In a judgment of 17 May 2023 (Albaniabeg Ambient sh.p.k v. v. Enel Spa), the French supreme court for private and criminal matters (Cour de cassation) denied enforcement in France to an Albanian judgment on the ground that it had been sought for the purpose of evading an arbitral award made beforehand in Italy.
In 2000, Italian company Bechetti Energy Group S.p.a. (‘BEG Italy’) concluded a co-operation agreement with another Italian company, Enelpower SpA, to develop and operate an Albanian hydroelectric power plant. Enelpower was a wholly owned subsidiary — previously an internal division — of ENEL, Italy’s well known power operator
As Enelpower decided not to pursue the project, BEG Italy initiated arbitral proceedings against Enelpower in Italy. The claims of BEG Italy were denied in an award rendered in 2002, which was subsequently declared enforceable in Italy. An action to set aside the award was lodged with Italian courts, in particular on the ground that one arbitrator had a conflict of interest. It was eventually rejected by the Italian supreme court (Cassazione) in 2009.
In the meantime, the Albanian subsidiary of BEG Italy, Albaniabeg Ambient sh.p.k, which had been created for the purpose of the project, initiated proceedings in Albanian courts in 2004 against Enelpower and its mother company, ENEL, Italy’s power operator, of which Enelpower was a wholly owned subsidiary. It also claimed compensation for the loss sustained as a consequence of the fact that the project would not be pursued. Albaniabeg prevailed and obtained in 2009 a judgment ordering Enelpower and ENEL to compensate Albaniabeg.
Albaniabeg then started to seek enforcement of the Albanian judgment in various jurisdictions, including in France.
French Common Law of Judgments
Albania being outside of the EU, the enforcement of the Albanian judgment in France was governed by the French common law of foreign judgments. It lays down four condition for that purpose. The first is that the foreign court should have jurisdiction. The second is that the foreign judgment comports with French public policy.
The third and most interesting condition for present purposes is that the judgment should not have been obtained for the purpose of evading the application of French law or the making/enforcement of a French judgment (fraude). The condition is rarely applied. This is because the requirement that the foreign has jurisdiction implies that there is a sufficient connection between the dispute and the foreign court, will typically also give a justification to the plaintiff to bring proceedings and the foreign court, and make it very difficult to demonstrate that the sole purpose of the foreign proceedings were to avoid the application of French law or the making/enforcement of a French judgment.
The fourth condition is that there should be no irreconcilable decision in France. More on this later.
Evasion of an Arbitral Award (fraude à la sentence arbitrale)
The judgment of the Cour de cassation is remarkable for two reasons. First, it applies, for the first time to my knowledge, the concept of evasion (fraude) to an arbitral award. Secondly, it actually finds that the foreign judgment was obtained for the purpose of evading the arbitral award, and denies enforcement to the judgment on this ground.
The court agrees with the findings of the court of appeal that the following facts revealed BEG Italy’s willingness to evade the arbitral award: three months before Albaniabeg initiated the proceedings, its shareholdeds changed in order to create the misleading impression that it was autonomous from BEG Italy, which was in any case the only contracting party in the project at that time; Albaniabeg had initiated the Albanian proceedings right after BEG had lost the arbitration; Albaniabeg was, in essence, alleging the same breaches (though on a delictual ground) and seeking compensation for the same loss.
The judgment of the Cour de cassation is also interesting as, for the first time, it applies the concept of evasion for a purpose other than protecting the application of French law or the integrity of French judicial proceedings.
Another argument which had been raised against the enforcement of the Albanian judgment was that it was irreconcilable with the arbitral award which was made earlier, and thus recognised in France before the Albanian judgment was made.
One important issue raised by this argument was that the parties were not the same in the arbitral and the Albanian proceedings. But there is a long line of authorities in France which have ruled that third parties cannot interfere with arbitral awards.
I have not seen the judgment of the court of appeal, but I understand that the court of appeal had also denied enforcement on this ground. The Cour de cassation, however, does not address the issue in its judgment. One reason is that it sufficed that it would only confirm that one ground for denying enforcement existed. Whether the judgment rendered by the European Court of Human Rights in this case was another reason is unclear.
European Court of Human Rights
In January 2010, BEG Italy had lodged a complain against Italy before the European Court of Human Right. In a judgment of 20 May 2021, the ECtHR found that Italy had indeed violated Article 6, § 1, of the European Convention on the ground that it had not sanctioned an arbitration where one of arbitrators’ impartiality could be doubted.
The judgment of the Cour de cassation does not mention this judgment of the ECtHR, and it is unclear whether it influenced its decision in any way.
One reason why it might not have is that, I understand, at the present time, Italy has not revoked its decision not to set aside the arbitral award. BEG had asked the ECtHR to rule on this, but the Strasbourg court refrained from doing so, leaving it to Italy to decide how to best implement its decision (a report on the situation from an Italian perspective, by Michele Grassi, will appear on this blog in the coming days).
Another reason might be that, whether the arbitral award was rendered by an arbitral tribunal which did not meet the standard of impartiality did not change the fact that the Albanian proceedings were initiated for the purpose of evading the arbitral award.