Given the growing popularity of international institutional arbitration, the criminal prosecution of arbitrators and employees of International Arbitration Centre at Cairo, Egypt (“IAC”) for fraudulently conducting arbitral proceedings against several oil companies and refusal by American Courts to enforce the arbitral award for payment of nearly USD 18 billion in favour of more than 60 individuals claiming as legal heirs to 2 Saudi nationals (“Petitioners”) obtained by such fraud came was seen as an exceptionally unusual case. Over the course of this article, the reasoning given by judicial authorities to refuse the enforcement of the award is discussed.
In September, 2019 a US District Court in the matter of Waleed Al-Qaroani, et al. V. Chevron Corporation, et al.[1] dismissed the motion to enforce an arbitral award dated 3rd June 2015 against Chevron Corporation, Chevron Company of U.S.A., Chevron Saudi Arabia and Aramco (“Chevron entities”) for nearly USD 18 billion in favour of the Petitioners on account of rental allegedly owed to them under a deed of transfer of rights to use the land unilaterally executed by their predecessors in favour of Aramco in 1949 (“1949 Deed”) which by reference incorporated the arbitration clause contained in another agreement i.e. a concession agreement signed between the Kingdom of Saudi Arabia and Standard Oil Company in 1933 (“1933 Agreement”).
The Petitioners unilaterally invoked arbitration by placing reliance on the 1949 Deed and the 1933 Agreement, strong armed the Chevron entities into participating in the arbitral proceedings and subsequently in the midst of suspiciously conducted proceedings obtained an award in their favour and against the Chevron entities. During the course of hearings before the US District Court, it was specifically pleaded that criminal investigations and action have also been undertaken against several members of the arbitral tribunal in relation to the very award being sought to be enforce.
At this juncture it is pertinent to mention that despite the circumstances, the US Court found itself in a peculiar situation where, the United States of America being a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) it could refuse enforcement of a foreign arbitral award only on the limited grounds mentioned under the Convention. Despite the narrow elbowroom available, the Chevron entities were able to establish a case in their favour before the Court. After hearing the parties and examining the evidence brought on record, the Court refused to confirm and enforce the award and dismissed the petition.
At the very outset the Court found that there was no valid arbitration agreement between the Petitioners and the Chevron entities on the basis of which they could have been compelled to enter into the arbitration from which the award arose. Placing reliance on judicial precedents and the New York Convention the Court further held that a general reference to the 1933 Agreement in the 1949 Deed or a reference to certain clauses thereto could not amount to incorporation of arbitration clause of the 1933 Agreement. As per the New York Convention, a specific reference to the arbitration clause and conscious consent by signature of the other party ought to be present for an arbitration clause to be incorporated by reference in another agreement. Moreover, the Court went on to observe that the arbitration clause under the 1933 Agreement by its express terms did “not bind a non-party, notwithstanding the words of incorporation or reference in a separate contract by which that non-party is bound”.
The Petitioners in this case had failed to satisfy the basic requirement that the parties involved in litigation seeking relief under the award were parties to the arbitration agreement. In the absence of a valid written arbitration agreement between the parties it was held that the Court did not have jurisdiction to confirm the award.
The arbitral process was itself found to be riddled with violations of the terms of the arbitration clause, which forms a ground for refusal of enforcement by a Court under Article V of the New York Convention. The 1933 Agreement on which reliance was placed to initiate arbitration itself permitted only ad hoc arbitration to be held with the default seat being at Hague in Holland unless the parties mutually agreed to another seat. In this case both these conditions were violated as institutional arbitration at IAC was initiated with seat being in Cairo even in the absence of consent of Chevron entities to it. The Court thus found that assumption of jurisdiction by the tribunal at IAC having its seat at Cairo was without any contractual authority and thus the arbitral award was not enforceable as per Article V of the New York Convention.
The procedure for appointment of arbitrators to the tribunal was also highly irregular and seemed to have been engineered to produce favourable results for the Petitioners. Throughout the course of arbitral proceedings there were multiple resignations by arbitrators, some under protest, there was no neutral umpire or arbitrator appointed in compliance with the arbitration clause of the 1933 Agreement, the presiding arbitrator himself submitted his award opining that the tribunal did not have jurisdiction to arbitrate as the claims raised by the Petitioners were outside the scope of the arbitral clause in terms of its signatory parties and content. On the very date of issuance of such award the arbitral tribunal was reconstituted in complete violation of the procedure prescribed under the 1933 Agreement and a fresh arbitral award was passed merely sixteen days thereafter, which was now sought to be enforced, in complete disregard of the fact that pursuant to the first-mentioned award of the presiding arbitrator the tribunal had exhausted its jurisdiction to issue the subsequent award. Exercising its power under Article V of the New York Convention to refuse enforcement in case of composition of tribunal being contrary to the terms agreed between the parties, the Court held that the later-issued award was beyond the scope of submission to arbitration and without authority.
Additionally, the Court held that, as also opined by the previously presiding arbitrator who was subsequently replaced during the reconstitution of arbitral tribunal, the award sought to be enforced was itself issued in relation to claims that were beyond the scope of the arbitration clause. The arbitration clause in the 1933 Agreement was limited to the grant of right to extract hydrocarbons from the land given by Saudi government and not for a claim for money allegedly arising from a deed of transfer of rights in relation to private lands. Accordingly, it was held that the subject matter arbitrated upon did not fall within the scope of the original arbitration clause and thus the award could not be confirmed and enforced by the US Court.
The Court also took note of the procedural irregularities in the Petitioners’ efforts of seeking enforcement of the award which itself cautioned the Court against such confirmation and enforcement on the basis of the award alone. The Petitioners failed to provide duly certified copies of the English version of the 1933 Agreement, which was agreed by the parties to prevail over the Arabic version, and other critical documents underlying their request for confirmation. In fact, it was observed that multiple versions of the award had been produced before the Court with or without suspect authentication stamps.
In light of all these independent grounds, the Court concluded by holding that even if it were to be found that the Court had jurisdiction, it would refuse to enforce the award issued in favour of the Petitioners against the Chevron entities.
The decision of refusal of the Court to confirm and enforce the award saw support from the international arbitration community which has been eager to guard the emergent preferred mode of dispute resolution against challenges such as corruption and malafide conduct of stakeholders in the absence of strict legislative regulation of international arbitral institutions in most jurisdictions.
LexisNexis India 
Leave a comment