US 2020-AB

United States District Court for the Southern District of Texas, 17 November 2020

(Waleed Bin Al-Qarqani et al. (Plaintiffs) v. Arab American Oil Company et al. (Defendants))

 The case concerns an arbitral award rendered in Egypt on the basis of an arbitration clause contained in a 1933 agreement (“the 1933 Concession”) between the Saudi Arabian government and Standard Oil Company of California (“SoCal”), under which the government granted SoCal, for a period of sixty years, the exclusive right to search for oil in Saudi Arabia. Petitioners argued, inter alia, that the arbitration provision in the 1933 Concession was incorporated into a separate agreement for the transfer of land rights executed in 1949 between the petitioners’ ancestors and Arabian American Oil Company (“Aramco”), a subsidiary of SoCal (“the 1949 Agreement”). Petitioners further argued that said Agreement concerned not a sale but a lease of land, so that petitioners would be entitled to “rental value” for use of that land by the oil companies. In 2015, the arbitral tribunal issued an award over USD 18 billion in petitioners’ favor.

 The District Court rejected petitioners’ motion to confirm the award on three grounds.

 à First, the District Court examined whether there was a valid arbitration agreement between the petitioners and Saudi Aramco, Aramco’s successor (the latter having dissolved in 1990); enforcing an award in the absence of a valid arbitration agreement would be contrary to US public policy and render Article V(2) of the New York Convention applicable. The Court found that there was no such valid agreement because (i) the 1949 Agreement did not expressly incorporate the arbitration clause contained in the 1933 Concession so as to constitute a “clear, unequivocal, and unconditional agreement to arbitrate”; (ii) petitioners were never sued under the 1933 Concession so as to be in a position to rely on equitable estoppel; (iii) there is no language in the 1933 Concession which would allow the invocation of the third-party beneficiary doctrine; and (iv) the petitioners’ claims cannot be deemed derivative of the Saudi government’s right to sue for unpaid rent under the 1933 Concession, the petitioners having consistently argued that they, not the Saudi government, own the land in question. The Court refused to confirm the petitioners’ award under Article V(2) of the New York Convention.

 à Second, the District Court held that the question whether the 1949 Agreement memorialized a lease as opposed to a sale of land falls outside the scope of the arbitration clause invoked by the petitioners, thus rendering Article V(1)(c) of the New York Convention applicable. The Court emphasized that the scope of the 1933 Concession was limited to the grant of rights for petroleum extraction on public and private lands; the arbitration clause contained in the 1933 Concession does not purport to cover a dispute concerning rent allegedly owed under a deed (i.e., the 1949 Agreement) transferring private rights and the title of land to another party.

 à Third, the District Court found that the arbitral proceedings in Egypt did not conform to the procedures outlined in the arbitration clause invoked by the petitioners, hence rendering the award unenforceable on the basis of Article V(1)(d) of the New York Convention. In particular, the Court noted that the arbitration clause in the 1933 Concession explicitly provided for ad hoc arbitration in The Netherlands; instead, the petitioners unilaterally commenced an institutional arbitration in Egypt; the arbitrators and umpire were not properly selected; there were multiple resignations of appointed arbitrators, a rotating cast of arbitrators filling the positions vacated by others; and, most importantly, the tribunal first issued an opinion holding that it lacked jurisdiction over the dispute, only for a differently constituted tribunal to reopen the arbitration and issue a second opinion holding not only that it had jurisdiction, but that the petitioners were entitled to USD 18 billion.

 In a footnote, the Court also observed that the petitioners failed to provide the original prevailing English-language version of the arbitration agreement or a duly certified copy thereof, only providing an English translation of the original Arabic-language version instead, which would warrant a denial of the petition under Article IV of the New York Convention. Notwithstanding this, the Court proceeded to address the merits of the petition as mentioned above, under the assumption that the petitioners’ English translation is accurate and sufficient to satisfy Article IV of the New York Convention.

United States of America

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Topics in US 2020-AB
¶403 » Original or copy arbitration agreement
¶507 » Miscellaneous cases regarding the arbitration agreement
¶512 » Ground c: Excess by arbitrator of his authority - Excess of authority
¶513 » Ground d: Irregularity in the composition of the arbitral tribunal or arbitral procedure

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