Paris Court of Appeal, No. 16/09455

Paris Court of Appeal, Fifth Chamber, 23 November 2016, No. 16/09455

STATE UNITARY ENTERPRISE RUSSIAN SATELLITE COMMUNICATIONS COMPANY (RSCC)

Vs.

RUSSIAN FEDERATION

FACTS AND PROCEEDINGS

The Cypriot company Hulley Enterprises Limited (Hulley Company) was a shareholder of the Russian oil company Yukos between 1999 and 2007, when it was expropriated by the Russian Federation.

On 18 July 2014, an arbitral tribunal located in The Hague issued a final award, following arbitration proceedings, and found that the Russian Federation had failed to comply with its obligations under the Energy Charter Treaty and ordering the Russian Federation to pay Hulley Enterprises Limited a compensation of USD 39 971 834 360, as well as EUR 3 388 197 for arbitration costs and USD 47 946 190 for legal fees incurred by Hulley Enterprises Limited.

By an order of exequatur dated 1 December 2014, the President of the Paris High Court enforced the final award.

On 3 June 2015, Hulley Enterprises Limited executed two garnishment of receivables in the hands of SA Eutelsat and SA Eutelsat Communications, rendering unavailable the obligations of the latter towards “the Russian Federation, including its political, territorial, ministerial or administrative subdivisions, regardless of their former or current appellations, including in particular : Russian Federation, Empire Russe, Union des Républiques socialistes soviétiques, URSS, Union of Soviet Socialist Republics, USSR, Reserve Fund, Emergency Reserve Fund, Fond de Réserve, RF, National Wealth Fund, NWF”.

On 1 July 2015, Hulley Enterprises Limited once again executed garnishment of receivables in the hands of SA Eutelsat and SA Eutelsat Communications thereby rendering unavailable the obligations of the latter to “the Russian Federation, including its political, territorial, ministerial or administrative subdivisions, agencies, entities and/or asset management structures, regardless of their former or current appellations, including, without limitation : Russian Federation, Empire Russe, Union des Républiques socialistes soviétiques, URSS, Union of Soviet Socialist Republics, USSR, Reserve Fund, Emergency Reserve Fund, Fonds de Réserve, RF, National Wealth Fund, NWF, Roskosmos, GOSZAGRANSOBSTVENNOST, Enterprise for the Management of Property Abroad, Entreprise pour la gestion de la Propriété à l’étranger”.

These garnishments were reported to the Russian Federation by means of documents submitted to the Public Prosecutor’s Office of the High Court of Paris on 8 June and 8 July 2015 for the purpose of notification by diplomatic channels.

Finally, on 20 July 2015, Hulley Enterprises Limited executed a garnishment of shareholders' rights and securities in the hands of Eutelsat S.A., making the latter’s obligations to “the Russian Federation, including its political, territorial, ministerial or administrative subdivisions, unavailable, regardless of their former or current appellations, including in particular : Russian Federation, Empire Russe, Union des Républiques socialistes soviétiques, URSS, Union of Soviet Socialist Republics, USSR, Reserve Fund, Emergency Reserve Fund, Fond de Réserve, RF, National Wealth Fund, NWF, Roskosmos, Roscomos, Russpace, Russian Satellites Communications Company, RSCC, GOSZAGRANSOBSTVENNOST, Enterprise for the Management of Property Abroad, Entreprise pour la gestion de la Propriéte à l’étranger”.

This seizure of shareholders' rights and securities was denounced to the Russian Federation by a document delivered to the Public Prosecutor’s Office of the Paris High Court on 27 July 2015 for notification through diplomatic means.

On 1 September 2015, the Federal State Unitary Enterprise “Russian Satellite Communications Company” (RSCC) brought Hulley before the enforcement judge of the Paris High Court to order the release of the garnishments made on 3 June, 1 July and 20 July 2015.

By contradictory judgment of 15 April 2016, this enforcement judge has :

  • dismissed the documents submitted in the course of the proceedings,

  • rejected the Hulley company’s request that the summons are lapsed,

  • ordered the release of the garnishments made against “the Russian Federation, including its political and territorial, ministerial or administrative subdivisions, regardless of their former or current appellations, including in particular : Russian Federation, Empire Russe, Union des Républiques socialistes soviétiques, URSS, Union of Soviet Socialist Republics, USSR, Reserve Fund, Emergency Reserve Fund, Fond de Réserve, RF, National Wealth Fund, NWF, Roskosmos, Enterprise for the Management of Property Abroad, Entreprise pour la gestion de la Propriété à l’étranger” in the hands of the companies Eutelsat and Eutelsat Communications on 3 June, 1 July and 20 July 2015 at the request of the company Hulley,

  • stated the lack of need of application of Article 700 of the Code of Civil Procedure,

  • ordered the company Hulley to pay the costs.

Hulley Enterprises Limited appealed this decision on 15 April 2016.

By bailiff’s order of 15 April 2016, Hulley Enterprises Limited brought the Federal State Unitary Enterprise “Russian Satellite Communications Company” before the First President of the Paris Court of Appeals, on the basis of articles R 121-22 of the Code of Civil Enforcement Procedures and 700 of the Code of Civil Procedure, for the purpose of suspending the execution of the measures taken by the enforcement judge and sentencing the Russian Satellite Communications Company to pay the costs and the sum of EUR 15,000 in accordance with Article 700 of the Code of Civil Procedure.

By pleadings filed and argued orally at the hearing, Hulley Enterprises Limited maintains its application for a stay of execution of the disputed judgment and requests the rejection of the counterclaims made by the opposing party and increasing the indemnity under Article 700 of the Code of Civil Procedure to the sum of EUR 30,000.

It argues at the start that the Paris Court of Appeal, ruling on enforcement proceedings, does not have jurisdiction and/or power to hear claims from the Russian Federation that challenge the enforcement order on the basis of which it – Hulley Enterprises Limited - is entitled to take enforcement measures against it.

It further claims that it has a serious argument for the annulment and/or reversal of the disputed decision in that:

  • the enforcement judge of the Paris High Court has not been validly seized, the summons of the Russian Satellite Communications Company being lapsed,

  • the seized debts, resulting from the contracts concluded by the RSCC Unitary Enterprise, are property belonging to its debtor, the Russian Federation.

The Federal State Unitary Enterprise “Russian Satellite Communications Company” concludes orally that the latest submissions and documents communicated by the Hulley company have been rejected for failure to comply with the principle of due process and, by written submissions made and supported orally at the hearing, it requests the Court to rule on the basis of articles R.121-22, R.211-11 of the Code of Civil Procedure, 73 and 74 of the Code of Civil Procedure, to reject the application for suspension of the order issued by the enforcement judge on 15 April 2016 and to order Hulley Enterprises Limited to pay the costs and to pay EUR 30,000 pursuant to Article 700 of the Code of Civil Procedure.

It replies:

  • on the nullity of the writ of summons:

  • that this ground is inadmissible for lack of having been raised in limine litis before the enforcement judge,

  • that it did indeed hand over to the clerk’s office of the enforcement judge the copy of the information letters to third parties seized before the day of the hearing,

  • that the SAEutelsat does not require the delivery of the letter of information of the third party seized to the clerk’s office,

  • that article R. 211-11 of the Code of Civil Enforcement Procedures does not require the delivery of the information letter of the third party to the clerk’s office,

  • that it has certain attributes of the right of ownership and does not answer on its own patrimony for the debts of the Russian Federation.

By submissions of voluntary intervention filed and supported orally at the hearing, the SA Eutelsat requests the present court, on the basis of articles R. 121-22 and R. 211-11 of the Code of Civil Enforcement Procedure, articles 73, 74, 328 and 544 of the Code of Civil Procedure, to:

  • declare its voluntary intervention admissible,

  • dismiss the company Hulley Enterprises Limited from all its claims,

  • order the company Hulley Enterprises Limited to pay the expenses and to pay it a sum of EUR 10,000 in application of article 700 of the Code of Civil Procedure.

It supports the absence of serious grounds for reversal or annulment of the judgment of release, the prescription of article R. 211-11 of the code of civil enforcement procedures concerning only the summons and not the letter of information to third parties.

It also notes that there is no factual element or evidence to support Hulleys' allegation concerning the ownership of the seized goods, while it appears that no obligation relationship binds it to the Russian Federation - the only debtor referred to in the writ of execution - its only creditor being the Russian Satellite Communications Company in application of the various contracts binding them.

By “voluntary incidental intervention” filed and sustained at the hearing, the Russian Federation requested, on the basis of articles 328, 330, 1504, 1514, 1516 and 1520 of the Code of Civil Procedure, article L. 111-2 and following articles of the Code of Civil Enforcement Procedure, to delare its voluntary incidental intervention admissible and to “deem admissible and well-founded all the claims of Federal State Unitary Enterprise “Russian Satellite Communications Company (RSCC) arising from the irregularity of the seizures carried out by the company Hulley Enterprises Limited”.

It argued that the document on which Hulley Enterprises Limited relied to make the divestiture award lapsed when the arbitral award was set aside.

The Attorney General spoke last.

UPON WHICH

1 - on the respect of the principle of due process (in french principe de la contradiction)

Whereas, pursuant to Article 15 of the Code of Civil Procedure, the parties must make known to each other in due time the grounds on which they base their claims, the elements of proof they produce and the legal grounds they raise, so that each party may be able to organize its defense;

Whereas the Federal State Unitary Enterprise “Russian Satellite Communications Company” (RSCC) requests the rejection of the latest writings of the Hulley company and the documents communicated with them on the grounds that they are voluminous (66 pages of conclusions and 160 documents) - whereas the initial summons is only six pages long with two documents communicated - and that they were sent to it only on Friday, 28 October 2016 for a hearing on Wednesday, 2 November 2016, when Tuesday, 1 November was a public holiday, and it would not have been able to open the internet link giving her access to the documents;

Hulley replied that it had belatedly received the conclusions of the RSCC and emphasized that the RSCC’s oral statements establish that it was aware of its legal arguments and was able to respond to them;

Whereas it is established that Hulley’s writings resume and develop the two allegedly serious grounds for annulment and/or reversal of the disputed decision of the enforcement judge presented in the initial summons of 15 April 2016, namely the failure to comply with the provisions of Article R.211-11 of the code of civil enforcement procedures and the qualification of owner of the Russian Federation on the seized goods;

That in this case, the principle of due process (in french principe de la contradiction) has been respected since it is established that the RSCC was aware of the opposing writings on Friday, 28 October 2016 for a hearing held on Wednesday 2 November 2016 October 28, 2016 and that at that hearing, while the proceedings before this court are oral, the RSCC confined itself to its written submissions previously communicated to Hulley without requesting a postponement to a later hearing; that therefore there is no reason to set aside Hulley’s pleadings and exhibits from the proceedings;

2 - on the merits of the application for a stay of execution

Whereas Article R 121-22 of the Code of Civil Enforcement Procedures stipulates that “in the event of an appeal, a stay of execution of the decisions taken by the enforcement judge may be requested from the first president of the court of appeal. The request is made by summons in summary proceedings issued to the opposite party and denounced, if necessary, to the third party in whose hands the seizure was made. Until the day of the pronouncement of the order by the first president, the application for stay of execution suspends the proceedings if the contested decision has not remitted their continuation; it extends the effects attached to the seizure and to the protective measures if the contested decision has ordered the release of the measures.

The stay of execution is only granted if there are serious grounds for the annulment or reversal of the decision referred to the court.

The author of a request for a stay of manifestly abusive execution may be condemned by the first president to a civil fine of a maximum amount of EUR 3,000, without prejudice to the damages that could be claimed”;

a - on the lapse of the summons

Whereas, in support of its request for a stay of execution, the company Hulley Enterprises Limited claims that the judgment of 15 April 2016, should have been annulled in that it would have been issued in violation of article R. 211-11 paragraph 2 of the Code of Civil Enforcement Proceedings and on the grounds that the RSCC did not deliver a copy of the information letter to third parties to the clerk’s office of the enforcement judge at the latest on the day of the hearing;

Whereas the RSCC maintains that the request for the lapse of the writ is a procedural exception that should have been raised in limine litis in application of the provisions of articles 73 and 7 of the Code of Civil Procedure;

Whereas, however, the lapse of the citation is inserted in the eleventh title of the Code of Civil Procedure dealing with requests for joinders; whereas it does not therefore have to be raised in limine litis;

Whereas, in application of article R. 211-11 paragraph 2 of the Code of Civil Enforcement Procedures, the author of the dispute informs the third party seized by simple letter and gives a copy of it, under the penalty that the summons be declared lapsed, to the clerk office of the enforcement judge no later than the day of the hearing;

That it follows from the above-mentioned provisions that the obligation to inform the third party is not subject to any sanction and that the lapse of the summons penalizes the failure to deliver the dispute to the clerk of the enforcement judge at the latest on the day of the hearing and not the failure to deliver the letter of denunciation to the third party;

That the existence of divergent case law between the courts of appeal on the element sanctioned by the lapse of the summons is not such as to characterize, in itself, a serious means of annulling the disputed decision;

That in this case the delivery to the registry of the summons by the RSCC at the latest on the day of the hearing is not contested by the Hulley company;

That consequently, the ground based on a violation by the judge of the enforcement of the provisions of article R. 211-11 paragraph 2 of the Code of Civil Enforcement Procedures is devoid of the serious nature required by article R. 121-22 of the Code of Civil Enforcement Procedures and must be rejected;

b - on the validity of the seizures

Whereas, pursuant to article L. 111-1 of the Code of Civil Enforcement Proceedings, any creditor may, under the conditions provided by law, compel his defaulting debtor to perform his obligations towards him;

Moreover, article L 211-1 of the same Code provides that any creditor in possession of a writ of execution recording a debt that is liquid and due may, in order to obtain payment, seize in the hands of a third party the debt of his debtor for a sum of money, subject to the special provisions for the seizure of remuneration provided for by the Labor Code;

Whereas in the disputed decision of 15 April 2016, the enforcement judge ordered, based on articles L. 211-1 and L. 231-1 of the Code of Civil Enforcement Procedures, the releasing of seizures made to the detriment of the Russian Federation, including its political, territorial, ministerial and administrative subdivisions, and whatever their previous or current denomination, including in particular (…) the RSCC, on the grounds that the RSCC had all the attributes of legal personality since it had its own patrimony consisting of economic rights and debts even though its rights would be limited on the property handed over for “economic management” by the Russian State, that only the RSCC is the holder of the seized claim, that the seized titles are registered in the name of the RSCC and not in the name of the Russian Federation, that the latter, debtor referred to in the writ of execution, does not have a claim on the seized third party and that, consequently, the seizures criticized cannot prosper;

Whereas the writ of execution is constituted in this case by the arbitral award of 18 July 2014 of the arbitral tribunal of The Hague, which is enforceable by order of 1 December 2014 of the Paris High Court, ordering the Russian Federation to pay to the company Hulley several sums;

That the garnishments made in the hands of Eutelsat and Eutelsat Communications on 3 June 2015 concern “the Russian Federation, including its political, territorial, ministerial or administrative subdivisions, whatever their former or current denominations, including in particular : Russian Federation, Empire Russe, Union des républiques socialistes soviétiques, URSS, Union of Soviet Socialist Republics, USSR, Reserve Fund, Emergency Reserve Fund, Fond de Réserve, RF, National Wealth Fund, NWF”;

That the seizures made on 1 July and 20 July 2015 concern “the Russian Federation, including its political, territorial, ministerial or administrative subdivisions, whatever their former or current denomination, including in particular: Russian Federation, Empire Russe, Union des Républiques socialistes soviétiques, URSS, Union of Soviet Socialist Republics, USSR, Reserve Fund, Emergency Reserve Fund, Fond de Réserve, RF, National Wealth Fund, NWF, Roskosmos, Roscomos, Russpace, Russian Satellites Communications Company, RSCC, GOSZAGRANSOBSTVENNOST, Enterprise for the Management of Property Abroad, Entreprise pour la gestion de la Propriéte à l’étranger”;

That by declaration addressed to the bailiff on 10 July 2015, completed on 4 September 2015, Eutelsat declared that it owed the RSCC, in respect of the various contracts concluded between them, EUR 394,803,585 and USD 1,774,784, and in respect of the dividends of EUR 42,821,091.98 and EUR 35,146,841.42;

Whereas it is established that the seized party - in this case the RSCC - is not the debtor designated by the arbitral award of 18 July 2014;

Whereas a seizure is valid only if it originates from the creditor of the seized party, a claim that is personally binding on the distrainor and the distrainee, the creditor having to be in possession of a writ of execution against the very person who must execute;

That in support of the validity of the garnishments carried out - without, however, legally naming the situation with regard to the seizure - the Hulley company invokes the status of a unitary enterprise benefiting from the RSCC, which would only manage the assets of the Russian Federation that are assigned to it by virtue of the right of economic management and that, in the absence of its own assets, the products of this management would in reality be the property of the Russian Federation, like seized receivables;

That in support of its allegations, it sets forth:

  • statements of the Russian ambassador in France to the Mortgage Registrar of a property of the unitary company Itar-Tasss having the status of owner of the Russian Federation of the properties managed by the agency Itar-Tass,

  • a legal opinion of 15 December 2010 of the State Institute of the Ministry of Foreign Affairs of the Russian Federation stating that the assets of the State Unitary Enterprise are the exclusive property of the State and that the Unitary Enterprise is an organism without any property rights on the assets lent to it by the owner,

  • the position of the RSCC in several disputes before the French courts where it claimed that the assets of the Unitary Enterprise remain the property of the Russian Federation, particularly with regard to the Russian Federal Law No. 161-FZ of 14 November 2002,

  • Federal Law No. 215-FZ of 13 July 2015, on the State corporation of space activity Roscosmos, defining the legal regime applicable to the property relations between the Russian Federation and this state corporation,

  • Decree No. 221 of 12 May 2016 of the President of the Russian Federation, approving the list of unitary state enterprises to be transformed into joint-stock companies whose shares are to be transferred to the State Corporation of Space Activities Roscosmos as a contribution of property of the Russian Federation,

  • Articles 1.4, 3.1 and 3.2 of the Articles of Association of the RSCC, which stipulate respectively that:

  • the powers of the owner of the property of the Enterprise are exercised by the Federal Telecommunications Agency and the Federal Agency for State Property Management ('), (Article 1.4),

  • the property of the Enterprise is federal property, is indivisible ('). Assets under other forms of ownership may not be included in the assets of the Enterprise (Article 3.1),

  • the fruits, products and revenues derived from the use of the assets under the commercial management of the Enterprise, as well as assets acquired with the profits made, constitute federal ownership and are under the commercial management of the Enterprise (Article 3.2),

  • a consultation of Professor Maggs, an expert of Russian law on unitary enterprises, explaining that there is no personal patrimony for the unitary enterprises and that the unitary enterprises have no ownership of the assets they manage on behalf of the Russian Federation, in accordance with a specific legal system entitled “the right of commercial management”,

  • the declarations of 1 March 2016 of Professor Evgueny Sukhanov, vice-president of the Council for the coding and perfecting of the Civil Legislation before the President of the Russian Federation, who would reconsider his position regarding the existence of a unitary enterprise’s own assets;

Whereas according to the Articles of Association of the RSCC, which determine the rules applicable to this unitary enterprise, the enterprise is:

  • administratively subordinate to the Federal Agency for Telecommunications and the powers of owner of the enterprise’s assets are exercised by the Federal Agency for Telecommunications and the Federal Agency for State Property Management, in accordance with the regulatory acts of the Government of the Russian Federation (Article 1.4),

  • is a legal entity, has its own balance sheet, a current account and other bank accounts (…) (Article 1.5),

  • is liable for its obligations on all the property belonging to it; it is not liable for the obligations of the Russian Federation, and the Russian Federation is not liable for the obligations of the Company except for the cases provided for by the legislation of the Russian Federation (Article 1.6),

  • acquires, in its name, the economic and extra-economic rights and assumes its obligations, it may take legal action in accordance with the legislation in force in the Russian Federation (Article 1.7);

These Articles of Association also stipulate that:

  • the Company’s assets are federal property, are indivisible and cannot be divided according to contributions (shares), including among the Company’s employees, belong to the Company for commercial management purposes and are included in its autonomous balance sheet (Article 3.1),

  • the fruits, products and revenues derived from the use of the assets under commercial management of the Enterprise, as well as the assets acquired through profits, constitute federal property and are under commercial management of the Enterprise (Article 3.2),

The assets of the Company are (Article 3.7):

  • assets transferred to the Company by decision of the Federal Agency for State Property Management,

  • the revenues of the Company from its activity, including dividends (income) paid by companies and corporations in which the Company holds shares (…),

  • other sources not contrary to the legislation of the Russian Federation,

  • the Enterprise disposes of the results of its production activity, manufactured products (except for the cases provided for by the legislative acts of the Russian Federation) and net profits remaining at its disposal after the payment of taxes and other compulsory levies set by the legislation of the Russian Federation (…) (Article 3.11),

  • the Company is free regarding the choice of the object of the content of its contracts and commitments, from all forms of commercial relations not contrary to the legislation of the Russian Federation and to the present Articles of Association (Article 4.1),

  • to achieve its objectives provided for in the Articles of Association, the Company has the right, in accordance with the procedure established by the legislation in force in the Russian Federation, to (Article 4. 2) :

  • establish subsidiaries and representative offices,

  • conclude all types of contracts with legal and natural persons, not contrary to the legislation of the Russian Federation, the Articles of Association, the aims and corporate purpose of the Company,

  • acquire or lease fixed and current assets using available financial resources, credits, loans and other financial resources,

  • pledge, lease or contribute assets to the share capital of commercial companies and corporations (…);

  • The Manager acts on behalf of the Enterprise without procuration, conscientiously and discreetly represents its interests in the Russian Federation and abroad (Article 5.2),

  • the Enterprise Manager defines the competence of the deputies (…) (Article 5.3);

That in accordance with these provisions the RSCC has a legal personality distinct from the Russian Federation, enjoys organizational and decisional independence and has its own patrimony, which includes the assets entrusted to it by the Russian Federation on the basis of the right of economic management; Moreover, while it is liable for its obligations through all the property it owns, it is not liable for the obligations of the Russian Federation;

That in view of these elements, which do not corroborate the allegations of the company Hulley as to the ownership of the assets seized from the companies Eutelsat and Eutelsat Communications and in the absence of demonstration of the existence of a claim personally binding the distrainor and the distrainee, it is not established that the enforcement judge made a manifest error of assessment on the legal situation of the parties by noting that the RSCC is the sole owner of the seized claims and that, on the contrary, the Russian Federation, debtor referred to in the writ of execution, is not;

3 - on the other claims,

Whereas, in view of the circumstances of the case, there is no need to apply the provisions of article 700 of the Code of Civil Procedure in the present case;

That Hulley must be ordered to pay the costs of these proceedings.

FOR THESE REASONS,

Declares the submissions the company Eutelsat and the Russian Federation admissible in their respective interventions,

Rejects the request of the Russian Satellite Communications Company requesting to have the conclusions and documents of the company Hulley Enterprises Limited excluded from the proceedings,

Rejects the requests of the company Hulley Enterprises Limited,

Says that there is no need to apply Article 700 of the Code of Civil Procedure,

Orders the company Hulley Enterprises Limited to pay the costs.

ORDER rendered by delivery to the clerk’s office of the Court, the parties having been notified in advance under the conditions provided for in the second paragraph of article 450 of the code of civil procedure.