Failure to demonstrate the existence of an arbitration agreement impedes enforcement of an ICC award

In yet another case, Greek courts have dismissed an application to grant exequatur to an ICC arbitral award issued in Paris, on the grounds of insufficient evidence provided as to the existence of an arbitration agreement between the parties. The decision joins a group of earlier judgments, and makes clear that domestic courts are not bound by the position taken on the matter by the arbitral tribunal [Thessaloniki 1st Instance Court Nr. 24637/2013, unreported].

THE FACTS: The parties are a Greek (the seller) & an Italian company (the buyer). The seller trades in cereals, whereas the buyer engages in selling cereals and feedingstuffs globally. May 2011 the buyer cooperated with a Swiss broker, in order to proceed to the purchase of wheat. Late May 2011 the Swiss broker contacted a Greek broker on behalf of the buyer. Following negotiations on the selling price of a certain quantity of wheat, the brokers agreed on the terms of a sales contract. The Greek broker’s CEO sent an e-mail containing the terms (one of which was referring to arbitration [ARBITRATION: PARIS]), and assured the Swiss broker that his company acts on behalf of the seller. After some exchange of e-mails with respect to amendments of contract terms and the replacement of the seller’s legal representative, the Swiss broker sent the agreement signed by the buyer, and requested that the latter be returned signed by the seller. The Greek broker forwarded the agreement by e-mail to the seller, requesting the same. Mid July 2011 the seller’s new representative answers by the same means of communication, denying the conclusion of any agreement binding for the seller, supposedly resulting from the e-mail correspondence between the Greek broker and the seller’s previous representative. The Greek broker responded by reproaching the seller for not respecting an international brokerage contract, which had been agreed orally by the seller’s earlier representative. At the same time, the broker informed the buyer on the developments. Early August 2011 the seller is notified by the Greek broker on the vessel chartered for the merchandise’s shipment; the seller responds three days later, contesting the existence of any binding agreement between the parties. As a result, the buyer decides to refer the case to the ICC court in Paris, for violation of contractual terms. The ICC court acknowledged the existence of a sales agreement, and ordered the Greek company to pay the sum of 93.000 €, plus extra expenses.

THE RULING: The court dismissed the application: The conclusion of an arbitral agreement has not been demonstrated by the applicant. The document produced pursuant to Art. 4 of the 1958 New York Convention (NYC) fails to meet the requirements set. In particular, its main features are the following: It is submitted in the form of a fax copy, drafted by the Swiss broker, bearing its logo, and confirming a sales contract between the parties. The name of the buyer and a signature are to be found at the end of the document. The latter would have constituted a solid ground for the award’s recognition and enforcement, if it contained a signature from the seller’s side, or if any other documents (of the alternatives set forth under the NYC, such as a telegraph, a telex, a confirmation e-mail by the seller) were produced. On the contrary, none of the above has been submitted. Beyond that, the mere participation of the seller before the ICC tribunal does not give rise to the conclusion, that it had given its tacit approval to the ICC court’s jurisdiction, given the fact that its presence took place solely for the purpose of challenging both the conclusion of the agreement and the ICC court’s competence to examine the case and issue an award. In addition, it has not been proven that the Greek broker was not in possession of any written power of attorney, so as to proceed with negotiations aiming at the conclusion of an agreement on the seller’s behalf. In light of the above, the court considered that the requirements set forth under Art. 4 in conjunction with Art. 2 NYC have not been proven. As a result it dismissed the application.

COMMENTS: The question whether the parties have indeed concluded an arbitration agreement has been examined in numerous cases before Greek courts [see for instance here]. Depending on the facts, courts decide in favour or against exequatur. Focusing on the case at hand, I would like to underline the following aspects:

a. The court has rightly examined the question according to the provisions of the NYC, granting prevalence of Art. 4 & 2 NYC over any other rules, as to the validity of the arbitration agreement.

b. The court has however applied automatically Greek Civil Law on the power of attorney issue. On the one hand it is true that Art. 1 Para. 2 (e) of the Rome I Regulation (593/2008) excludes arbitral agreements from its field of application; on the other hand however, it is not unanimously accepted in Greece that domestic law prevails over the NYC, i.e. the case law developed on the matter (since it is not explicitly covered by the text of the Convention).

c. The court has referred to a number of Greek decisions, by virtue of which courts are allowed to examine the validity of an arbitration agreement de novo, even if the matter had been brought to the attention of and decided by the arbitral tribunal. In this case, the issue will be examined as being a ground for refusal, and regardless of the arbitral tribunal’s judgment on the matter. Needless to say, that an appeal has been lodged against the judgment. It will be very interesting to wait for the Thessaloniki CoA to re-examine the case. Most importantly, it will be highly helpful to see whether there will be any referral to the ICC court’s reasoning on the central point of the agreement’s validity, which for some reason is missing here. I’m not suggesting an open confrontation, but more likely a constructive dialogue with the ICC court’s line of argument, so as to compare the diverging solutions and draw respective conclusions.

International public policy and suspension of enforcement of an ICC award on the grounds of corruption

The following is a contribution from Ms. Maria Psarra, Trainee Lawyer, LL.M Private International Law (University of Athens).

KEY WORDS:   International Commercial Arbitration – Law 2735/1999 – International Court of Arbitration of the International Chamber of Commerce – ICC - suspension of enforcement of an arbitral award – proceedings for annulment of arbitral award - international public policy– prima facie evidence - corruption

DECISION NUMBER:  595/2014

COURT: Court of Appeal of Athens 

LEVEL:  Appellate Court

PUBLISHED IN:  T.N.P. ISOKRATIS (D.S.A.)

A. FACTS OF THE CASE

The proceedings before the International Court of Arbitration of the International Chamber of Commerce (hereinafter ICC) related to a contract for supply of security systems, commonly known as C4I, for the Olympic Games held in Athens in 2004. The contract was concluded between the Hellenic Republic and the ‘Contractor’, a foreign company which has its seat in the US. Immediately after the conclusion of the contract, the Contractor subcontracted the execution of the most functional and economically important part of the project, corresponding to 71% of the total project budget, to a Greek subsidiary - the ‘Subcontractor’ - of a German engineering and electronics conglomerate company (Siemens). The performance of the contract did not progress smoothly. Specifically, the project was not completed on time, resulting, under the pressure of lack of time, to the acceptance of certain subsystems for use during the Olympic Games, despite the initial commitment of the contractor to deliver the project as a whole. Finally, by a series of amendments to the contract the delivery day was set on 29-10-2008, i.e. after the lapse of more than four years after the Olympic Games.

Finally, at the request of the Contractor, the dispute that arose was resolved by the ICC. Τhe arbitral tribunal rejected the plea of nullity of the contract raised by the Hellenic Republic pursuant to a) Law 2957/2001 (Government Gazette A 260/12.11.2001) for the ratification of the Council of Europe Civil Law Convention on Corruption, signed in Strasbourg on 4 November 1999, (b) in accordance with Articles 147 and 149 Civil Code, (c) in accordance with Articles 174, 178 and 179 of Civil Code and (d) pursuant to Law 5227/1931 "on intermediaries" and  by a final decision on 02.07.2013 partially upheld the claims of the Contractor and ordered the Hellenic Republic to pay the Contractor the total amount of 39,818,595 euros (the rest of the amount due for the execution of the contract, compensation and VAT) plus statutory interest from the service of the award.

In the light of the above, the Hellenic Republic filed to the Court of Appeal of Athens an application for suspension of execution of the 2-7-2013 (CASE - ICC) final decision of the ICC, pending the decision on the application for annulment that the Hellenic Republic had filed before the said Court, invoking, among others, that the execution of the arbitral award is contrary to international public policy.

B. RULING

Suspension granted.

C. LEGAL BASIS

According to Article 34 of Law 2735/1999 on International Commercial Arbitration[1] an arbitral award may be set aside by the court specified in Article 6.2 only if: (a)…(b) The court seized by an application for the setting aside shall also decide ipso iure whether: (i) …(ii) the award is in conflict with the international public policy as defined in Article 33 of the Civil Code. Pursuant to the Court of Appeal violations of public policy exists when “the violation of public policy  stems directly from the content of the arbitration award in its entirety, i.e. not only the operative part, but also from its reasoning” and that award is “[contrary] to the fundamental rules and principles that reflect social, economic, civic, political, religious, moral and other beliefs”.     Moreover according to Article 6.2 of Law 2735/1999 competent to decide on the application for setting aside provided by Article 34.2 is the Court of Appeal, in the jurisdiction of which the award is rendered. Under Article 35.3 of Law 2735/1999 the application for setting aside does not suspend the enforcement of the award. Provided that the application is admissible according to Article 34, the competent court may order, according to the procedure for interim measures, such suspension, with or without conditions, until such time as a final decision is issued on the application, if it considers that there is a prima facie evidence for one of the grounds alleged to be well-founded. 

Specifically, CoA held that there is a prima facie evidence of violation of the international public policy – Article 33 of the Civil Code –. Specifically it held inter alia that:  

“…although the aforementioned contract had been concluded between the applicant [Hellenic Republic] and the defendant [Contractor], the Subcontractor company, a subsidiary of a German company, both of which (the subsidiary and parent company) are active in the public procurement sector in Greece for many years, had active participation, not only in performance but also in negotiations which led to the award of this project.”

“During the period 2002-2007, i.e. the period of the negotiations for the award and progress of the contested contract, executives of both the parent company, and its subsidiary company, had been implicated in acts of corruption of persons exercising influence to the related decisions,  in order to achieve the award of the public contracts to them [ Contractor and Subcontractor], to who (persons) they paid sums of money, amounting to 10% of the object of contract (8% senior officials and 2% on political figures).”

“The revelation of these illegal practices and methods of the executives of the Contractor and Subcontractor in the undertaking and execution of projects in Greece, caused political controversy and investigation of any responsibility of politicians from the Commission of Inquiry of the Parliament and prosecution for felonies have already been exercised.  … A publication in the Government Gazette A 164/2012 of the Ministry of Finance 07085EX2012 Decision, followed, which includes the Settlement Agreement between the Hellenic Republic and SIEMENS, by which all matters related in any way with corruption activities were resolved”.

“Moreover, the former General Manager of the Subcontractor was convicted by the Magistrate court of Munich for two cases concerning bribery of public officials of another member state of the European Union (Greece) in nine months' imprisonment for each case and total imprisonment of one year. The above Court in the -/09 judgment, held that the General Manager, in order to accelerate the acceptance of individual sections of the C4I project and influence the responsible civil servants , which he did not know by name, in separate discussions with the treasurers of the two major political parties (PASOK and New Democracy), by the end of 2003, agreed to distribute to those political parties sums of money, amounting to at least a double-digit million euros,  to exercise the necessary pressure on the public officials adjacent to these political parties, so that these officials can exercise their discretion in a manner in which , in doubtful cases, they would decide, possibly in breach of their duties, in favor of the Contractor and Subcontractor companies”.

“Based on the above evidence it is speculated that the value of the project, as budgeted based on the offer of the defendant [Contractor], increased by 10 %, i.e. the amount required for the bribery of politicians and public officials, in order for the latter, when concluding the contract and the amendments of this contract, and during the delivery stages of the individual parts of the project, to keep a favorable attitude for the Subcontractor and consequently the Contractor and the illegal surcharge passed on the Hellenic Republic (Applicant) and ultimately passed on to Greek citizens.”

“The speculated conduct of investment corruption, mainly through the bribery of public officials, both in the phase of the award and in the execution and delivery of the project in question is not only contrary to the fundamental socio-economic, civic and moral concepts underlying values of the society in  Greece, but also to the  internationally prevailing principles of the objective management and legitimate and integral functioning of public services and transparency and fair competition in public procurement. Under the foregoing circumstances, the consequences which will be generated by the execution in the lex fori of the  7.2.2013 final decision of the International Court of Arbitration, with the payment to the defendant of the amount due and compensation for the said project, whose award conditions, approval and acceptance, are subject of an ongoing criminal investigation , involves the disruption values of the society in the country and therefore makes the enforcement of that decision in the lex fori contrary to international public policy, as defined above”.

D. COMMENTS

In international legal scholarship the issue of corruption has been extensively addressed in recent years. The main subjects focus 1) on the sua sponte investigation or not into the issue of corruption, 2) the burden of proof, 3) the existence of sufficient or prima facie evidence, 4) its effects on the contract concluded, and 5) its effects on the setting aside of the arbitral award.

The suspension proceedings before CoA of Athens focused on the fifth and particularly whether it is probable that the aforementioned evidence of corruption which resulted in the conclusion and subsequent modifications of the supply contract render the enforcement of the arbitral award contrary to international public policy. To that end, it is observed that a large number of authorities support the view that the existence of corruption acts runs contrary to international public policy, even to a so called transnational public policy.

The most cited examples are 1) the arbitral award rendered in ICC Case No. 1110 (1963) where Judge Lagergren stated in paragraph 20: “Whether one is taking the point of view of good governance or that of commercial ethics it is impossible to close one‘s eyes to the probable destination of amounts of this magnitude, and to the destructive effect thereof on the business pattern with consequent impairment of industrial progress. Such corruption is an international evil; it is contrary to good morals and to international public policy common to the community of nations”. 2) The ICSID award in case No. ARB/00/7, World Duty Free Company Limited v The Republic of Kenya, which states in paragraph 157 that “In light of domestic laws and international conventions relating to corruption, and in light of the decisions taken in this matter by courts and arbitral tribunals, this Tribunal is convinced that bribery is contrary to the international public policy of most, if not all, States or, to use another formula, to transnational public policy. Thus, claims based on contracts of corruption or on contracts obtained by corruption cannot be upheld by this Arbitral Tribunal”.

Our attention is now focused on the decision of the CoA on the setting aside of the arbitral award and whether the abovementioned probable findings suffice to render the enforcement of the contested arbitral award contrary to  international public policy.

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[1] See, K.D. Kerameus, The New Greek Law on International Commercial Arbitration, Revue Hellénique de Droit International, 2/1999, pp. 583 et seq. An official translation in English and French is available in pp. 586 et seq.

Enforcement of an ICC award and a Swiss Supreme Court judgment

A decision of the Thessaloniki 1^st Instance Court declared enforceable an ICC award rendered by a Panel in Geneva and a Swiss Supreme Court judgment ordering costs.  The arbitral award was challenged before the Swiss Supreme Court, which dismissed the appeal. The court applied the New York and the Lugano Convention respectively.

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THE FACTS: The applicant is a major multinational company with its seat in Wales, UK. It obtained an arbitral award by the ICC, issued by a Panel in Geneva, against a Greek company. The agreement to submit their disputes to arbitration emanates from the distribution agreement signed by the parties. Both parties entered an appearance to the arbitration proceedings. The award was rendered in late February 2013, and became final and conclusive pursuant to the ICC Arbitration Rules. In April 2013 recourse was filed by the Greek company before the Swiss Supreme Court, requesting the annulment of the award. Again, both parties appeared. The Supreme Court dismissed the recourse and ordered the Greek company to pay the amount of 16.000 Swiss Franc. The judgment is available (in French) in the web site of the Swiss Supreme Court [www.bger.ch, Arrêt du 30 septembre 2013, 4A_232/2013]. The judgment was notified to the parties and became final. 

THE DECISION: The Thessaloniki court presented in detail the applicable law, separating the arbitral award from the costs order. It applied the 1958 NYC for the former, and the 2007 Lugano Convention for the latter. It properly proved the requirements set under Art. 5 NYC , 34 Lugano Convention, and 323 Greek Code of Civil Procedure. The sole ground for refusal raised by the Greek party was that the claim in question was not included in the arbitration agreement. In particular, the company distinguished the distribution agreement from a number of separate sales contracts between the parties. Whereas the former was part of the arbitration agreement, the latter was not, so the Greek company. The court noted that the Greek company took part in the Geneva arbitration proceedings, and later on before the Swiss Supreme Court, without raising the point aforementioned. In addition, it filed a claim for damages against the UK company in the course of the arbitration proceedings. Finally, judging by the wording of the arbitration clause the court dismissed the point of the Greek company, by making reference to the text of the agreement, which explicitly submits all disputes emanating from or connected with the distribution agreement to arbitration. 

COMMENTS:  The decision of the Thessaloniki court is in line with earlier rulings. Half a decade ago the Full Bench of the Supreme Court gave green light to execution regarding a similar case, i.e. again an ICC award from a Panel in Switzerland, combined with a costs order by the Swiss Supreme court [Case Nr. 11/2009, Enterprises & Companies Law Review 2010, p. 1213 et seq.]. The only thorn in the ruling is the confusion caused to the court regarding the origin of the award: Influenced by the seat of the applicant, it mistakenly considered it as a UK arbitral award. In substance however nothing changes, since the NYC applies both to the UK and Switzerland.

No exequatur for an ICA award in Greece

This is a case demonstrating the pitfalls hidden in the arbitration agreement between the parties. The Lamia CoA dismissed the appeal of a UK company against the 1^st instance ruling, which refused to declare enforceable an award rendered by the International Cotton Association Arbitral Tribunal. Applying Art. 2 NYC, the CoA found that the arbitration agreement signed between the UK company and the CEO of a Greek SA does not bind the latter, because the executive director had no authority to sign such an agreement pursuant to the company’s articles of association [Lamia CoA Nr. 10/2013, published in: Εφαρμογές Αστικού Δικαίου & Αστικού Δικονομικού Δικαίου (Theory and Practice of Civil Law & Civil Procedure Law) 2013, pp. 320 et seq.].

The facts: The applicant & appellant is a UK company with its seat in Liverpool, focusing on international cotton transactions. In the course of the above business activities it concluded a number of contracts in 2008 with a Greek SA, by virtue of which it purchased certain quantities of cotton. An arbitration clause in favor of the ICA Arbitral Tribunal was included in all contracts signed by the CEO of the Greek company. Following frictions and disagreements in the course of business between the parties, the UK company decided to activate the arbitration clause. The Greek company refused to participate in the arbitration proceedings. The ICA Tribunal issued its award in February 2010, ordering the default party to pay the amount of nearly 5 m. US $. The award was not challenged by the Greek company. The Livadia 1^st Instance Court [Nr. 129/2011, unreported] dismissed the application to grant exequatur. The UK company appealed. 

The ruling: The CoA made special, if not exclusive reference to the articles of association of the Greek SA. Pursuant to Art. 20 of the above, the board has the exclusive powers of administration and representation of the company; it may however confer powers to persons, be they members of the board or not, in written, by defining the faculties given to those persons and their limits. By implementing Art. 20, the board conferred a number of powers to the CEO of the company. A right to conclude or sign arbitration agreements was however not included in the written authority granted.

Accepting that such a right should be included implicitly in the powers conferred would run contrary to the wording of Art. 20 of the articles of association, unless the Greek company would give its consent. This was however not the case, since the latter did not participate in the proceedings. In conclusion, a written and explicit power of attorney to sign the arbitration agreements did not exist. Hence, the 1st Instance court was right to refuse exequatur to the foreign award.  

Comments: It has been underlined already, that agency law often requires proof that the agent was granted authority, express or implied, to enter into the relevant contractual relationship on behalf of the principal. In this regard, national laws differ substantially on questions of necessary form and content [Wolf (ed.)/Wilske/Fox, New York Convention (2012), p. 168 et seq.]. Sad as it may seems for the free circulation of arbitral awards around the world, most notably for those issued by institutional arbitration panels, the court has reached a correct decision. Actually it is the first reported case refusing to grant enforceability to an ICA award in Greece; a number of earlier rulings followed the opposite direction. 

Conclusion: Foreign parties need to show the utmost diligence in the matter, so as to avoid a painful defeat, such as in the case reported.