Société Nationale Algerienne Pour la Recherche, La Production, Le Trasport, La Transformation et La Commercialisation des Hydrocarbures [Sonatrach] v. Distrigas Corp.

Sonatrach (plaintiff), the national energy company of Algeria, was the primary creditor in a bankruptcy proceeding involving its debtor, Distrigas Corp. (defendant). Distrigas Corp. was unable to reorganize under Chapter 11, and Sonatrach sought to compel arbitration against Distrigas to determine the amount of damages resulting from Distrigas’s rejection of a 20-year supply contract for the purchase and sale of Algerian natural gas. The contract contained an arbitration clause. Although the assets in possession of the bankruptcy trustee would be enough to satisfy Sonatrach’s out-of-pocket losses, Sonatrach hoped to recover more damages through international arbitration, by lifting the corporate veil of Distrigas Corp.’s parent company. To that end, Sonatrach sought to modify the automatic bankruptcy stay to permit arbitration proceedings before the International Chamber of Commerce in Geneva, Switzerland. The bankruptcy court denied Sonatrach’s motion on the ground that Distrigas Corp. rejected the contract in its entirety—including the arbitration clause—when it filed for bankruptcy. Sonatrach appealed to the district court, arguing that the rejection of the supply contract constituted a material breach of the contract, not a termination of the entire contract. Distrigas Corp. countered that its rejection of the contract terminated the arbitration clause.