Shearman & Sterling

Saw off the bulk of a claim against Croatia and settled a monumental dispute for Areva

Shearman & Sterling’s huge renown for international arbitration grew after its 2014 win against Russia for the former majority shareholders in Yukos Oil Company. The US$50 billion award remains the largest recorded win in an investment treaty dispute (more than five times larger than the more recent mega-award for ConocoPhillips against Venezuela). The firm also won a record US$2.47 billion commercial award for Dow Chemical against a Kuwaiti state entity in 2012.

Shearman & Sterling’s work in this field started in the mid-1980s, when 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 (then 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. 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 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, leads 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 instruction in the Yukos case, which generated over US$70 million in fees. The case was 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. Two years later, the shareholders found themselves back at square one 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. The firm is advising the shareholders on appeal proceedings in The Hague.

Network

The team in Paris is one of the largest collections of arbitration specialists under one roof, including 12 partners. The office enjoys the pick of the recruitment market and serves as a training ground for many who go on to great things.

Beginning in the late 1990s, the practice began to branch out from Paris, opening in London in 1999, various German cities in 2001, Singapore in 2002, Abu Dhabi in 2008 and more recently Hong Kong in 2015 and Beijing in 2017,

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 continues, with a team of over 10 Spanish speakers now led out of London by partner Ximena Herrera.

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 12 international arbitration lawyers, including partners Alexander Uff and Jeremy Sharpe (who relocated from Paris in 2018).

The New York practice run by Henry Weisburg boosted its profile thanks to the Dow Chemical win. There is also a team in Washington, DC including partners Jonathan Greenblatt and Christopher Ryan.

Not all forays into new regions have worked. 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 a team of four associates specialising in arbitration.

The firm began expanding its offering in Asia in 2015, recruiting Nils Eliasson to head a China disputes-focused practice from Hong Kong, and a team in Beijing led by Emmanuel Jacomy, a French-trained lawyer fluent in Mandarin. Partner Daryl Chew also leads a team in Singapore.

In the Middle East, there is a construction-focused team in Abu Dhabi led by Alex Bevan. The firm’s significant caseload relating to North Africa is mainly handled by the Paris team which includes lawyers fluent in English, Arabic, French and Portuguese.

Who uses it?

The most regular corporate clients include EDF, Sanofi, Thales, Dow Chemical Company, French logistics company Bolloré, Atlas Power, Groupe Casino, Spanish construction group OHL, Turkey’s Enka, the Opportunity private equity group, Bechtel, Linde – and, of course, the Yukos majority shareholders.

A significant number of state-owned entities also rely on the firm, including Sonatrach and others in Algeria, EGAS and EGPC in Egypt, Angola’s Sonangol, Bahrain Petroleum Company, Mubadala and others in the UAE, PetroVietnam, China’s Sinopec, Ecopetrol in Colombia, Chile’s ENAP, the Panama Canal Authority and Staatsolie in Suriname.

State clients in the investment treaty arena include China, Algeria, Egypt, Croatia, Ukraine, Lithuania and Panama. In the past it has also acted for Venezuela.

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.

A recent example was helping Algeria to defeat a US$4 billion ICSID claim brought by a company owned by the family of Egyptian billionaire Naguib Sawiris. A tribunal threw out the claim at the jurisdictional stage in 2017, describing it as an abuse of rights.

It has helped Sonatrach settle a number of disputes, including a pair of ICC arbitrations with France’s Total, one of which related to a US$400 million tax on “exceptional profits”; and a trio of cases against Italian contractor Saipem over projects allegedly procured through bribery.

In 2017, the firm helped Egypt settle a US$400 million ICSID claim brought by a petrochemicals company owned by Kuwait’s wealthy Al-Kharafi family. It also defeated a US$270 million claim against two Egyptian state entities brought by Unión Fenosa Gas (a joint venture between Spain’s Naturgy and Italy’s Eni).

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 helped French client EDF 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.)

It negotiated another settlement for Angolan state entity Sonangol, bringing to a halt a pair of ICC arbitrations worth a combined US$2 billion that had been brought by distressed US energy company Cobalt. The deal, under which Cobalt agreed to sell its stake in two offshore oil blocks for US$750 million, was approved by a bankruptcy judge.

Along with Freshfields Bruckhaus Deringer, Shearman helped nine power producers win a US$130 million LCIA award against a Pakistani state-owned electricity company after persuading a sole arbitrator that the respondent had colluded in third-party litigation to thwart compliance with an expert determination. The firm later helped to obtain an English court injunction restraining the state entity from trying to challenge the award in the courts of Lahore.

In the Swiss courts, it defeated Hungary’s challenge to a €107 million award obtained by EDF. Hungary had argued that the award constituted illegal state aid under EU law. The state was ordered to bear all the costs of the Swiss court proceeding, including those incurred by EDF.

Recent events

A Shearman team of over 40 lawyers in Paris, London, Hong Kong and the US continue to advise the Yukos majority shareholders in their appeal against the set-aside of their awards. The Hague Court of Appeal issued an interim ruling in September 2018 refusing the shareholders’ request to strike out Russia’s submissions regarding their alleged “unclean hands” and other matters. However, the court ruled that Russia’s allegations of procedural fraud in the arbitration are inadmissible. 

One of the firm’s big successes of 2018 was helping Croatia to defeat the bulk of a €200 million ICSID claim brought by an Austrian businessman and his meat products company. A tribunal partly found for the investors on liability but awarded them less than 2% of the damages sought.

A monumental ICC arbitration worth €6.1 billion between an Areva-Siemens consortium and Finnish utility TVO came to an end in 2018, with the parties reaching a settlement before the tribunal issued an award on quantum. Shearman’s client Areva agreed to pay €450 million for delays in the construction of a nuclear power plant in Finland.

The firm has been defending Egypt and its state entities in four politically sensitive cases concerning the termination of a deal to supply gas to Israel in the wake of the Arab Spring, under ICC, ICSID, UNCITRAL and Cairo Centre rules. So far there have been four arbitral rulings holding Egypt liable for the termination, and final awards in two of the cases requiring Egypt to pay more than US$3 billion in total. However, Shearman succeeded in excluding claims for a significantly larger amount. Media reports suggested in September 2018 that the dispute had settled, though enforcement proceedings have since been filed against Egyptian state entities in the US.

At ICSID, the firm helped China fend off a request by a German spice company for provisional measures to prevent the expropriation of its premises in the city of Jinan.

The Paris office helped the billionaire sisters of the late Robert Louis-Dreyfus settle an ICC dispute with his widow Margarita over their respective interests in the commodities trading group that shares his name. Margarita reportedly paid US$900 million in early 2019 to buy out minority interests held by her sisters-in-law and other family members.

Alex Bevan in Abu Dhabi has been defending OHL and Egypt’s Orascom Construction in a pair of ICC cases brought by a Qatari state-backed foundation over the construction of a medical facility in Doha, with billions in dispute. One of the cases recently saw a partial award finding that the foundation had validly terminated its contract with the OHL consortium that was building the facility, but ordering it to pay the consortium US$44 million.

Bevan is also defending another OHL consortium (this time including Samsung) in a billion-dollar dispute with a Qatari state-owned railway company over a terminated contract to build two metro stations in Doha. The firm’s other ongoing matters in the Middle East include billion-dollar disputes over the renovation of an airport and a US$3 billion dispute over the dissolution of a family partnership in the Gulf. 

New instructions have come from Algeria to defend against a claim by Emirati investors in relation to a US$5 billion urban park project in Algiers; from Lithuania against a claim by French company Veolia Environnement; and for Ukraine against subsidiaries of Russian aluminium giant Rusal. 

On the claimant side, the firm is helping a Dubai-based investment company and its American CEO bring a US$150 million ICSID claim against Armenia over a project to develop road and rail links to the country's southern border with Iran. It is also instructed by France’s Bolloré Africa Logistics for an ICSID claim against Togo.

As co-counsel with Allen & Overy, the firm is advising Abu Dhabi sovereign wealth fund Mubadala in a dispute with top football club Real Madrid over a €400 million sponsorship agreement. 

It continues to act for Scotland’s Cairn Energy in a treaty claim against India over a US$1.6 billion tax bill, which went to a hearing in 2018.

Colombian Ximena Herrera was promoted in 2018, becoming the London office’s first female arbitration partner.

Client comment

François Driesen, 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.

Another glowing review comes from Magy 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.