Summary

Azpetrol v. Azerbaijan (ICSID Case No. ARB/06/15)

Summary by Natalia Charalampidou, citation details below.

The final award in these proceedings was issued on September 8, 2009.

Invoked instruments, purported breaches & administering institution:

This was an arbitration under the ECT, arising out of an alleged breach of the standards of expropriation (Art. 13 of the ECT) and violations of Arts. 10, 14 and 22 of the ECT (¶ 3). It was submitted to an ICSID arbitral tribunal according to Art. 26(4)(a)(i) of the ECT.

Any third parties or parallel proceedings:

Fondel, the claimant in Fondel Metal Participations B.V. v. The Republic of Azerbaijan (ICSID Case No. ARB/07/1) was ultimately owned by the same beneficial owner as the claimants in the present proceedings.

Factual background:

Claimants in this arbitration proceeding were three legal persons, Azpetrol International Holdings B.V., Azpetrol Group B.V. and Azpetrol Oil Services Group B.V. ("claimants"), incorporated under the laws of the Netherlands and beneficially owned by a national of Azerbaijan. Respondent was the Republic of Azerbaijan ("Azerbaijan") (¶¶ 1, 3). Regarding the Fondel proceedings, the tribunal noted that they were separate from the present ones (¶ 19), although substantially similar allegations were made in both sets of proceedings (¶ 35).

During oral hearings on preliminary objections, a director of claimants, who gave evidence, testified in the course of cross-examination that he had provided funds to bribe officials in Azerbaijan to the purpose of protecting individuals in same country. Thereafter, the parties jointly applied for a general adjournment of the proceedings and the tribunal granted it (¶ 6). Later, respondent filed an application to dismiss the proceedings on the grounds of international public policy (¶ 7 ). Then counsels for both parties in the present and in the Fondel proceedings, conducted negotiations regarding the possibility of settling both cases. After several email exchanges, counsel for respondent, sent on December 16, 2008 an email setting out the points of the counteroffer, stating that the settlement is conditional upon "all documentation being executed by December 31, 2008, such condition being for the benefit of (and thus can only be waived by) Azerbaijan" (¶ 20). Following a reminder of same counsel, counsel for Fondel replied on December 19, 2008 "I can now confirm that we hereby accept the offer set out in your 16 December 2008 email" (¶ 30). 15 minutes later counsel for Azpetrol wrote "I confirm that the Azpetrol companies accept your offer set out in your email of 16 December 2008" (¶ 31). This was followed by exchange of emails expressing regret for not having the opportunity to argue the bribery application and a meeting for drinks, which was claimed to be a "celebration" to mark the settlement of the case, although counsel for claimants denied this (¶ 32). On the day that claimants were due to file their Counter-Memorial according to the timetable set for the bribery application, counsel for claimants notified the tribunal that the parties had agreed an in principal settlement of the arbitration. Hence, an immediate procedural standstill was agreed. This was confirmed by counsel for respondent later that day (¶ 8). Thereafter however, counsel for claimants did not accept that a valid settlement agreement was in place (¶¶ 9, 37, 40). Respondent then, after having waived the requirement that the settlements be memorialized in a single document (¶ 43) filed an application requesting: (a) the tribunal to note the conclusion of a binding settlement agreement and order the discontinuance of the proceedings under ICSID Arbitration Rule 43(1); or (b) the tribunal to find that it lacked jurisdiction on the ground that the settlement meant that there was no longer a legal dispute as requested by Art. 25(1) of the ICSID Convention (¶ 10).

Tribunal's conclusions:

The tribunal noted the agreement of both parties: (a) that it had jurisdiction to determine whether or not a settlement agreement was concluded; (b) that English law was applicable; and (c) that the emails of December 16 and 19, 2008 gave rise to a legally binding agreement of some kind (¶ 47). It then stated that it would decide, whether the offer contained in the email of December 16, 2008 amounted to an offer to conclude a binding settlement of the proceedings. In the affirmative, it would ascertain, whether the requirements of English law for the formation of contracts, and especially the condition of consensus ad idem and intension to create legal relations were satisfied (¶ 48).

The tribunal noted that no special requirements for the conclusion of a contract to settle proceedings pending before a court or arbitral tribunal are set out in English law (¶ 52). Equally, no formalities are required (¶ 53), although an agreement must be sufficiently certain and effective to constitute a contract, as ruled in Morton v. Morton (¶ 54). Regarding the condition of memorializing the settlements in a single document, the tribunal considered Pagnan v. Feed Products (¶ 57), while stating that the intention to create legal intentions is fairly readily presumed (¶ 58) and that consensus ad item underlies an objective test (¶ 59). Regarding interpretation of a contract, the tribunal adopted the approach of Investors Compensation Scheme Ltd. v. West Bromwich Building Society (¶ 61), which is similar to that prescribed by international law, save for two differences: the aid of travaux préparatoires (¶ 63); and the subsequent practice of the parties (¶ 64).

Having considered that, the tribunal concluded that the language of the December 16, 2008 email was that of an offer to settle proceedings by binding agreement (¶ 70). Equally, it reached the conclusion that there was an intention to create legal relations as claimants were unsuccessful in shifting off the onerous burden of proof (¶ ¶ 74-75). Turning to the meeting of minds, the tribunal stressed that English law looks primarily not to the actual intentions of the parties but to the objective test of whether a reasonable observer would conclude that they had agreed upon something. This test applied on the present proceedings would lead to a binding agreement to settle the proceedings on the basis of the email of December 16, 2018 having been concluded. Due to the lack of persuasive evidence for the two exceptions thereto, the tribunal affirmed consensus ad item in the present proceedings (¶¶ 78-81). Further, it viewed the agreement complete, as it was not persuaded that it lacked some term(s) that the parties regarded as indispensable (¶¶ 82-88). Finally, the tribunal clarified that prior correspondence between the parties and subsequent practice of same cannot be regarded under English law (¶ 90). Consequently, it concluded that a legally binding agreement to settle proceedings had been reached. Therefore no "legal dispute" existed between the parties as required by Art. 25(1) of the ICSID Convention or "dispute" as required under Art. 26(1) of the ECT. Hence, it had no jurisdiction to hear the claim and rendered an award to that effect pursuant to ICSID Arbitration Rule 41(6) (¶ 105).

Synopsis:

This was a dispute, where initially breach of all the standards of the ECT was purported. Still, in the final award, the tribunal examined whether a legal dispute existed in view of the disputed settlement among the parties. The tribunal after examining the requirements for the formation of contracts under English law and their fulfilment in the present case, it concluded that a legally binding agreement to settle the proceedings had been reached. Hence, no "dispute" under Art. 25(1) of the ICSID Convention and Art. 26(1) of the ECT existed. Therefore, the tribunal had no jurisdiction.