Wednesday, 30 April 2014

Enforcement of a JAG award in Greece

The Thessaloniki 1st Instance Court granted enforceability to an arbitral award rendered by an arbiter of the Judicial Arbiter Group, situated in Denver, Colorado. Among other issues, the Greek judge examined the conformity of the US award to Greek public policy [Case Nr. 21870/2013, unreported]. 

The facts: The parties, i.e. a US company, with its seat in Greenwood Village, CO, and a Greek entrepreneur, concluded a franchise agreement in 2009. It was agreed that the US company (franchisor) would grant franchise rights to the Greek counterpart (franchisee). The latter issued two promissory notes to the order of the franchisor, due in October 2009 and April 2012. The franchisee failed to pay the agreed amounts, which led the franchisor to the decision to terminate the agreement in July 2012. Mid November 2012 the US company filed an application for an arbitral award at the JAG, thus activating the arbitration clause agreed by virtue of the franchise agreement. Pursuant to Art. 21.2 of the contract, the parties agreed not to question the validity or enforceability of the award. According to Art. 21.5, the Federal Arbitration Act would be applicable. The Greek court referred to § 2, 201 & 202 of the above Act. The applicant sought damages consisting of: 46.127,81 $ for trade mark infringement, alternatively for violation of the franchise agreement; 75.935,77 $ & 22.221,91 $ for payment of the promissory notes, interests included; 16.887,90 $ for costs and lawyer’s fees. The hearing was set for February 13, 2013. The franchisee was notified of the proceedings through e-mail sent by the applicant on November 15, 2012, and by the arbiter’s office on December 6, 2012. The award was issued end February 2013, ordering the payment of the amounts above. It was also ordered that the franchisee should refrain from any competitive acts within the Greek territory for one year. The US company requested that the arbitral award be recognized and enforced pursuant to the 1958 New York Convention on the recognition and enforcement of arbitral awards. Both countries are signatories of the Convention. 

The ruling: The court applied the New York Convention, which forms part of Greek law since 1961. The franchisee raised a number of points under Art. 5.1, however it did not produce any evidence in order to support the grounds of refusal asserted.
The court examined the public policy reservation in light of the following allegations made by the franchisee:
a.      That the agreement was imposed to her by the US company. It has not been proven that the arbitration agreement was the result of duress by the applicant against its Greek counterpart.
b.      That she was deprived of her rights to participate in the arbitration proceedings. It has been proven that she was given proper notice and in time sufficient to arrange for her defense.
c.       That she would have to spend a significant amount for protecting her interests before the arbiter in Denver, i.e. approximately 10.000 $ advance payment, plus 420 $ per billable hour. It has not been proven that the franchisee’s financial situation was such, as to impede her participation in the arbitral proceedings. Besides, so the court, the amounts mentioned above were probably high, however in proportion to the subject matter, thus not excessive and disproportionate, so as to activate the public policy ground for refusal.
d.      That the interest rate agreed (18 %) is 10 % higher than the present rate in Greece. The court stated that an interest rate exceeding the current domestic rate does not constitute per se a public policy violation. It also added that it is not permitted to the court of destination to examine how the foreign award applied the agreement of the parties in this respect.
e.      That the order of the arbiter against the franchisee to refrain from any competitive activities violates domestic public policy. The court dismissed the point, referring to the facts of the case as accepted by the arbiter, namely that the franchisee continued to offer the same services without fulfilling her obligations towards the applicant.  

Comments: To my mind, two issues should be highlighted in this decision.
a.      The court did not hesitate to grant full validity to e-mail messages for the purposes of Art. 5.1 b of the NYC. I don’t recall any decision from my jurisdiction being so generous to such a method of notification. The reason lies probably in the franchisee’s omission to challenge this form of notice.
b.      The second point relates to the part of the award, which grants damages for trade mark infringement, or alternatively for violation of the franchise agreement. As noted in earlier postings with respect to a Ukrainian and a Chinese arbitral award, a penalty for non-performance is not per se contrary to Greek public policy; still, Greek courts are obliged to estimate whether the amount is to be considered as excessive according to domestic public policy standards. Failure to proceed to the test leads to reversal [Supreme Court 1260/2002]. In the present case, the court did not examine the issue whether punitive damages for non performance reaching almost 50 % of the actual claim are in sync with Greek public policy.