Ciments Français – a Russian Putrabali? by Michael Wietzorek

This case note is limited to an attempt to answer the question whether the case Ciments Français v. Sibirskij Cement might be “[a] Russian Putrabali?”[1]

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A. The facts of the Ciments Français case relevant to the question

On 26 March 2008, Ciments Français (France), OAO Holdingovaja Kompanija “Sibirskij Cement” (Russian Federation) and İstanbul Çimento Yatırımları Anonim Şirketi (Turkey) entered into a share purchase agreement, according to which Sibirskij Cement promissed to pay, and consequently paid, Ciments Français an initial payment at an amount of EUR 50.000.000,00.

On 7 December 2010, an ICC tribunal seated in Istanbul rendered a partial award between Ciments Français and Sibirskij Cement.[2] The tribunal found that Ciments Français had duly and validly exercised its right to terminate the contract, and that as a consequence, Ciments Français was entitled to keep the sum paid as an initial payment.

On 31 May 2011, this partial award was set aside – not finally – by the 2. Asliye Hukuk Mahkemesi / Second Civil Court of First Instance in Kadıköy, Istanbul.[3] It follows from the decision of the Arbitrazhnyj sud Kemerovskoj Oblasti / Arbitrazh Court for the Kemerovo Oblast discussed below that the Second Civil Court of First Instance based its decision to set aside the award on three grounds provided in Article 15A(2) of the 2001 Turkish Law on International Arbitration (No. 4686):[4]

 

• – the arbitral award was not rendered within the term of arbitration – Article 15(1)(c) Turkish Law No. 4686[5]
•  – as the arbitral tribunal did not consider the breach-of-contract argument raised by the respondent within the framework of the “Principle of consciousness”, the tribunal exceeded its authority – Article 15(1)(e) Turkish Law No. 4686;[6]
•  – it is against Turkish public policy – Article 15(2)(b) Turkish Law No. 4686[7] – that the arbitral award provides for its preliminary execution and that the parties waived their right to file a request for setting aside of the award.

 

On 20 July 2011, the Arbitrazh Court for the Kemerovo Oblast nevertheless recognized the partial award.[8] The Arbitrazh Court for the Kemerovo Oblast established:

 

“The 1961 European Convention[9] limits the application of point 1 of Article V of the 1958 New York Convention[10] to the cases clearly mentioned in point IX. This means that the setting aside of an arbitral award in the country where it was rendered forms a ground for refusal of its recognition and enforcement on the territory of a state [that is a] participant of the 1961 European Convention if such setting aside was performed on the following grounds: [reproduction of Article IX(1) European Convention omitted here].”[11]

 

The Arbitrazh Court for the Kemerovo Oblast consequently examined whether the three grounds stated above on which the Second Civil Court of First Instance set aside the partial award match the grounds listed in Article IX(1) European Convention. After doing so, the Arbitrazh Court for the Kemerovo Oblast…

 

“…came to the conclusion that the arbitral award was set aside by the Turkish court on special       grounds, foreseen by an inner-state law, which are absent in Point 1 of Article IX of the 1961   European Convention.”[12]

 

It is worth noticing that it follows from the decision of the Arbitrazh Court for the Kemerovo Oblast that Sibirskij Cement pointed out during the proceedings in Kemerovo that the Turkish Second Civil Court of First Instance relied on Article IX(1)(c) European Convention, which in the opinion of Sibirskij Cement corresponds to Article 15(1)(e) Turkish Law No. 4686, namely that the award contained decisions on matters beyond the scope of the submission to arbitration, as it contained a decision providing for its preliminary execution and a waiver of the right to file a request for setting aside.[13]

 

B. Distinguishing Ciments Français and Putrabali

 

Based on the decision of the Arbitrazh Court for the Kemerovo Oblast, it will be shown in the following that for the time being, the answer to the question whether Ciments Français might be a Russian Putrabali is “No”.

 

I. Different possibilities to recognize arbitral awards annulled in the country of origin

 

In the opinion of van den Berg, there are five possibilities regarding the question whether arbitral awards annulled in the country of origin can still be recognized and enforced abroad.[14] These possibilities are:

 

1.         Application of Article V(1)(e) New York Convention

2.         Residual discretionary power under Article V New York Convention to allow enforcement despite the existence of grounds for refusal

3.         Recognition of foreign court judgement under Article V(1)(e) New York Convention

4.         Application of domestic law (or another treaty) outside the New York Convention via rticle VII(1) New York Convention

5.         Amendment of the New York Convention.

 

van den Berg points out that the first three possibilities are within the scope of the New York Convention, while possibility four is outside the scope of the New York Convention, and possibility five would require a change in the New York Convention. The addition “or another treaty” in parentheses in possibility four above made here is based on Article VII(1) New York Convention itself, and on another publication by van den Berg, where he described the so-called “more-favourable-right provision” as allowing a party to seek enforcement on the basis of a domestic law concerning the enforcement of foreign awards, or on the basis of another treaty that is more favorable than the New York Convention.[15]

 

1. The Putrabali cases

In Putrabali, a domestic law outside the New York Convention was applied via       Article VII(1) New York Convention, i.e. possibility four.

The case commonly referred to as Putrabali was decided by the French Cour de cassation on 29 June 2007.[16] The Cour de cassation in Putrabali explicitly held that:

“Under Art. VII of the [1958 New York Convention], Rena Holding was allowed to seek    enforcement in France of the award … and could invoke the French rules on international arbitration …”

 

French national law on international arbitration does not contain the ground for refusal to recognize or enforce an arbitral award that has been set aside in the country of origin.[17] In this regard, Putrabali is merely a further example for an established approach that the French courts have often affirmed since the Norsolor decision in 1984,[18] e.g. in the cases Polish Ocean Line,[19] Hilmarton,[20] Chromalloy,[21] N’Doye,[22] Bargues Agro Industries,[23] or Bechtel.[24] The true significance of Putrabali seems to be another, as shall be established below (B.II.).

 

2. The Ciments Français decision

 

In the Ciments Français decision, Article V(1)(e) New York Convention was applied, i.e. possibility one.

 

Article IX(2) European Convention reads:

 

“In relations between Contracting States that are also parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10th June 1958, paragraph 1 of this Article limits the application of Article V(1)(e) of the New York Convention solely to the cases of setting aside set out under paragraph 1 above.“

 

It could possibly be argued that Ciments Français is somewhat similar to the French approach in such decisions as quoted above (B.I.1.) if Article IX European Convention applied by virtue of Article VII(1) New York Convention. Various commentators seem to suggest this. For example, Darwazeh writes that “… Article V(1)(e) [New York Convention] … can be overcome in any case by virtue of Article VII [New York Convention] … . An example that is frequently cited as a more favorable enforcement regime is the European Convention … .”[25] Sachs states that a “…party seeking enforcement would normally select the most favorable enforcement regime, pursuant to the ‘most-favorable regime’provision expressed in Art. VII(1) of the New York Convention…” and that “…recourse to the European Convention, if applicable, would be more favorable to enforcement.”[26] If this view is taken, then an application of Article IX European Convention could be an application of another treaty outside the New York Convention via Article VII(1) New York Convention, i.e. possibility four.

 

It is submitted that such an interpretation is neither compatible with Article VII(1) New York Convention, neither with the European Convention. Article VII(1) New York Convention, in the relevant part, reads:

 

“The provisions of the present Convention shall not … deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.”

 

Looking closely at this provision, it requires a “right to avail oneself of an arbitral award”. This means that a party would have to be able to seek enforcement on the basis of the European Convention, if one wanted to apply the European Convention by virtue of Article VII(1) New York Convention. Yet the European Convention does not establish a regime for the recognition and enforcement of foreign arbitral awards. In the words of Hascher: [27]

 

“The European Convention is not an international instrument on the recognition and enforcement of arbitral awards. The Convention neither provides for, nor guarantees, the enforcement of awards. This issue must be addressed by another international Convention or by domestic law. Art. IX simply limits the effect of the setting aside of the award in one Contracting State in respect of the recognition and enforcement in another Contracting State.”

 

This view is also supported by Gaillard & Savage,[28] who write that the European Convention merely seeks to supplement the New York Convention and does not repeal the provisions of the latter, and by van den Berg,[29] who points out that there is an “absence of provisions governing the enforcement of the award” in the European Convention, and that for this matter one has to refer back to the New York Convention, which in these cases, where the recognition and enforcement of an award is concerned, cannot function without the New York Convention. The Verkhovnyj sud Ukraїny / Supreme Court of Ukraine, as early as 1999,[30] also clearly discussed Article IX(2) European Convention as a limitation within Article V(1)(e) New York Convention, and arguably discussed Article IX(1) European Convention as a limitation within Article 36(1)(1)(5) of the 1994 Law of Ukraine “On International Commercial Arbitration”.[31]

 

Consequently, when recognition or enforcement of an arbitral award set aside in the country where it was made is sought, and both the New York Convention and the European Convention are applicable, a party may apply for recognition or enforcement of the arbitral award under the New York Convention. The party against whom the award is invoked requests that recognition and enforcement of the award be refused, relying on the ground that the award has been set aside by a competent authority of the country in which, or under the law of which, that award was made, Article V(1)(e), 2^nd Alternative, New York Convention. This Article is limited in its application by Article IX(2) European Convention solely to the cases of setting aside set out under Article IX(1) European Convention. In such a case, it is thus still Article V(1)(e) New York Convention which is applied; the fact that the section “…or has been set aside…” in Article V(1)(e) New York Convention is restricted in its application does not change that recognition remains within the regime of the New York Convention.

 

If recognition or enforcement is sought under a national arbitration law, one has to keep in mind that  “[t]he line of reasoning of the French courts can only be applied and followed if a particular legal system does not provide for the annulment of the award as a reason for refusal of the recognition and/or enforcement of a foreign arbitral award …” and that “… the French approach cannot be applied in those legal systems which have incorporated the provision of Article 36 of the 1985 UNCITRAL Model Law …”.[32] Based on this conclusion, Article VII(1) New York Convention as applied in France would also be of no avail in the Ciments Français case: Article 244(2) Arbitrazh Procedural Code of the Russian Federation (APC) forms the basis for a regime for recognizing foreign arbitral awards outside of international agreements and declares the applicability of Article 244(1)(7) APC, and, more importantly, of Article 239(4) APC, which then refers to the law regulating international commercial arbitration. Article 36(1)(1)(5) of the 1993 Russian Federal Law “On International Commercial Arbitration”[33] is similar to Article 36(1)(a)(v) of the 1985 UNCITRAL Model Law, and thus also to Article V(1)(e) New York Convention, with certain minor differences in the Russian wording, yet the section “…or has been set aside…” being the same in all three texts. Had the Ciments Français case been decided under the 1993 Russian Federal Law “On International Commercial Arbitration”, then this national Russian law would arguably have applied by virtue of Article VII(1) New York Convention. Nevertheless, Article IX(1) European Convention would then also have limited the application of Article 36(1)(1)(5) of the 1993 Russian Federal Law “On International Commercial Arbitration” in the same way that Article V(1)(e) New York Convention is limited solely to the cases of setting aside set out under Article IX(1) European Convention by Article IX(2) European Convention.

 

3. Preliminary Conclusion

 

The arbitral awards in Ciments Français and in Putrabali were recognized by applying two different possibilities to recognize arbitral awards that have been set aside in their country of origin. One can agree with Gaillard that the 1961 European Convention “…adopted the same philosophy that led to the conclusion in Norsolor in France some 23 years later”[34] and that the 1961 European Convention “…introduced an approach which subsequently led the French and United States courts to take no account of the setting aside of an award by the courts of the seat of the arbitration”.[35] Yet it has to be acknowledged that the legal basis and the grounds on which a previously annulled award can be recognized applying the “French approach” are different from the legal basis and the grounds for such recognition applying Article V(1)(e) New York Convention, as limited by Article IX(2) European Convention. Confusing these two possibilities – or for that matter, any of the at least fives possibilities quoted above – with each other should be avoided, as this would result in an unclear debate.[36]

 

Out of these possibilities, the scenario as it happened in Ciments Français should be the least controversial scenario, although one may acknowledge that it may be somewhat rare.[37] However, one should keep in mind that in two decisions rendered in the Russian Federation (and available in English), both the Presidium of the Supreme Arbitrazh Court of the Russian Federation in 2004[38] and the Federal Arbitrazh Court for the Northwestern District in 2007[39] already quoted Article IX(1) European Convention. Given these decisions and the “unmistakable position”[40] of the European Convention, which “…is quite explicit on this issue”,[41] and which has been applicable in the Soviet Union and subsequently in the Russian Federation for a total of almost fifty years, Ciments Français should not be too big of a surprise, even when assuming for a moment that it was decided finally and correctly.[42] Thus, although Ciments Français is quite an interesting case, it is not understandable why at this point in time, one would label it as “a positive development for Russia and for international arbitration in general”[43] or as a “groundbreaking arbitration decision”.[44]

 

II. The significance of Putrabali

 

If such a label is based on a comparison of Ciments Français with Putrabali, it is furthermore not justified because the Putrabali decisions are not particularly noteworthy for the fact that an arbitral award annulled in the country of origin was recognized in France. As shown above, in this regard Putrabali is merely a further example for an established approach that the French courts have often affirmed since the Norsolor decision in 1984. In Hilmarton, the Cour de cassation held that “…the award rendered in Switzerland is an international award which is not integrated in the legal system of that State…”.[45] The French courts had since then held that international arbitral awards are not integrated in the legal system of their country of origin.[46] In Putrabali, the Cour de cassation went one step further and held that “[a]n international arbitral award, which is not anchored in any national legal order, is a decision of international justice whose validity must be ascertained with regard to the rules applicable in the country where its recognition and enforcement is sought”.[47] It was this finding which has led French commentators to qualify the Putrabali decisions as “des grands arrêts du droit français de l’arbitrage international”.[48] Currently, the Ciments Français case contains nothing that would resemble the findings in either Hilmarton or Putrabali.

 

To the contrary: Given at least two decisions rendered by the the Supreme Arbitrazh Court of the Russian Federation in 2011, it does not seem likely that it will be recognized in Russia that an international arbitral award is not anchored in any national legal order, or even that it is not integrated in the legal order of the country where it was made. Gaillard has published widely on what he refers to as the three philosophies, or three representations, of international arbitration.[49] Roughly speaking, the first such representation equates the arbitrator with the local judge of the place of arbitration, the second one looks at the whole arbitral process through the end result, thus putting more emphasis on the place(s) of enforcement than on the place where the award was rendered, and the third representation goes one step further in that it contemplates the States collectively, not individually.[50] While arguably the French approach before Putrabali is an example for the second representation, Putrabali itself is arguably an example for the third representation. According to Gaillard,[51] a clear example of the first representation of international arbitration can be seen in a decision of the High Court of Justice of England and Wales from 2005, where it was held that:[52]

 

“… where a person has participated in an arbitral hearing to determine whether he is party to the arbitration agreement, has lost on that issue and has not sought to challenge the arbitral    ruling when he had the opportunity to do so such circumstances are or may be appropriate for the discretion conferred by Article V of the Convention … to be exercised in favour of recognition.”

 

Similarly, Russian Arbitrazh courts seem to require that an arbitral award is challenged with regards to the jurisdiction of the arbitral tribunal in the courts in its country of origin by a party who subsequently wishes to oppose recognition or enforcement of the said award in Russia:[53] In that sense, the Supreme Arbitrazh Court of the Russian Federation held on 26 May 2011:[54]

“It follows from the content of the materials of the case and from the challenged court decisions that [the respondent] did not present the court with any evidence showing that the arbitral award rendered by the arbitration of Stockholm on the question of its competence …   was challenged in the state courts of Sweden.”

 

Another example is a decision by the Presidium of the Supreme Arbitrazh Court of the Russian Federation dated 14 June 2011:[55]

 

“The decision of the arbitration of Austria on the jurisdiction was not challenged by the parties in the state courts at the place where it was rendered. That way, the initial declaration of will of the parties that the private dispute is examined by an alternative way is confirmed by the materials of the case.”

 

The consequences and the range of the two decisions of the Supreme Arbitrazh Court of the Russian Federation cited above remain yet to be seen, and should be the subject of a separate analysis. It is sufficient to conclude here that it seems that the Supreme Arbitrazh Court of the Russian Federation takes the view that an arbitral award is integrated in the legal system of the state where it was rendered, and consequently embraces the first representation. It shall be noted that the decision of the High Court of Justice of England and Wales was subsequently overruled by a decision of the Court of Appeal of England and Wales,[56] with the latter receiving praise.[57] Interestingly, the German Bundesgerichtshof / Federal Supreme Court clarified on 16 December 2010[58] that a party is not precluded to raise objections as to the jurisdiction of the arbitral tribunal in recognition and enforcement proceedings under the 1998 German Arbitration Law[59] if it did not initiate recourse against the award at the seat of the arbitration, and received praise for this decision.[60]

 

III. Ciments Français is not final

 

Unlike Putrabali, the decision of the Arbitrazh Court for the Kemerovo Oblast in Ciments Français is a first instance decision. On 19 August 2011, OAO Holdingovaja Kompanija “Sibirskij Cement” filed an appeal in cassation. This appeal was followed by two further appeals in cassation, filed by İstanbul Çimento Yatırımları Anonim Şirketi and OOO Finansovo-promyšlennyj sojuz “Sibkonkord”. The court that will deal with these appeals in cassation is the Federal Arbitrazh Court for the Western Siberian District, on 1 November 2011 at 09:45 local time in Tyumen, ul. Lenina, Building No. 74, Room 7 (on the 7th floor). Especially as the case is likely to become more complex, any comment on Ciments Français at this time – including the present one – can only be preliminary.[61]