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GAR 100 - 9th Edition

Shearman & Sterling

18 February 2016

The prestigious practice is seeking to enforce the Yukos award in multiple jurisdictions and expanding in Asia, bolstered by a win for Petrovietnam

People in Who’s Who Legal: 2
Pending cases as counsel: 74
Value of pending counsel work: US$106 billion
Treaty cases: 6
Current arbitrator appointments: 17 (of which 7 are as sole or chair)
Lawyers sitting as arbitrator: 6

Shearman & Sterling’s huge renown for international arbitration grew even more after its 2014 win against Russia for majority shareholders in the Yukos oil company. In monetary terms, the award surpasses by 20 times the previous record, which was also won by Shearman – the US$2.47 billion commercial arbitration award in Dow Chemical v Kuwait. It also dwarfs the US$1.7 billion that Ecuador was ordered to pay US oil company Occidental Petroleum in 2012 – previously believed to be the largest investment treaty award ever.

Yukos is just the tip of the iceberg. A recent arbitration scorecard showed Shearman handled three of the 10 largest arbitrations listed in the survey, ranked by the amount in controversy.

Shearman & Sterling’s huge name for international arbitration started in the mid-1980s, when professor Emmanuel Gaillard joined from Bredin Prat. Originally hired for litigation, Gaillard opted instead to focus on international arbitration, of which he’d done a little for Algeria’s Sonatrach. And so Shearman became one of the first firms with a bespoke international arbitration team (along with Gide Loyrette Nouel, Coudert Brothers and soon Freshfields).

The gamble paid off. In 1992, Gaillard landed two huge cases – a billion-dollar construction dispute and a series of eight arbitrations for the same energy firm. The burgeoning team then appeared on a series of seminal cases in the mid-to-late 1990s in the energy and construction areas and a (new) discipline called investment arbitration.

In 1998, the team acted for a British investor against Egypt in Wena Hotels. It won both phases of the case – defeating Freshfields and winning US$20 million. It later blocked Egypt’s annulment request, obtaining the first decision on interpretation in ICSID history. Wena is often described as the first significant ICSID case of the modern era.

A year later, Gaillard published Fouchard, Gaillard, Goldman on International Commercial Arbitration, at the time the most comprehensive volume available on the practice of arbitration, and still a seminal work.

Today, Gaillard is a totemic figure in international arbitration, the equivalent of Jan Paulsson. Well known for his musings on the philosophical ideas underpinning international arbitration and more recently, its sociological significance. Over the years, other members of the team have gained recognition in their own right. Many have gone on to create arbitration boutiques or lead a practice – Peter Griffin, Eric Teynier, John Savage, Philippe Pinsolle and Todd Wetmore come to mind.

Others remain at the firm and have carved out niches. Yas Banifatemi, who joined in 1997, co-developed the firm’s investment arbitration practice and leads its public international law work.

Mark McNeill, who returned to the firm in 2007 after four years with the NAFTA division of the US Department of State, is now leading the team in London and focuses on investment arbitration, project and IP work.

The 2000s saw the practice cement its reputation in investment arbitration. It acted on the first cases involving serious argument about umbrella clauses (SGS v Pakistan and SGS v Philippines) and most-favoured-nation and denial-of-benefits clauses (Plama v Bulgaria).

Then, in 2003, Gaillard and Banifatemi landed the Yukos instruction, which has generated over US$70 million in fees, over three quarters of which are supposed to be reimbursed to the firm’s clients by Russia.

The case has been quite a fight – taking eight years to reach a final hearing (five weeks over autumn 2012) and nearly 10 years until the issuance of an award in July 2014.

While off the scale of previous arbitral awards, it is to be noted that the award is less than half the US$114 billion the majority shareholders had sought. Discounts were also made to take account of the investors’ own misbehaviour, which contributed to Yukos’ downfall.

Network

The team in Paris is one of the largest collections of arbitration specialists under one roof, with over 50 lawyers as well as legal assistants, trainees and support staff. The office enjoys the pick of the recruitment market and serves as a training ground for many who go on to great things.

Towards the end of the 1990s, the practice began to branch out from Paris, opening in London (1999), various German cities (2001), Singapore (2002), Abu Dhabi (2008) and Milan (2011).

In 2003, it also created a Spanish-language and Latin America team, run from Paris by Colombian partner Fernando Mantilla-Serrano. He left the firm for Latham & Watkins in 2014 but the focus on Lat Am work survives.

The New York practice run by Henry Weisburg strengthened in profile thanks to the Dow Chemicals win, achieved through collaboration between the London and Paris teams. There is also a team in Washington, DC.

It should be said that not all forays into new regions have worked. The German practice, for example, is now no more: in 2013, following a restructuring that saw the firm’s three German offices consolidated, Richard Kreindler went to Cleary Gottlieb Steen & Hamilton while fellow partners Markus Wieder and Rainer Wilke moved to Latham & Watkins. A Frankfurt office remains with one counsel specialising in arbitration.

The London team has had a couple of false starts but was rejuvenated by the relocation of McNeill from Paris in late 2013. The office now hosts 15 international arbitration lawyers, including new partners Alexander Uff and Jeremy Sharpe and associates trained in Paris.

Most recently, the firm has been expanding its offering in Asia. In September 2015, it established a practice in Hong Kong with the recruitment of partner Nils Eliasson. The Asia team also includes lawyers in Singapore led by partner Daryl Chew and a Chinese-speaking associate in Shanghai.

In the Middle East, the construction arbitration-focused Abu Dhabi team led by Alex Bevan has doubled in size in the past two years.

A Cairo office was said to be on the cards but the plan has been postponed. The firm’s significant caseload relating to North Africa is mainly handled by the Paris team which includes eight Arabic speakers.

Who uses it?

The most regular corporate clients include Sonatrach, EDF and Thales. Some other clients include Groupe Casino, Dow Chemical Company, Enka, General Electric, Credit Suisse First Boston, Orascom, Linde, Daimler Chrysler and IPIC – and, of course, the Yukos shareholders.

Scotland’s Cairn Energy has instructed the firm for an investment claim against India over retrospective taxation, with McNeill as lead counsel.

The team has been doing an increasing amount work for states in recent years – handling multiple matters for Algeria, Egypt, Lithuania and Venezuela. It is acting on four investment arbitrations for Egypt alone, along with commercial disputes.

It is also advising Croatia in an ICSID arbitration brought by an Austrian investor and South Korea on public international law matters.

Track record

Shearman’s more noteworthy international arbitration successes have been mentioned in the history of the practice’s development above. Even more than Freshfields, the firm has earned a reputation as the place to go when defeat would be intolerable: the proverbial “bet the company” case.

In the past year, it has secured the dismissal of a US$100 million claim brought against PetroVietnam by three international oil companies in relation to tax on an offshore concession and the settlement – a case led by Gaillard and Banifatemi. It also settled an ICC claim brought by the Goodyear tyre company against Sumitomo to dissolve a 1999 alliance – led by Weisburg.

In the realm of arbitration-related litigation, it defeated Hungary’s challenge of a €107 million obtained against the state by EDF International before the Swiss Federal Tribunal. In reliance on the European Commission’s ruling in another case handled by the firm, Micula v Romania, Hungary had argued that the award constituted illegal state aid. The state was ordered to bear all the costs of the Swiss court proceeding, including those incurred by EDF.

Recent events

The Yukos award continues to generate massive interest from both mainstream and legal media as well as from clients and potential clients with interest in the region. It won the prize for most important published decision at the GAR Awards in Washington DC in early 2015, at which Shearman also scooped the award for large practice that most impressed and Gaillard the award for best lecture (his 2014 Freshfields Arbitration Lecture on the sociology of arbitration).

But the battle goes on with Russia, which is yet to honour the US$50 billion award and has incurred interest of US$2.4 million daily since mid-January 2015. Gaillard says the state is waging “a PR campaign of an unprecedented scale to resist enforcement of its international obligations.” In set-aside proceedings in The Hague, it accuses the shareholders of concealing their true identity from the arbitrators and says key parts of the award were written by the tribunal’s assistant.

Shearman has initiated enforcement proceedings in Belgium, France, Germany, the UK and the US, in the last three taking on White & Case for Russia. A team of 30 lawyers is working on the case, including seven partners and 23 associates in Paris, London, Singapore and the US.

Recent mini-victories include getting a judge in the US District Court for the District of Columbia to stand down on the basis of “cumulative connections” with Russia’s lead counsel Carolyn Lamm – including having been “moms” to children at the same school – and persuading the Paris Court of Appeal not to suspend enforcement until a challenge to its recognition of the award has been decided.

Funds and assets have been attached in France and Belgium in full compliance with international law and sovereign immunity rules, the firm says.

Still in relation to Russia, Gazprom withdrew an arbitration brought against Shearman’s client Lithuania over unbundling in compliance with the EU Third Energy Package and was ordered to bear the costs of the case. The UNCITRAL claim was brought by Gazprom in 2012 and administered by the PCA.

An SCC case brought by Lithuania against Gazprom accusing it of abusing its dominant position in the European gas market continues, with a hearing in July 2015. Lithuania seeks to recover more than €1.39 billion.

The Micula annulment proceeding initiated by Romania also continues and is the focus of much attention given the European Commission’s position. So too does the Areva v TVO arbitration.

In the US, the team’s caseload includes major construction and business combination disputes. Among its Latin American-related cases are a dispute between a state owned company and contractor over the expansion of a refinery, a post-acquisition ICC arbitration brought by 13 companies and two individuals against a European telecoms company, the defence of Venezuela against an ICSID claim by Koch Minerals and the resistance of annulment proceedings brought by Argentina.

The group is acting on large energy disputes relating to Africa including advising Egypt and its state-owned energy companies in four arbitrations over the supply of gas to the Israeli market and three arbitrations over the export of gas to Spain. Having settled two cases against Algeria arising from a battle over mobile company Djezzy in January 2015, it continues to fight a parallel ICSID claim brought by Egypt’s Orascom.

A controversial client of Gaillard’s was French businessman Bernard Tapie, who was attempting to prove the merits of his 22-year cause of action against a French state entity after an arbitral award in his favour was cancelled because of fraud in the process. The Paris Court of Appeal rejected his claim for damages and ordered him to repay the €400 million award, but an appeal is planned.

The firm promoted Uff in London and Jennifer Younan in Paris to the partnership in early 2015, followed at the end of the year by Maude Lebois and Mohamed Shelbaya in Paris, and Chew in Singapore. Daniel Reich in Paris was made counsel.

It also hired Sharpe, former chief of investment arbitration at the US Department of State, in London and Eliasson, former head of Asia practice at Mannheimer Swarling in Hong Kong. Singapore-based senior associate Emmanuel Jacomy will relocate to Hong Kong in 2016.

After seven years with the firm, Kathryn Khamsi left to become counsel at Three Crowns.