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Lawyers, other representatives, expert(s), tribunal’s secretary

Judgment of the Svea Court of Appeal

THE MATTER

[1].
Challenge of arbitration award issued on 24 September 2010

JUDGMENT OF THE COURT OF APPEAL

[2].
1. The Court of Appeal rejects the plaintiff's case.
[3].
2. PJSC Ukrnafta shall compensate Carpatsky Petroleum Corporation for litigation costs of SEK L654,657 and USD 122,240 together with interest on the amounts under Section 6 the Interest Act from the date of the judgment of the Court of Appeal until payment is made. This amount includes fees for counsel of first SEK 1,550,000, and second USD 90,500.

BACKGROUND

[4].
PJSC Ukrnafta ('Ukrnafta') - previously with the operating name OJSC Ukrnafta - is a joint stock company registered in Ukraine, and Carpatsky Petroleum Corporation (’Carpatsky') is a joint stock company registered in the State of Delaware in the United States. SE Poltavanaftogaz (a subsidiary of Ukrnafta) and Carpatsky Petroleum Corporation (predecessor of Carpatsky with its seat in the State of Texas. United States) entered into a contract referred to as the Joint Activity Agreement N. 410/95' (the Cooperation Agreement') on 14 September 1995. The cooperation applied to the extraction of natural gas from and development of the Rudivsko-Chervonozavodsky natural gas field. The intention was that Ukrnafta would mainly contribute to the extraction of natural gas from certain sources while the counterparty’s contribution would primarily be to provide capital, technology and certain advanced equipment. The parties entered into certain supplementary agreements in 1996 and 1998. According to these, the cooperation would last until 2023.
[5].
In 1996 Carpatsky Petroleum Corporation, with its seat in Texas, was absorbed into Carpatsky through a merger and the afore-mentioned company ceased to exist.
[6].
Carpatsky had liquidity problems for a number of years of the cooperation and did not satisfy its agreed contribution. No further investments were made by the parties from 2003.
[7].
The Ukrainian Government introduced a new enactment in January 2007, referred to as 'Decree 31'. whereby companies operating within gas and oil extraction - where more than fifty per cent was directly or indirectly owned by the state-were obliged to sell their production to the stale-owned Naftogaz at prices set by a central government authority. The parlies’ cooperation under the Cooperation Agreement was affected by Decree 31, which meant that it was not possible to produce and sell gas at a profit for as long as Decree 31 was in force.
[8].
Carpatsky requested arbitration against Ukrnafta in September 2007. Carpatskv claimed that Ukrnafta had committed a breach of contract and requested, among other things, that Ukrnafta should be ordered to pay Carpatsky a certain amount in damages. Ukrnafta claimed, for its part, that Carpatsky had committed a breach of contract and requested that Carpatsky should be ordered to pay damages to the company. An arbitration award was issued following arbitration proceedings in Stockholm, SCC V (124/2007). The arbitral tribunal found in the award that Ukrnafta had committed a breach of contract by preventing Carpatsky from participating in the cooperation on equal terms since 2004. The arbitration award means, among other things, that the Cooperation Agreement was terminated, and that Ukrnafta was ordered to pay Carpatsky USD 145.7 million plus interest and compensation for costs.

RELIEF SOUGHT

[9].
Ukrnafta has requested that the Court of Appeal set aside the entire arbitration award, though pointing out that sub-paragraphs 4 (a) to (e) of the operative part of the final award relating to the costs of the arbitration proceedings are in the opinion of Ukrnafta, not part of the arbitration award.
[10].
Carpatsky has opposed the setting aside of the arbitration award.
[11].
The parties have requested compensation for their litigation costs.

THE FACTS AND POSITIONS PRESENTED BY THE PARTIES

Ukrnafta

[12].
The arbitral tribunal has exceeded its mandate in the following respects or alternatively an irregularity occurred in the course of the proceedings which probably influenced the outcome (Section 34. first paragraph, items 2 and 6 of the Arbitration Act [1999:116 -LSF1).

Decree 31

[13].
It was undisputed in the arbitration proceedings that Decree 31 needed to be repealed for any loss to arise. During the arbitration proceedings. Carpatsky asserted that Decree 31 would possibly terminate at certain specified points in time. It was initially stated that Decree 31 would terminate on 31 December 2008. When this date had passed without Decree 31 having terminated, the dale was adjusted to 31 December 2009. When this date had also passed without Decree 31 having been repealed, July 2010 was instead stated as the deadline for when Decree 31 would terminate. The arbitration award was issued on 24 September 2010, i.e. after July 2010 had passed. No other assertions about when Decree 31 would be repealed had been presented by Carpatsky at that time. In other words, at the time of the arbitral tribunal's adjudication, there was no alternative date to that claimed by Carpatsky for when Decree 31 would terminate or assertion as to what would then apply, which could not already have been observed to be incorrect. In spite of this, the arbitral tribunal considered that Decree 31 would be repealed before the end of the term of the contract in 2023. This was a 'legal fact' [Sw: rättsfakta1] fact that had not been invoked by Carpatsky. Regardless of whether Carpatsky should be deemed to have asserted some other time for the termination of Decree 31 that was later than July 2010, the arbitral tribunal failed to adopt a position on the issue of when Decree 31 would be repealed.
[14].
The arbitral tribunal committed an irregularity in the course of the proceedings by rejecting the request of Ukrnafta to be allowed to adduce as evidence a new act on price regulation in Ukraine ('the Natural Gas Act'). This evidence could not have been adduced earlier. The evidence dismissed showed that Decree 31 would continue to be in force for the foreseeable future. If Ukrnafta had been permitted to adduce this evidence, it would have been likely that the arbitral tribunal would not have found that Ukrnafta was liable to pay damages or in any event set the damages at a significantly lower amount.

Intentional breach of contract

[15].
The Cooperation Agreement only afforded a right to compensation for direct loss (Article 20.1). The arbitral tribunal found that Article 20.1 was not applicable with reference to Ukrnafta having committed an intentional breach of contract and that the liability for damages, according to Ukrainian law, could not be limited in such a case.

• However Carpatsky did not duly invoke that the breach of contract was intentional or that the limitation of liability should not apply for that reason.

• In any event, this was only invoked after the proceedings were declared to have been concluded or after the arbitral tribunal had notified the parties that no new circumstances may be presented.

• Ukrnafta had no opportunity to anticipate that the arbitral tribunal would apply the statutory provision in question as grounds for the award. For this reason. Ukrnafta was prevented from presenting its case by for instance, invoking legal facts and adducing evidence on this issue.

• The arbitral tribunal did not consider Ukrnafta's other objections relating to a limitation of liability considering that the arbitral tribunal had found that Ukrnafta had committed an intentional breach of contract However, Ukrnafta declared that its other objections were not dependent on the objection concerning the limitation of liability.

Compensation for post-termination loss

[16].
During the arbitration proceedings, Carpatsky did not expressly claim compensation for damage that arose after the cessation of the Cooperation Agreement ('post-termination loss'). Despite this the arbitral tribunal awarded compensation for such loss.

Calculation model

[17].
Both parties adduced expert evidence during the arbitration proceedings in respect of the size of the loss, and showed through this evidence how the arbitral tribunal should calculate such loss, if any. The parties used the same calculation model, namely a model that expressed the discounted cash flow of future payments ('the DCF method'). When using this model, the parties attributed different values to the assumptions included in the model and thereby generated different measures of the loss when the loss is equal to the present value of future payments ('Net Present Value').
[18].
The arbitral tribunal exceeded its mandate by setting adjusted values for some of the assumptions, but failed to apply the calculation model used by the parties. The arbitral tribunal simply subtracted the items. In any event, the arbitral tribunal committed an irregularity in the course of the proceedings that had an impact on the outcome of the case. Ukrnafta was not afforded an opportunity to express its views on the adjustments and was therefore denied the opportunity to present its case.

Funds to invest

[19].
When calculating the loss, the arbitral tribunal proceeded erroneously from Ukrnafta having confirmed that Carpatsky had sufficient assets to invest in the parties' cooperation. During the arbitration proceedings. Ukrnafta clearly denied the allegations made concerning this matter.
[20].
The arbitral tribunal has also proceeded erroneously on the basis that Ukrnafta had not adduced any evidence to disprove that Carpatsky would have used these funds to invest.

Carpatsky

[21].
It is denied that the arbitral tribunal exceeded its mandate or that an irregularity occurred in the course of the proceedings, In any event, if the Court, of Appeal were to find that some sort of irregularity occurred in the course of the proceedings in the manner alleged by Ukrnafta, it is unlikely that this influenced the outcome.

Decree 31

[22].
Carpatsky claimed during the arbitration proceedings that Decree 31 would be repealed during the term of the contract, i.e. before 2023. No specific date was claimed. The fact that the expert appointed by Carpatsky stated different times as the point of departure for the Discounted Cash Flow calculations is a different matter. Such a calculation presumes an assumption of when payments will start. The date for a possible repeal of Decree 31 had no direct relevance to the arbitration award.
[23].
The arbitral tribunal did not commit an irregularity in the course of the proceedings by rejecting Ukrnafta's request concerning evidence.

Intentional breach of contract

[24].
Carpatsky claimed in the arbitration proceedings that this involved a direct loss. Carpatsky also claimed that Ukrnafta had committed an intentional breach of contract. The proceedings had still not been declared concluded at that time. This assertion was sufficiently concretized. The principle of intentional breach of contract in question was raised by the arbitral tribunal during the final hearing. It was denied that Ukrnafta was denied an opportunity to present its case.

Compensation for post-termination loss

[25].
It is denied that the arbitral tribunal awarded compensation for a loss that arose after the termination of the Cooperation Agreement (’post-termination loss').

Calculation model

[26].
Both parties adduced expert reports about the size of the loss, but these do not include any instructions about how the arbitral tribunal should assess the report when estimating the size of the loss. The tribunal received no detailed explanation about the mathematical models used and none of the experts expressed an opinion on the alleged 'dynamic effects'. Nor does the fact that the arbitral tribunal adjusted certain parameters mean that it adjudicated on circumstances that had not been referred to. Nor do the expert's reports constitute a legal fact, but evidence of the size of the loss (evidentiary fact). The calculation of the loss formed part of the arbitral tribunal's substantive adjudication and is irrelevant within the framework of the challenge action.

Funds to invest

[27].
The arbitral tribunal did not misunderstand Ukrnafta's position as regards Carpatsky's economic possibilities to invest in the cooperation. Nor did the arbitral tribunal ignore the evidence adduced by Ukrnafta. The arbitral tribunal’s substantive assessment - regardless of whether it is right or wrong-shall not be reconsidered through challenge proceedings.

ELABORATION OF THE PARTIES’ CASES

Ukrnafta

Decree 31

[28].
The opportunity to pursue gas production at a profit lapsed through the introduction of Decree 31. When assessing Carpatsky's application for damages. Decree 31 thus means that a loss could not arise for Carpatsky. This fact was not disputed between the parties. In light of this. Carpatsky claimed that Decree 31 would be repealed on 31 December 2009. When this prediction proved to be wrong, it was claimed instead that Decree 31 would apply until July 2010. This was stated in the second supplementary report from the expert Kaczmarek in August 2009, which Carpatsky referred to in its written submission 'Post Hearing Memorial II'. It was clear at the time of the arbitral tribunal's adjudication that none of these dates were correct. Considering this, the arbitral tribunal ought to have concluded that no legal facts had been invoked to form the basis of a ruling whereby Decree 31 would be repealed before the term of the contract expired in 2023. However, the arbitral tribunal did not do so. Nor did the arbitral tribunal adopt a position on whether Decree 31 would terminate at another fixed point in time but instead considered the uncertainty in respect of Decree 31 when determining the discounting factor. Ukrnafta emphasized during the arbitration proceedings that it was not sufficient for the arbitral tribunal to make an assumption that Decree 31 could terminate at some time, but instead the arbitral tribunal should identify the point in time at which this would occur.

On 26 July 2010 Ukrnafta asked for the permission of the arbitral tribunal to submit evidence in the form of a new act passed on 8 July 2010 regarding gas price regulation in Ukraine ('the Natural Gas Act’) as well as some supplementary documentation. However. Ukrnafta was notified in a written communication from the arbitral tribunal on 28 July 2010 that the company was not permitted to submit the Act. Through this Ukrnafta was deprived of its right to bring its action in the arbitration proceedings. The Natural Gas Act was highly relevant to the issue of governmental regulation of natural gas prices and whether the price regulation that applied at the time would terminate. It was not possible to adduce the Act any earlier. According lo Article 34 of the arbitration rules of the Arbitration Institute of the Stockholm Chamber of Commerce (’the SCC Rules’) it is possible for an arbitral tribunal to reopen proceedings once they have been closed. There are strong reasons to do so in this case.

Intentional breach of contract

[29].
According to Article 20.1 of the Cooperation Agreement, a party's obligation to pay damages is limited to direct losses. In the arbitration proceedings, the parties had a difference of opinion concerning whether the compensation claimed by Carpatsky related to a direct loss in the mariner referred to in this provision. During the final hearing, the arbitral tribunal raised the issue of what impact an intentional breach of contract had according to Ukrainian law on the limitation of liability contained in the provision. After the arbitral tribunal had declared under Article 25 of the SCC Rules that the parties were unable to make any supplementations. Carpatsky stated that Ukrainian law prescribed that limitation of liability paragraphs should be set aside in the event of an intentional breach of contract. However. Carpatsky's argument was limited to a brief report on the content of Ukrainian law without specifying any material circumstances. The first time that Ukrnafta had an opportunity to respond to the newly introduced legal rule was in the written submission 'Post Hearing Brief II'. Ukrnafta then objected, staling that the issue had been raised too late in the proceedings and that Carpatsky had not stated in any detail the way in which Ukrnafta had committed an intentional breach of contract. In spite of this, the arbitral tribunal based its ruling on this being an issue of an intentional breach of contract and that Article 20.1 could therefore not be applied. Other objections from Ukrnafta were not dealt with.

Compensation for post-termination loss

[30].
It is indicated by paragraph 318 of the arbitration award that Carpatsky did not request compensation for future loss. Despite this, the arbitral tribunal concluded that the calculations made by Kaczmarek, Carpatsky's expert, were based on both historical and future losses (see Items 329 and 332 of the arbitration award).

Calculation model

[31].
When calculating the loss, the arbitral tribunal proceeded on the basis of Kaczmarek's calculations but adjusted these in certain respects. These adjustments referred to, among other things, the start date, assumptions in respect of the price and volume of gas and also discounting rales. The arbitral tribunal failed in conjunction with this to consider the dynamic effects of the model referred to by the parties. This characteristic of the model results in changes to values based on certain assumptions also affecting values assigned to other values. This issue involves complex relationships between different assumptions, on which both of the parties based their calculations. If the method applied by the parties had been used, the loss would have been USD 62.5 million instead of the USD 35.7 million awarded. The arbitral tribunal consequently did not use the nominated calculation model and nor did it afford the parties any opportunity to express their opinion on the above-mentioned adjustments in relation to the calculation model.

Funds to invest

[32].
Carpatsky claimed during the arbitration proceedings that the company had funds available for investments and that these funds would have been invested in the cooperation if Ukrnafta had not committed a breach of contract. Carpatsky claimed that Ukrnafta's breach of contract prevented Carpatsky's investments under the Cooperation Agreement and that this was the reason for Carpatsky's loss. Ukrnafta for its part claimed that Carpatsky - even if a breach of contract were deemed to have occurred-had not caused any loss. Ukrnafta amplified on this in such a way that Carpatsky, even in an alternative hypothetical course of events where the breach of contract had never taken place, would not have had funds to invest or in any event would have chosen to refrain from an investment. Despite this, the arbitral tribunal concluded that John Ellison. Ukrnafta's expert, had not questioned whether Carpatsky had funds to invest in accordance with the Cooperation Agreement (paragraph 343 of the arbitration award).
[33].
In November 2009 Ukrnafta adduced certain evidence to prove that Carpatsky's finances were poor, for exampie a Power Point and a report from Ernst & Young. However, the arbitral tribunal look no account of this evidence.

Carpatsky

Decree 31

[34].
The issue of Decree 31's possible repeal was afforded great scope in the arbitration proceedings. Ukrnafta asserted that Decree 31 would continue to apply for the entire term of the contract and that the parties' cooperation would therefore not generate any profit. Carpatsky for its part claimed that Decree 31 would terminate during the term of the contract. Carpatsky's action was not limited to any set date. The indication of dates did not restrict the company's action but was primarily done for Kaczmarek's calculations. Nor did the arbitral tribunal attribute the date of a possible repeal of Decree 31 any direct relevance to the arbitration award. Instead the arbitral tribunal took account of this risk within the framework of the choice of discounting factor. Each detail of the loss calculation is not a 'legal fact' [Sw: rättsfakta] that must be invoked, and an arbitral tribunal is not bound to use the exact calculation method used by the parties.
[35].
Ukrnafta's request to be allowed to submit the Natural Gas Act was made on 26 July 2010. This was ten months after the final hearing and almost six months after the arbitral tribunal had declared the proceedings concluded under Article 34 of the SCC Rules. At the time of Ukrnafta's request, the tribunal had a good picture of how the uncertainty relating to Decree 31 should he dealt with. Not opening the proceedings again at that time does not constitute an irregularity in the course of the proceedings. Noting the reasoning of the arbitral tribunal, a consideration of the documents in question would not have influenced the outcome of the case.

Intentional breach of contract

[36].
Carpatsky argued during the arbitration proceedings that Ukrnafta had committed an intentional breach of contract. The actual circumstances that the arbitral tribunal presented as grounds for its assessment was that Ukrnafta knew that Carpatsky was interested in participating in the exploitation and that Ukrnafta still refused to allow the company to participate. Carpatsky had already pleaded these circumstances in its written submission 'Statement of Claim' and the circumstances were central to the arbitration proceedings.
[37].
A party's burden to present relevant facts does not extend to the presentation of legal rules. The legal rule in question was raised by the arbitral tribunal during the final hearing to draw the attention of the parties to its relevance. Carpatsky subsequently addressed the question in the written submission ’Post Hearing Memorial I' and Ukrnafta dealt with the issue in the written submission 'Post Hearing Brief II'. This was noted by the arbitral tribunal (see paragraph 325 of the arbitration award). The arbitral tribunal adopted a position on Ukrnafta's objection to the possibility in Ukrainian law of applying provisions concerning a limitation of liability and considered that the parties had ample opportunity to elaborate on their positions with regard to this issue during the arbitration proceedings. The action of the arbitral tribunal did not under any circumstances influence the outcome of the case as it actually involved a direct loss.

Compensation for post-termination loss

[38].
The arbitral tribunal ordered Ukrnafta to compensate the loss that occurred at the time of the breach of contract. The arbitral tribunal assessed the loss associated with the breach of contract and then estimated the value of the loss by applying the DCF method, i.e. by discounting expected revenues to the net present value. The arbitral tribunal did not award compensation for a loss that arose after the termination of the Cooperation Agreement ('post-termination loss'). Carpatsky's application in the arbitration proceedings includes the amount awarded.

Calculation model

[39].
The arbitral tribunal, and similarly the parties applied a net present value method when calculating the loss. Following an assessment of the statements by experts and evidence in general, the arbitral tribunal found that nothing in the parties' calculations could be accepted straight off without adjusting the main parameters. This is not an irregularity that could constitute grounds for a setting aside. The parties had not given the arbitral tribunal any common instructions in respect of calculating the loss. This leaves the arbitral tribunal free to calculate the loss in whatever way they consider to be correct, taking account of the evidence presented. The arbitral tribunal is not bound by how the parties have calculated the loss but may make a free assessment of the evidence. The loss calculation forms part of the arbitral tribunal's substantive assessment of the dispute.

Funds to invest

[40].
In the course of the arbitration proceedings, the parties had a difference of opinion regarding Carpatsky's economic possibilities and intention to invest in the cooperation. In the arbitration award the arbitral tribunal correctly reported on the position on the parties. Ukrnafta's expert Ellison questioned in his report whether Carpatsky intended to invest funds in the cooperation but on the other hand not whether Carpatsky actually had sufficient funds. The arbitral tribunal did not misunderstand what Ellison had stated. Nor did the arbitral tribunal ignore evidence adduced by Ukranfta. The reason for the evidence not being specifically mentioned in the arbitration award is that it related to another point in time than that considered relevant by the arbitral tribunal.

THE INFORMATION PRESENTED

[41].
At the request of Ukrnafta, the party expert Jasnit Sansoye was heard. Ukrnafta also adduced a written statement of opinion from Jasnit Sansoye.
[42].
Both parties referred to the arbitration award and various documents from the arbitration proceedings. The parties declared that the information in the documents is undisputed but that they draw different conclusions from the information.

REASONS FOR JUDGMENT

Legal points of departure

[43].
It is indicated by Section 34, first paragraph, item 2 LSF, that an arbitration award shall be set aside if the arbitrators have exceeded their mandate. If the arbitral tribunal bases its ruling on a circumstance ('legal Fact') [Sw: rättsfakta] that has not been invoked by a party, it should normally be deemed to have exceeded its mandate, although some caution should be observed when assessing international disputes. The same adherence to Swedish procedural law concepts cannot be expected in such disputes. A mandate may also have been exceeded if the arbitrator has based his assessment on a legal argument that the parties have agreed should lie outside the adjudication. On the other hand, an arbitration award cannot be successfully challenged on substantive grounds (see Government Bill 1998/99:35. p. 139 and 145 f).
[44].
According to Chapter 34, first paragraph, item 6 LSF an arbitration award may be set aside if, without the fault of the party, an irregularity otherwise occurred in the course of the proceedings which probably influenced the outcome. This may be the case if the arbitral tribunal has overlooked a joint party instruction or if there has been an error in the management of the procedure of a more significant kind, e.g. if a party has not been afforded an opportunity to present its case to an appropriate extent (see. e.g. Lindskog, Skiljeförfarande En kommentar [Arbitration Proceedings, A commentary], 2nd ed. p., 895).

Decree 31

[45].
As grounds for its application for damages in the arbitration proceedings. Carpatsky claimed that Ukrnafta had committed a breach of contract by preventing Carpatsky from participating in the cooperation about which the parties had agreed and that Carpatsky, owing to this, had been caused a loss amounting to the amount claimed. A key issue when assessing whether Carpatsky had suffered loss was the possible termination of Decree 31. The arbitral tribunal, as a basis for its assessment, assumed that Decree 31 would be repealed before the expiry of the term of the contract, i.e. before 2023. The issue is whether Carpatsky, as claimed by Ukrnafta, had not pleaded this and whether the arbitral tribunal has therefore exceeded its mandate, or committed an irregularity in the course of the proceedings that influenced the outcome.
[46].
Ukrnafta claimed that Carpatsky during the arbitration proceedings only claimed that Decree 31 would terminate at three different points in time. According to Ukrnafta, Carpatsky first stated 31 December 2008, then 31 December 2009 and when that date had also passed, finally July 2010 as the last date on which Decree 31 would terminate. Ukrnafta has referred to, among other things. Carpatsky having stated in a written submission to the arbitral tribunal on 30 November 2009 (Post Hearing Memorial II) that Carpatsky's expert Kaczmarek had adjusted his calculations in order to take into account an assumption that Decree 31 would terminate to apply from the start of 2010 and that the application for damages was based on this calculation. Ukrnafta has also referred to Kaczmarek, in his second revised report, proceeding on the basis of the assumption that Decree 31 would be repealed by no later than July 2010. Carpatsky claimed that the during the arbitration proceedings the company pleaded that Decree 31 would terminate during the term of the contact but that no specific date had been asserted.
[47].
The Court of Appeal initially concludes that it has not been reported in the arbitration award that Carpatsky asserted certain specific dates for the assumption of when Decree 31 would terminate.
[48].
It is also indicated in the case-file that the adjusted points in time for Decree 31 's termination, which Ukrnafta asserts Carpatsky put forward in the arbitration proceedings, refer to details referable to calculations of the loss incurred made by Carpatsky's expert Kaczmarek. However, what an expert refers to in a calculation does not equate with what the party has pleaded in the arbitration proceedings. That the party's expert adjusted his calculations based on various points in time does not show, in the opinion of the Court of Appeal, that Carpatsky put forward these points in time as a basis for its action in the arbitration proceedings. Nor does the fact that Carpatsky referred to the adjusted calculations during the arbitration proceedings entail that these points in time were pleaded in the manner claimed by Ukrnafta. The case-file from the arbitration proceedings indicates instead that Carpatsky stated in several contexts that the company considered that the point in time at which Decree 31 would terminate was uncertain. Carpatsky stated, for instance, in a written submission dated 30 October 2009 (Post Hearing Memorial 1) that it was not an issue of 'whether' Decree 31 would be repealed but only an question of 'when' and that Kaczmarek had mentioned as the most likely scenario that Decree 31 would be repealed shortly. However, no set point in time was given by Carpatsky. It is also indicated that Ukrnafta in its written submission dated 30 October 2009 (Post Hearing Brief 1) objected that it was not sufficient that the arbitral tribunal made an assumption that Decree 31 would be repealed at any time but that a set point in time should be identified. Even this statement suggests that Carpatsky had not specified a set point in time on which the arbitral tribunal had to adopt a position.
[49].
For this reason, in the opinion of the Court of Appeal the information presented by Ukrnafta at the Court of Appeal does not support Carpatsky having asserted a certain set date for when Decree 31 would terminate. It is also the opinion of the Court of Appeal that the materials presented do not support the proposition that the arbitral tribunal (in the manner claimed by Ukrnafta) had a duty to set a certain date for when Decree 31 would terminate. The conclusion of the Court of Appeal is therefore that the arbitral tribunal was not guilty of exceeding its mandate or of committing an irregularity in the course of the proceedings in these parts.
[50].
As regards Ukrnafta's allegation that the arbitral tribunal incorrectly rejected Ukrnafta’s request for permission to adduce evidence, it is indicated that Ukrnafta requested permission to submit a copy of the Natural Gas Act in a written submission to the arbitral tribunal on 26 July 2010. The arbitral tribunal answered by a written communication dated 28 July 2010 that it was unnecessary for Ukrnafta to submit a copy of the Act at the stage of the arbitration proceedings in question, but that the tribunal made a reservation that it may however be relevant to do so at a later stage.
[51].
As regards the arbitral tribunal's case-management in this respect, the parties have referred to Article 34 of the SCC Rules, which it is undisputed applied to the arbitration proceedings in question. According to this article, an arbitral tribunal should declare that the arbitration proceedings have been concluded when it considers that the parties have been afforded an opportunity to present their cases to a reasonable extent. Before a final arbitration award has been made, the arbitral tribunal, on its own initiative or following an application by a party, may reopen the proceedings in exceptional circumstances (same article).
[52].
It is indicated by the case-file that the arbitral tribunal declared on 4 February 2010 that the arbitration proceedings had been concluded in the sense referred to in Article 34 of the SCC Rules. Ukrnafta's request was thus made after that point in time. At that time the arbitration proceedings had been ongoing for several years and the parties had been afforded good opportunities, both before and after the final hearing, to argue about the issue of any future price regulation of gas in Ukraine. At the end of January 2010. Ukrnafta had requested and received permission to supplement the case-file with evidence concerning the price regulation. In light of this, the Court of Appeal considers that what Ukrnafta had stated in its written communication to the arbitral tribunal dated 26 July 2010 does not mean that there were exceptional circumstances for reopening the proceedings at the stage in question. For this reason, no irregularity in the course of the proceedings has arisen.

Intentional breach of contract

[53].
It is indicated by the case-file that the Cooperation Agreement included a provision concerning the limitation of a party's liability to pay damages for direct losses (Article 20.1). The arbitral tribunal found in the arbitration award that Article 20.1 did not apply with reference to Ukrnafta having committed an intentional breach of contract and that Ukrainian law means that a liability to pay damages in such a case could not be limited.
[54].
The question is whether, in conjunction with this, any mandate had been exceeded or irregularity in the course of the proceedings committed in the manner alleged by Ukrnafta.
[55].
It is indicated by Carpatsky's written submission 'Statement of Claim' that Carpatsky claimed that Ukrnafta had committed a breach of contract by actively preventing Carpatsky from continuing to invest according to the Cooperation Agreement. Furthermore, it is indicated that Carpatsky in its written submission dated 30 October 2009 (Post Hearing Memorial I) claimed that Ukrainian law means that an agreement that limits responsibility in the case of an intentional breach of contract is invalid (according to Article 614 of the Civil Code). It is also specified in the written submission that Article 20.1 of the Cooperation Agreement - in the event that the arbitral tribunal should find that Ukrnafta had committed an intentional breach of contract - does not prevent Carpatsky from receiving full compensation for its loss (including loss of income) as each such limitation is without effect.
[56].
In the opinion of the Court of Appeal. Carpatsky must, in any event through a written submission dated 30 October 2009, be deemed to have pleaded that Ukrnafta's breach of contract was intentional and that the limitation of liability should not apply for that reason. Furthermore the actual circumstances adduced by Carpatsky in support of the action being intentional had been shown with sufficient clarity at this point in time. As stated by Ukrnafta. Carpatsky provided supplementary information on 30 October 2009 after the arbitral tribunal had reminded them about the content of Article 25 of the SCC Rules and explained that the parties were no longer permitted to make any supplementations. According lo the afore-mentioned article, however, the parties may amend or supplement their action al any time until the proceedings have been declared concluded according to Article 34 subject to the precondition that the arbitral tribunal does not consider this inappropriate. It is indicated by the case-file that during the final hearing the arbitral tribunal raised the issue of the content of Ukrainian law as regards the possibility of limiting the Iiability to pay damages in the case of an intentional breach of contract and that the tribunal had simultaneously stated that the parties could revert to this in their supplementary written communications following the hearing. With regard to this, and as Carpatsky's supplementation was made before the arbitral tribunal had declared the proceedings concluded on 4 February 2010 according to Article 34 of the SCC Rules, the Court of Appeal considers that Carpatsky's supplementation was duly made. For this reason, the conclusion of the Court of Appeal is that the arbitral tribunal did not exceed its mandate by basing its assessment on the circumstances in question and that nor did the arbitral tribunal commit any irregularity in the course of the proceedings in this connection.
[57].
As regards the issue of Ukrnafta not having had sufficient opportunities to present its case, it is indicated, as mentioned in the preceding, that the chair of the arbitral tribunal during the final hearing in September 2009 raised the issue of the content of Ukrainian law as regards an intentional breach of contract and that the parties were also afforded an opportunity to revert to this. After both parties had submitted supplementary written submissions in October 2009 and Carpatsky in this connection had clarified its position with reference to an intentional breach of contract, the parties were afforded a further opportunity to once again submit supplementary written submissions to the arbitral tribunal. In accordance with this, Ukrnafta responded to Carpatsky's statements about an intentional breach of contract and the content of Ukrainian law in its written submission of 30 November 2009. In the opinion of the Court of Appeal, the conclusion to be drawn from this is that Carpatsky's position on the issue of an intentional breach of contract must have been apparent to Ukrnafta and that the company had been afforded sufficient opportunity to present its case.
[58].
Using the assessment made by the arbitral tribunal - namely that Ukrnafta had committed an intentional breach of contract and that for this reason damages could not be limited in accordance with Article 20.1- there was no reason, as far as it is shown, for the arbitral tribunal to consider the objections otherwise presented by Ukrnafta concerning a limitation of damages according to the above-mentioned article. According to the Court of Appeal, this therefore means that Ukrnafta has not demonstrated that the arbitral tribunal incorrectly failed to adopt a position on any objection otherwise presented by the company.
[59].
In the opinion of the Court of Appeal, the mandate has thus not been exceeded nor an irregularity in the course of the proceedings committed during the arbitration proceedings in these respects.

Compensation for post-termination loss

[60].
It is indicated by the arbitration award that Carpatsky requested compensation for the value of its investment under the Cooperation Agreement and that the arbitral tribunal also considered this application. The arbitral tribunal estimated and valued the loss at the time of the breach of contract. In the opinion of the Court of Appeal, it is not possible to draw a conclusion from the arbitration award that the arbitral tribunal would have awarded compensation for a loss that was not claimed by Carpatsky. Nor is it indicated by the casefile in general that this would be the case. In other words, Ukrnafta has neither demonstrated that the mandate has been exceeded nor an irregularity in the course of the proceedings committed in this respect.

Calculation model

[61].
The parties held differing positions in the arbitration proceedings as regards the issue of whether Carpatsky suffered any loss. Carpatsky adduced a calculation made by Kaczmarek in support of its allegation concerning the size of the loss. Ukrnafta for its part adduced certain calcinations made by Ellison. It is indicated by the arbitration award that the arbitral tribunal proceeded on the basis of Kaczmarek's calculations when assessing the loss, but that the tribunal adjusted certain values and assessed the loss to be a lower amount.
[62].
The Court of Appeal concludes that the arbitral tribunal's estimate of the loss is a substantive assessment and that the circumstance that the arbitral tribunal, according to Ukrnafta, had come to an incorrect result by not considering certain circumstances of importance when making the calculation cannot as such form grounds for challenge. If a party considers that certain conclusions should be drawn from the evidence, there is nothing preventing the arbitral tribunal from drawing completely different conclusions, and even if the parties are surprised by the arbitral tribunal's conclusions, this is no issue of any mandate having been exceeded or irregularity in the course of the proceedings having been committed (Heuman. Skiljemannarätt [Arbitration Law. p. 619).
[63].
As mentioned above, this may on the other hand have been an issue of an irregularity that could form grounds for challenge if the arbitral tribunal had gone beyond a joint instruction provided by the parties, e.g. concerning the application of legal rules or the proceedings. However, in the opinion of the Court of Appeal, the mere circumstance that both of the experts in their calculations proceeded on the basis of certain common assumptions does not mean that the parties can be deemed lo have provided a binding instruction to the arbitral tribunal to calculate the loss in a certain way. Nor does the arbitration award or the information provided by the parties during the arbitration proceedings, which Ukrnafta otherwise pointed out, suggest that the parties should have provided such instructions as alleged by the company. In the assessment of the Court of Appeal, the conclusion is therefore that no mandate has been exceeded nor any irregularity in the course of the proceedings committed as regards the arbitral tribunal's calculation of the loss.
[64].
As concluded above, the fact that the arbitral tribunal deviated from the parties' calculations of the loss constitutes part of the tribunal's substantive assessment. There was no obligation for the tribunal to afford the parties an opportunity to express their views on this. Nor has there therefore been any irregularity in the course of the proceedings in this respect.

Funds to invest

[65].
It is indicated by the arbitration award that Ukrnafta denied that Carpatsky had been caused any loss. It is also indicated that Ukranfta's position was such that Carpatsky had not demonstrated first that the company had sufficient funds to invest, and second that Carpatsky, even if funds had been available, would have used them to invest in the cooperation (paragraph 338). In accordance with this, the arbitral tribunal stated in its reasons that Carpatsky had to demonstrate that funds were available and that they would have been invested on 18 April 2005, i.e. at the time of the breach of contract (paragraph 342). There is no support for the arbitral tribunal having, in the manner claimed by Ukrnafta, erroneously proceeded on the basis of Ukrnafta having confirmed that Carpatsky had sufficient assets to invest, and nor has it been shown otherwise. The fact that the arbitration award includes a note that Ukrnafta's expert did not question whether Carpatsky had the necessary funds to invest in 2004/2005 (paragraph 343) does not lead to any other conclusion in the opinion of the Court of Appeal. Consequently, Ukrnafta has not demonstrated that the mandate has been exceeded or an irregularity in the course of the proceedings committed in this respect.
[66].
It is undisputed that Ukrnafta adduced certain evidence in November 2009 about Carpatsky's financial situation which was also permitted by the arbitral tribunal. As stated by Ukrnafta, this evidence was not specifically mentioned in the arbitration award. Nor can the conclusion be drawn, either from this or from that staled in the arbitration award, that the arbitral tribunal proceeded erroneously on the basis of Ukrnafta not having adduced any evidence to disprove that Carpatsky would have used these funds to invest. Nor has Ukrnafta demonstrated in this respect that the mandate has been exceeded or an irregularity in the course of the proceedings committed in this respect.

Overall assessment

[67].
In summary, the Court of Appeal has reached the conclusion that in no respect has a mandate been exceeded or irregularity in the course of the proceedings committed in the arbitration proceedings, as claimed by Ukrnafta. The plaintiff's case is therefore rejected.

Litigation costs

[68].
With this outcome. Ukrnafta shall compensate Carpatsky for its litigation costs at the Court of Appeal. The amount requested is reasonable.

Appeals

[69].
According to Section 43, second paragraph of the Arbitration Act, an appeal may only be made against a judgment of the Court of Appeal if the court considers that it is of importance for the guidance of the application of the law that the appeal be entertained by the Supreme Court.
[70].
The Court of Appeal does not consider that there is reason to permit an appeal against this ruling.
[71].
The ruling of the Court of Appeal may not be appealed.
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