In July 2014, three historical awards have been rendered under the aegis of the Permanent Court of Arbitration (“PCA”) in the Hague, ordering the Russian Federation to pay over $50 billion in compensation to former Yukos Oil Company shareholders.
The three arbitration proceedings having resulted in these awards were commenced in 2005 by the former shareholders Hulley Enterprises Limited (Cyprus), Yukos Universal Limited (Isle of Man) and Veteran Petroleum Limited (Cyprus) (the “Claimants”). By agreement of the parties, the cases were heard before the same panel of arbitrators. The arbitral tribunal issued three awards identical in material respects, save for the amounts of damages awarded, which varied for each Claimant.
In the Final Awards, the arbitral tribunal unanimously held that the Russian Federation had breached its international obligations under Energy Charter Treaty (“ECT”, which the Russian Federation had signed but not ratified) by destroying Yukos Oil Company and appropriating its assets. As a result, the Russian Federation was ordered to pay damages over $50 billion to compensate Claimants and to support Claimants’ legal expenses worth $60 million, after 10 years of proceedings.
This award is said to be the largest award ever rendered by an arbitral tribunal.
The Russian Federation filed in the District Court of The Hague three applications for annulment of the three awards rendered in the three arbitration proceedings and decided to publish one of them on the Ministry of Finance’s website.
The State raised five main bases for setting aside the awards:
- The arbitral tribunal lacked jurisdiction to hear the claims of the former shareholders in the absence of a valid arbitration agreement (Article 1065(1)(a) of the Dutch Code of Civil Procedure “DCCP”);
- The arbitral tribunal violated its own mandate (Article 1065(1)(c) DCCP);
- The arbitral tribunal was irregularly composed (Article 1065(1)(b) DCCP);
- The arbitral tribunal failed to give reasons (Article 1065(1)(d) DCCP); and
- The awards are contrary to public policy (Article 1065(1)(e) DCCP).
Without entering into the details of each of these claims, it will be particularly interesting to see the decision of the District Court of the Hague regarding the “assistant” or “secretary” of the arbitral tribunal.
Indeed, the role of secretaries of arbitral tribunals has often been debated and guidelines issued. For example, the registrar of the SIAC issued, on 2 February 2015, a Practice note on arbitral secretaries and Young ICCA recently issued a Guide on arbitral secretaries. As for the ICC, the Secretariat of the International Court of Arbitration issued a revised note on arbitral secretaries in 2012.
However, these are only “guidelines” and not legal obligations. In the meantime, while there are more and more arbitral secretaries/assistants in arbitration proceedings, court decisions on the issue are still relatively rare. To our knowledge, French courts have yet to issue a decision on the subject.
This petition perfectly illustrates certain issues that arise regularly in relation to arbitral assistants or secretaries:
- When does the arbitral tribunal fail to comply with its mandate when appointing an assistant?
Is there, as contended by the Russian Federation in its petition, an obligation for the arbitrators to fulfill their mandate personally, i.e., an obligation to review the case “personally, without derogation”, obligation which should be regarded as “a principle that goes to the essence of the arbitral function […]” ?
Could the fact that the assistant (i) failed to file with the parties a statement of impartiality and independence and/or (ii) spent 40 to 70% more time than any of the arbitrators on the case, be considered as a demonstration that the arbitrators did not comply with their mandate?
- Who can be characterized as “assistant” or “secretary”?
The Russian Federation contends that if the assistant’s role was characterized as that of an arbitral secretary, arbitrators’ duties cannot be delegated to a secretary with sufficient experience to be an arbitration authority in his own right – pointing out that, in the matter at hand, the assistant was a re-known arbitration specialist and an arbitrator himself. What is therefore the limit of the qualification/education of an assistant?
- Could an assistant be characterized as a “fourth arbitrator”, justifying the setting aside of the award for irregular composition of the arbitral tribunal, and under what circumstances?
According to the Russian Federation, the arbitral tribunal was composed irregularly because the arbitral assistant / secretary, having been actively involved in the decision-making process, acted as a fourth arbitrator, which is in breach of (i) Article 1026 DCCP, pursuant to which the arbitral tribunal must consist in an odd number of arbitrators and (ii) the provisions of the DCCP concerning the appointment of arbitrators.
The Russian Federation’s petition highlights questions arbitral secretaries / assistants regularly pose: what is the exact role and the limits of an assistant/secretaries? How does one prove a violation of the arbitral tribunal’s mandate or the irregularity of its composition, i.e., which criteria may be used and what is the threshold an arbitrator should not pass when delegating duties to a secretary / assistant?
Made at a time when more transparency is advocated for in relation to the existence and the role of the assistant/secretaries (see guidelines on the subject), will this petition reveal to be a set-back to transparency to avoid annulment on this basis? Indeed, this petition shows that the existence of an assistant and/or secretary in proceedings may finally constitute a risk for the efficiency of arbitration as it could be a basis for the annulment of the award.
In relation to arbitral secretaries / assistants issue, we draw your attention to the next “Wake up (with) arbitration!” breakfast round table, on 9 April 2015, during which the topic “The Secretary to the Arbitral Tribunal: the 4th arbitrator” will be debated.
The Russian Federation’s petition may be found on the website of the Russian Federation’s Ministry of Finance.