Shearman & Sterling

The prestigious practice is appealing the set-aside of the Yukos award and seeking to enforce it against Russia in multiple jurisdictions

Shearman & Sterling’s huge renown for international arbitration grew 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.

Yukos is just the tip of the iceberg. A 2015  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, 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. The case has been quite a fight – taking eight years to reach a final hearing (five weeks in 2012) and nearly 10 years until the issuance of an award in 2014.

The Yukos award continues to generate massive interest. In 2015, it won the prize for most important published decision at the GAR Awards in Washington, DC, at which Shearman also scooped the award for large practice that most impressed and Gaillard the award for best lecture.

In 2016, the Yukos shareholders suffered a shock when a court in The Hague set aside the award on the jurisdictional ground that Russia is not bound by the provisional application of the Energy Charter Treaty. Despite the setback, the firm has not backed down: an appeal is pending in the Dutch courts and enforcement attempts continue around the world.

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 Latin American work survives.

The New York practice run by Henry Weisburg boosted its profile thanks to the Dow Chemical win, achieved through collaboration with 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 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 others 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 2013. The office now hosts 15 international arbitration lawyers, including new partners Alexander Uff and Jeremy Sharpe, counsel Ximena Herrera and associates trained in Paris.

Most recently, the firm has been expanding its offering in Asia. In 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. Emmanuel Jacomy, a French-trained lawyer fluent in Mandarin, was promoted to partner in 2016 and is now leading the launch of the firm’s international arbitration practice in Beijing.

In the Middle East, there is a construction arbitration-focused Abu Dhabi team led by Alex Bevan. 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 majority 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 also advising Croatia in an ICSID arbitration brought by an Austrian investor and South Korea on public international law matters. China named the firm its preferred counsel in investment treaty matters in 2015.

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.

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. It also settled an ICC claim brought by the Goodyear tyre company against Sumitomo to dissolve a 1999 alliance.

In the realm of arbitration-related litigation, it defeated Hungary’s challenge to a €107 million award obtained 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

As mentioned, the firm has appealed The Hague court’s decision to set aside the Yukos award and enforcement attempts have continued worldwide, though some have been suspended. A team of over 40 lawyers has been working on the case, including five partners, three counsel and 35 associates in Paris, London, Hong Kong and the US.

Mini-victories include persuading a Paris court to uphold 12 attachments despite the set-aside of the award; and convincing a Brussels court to reject Russia’s attempt to overturn a US$1.8 billion enforcement order. Funds and assets have been attached in France and Belgium in full compliance with international law and sovereign immunity rules, the firm says. Meanwhile a district court in Washington, DC, has stayed enforcement proceedings until the appeal in The Hague has been decided.

The firm’s biggest success of the year was arguably helping French client EDF to defeat claims of more than €4.6 billion in an ICC arbitration brought by the German federal state of Baden-Württemberg, concerning the sale of a stake in a power company. (On that matter, it co-counselled with Cleary Gottlieb Steen & Hamilton, its old adversary in the Yukos saga).

As counsel to one of the Micula brothers, Shearman successfully defended a US$250 million ICSID award from an annulment application by Romania, despite arguments by the European Commission that it violates EU state aid rules. However, enforcement of the award was stayed in the UK pending the outcome of EU court proceedings.

In another ICSID case, the team successfully resisted Argentina’s attempt to annul a US$59 million award it had obtained for French water management company Saur International.

There was also some good work in various matters for Egypt. It helped to settle a US$400 million ICSID claim against the state brought by a petrochemicals company owned by Kuwait’s wealthy Al-Kharafi family (the settlement terms haven’t been disclosed). It also defeated a US$270 million contractual claim against two Egyptian state entities, which had been brought by Unión Fenosa Gas (a joint venture between Spain’s Gas Natural and Italy’s Eni). Shearman persuaded the tribunal that the claimant had assigned all its rights under a gas supply contract to a third party.

In another politically sensitive ICSID case for Egypt, concerning the termination of a deal to supply gas to Israel in the wake of the Arab Spring, Shearman forced the US claimants to withdraw a portion of their claim on the grounds that it duplicated claims in a parallel UNCITRAL case and was therefore abusive. However, the ICSID tribunal went on to hold Egypt liable in early 2017 (a ruling on a US$635 million damages claim is awaited). Shearman is also advising in the UNCITRAL case and a related contractual arbitration in Cairo worth US$4 billion.    

It is defending another North African state, Algeria, in an ICSID claim brought by Egypt’s Orascom, having already helped to settle two related cases against the state arising from a battle over mobile company Djezzy in 2015. For long-term client Sonatrach, it also convinced an ICC tribunal to reject claims brought by Repsol and its Korean partners in a dispute over a windfall profits tax.

But there were setbacks in some other large cases. A US$15 billion ICC claim that Shearman brought on behalf of private equity group Opportunity against Telecom Italia was roundly dismissed in September 2016, with the tribunal rejecting the client’s allegations of corruption.    

A US$1.9 billion SCC claim that Shearman brought on behalf of Lithuania against Gazprom over gas pricing was rejected, and the firm is now representing the Baltic state in annulment proceedings in the Swedish courts. The firm also failed to persuade the European Court of Justice that a €160 million award against its US pharmaceuticals client Genentech was in breach of EU competition law.

 A controversial client of Gaillard’s was French businessman Bernard Tapie, who had sought 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 – a decision that was later upheld by the Court of Cassation, France’s highest court in commercial matters.

The firm continues to defend Venezuela against an ICSID claim by Koch Minerals and it has been retained by Mexican company ADO in an investment treaty claim against Portugal over the privatisation of Lisbon’s public transport system.

Alongside Three Crowns, Shearman continues to defend Areva in a monumental ICC arbitration brought by Finnish utility TVO concerning work on a nuclear power plant in Finland. The dispute, valued at almost US$6 billion, has had 48 days of hearings over the past two years. A partial award was issued in late 2016 but a final award on quantum isn’t expected until late 2017 or early 2018.

The firm promoted Maude Lebois and Mohamed Shelbaya in Paris and Daryl Chew and Emmanuel Jacomy in Singapore to the partnership, while Ximena Herrera in London was made counsel.

Client comment

Francois Dreisen, general counsel to EDF, says the firm conducted the arbitration with the Baden-Württemberg government very efficiently. He describes Gaillard as “very impressive” in cross-examination and shaping the strategy of the case.

Pierre Charreton, former general counsel to Areva, says that Shearman’s performance in the Areva-TVO arbitration continues to be “amazing.” The firm has sustained a crack team since the start of the arbitration in 2008 and rose to the challenge of conducting an arbitration in a complex and technical area.

Another glowing review comes from Magdolin Samwel, senior contracts manager at Egypt’s state-owned natural gas supplier EGAS. “In my view, Shearman stands head and shoulders above its competitors,” she says.

She also describes partner Mohamed Shelbaya is an “outstanding strategist with great tactical sense” who can follow complex cases and offer practical solutions.