Paris Court of Appeal, No. 08-17.189 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal – 1st Pole – 1st Chamber – 14 January 2010, No. 08-17.189

OAO NPO SATURN

vs.

UNIMPEX ENTERPRISES LTD (Company B)

On 5 February 1996, UNIMPEX ENTERPRISES LTD (UNIMPEX) sold an aircraft, thirteen engines and spare parts to the Russian company Rybinske Motory, predecessor of OAO NPO SATURN (SATURN). It was stipulated that the price of USD 2,036,000 would be paid by the overhaul by Rybinske of seven engines. As only five engines had been overhauled, amendments Nos. 8/1R and 8/2R were signed on 28 November 1996, entailing in particular the transfer to UNIMPEX of 45430 Rybinske shares.

Following difficulties concerning the transfer of the shares, UNIMPEX referred the matter to the arbitral tribunal in accordance with the arbitration clause set out in the contract of 5 February 1996.

By award rendered in Prague on 21 June 1999, under the supervision of the Arbitration Court attached to the Economic Chamber and Agricultural Chamber of the Czech Republic, the Arbitral Tribunal composed of Marta Knappova, Chairman, and Pavel Dobias and Pavel Just, arbitrators, ruled that SATURN was obliged to transfer to UNIMPEX 45.430 shares of its own, to register this transfer with the Moscow Registry and to pay to UNIMPEX C with interest, at the rate of 10.5% per annum, from the date of filing of the action, i.e. from 7 April 1998, until the date of full payment, in addition to the arbitration costs.

The award was approved by the President of the Paris Tribunal de Grande Instance in an enforcement order (in French Ordonnance d’exequatur) dated 11 March 2008.

The claimant of this order, SATURN, claims that the arbitrators ruled without an arbitration agreement and that the award is contrary to international public policy (Article 1502-1 and 1502-5 of the Code of Civil Procedure).

SATURN requests the court, by reference to the contract of 5 February 1996 and amendment No. 8/1R, the 1958 New York Convention and Article 1502 of the Code of civil procedure, to overturn the order, to refuse the enforceability of the award and to order UNIMPEX to pay it EUR 6,000 pursuant to Article 700 of the Code of civil procedure.

Company UNIMPEX concluded that the order was confirmed and that the claimant should be ordered to pay EUR 50,000 pursuant to Article 700 of the Code of civil procedure. It should be noted that on 30 August 2002 the arbitral tribunal of different composition ordered SATURN to pay UNIMPEX a penalty of USD 21,530,003 within 15 days of the date on which the arbitral award has acquired the res judicata effect and within the same period USD 1,81549 corresponding to the arbitration fee and administrative costs and CZK 21,948.26 for translation costs. SATURN appealed against the order to enforce this award, which was rejected by judgment of 15 October 2009.

UPON WHICH,

On the first ground for annulment taken in its three parts: the arbitral tribunal ruled without an arbitration agreement, or on a null or expired agreement (article 1502-1 of the Code of civil procedure):

SATURN states that only the contract of 5 February 1996 is subject to the arbitration agreement and that the amendment No. 8/1R of 28 November 1996 is excluded from it.
According to SATURN, the dispute relating to the execution of this amendment cannot be submitted to arbitration pursuant to Article V.2. of the 1958 New York Convention, according to which the recognition and enforcement of an arbitral award may be refused if the competent authority of the country where recognition and enforcement is sought finds that, under the law of that country, the subject matter of the dispute is not capable of settlement by arbitration. This is the case, since article 248 of the Russian Code of Arbitration Procedure stipulates that cases concerning disputes involving foreign persons and relating to the invalidation of entries in public registers made by the public authority responsible for these registers, such as transfers of shares in public limited companies, fall within the exclusive jurisdiction of Russian arbitration courts.
Finally, SATURN claims that both the contract of 5 February 1996 and the amendment No. 8/1R of 28 November 1996 are both null and void, as being in breach of Article 81 of the Russian law on public limited companies, according to which transactions between members of the same family must be approved by the company’s board of directors. It claims, moreover, that the aforementioned contract and amendment were declared null and void by the Rybinsk Court in its decision of 26 November 1998. As a result of this nullity, the arbitration clause is also null and void.

Whereas, however, in order to be admissible before the judge in charge of the annulment, the complaint lodged against an arbitral award must be raised before the arbitral tribunal itself on every possible occasion; whereas in the present case SATURN has never challenged before the arbitral tribunal the validity of the arbitration clause and its application to the amendment of 28 November 1996;

Moreover, the appellant unsuccessfully invokes Article V.2. of the New York Convention of 1958, since it is established that under the French law, law ‘of the country where recognition and enforcement is required’, the dispute is eligible to be settled by arbitration, which is not disputed in the case of arbitration of penalties claimed in connection with a transfer of shares of a public limited company, nor is it disputed by the rules of the Russian Code of Arbitration Procedure, given that international public policy prohibits the appellant from using the restrictive provisions of its national law to avoid the arbitration agreed upon a posteriori;

Finally, the alleged nullity of the contract of 5 February 1996 - a question of substance that is not for the court of annulment to decide - does not affect the validity of the arbitration clause by virtue of the principle of autonomy of the arbitration agreement;

Whereas the first ground of appeal is therefore rejected;

On the second ground for annulment: the recognition or enforcement of the arbitral award is contrary to international public policy (article 1502-5 of the Code of civil procedure).

SATURN company claims that the award is contrary to international public policy, in that the amendment No. 8/1R would be null and void as it is contrary to the provisions of Articles 1 and 168 of the Russian Civil Code, which subordinate the validity of contracts to compliance with legislation and to Article 2 of the Russian law relating to public limited companies under which the shares belong to the shareholders, which incidentally is in line with French law, thereby preventing Rybinske, who was not the owner of the shares, from transferring them.

Whereas however, SATURN does not identify in what way the sentences to payment pronounced by the arbitral tribunal, due to the very fact of the failure to transfer the shares which it finds, would flagrantly, effectively and concretely violate international public policy; that in reality SATURN is seeking a review of the merits of the award which is beyond the control of the annulment judge ;

That the second ground is rejected and therefore the enforcement order (in French Ordonnance d’exequatur) is upheld;

On requests pursuant to Article 700 of the Code of civil procedure:

Whereas equity requires condemning the unsuccessful claimant company SATURN, whose request on this ground is rejected, to pay company UNIMPEX EUR 20,000;

FOR THESE REASONS:

UPHOLDS the enforcement order (in French Ordonnance d’exequatur);

ORDERS SATURN to pay UNIMPEX ENTREPRISES LTD EUR 20,000 pursuant to Article 700 of the Code of civil procedure;

DISMISSES all other requests;

ORDERS SATURN to pay the costs and admits SCP Fisselier-Chiloux-Boulay, avowed, to the benefit of article 699 of the Code of civil procedure.