As we approach the last quarter of 2022, changes and developments continue to take place in the world of arbitration. On one hand, jurisprudence on arbitration is increasing, especially with the decisions of arbitral tribunals and international courts. On the other hand, the studies carried out by arbitral institutions and societies serve to give arbitration an increasingly international dimension.
In this fifth issue of Esin Arbitration Quarterly, we provide insight on some of the most significant court decisions and developments regarding arbitration; in the Summer of 2022.
1. SIGNIFICANT COURT DECISIONS IN THE LAST TRIMESTER CONCERNING ARBITRATION
1.1 The ECHR's decision regarding the refusal of enforcement of the arbitral award
The European Court of Human Rights ("ECHR") ruled that Slovakia is liable for the refusal of its courts to enforce an International Chamber of Commerce ("ICC") award won against a state agency, the National Property Fund of Slovakia ("NPF"), in a Paris-seated arbitration under the case of BTS Holding, A.S. ("BTS") v. Slovakia on 30 June 2022.1
The dispute between NPF and BTS arose out of the termination of the share purchase agreement ("SPA") between the parties for the purchase by the latter of shares in Bratislava Airport as part of its privatization. NPF had terminated the SPA and restored the purchase price payment made by BTS as the first installment upon the parties' execution of a settlement agreement for this re-payment. In 2010, BTS initiated arbitration proceedings by claiming that there were further amounts due by the NPF.
The arbitral tribunal decided that there are due payments of EUR 1,894,597.52 and interest of EUR 1,853,584.45 that should have been made by NPF in 2012. BTS subsequently initiated an enforcement lawsuit in Slovakia to be able to get its receivables from NPF in 2013. NPF objected to this lawsuit by arguing that the SPA had been superseded by the 2008 settlement and that the latter contained no arbitration clause, in the absence of which the enforcement of the arbitral award would be contrary to public policy. Moreover, it would be contra bonos mores, as the applicant company was simply seeking further financial satisfaction by claiming a large sum of money from public funds
In 2014, the District Court accepted the objection of NPF by stating that the arbitral award could not be enforced because the settlement agreement between the parties overruled the SPA, and therefore the parties cannot rely on the arbitration clause under the SPA. Following an appeal by BTS in 2015, the Bratislava Regional Court upheld that decision on grounds of public policy stating that:
- The arbitral award concerned a large sum of money, and its enforcement would impact a large group of people, namely taxpayers, since, in the event of an enforcement of such magnitude, the financial means would come from the State budget. This would have a negative impact on the general public.
- Prior to the arbitration, the parties had waived their right of recourse against the arbitral award, which included the right of access to a court.
- The claims of BTS were based on the termination of the SPA by NPF which was due to the need to protect against market concentration.
In 2015, after the Bratislava Regional Court issued its decision, BTS made an individual application to the Constitutional Court to challenge the decisions regarding NPF's objection to enforcement by arguing that there had been a violation of its rights to a fair trial and protection of property, BTS emphasized that, at the enforcement stage of the proceedings, any objections could only pertain to the enforcement but not to the arbitral award. The Constitutional Court declared a further appeal by BTS inadmissible. Then BTS made an application to the ECHR.
The ECHR noted that the claim was in the scope of the "possession" under Article 1 of Protocol 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms ("Protocol"), which regulates that every natural or legal person is entitled to the peaceful enjoyment of their possessions. The ECHR pointed out that Slovakia had not raised any objection and/or challenge against the arbitral award at the seat of arbitration, and therefore, the arbitral award was final and binding on the parties. The ECHR held Slovakia liable under Article 1 of the Protocol by deciding that non-enforcement of the arbitral award constitutes an interference with BTS's possession relying upon the following reasons:
- Objection to the enforcement of an arbitral award does not allow for any substantive review of the arbitral award.
- The court can review compliance of an arbitral award with the domestic law only in case of existence of a manifest error or arbitrary conclusions and there are no objections made by Slovakia in that regard.
- The reasons for non-enforcement of the arbitral award do not comply with the reasons under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
1.2 SCC tribunal upheld the intra-EU objection
In the case Green Power Partners K/S & SCE Solar Don Benito APS ("Green Power") v. The Kingdom of Spain, the tribunal rendered its award on 16 June 2022 and upheld Spain's intra-EU objection.2 This is an important decision considering that it is the first time that an arbitral tribunal has upheld an intra-EU objection, with a considerable number of preceding decisions to the contrary.
The investors in the dispute were Danish companies operating in the photovoltaic energy sector who invested in Spain between 2008 and 2011. The investors argued that Spain violated its obligations under the Energy Charter Treaty ("ECT"), which is a unique international investment agreement that provides a multilateral framework for energy cooperation, by changing the regulatory framework that affected the investors. The investors brought a claim against Spain in an arbitration seated in Stockholm, Sweden under the Stockholm Chamber of Commerce's ("SCC") arbitration rules. The tribunal bifurcated the proceedings to decide first on the issues of jurisdiction and admissibility. Among the four objections submitted by Spain as respondent in the arbitration was the intra-EU objection, i.e., the objection that European Union ("EU") law must be applicable to the dispute since both parties are from the EU.
The tribunal first dealt with the issue of law applicable to jurisdiction. In the absence of an explicit or implicit choice of law, the tribunal turned to Achmea and Komstroy Judgments to assert that EU law - to the extent that it is relevant to the issues at hand - would apply by extension in selecting Sweden as seat of arbitration. The tribunal then held that EU law should be applied to determine the tribunal's jurisdiction.
Since the basis of Spain's consent to arbitration was found in the ECT, the tribunal considered Article 26 of the ECT as a starting point and interpreted it according to the Vienna Convention on the Law of Treaties. Although the tribunal's initial interpretation based on the wording of the ECT concluded that the offer to arbitrate was unconditional, the tribunal moved beyond the literal meaning and evaluated the context, relying on the International Court of Justice's GabcíkovoNagymaros Judgement. The tribunal then held that regional economic integration organizations may be subject to special requirements and that Spain, Denmark and Sweden all being EU member states, the dispute - and the ECT - required an analysis within the context of EU law. The tribunal deferred to the Court of Justice of the European Union's ("CJEU") Achmea and Komstroy Judgments regarding the validity of an offer to arbitrate by an EU member state and the ECT. The tribunal also remarked on some cases that rejected the Achmea doctrine and drew a distinction by stating that they were International Centre for Settlement of Investment Disputes ("ICSID") cases in which selection of an EU member state as seat of arbitration and its effects on law applicable to jurisdiction were not considered. As such, the tribunal applied CJEU's interpretations and decided that it lacked jurisdiction in the case at hand both in terms of state aid and validity of the offer to arbitrate.
In Green Power v. the Kingdom of Spain, the tribunal rendered a decision vastly different from the previous decisions on intra-EU objections such as the decision of the tribunal in the case Renergy S.a.r.l v. The Kingdom of Spain.3 In the latter, the tribunal had held that the merits of the case did not require the application of EU law and instead focused on the violations of the ECT. Most importantly, the tribunal noted that the ECT and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States ("ICSID Convention") were clear and specific enough and that as such, there was no need for the application of EU law, which is contrary to the tribunal's decision in Green Power v. The Kingdom of Spain.
1.3 ICSID tribunal's decision on inter-state negotiation clause
The tribunal in Nasib Hasanov v. Georgia dismissed Georgia's preliminary objection to jurisdiction.4 Mr. Hasanov was the owner of a holding operating in, among others, the telecoms sector and he filed a claim for approximately USD 200 million against Georgia in 2020 due to the appointment of a special board manager in an internet provider company in which he claimed to hold indirect interest.
In the arbitration, Georgia objected to the tribunal's jurisdiction on the grounds of Article 9 of the Georgia-Azerbaijan Bilateral Investment Treaty ("Georgia-Azerbaijan BIT"), the investment treaty under which the claim was brought. Georgia argued that the relevant article foresaw negotiations between the contracting parties, i.e., inter-state negotiations between Georgia and Azerbaijan, before an arbitration claim could be brought by the investor. Georgia argued that Mr. Hasanov had failed to satisfy this requirement before initiating the arbitration. In return, Mr. Hasanov argued that the requirement for inter-state negotiations was a drafting error as only one of the states can be a party to the dispute in investor-state arbitration. Mr. Hasanov emphasized that such a requirement would go against the purpose of investor-state arbitration.
The tribunal on the other hand disagreed with Mr. Hasanov and stated that inter-state negotiations to resolve an investor-state dispute is not an unprecedented phenomenon, nor is it contrary per se to the purpose of investor-state dispute settlement. The tribunal added that such negotiations were also not inconsistent with the aim of the GeorgiaAzerbaijan BIT and that inter-state negotiations are not precluded by the ICSID Convention either. As such, the tribunal held that Article 9 of the Georgia-Azerbaijan BIT clearly required inter-state negotiations before the initiation of arbitration and proceeded to evaluate whether Mr. Hasanov fulfilled this requirement.
n that regard, the tribunal stated that no guidance or additional requirements were provided in the Georgia-Azerbaijan BIT, which led the tribunal to decide that there could only be "minimal requirements to satisfy the inter-state negotiation precondition" and that the only requirement that could be reasonably imposed on the investor was notifying the contracting parties of the dispute and submitting a written claim to the host state. Notably, the tribunal affirmed Mr. Hasanov's interpretation that the Georgia-Azerbaijan BIT could not reasonably impose an obligation on the investor to initiate inter-state negotiations. In terms of the present case, the tribunal stated that Mr. Hasanov had fulfilled the inter-state negotiations requirement by, among others, issuing a letter to Azerbaijani Ministry of Foreign Affairs. As such, Georgia's preliminary objection to jurisdiction was dismissed by the tribunal.
1.4 The ECHR's ruling on electronic filing and the right to a fair trial
With its judgment dated 9 June 2022, the ECHR ruled that the overly formalistic interpretation of the electronic filing requirement for set-aside proceedings constitutes a violation of the right to a fair trial enshrined under Article 6.1 of the European Convention on Human Rights.5
The case concerned court rules, which required filings to be made electronically. That said, the electronic form did not permit the applicant to enter accurate information regarding the set-aside proceedings. As such, the applicant opted to submit the accurate information physically, but this was rejected on the basis that it was against the electronic filing requirement.
While acknowledging that the rapid increase of integrating digital technologies into legal procedures for better administration of justice was a legitimate purpose, the ECHR urged for the consideration of the practical hurdles faced by the applicant. It determined that the applicant would have had to submit inaccurate information had the electronic form been filled out, and that, since the applicant cannot be held responsible for the lack of specific means to lodge such an application, it would be disproportionate to make them bear the consequences of the procedural mistake. In that regard, the ECHR ruled that, through rejecting the physical application and barring the case from consideration, the French Supreme Court failed to strike the right balance between upholding procedural requirements and the applicant's right to a fair trial. Accordingly, the ECHR awarded the applicant damages amounting to EUR 3,000.
1.5 Singapore Court of Appeal's ruling on arbitrators' excess of jurisdiction
In a recent case, the Singapore Court of Appeal ("Court of Appeal") decided that, even if an arbitral tribunal renders a decision regarding the topics that fall beyond the scope of the precise terms of the pleadings and submissions made by the parties, if the conclusions are based on the fundamental points of these submissions, it does not exceed its jurisdiction.6 In addition, this does not breach the rules of natural justice.
The case at hand concerned a consultancy agreement, under which the applicant undertook to provide consultancy services to the respondent for the merger and acquisition of oil and gas fields. In return, the respondent agreed to pay a success fee, should the applicant succeed in presenting an opportunity leading to a successful acquisition. Later, the respondent successfully acquired the shares of a company, which was an operator and owner of oil fields. Then, a dispute arose regarding the aforementioned success fee. The applicant initiated the arbitral proceedings and argued that the consultancy agreement, which had expired on paper, was extended orally, while the respondent denied this argument.
Although, the arbitral tribunal rejected the applicant's claim regarding the oral extension of the consultancy agreement, it nevertheless concluded that the applicant had a right to the success fee because the consultancy agreement did not require the opportunity to be concluded prior to its expiration. The respondent initiated set-aside proceedings before the Singapore High Court ("High Court") by claiming that the award was outside the scope of the submissions and that the rules of natural justice were violated. The High Court decided in favor of the respondent and the applicant appealed the High Court's decision to the Court of Appeal.
The Court of Appeal ruled in favor of the appeal and decided that the success fee is payable even after the expiration of the consultancy agreement. The Court of Appeal applied a two-step test while deciding the set-aside of an award for an excess of jurisdiction: (i) the determination of the topics submitted to the arbitral tribunal and (ii) the determination of whether these topics were touched on in the award or whether there were differences with the submission. Accordingly, the Court of Appeal analyzed the pleadings, list of issues, statements, evidence and closing submissions. The Court of Appeal emphasized that the fundamental points were obvious in the applicant's pleadings and were already discussed in the closing submissions. About the alleged breach of natural justice, the Court of Appeal ruled that an arbitral tribunal may decide differently from the parties (as long as it falls within the scope of the evidence), and that an arbitral tribunal may find another basis for its decision. Lastly, the Court of Appeal held that the way of reasoning adopted by the arbitral tribunal was sufficiently linked to the parties' cases.
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1 Case of BTS Holding, A.S. v. Slovakia, Application no. 55617/17. You may access the full text of the decision by clicking here.
2 SCC Case No. V2016/135.
3 You may refer to the Fourth Issue of Esin Arbitration Quarterly here for detailed information on the Renergy S.a.r.l v. The Kingdom of Spain case.
4 ICSID Case No. ARB/20/44
5 You may access the English summary of the judgment here.
6 You may find a more detailed analysis of this case on Global Arbitration News, which you may access here.
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