District court stays enforcement of $2 billion arbitral award against Egypt while ICSID annulment proceedings were pending

Global Arbitration News | 10 November 2020

District court stays enforcement of $2 billion arbitral award against Egypt while ICSID annulment proceedings were pending

by David Zaslowsky

Plaintiff, Unión Fenosa Gas, S.A. (“UFG”), a specialized natural-gas corporation organized under the laws of Spain, brought suit in the U.S. District Court for the District of Columbia to enforce an arbitral award against Defendant, Arab Republic of Egypt (“Egypt”). In 2000, UFG’s predecessor in interest had entered into a Sales and Purchase Agreement (“SPA”) with Egypt’s state-owned oil corporation in which the national oil company agreed to supply natural gas to UFG for at least 25 years. From 2006 to 2012, Egypt systematically undersupplied UFG while continuing to raise gas prices. Supply was so reduced that UFG was forced to shut down the liquefaction plant it had built, which had cost approximately $1.3 billion.

In 2014, UFG initiated arbitral proceedings with the International Centre for the Settlement of Investment Disputes (“ICSID”), claiming that Egypt reneged on its obligation to provide natural gas to UFG’s liquefaction plant in Egypt, violating various treaty obligations. Egypt argued that ICSID did not have jurisdiction because UFG had secured the SPA by corrupt means through the bribery of an individual with influence over the Egyptian government.

In 2018, a majority of the ICSID tribunal concluded that it had jurisdiction over the dispute, and that Egypt had violated its obligation to provide fair and equitable treatment under the bilateral investment treaty between Spain and Egypt. The ICSID tribunal awarded UFG $2 billion in damages and $10 million in legal costs. One member of the ICSID panel dissented both on jurisdictional grounds and on the merits.

Egypt submitted an application to annul the award to ICSID and a duly constituted annulment committee granted Egypt’s request for a stay of enforcement pending the decision on its petition, subject to Egypt’s posting of a security. Egypt failed to comply with this condition and UFG sought recognition and enforcement in this lawsuit. Egypt responded with a motion to stay the court proceeding pending the outcome of its annulment petition.

The district court granted Egypt’s motion to stay. The court noted several unique circumstances of the case that warranted granting the stay pending the decision of the ICSID annulment committee. Specifically, the court pointed to the unusually large size of the arbitral award and the fact that the decision had garnered a dissent. The court also weighed the interest in judicial economy and the potential hardship to the parties in deciding whether to grant the stay.

The district court found that considerations of judicial economy favored a stay. The court found it significant that “the possibility of the award being set aside, or at least modified is not merely wishful thinking on the part of Egypt.” The court noted that a parallel proceeding was ongoing, and that since Egypt intended to raise the same arguments in the district court as it raised in the annulment petition, litigating the same issues in two separate forums was not in the interest of judicial economy.

In weighing the hardships incurred by each party, the court again found the balance of hardships favored Egypt. The court explained that the possible burden of having to attack the validity of the arbitral award in two forums on top of Egypt’s current fiscal crisis, exacerbated by the global pandemic, created a greater level of hardship for Egypt than for UFG. The court acknowledged that while UFG also faced hardship of its own with respect to further delay of the enforcement of the arbitral award, many of UFG’s complaints about the delay of the award would be better aimed at ICSID. Highlighting that a final annulment proceeding was only a month away, the court noted that the wait for UFG was short compared to the length of the entire arbitration proceedings.

In sum, the district court determined that granting the stay pending the decision of the ICSID annulment committee was proper in this case. The court also noted that the circumstances justifying the stay would be reviewed regularly, and that the court would promptly consider the merits of UFG’s case upon the conclusion of the ICSID annulment proceedings.