Arbitration

• Author: International Law Group

Compagnie Noga D'Importation et D'Exportation, S.A. ("Noga") sought confirmation of a Swedish arbitration award by a New York federal court, naming the "Russian Federation" as defendant. In 1990, Noga and the former Union of Soviet Socialist Republics (USSR) (the predecessor of the Russian Federation) had entered into $550 million worth of contracts to supply food and consumer goods to foreign trade agencies of the USSR and the Federative Socialist Soviet Republic of Russia (RSFSR) (a constituent republic of the USSR). The anticipated third-party financing for these contracts failed, and Noga agreed to make up part of the shortfall.

In April 1991, Noga lent $422.5 million to the RSFSR in return for the RSFSR's crude oil products. Nine months later, Noga signed onto another $400 million loan agreement with "the Government of the Russian Federation, acting for and on its own behalf" (the Government) also in return for crude oil.

Both loan agreements provided (1) for arbitration of contract disputes before the Chamber of Commerce of Stockholm, Sweden; (2) for the application of Swiss substantive law to these disputes; (3) for the waiver of immunity with respect to the enforcement of any arbitration award, and (4) for its consent to be sued, inter alia, in New York. [Editors' Note: The USSR collapsed between the 1991 and 1992 loan agreements. In the 1992-1993 period, the Russian Federation assumed the debts and assets of the former USSR and its constituent republics.]

In December 1992, Noga declared the Government to be in default on the loans. Accordingly, it began arbitration proceedings before the Stockholm Chamber of Commerce, naming the "Russian Federation" as respondent. The Government's attorneys argued that the Russian Federation was not the proper respondent, but nevertheless, for eight years, participated in the arbitration. The tribunal awarded Noga about $50 million in the liability and damages phase of the arbitration, and another $23.3 million in consequential damages.

During 1993 and 1994, Noga assigned portions of the expected arbitration awards to four Swiss banks which had financed Noga's performance of the 1991 and 1992 loan agreements. In 1997, however, Noga filed for protection from creditors in a Swiss court in Geneva. It proposed a composition plan [similar to a Chapter 11 reorganization plan in the U.S.] to pay back its creditors. The Geneva court approved Noga's plan and allowed Noga to discharge its debts by paying 12...