Enforcement of energy arbitration awards

Enforcing an arbitral award in an international energy dispute

Energy disputes consistently dominate the caseloads of the main arbitration centres. In 2021, 25 percent of the LCIA’s cases were energy and resource sector focused. ICSID saw 22 percent of cases in 2022 relating to the Energy Charter Treaty (ECT) and reported that 22 percent of cases registered involved oil, gas and mining, with 20 percent being related to electric power and other sources of energy. The popularity of arbitration in energy-related disputes is heavily influenced by the relative ease of enforcement of a resulting award, as the New York Convention affords a unified and widely recognised framework for enforcement under which only exhaustively listed grounds to resist enforcement are available.

Recent trends in the enforcement of energy arbitration awards

With the rise in prominence of energy-related matters in international arbitrations, various trends have emerged from the spectrum of arguments brought before courts in an attempt to resist the enforcement of awards. This article will focus on three of these trends and examine the extent to which they have been borne out in recent energy-specific examples.

1. Resisting enforcement on jurisdictional grounds
   
   In its landmark decision in Slovak Republic v Achmea B.V., the Court of Justice of the European Union (CJEU) ruled that investor-state arbitration provisions in an intra-EU bilateral investment treaty violated the autonomy of EU law by taking disputes over EU law outside its judicial system. The subsequent decision in Moldova v Komstroy ruled that intra-EU disputes under the ECT cannot be pursued in investor-state arbitration. The CJEU decisions continue to have implications before the courts of different states, most notably, in a widely reported series of cases brought by investors against Spain over the reforms of the subsidies system in the renewable energy sector.
   
   One of the most recent iterations of this saga is the US court refusal to enforce an intra-EU ECT award on the ground that no valid agreement to arbitrate existed. In March this year, an enforcement action was brought against Spain in which a US court refused a petition referred by two Dutch entities to enforce a €26.5 million ECT award. The court found that under EU law, Spain lacked the legal capacity to extend an offer to arbitrate an intra-EU investment dispute. It was ruled that under EU law, to which both entities were subject, no valid agreement to arbitrate existed. By contrast, in a decision before the Australian High Court handed down in April this year, Infrastructure Services Luxembourg and Energia Termosolar were successful in enforcing their ECT award against Spain.
2. Resisting enforcement based on alleged corruption
   
   The New York Convention provides that a court may refuse enforcement of the award where it would be contrary to public policy (Article V(2)(b)). The arguments brought under this ground in energy disputes frequently involve allegations of fraud or corruption. However, despite its common deployment by parties, this ground is rarely made out successfully.
   
   A recent example of parties unsuccessfully raising corruption to resist enforcement is the Swedish Supreme Court decision issued in April 2022. In this case, a subsidiary of General Electric Power (GE) was ordered to pay an ICC award issued in a dispute over a Lithuanian power plant project after Swedish Supreme Court refused to hear its final appeal that the underlying contract was tainted by corruption. The Court found that, although there was some evidence of bribes being paid, GE had not provided sufficient proof to substantiate all of the corruption allegations it raised relating to the contract. This result was reached despite the relevant entities pleading guilty to UK charges of bribing senior Lithuanian officials through local companies.
   
   Although much less prevalent, parties seeking to resist enforcement argue that alleged corruption taints the arbitration procedure rather than the underlying contract. There is also a high bar for parties to make out such a defence to enforcement. By way of example, the National Iranian Oil Company (NIOC) recently failed to halt the enforcement of a US$2.4bn award in Rotterdam despite its belated call to Dutch prosecutors to investigate the Emirati award creditor for alleged corruption. NIOC pointed to a 2015 Iranian Supreme Court judgment that reinstated criminal verdicts against various individuals who were fined or imprisoned for corruption related to a gas supply deal. the court decided that NIOC should have raised this challenge earlier in the arbitration proceedings as opposed to waiting and submitting such grounds to challenge enforcement.
   
   A successful attempt to resist enforcement on the basis of fraud was, however, made by Kazakhstan before a Dutch court earlier this year. On January 9, 2023, the Amsterdam District Court refused an application to enforce a US$500m ECT award against Kazakhstan after finding that Moldovan claimants, Anatolie and Gabriel Stati, committed procedural fraud in the arbitration. The court ruled that enforcement of the award in favour of the Statis and their companies would contravene domestic public policy on the basis that the applicants made false representations to the tribunal to inflate their damages claim. Notwithstanding the controversy, the award was earlier recognised by courts at the seat of arbitration in Sweden as well as in the US and Italy.
3. State immunity
   
   Energy disputes frequently involve state entities and assets which may pose difficulties for arbitral enforcement against shielded assets. A recent example of successful reliance on state immunity is the Colombian Supreme Court decision to deny the enforcement of a UNCITRAL award in favour of a group of solar photovoltaic investors against Spain. The decision was made on the basis that Spain had sovereign immunity that prevented it from being summoned before the courts of another country.
   
   Another example where state immunity came into play is the US District Court for the District of Columbia decision where the court refused the enforcement of a US$21m CIETAC award against a Chinese state-owned oil and gas subsidiary of Sinopec International Petroleum Exploration and Production (SIPC). The application for enforcement was brought by Uni-Top who won the claim for lost commission arising from the agency agreement under which it agreed to assist SIPC buy US$4.18bn worth of shares in a Canadian oil and gas company PetroKazakhstan. In enforcement proceedings the court relied on the New York Convention and the US Foreign Sovereign Immunities Act (FSIA), the latter conferring personal jurisdiction in certain actions against foreign states. The court rejected Uni-Top's argument that SIPC could be considered a ‘political subdivision’ of the Chinese state for the purposes of FSIA. It was also held that Uni-Top had failed to establish that SIPC ‘directly’ conducted business in the District of Columbia, nor that it had a ‘sufficient connection’ with other related affiliates conducting business in the district.
   
   In a similar ruling handed down in 2020, a court in Washington DC refused to enforce an ICC award against an Iraqi state-owned oil company.

Conclusion

The above cases demonstrate that the enforcement of energy awards may prove to be a complex process, particularly prone to inconsistent or conflicting rulings in the courts of different jurisdictions. Whether it is jurisdiction or public policy considerations, care must be taken to bring the relevant arguments early in the arbitral process to avoid them being considered lost at the enforcement stage. The prevalence of state players in energy disputes poses additional difficulties for enforcement of subsequent awards. Care must be taken at the point of entering into a transaction that the scope of state immunity from both suit and execution is delineated to adequately reflect commercial interests of the parties involved.

The authors would like to thank Charlotte Connell for her assistance in preparation of this article.