April 22, 2020

Recent International Arbitration Developments: OJSC Ukrnafta v. Carpatsky Petroleum Corporation

3 min

On April 6, 2020, the United States Court of Appeals for the Fifth Circuit issued its opinion in the case of OJSC Ukrnafta v. Carpatsky Petroleum Corporation, No. 19020011 (5th Cir. 2020). In OJSC Ukranafta, the Fifth Circuit examined, among other things, whether two corporations—one incorporated in the Unites States and the other incorporated in Ukraine—had entered into an enforceable agreement to arbitrate.

The parties in question executed a joint activity agreement to develop a gas condensate field in Ukraine, which contained an arbitration clause. Over the course of several years the parties executed various amendments to the agreement, one of which changed the venue of arbitration from a tribunal in Kiev, Ukraine to a tribunal in Stockholm, Sweden. When the parties initially executed the agreement, the American company had been incorporated in Texas. Thereafter, the American company merged into a newly incorporated Delaware entity without expressly notifying the Ukrainian company. When the parties executed the amendments to the agreement, the president of the American company continued to utilize a Texas corporate seal 1 even though, at the time of signing, the American company had since become a Delaware entity.

A dispute arose between the parties, and, after years of litigation in multiple fora, the tribunal in Sweden ruled in the American company's favor. The arbitration award was eventually confirmed by the U.S. District Court for the Southern District of Texas. The Ukrainian company appealed to the Fifth Circuit and argued, among other things, that the president of the American company did not have the authority or capacity to bind the Delaware entity to the agreement to change the venue of arbitration because he had used a Texas corporate seal when the amendment to the agreement had been executed. The Fifth Circuit upheld the lower court's order, concluding, among other things, that the Ukrainian company's "formalistic view of seals was outdated[,]" and that the only relevant issue was whether the president of the American company was an authorized officer of the corporation whose signature bound the company. The Fifth Circuit also explained that, in any event, the Ukrainian company had waived this argument because it did not raise in a timely manner the issue of jurisdiction during the arbitration proceedings. Effectively, the waiver created a new agreement to arbitrate because, the Fifth Circuit reasoned, the Ukrainian company knew of the capacity issue when it received the arbitration demand, yet consented to the arbitration in its answer, did not contest jurisdiction in its statement of defense, and only challenged jurisdiction six months after filing its statement of defense (which the Stockholm Chamber of Commerce ruled was too late).

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1 In a footnote, the Fifth Circuit explained that Texas does not issue corporate seals or require businesses to have them. And the seal used here does not contain the word "Texas." However, the Fifth Circuit noted that the seal used by the president of the American company contained an identification number tied to a Texas entity. Thus, the parties agreed to refer to the seal as a "Texas seal."