Compagnie Noga D'Importation v. Russian Federation

Citation361 F.3d 676
Decision Date16 March 2004
Docket NumberDocket No. 02-9272(CON).,Docket No. 02-9237(L).
PartiesCOMPAGNIE NOGA D'IMPORTATION ET D'EXPORTATION S.A., Plaintiff-Appellant, v. THE RUSSIAN FEDERATION, Defendant-Appellee.
CourtU.S. Court of Appeals — Second Circuit

Herbert C. Ross, Jr., Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York, NY, for Plaintiff-Appellant.

Howard S. Zelbo, Cleary, Gottlieb, Steen & Hamilton, New York, N.Y. (Boaz S. Morag and Inna Reznik, Cleary, Gottlieb, Steen & Hamilton, New York, NY, on the brief), for Defendant-Appellee.

Before: MINER, JACOBS and CABRANES, Circuit Judges.

Judge JACOBS concurs in a separate opinion.

MINER, Circuit Judge.

In these consolidated appeals, we are confronted with the issue of whether a foreign arbitration award can be confirmed and enforced against a sovereign nation where the arbitration agreement was signed by an organ of that nation's central government and where that organ — and not the nation itself — participated in the underlying arbitration proceedings. Specifically, plaintiff-appellant Compagnie Noga D'Importation et D'Exportation S.A. ("Noga") sought to confirm and enforce a Swedish arbitration award against defendant-appellee Russian Federation. The Russian Federation opposed confirmation principally on the ground that it was a party to neither the arbitration agreement nor the Swedish arbitration proceedings. Instead, it argued that the proper party to these proceedings should be the Government of Russia (the "Government"), a political organ of the Russian central government. The United States District Court for the Southern District of New York (Pauley, J.), accepted the Russian Federation's argument and denied Noga's motion to confirm. For the reasons set forth below, we conclude that, for the purposes of these proceedings, the Russian Federation and the Government are the same party, and accordingly, we vacate the judgment of the District Court. Furthermore, we remand for further proceedings with respect to, among other things, (i) whether Noga's assignments of its arbitration proceeds to certain of its creditors deprived it of standing to seek confirmation of the arbitral award; and (ii) whether the creditors to whom Noga assigned the arbitration proceeds must be joined as necessary and indispensable parties under Fed.R.Civ.P. 19.

BACKGROUND
I. Loans That Were the Subject of the Underlying Arbitration

In December 1990, Noga entered into supply contracts to provide $550 million worth of food and consumer goods to foreign trade agencies of both the Union of Soviet Socialist Republics ("USSR"), the predecessor to the Russian Federation, and the Federative Socialist Soviet Republic of Russia ("RSFSR"), a constituent republic of the USSR. When anticipated third-party financing for these supply contracts did not materialize, Noga agreed to finance them in part.

In April 1991, Noga entered into a $422.5 million loan agreement ("1991 Loan Agreement") with the Government of the RSFSR, which was represented by its Council of Ministers and defined in the agreement as the "Borrower." The stated purpose of the 1991 Loan Agreement was to finance Noga's existing supply contracts with the state-owned agencies and enterprises of the RSFSR. As consideration for the 1991 Loan Agreement, the Borrower agreed to cause the RSFSR-owned oil company to deliver crude oil products to Noga pursuant to a schedule extending into September 1993. Moreover, the Borrower represented that it had obtained all the "required licenses, approvals and consents from the appropriate Authorities of the U.S.S.R." to provide this consideration. As contemplated in the 1991 Loan Agreement, Noga and the RSFSR state oil company entered into a separate agreement for the delivery of crude oil products. In anticipation of receiving the crude oil products on schedule, Noga advanced cash and credit to finance RSFSR imports of food and consumer goods and the development of a baby food factory and a television station in the RSFSR.1

In January 1992, Noga and the Government of the Russian Federation2 entered into a $400 million loan agreement ("1992 Loan Agreement"), which defined the term "Borrower" as "the Government of the Russian Federation, acting for and on its own behalf and responsibility [sic]." The 1992 Loan Agreement provided that half of the $400 million loan would be used to finance supply contracts executed between Noga and another agency of the Russian Federation for the import of agro-chemical products and that the other half would be used to discharge state debt to foreign suppliers for deliveries of similar products to the RSFSR during the period 1990-1991. The promised consideration for the 1992 Loan Agreement was the delivery of crude oil from an agency of the Russian Federation under a separate contract with that agency and pursuant to a delivery schedule extending through the end of 1994. In anticipation of these deliveries and pursuant to the 1992 Loan Agreement, Noga financed imports of agro-chemical products into the Russian Federation.3

Both the 1991 Loan Agreement and the 1992 Loan Agreement provided for: (i) binding arbitration of any disputes between the parties and their successors in the Chamber of Commerce of Stockholm, Sweden; (ii) the choice of Swiss law to resolve those disputes; (iii) the waiver of immunity with respect to the enforcement of any arbitration award; and (iv) consent to suit in the state and federal courts of, inter alia, New York.

II. Swedish Arbitration Proceedings

Disputes eventually arose between Noga and the Government regarding performance of the Loan Agreements. In December 1992, Noga declared the Government to be in default, claiming that it owed Noga $300 million in principal and interest. In April 1993, Noga terminated the agreements and accelerated payment on the loans. In June 1993, Noga filed a Request for Arbitration with the Stockholm Chamber of Commerce, seeking over $275 million for unpaid balances, plus consequential damages. Noga's Arbitration Request identified the Russian Federation as the respondent and explained that its decision to do so was based on the facts that (i) "[b]oth the `buying' and the `selling' Agencies `[were]' the Russian Federation, i.e. under the [Russian Federation's] control"; (ii) "[a]ll contracts between [Noga] and the Agencies [made] express reference to the contracts entered into by Noga and the Russian Federation, since such contracts represent[ed] the performance of the Loan Agreements"; and (iii) "[t]he Russian Federation guaranteed performance by the `selling' Agencies for repayment of the Loans."

The Russian Federation made no response to the Arbitration Request. Instead, attorneys representing the Government objected to Noga naming the Russian Federation as the respondent and requested that the arbitrators require Noga to amend its Arbitration Request to name the Government and the state agencies that had signed the contracts as the proper respondents. In response, Noga argued that the arbitrators should "overrule" the Government's objection on the ground that the Russian Federation and the Government were the same legal person and thus the Government's acts were directly attributable to the Russian Federation. The arbitrators never ruled on the Government's objection, and Noga never sought judicial intervention to compel the Russian Federation to participate in the arbitration.

Eight years of arbitration proceedings followed. The arbitration was conducted in two phases. Phase I related to liability and damages, except for consequential damages; Phase II related to consequential damages. Throughout the arbitration proceedings, the Government — and not the Russian Federation — appeared and arbitrated with Noga.

A. Phase I

At the conclusion of Phase I, the arbitrators issued two awards, both of which are the subject of this appeal. In the first award, dated February 1, 1997, the tribunal determined that Noga had been justified in both declaring a default and in accelerating the remaining oil deliveries. The arbitrators awarded Noga approximately $23 million in damages, plus accrued interest from April 1993 until the date of payment. On May 15, 1997, the tribunal issued a supplemental award, which increased the amount of the earlier award by approximately $4 million for management fees that Noga had alleged were omitted from the first award. Together, the two awards (collectively, the "Phase I Award") totaled approximately $50 million, including interest through May 1997. The caption of the arbitration awards refers to the respondent as the "Government of the Russian Federation (Russia)" Throughout the awards, however, the arbitrators refer interchangeably to the "Government of the Russian Federation," the "Russian Federation," and "Russia."

The Government appealed the supplemental award to the District Court of Stockholm, which dismissed the appeal and awarded attorneys' fees and costs to Noga. The caption contained in the Swedish court's decision identified the "Russian Federation, the Ministry of Finance" as the plaintiff. The court's decision repeatedly refers to the plaintiff as the "Russian Federation," although the issue of which entity was the proper party was not before it, and it was not being asked to confirm the Phase I Award. The Stockholm District Court's decision was affirmed by the Svea Court of Appeal, which also referred to the "Russian Federation" in both the caption and text of its decision and awarded Noga additional attorneys' fees and costs.4 Neither the Russian Federation nor the Government has paid the Phase I Award.

B. Phase II

On March 13, 2001 (while the actions giving rise to this appeal were pending), the arbitrators issued an award finding that Noga was entitled to approximately $25.3 million in consequential damages, plus interest that had accrued during the eight years since the Arbitration Request had been filed. As of...

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