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December 2014: International Arbitration Victory

December 2014

On October 10, 2014, the firm’s client, Core Carbon Group of Copenhagen, Denmark, received the Final Award of the Tribunal in the Stockholm Chamber of Commerce (SCC) arbitration it has pursued against Russian entities Rosgazifikatsiya (Rosgaz) and Centregasservice since early 2013. A distinguished international arbitral Tribunal made up of Peter Leaver QC (chair), Prof. Michael Reisman and Adv. Per Runeland found in favor of Core Carbon on all substantive issues and awarded the client in excess of $150 million in damages, together with the full amount of its legal costs and all of the costs of the arbitration.

This dispute arose out of projects into which Core Carbon had entered with the Russian parties in 2005 for the financing and implementation in Russia of carbon emission reduction projects under the Kyoto Protocol to the United Nations Framework Convention on Climate Change. Under the project contracts, Core Carbon agreed to provide many tens of millions of dollars of project financing, as well as expertise and equipment, in order to identify, measure and repair leaks in the ageing gas pipeline network that snakes across vast tracts of Russia. Those leaks were allowing harmful methane gasses to escape into the atmosphere, and the Kyoto Protocol introduced a mechanism whereby foreign investors were encouraged to invest in projects aimed at reducing such harmful emissions in exchange for the ability to generate carbon credits—so called “ERUs”—according to the volume of emission reductions achieved. Those carbon credits could then be traded in the international markets, allowing such investors to generate a return on their investments.

Core Carbon complied fully with its obligations under the project contracts and, in the period from 2005 to 2008, very substantial work was carried out, all financed by Core Carbon, as a result of which more than 150,000 individual pipeline components were repaired, and gas emissions were reduced by around 8 million tons per year. The emission reductions were carefully recorded and subjected to close scrutiny by independent expert agencies approved by the United Nations. The work was a resounding success. All that was needed in order for ERUs to be earned, and for Core Carbon to generate the profits from the projects to which it was entitled, was for those projects to be registered with the appropriate Russian authorities.

But that was not to be. At this critical point, the Russian parties withdrew their support for the projects, as well as their cooperation with the client, refusing to pursue the projects’ registration with the Russian authorities, which only they could effect. Core Carbon tried for years to break the deadlock and to get the projects back on track for registration, but to no avail. Finally accepting that it had to give up on the projects ever being registered and on earning ERUs, in late 2012, Core Carbon terminated the project contracts and instead sought payment from the Russian parties of the termination costs to which it was entitled in such a scenario. But its requests for payment went unfulfilled. Quinn Emanuel was retained and the arbitration proceedings before the SCC swiftly followed.

In those proceedings, in a desperate attempt to avoid its obligations to Core Carbon, Rosgaz constructed its defense around sweeping allegations of fraud and corruption in the underlying projects, in which it accused Core Carbon of being complicit. Amongst its tactics, Rosgaz produced documents of questionable authenticity, argued that signatures on project contracts had been forged, and instigated criminal proceedings into the alleged fraud in Russia. Core Carbon and its legal team had to painstakingly deconstruct each of those allegations, and dismantle Rosgaz’ evidence, in order to show the fallacy in the defense and establish the credibility and bona fides of Core Carbon’s claims before the Tribunal.

In October 2014, little more than two months after the final hearing in late July, the Tribunal issued its Award, handing overwhelming victory to Core Carbon and vindicating the good work it had done on these very challenging projects in Russia.