It has been a busy start of Spring in Paris. In the last two days of March, French courts rendered two major judgments in connection with set-aside proceedings hinging on (the lack of) jurisdiction of arbitral tribunals in investment arbitrations. In recent years, the Paris Court of Appeal has adopted a relatively more interventionist approach when reviewing arbitral awards, prompting commentators to question Paris’ reputation as an “arbitration-friendly” seat. The cases discussed below may provide litigants with additional insight on the prospects for investment treaty arbitration proceedings seated in France. While the rulings reached opposite results, together they provide some guidance on the approach that French courts may take upon review of jurisdictional issues.
Both cases involved application of Article 1520(1) of the French Civil Procedure Code which gives the set-aside judge the power to review the jurisdiction of the arbitral tribunal de novo, taking into account both facts and law in order to establish the scope of the agreement to arbitrate, but precludes the set-aside judge from scrutinizing the merits of the award.
US$ 1.1 Billion Oschadbank v. Russia Award Set Aside by the Paris Court of Appeal on 30 March 2021
On 30 March 2021, the Paris Court of Appeal issued a set-aside decision in Oschadbank v. Russia. Like in other cases, the Court of Appeal performed a de novo review of the tribunal’s jurisdiction, taking into account both elements of fact and law.
The key provision at play was Article 12 of the Russia-Ukraine bilateral investment treaty (BIT) which provided that the BIT “shall apply to all investments made by the investors of one Contracting Party in the territory of the other Contracting Party as of 1 January 1992”.
The key issue before the Court of Appeal was whether the claimant’s investments in Crimea fell within the ratione temporis scope of the BIT, i.e., were made starting from 1 January 1992. The Court considered the facts surrounding the assets and banking operations of Oschadbank’s Crimean branch and found that the bank’s local branch in Crimea was operating already in 1991, such that the investment was made before 1 January 1992 and was thus outside the scope of the BIT. The Court rejected Oschadbank’s argument that the relevant date was the date of registration of its Crimean subsidiary by the Ukrainian authorities, i.e., 2 January 1992. Thus, the Court of Appeal took into account the economic reality of the banking activities having been carried out already in 1991, rather than the date of the formal registration of the local subsidiary (2 January 1992).
This judgment is noteworthy for a number of reasons.
The outcome hinged on a debatable assessment of the date on which the investment was made. This issue was not raised before the arbitral tribunal. Russia did not participate in the proceedings, except sending a letter to the tribunal at the beginning of the arbitration setting out its objections to jurisdiction and stating that it would not participate in the proceedings on grounds of lack of jurisdiction. The ratione temporis argument was not on the list of Russia’s objections but was a new argument raised in the set-aside proceedings based on new evidence uncovered by Russia.
The Court noted that, where the parties had debated issues of jurisdiction in the arbitration, they are not precluded from invoking this issue before the annulment judge and raising new arguments where there are new elements of proof, unless the circumstances reveal that the party who failed to raise the issues before the arbitral tribunal had accepted the tribunal’s jurisdiction. While Russia did not participate in the arbitration proceedings brought by Oschadbank, the Court of Appeal took into account Russia’s letter disputing jurisdiction of the tribunal and declining to participate in the proceedings on that basis and thus rejected the investor’s argument that Russia should be precluded from raising objections to jurisdiction before the set-aside judge.
The consequences of the Court’s set-aside decision are significant, given that enforcement efforts had already been commenced in several jurisdictions (including Ukraine). Russia had previously applied for a stay of enforcement pending the outcome of the set-aside proceedings but was unsuccessful before the Paris Court of Appeal, for more details click here. Annulment by the courts of the seat of the arbitration is one of the grounds for objecting to enforcement of an award under the New York Convention.
This is not the end of the saga. Counsel for the investor reportedly indicated its intention to appeal the set-aside judgment to the French Supreme Court (Cour de Cassation).
US$ 996.5 Million (Plus Interest) Rusoro v. Venezuela Award Reinstated by the Cour de Cassation on 31 March 2021
On 31 March 2021, the Cour de Cassation overturned the 2019 judgment of the Paris Court of Appeal, which had partially annulled the award made in Rusoro v. Venezuela, and remanded the set-aside case to another bench of the Court of Appeal.
The key provision at play was Article XII(d) of the Canada-Venezuela BIT which provided for a three-year limitation period for bringing claims under the treaty. The central issue before the French courts was whether the limitation period in the treaty was a matter of jurisdiction or rather of admissibility of claims. The two courts reached opposite conclusions on this issue.
In its 2019 set-aside judgment, the Court of Appeal found that the limitation period was a matter of jurisdiction that precluded recovery of damages attributable to time-periods before the three-year limitation window. The Court of Appeal found that the arbitral tribunal exceeded its jurisdiction ratione temporis in relation to a portion of damages awarded for breaches of the BIT by Venezuela which the investor was aware of, or ought to have been aware of, for over three years before the date of the claim.
The Cour de Cassation found that, on the contrary, the three-year limitation period in the treaty was a matter of admissibility of claims, rather than a matter of jurisdiction, and overturned the 2019 judgment of the Paris Court of Appeal on this basis. This characterization was found to be determinative in this case because this court found that admissibility fell outside the scope of review by the annulment judge.
- French courts will not shy away from reviewing investment treaty awards on grounds of jurisdiction. The French set-aside judge will perform a de novo review of the arbitral tribunal’s jurisdiction, taking into account both matters of fact and law. The scope of this review is relatively similar to that adopted, for example, by the English, Singaporean, Dutch and Swedish courts, but is broader than the approach generally followed by the Swiss courts.
- The French set-aside judge will control matters of jurisdiction but (generally) not those pertaining to admissibility of claims. What is properly characterized as a matter of jurisdiction or admissibility may be subject to debate and has been the subject of inconsistent rulings by the French courts. However, the Rusoro judgment indicates that issues arising out of the limitation periods in investment treaties are likely to be characterized as matters of admissibility of claims, rather than jurisdiction, and should therefore fall outside the scope of a full de novo review by the set-aside judge.
- Where new evidence comes to light, parties will be able to raise new arguments on jurisdiction in set-aside proceedings. The position is however far more complicated where jurisdictional objections could – and should – have been raised before the arbitral tribunal itself. In France, like in many other jurisdictions, a party’s failure to raise jurisdictional objections during the arbitration may preclude it from raising such objections in set-aside proceedings. The scope of this waiver has however recently been the subject of inconsistent rulings by the Paris Court of Appeal and the Cour de Cassation in the Schooner case.
- French courts enjoy the discretion to set aside only the damages portion of the award, while maintaining the findings on liability (Rusoro Court of Appeal judgment).
- While some jurisdictions – including France – may disregard set-aside rulings at the seat in certain circumstances, most major jurisdictions will give deference to that finding, unless truly exceptional circumstances are present. As such, annulment by the courts of the seat may prove fatal to award enforcement efforts in other jurisdictions.
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