ENERGY CHARTER TREATY ARBITRATION

Transcription

1 ENERGY CHARTER TREATY ARBITRATION Dr. Maxi Scherer Queen Mary University of London Wilmer Cutler Pickering Hale and Dorr LLP Würzburg 18 July 2012

2 Part 1 The Energy Charter Treaty I. Purpose II. III. IV. Historical Background Signatories Structure V. Dispute Settlement

3 I. Purpose of ECT One of the most significant multilateral investment treaties in force Regulates the biggest industry in the word Politically sensitive area Purpose of the ECT Article 2: to establish a legal framework in order to promote longterm cooperation in the energy field. Preamble: encourage economic growth through the adoption of measures to liberalise investment and trade in energy. 3

4 II. Historical Background European Energy Charter signed in 1991 Sets out principles and objectives to govern East/West negotiations on energy issue Political declaration Context: End of Cold War Originally European focus but now global interest Currently 58 signatory parties Energy Charter Treaty signed in 1994 Entry into force 16 April 1998 Currently 53 signatory parties 4

5 III. Signatories ECT Countries marked in green are signatories to the Energy Charter Treaty, and members of the Energy Charter Conference. The countries marked in blue are observers. 5

6 IV. Structure of the ECT Untidy, user-unfriendly package Treaty: Preamble, 8 Parts, 14 Annexes 5 Decisions, 22 Understandings, 8 Declarations (adopted at the same time than the Treaty to assist in its interpretation and application) Institutional Structure Energy Charter Conference Energy Charter Process Energy Charter Secretariat 6

7 IV. Structure of the ECT Trade (incorporates GATT) Transit (Art. 7) Investment Promotion and Protection (Part III, Art. 5 & Arts 10-17) Dispute Settlement (Part V, Art 26, 27 & 29) 7

8 V. Dispute Settlement Investor-State Disputes (Art. 26) Cooling-off period 3 months Claimant s Option: (i) national courts; (ii) previously-agreed dispute settlement procedure; or (iii) treaty arbitration: - ICSID; - ad hoc arbitration under UNCITRAL Rules; or - Stockholm Chamber of Commerce 8

9 Part 2 The Yukos Arbitration I. Facts - Background II. III. Procedure Jurisdictional Issues

10 I. Facts Background Yukos group of companies: Main company: Yukos Oil Corporation OJSC CEO: Mr. Mikhail Khodorkovsky Associate: Mr. Platon Lebedev Yukos recent history: 1993: Joint stock company : Fully privatised Oct. 2003: merger of Yukos with Sibneft At its peak in 2003: one of the top 10 largest world oil and gas companies 10

11 I. Facts Criminal Proceedings Russia considers Yukos to be a criminal enterprise : Criminal proceedings against management (July 2003) Annulment of the merger between Yukos and Sibneft (Nov. 2003) Tax reassessments for (Yukos: for a total of approx. US$ 20.5 billion for and 2004; also tax reassessments against subsidiaries) Freezing of shares and assets (Oct July 2004) Threat of revocation of oil production licenses (Oct Dec. 2004) Sale of Yuganskneftegaz (one of Yukos 3 main oil production subsidiaries) (July 2004) Bankruptcy proceedings (March 2006 Aug. 2006) 11

12 II. Procedure 3 Claimants: Hulley Enterprises Limited (Cyprus) (PCA Case No. AA 226) (100% subsidiary of Yukos Universal Ltd) Yukos Universal Limited (Isle of Man) (PCA Case No. AA 227) (2.25% of Yukos shares) Veteran Petroleum Limited (Cyprus) (PCA Case No. 228) 3 arbitrations 3 decisions 1 arbitral proceedings Same arbitration tribunal, same applicable procedural rules, same applicable law, same counsel: unified proceedings 12

13 II. Procedure Arbitral Tribunal: L. Yves Fortier CC QC (Can.): Chairman Charles Poncet (Sw.): appointed by Claimants (after resignation of Daniel Price, USA, and challenge of Gabrielle Kaufmann- Köhler, Sw.) Stephen M. Schwebel (USA): appointed by Respondent 13

14 II. Procedure Seat of the arbitration: The Hague (Netherlands) Arbitral Institution: Permanent Court of Arbitration (PCA) Lex arbitri: UNCITRAL Arbitration Rules Applicable law: Energy Charter Treaty (ECT) Claim: Yukos expropriation: valued at between US$ 50 and US$ 100 billion 14

15 IV. Jurisdictional Issues 1. Provisional application of the ECT (Art. 45) 2. Claimants qualify as Investors (Art. 1(7)(a)(ii) ECT) 3. Claimants Investment (Art. 1(6) ECT) 4. Denial-of-Benefits Provision (Art. 17 ECT) 5. Fork-in-the-Road Provision (Art. 26(3)(b)(i) ECT) 15

16 1. Provisional Application of the ECT Signature: December 1994 Entry into Force: April 1998 Russia and the ECT: 17 December 1994: Russian signs the ECT (but no ratification) 20 August 2009: Russia officially informs the Depository of the ECT (Portugal) that it does not intend to become a Contracting Party to the ECT 16

17 1. Provisional Application of the ECT Art. 45 ECT (1) Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations. (3) (a) Any signatory may terminate its provisional application of this Treaty by written notification to the Depository of its intention not to become a Contracting Party to the Treaty. Termination of provisional application for any signatory shall take effect upon the expiration of 60 days from the date on which such signatory s written notification is received by the Depository. (b) In the event that a signatory terminates provisional application under subparagraph (a), the obligation of the signatory under paragraph (1) to apply Parts III and V with respect to any Investments made in its Area during such provisional application by Investors of other signatories shall nevertheless remain in effect with respect to those Investments for twenty years following the effective date of termination, except as otherwise provided in subparagraph (c). 17

18 1. Provisional Application of the ECT Issues What effect should be give to the Limitation Clause in Article 45(1)? All-or-nothing approach : principle of provisional application must be inconsistent with Constitution, Laws etc. Piecemeal approach: specific provision of the ETC must be inconsistent with Constitution, Laws etc. Findings: All-or-nothing approach. Here: principle of provisional application is consistent with Russian Constitution/Laws (not disputed) OBITER: Article 26 (dispute resolution provision) is consistent with Russian Constitution/Laws 18

19 2. Claimants Qualify as Investors (Art. 1(7)(a)(ii) ECT) Article 1(7)(a)(ii) ECT: Investor means: (a) with respect to a Contracting Party: (ii) a company or other organization organized in accordance with the law applicable in that Contracting Party. Issues: Claimants are shell companies, owned and controlled by Russian nationals Claimants did not own or control the Yukos shares Finding: This article contains no requirement other than that the claimant company be duly organised in accordance with the law applicable in a Contracting Party 19

20 3. Claimants Investment (Art. 1(6) ECT) Art. 1(6)(b) ECT: Investment means every kind of asset, owned or controlled directly or indirectly by an Investor and includes: (b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise Issues: Does international law require (i) real or beneficial ownership rather than nominal, general or record ownership of shares; and (ii) injection of foreign capital? Findings: No indication of an intent of the drafters of the ECT to limit the scope of investment through shares to the beneficial ownership of shares (very broad definition of an interest in a company under Art. 1(6) ECT) No requirement of injection of foreign capital 20

21 4. Denial of Benefits Clause (Art. 17(1) ECT) Art. 17(1) ECT: Each Contracting Party reserves the right to deny the advantages of this Part [i.e. Part III] to: (1) a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized; Issues: Notification required? Definition of third state? 21

22 4. Denial of Benefits Clause (Art. 17(1) ECT) Findings: Art. 17(1) requires the State to exercise the right to deny benefits in form of a notification Cumulative conditions for the application of Art. 17(1): a)to be owned or controlled by citizens or nationals of a third State; and b)to have no substantial business activities in the place in which it is organized OBITER: Claimants are owned and controlled by companies or trusts that are UK nationals (Gibraltar, Guernsey, Isle of Man, Jersey) Third party refers to non-contracting Parties (Russia cannot be a third party) 22

23 5. Fork-in-the-road Provision (Art. 26(3)(b)(i) ECT) Art. 26(3) ECT: (a) Subject to subparagraphs (b) and (c), each Contracting State hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in according with the provisions of this Article. (b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute [to courts or administrative tribunals of the contracting party to the Dispute or a previously agreed dispute settlement procedure]. Issue: Yukos submitted claim to Russian courts and Mr. Khodorkovsky, Mr. Lebedev and Yukos submitted claims to the ECHR is this the same dispute? 23

24 6. Fork-in-the-road Provision (Art. 26(3)(b)(i) ECT) Findings: Application of the triple identity test: Identity of parties; Identity of cause of action; and Identity of object of the dispute Cases before Russian courts and ECHR do not satisfy this test (conceded by Respondent)

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