Top Ten Disputes in International Commercial Arbitration Resolved in The SCC

International Commercial Arbitration

The Arbitration Institute of the Stockholm Chamber of Commerce has continued to be a major institution for resolving disputes in International Commercial arbitration and is respected worldwide. The institution, based in Sweden and established in 1917, has grown from just handling domestic Commercial arbitration in Sweden to taking on international disputes involving foreign disputes.

Commercial Arbitration



Generally, the SCC is well-trusted by all countries. Its award is enforceable in over 150 countries, courtesy of Sweden being a member party and signatory of the 1958 New York convention that allows enforceability of international arbitration awards across jurisdictions.

With the opportunity presented to the SCC as an international Commercial arbitration hearing seat, it has its fair share of international Commercial arbitration ranging from trade to business to investor-state disputes. Some of these disputes have been quite easy to settle as the parties’ grievances were easy to amend, while some of them have been much more complex. Fortunately, the Stockholm Seat has been extremely innovative and has recorded a high success in settling international commercial arbitration disputes. it has also been efficient in handling complex contracts and investor-state disputes, which have helped ensure that all parties get their needed justice.

This article will focus on some of the major disputes in International Commercial Arbitration Disputes Resolved in The SCC and how these resolutions paved the way to embolden claimants to pursue arbitration as a means of fair hearing.

Ten Disputes in International Commercial Arbitration Resolved in The SCC

Mr. Franz Sedelmayer v. The Russian Federation

Case type: International Investment Agreement

Case ID:

Treaty: Germany-Russian Federation BIT

Section : SCC Awards, SCC Arbitration Rules

Outcome : Decided in favor of investor

Summary of The Case

Country: Russian Federation, Germany

Claimant: Sedelmayer

Respondent: Russian Federation

IIA Breaches Alleged

Direct expropriation

IIA Breaches Found

Direct Expropriation

Franz Sedelmayer v. The Russian Federation has continued to be one of the biggest cases in the history of investor-state disputes and arbitration in all aspects. The case is among the SCC’s biggest commercial disputes ever resolved and is one of the major resolutions that solidified the institution as one of the best hearing seats. It is one of the longest Arbitration cases starting from 1995 and fully ending in 2014.

Mr. Sedlmayea German filed an arbitration action against Russia after activating the Germany-Russian Federation BIT on October 10, 1995, following the state Government’s confiscation of his consultancy firm and assets.

While Russia aggressively denied and even carried out intimidation tactics to deny the claimant for going on the case, the SCC seat provided the needed support to ensure fair hearing.

The investment details initially left the claimant and the Russia Police force as joint owners of the security consulting firm with the force providing the premises while the claimant provided law enforcement equipment and relevant training. However, the Russian Government set out to illegally confiscate the properties of the claimant, which triggered the latter to file an action on alleged direct expropriation. As a result, the claimant sought compensation to the tone of 7.60 mln USD. The tribunal, however, awarded only 2.30 mln USD after ruling in the claimant’s favor on July 7, 1998.

Russia, however, did not make payments for the compensation willingly and timely and was extremely aggressive. It was until 2014, did the country finally paid the whole amount for the seized property.

GPF GP S.à.r.l v. Republic of Poland

Case type: International Investment Agreement

Case ID: SCC Case No. V 2014/168

Treaty: BLEU (Belgium-Luxembourg Economic Union) – Poland BIT (1987)

Section: SCC Awards, SCC Arbitration Rules 2010

Outcome: favour of State

Summary of The Case

Economic sector: Real estate activities

investor: GPF GP S.à.r.l

Respondent State(s): Poland

IIA breaches alleged

Indirect expropriation

Fair and equitable treatment/Minimum standard of treatment, including denial of justice claims

Direct expropriation

Indirect expropriation

Fair and equitable treatment/Minimum standard of treatment, including denial of justice claims

IIA breaches found

None

In 2001, an investing company GPF GP S.à.r.l acquired a plot of land in Warsaw and the property rights under the Perpetual Usufruct Agreement (the PUA). The PUA gave the investing company the right to develop the property on the said land, and a contract with the State of Poland was entered. In addition, the Belgium-Luxembourg Economic Union – Poland BIT (1987) was included o the contract.

However, in 2009, during the development process of the properties by GPF GP S.a.r.I, Warsaw reversed its decision for the firm property rights due to alleged lack of proper development that met the city Real Estate rules. In 2011, the city sought to terminate the PUA, and the company took the case to the Arbitration tribunal.

While the tribunal believed that there was the possibility of alleged expropriation by the State, this could not be determined by the seat as the BLEU (Belgium-Luxembourg Economic Union) – Poland BIT treaty had a limited scope. The Bilateral treaty limited the tribunal’s decision jurisdiction over all the alleged claims by the company. The case was therefore ruled in favor of the State.

Petrobart Limited v. The Kyrgyz Republic

Case type: International Investment Agreement

Case ID: SCC Case No. 126/2003

Treaty: Energy Charter Treaty (ECT)

Section: SCC Awards, SCC Arbitration Rules

Outcome: Favour of the investor

Summary of The Case

Country: Kyrgyzstan

Claimant: Petrobart Limited

Respondent: Kyrgyz Republic

In 1988, The claimant Petrobat Limited entered an agreement with the state (Kyrgyz Republic) joint-stock company Kyrgyzgazmunaizat (KGM), allowing the former to supply of 200,000 gas tons condensate to KGM on a monthly basis. Petrobat delivered a total of five supplies that totaled 17,205 tons of gas before halting when KGM only paid for two invoices. The two payments cost $951,976, while the amount for all five supplies was expected to be $2,457,620.

Petrobat decides to take legal actions against KGM, which it at the country court. However, the country’s prime minister requested that the court order to pay damages to Petrobat for three months. The court granted the request, and within the Stay, the country moved KGM assets to Munai, another company with which Petrobat had no relationship on the guise of leasing. KGM subsequently filed for Bankruptcy on April 11, 1999, which automatically makes it impossible to clear its debts with Petrobat.

In response, Petrobat activated the ECT treaty clause on alleged expropriation, among other claims, with the case rolling into the early 2000s. The tribunal concluded in favor of the State with the final award rendered on March 29, 2005. The State, in response, requested its annulment and filed against it in the Svea Court of Appeal. The court upheld the judgment on January 19, 2007.

Tomasz Częścik and Robert Aleksandrowicz v. Cyprus

Case type: International Investment Agreement

Case ID: SCC Case No. V 2014/169

Treaty: Cyprus – Poland BIT (1992)

Section: SCC Awards, SCC Arbitration Rules 2010
Outcome: favor of State

Summary of The Case

Cyprus fends off SCC expropriation claim by Polish investors over bank bail-in measures

This case is not the biggest the SCC has handled in international disputes but is among one of the most popular in the health sector. The case involved the claimants, who were Polish nationals and known as Tomasz Częścik and Robert Aleksandrowicz, with investment in an undisclosed health company based in Cyprus. The respondent is the Cyprus State. Both went into a contract with the Cyprus – Poland BIT (1992) treaty as the only measure for activating an arbitration clause in the SCC if the country sets up policies that hinder the local company profits.

Around March 2013, the State Central Bank issued a decree that initiated specific legislative measures (Bail-in measures) in its banking system. With possible negative consequences arising from the decree, the Central Bank of Cyprus mandated that all Banks go for a two-day holiday on March 19 and March 20.

Coincidentally, the investors’ company had mandated the Central Bank to issue two payments via the company name to purchase shares in a start-up in Poland. However, the bank could not carry out the transactions due to the holiday ad other regulatory measures.

The investors activated the arbitration clause in respect to the Cyprus – Poland BIT (1992) treaty. The investors claimed expropriation by the State, and the State countered by requesting that the tribunal bifurcate the case. The state arbitration team argued that the BIT only allowed arbitration in cases concerning the seizures and expropriation of a foreign investment. It also argued the claimants did not have the right to activate the MFN clause with the BIT Article 7, which automatically broadened the tribunal’s jurisdiction to hear the claims of investors’ for a breach of the FET standard under BIT Article 3.

An award was issued on February 11, 2017, in favor of the State, with the tribunal agreeing the claimant could not activate the MFN Clause.

William Nagel v. The Czech Republic


Case type: International Investment Agreement

Case ID: SCC Case No. 049/2002

Treaty: Czech Republic-United Kingdom BIT

Section:
SCC Awards, SCC Arbitration Rules

Outcome: Favor of State

Summary of The Case

Countries: Czech Republic, United Kingdom
Claimant: Nagel
Respondent: Czech Republic

This particular case was in the economic sector of Information and communication telecommunication and was majorly about rights from a cooperation agreement entered with a public-owned enterprise.

On 11 to May 17, 1993, a Cooperation Agreement between the Czech Republic State-owned Millicom International Cellular S.A. and Mr. William Nagel through his company was entered. The contract stated that Mr. Nagel would jointly (with the State) obtain via the Consortium the necessary frequencies, licenses, rights to interconnect with the local public switched telephone network, and other necessary permits to establish, own, and operate a GSM cellular network in the Czech Republic. These agreements were categorized as the operating rights of the claimants in the State.

The agreement also agreed that the State would need to offer Mr. Nagel telecommunication contracts. Both claimants and respondents agreed on the Czech Republic-United Kingdom BIT.

On May 27, 2002, the claimant took the respondent to the tribunal under the SCC arbitration rules for failure to deliver on its agreement, stating that the promised operating rights were denied and he could not operate or own a GSM mobile telephone in the State. The State, however, insisted that the case be dismissed as the treaty entered would only be viable if Mr. Nagel had invested in the State, which he did not.

The arbitral tribunal dismissed William Nagel’s action and issued an award in favor of the State on September 9, 2003. The tribunal concluded that the claimant never invested in the State, and as such, the Czech Republic-United Kingdom BIT could not be used to seek compensation from the State.

CCL Oil v. the Republic of Kazakhstan

Case type: International Investment Agreement
Case ID: SCC Case 122/2001
Treaty: Kazakhstan-United States BIT
Section: SCC Awards, SCC Arbitration Rules
Outcome: Favor of the State

Summary of The Case

Country: Kazakhstan
Claimant: CCL
Respondent: Kazakhstan

IIA Breaches Alleged

Expropriation

IIA Breaches Found
None

CCL oil entered a contract with Kazakhstan to become co-owner of an undisclosed company in which the State initially owned 87.9%. The company owned an oil refinery, and the joint ownership between the Government and CCL oil would give CCL Oil the right to carry out oil activities. The contract was formally entered in 1994 and was jointly owned.

The arbitration clause for the agreement was the Kazakhstan-United States BIT. Also, both parties agreed that only issues relating to the investment deal would be handled via arbitration in a situation of disputes.

On May 7, 1997, the ‘First agreement was reached, and CCL Oil was handed all of the state 87.9% to use and manage for five years, with profits to be shared by the two parties. CCL oil for the rights will handle operation costs. A new agreement was again signed on July 7, 1997, with the CCL Oil agreeing to the liability of handling debts that the firm incurred before it became a joint owner. Some of these debts included that of a separate firm that had a court action against the company.

CCL oil, in full control of 87.9% of the company shares, handed operation of the company refinery to another separate company which became registered on August 15, 1997. However, the newly registered company could not bring in profits. The other firm, which had a court action against the Joint owned company, was awarded the right to take ownership of all its refineries assets.

All of the circumstances led to the degradation of the Joint-owned company, and in reaction to the losses, Kazakhstan, through the General Prosecutor, demanded that the agreement with CCL Oil be terminated. The State claimed that CCL Oil had been irresponsible with the mismanagement of its shares and, as such, triggered losses.

CCL Oil initiated the treaty clause and filed for arbitral action against the Government, with the SCC being the seat of arbitration. The company could only file on limited issues due to the agreement with the State that only investment encroachment disputes should be filed in arbitration.

The tribunal ruled that Kazakhstan had not breached the investment contract and that CCL Oil was irresponsible with the government shares.

In April 2004, the arbitration tribunal issued an award in favor of the State.

CEF Energia BV v. Italian Republic

Case type: Investor-State dispute

Case ID: SCC Case No. 158/2015

Treaty: Energy Charter Treaty (1994)

Section: SCC Awards, SCC Arbitration Rules (2010)
Outcome: Favor of State

Summary of The Case

Country: Italy

Claimant: CEF Energia

Respondent: Italy

IIA Breaches Alleged

Fair and equitable treatment/Minimum standard of treatment, including denial of justice claims

Umbrella clause

Arbitrary, unreasonable and/or discriminatory measures

IIA Breaches Found

Fair and equitable treatment/Minimum standard of treatment, including denial of justice claims

This case is one of the many arbitration disputes that followed Italy’s energy policy changes in the early 2010s. The claimant CEF Energia, a Netherland company, entered into an investment agreement with Italy and invested in three (3) Photovoltaic plants companies, namely Megasol, Enersol, and Phenix. The company entered a contract with the State with the Energy Charter Treaty as the BIT agreement between both parties.

With the acquisition of shares in three companies, the claimant enjoyed tariff incentives for all of them due to the Italy Conto Energia decrees which were made to implement Legislative Decree No 387/2003.

The claimant filed a tribunal action against Italy in 2015 when the State amended the decrees that cut the expected tariff incentives at the time of the contract drafting. The changes include the imbalance cost scheme and other immovable property taxes.

CEF claimed at the tribunal that the new measures encroached on the FET standard, the obligation to ensure and offer a transparent legal framework, the umbrella clause, and the obligation to not affect the investment under ECT Article 10.

The tribunal issued an award in the claimant’s favor on January 16, 2019, and demanded that Italy pay a total of $1,000,000 for damages. The claimant had initially filed fo damages summing up to $11,800,000.

Greentech Energy Systems A/S, et al. v. the Italian Republic

Case type: Investor-state Dispute
Case ID: SCC Case No. V 2015/095
Treaty: Energy Charter Treaty (1994)
Section: SCC Awards, SCC Arbitration Rules (2010)
Outcome: Favor of Investor
Amount of Damages: $13,600,000

Summary of The Case

Respondent State(s): Italy
Home State(s) of investor: Denmark, Luxembourg

IIA breaches alleged

Fair and equitable treatment/Minimum standard of treatment, including denial of justice claims

Arbitrary, unreasonable and/or discriminatory measures

Umbrella clause

IIA breaches found

Fair and equitable treatment/Minimum standard of treatment, including denial of justice claims

Arbitrary, unreasonable and/or discriminatory measures

Umbrella clause

The Greentech Energy Systems dispute with Italy was one of the many cases the country had to face with its incentive tariffs decree amendments in the energy sector. In the early 2010s, the company entered a contract with the State after investing in 134 solar plants. The agreement had the Energy Charter Treaty in the situation that disputes arise.

Following the change and amendments of the Italian Energy policies, Tariff incentives that all the companies would invest in would have enjoyed were cut short.

Greentech Energy Systems filed an action at the arbitration tribunal to tackle the changes made by Italy and seek compensation for damages. The firm stated that Italy had breached the investment treaty majorly in the area of the ECT Article 10

Initially, the firm had agreed with the State to enjoy the tariff incentives for 20 years based on the agreement reached. However, the amendment cut short the contract, and new fees imposition were also introduced.

The tribunal gave the award in favor of the claimant against Italy. The claimant had sought $13,600,000 in damages, and the tribunal approved the same. The tribunal also mandated Italy to pay the claimant Interest sums as it will determine and offer full reimbursement for all the claimant expenses in seeing through the arbitral process.

Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain


Case type: International Investment Agreement

Case ID: SCC Case No. 2015/063

Treaty: The Energy Charter Treaty (1994)

Section: SCC Awards, SCC Arbitration Rules 2017

Outcome: favor of the investor

Amount of damages: US $62,000,000

The Energy dispute between an investor party and Spain federation was one of the talked about cases and highlighted that investors could fully seek justice for possible breach of contracts by host states where investment is being made. The transaction’s economic sector was gas, electricity, air conditioning supply, and steam, all under the Energy sector. The home investor states who doubles as the claimant is Luxembourg, while the Host state where the investment was made and the respondent in the hearing in Spain.

The Details of the investment is as follows:

The investor made an Indirect financial investment in eight photovoltaic plants in Spain via Novenergia II Energy & Environment España, S.L., which is a locally incorporated company in the country.

Summary of the dispute

The investor claims arose due to several detrimental energy reforms taken by the Spain government, which directly affects the renewable sector and the agreement between the two parties. The reform ensured introduced a seven percent (7%) increase in tax for power generators revenues while reducing the subsidy already placed for producers of renewable energies at the time the investor agreed to the contract.

international commercial arbitration

The claimant aggrieved by the policy activated the arbitration clause in the form of The Energy Charter Treaty (1994) against Spain for hurtful reforms. The investor arbitrator team alleged several IIA breaches that include the indirect type of expropriation and a host of other related obligations. However, the Arbitration Tribunal found just one IIA breach, which was unfair, and minimum treatment standard, which includes the denial of justice.

The case generally involved the indirect investment of the claimant in Spain through a local company, Novenergia II Energy & Environment España, S.L., with the Government agreeing to make reforms that would favor the investor. The Government refused to honor the reforms signed in the contract and instead made damaging reforms to the investor that threatened its ability to make profits.

The Spain Government refused to rescind its counterproductive decision to the client, and as such, the claimant activated the Energy Charter Treaty. Following a preliminary objection, the setup arbitration tribunal had a series and phases of proceedings to see if Spain had breached any part of the contract. The respondent was found wanting, and the concluded it has breached its ECT with issues pertaining to fair and equitable treatment of the investor and the agreement, denying justice to the investor and also implementing a minimum standard of treatment of the investor.

The tribunal concluded the case in favor of the investor, and the award was issued on February 15, 2018. The number of damages paid to the investor was Sixty-Two Million Dollars (the U.S. $62,000,000)

Komaksavia Airport Invest Ltd. v. the Republic of Moldova


Case type: International Investment Agreement

Case ID: SCC EA 2020/130

Treaty: Cyprus – Moldova BIT (2007)

Section: SCC Awards, SCC Arbitration Rules 2017

Outcome: favor of investor

The case is an investor-state international commercial arbitration dispute that comprises Komaksavia Airport Invest Ltd as the investor and the Republic of Moldova as the State. The case is more recent and implemented the emergency arbitration service of the SCC. The case is important as it is one of the most recent cases settled only in interim measures.

The treaty in question was the Cyprus – Moldova BIT (2007) with the investor, expecting the host state to ensure a safe political war environment that seamlessly performs its business without obstruction. The host state agreed to this in the contract. However, political tensions from 2018 to 2020 marred the contract agreement, and the investor activated the treaty clause to protect its rights.

The Hilmont Partners represented the investor, and Stockholm beng the seat of arbitration. The investor arbitration team sought that the emergency arbitrator issues an award that protects its client’s right to freely operate its business.
The investor team obtained an award for interim measures for the client Komaksavia Airport Invest Ltd against the host state, the Republic of Moldova, as related to the concession agreement for the Chisinau International Airport.

The team was able to gain the award for interim measures by stating that despite their clients’ transformational investments into the airport since 2013 after the contract, its business has continued to come under unnecessary huge political pressure. The team stated that the pressure propensity to force a breach of contract by the host state and deliberately obstruct its obligations under the concession agreement. The team also stated that the State with the Agency of Public Property through a campaign openly and publicly admitted by Moldovan state officials.

The team urged the emergency arbitrator that an award be issued to protect the investor’s rights. On August 2, 2020, an arbitral award was successfully obtained for interim measures against Moldova. The award explicitly prohibited the State from performing or any actions which terminated the concession agreement.

Conclusion

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) has continued to be a giant in its field. The SCC Arbitration Rules have for decades continued to be a guide for resolving commercial arbitration in Sweden and international commercial arbitration disputes while providing a lasting solution to them.

This article has specifically focused on how the Stockholm seat has in the past decades consistently been one of the most reliable and impartial platforms for ensuring total justice for its parties, irrespective of status or position. The SCC has, over time, provided satisfactory resolutions to international commercial disputes.

The focus of this article was to carefully select some of these cases heard in the SCC with the SCC Arbitration Rules applied and how they were successfully resolved. Some of the cases highlighted the justice system and strength of the SCC in securing parties’ right to justice and remunerations for damages.

From all 10 cases selected, readers, can clearly see how much the SCC ensures and implements justice irrespective of the claimant(s) or respondent(s) status. Hence, readers considering deciding whether to choose the SCC as a seat can easily make their decision more or less assured.

However, while the SCC is a great platform with registered skillful arbitrators, there is the need for parties looking to settle a dispute with the institution’s Arbitration rules to get qualified and experienced arbitrators of their own choosing for a real shot.

There are arbitration institutions with globally respected arbitrators that have high skills for settling International commercial arbitration disputes. Parties must ensure that they hire arbitrators from these types of firms to stand a real chance of winning the dispute.

The institution arbitrators are well-grounded, skillful, and are assured of administering disputes at every point in time. Interested parties can call the firm for more inquiries on its arbitrator appointment processes and the procedures involved.

About Rattsakuten

Rattsakuten is a leading law firm focused on Commercial Arbitration and Dispute Resolution. Based in Sweden, Rattsakuten handles dispute resolution and Arbitration matters before the SCC (Swedish Chamber of Commerce), ICC, HKIAC, and several other Arbitration tribunals


Fredrik Jörgensen

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