtatnafta, and sold to a third party in June 2009.
Meanwhile, on Tatneft's case, on 19 October 2007, the Kremenchug Refinery was seized by force, under the direction of a Ukrainian court bailiff and with the assistance of Ukrainian troops, for the benefit of the Privat Group of companies, said to be controlled by an influential Ukrainian oligarch with close political ties with the Ukrainian government and a notorious “raider” of other businesses.
On 11 December 2007 Tatneft issued a Notice of Dispute under Article 9 of the BIT.
On 18 December 2007, Tatneft bought just under 50% of the shares in Amruz, and on 24 December 2007 it bought all the shares in Seagroup.
In between those purchases of Amruz and Seagroup shares, on 19 December 2007, the Ukrainian General Prosecutor's Office commenced proceedings before the Kiev Economic Court seeking to invalidate the resolutions of the General Meeting of Ukrtatnafta by which Tatneft had been permitted to acquire its shares in Ukrtatnafta for cash, rather than, as originally envisaged, oil fixtures in Tatarstan.
Eventually, pursuant to various Ukrainian court decisions and orders in 2008–2009, the share purchase agreements by which Tatneft acquired its shares in Ukrtatnafta were invalidated, and Tatneft's shares were returned to Ukrtatnafta and (in early 2010) sold to a third party.
The Arbitration
On 21 May 2008, Tatneft served Ukraine with a Notice of Arbitration under the BIT pursuant to the UNCITRAL Rules.
In that arbitration, in outline, Tatneft alleged that through a series of actions in which Ukraine was complicit, it had effectively been deprived of its entire shareholdings in Ukrtatnafta, in particular as a result of the seizure of the Kremenchug Refinery and by the series of what it said were the unlawful orders of the Ukrainian Courts between 2007 and 2009 purporting to invalidate Tatneft's, as well as Amruz and Seagroup's, purchases of shares in Ukrtatnafta and depriving them of their shares. More specifically, Tatneft alleged that Ukraine had violated its obligations under the BIT: (i) to encourage and protect investments (Article 2); (ii) not to expropriate investments (Article 5); and (iii) to treat investors fairly and equitably (an obligation which it contended was incorporated by reason of Article 3, to which I will return below).
The Tribunal, comprised of Professor Francisco Orrego Vicuna, The Honourable Charles N. Brower and The Honourable Marc Lalonde, P.C., O.C., Q.C., was constituted on 16 January 2009.
Ukraine raised objections to the Tribunal's jurisdiction under the BIT and the admissibility of the claims, which were the subject of written submissions and a jurisdiction hearing in The Hague. On 28 September 2010, the Tribunal issued a partial award (“the Jurisdiction Award”) confirming its jurisdiction and rejecting each of Ukraine's objections.
The hearing on the merits took place from 18 to 27 March 2013, preceded and followed by written submissions. The Merits Award was issued on 29 July 2014. In it, the Tribunal found that Ukraine had breached the obligation to treat Tatneft fairly and equitably, its actions resulting in a “ total deprivation of [Tatneft's] rights as a shareholder of Ukrtatnafta”. It ordered that Ukraine pay Tatneft US $112 million plus interest as compensation for that breach. Tatneft's other claims were dismissed.
Subsequent Court Proceedings in Other Jurisdictions
Following the Merits Award, proceedings have taken place in the courts of France, the United States and Russia as follows.
1. France: On 27 August 2014, Ukraine applied to the Paris Court of Appeal, as the seat of the arbitration, to annul both the Jurisdiction and Merits awards. The Paris Court of Appeal rejected Ukraine's arguments on 29 November 2016. Although Ukraine filed a cassation appeal challenging the decision on 21 March 2017, the Court of Cassation removed this appeal from the docket on 9 November 2017 following a motion filed by Tatneft under Article 1009–1 of the French Code of Civil Procedure on the ground that Ukraine had not paid the damages due under the Merits Award and the attorney's fees of Eur 200,000 awarded by the Paris Court of Appeal. On this basis, if Ukraine fails to pay these amounts by February 2020 the proceedings will be dismissed with prejudice. Ukraine is currently seeking the abrogation of the decree which introduced Article 1009–1 insofar as it applies to sovereign states which would otherwise have immunity from execution. It has stated that if it is successful, it will pursue its cassation appeal.
2. USA: On 30 March 2017, Tatneft filed a petition in the United States District Court for the District of Columbia to confirm the Merits Award in the USA. On 12 June 2017, Ukraine filed a motion to stay the proceedings until the conclusion of the French setting aside proceedings. On 26 June 2017, Tatneft filed an opposition to Ukraine's motion contending inter alia that the court should decide whether it had jurisdiction before deciding whether to stay the case. Ukraine then filed a motion to dismiss Tatneft's original petition on 25 July 2017 on the grounds that it was immune from jurisdiction under the US Foreign Sovereign Immunities Act because Tatneft was not a private party and the Merits Award went beyond the scope of the arbitration agreement. On 19 March 2018, the District Court dismissed that application. Ukraine has appealed this decision and the confirmation proceedings are stayed pending decision by the Circuit Court.
3. Russia: On 13 April 2017, Tatneft applied to the Moscow Arbitrazh Court seeking the recognition and enforcement of the Merits Award in Russia. Ukraine opposed this motion. The Moscow Arbitrazh Court ruled in favour of Ukraine but this decision was reversed by the Moscow Cassation Court. The Russian Supreme Court dismissed Ukraine's appeal from this decision on 31 October 2017. I was informed that the Moscow...
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