Arbitration under the Energy Charter Treaty - SCC Award in favour of Petrobart prevails in challenge proceedings

By Fred Wennerholm, Setterwalls Advokatbyrå, representing Petrobart Ltd in the proceedings

Petrobart was successful in the arbitral proceedings against the Kirgiz Republic brought on the basis of the Energy Charter Treaty (the ECT), (Petrobart II). The ECT (March 2005) Award was challenged by the Republic with a request to have the award set aside. The Republic argued that the SCC Tribunal lacked jurisdiction, alternatively had committed a procedural error in assessing its own competence.

The argumentation of the Republic followed two main lines:

Gibraltar - in which company register Petrobart was entered - is not covered by the convention since Great Britain, acting on behalf of Gibraltar, never included Gibraltar in its final ratification but left this territory with solely the provisional application made on its behalf a few years earlier.
The underlying contract was merely a Sale Purchase Agreement and did not qualify as an investment under the ECT.

Petrobart contested the challenge and argued:

That Gibraltar - in lack of any active measure to the contrary - was bound by the provisional application regime consequently in force at the time of the investment.
That the underlying contract qualified as an investment as a result of the wide definition in Article 1 of the Treaty, which text was a result of the desire at the time of the treaty negotiations to render energy investments ample attraction.

After two days of oral hearings held at the Svea Court of Appeal, two of the three arbitrators and two expert witnesses were heard and both sides had the opportunity to thoroughly argue their respective standpoint.

The Court dismissed the challenge and held in brief that Great Britain would have had ample time to terminate the provision at application pending for Gibraltar had Great Britain wished to achieve such an effect. The lack of activity could possibly be explained by the political controversy between the two EU countries Spain and Gibraltar over the constitutional status of Gibraltar.

With regard to the investment qualification of the underlying contract the court found that a broad definition of the investment concept was an express purpose when the treaty was drafted. The procedural irregularity alleged - it is the Tribunal’s unwillingness to ask the ECT secretariat about the status of Gibraltar under the convention - was dismissed by the finding that the secretariat - had it been asked - would not have been in the position to answer.

The judgment rendered by the Court of Appeal on 19 January gained immediate legal force.

A translation of the judgment is available on the SCC website http://www.sccinstitute.com/. Further, the judgment will be commented in the Stockholm International Arbitration Review (SIAR) 2007:1.

Seminar on the New SCC Arbitration Rules

The new SCC Arbitration Rules entered into force on 1 January 2007. The Rules will be applied to any arbitration commenced on or after such date, unless otherwise agreed by the parties. So far 8 cases are administrated under the new Rules. 4 of them are domestic and 4 international.

The aim of the revision work is to offer an efficient, up-to-date and easily comprehensible set of rules. No fundamental changes have been made in the new Rules since the 1999 Rules were still considered to be modern and well-suited for commercial arbitration. However, the new Rules have been further modernized and adapted to recent international practice. The new Rules do also contain some substantial novelties, such as, inter alia, consolidation of cases and separate award on advance on costs. So far feedback from parties, counsel and arbitrators have been constructive and positive indeed.

To gather the experience from practitioners and the SCC Institute and to improve the knowledge of the new features of the Rules, the SCC Institute will arrange a seminar on 19 February 2007. The new Rules will be compared to the rules of other major international arbitration institutions, such as inter alia ICC, LCIA and UNCTRAL, as well as the Swedish Arbitration Act and the UNCITRAL Model Law. Members from the SCC Revision Committee will participate answering questions from a panel with people familiar with the SCC procedure. Also there will be plenty of room for discussion and questions from the floor. We look forward to an interesting and useful afternoon.

More information on the new features of the 2007 SCC Arbitration Rules in
Newsletter 2/2006

Statistics

In year 2006 the SCC Institute received 141 new cases involving parties from 32 countries. The caseload has increased in recent years and the SCC Institute witnesses a great interest in arbitration as dispute resolution method in general. Further, the SCC Institute happily establishes the fact that the SCC procedure seems to meet the legitimate demand of the parties, counsel and arbitrators for a flexible, safe and cost efficient way to solve commercial dispute. Further, Stockholm and the SCC Institute continue to be an attractive venue to solve disputes involving parties from Russia, former CIS countries and China.

Apportionement Swedish/International Cases 2002 - 2006

Visit our website for more statistics

Opinion on Conflict of Interest to the Swedish Supreme Court

The Swedish Supreme Court in December 2006 requested the SCC Institute to submit an opinion in a pending court case regarding a challenge of an arbitral award on the alleged grounds that the chairperson of the arbitral tribunal had a conflict of interest.

The case concerned a lawyer, who had a contractual relationship with a law firm, which was classified in some documents as an employment contract and in other as an “of-counsel” agreement. The lawyer had undertaken an appointment as chairman in an arbitration case, where one of the parties was part of a group of companies that was an important client of the law firm. The lawyer had been aware of these circumstances, but had neglected to inform the parties thereof.

The SCC Institute has taken a strict approach regarding the question of whether or not an arbitrator can be considered impartial and independent when a law firm, to which the arbitrator is connected, acts for or has acted for one of the parties in the arbitration. This approach is supported by the IBA Guidelines. The fact that an arbitrator’s law firm currently has a significant commercial relationship with one of the parties constitutes a circumstance that appears on IBA’s red list. The fact that an arbitrator’s law firm within the past three years has acted for one of the parties, or an affiliate, in an unrelated matter is one of the circumstances appearing on IBA’s orange list.

If the SCC Institute, applying the SCC Rules, would consider a challenge based on the same facts as those present in the case before the Supreme Court, it would most likely come to the conclusion that a conflict of interest is at hand. According to the SCC Institute’s opinion there is no reason to make a distinction between partners of a law firm and lawyers that are employed by a law firm in this context.

The arbitrator in this case has neglected the disclosure obligation. An arbitrator’s neglect of the disclosure obligation can, however only in pure borderline cases, constitute a circumstance that has an impact on the assessment of whether or not an arbitrator is impartial and independent. A deliberate withholding of circumstances may have impact on such assessment.

The decision of the Supreme Court is expected this summer.

The SCC Institute’s opinion in its entirety and in the Swedish language

More up-coming arbitration events

Conference - Managing Business Disputes in China
26 March 2007, New York

China has become a magnet for international business. At the same time, the “China boom” has also produced a dramatic increase in the number and complexity of business disputes. Knowing how to effectively manage business disputes is an important component of every successful China business strategy. This one day conference by the world’s leading China disputes experts provides you with an overview of current dispute settlement techniques and tools. Among other prominent speakers Mr Ulf Franke will debate the methods of dispute resolution offered when doing business with Chinese parties.

Programme and registration

Conference - Arbitrators: Judges, Service-Providers, or Both?
10 May – 11 May 2007 at the Stockholm University

The conference is part of the 100 year anniversary of the Law Department of Stockholm University and will be conducted in English. The arbitration section of the Stockholm Centre for Commercial Law arranges an arbitration symposium on the practical consequences of the theories underlying the relationship between the arbitrators and the parties, the institutes, and the courts. The speakers at the event will include internationally prominent arbitrators such as Professor Julian Lew and academics such as Professor Loukas Mistelis, as well as leading Swedish experts.

Additional information can be obtained by email: SCCL@juridicum.su.se

SCC Institute Co-sponsors Conference on Investment Protection and the Energy Charter Treaty
18 May 2007 , Washington D.C.

The Conference is arranged together with International Centre for Settlement of Investment Disputes (ICSID) and the Energy Charter Secretariat. The conference will provide an opportunity to reflect on key substansive and procedural issues involved in arbitration within the framework of the Energy Charter Treaty (ECT). The ECT provides a multilateral legal framework for international energy cooperation, which aims to strengthen the rule of law on energy issues. With accelerating flows of private capital in the energy sector, the Energy Charter Treaty’s protections of foreign energy investments, based on principles of fair and equitable treatment, non-discrimination and compensation for expropriation, are becoming increasingly important.

The programme in full will soon be posted on our website.

Download flyer about the conference