Суды отказывают в принудительном исполнении иностранного арбитражного решения, которым накладывается штраф, ссылаясь на нарушение публичного порядка, предусмотренное в Нью-Йоркской конвенции о признании и приведении в исполнение иностранных арбитражных решений.
Глобальный экономический кризис помог выявить чрезмерность штрафа, который и считается судами нарушающим публичный порядок.
A foreign arbitral award that awarded punitive damages (in the form of a penalty) was partially refused enforcement on grounds of public policy under the New York Convention. The global economic crisis was held to be a contributing factor in determining the excessive nature of the punitive damages, which the court ruled had violated public policy.
In 2008 a Ukrainian company entered into an agreement to sell 80 tons of walnut kernels at a price of €317,000 to a Greek company, to be fully paid on delivery. The agreement included a penalty clause that imposed a daily penalty of 0.5% of the value of the delivered product should there be any delay in payment exceeding 10 days. The buyer paid only €197,000 and offered to settle the remaining balance of €120,000 in two instalments by cheque.
The vendor rejected this offer and initiated arbitration proceedings in Ukraine in accordance with the arbitration clause contained in the agreement, which provided that:
“Any dispute arising out of this agreement shall be resolved in the International Commercial Arbitration Court of the Ukrainian Chamber of Commerce and Industry. This agreement shall be governed by the laws of Ukraine.”
The arbitral tribunal issued an award in the vendor’s favour in 2009, ordering the buyer to pay:
- the outstanding balance of €120,000;
- a penalty of €79,015 due to the delay in payment up to the filing of the arbitration request; and
- legal costs of €7,640.
The vendor sought to enforce the award in Greece under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which both Greece and Ukraine are parties. The buyer resisted enforcement in a first instance court.
On dismissal of its defence, the vendor appealed to the Athens Court of Appeal against the first instance judgment.(1) The court held that in the circumstances, the increase of the principal claim by almost 65% for a period not exceeding five months was excessive and disproportionately large in view of:
- the parties’ interests;
- the degree and extent of the buyer’s culpability;
- the adverse international economic conditions; and
- the circumstances of this particular transaction in general.
Consequently, the court held that the award and collection (through enforcement) of such a large penalty could not be allowed under Greek international public policy (Article V(2)(b) of the New York Convention) as provided for in Articles 281 (on abuse of rights) and 409 (on excessive penalties) of the Civil Code. The court declared the arbitral award enforceable in Greece for the principal claim and legal costs – but not for the penalty.
On a procedural issue, the court held that under the rules of the Code of Civil Procedure,(2) the submission of the original award and arbitration agreement (or duly certified copies thereof) stipulated by Article IV of the New York Convention takes place not at the time of filing the application, but rather at the time of hearing.
Punitive damages are a hotly debated issue, especially with reference to their enforceability in foreign jurisdictions. The significance of this issue applies to both court judgments and arbitral awards. Although punitive (exemplary or triple) damages are associated mainly with court judgments (and secondarily arbitral awards) issued in the United States, they are encountered with increasing frequency in other jurisdictions. In the field of international arbitration, the enforcement of a foreign arbitral award ordering the payment of punitive damages may be refused under the public policy exception.
Punitive damages are not provided for in Greek law as such, but as various provisions allow for the imposition of penalties (similar in nature to punitive damages), courts have finally accepted the enforceability of punitive damages – albeit under strict conditions.
The criteria that must be met in order for a court to be satisfied that punitive damages are enforceable were set after a lengthy legal battle by the Supreme Court (in plenary)(3) in view of a US court judgment.(4)The court held (by a majority vote) that, as a matter of principle, punitive damages do not violate international public policy as such, as they are not unknown in Greek law – namely, in the form of penalties imposed either contractually or statutorily. However, if punitive damages lead to an excessive increase of the actual damage (ie, they are disproportionately large in view of the particular circumstances), their enforcement is not tolerated under public policy.
Disproportionality is assessed on the basis of the following criteria:
- the nature and significance of the debtor’s breach of obligations;
- the degree and extent of the debtor’s culpability;
- the other party’s interests that were affected or put at stake;
- the parties’ moral and financial status; and
- the specific circumstances.
The Supreme Court, following the abovementioned judgment, once again refused enforcement of an Ukrainian arbitral award ordering the payment of punitive damages.(5)
This appears to be the first time that the global economic crisis was included in the list of criteria which is taken into consideration by a court in order to assess the excessive nature of punitive damages. Although it may safely be assumed that the international economic crisis cannot on its own lead to a refusal of enforcement in the absence of other factors, it could play a vital role and make the difference in borderline cases.
It remains to be seen whether the Greek economic crisis, which is a more localised factor, will play a similar role in future judgments.
For further information on this topic please contact Antonios Tsavdaridis at IK Rokas & Partners by telephone (+30 210 361 6816), fax (+30 210 361 5425) or email (a.tsavdaridis@rokas.com).
Endnotes
(1) Athens Court of Appeal Judgment 4332/2011.
(2) Article III of the New York Convention refers to the rules of procedure of the territory where the award is relied upon.
(3) Supreme Court Judgment (in plenary) 17/1999. In that case, the court of appeal judgment (which held enforceable punitive damages that doubled the actual damages of USD$650,000) was annulled because the court had omitted to assess whether the punitive damages were excessive or not.
(4) In reality, the subject matter of the enforcement was an arbitral award issued in the United States, but the successful party sought to enforce the US court judgment that had been entered on the award following a ‘judgment to be entered on the award’ clause that was included in the arbitration agreement.
(5) Supreme Court Judgment 1260/2002. In that case, the arbitrators had awarded actual damages of USD$106,000 and punitive damages of USD$63,000.
Автор: Antonios Tsavdaridis