In 1961, three years after the adoption of the New York Convention, the European Convention on International Commercial Arbitration was adopted in Geneva (the Geneva Convention). At the time, the Geneva Convention was noteworthy as being the first international instrument to refer to “international commercial arbitration” by name. Today, however, many practitioners give little consideration to the Geneva Convention and consider it to be of no more than academic interest. The likely explanation for this position is the Geneva Convention’s limited scope of application, in particular the fact that its application depends not only on both the state of the award’s origin and the state of enforcement being signatories, but also requires that all parties to an arbitration agreement must have their place of residence or seat in a contracting state. This is a particular problem given the fact that the Geneva Convention has only been ratified by 31 states. Indeed, while the signatories include many EU states and several non-EU members such as Russia, notable absentees include Switzerland, Sweden and the UK (a full list of signatories is set out the end of this blog). Nonetheless, as a recent decision from the Arbitrazh Court of Kemerovo Oblast in Siberia demonstrates, should the relevant factors align so that the Geneva Convention is triggered, it can be a useful piece of legislation, particularly in relation to enforcement of arbitral awards.
The Geneva Convention regulates issues such as the appointment of arbitrators (Article IV), objections to jurisdiction (Article V), and the applicable law (Article VII). However, it is the Geneva Convention’s provisions in relation to enforcement that are its most prominent feature. In particular, Article IX(2) of the Geneva Convention which limits the application of Article V(1)(e) of the New York Convention.
Article V(1)(e) of the New York Convention provides that recognition and enforcement of an award may be refused if the award has been set aside in the country in which it is made. However, Article IX(2) of the Geneva Convention provides that the fact the award has been set aside will only be relevant if the reason it was set aside was one of an exhaustive list of reasons set out in Article IX(1) of the Geneva Convention. The list of reasons in Article IX(1) of the Geneva Convention essentially mirror the grounds set out in Article (V)(1)(a) to (d) of the New York Convention (party incapacity; lack of notice and a right to be heard; issues beyond the scope of the arbitration agreement; and irregularity in the composition of the tribunal or the procedure). Notably, however, the exceptions set out in Article V(2) of the New York Convention do not appear in Article XI(1) of the Geneva Convention (namely: (i) lack of arbitrability; and (ii) public policy). Therefore, if an award has been set aside in the country of origin on the basis of these reasons (or, indeed, any other reason not set out in Article IX(1) of the Geneva Convention), the enforcing state’s courts may not refuse enforcement of the award on this basis.
Despite the limitations imposed by Article XI of the Geneva Convention, it is important to note that an enforcing state that is party to the New York Convention and the Geneva Convention can still refuse to enforce should the laws of the enforcing state provide that the subject matter of the dispute cannot be resolved by arbitration, or that enforcement would be contrary to public policy. Rather, the limiting factor in the Geneva Convention is that unless an award was set aside in the country of the arbitration for one of the reasons listed in Article IX(1), then the fact it was set aside cannot be used as a reason to refuse enforcement.
There are also two other notable features of the Geneva Convention. First, the Geneva Convention explicitly provides that “legal persons of public law” can validly conclude arbitration agreements (Article II). The term “legal persons of public law” has a wide scope and includes public corporations, the state itself and any of its independent state agencies as well as any federal states. This provision overrides any contradictory law within the home state’s jurisdiction, although it is possible for contracting states to make a reservation on this issue (to date, only Belgium has done so).
Second, the Geneva Convention contains provisions that may help overcome the problem of defective/pathological arbitration agreements (Article IV). In particular, the Geneva Convention provides a mechanism for determining certain details of ambiguous and unclear arbitration agreements, including: (i) whether the parties to an arbitration agreement have to refer their dispute to ad-hoc or institutional arbitration; and (ii) as regards institutional arbitration, which institution a dispute must be referred to.
Nonetheless, as set out at the beginning of this blog, the significant limitation of the Geneva Convention is the fact that its application depends not only on both the state of the award’s origin and the state of enforcement being signatories, but also that all parties to an arbitration agreement must have their place of residence or seat in a contracting state. Coupled with the fact that the Geneva Convention has been ratified by only 31 states, the Geneva Convention’s application is, in reality, severely limited.
However, on 20 July this year, the Arbitrazh Court of Kemerovo Oblast in Siberia relied on the Geneva Convention to recognise a partial ICC award that had been set aside in the country of the seat of the arbitration (Turkey). The decision is a timely reminder of the potential benefits of the Geneva Convention in promoting the enforcement of arbitral awards should all the relevant factors necessary to trigger the Geneva Convention apply.
Ciments Francais, a French company, Sibirskiy Cement, a Russian company, and Cimento Istanbul, a Turkish company, signed an SPA in 2008 under which Sibirskiy Cement undertook to buy shares in various Turkish companies controlled by Ciments Français. Sibersky paid a €50 million advance. The deal fell through and Ciments Français filed for arbitration under the ICC Rules with its seat in Istanbul. The tribunal rendered a partial award which declared that the agreement was valid and Clements Français was entitled to retain the €50 million advance.
The award was subsequently set aside by a Turkish court on three grounds set out in the 2001 Turkish arbitration law. These grounds were: (i) that the arbitrators exceeded their authority by ruling on matters that fell outside the scope of the arbitration; (ii) that the case overran the time limits in the ICC Rules; and (iii) that the award violated Turkish public policy.
Despite the Turkish court ruling, Ciments Français applied to the Arbitrazh Court for recognition of the partial award. Under Article 13(4) of the Arbitrazh Procedure Code of the Russian Federation, if an international treaty signed by the Russian Federation establishes rules other than those which are provided for by the law, the Arbitrazh Court shall apply those rules of the international treaty. In this scenario, the two relevant treaties were the New York Convention and the Geneva Convention.
As set out above, under Article IX(2) of the Geneva Convention, where states are party to both the New York Convention and the Geneva Convention, the provisions of the Geneva Convention regarding recognition and enforcement of awards that have been set aside will prevail. Accordingly, the Arbitrazh Court concluded that none of the grounds for setting aside the award were present in Article IX(I) of the Geneva Convention. It therefore found in favour of Ciments Français and recognised the partial award.
The decision is significant for two main reasons. First, it is the first known instance where a Russian court has agreed to recognise an ICC award which has been annulled at the place of arbitration. This brings Russia (historically a jurisdiction that is perceived as hostile to international arbitration) into line with a select number of jurisdictions which have done so (notably France and the Netherlands). While the decision does not go as far as the French Hilmarton and Putrabali decisions, or the Dutch Yukos decision, it is nevertheless significant as it demonstrates that the Russian courts take the view that local standards of annulment at the place of arbitration shall not prevail if they are contrary to the applicable international standards – this is a very arbitration friendly position.
Second, the decision provides a rare examination of the interrelationship between the New York Convention and the Geneva Convention. It demonstrates that despite the Geneva Convention’s limitations, it can be a powerful tool to be used in enforcement proceedings should circumstances dictate that it applies. However, at the same time, the decision also highlights a notable disparity between the Geneva Convention and the New York Convention.
Mike McClure, Herbert Smith Moscow
The following states are signatories to the Geneva Convention: Albania, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Burkina Faso, Croatia, Cuba, Czech Republic, Denmark, Finland, France, Germany, Hungary, Italy, Kazakhstan, Latvia, Luxembourg, Macedonia, Moldova, Montenegro, Poland, Romania, the Russia Federation, Serbia, Slovakia, Slovenia, Turkey and Ukraine.
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Dear Mike,
Thank you for the interesting post. It is indeed could have been a significant signal showing the change in the Russian judicial system, and more remarkably it would have been from a regional commercial (arbitrazh) court, towards the international arbitration. But there are some concerns which I would like to mention.
The fact that the regional Russian court referred to the Geneva Convention of 1961 quite intriguing and was likely partly an achievement of the efforts made by the claimant who was represented by a reputable law firm, Salans, having sufficient experience in international arbitration. However, in my opinion, the decision (“Award Recognition Decision”) contains some flaws which raise at least some questions.
The Award Recognition Decision of the Russian Arbitrazh court of the Kemerovsky region (“Court”) had been already appealed to the Cassation court of the West-Siberian Region (“Cassation Court”) on 30 August 2011. The permission to appeal was granted by the Cassation Court on 15 September 2011.
Lodging of an appeal to a cassation court does not suspend the effect of a first instance court decision. However, as in this instance, the Award Recognition Decision was a decision of a first instance court, and considering that Russian law is not a precedent based in any case, it would be more important to wait for the outcome of the appeal in the Cassation Court.
It is also quite interesting why the defendants first did not appeal the Award Recognition Decision in an appeal court within 30 days. But rather they skipped this option and lodged an appeal to the Cassation Court. Probably, this was a tactical move from the defendants as they needed to resume the parallel proceedings between the same parties in an appeal court (“Appeal Court”) where the validity of the SPA was contested. They could do so provided the Award Recognition Decision was not challenged in an appeal court.
In those proceedings, on 13 August 2010, the first instance court rendered a ruling (“SPA Validity Decision”), whereby it recognised the SPA as void and obligated the defendant, who was the claimant in the Award Recognition Decision, to return Euro 50,000,000 to Sibirsky Cement, one of the defendants.
Besides, the point that the SPA Validity Decision did not come into force at the time of the hearing in the Award Recognition Decision proceedings was important for a judge to rebut the argument of the defendant that the SPA Validity Decision had a res judicata effect in the present proceedings.
As mentioned in the post, the ICC Award was set aside by a Turkish court on the following three grounds pursuant to the Turkish International arbitration law No.4686 (“TIAL”). I set out them here succinctly as they were stated in the Award Recognition Decision:
(i) the arbitral award was not rendered during the prescribed time limits;
(ii) the arbitrators exceeded their authority by not considering in good faith the submission of the debtor on the termination of the SPA;
(iii) the award, providing for its preliminary enforcement and the parties’ waiver to file an application to set the award aside, was contrary to the public order.
The First Instance Court came to a conclusion that the first and second grounds for setting aside the ICC Award are only provided by the TIAL and not by the Geneva Convention. As a result setting aside the ICC Award on these grounds does not preclude its recognition in Russia.
The Court then concluded that according to the Geneva Convention the setting aside of an arbitral award due to its being contrary to public order of a country because of breach of a foreign private law of the state in which the award was rendered does not constitute a ground for the refusal of its recognition and enforcement in another state, which is a party to the Geneva Convention.
The Court mentioned that the decision of the Turkish court was appealed on 30 June 2011 and thus was not final as at the date of the hearing in the Award Recognition Decision proceedings.
The Court further referred to the SPA Validity Decision which was not binding on it as well as it did not come into force as at the hearing date.
For all these reasons, the Court decided that the ICC Award was set aside by the Turkish court under their domestic rules not provided by the Geneva Convention, whereas the last ground is not a ground for the refusal of recognition of the award as it is limited by the Geneva Convention (Article XI(2)).
First point to note is that the Court could have awaited the outcome of the consideration of the appeal on the SPA Validity Decision but decided not to do so. The SPA Validity Decision was affirmed by the appeal court on 26 September 2011. It is unknown what the situation with the Turkish appeal is. However, would the Court have ruled in favour of the claimant should any of these decisions had come into force.
Secondly, it is not clear what the Court meant by stating that the first and second grounds only provided by the Turkish law and not the Geneva Convention.
If one looks to Article IX(1) of the Geneva Convention, it may be concluded that the first ground falls within paragraph (d) of that Article. It provides inter alia a ground for the refusal of recognition if the arbitral procedure was not in accordance with the agreement of the parties. Here there was an agreement of the parties – arbitration under the ICC Rules which as well in Article 24(1) provides for the time limit for rendering an award.
Then the same is applicable with regard to the second ground. It is likely that the issue here was one arising from the provision of Article 15(2) of the ICC Arbitration Rules whereby in all cases the tribunal must “act fairly” and ensure that each party has a reasonable opportunity to present its case. The Court in the Award Recognition Decision refereed to “good faith principle”, this was either an improper translation by the Court of the above Article or it was the rule of the Turkish law, but nevertheless may be regarded as procedural irregularity matter.
Besides, the seat of arbitration was Turkey and thus Turkish law was directly applicable to the challenging proceedings in the Turkish court as relevant lex loci arbitri unless the tribunal had decided to settle the case on any other law.
It seems simply that the Court was trying to find the exact grounds, as stated by the Turkish court, in the Geneva Convention. And when it did not find them it concluded that the only relevant in the present proceedings ground was the third one which according to Article IX(2) of the Geneva Convention was not a ground for the refusal of recognition of an arbitral award.
It thus very likely that the Court was wrong in the way it applied the Geneva Convention. If so it remains to be seen what would be the outcome of the present case in the Cassation Court. And only then it might be argued whether the ponderous locomotive of the Russian judicial system has changed its direction towards being a pro-arbitration country.
Dear Mike, dear Dmitry,
thank you for this interesting post and respectively for the comment on it, which is so comprehensive it could have been a post of its own.
Please allow me to point you to my recent case note entitled “Ciments Français – a Russian Putrabali?”, where I have taken account of both your views. The case note is available here: http://www.youngicca-blog.com/?p=134#more-134
There is only one point I made in my case note that I find so important that I would like to reiterate it here:
Mike stated that Ciments Français “…is the first known instance where a Russian court has agreed to recognise an ICC award which has been annulled at the place of arbitration. This brings Russia … into line with a select number of jurisdictions which have done so (notably France and the Netherlands)” and later on, that “… the Russian courts take the view that local standards of annulment at the place of arbitration shall not prevail if they are contrary to the applicable international standards.”
While it is true that courts in both France and the Netherlands have recognized previously annulled arbitral awards, they have done so on different grounds and for different reasons than the Arbitrazh Court for the Kemerovo Oblast:
In French decisions, the courts apply a domestic law (French Law) outside the New York Convention via Article VII(1) New York Convention.
Assuming that with regards to the Netherlands you are referring to the Rosneft case, I would like to point out first that the Netherlands – as you stated correctly – is not a Contracting State to the European Convention, and thus it is not possible that an arbitral award annulled in its country of origin was recognized in the Netherlands via an (at least, not a direct) application of Article IX European Convention. To understand what happened in the Rosneft case, let me point you to the case note by Professor Albert Jan van den Berg, Journal of International Arbitration, 2010, Volume 27 Issue 2, pp. 179 – 198.
If you write about “local standards of annulment” and “applicable international standards”, this is likely to remind of yet another possibility to recognize previously annulled awards, as advocated by Professor Jan Paulsson. In his opinion, the grounds for refusing an arbitral award set aside in the country of origin named in Article V(1)(e) of the New York Convention should be limited to cases in which an “international standard annulment” (ISA) has been applied (quoted from van den Berg, JoIA 2010, 179, 188; for Paulsson’s view, cf. only Paulsson, Enforcing arbitral awards notwithstanding a Local Standard Annulment (LSA), ICC Bulletin Vol. 9/No. 1 – May 1998, pp. 14-31).
What happened in Ciments Français is yet another possibility, different from the three possibilities above: an application of Article V(1)(e), 2nd Alternative, New York Convention, as 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.
Out of the various possibilities that are discussed for the “recognition of arbitral awards annulled in their country of origin”, the scenario as it happened in Ciments Français should be the least controversial scenario, although one may acknowledge that it may be somewhat rare. 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 and the Federal Arbitrazh Court for the Northwestern District in 2007 already quoted the part of Article IX(1) European Convention which is relevant for the decision in Ciments Français.
Given these decisions and the “unmistakable position” of the European Convention, which “…is quite explicit on this issue” (quoting Professor Emmanuel Gaillard, Enforcement of Awards Set Aside in the Country of Origin: The French Experience, ICCA Congress Series 1998 Paris Vol. 9/1999, p. 505, 521 and 520 respectively), and which has been applicable in the Soviet Union and subsequently in the Russian Federation for a total of almost fifty years, Ciments Français – even when assuming for a moment that it was decided finally – should not be too big of a surprise.
Let me close with quoting Professor van den Berg (JoIA 2010, 179, 181):
“In the discussion regarding the recognition and enforcement of arbitral awards set aside in the country of origin, those possibilities are sometimes confused with one another, which results in an unclear debate.“
Sincerely yours,
Michael Wietzorek