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Shearman & Sterling Secures Arbitration Victory for Algeria in Dismissal of US$4 Billion Claim

7 Jun 2017

In a 158-page award issued on May 31, 2017, a tribunal comprised of Gabrielle Kaufmann-Kohler (President), Albert Jan van den Berg and Brigitte Stern dismissed in its entirety the US$4 billion claim brought by Luxembourg-based Orascom TMT Investments (formerly Weather Investments II) against the People’s Democratic Republic of Algeria. The arbitral tribunal also ordered Orascom TMTI to bear the costs of the proceedings as well as 50% of Algeria’s fees and expenses.

Orascom TMTI, owned and controlled by Egyptian billionaire Naguib Sawiris, was seeking US$4 billion from the Algerian government for alleged harassment and interference with the business of Algerian telecoms operator, Orascom Telecom Algérie (OTA, now called “Optimum Telecom Algérie”), which operates as Djezzy.

A US$16 billion UNCITRAL arbitration brought by OTA’s Egyptian direct shareholder, Orascom Telecom Holding (OTH, now called “Global Telecom Holding”), against Algeria over the same dispute was settled in 2014. This settlement was reached after three years of highly complex negotiations, following which the Algerian Fonds National d’Investissement (FNI), a strategic investment fund controlled by the Algerian state, signed a Share Purchase Agreement related to the acquisition of a 51% stake in OTA, for a purchase consideration of US$2.643 billion.

Orascom TMTI, OTH’s former indirect shareholder, filed a parallel ICSID claim under the Belgian-Luxembourg Economic Union – Algeria bilateral investment treaty in 2012 and then maintained that the 2014 settlement had no impact on such parallel, distinct proceedings.

The ICSID arbitral tribunal held that while it had jurisdiction over the dispute, it could not exercise its jurisdiction given the inadmissibility of Orascom TMTI’s claims.

The arbitral tribunal noted that although several entities could in theory bring arbitration proceedings in the vertically integrated chain that constituted the Sawiris Group, theoretical availability of legal grounds did not necessarily mean that the various entities in the shareholder chain were in effect entitled to make use of the various arbitration clauses to challenge the same measures and to recover the same economic loss. The tribunal then considered that the dispute at hand was identical to the one brought to arbitration by OTH, and that Mr. Sawiris had caused the corporate organs of OTH to crystallize the dispute at the level of OTH by sending the first notice of dispute to Algeria. The tribunal further held that by exercising its right to arbitrate against Algeria, OTH had placed itself in the position of being made whole for the alleged harm.

Following an in-depth analysis of the relief sought by the Luxembourg-based company, the arbitral tribunal concluded that Orascom TMTI’s ICSID claims were either covered by the requests raised in the UNCITRAL arbitration, or had or should have been taken into account at the time of the sale of its investment. The arbitral tribunal then found that the settlement agreement put an end to the dispute brought before it in the same way as if an award in the UNCITRAL arbitration had ended the dispute. In the absence of any harm incurred by Orascom TMTI itself, it could not have availed itself of the dispute, irrespective of the content of the settlement agreement and of the sale of its investment prior to the settlement.

The arbitral tribunal further ruled that Orascom TMTI’s conduct constituted an abuse of process, which the tribunal referred to as “abuse of rights”: “[Orascom TMTI had] availed itself of the existence of various treaties at different levels of the vertical corporate chain using its rights to treaty arbitration and substantive protection in a manner that conflicts with the purposes of such rights and of investment treaties. For the Tribunal, this conduct must be viewed as an abuse of the system of investment protection”.

Given the outcome of the case and Orascom TMTI’s abuse of process, the tribunal ordered Orascom TMTI – which had already incurred legal fees and expenses in excess of US$20 million –  to pay the entirety of the costs of the proceedings (the fees and expenses of the tribunal and the ICSID costs, representing US$673,975) and to reimburse 50% of the fees and expenses which Algeria had incurred in connection with the arbitration (representing US$2,842,811.01 and €58,382.16 respectively), for the total amount of over US$3.5 million.

Emmanuel Gaillard, head of international arbitration at Shearman & Sterling and lead counsel to Algeria, said, “We are very pleased with this award, not only for Algeria, one of our oldest and most-valued clients, but also for the precedential value of the award. Increasingly, different shareholders at different levels of an integrated corporate chain initiate parallel arbitral proceedings. This landmark decision tackles the problem squarely, by showing that, depending on the circumstances, the parallel claims can be dismissed in their entirety even at the admissibility level.” On abuse of process, Professor Gaillard, adds, “This is a very welcome development. Absent any recognition of the phenomenon of abuse of process, tribunals would be deprived of an effective tool to tackle the growing instances of abuse in arbitration”.

Yas Banifatemi, head of public international law at Shearman & sterling and counsel to Algeria, commented, “This was a particularly complex case, especially because the arbitral case law had, starting with Lauder, started down a path that allowed abusive conduct by focusing on each action and each treaty taken in isolation, without consideration of the broader factual and legal context involving the same parties. This is the first time a tribunal has effectively captured the entire context and viewed arbitration in as a whole, rather than from the isolated viewpoint of each tribunal, notwithstanding that each tribunal is constituted on the basis of a distinct treaty.”  She added,  “This award is bound to become a reference, not only in relation to abuse of process, but also in its consideration of investment arbitration as a system.”

The Shearman & Sterling team representing the Algerian Republic in the arbitration included partners Emmanuel Gaillard (Paris-Head of International Arbitration) and Yas Banifatemi (Paris-Head of Public International Law); counsel Benjamin Siino (Paris-International Arbitration); and associates Pierre Viguier and Teresa Vega (both Paris-International Arbitration), Marina Matousekova (Milan-International Arbitration) and Tsegaye Laurendeau (London-International Arbitration). Partners Cyrille Niedzielski, Guillaume Isautier (both Paris-Mergers & Acquisitions) and Maude Lebois (Paris-International Arbitration), as well as counsel Barbara Le Chapellier (Paris-Mergers & Acquisitions) and Anne-Sophie Maes (Paris-Tax) were transactional counsel on behalf of the Algerian Fonds National d’Investissement in the Djezzy deal.

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