GAR 100 - 8th Edition

Shearman & Sterling

Professional notice

The firm’s win in Yukos was the largest arbitration award ever

People in Who’s Who Legal:2
Pending cases as counsel:82
Value of pending counsel work:US$97 billion*
Treaty cases:10
Current arbitrator appointments:12 (of which 5 are as sole or chair)
Lawyers sitting as arbitrator:7

* excludes US$50 billion Yukos set-aside proceedings

Shearman & Sterling’s huge renown for international arbitration has grown even more after this year’s win against Russia for majority shareholders in Yukos. In monetary terms, the award surpasses by 20 times the previous record, which was also incidentally won by Shearman – the US$2.47 billion commercial arbitration award in Dow Chemical v Kuwait.

The award also dwarfs the US$1.7 billion that Ecuador was ordered to pay US oil company Occidental Petroleum in 2012 – previously the largest investment treaty award ever.

Yukos is just the tip of the iceberg, A recent survey (American Lawyer Arbitration Scorecard 2013) suggested Shearman has a higher percentage of the world’s biggest cases on its books than any other firms.

The firm’s practice 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 an energy firm – which gave the practice a boost. 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 too, obtaining the first decision on interpretation in ICSID history. Wena is often credited 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 recognititon 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 (most recently) Todd Wetmore come to mind.

Others remain at the firm and have carved out particular 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 spent with the NAFTA division of the US Department of State, is now leading the team in London and focuses on project and IP work.

The 2000s saw the practice cement its reputation in investment arbitration, with a number of cases where, in its own words “it displayed its pioneering spirit” – the first umbrella clause cases (SGS v Pakistan and SGS v Philippines), and the first serious arguing of most favoured nation clauses and denial of benefits points (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 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 and built around Colombian partner Fernando Mantilla-Serrano (he left the firm for Latham & Watkins in 2014, but the Shearman team retains nine Spanish-speaking associates, so the capability remains).

The New York practice run by Henry Weisberg gained in profile thanks to the Dow Chemicals win, achieved through collaboration between the London and Paris teams.

It should be said that not all forays into new regions have worked. For example, the German practice is now no more after partners Richard Kreindler, Markus Wieder and Rainer Wilke left in 2013 in the wake of a restructuring that saw a consolidation of the firm’s three German offices. Kreindler went to Cleary Gottlieb Steen & Hamilton and the two others to Latham & Watkins.

The London team has had a couple of false starts but was rejuvenated by the relocation of Mark McNeill from Paris in late 2013.

A Cairo office is apparently on the cards, which would make sense in light of the firm’s significant work relating to North Africa.

Who uses it?

The most regular clients are probably Sonatrach, Total, EDF, Thales, Areva and Rhodia (now Solvay), along with various states. Some other public names include Groupe Casino, Dow Chemical Company, Enka, ABB, General Electric, Credit Suisse First Boston, Enka, Orascom, Linde, Daimler Chrysler and IPIC – and of course the Yukos shareholders.

The team has been working more for states in recent years – particularly Lithuania, Egypt, Algeria and Venezuela, all of whom have instructed it on multiple matters – it is handling two huge matters for Lithuania against Gazprom (including one about the right to unbundle energy networks), while so many Egyptian matters are under way the firm is considering putting someone into Cairo full-time (hence the reference to a new office).

It is also acting for Croatia in an ICSID arbitration brought by an Austrian investor.

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.

Recent events

While they may have been eclipsed by the Yukos result, the firm enjoyed other successes in 2014.

For example, it gained a significant victory for Swedish client Viorel Micula in a long-running ICSID claim against Romania. A tribunal found the state liable under a treaty for withdrawing economic incentives and ordered it to pay US$250 million in damages and interest to Micula and his brother Ioan (represented by King & Spalding).

The eight-year marathon case, which is now in the annulment stage, has led to an intervention by the European Commission, which issued an injunction barring Romania from paying the award. Freshfields is acting for the state.

Viorel Micula has since instructed the firm to represent him in a second claim against Romania, which he is again bringing with his brother over its failure to police the alcohol black market.

Other wins in 2014 included a €107 million award for French power utility EDF in an Energy Charter Treaty claim against Hungary over the termination of power purchase agreements, and a US$59 million award against Argentina for French water management company Saur International over the expropriation of a water and sewage concession (a co-counsel with Quinn Emanuel Urquhart & Sullivan).

The firm also had success in the US courts, representing subsidiaries of Spain’s Abengoa. The Second Circuit upheld two ICC awards from 2011 in which Brazilian businessman Adriano Ometto was ordered to pay the Abengoa subsidiaries US$110 million for making intentional misrepresentations ahead of the sale of his sugar cane business.

A dispute between Shearman’s client Algeria and Orascom Telecom over the country’s largest mobile phone operator, Djezzy, was favourably settled. The state agreed to pay US$4.5 billion, including a US$2.64 billion purchase consideration in return for the acquisition of a 51 per cent interest in the mobile operator.

Among its ongoing matters, the firm continues to advise Sonatrach in a US$750 million arbitration against a European construction contractor, Areva in its US$5.8 billion ICC claim against Finland’s TVO, and 13 investment companies and two individuals in a Brazil-related post-acquisition arbitration worth US$15 billion.

The firm withdrew as counsel to Venezuela in three ICSID claims handled by Mantilla-Serrano, brought by US bottle-maker Owens Illinois and the United Kingdom’s Vestey Group. It continues to act for the state on another ICSID case brought by companies owned by the United States’ Koch Industries.

Following the shock departure of Philippe Pinsolle to Quinn Emanuel in 2013, the Paris office lost two more partners.

Mantilla Serrano’s departure has been mentioned – he now serves as co-chair of Latham & Watkins’ arbitration practice.

Todd Wetmore left the Paris office to join Three Crowns, the firm established by Jan Paulsson and others in April 2014.

In Paris, Coralie Darrigade and Alexander Uff were promoted to partner. Darrigade was part of the team that advised Thales in its well-known warship dispute with Taiwan, while Uff made his mark acting for Egypt and its energy entities in four parallel arbitrations.

The London team saw the departure of partner Richard Kelly and the promotion of Jennifer Younan, who was part of the Yukos team, to partner. Three associates, Daryl Chew, Amy Kläsener and Mohamed Shelbaya, were promoted to counsel in Singapore, Frankfurt and Paris, respectively.

Emmanuel Gaillard’s 2014 Freshfields Lecture examined international arbitration as a social construct, observing the interactions of its main actors and their “ritualised” behaviour at hearings, award ceremonies and conferences.

For the second year running, he was named by in Vanity Fair as one of the world’s 50 most influential French people. The list was topped by Christine Lagarde. Gaillard came 16th.

Yas Banifatemi joined the executive board of the non-profit association EFILA – European Federation for Investment Law and Arbitration, which launched in Brussels last year. Banifatemi was also one of the debaters at GAR Live Paris.

The Yukos case is far from over – the firm is leading worldwide attempts to enforce the award by the former shareholders, including fighting set-aside proceedings filed by Russia in the Netherlands. It will be interesting to see what 2015 brings.

Client comment

Magdolin Samwel, head of the liquefaction and export department at Egyptian Natural Gas Holding Company (EGAS), says: “I perceive the team to be by far the best in the market.”

“They have a strong sense of logic and the capability to think things through in a reasonable manner,” she continues. “They consider issues in a wider context and can find new angles to problems.”

Shearman & Sterling is a U.S. firm comprising approximately 850 lawyers in 18 offices around the world.

Shearman & Sterling has represented companies, States and State-owned companies in international arbitrations for over 40 years.

Our multinational multi-cultural international arbitration team, led by Emmanuel Gaillard, includes over 85 lawyers fully dedicated to international arbitration.

We appear as Counsel in investment, energy, construction and general commercial disputes, as well as disputes arising from corporate transactions.

 

Contacts

Emmanuel Gaillard[email protected]

Yas Banifatemi[email protected]

Alexander Bevan[email protected]

Jonathan Greenblatt[email protected]

Richard Kelly[email protected]

Fernando Mantilla-Serrano[email protected]

Mark McNeill[email protected]

Christopher M. Ryan[email protected]

Henry Weisburg[email protected]

Todd Wetmore[email protected]

 

www.shearman.com

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