On 9 December 2015, the District Court of Nicosia rendered its decision in an application to recognize and enforce a foreign arbitral award under the New York Convention rendered by the International Arbitration Court of the Russian Federation Chamber of Commerce and Industry (Joint-Stock Commercial Bank “Bank of Moscow” (Open Joint-Stock Company) v. Histerio Ltd (General Application No. 685/2014)).
On 17 May 2010 the parties entered into a Loan Agreement which contained an arbitration clause. When a dispute arose, the applicant submitted its request for arbitration before the International Commercial Arbitration Court of the Russian Federation pursuant to the parties’ arbitration clause. On 21 May 2014, the International Arbitration Court rendered its award in favor of the applicant and in the absence of respondent, despite the continuous notifications to respondent to participate in the arbitration proceedings.
Subsequently, the applicant sought to enforce the award before the District Court of Nicosia.
Respondent opposed recognition and enforcement on, inter alia, the following reasons:
- The conditions to grant an order for recognition and enforcement had not been satisfied by the applicant;
- The Loan Agreement was not valid under Russian Law (Article V(1)(a) of L. 84/79));
- Respondent had not been duly and timely notified of the arbitration proceedings (Article V(1)(b) of L. 84/79);
- The arbitral award dealt with a difference not contemplated by the parties’ arbitration clause (Article V(1)(c) of L. 84/79);
- The arbitral award was not binding (Article V(1)(e) of L. 84/79);
- The subject matter of the dispute was not arbitrable under the laws of Cyprus (Article V(2)(a) of L. 84/79); and
- The recognition and enforcement of the arbitration award would violate the public order of Cyprus (Article V(2)(b) of L. 84/79).
The District Court’s Decision
On 9 December 2015, the District Court of Nicosia rendered its decision issuing an order for the recognition and enforcement of the arbitral award. The District Court examined the application for recognition and enforcement under L. 84/79, which implements the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.
With respect to respondent’s argument that the applicant did not comply with the conditions to grant an order for recognition and enforcement, the District Court of Nicosia stated that although respondent did not specifically raise non-compliance of Article IV of L. 84/79 (mirroring Article IV of the New York Convention), the District Court noted that it must ex officio examine whether the requirements of said Article have been satisfied.
The District Court noted that the applicant bore the burden to prove the conditions led down in Article IV. The District Court found that the applicant presented a duly certified original of the arbitral award and arbitration clause (included in the Loan Agreement), including an official translation thereof into Greek, thereby satisfying the provisions of Article IV.
Having found that the applicant complied with Article IV, the District Court noted that respondent bore the burden to prove any of the exhaustive grounds under Article V of L. 84/79 (mirroring Article V of the New York Convention) that would permit the District Court to deny recognition and enforcement of the arbitral award.
With respect to the argument that the Loan Agreement was not valid under Russian law (Article V(1)(a) ground), the District Court noted that such argument does not fall under Article V(1)(a) which deals with the validity of the arbitration clause and not the main contract containing such clause. Pointing to the separability doctrine, the District Court found that there was no indication or allegation as to the nullity of the arbitration clause itself.
The District Court also rejected respondent’s argument that it was not notified about the arbitration (Article V(1)(b) ground). In fact, respondent has been duly and timely notified of the arbitration proceedings and respondent itself has even applied for a suspension of such proceedings.
Further, the District Court rejected respondent’s argument that the arbitral award dealt with a difference which did not fall under the arbitration clause (Article V(1)(c) ground). Referring to case law and commentary and analyzing the arbitration clause itself, the District Court found that the wording of such clause indicated the intention of the parties to submit their dispute to arbitration, as it covered any claim for payment in connection with the Loan Agreement. According to the District Court, this was confirmed by the arbitral award.
Regarding respondent’s argument that the arbitral award was not binding (Article V(1)(e) ground), as there was no certification attesting to the fact that the award was final and binding, the District Court held that no such certification was required. Accordingly, the District Court rejected respondent’s argument under Article V(1)(e).
The District Court also found that, contrary to respondent’s arguments, the subject matter of the arbitration was arbitrable under Cypriot law. There was no basis under Cypriot law that a monetary claim which has not been crystallized could not be the subject matter of an arbitration.
Finally, the District Court found that the recognition and enforcement of the arbitral award would not violate the public order of Cyprus (Article V(2)(b) ground). The District Court noted that the public policy defense must be narrowly construed and that in doing so, the Court should not interfere with the merits of the parties’ case. The District Court rejected respondent’s arguments with respect to the public policy defense, namely that (i) the arbitral award aimed at the political persecution of former managers of a state bank with the basic objective of fishing testimony and receiving evidence against them, (ii) the disputed transactions were invalid, and (iii) there was a pending claim on the matter before another court. The District Court could not make a finding that any recognition or enforcement of an arbitration award was contrary to the Cypriot public order due to existence of political incentives on behalf of the applicant and that respondent, who failed to appear in the arbitration proceedings, could not now claim a reason of invalidity that was the subject of the merits of the dispute. Further, the claim before the other court was submitted well after the rendering of the arbitral award and did not justify a finding of a violation of the Cypriot public order.
Accordingly the District Court approved the application for a recognition and enforcement of the arbitral award.
A more detailed summary and an excerpt of this decision, indexed and searchable according to the list of topics published in http://www.newyorkconvention.org/court+decisions/description will be published in the 2016 volume of the Yearbook Commercial Arbitration, published by the International Council of Commercial Arbitration (ICCA).
Source: Original District Court Judgment available at www.cylaw.org