Revenge of the Jilted Groom
Global Dispute of the Year, Commercial Arbitration: Dow v. Kuwait Petroleum
At the start of the International Chamber of Commerce hearing in spring 2011, Gaillard's job was to convince the arbitrators that Kuwait's Supreme Petroleum Council had no excuse under Kuwaiti law for canceling the transaction a month after giving its approval. Kuwait said at the time that it withdrew from K-Dow because petroleum prices were nosediving, and at first blush that seems plausible enough. But in truth, the plastic business booms when the feedstock is cheap, and the assets Kuwait passed on have thrived. Some observers believe that the emir killed the deal as a sop to the parliamentary opposition with whom he is struggling.In a cross-examination that three trial-watchers recall as brilliant, Gaillard got a Kuwaiti professor of administrative law to essentially say that Kuwait had the power to do whatever it wanted under Kuwaiti law. One of the arbitrators interjected: "Did you really mean that?" Another asked if Kuwait wished to resume direct questioning, and Lord Grabiner declined with a pained look.
Weisburg spent most of the three-week hearing on damages. He argued that Dow could recover over $1 billion for the increased cost of borrowing to close its deal with Rohm & Haas. He claimed hundreds of millions more for the price of the phantom closing; the capital lost from forced asset sales; and the opportunity cost of forgone capital expenditures. All, Weisburg argued, were foreseeable consequences of Kuwait's pullout under the 1854 English law principles of Hadley v. Baxendale.
Charmingly, Weisburg first read Hadley at a beat-up library table borrowed from his future mother-in-law in September 1974. "It was literally the first case I read in law school," he says, "and it was obviously way over my head."
The arbitrators thought Weisburg understood the case just fine. They awarded base damages of $2.162 billion in May 2012. London partner Richard Kelly persuaded the English High Court to uphold the result in a two-day October hearing (in an accelerated review called for in the arbitration agreement). In February 2013 the tribunal tacked on $318 million for interest and fees, for a grand total of $2.479 billion. In May Dow agreed to forgo the interest, and Kuwait paid $2.195 billion. According to The American Lawyer's Arbitration Scorecard, it is the highest known award of monetary damages to be substantially paid in the history of commercial arbitration.
"I've dealt with the Middle East for over 30 years for Dow, and we've never had a situation where we weren't eventually paid," Kalil says. "My experience with Arab nations is that they ultimately honor their commitments."
Looking back, Dow can smile at the photos of lonely closing rooms filled with toast racks. Thanks to the arbitration team, they belong on Shearman's wall of fame after all.