BRAMA, November 25, 2002, 3:00 pm ET
Press Release
Ukrainian Transporter of Natural Gas and The State of Ukraine Win Major Victory —
United States Court of Appeals rejects enforcement of $88 million claim
New York, NY USA — On November 15, 2002, a three judge panel of the United States Court of Appeals for the Second Circuit in New York unanimously announced its ruling in favor of Nak Naftogaz of Ukraine and the State of Ukraine in the case of Monegasque De Reassurances S.A.M. (Monde Re) v. Nak Naftogaz of Ukraine.
The dispute began with a contract entered into in 1998 between AO Gazprom of Russia and AO Ukragazprom, a Ukrainian company and NAK Naftogaz's predecessor, for the transportation of natural gas by pipeline across Ukraine to various destinations in Europe. According to Gazprom, unauthorized amounts of gas were withdrawn by the Ukrainian company, giving rise to breach of contract. Naftogaz vehemently denied the illegal withdrawal of gas from the pipeline but Gazprom's Russian insurance provider, Sogaz Insurance Company, nevertheless reimbursed Gazprom for the gas. Sogaz in turn was reimbursed by Monde Re of Monaco, pursuant to a reinsurance agreement.
Thereafter, Monde Re filed suit against Naftogaz in the Moscow Arbitration Court which quickly entered a judgment against the Ukrainian company. Naftogaz appealed the initial decision for payment of the $88 million US to Monde Re to the Russian Supreme Court, but the ruling was predictably upheld.
Monde Re then attempted to enforce the Russian court's arbitration award in the United States District Court for the Southern District of New York not only against Naftogaz but also against the State of Ukraine claiming that Naftogaz was a controlled commercial entity of the Ukrainian government. Counsel for Naftogaz and Ukraine, in addition to denying any factual basis for all of the Russian claims, strenuously argued that the United States courts were without subject matter or personal jurisdiction over the Defendants. In a reported decision, the trial court dismissed the Mondo Re's case on the grounds that the US court system was not an appropriate jurisdiction to hear the case (forum non conveniens). This decision was now upheld by the Court of Appeals.
Of great significance is that the US Appeals Court judges specifically rejected the argument that corruption in the judicial system of Ukraine was so pervasive that a fair hearing was impossible to obtain in that country and concluded that contrary to the assertions of Mono Re's experts, the courts of Ukraine would be a most appropriate forum for the matter.
"This is a monumental case; it sets a standard for the enforcement of arbitral awards," said Martin Mendelsohn, Esq., a partner in the Washington, D.C. office Schnader, Harrison, Segal & Lewis, LLP and lead counsel for NAK Naftogaz. "An opinion from United States Court of Appeals for the Second Circuit in New York has wide-ranging commercial implications for everyone who deals in international trade and commerce and has issues that have to be resolved by arbitration." It is not known if Monde Re will appeal the decision to the Supreme Court of the United States.
In addition to Mr. Mendelsohn Esq., counsel for NAK Naftogaz were Myroslaw Smorodsky, Esq. of Rutherford, New Jersey and Danylo Kurdelchuk, Esq. of Ukriniurkolegia, Kyiv, Ukraine. Ukraine was represented by John Willems, Esq. of White and Case LLC, NY, NY
For more information please contact
Myroslaw Smorodsky, Esq.
The Columns
47 Orient Way, Suite LL-C
Rutherford, NJ 07070 USA
phone: 201-507-4500; fax 201-507-3970; secondary fax: 201-507-4500
e-mail: myroslaw@smorodsky.com
website: www.smorodsky.com
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