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ECHR’s Intervention to Unjustified Refusal to Enforce ICC Arbitral Award: Victory for Arbitration!

ECHR’s Intervention to Unjustified Refusal to Enforce ICC Arbitral Award: Victory for Arbitration!

Slovakia
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Following a long lasting process since 2010 the European Court of Human Rights (the “ECHR”) held that Slovakia violated right to property due to the refusal of its courts to enforce an International Chamber of Commerce (the “ICC”) arbitral award ruling that the National Property Fund of Slovakia (the “NPF”) was due to pay BTS Holding (“BTS”) approx. EUR 1.9 million plus interest. (the “Decision”)

Background

BTS was the successful bidder for the purchase of a majority share in Bratislava Airport in the process of its privatization, resulting in the conclusion of a share-purchase agreement (the “SPA”) between BTS and the NPF.

However, the NPF rescinded the SPA and returned the initial payment back to BTS, on the ground that the approval of the transaction by the Anti-Monopoly Office of Slovakia had not been granted.

Afterwards, a settlement agreement, not containing an arbitration clause, was concluded by BTS, the NPF, and one of the ministries whereby it was agreed that the NPF’s rescission of the SPA was valid and effective as of 21.09.2006 and their mutual commitments were terminated. However, matters of return of the purchase price and interests were excluded from the scope of the settlement.

In 2009 the NPF paid another amount to BTS intended to cover interest on the initial payment made by BTS in the period between rescinding the SPA and the repayment of that amount. However, a dispute arose between the parties on the nature of the repayments made by the NPF.

Bratislava II District Court ruled that; (i) there was no arbitration agreement as, arguably, the settlement agreement containing no arbitration clause superseded the SPA; and (ii) the enforcement of the arbitral award would be contrary to Slovak public policy and Bratislava Regional Court upheld said decision.

Upon the refusal of the Constitutional Court of Slovakia despite arguments of BTS that its rights to a fair hearing and protection of property had been violated, BTS finally filed a complaint at the ECHR.

Decision of the ECHR

The ECHR, in its decision of 30 June 2022, ruled that the refusal to enforce said ICC arbitration award was not justified pursuant to the Article 1 of Protocol No. 1 of the New York Convention (the “Convention”) in the light of the below;

  • Since the ICC award was final and binding, and Slovakia had not initiated any challenge at the seat of arbitration, the award was enforceable under the Convention and Slovakian Arbitration Act. 
  • Recission of a contract as such has no impact on the validity of an arbitration clause.
  • The grounds relied on by the domestic courts were not given and/or fell outside the legal framework for denying enforcement of a foreign arbitration award allowed by the provisions of the domestic law and the Convention.
  • Even if denying enforcement of the award on these grounds served a general interest, it has not been shown that it was proportionate to that aim.

 Conclusion

With this Decision, the ECHR has underlined that arbitrary and/or unjustified refusal to enforce a commercial arbitration award might lead a State to violate the European Convention on Human Rights. While it is early to tell what extent the Decision will deter the State courts from rendering similar refusals loud, it appears that aggrieved parties may beat a busy path to the ECHR’s door for enforcement of awards.

By Efe Kinikogu, Partner, and Burak Bati, Associate, Moral, Kinikoglu, Pamukkale, Kokenek

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