Bilaga 2
IN THE MATTER OF AN ARBITRATION UNDER
THE 2017 ARBITRATION RULES OF THE STOCKHOLM CHAMBER OF
COMMERCE
CASE V 2019/058
BETWEEN |
SVEA HOVRÄTT
|
MR ZAZA OKUASHVILI
Claimant
AND
GEORGIA
Respondent
23 January 2023
The Tribunal:
Georgios Petrochilos KC (President)
Mr Giorgio Mandelli
Professor Dr Rolf Knieper
Seat of Arbitration: Stockholm, Sweden
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1. By this Decision, the Tribunal rules on the Respondent’s Application of 14 November 2022, submitted on grounds of Article 2 of the Swedish Arbitration Act 2019 (the Arbitration Act) and Articles 37-38 of the 2017 Arbitration Rules of the Stockholm Chamber of Commerce (the SCC Rules). As the Respondent’s primary request is for a stay of the present proceedings, the Tribunal refers to the application as the Stay Application.
2. In its Partial Final Award on Jurisdiction and Admissibility of 31 August 2022 (the Partial Final Award), the Tribunal rejected the Respondent’s five preliminary objections, three of which it characterized as going to its jurisdiction1 and two to the admissibility of the Claimant’s claims.2 With the exception of one jurisdictional objection, which was rejected by majority, the Tribunal’s decisions were unanimous. The Tribunal, further, directed the parties to propose a schedule for the briefing and hearing of the Claimant’s substantive claims on their merits.
3. On 29 September 2022, the Respondent filed an application with the Svea Court of Appeal, seeking a jurisdictional “review” and accordingly the set-aside of the Partial Final Award, pursuant to sections 2 and 34(1) of the Arbitration Act.3 These provisions read as follows:4
Section 2
. . .
If the arbitrators have rendered a decision finding that they have jurisdiction to adjudicate the dispute, any party that disagrees with the decision may request the
1 Namely that the Tribunal lacks jurisdiction because: (i) the Claimant is not covered by the scope of the UK-Georgia bilateral investment treaty (the Treaty), on account of his dual Georgian-British nationality (an objection to the Tribunal’s jurisdiction ratione personae); (ii) the Claimant cannot rely on Article 3 of the Treaty to import the Respondent’s consent to SCC arbitration from Article 10(3) of the investment treaty between Georgia and the Belgo-Luxembourg Economic Union (the Georgia-BLEU BIT); and (iii) the arbitration agreements relied upon by the Claimant are contrary to EU law, and thus invalid under Swedish law. See Partial Final Award, ¶¶ 95(i)-(iii). ↩
2 Namely that the Claimant’s claims are inadmissible because: (i) they have not been submitted to local remedies or negotiation; and (ii) they constitute an abuse of right or process. See Partial Final Award, ¶¶ 95(iv)-(v). ↩
3 Respondent’s Stay Application, p 1. ↩
4 Swedish Arbitration Act, Exhibit RL-146, Sections 2 and 34(1). ↩
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Court of Appeal to review the decision. Such a request shall be brought within thirty days from when the party was notified of the decision. The arbitrators may continue the arbitration pending the court’s determination.
The provisions of Sections 34 and 36 apply in an action to challenge an arbitration award that includes a decision on jurisdiction.
Section 34
An award that may not be challenged under Section 36 shall, following an application, be wholly or partially set aside upon the request of a party:
1. if it is not covered by a valid arbitration agreement between the parties; . . .
4. The Respondent states that on 20 October 2022, the Svea Court issued a summons and began the process of service on the Claimant.5
5. On 14 November 2022, the Respondent filed the Stay Application, accompanied by legal authorities in support. The Respondent’s primary request is that “the Tribunal . . . stay this arbitration pending the determination of the Review Application [before the Svea Court].”6 In the alternative, the Respondent requests that “the Tribunal . . . order the Claimant to furnish security for costs, in the amount of USD 5 million, as a condition for the arbitration proceedings to continue.”7 In the further alternative, the Respondent requests “the Tribunal to order the Claimant to furnish an undertaking that he will comply with an award on costs rendered by the Tribunal in the event that the Svea Court of Appeal finds that the Tribunal does not have jurisdiction over the present dispute.”8
5 Respondent’s Stay Application, p 1. ↩
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6. The Respondent’s central argument is, in essence, that the Tribunal’s Partial Final Award is likely to be set aside by the Svea Court in 12-18 months’ time,9 such that proceeding with the arbitration should be avoided, lest wasted costs be incurred.10 It is because the Respondent’s argument is centrally focused on wasted costs that its two further, alternative requests similarly concern costs.11
7. On 14 November 2022, the Tribunal invited the Claimant to submit observations,12 which the Claimant indicated it would be able to do by 2 December 2022.13 The Claimant duly filed a Response, accompanied by factual and legal authorities, requesting the Tribunal to reject each of Respondent’s requests in the Stay Application.14
8. On 5 December 2022, the Respondent requested that it be granted an opportunity to file brief comments in reply to the Claimant’s Response.15
9. On 6 December 2022, the Tribunal directed that both parties would have the opportunity to file a second round of written pleadings, the Respondent by 12 December and the Claimant by 22 December 2022.16 The Tribunal further directed that the parties address the following four matters in their second-round pleadings:
a. Is it right that the Svea Court of Appeal proceedings are expected to take 18-24 months?
b. What are the circumstances that a Sweden-seated arbitral tribunal is to take into account in exercising its judgement whether or not to stay its proceedings pending a challenge to its award on jurisdiction, pursuant to section 2 of the Swedish Arbitration Act and Article 23 of the SCC Rules?
9 Respondent’s Reply, p 4. According to the Claimant, the Svea Court of Appeal usually takes closer to 18-24 months to render a decision on a challenge to an award on jurisdiction: Claimant’s Response, ¶ 14. ↩
10 Respondent’s Stay Application, pp 2-4. ↩
12 Email from the Tribunal to the Parties, 14 November 2022. ↩
13 Email from the Claimant to the Tribunal, 17 November 2022. ↩
14 Claimant’s Response, ¶ 52. ↩
15 Email from the Respondent to the Tribunal, 5 December 2022. ↩
16 Email from the Tribunal to the Parties, 6 December 2022. ↩
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c. Which decisions of the Swedish courts are pertinent (or not pertinent) to the jurisdiction of this Tribunal?
d. Are the parties agreed that (i) the Tribunal will have the power (though not the obligation) to order costs against the Claimant if the Swedish courts set aside the Partial Award and (ii) the Claimant will have a legal duty to comply with such an order?
10. On 12 and 22 December 2022 respectively, the Respondent duly filed a Reply and the Claimant duly filed a Further Response.
11. It is helpful to address each of the Respondent’s requests separately, in turn.
12. The Tribunal’s power to continue (or stay) the proceedings pending a “review” of its jurisdiction by the Svea Court of Appeal is provided for in section 2 of the Arbitration Act, quoted above. In terms of that section, the Court may review the Tribunal’s decisions “finding that [the Tribunal has] jurisdiction to adjudicate the dispute”, which are contained in the Partial Final Award. As already noted, the Tribunal characterized three of the Respondent’s five objections as going to its jurisdiction, namely the objection concerning the Claimant’s British nationality, the objection concerning the Claimant’s use of the most-favoured nation (MFN) provision in the UK-Georgia bilateral investment treaty (the Treaty) to access SCC arbitration, and the objection that relies upon EU law.17
13. It is rightly common ground between the parties that a challenge to an award on grounds of jurisdiction does not automatically entail the suspension of the arbitration. Indeed, the primary effect of section 2 of the Arbitration Act is to lay down the rule that the arbitral tribunal may continue with the arbitration—that is, the ordinary course of its mandate to resolve the dispute—notwithstanding such a challenge and pending the Svea Court’s decision on it. The secondary effect of the
17 See Partial Final Award, ¶ 95(i)-(iii). See also ibid, Sections V.A-C. ↩
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rule in section 2 is that the arbitral tribunal has the power to continue, but it may choose not to exercise that power. Thus it also follows from section 2 that the decision whether or not to continue the arbitration proceedings rests with the arbitral tribunal. The tribunal must in consequence determine whether the challenge warrants a stay of the proceedings.18
14. Section 2 of the Arbitration Act does not expressly state a default position, that is, whether, as a rule, the arbitral tribunal should continue or stay the proceedings. The parties have debated this point as in-depth as the limited and tentatively worded scholarly authority permits.19 (There appears to be no established arbitral practice in that regard.) The Tribunal’s conclusion is that section 2 does not establish a presumption either way. It would have been straightforward to state that the arbitral tribunal is to continue, or to stay, the proceedings “unless” it considers otherwise based on certain factors; but section 2 does not say this. This absence appears to the Tribunal to be significant in indicating that the Tribunal has latitude of decision-making without starting from an a priori position. The most that can be said is that given that an arbitral tribunal has no duty to stay its proceedings, in the ordinary course it may be expected to continue with the arbitration pending the challenge in the courts. Put differently, a jurisdictional challenge is not of itself a reason to stay the proceedings (or else section 2 would make a stay mandatory), but the grounds of a specific challenge and other relevant circumstances may furnish a valid justification to stay.
15. The Tribunal accordingly proceeds to consider what considerations are relevant in exercising its judgement under section 2 in the present case.
16. As is common ground, pursuant to Article 23(2) of the SCC Rules, the Tribunal has a duty to the parties to proceed with expedition.20 Of itself, this duty points to continuing with the arbitration, as the Tribunal would have to do in the ordinary course, and to avoiding the 12-24 month delay that the requested stay would
18 See Respondent’s Stay Application, p 2; Claimant’s Response, ¶ 9. ↩
19 Cf the authority cited to and the discussion in Respondent’s Stay Application, p 2 and Respondent’s Reply, p 5 with Claimant’s Response, ¶¶ 10-11 and Claimant’s Further Response, ¶¶ 7-8. ↩
20 Article 23(2) provides: “In all cases, the Arbitral Tribunal shall conduct the arbitration in an impartial, efficient and expeditious manner, giving each party an equal and reasonable opportunity to present its case”. ↩
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entrain. But also under Article 23(2), the Tribunal has the duty to conduct the proceedings in an efficient manner; and efficiency may not always be served by celerity. Thus, one can see that if a tribunal’s jurisdictional decision rests on novel, untested grounds that the tribunal readily admits are finely balanced, it may be more efficient to await the reviewing court’s determination than continuing with the merits of the arbitration. On the same path of analysis, however, if it is clear that the tribunal will be able effectively to award wasted costs in the event a court sets aside its jurisdictional decision, that factor would militate in favour of continuing with the arbitration.
17. Considerations relating to the integrity of the proceedings—for example, a concern that evidence relating to the merits of the case may become unavailable21 —or the interests of justice and overall fairness—for example, whether the parties are able to conduct parallel court and arbitration proceedings—may also be relevant. It is difficult to say that the list of relevant circumstances is a closed one. Rather, each case has to be approached on its own circumstances, and the relevant factors balanced against each other in the light of the length of the stay sought. The Tribunal is also conscious that circumstances may evolve over time, such that a decision under section 2 might be reconsidered.
18. In the Tribunal’s view, the present circumstances do not provide a valid justification for a lengthy stay of about two years. This is for two principal reasons.
19. First, the Claimant agrees that if the Partial Final Award is set aside, there may be wasted-costs consequences and that the Tribunal will be in office (not functus officio) and have the power to make a costs award against the Claimant.22 Thus the Respondent, if successful in its jurisdictional challenge, will be able to claim wasted costs.
20. Secondly, on the authority presented by the Respondent, the Tribunal is unable to agree that the Swedish courts are more likely than not to set the Partial Final Award aside. The Respondent’s jurisdictional challenge is based on the objections and arguments presented to the Tribunal and rejected by it in a reasoned, detailed
21 See Claimant’s Response, ¶ 26(i). ↩
22 Ibid, ¶¶ 19, 49; Claimant’s Further Response, ¶¶ 4(c), 11. ↩
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decision.23 It is true that the Tribunal’s decision in respect of one objection was by majority, but that does not alter the fact that the Respondent’s challenge before the Svea Court reiterates arguments on which the Tribunal has already pronounced.
21. More significantly and in any event, the Tribunal is unable to agree that the decisions of the Swedish courts lend support to the relevant objection of the Respondent.24 To recall, the Tribunal (by a majority) accepted that consent to arbitration has in fact been provided by the Respondent through Article 8 of the Treaty; and that the Treaty’s MFN clause, Article 3(2), may be relied upon for the limited, subordinate purpose of arbitrating under the system of an arbitral institution different from ICSID, the institution provided for in Article 8 of the Treaty.25
22. The authorities adduced by the Respondent do not support a contrary conclusion. Three of these authorities concern intra-EU investment treaties26 (as indeed do the two decisions of December 2022 also adduced by the Respondent).27 None is germane to the present case. As detailed in the Partial Final Award,28 this case concerns the continuing applicability of a BIT between a former EU Member State and a third State. If one takes 2019 as the jurisdictionally critical time, when the UK was still an EU Member State, the case thus falls within the scope of the so-called grandfathering EU Regulation 1219/2012,29 rather than the CJEU Achmea judgment or its progeny.
23 See Respondent’s Stay Application, p 2; Respondent’s Reply, p 6. ↩
24 See Respondent’s Stay Application p 2 (“the Swedish judiciary is particularly sensitive to arbitral awards which seek to expand consent through the use of the MFN clause or threaten the integrity and autonomy of the European legal order”). ↩
25 Partial Final Award, ¶¶ 172-225. ↩
26 See Respondent’s Stay Application, p 2, referring to the Svea Court of Appeal and Swedish Supreme Court decisions in the Republic of Poland v PL Holdings Sarl case and a request from the Svea Court of Appeal in the Official Journal of the European Union for a preliminary ruling in the Republiken Italien v Athena Investments A/S (and others) case. ↩
27 See Email from the Respondent to the Tribunal, 14 December 2022 (submitting into the record Kingdom of Spain v Novenergia II, Judgment of the Svea Court of Appeal, 13 December 2022, Case No T 4658-18, Exhibit RL-155; and Republic of Poland v PL Holdings Sarl, Judgment of the Swedish Supreme Court, 14 December 2022, Case No T 1569-19, Exhibit RL-156). ↩
28 Partial Final Award, Section V.C. ↩
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23. As to the other decided case adduced by the Respondent, Russian Federation v RosInvest Co,30 that too appears to the Tribunal not to be material for present purposes.
(i) In the first place, the RosInvest tribunal applied an MFN clause to expand consent to arbitration to encompass a subject-matter—liability for expropriation31—that was plainly not within the arbitration clause of the applicable treaty between the UK and the Russian Federation.32 In other words, MFN served to establish consent to arbitration in respect of subject-matters and claims that a State had not agreed to arbitrate under the basic UK-Russia treaty. By contrast, here, there is no question that by virtue of Article 8 of the Treaty, Georgia has consented to arbitration in respect of claims such as those raised by the Claimant. The Respondent’s objection concerned the application of MFN to the arbitral framework, and the majority of the Tribunal made it plain in the Partial Final Award that it regards this is as a different and sequent matter to that of consent to arbitration in principle.33
(ii) In the second place, the Stockholm District Court pronounced in default proceedings, without the participation of RosInvest, with the procedural consequence that the Court was able to decide on the limited basis that the Russian Federation’s claim was not “obviously without grounds”.34 After RosInvest declined to appeal, the District Court’s default judgment became final and unappealable.35 Thus the Russian Federation could move to set the award aside before the Svea Court of Appeal, a motion which the court
30 See Russian Federation v RosInvestCo UK, Judgment of the Stockholm District Court, 9 November 2011, Case No T 24891-07, Exhibit RL-141, p 4; and Judgment of the Svea Court of Appeal, 5 September 2013, Case No T 10060-10, Exhibit RL-142, p 1. ↩
31 See Russian Federation v RosInvestCo UK, Judgment of the Stockholm District Court, 9 November 2011, Case No T 24891-07, Exhibit RL-141, p 3. ↩
32 See RosInvestCo UK Ltd v Russian Federation, SCC Case No 079/2005, Award on Jurisdiction, 1 October 2007, Exhibit CL-162, ¶¶ 113-114. ↩
33 See Partial Final Award, ¶¶ 172-225. ↩
34 See Russian Federation v RosInvestCo UK, Judgment of the Stockholm District Court, 9 November 2011, Case No T 24891-07, Exhibit RL-141, p 4. ↩
35 See Russian Federation v RosInvestCo UK, Judgment of the Svea Court of Appeal, 5 September 2013, Case No T 10060-10, Exhibit RL-142, p 3. ↩
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granted as a matter of course, without making a full pronouncement on the merits of the award.36
24. The Tribunal therefore rejects the Respondent’s request for a stay of the proceedings.
25. In the alternative, the Respondent requests that the Tribunal order the Claimant to furnish security for costs.37 Security for costs is a type of interim measure, which in consequence must meet the requirements for interim measures generally, under Article 37 of the SCC Rules. As set out in the Tribunal’s earlier Decision on Interim Measures,38 and was common ground between the parties,39 the following requirements must be met in order for the Tribunal to exercise its power to grant interim measures:
(i) a prima facie case on jurisdiction;
(ii) a prima facie case on the merits;
(iii) a risk of serious harm that may not be adequately made good by a final award;
(iv) urgency; and
(v) proportionality of the measures sought to the serious and imminent harm identified.
26. Further, the SCC Rules contain a specific provision, Article 38, on orders for security for costs. Article 38(2) deals with the considerations to which an arbitral tribunal is to have regard, thus further specifying the more-general requirements in the context of security for costs orders. That paragraph reads as follows:
37 Respondent’s Stay Application, p 1. ↩
38 Decision on Interim Measures, 14 December 2021, ¶ 19. ↩
39 See Respondent’s Response to the Claimant’s Application for Interim Measures, 24 November 2021, ¶ 83; Claimant’s Application for Interim Measures, 9 November 2021, ¶ 72. ↩
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In determining whether to order security for costs, the Arbitral Tribunal shall have regard to:
(i) the prospects of success of the claims, counterclaims and defences;
(ii) the Claimant’s or Counterclaimant’s ability to comply with an adverse costs award and the availability of assets for enforcement of an adverse costs award;
(iii) whether it is appropriate in all the circumstances of the case to order one party to provide security; and
(iv) any other relevant circumstances.
27. On both parties’ cases, by application of Article 38(2) of the SCC Rules, for the Respondent to obtain an order for security for costs, it would need to establish to the satisfaction of the Tribunal that:40
(i) it is unlikely that the Claimant will prevail in the case, on jurisdiction/admissibility or the merits; and
(ii) the Claimant has no evident funds/assets out of which to satisfy an adverse costs award; and
(iii) it is appropriate, in all the circumstances of the case, to order security.
The Tribunal considers that these requirements are to be considered in the round, that is to say, as mutually complementary.
28. Such requirements are rarely satisfied in practice, not least because the tribunal is required to take an early view on the prospects of the claimant’s claims. Indeed, Article 38(1) of the SCC Rules cautions tribunals to exercise their power sparingly, “in exceptional circumstances.”41
40 See Respondent’s Stay Application, p 4; Claimant’s Response, ¶ 29. ↩
41 SCC Rules, Article 38(1) (“The Arbitral Tribunal may, in exceptional circumstances and at the request of a party, order any Claimant or Counterclaimant to provide security for costs in any manner the Arbitral Tribunal deems appropriate.”). ↩
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29. In the Tribunal’s view, the present circumstances do not reach the threshold of Article 38(1). Taking each of the requirements in turn:
(i) The Tribunal has already pronounced on the Claimant’s case on jurisdiction and admissibility. As for the Claimant’s case for substantive breaches of the Treaty, the Tribunal is unable to take a view, since the Respondent is yet to present and substantiate its substantive defence. The Tribunal is thus unable to gainsay the position on the merits, either way, without having so much as seen (let alone heard) both parties’ arguments and evidence.
(ii) The Claimant represents that he has real-estate assets in the UK worth at least £4,345,750.42 The Respondent has not taken issue with that representation.43 And since the Respondent has presented no evidence to support its allegation that these assets cannot be enforced against, the Tribunal is unable to accept it. The Tribunal notes that the Claimant has not denied the possibility of such enforcement measures.44
(iii) As to the argument that the Claimant’s companies in Georgia have a history of failing to meet their fiscal obligations to the State,45 the conduct of these companies cannot be taken as an indication that the Claimant personally will seek to avoid compliance with an adverse costs award. Not only are these companies separate legal persons (as the Respondent rightly acknowledges),46 but, more importantly, the Claimant’s pleaded case is that their failure to pay taxes was the result of the Respondent’s Treaty breaches, which allegedly eviscerated these companies’ businesses and ability to generate revenue.47 Given that the Respondent is yet to address the Claimant’s case on the merits, the Tribunal is unable to reject this
42 Claimant’s Response, ¶ 36; Claimant’s Further Response, ¶ 3(a). ↩
43 See Respondent’s Reply, p 3. ↩
44 Claimant’s Further Response, ¶ 3(b). ↩
45 See Respondent’s Stay Application, pp 2-5; Respondent’s Reply, pp 2-4. ↩
46 See Respondent’s Reply, p 3. ↩
47 Claimant’s Further Response, ¶ 3(b). See also Statement of Claim, 17 April 2020, ¶¶ 3-4. ↩
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central allegation out of hand or draw a contrary conclusion on the materials presently before it.
30. The Tribunal therefore concludes that the Respondent has failed to establish that there are “exceptional circumstances” justifying an order of security for costs at this time. Accordingly, the Tribunal rejects the Respondent’s second request.
31. In the further and final alternative, the Respondent requests that the Claimant be ordered to make “an enforceable undertaking that he will comply with the Tribunal’s order as to costs should the Review Application [before the Svea Court] be successful.”48
32. The Respondent points to the case of Burmilla v Lesotho49 as an instance where an arbitral tribunal “ordered the claimants to file such an undertaking in order to mitigate the risk of the respondent State being unable to recover costs that it is forced to incur.”50
33. The Tribunal disagrees that Burmilla is a case of broader import. Rather, it was a singular case involving unusual circumstances. A tribunal had rendered an award (referred to as the Williams Award) directing the parties to establish a new tribunal to decide various claims that it had partly heard but not decided in the Williams Award.51 The parties did so.52 However, in the letter of consent it provided for the second tribunal (the Burmilla Tribunal), the respondent State, Lesotho, expressly conditioned its consent upon the outcome of an application to the Singapore courts to set aside the Williams Award.53 This conditional consent then raised for Lesotho the spectre of being unable to claim costs from the Burmilla Tribunal, which would be deprived of jurisdiction if Lesotho was successful in setting aside
48 Respondent’s Stay Application, p 6. ↩
51 The Burmilla Trust et al v The Kingdom of Lesotho, PCA Case No. 2016-21, Procedural Order No. 1 (Suspension, Bifurcation and Procedural Timetable), 3 November 2016, Exhibit RL-144, ¶ 5. ↩
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the Williams Award.54 It was because of this unique circumstance that the Burmilla Tribunal ordered the claimant to make an undertaking in respect of an adverse costs order.55
34. The circumstances of the present case are the converse of Burmilla. As already noted, the Claimant accepts that pursuant to the Arbitration Act and the SCC Rules, he will be liable for an adverse costs award; that such an award may fall to be made if the Swedish courts overturn the jurisdictional holdings in the Partial Final Award; and that the Tribunal will have the power to make a costs award thereafter.56 The present Tribunal faces certainty as to its power to award costs, while the Burmilla Tribunal faced uncertainty.
35. In short, both parties accept that under the Arbitration Act and the SCC Rules the Tribunal will have the power to make a costs award against the Claimant even in the event that the Svea Court overturns its jurisdictional holdings. Given the certainty both of this power and of the concomitant legal duty by the Claimant, an order by the Tribunal directing the Claimant to make an undertaking to the very same effect would be duplicative and thus inappropriate.
36. The Tribunal therefore rejects the Respondent’s third request.
37. For the reasons set forth above, the Tribunal:
(i) DISMISSES the Stay Application; and
(ii) RESERVES its decision on costs, while noting that the Respondent was unsuccessful in its Stay Application.
Seat of arbitration: Stockholm, Sweden
Date: 23 January 2023
56 Claimant’s Further Response, ¶ 11. ↩
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|
Signature Giorgio Mandelli |
Signature Professor Rolf Knieper |
Signature
Georgios Petrochilos KC