Paris Court of Appeal, No. 13-22.531 | Rory Wheeler, avocat (Paris) & solicitor (England)

Paris Court of Appeal, Pole 1, First Chamber- 12 April 2016, No. 13-22.531

Judicial Chronology: Court of Cassation, First Civil Chamber, 28 March 2018, No. 16-16.568 Paris Court of Appeal, Pole 1 - First Chamber, 24 September 2019, No. 18/14721

REPUBLIC OF MOLDOVA vs. KOMSTROY

According to the three-way party contract, “electricity supply contract” No. 24/02 signed in Kiev on 24 February 1999, the private Ukrainian company ENERGOALIANS undertook to supply electricity to company DERIMEN registered in the British Virgin Islands. The latter undertook to purchase electricity and supply it to the public company responsible for operating the electricity network in Moldova, Moldtranselectro, with delivery taking place at the border between Ukraine and Moldova.

This contract was preceded by a three-party contract No. 01/01 signed on 1 February 1999, under which ENERGOALIANS purchased electricity from UKRENERGO (Ukrainian electricity producer) to supply MOLDTRANSELECTRO, the volumes of which were agreed each month between the latter and UKRENERGO.

Under contract No. 06/20 signed in Kiev on 30 May 2000, DERIMEN assigned to ENERGOALIANS the electricity payment claim it already held against MOLDTRANSELECTRO under contract No. 24/02.

Following a dispute between ENERGOALIANS and the Republic of Moldova over the payment of the claim. ENERGOALIANS considered that the interventions of the Republic of Moldova (administrative decision and decision of the Court of Auditors) constituted clear violations of its commitments under the Energy Charter Treaty (ECT). Thus, ENERGOALIANS initiated arbitration proceedings.

By an award rendered in Paris on 25 October 2013, the ad hoc arbitral tribunal composed of Mr. Savranski and Mr. Volcinski, arbitrators, and Mr. Z, president, recognised its jurisdiction and, considering that the Republic of Moldova failed to comply with its international commitments, ordered the Republic of Moldova to pay the total sum of 592,880,395 Moldavians Lei to the company ENERGOALIANS on the basis of the ECT.

Mr. Z expressed a dissenting opinion as to the jurisdiction of the arbitral tribunal.

The Republic of Moldova filed an action for annulment of this award by declaration of 25 November 2013.

By an act of transfer of 6 October 2014, of which the pre-trial judge ordered the production in its entirety under penalty, the Ukrainian company KOMSTROY succeeded the rights of the company ENERGOALIANS.

In submissions filed by the Private Virtual Network for Lawyers (in French Réseau privé virtuel des avocats or RPVA) on 1 September 2015, the Republic of Moldova requests the Court to set aside the award rendered in Paris on 25 October 2013 because it considered that the Arbitral Tribunal wrongly declared it had jurisdiction and, secondly, in so far as the recognition or enforcement of the Award is contrary to international public policy. It also requested the tribunal to order KOMSTROY to pay 100. 000 € under Article 700 of the Code of Civil Procedure, and in the alternative, to refer to the CJEU preliminary questions relating to the interpretation of the ECT which would be considered decisive for the resolution of the dispute, in particular the following questions:

“Can a claim belonging to an investor of a contracting party, resulting from a contract for the sale of electricity, constitute an' investment ‘within the meaning of Article 26 (I) of the ECT in the absence of any contribution”
“Can a claim belonging to an investor of a contracting party, resulting from a contract for the sale of electricity, constitute an’ investment ‘made in the area of another contracting party within the meaning of article 26 (I) of the ECT in the absence of any economic activity carried out on the territory of the latter?” and to stay the proceedings pending the response from the CJEU, by application of article 378 of the Code of Civil Procedure.

In submissions filed by the Private Virtual Network for Lawyers (in French Réseau privé virtuel des avocats or RPVA) on 2 March 2015, the Ukrainian company KOMSTROY, succeeding to the rights of the company ENERGOALIANS, requests to state on the one hand that the court had jurisdiction to settle the dispute under Article 26 of the Energy Charter and that there are no grounds for preliminary questions. On the other hand, KOMSTROY requests the Court to state that the recognition or enforcement of the award is not contrary to international public policy. Therefore, KOMSTROY requests the dismissal of the action for annulment of the award, of the claims of the Republic of Moldova and the order of the Republic of Moldova to pay it 250. 000 € under Article 700 of the Code of Civil Procedure.

UPON WHICH

On the first ground for annulment based on the incompetence of the arbitral tribunal (article 1520-1 of the code of civil procedure)

The Republic of Moldova maintains that the arbitral tribunal wrongly declared it had jurisdiction in the absence of an investment by ENERGOALIANS in the area of Moldova within the meaning of the ECT, so that the claim acquired by ENERGOALIANS from DERIMEN could not be the subject of arbitration.

It states that the terms of the Treaty, in particular Article 26 (1) which sets the conditions for the offer of arbitration must be interpreted by applying the general principles of customary international law in the matter as set out in l Article 31 of the Vienna Convention on the Law of Treaties of 1969. Given the context, the terms as well as the objective and purpose of the ECT, this treaty subordinates the notion of investment to the existence of a contribution, in particular in capital (authentic version of the treaty in Russian) or in industry. The Republic of Moldova observes that the ECT distinguishes between Commerce (Part II) and Investment (Part III) and infers from this that the term “investment” is necessarily linked to the action by the investor to contribute or transfer capital or other resources necessary for the development and maintenance of an investment activity. It infers from this that the offer to arbitrate, in the explicit terms of Article 26(1), only applies to alleged breaches under Part III of the ECT relating to investment promotion and not to trade of ‘Energy Materials and Products’ (Part II of the ECT).

It considers that ENERGOALIANS’ right to claim against MOLDTRANSELECTRO, which resulted from contract No. 24/02 with regard to article 1 (6) does not meet any of the characteristics of an investment and does not correspond to any of the categories listed under this article, in particular its paragraphs (c) and (f) in the case of a claim that is not attached to any contribution and a monetary claim without the right to exercise an economic activity in the sector of energy. In this regard, it states that DERIMEN’s claim under contract No. 24/02 for the sale of electricity to which ENERGOALIANS’ claim is associated is not an investment, the sole purpose of which is the sale of electricity. It adds that, in any event, ENERGOALIANS, which did not make itself that investment, could not claim to submit the dispute relating thereto to arbitration under the terms of Article 26 (1) of the ECT.

It considers on the basis of Article 1 (8) of the Treaty that, by acquiring DERIMEN’s claim, ENERGOALIANS neither acquired an ‘existing investment’, the British Virgin Islands where DERIMEN is registered not being a party contracting in the TPE, nor participated in another field of investment activity, in the absence of any contribution. So, the Republic of Moldova considers that the arbitral tribunal had no jurisdiction.

Finally, the Republic of Moldova stated that no investment was made ‘in the Zone’ of Moldova, as provided for in article 26 (1) since the electricity supplied was only delivered up to the border.

Considering that the annulment judge reviews the decision of the arbitral tribunal on its jurisdiction whether it has declared it had jurisdiction or not, by seeking all the elements of law and of fact allowing to assess the scope of the arbitration agreement; that it is no relevant that when, as in the present case, the matter was brought to arbitrators under a treaty;

Considering that the jurisdiction of the arbitrators is based on Article 26 of the ECT to which the Republic of Moldova is a party, according to which:

“(1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably.

(2) If such disputes cannot be settled according to the provisions of paragraph (1) within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution:

(a ) to the courts or administrative tribunals of the Contracting Party party to the dispute;

(b ) in accordance with any applicable, previously agreed dispute settlement procedure; or

(c ) in accordance with the following paragraphs of this

(3) (a) Subject only to subparagraphs (b) and (c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article.

[….]”;

That it follows that the arbitral tribunal has jurisdiction if ENERGOALIANS, is an investor, the dispute with the Republic of Moldova relates to an investment and the investment is made in the area of Moldova;

Whereas, in accordance with the international custom expressed by article 31 of the Vienna Convention on the Law of Treaties of 23 May 1969, “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”;

Whereas according to article 1 (7) of the ECT the term ‘investor’ means:

“a) with respect to a Contracting Party:

(i) a natural person [….]

(ii) a company or other organisation organised in accordance with the law applicable in that Contracting Party”

Whereas the investor status of ENERGOALIANS, a legal entity under Ukrainian law, within the meaning of this Article, as determined by the arbitral tribunal, is established;

Whereas according to Article 1(6) the term “investment” means “every kind of asset, owned or controlled directly or indirectly by an Investor and includes:

[…]

(c ) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment;

[…]

(f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector.

[…]”

The term ‘investment’ refers to any investment associated with economic activity in the energy sector and any investment or category of investments made in its area by a Contracting Party, designated by it as ‘Charter efficiency projects’, and notified as such to the Secretariat’.

That if this definition refers to ' every kind of asset, owned or controlled directly or indirectly by an Investor', it adds ‘and includes…'; that c) of the following enumeration mentions “claims to money […] pursuant to contract having an economic value and associated with an Investment”; that it cannot therefore refer to claim to money under a contract which is not associated with an investment;

That Article 1(6) further specifies in fine that the term ‘investment’ refers in particular to ‘any investment associated with an economic activity in the energy sector’, which refers to a usual definition of the term ‘investment’; that according to the aforementioned Article 26(1), the arbitral tribunal has jurisdiction to examine ‘an alleged breach of an obligation of the first contracting party under Part III’ of the ECT, which is entitled ‘Promotion and Protection of Investments’ and is opposed to Title II “Commerce”. The claimant is therefore entitled to rely on the capital contribution condition, according to the ordinary meaning to be given to the terms of the Treaty in their context and in the light of its object and purpose, which is ‘to catalyse economic growth by means of measures to liberalise investment and trade in energy ‘;

Thus, KOMSTROY argues that a mere asset associated with an economic activity in the energy sector would be an investment within the meaning of the ECT, whereas the acquisition of a right to claim which originates from a contract for the supply of electrical energy cannot constitute an investment within the meaning of the ECT in the absence of a contribution;

That (f) of the enumeration in Article 1(6) which refers in particular to “any right conferred by … a contract …. o undertake any Economic Activity in the Energy Sector” may not concern the disputed claim, since it is a claim to money without a right to pursue an economic activity in the energy sector;

Whereas the dispute between KOMSTROY, claiming ENERGOALIANS’ rights, and the Republic of Moldova, which concerns DERIMEN’s assigned claim under contract No. 24/02 for the sale of electricity, the sole object of which is the sale of electricity, does not relate to an investment within the meaning of the EC Treaty; whereas the arbitral tribunal wrongly declared it had jurisdiction;

Whereas it follows from the foregoing that the action for annulment is allowed and the award is set aside;

On Article 700 of the Code of Civil Procedure:

Whereas KOMSTROY, who is unsuccessful, is dismissed from its claim under Article 700 of the Code of Civil Procedure and is ordered to pay the Republic of Moldova the sum of 100,000 € on that basis;

FOR THESE REASONS:

Sets aside the award rendered in Paris on 25 October 2013 by the ad hoc arbitral tribunal composed of Mr. Savranski and Mr. Volcinski, arbitrators, and Mr. Z, President between ENERGOALIANS and the Republic of Moldova.

Orders company KOMSTROY to pay the costs and to pay the Republic of Moldova the sum of 100,000 euros pursuant to Article 700 of the Code of Civil Procedure.

Dismisses all other claims.