Want to know how to enforce awards in Albania, Kosovo, Croatia, Poland, the Czech Republic or Slovenia, to name but a few countries in the central, eastern and south-eastern European regions serviced by arbitration in Vienna? Read on.
Vienna is the de facto commercial capital for much of central and eastern Europe, including the Balkan region. With that in mind, the last GAR Live Vienna opened with a session that would be close to the local audience’s heart: “Enforcement around the region - How to get the client paid”.
Moderated by Alice Fremuth-Wolf, the deputy secretary general of the Vienna International Arbitral Centre (VIAC), the session delved into the pitfalls of trying to locate and claim assets around the region.
The panel comprised Milena Djordjević, of the law faculty of the University of Belgrade, Christian Konrad of Konrad and Partners and Rafal Morek of K&L Gates. Each had to outline how the enforcement process works and what problems may arise depending on whether the award is against a company or the state because, as Fremuth-Wolf explained: “when you’ve won…reality kicks in.”
“[If the opponent doesn’t comply with the award] then you end up in the jungle of national legislation that you wanted to avoid in the first place when you resorted to arbitration.”
The discussion proved far from dry, with speakers’ punctuating their observations with war stories.
Revelations included the following:
- The chief hurdle to enforcing in Serbia is the difficulty in opening a local bank account. The bureaucracy is painful.
- Enforcement agents in Albania have carved out a niche “at the top of the food chain”. They charge high fees and regard themselves as “quasi mediators”; and
- Slovenian debtors regard it as easier to hide assets in Austria than Slovenia.
GAR Live Vienna 2017 was sponsored by VIAC, Arbitration Austria, Young Austrian Arbitration Practitioners, Allen & Overy, Christian Aschauer, Baker Mckenzie, Baier, Czernich Rechtsanwälte, Cleary Gottlieb, DORDA, Freshfields Bruckhaus Deringer, Graf & Pitkowitz, Wolfgang Hahn Kamper, Hauser Partners, Konrad & Partners, SCWP Schindhelm, Vavrovsky Heine Marth, Wolf Theiss, WilmerHale, Zeiler Partners, ArbitralWomen, CPR, Newton Arbitration and the International Lawyers Network.
The following transcript has been edited for your ease of reading and is divided into five sections.
Albania, Macedonia, Kosovo and Slovenia (Christian Konrad)
Serbia, Croatia, Montenegro, Bulgaria and Romania (Milena Djordjević)
Poland, Slovakia, the Czech Republic and Hungary (Rafal Morek)
Alice Fremuth-Wolf: Good morning everybody. Sometimes arbitration is the only option available, but when you have won an award and celebrated the victory, reality kicks in. You’re going to ask yourself how will I get my money because, when your opponent does not comply with the award, you need to enforce. Then you end up in the jungle of national legislation that you wanted to avoid in the first place when you resorted to arbitration and a lot of surprises could await you. The task of our panel today is to draw your attention to issues that you need to know when you want to enforce in the CEE and SEE region.
We have divided the CEE and SEE into sub-regions and each of the speakers will cover one of them. The questions that we pose are how you find and secure assets in these regions; how the enforcement process works; who are the competent authorities and is there a bailiff system. We also ask how you proceed when enforcing against non-signatories of the arbitration agreement or against states, or state-owned entities?
Albania, Macedonia, Kosovo and Slovenia
Christian Konrad: There is no doubt that the oft-praised advantages of arbitration receive their ultimate test when you enter the realm of enforcement. Now is when ii becomes clear whether it was worth opting out of the state courts and opting for an alternative system. Now is when you try to enforce an award in a place unrelated to the seat of the arbitration. Will the state courts recognise the legitimacy of the award you have so bravely fought for? I would say that the effectiveness of international arbitration depends on the ease with which the award can be enforced.
Now, here’s a paradox. The very institution that, for whatever reason, is not trusted with the decision making – the state court – ultimately has the final judgment over the legitimacy and effectiveness of arbitration. I find that intriguing. When I have to address the topic of enforcement in the Balkans, we have two elephants in the room, one holding a sign which says “corruption” and the other holding a sign that says “prejudice”. I intend not to ignore these two elephants.
Consider the economic and political framework within which businesses operate in these countries, which are the poorest in the region, blighted by their historical legacy. It’s the perfect recipe for corruption and inequality and the two feed off each other creating a vicious circle of, on the one hand, unequal distribution of power in society and unequal distribution of wealth. Of course, all governments in the region have pledged to fight corruption; it is their priority to do so. Perception defies reality, however. We have political corruption, abuse of power, conflicts of interest and undue interference in the judiciary - most bluntly on display when we try to enforce against state or state-related entities. Transparency International, the global anti-corruption movement, gives a sobering assessment of some of the countries I’m talking about today. Corruption is a reality that you cannot ignore when you to seek enforcement.
The other elephant is prejudice. You encounter a legion of strong and often offensive national stereotypes in the Balkans: the impoverished Albanian, the nationalistic Macedonian, the stubborn Kosovan and, last but not least, the stingy Slovenian. This is how people of these nationalities characterise each other but the truth may be quite different.
First, I consider Albania. Since the foundation of the republic in 1991, Albania has started to develop closer ties to the western hemisphere. In the early 1990s Albanians were recovering from a nationwide Ponzi scheme, which annihilated the wealth of the whole population; they are still suffering from it. Albania ratified the ICSID Convention as early as 1991; the Energy Charter Treaty in 1997; and the New York Convention in 2001. In 2016 foreign-owned enterprises amounted to just 3.5% of the total but employed 12.8% of the workforce.
Second, there’s Kosovo, politically and legally the most interesting place in the region. In February 2018, Kosovo celebrated the 10th anniversary of its unilateral declaration of independence and is today recognised by 23 of the EU’s 28 member states and a total of 115 countries worldwide. For obvious reasons Kosovo was eager to join the international community and ratified the ICSID Convention soon after independence. Technically, it could accede to the New York Convention, but it hasn’t done so and it’s questionable whether it ever will. However, it has passed a national law essentially applying the provisions of the New York Convention. In terms of economic data, Kosovo is a surprising addition to the region. I would like to highlight its low income tax rate of 10% and the fact that more than 4,000 foreign-owned companies are currently active there.
Nextdoor is Macedonia, which had got through a period of turmoil and is now heading towards a more stable partnership with the EU. Macedonia is a participating state in the New York Convention and has enforced the ICSID Convention and the Energy Charter Treaty since 1998. Not surprisingly, the economic data reflects the political turmoil. I would like to mention the corporate income tax of 10% and the intense attraction for foreign direct investment.
Finally, there’s Slovenia, the only EU country in my presentation today. It inherited membership of the New York Convention from the former Yugoslavia by act of secession in July 1992 and acceded to the Energy Charter Treaty and the ICSID Convention in 1994. In terms of economic data, I would mention the serious banking crisis in 2013 and the impressive number of foreign-owned companies, more than 7,200.
So, the question is, where are the treasure boxes? Before I give you the key to where you can find the money, I would like to talk about the human mind. We know from cognitive psychology that the mind works with pictures and association. So, if I say “red wine”, you will hopefully get a picture of a glass of red wine and the associated emotion of pure indulgence. If I say “public register”, you will think of your national register of companies or land and the associated peace of mind because you did all the checks a diligent lawyer is supposed do. Well, cognitive psychology will fool you in the Balkans because some nation registers are still incomplete. Most of the horror stories you hear come from the fact that they are still in the process of being set up.
I am unfortunate enough to have encountered two dramatic cases in relation to these registers.
In one, a company had been registered for years. The owner fell into dispute with certain well-connected individuals and his company simply disappeared from the register overnight. For three working days, it did not exist. After immense political pressure, the company resurfaced and an apology was issued for technical mistakes.
The second was related to the land register and a prominent plot of land with two registered sole owners.
So, asset tracing the region doesn’t stop with the registers; it starts there. The question you may have to consider is whether you have a legal interest in getting information from the registers. If you have an international arbitration award that is not yet recognised, you may do. You would be well advised to go through a local contact, a notary or an enforcement agent, to help you obtain the relevant information.
Are interim measures an option for those seeking enforcement? The answer, broadly speaking, is yes in all four jurisdictions. State courts recognise the possibility of applying for interim measures during or before arbitration proceedings. The threshold in each of these countries, however, is different and mostly relates to immediate or irreparable injury. It may be lower in Macedonia and Slovenia. As far as the recognition process is concerned, with the exception of Kosovo, you are dealing with New York Convention countries, so it may surprise you that this system essentially works. I would only like to point out that you might have to submit for the recognition process. For example, Macedonia requires an excerpt from the company register for each of the parties, and a power of attorney if you are filing it through a local attorney.
The recognition process that we have encountered usually takes from a few weeks to some months. It depends on how you approach the courts. Once your judgment and award are recognised, you enter the enforcement phase. In all four countries, enforcement typically goes through private agents. You have options. In Albania you can choose between the court system and local enforcement agents. What is astounding is how enforcement agents have established themselves at the peak of the food chain of the traditional hierarchy. You can see this in the incredible fees that they’re allowed to charge: 3% of the value of the obligation and a “success fee” of up to 20% of the enforced amount in one region of Albania. It’s very similar in Kosovo where the enforcement agent was graceful enough to cap it at €200,000. These are real-life examples from the region. Let me just mention the very strong lobbies that these agents enjoy. In Macedonia they have managed to become quasi-mediators in the process where, before you even have a chance to file a civil law suit, you have to make an extra-judicial attempt to collect the money – which is astounding from an enforcement perspective.
As far as the enforcement process is concerned, my advice would be that you step up and engage more resources to achieve the desired result. In relation to enforcement against sovereign states, the perception is that it does no good to the reputation of the individual country if the state itself does not honour its international obligations. So, we rarely encounter major obstacles in enforcement of international judgments against states or state entities. I would like to close by expressing my firm belief that the New York Convention in that context is a major success and will hopefully remain so for many years to come.
Serbia, Croatia, Montenegro, Bulgaria and Romania
Milena Djordjević: I would like to congratulate GAR for choosing Vienna as the venue for this conference as Vienna is indeed a leading arbitration centre in the region. I thank the organisers for inviting me to share my experiences on enforcement in Serbia, Croatia, Montenegro, Bulgaria and Romania. I don’t have any personal experience, but I have second-hand knowledge which I will share with you.
I have drafted and written many awards that were enforced in the region, but only as a professor and arbitrator. The second stage that comes after the award and is most important for your clients is something I’ve never participated in. But I have colleagues who have and, thanks to the network of the Serbian Arbitration Association and the interviews and surveys I have conducted, I have interesting information to share with you.
When it comes to the legal landscape, of course, that’s easy to convey. When it comes to the practical hurdles, it’s you, the practitioners, who know your business. Christian has done an interesting psychological introduction to this part of the region. Much of what he has said applies equally to the countries that I am going to cover, although I find it a bit difficult to transfer the style of lazy Montenegrin, arrogant Croatian, stubborn and aggressive Serbian and cheerful Bulgarian at the same time. It is a colourful region, both in terms of the laws and practice and people, but it is a poor region, as Christian has mentioned. Nowhere do salaries or GDPs in the region compare to Austria itself, let alone other western economies.
According to the Times Higher Education survey, Serbia is number one in terms of the success of its educational activities and scientific achievements – by way of comparison to its GDP. So, we have a lot to offer actually, and this recognition has been extended to other countries in the region that rank high in that category. It’s no surprise, I assume, because many of you have arbitrated or taken part in the Vis Moot in different capacities. In terms of the legal framework, it pretty much resembles what has already been described. There are no surprises. All the relevant international legal documents have been signed and ratified – the New York Convention, Geneva Convention, ICSID Convention and The Hague Convention – so you will find a familiar legal landscape.
All the countries have arbitration laws which, to a large extent, resemble the UNCITRAL model law with the exception of Romania, which follows the French model. All have a relatively high level of education among the practitioners working in the region. The courts, to some extent, tell a different story. They’re a highly reputable place to work, but salaries are nowhere close to matching the demands of the job. A great lawyer is not motivated to join the courts, unfortunately, plus the state is not motivated to pay properly for his work. And people like to file claims to the courts. We have this tradition of preferring to resolve disputes before the court and not by alternative means. Big companies, of course, understand the advantages of ADR and opt for arbitration on many occasions, but the general picture is of an overburdened court system. In terms of ease of doing business, the World Bank rates it low because of the time it takes to get a contract enforced and because of all the actions you have to undertake before getting your client paid.
In regard to how to find and secure assets for enforcement, there are the usual ways of tracking assets that Christian has mentioned and I agree with what he said. They’re not reliable and you need to check further than the land registry and so forth. But the good news is that we’re getting there; things are developing and moving forward. The online system and the accessibility of the data are better than they were. Of course, there are investigative agencies whose services you may use when you want to locate the assets of a debtor and, from what my colleagues say, this is not much of a problem. It is a problem that, from the moment a debtor sees a red flag that a case is not going in his direction, he will seek to relocate his assets. But that’s not a question of how you find the assets; it’s about how to prevent the debtor from disseminating them around the world. And that’s where we reach the point of interim measures.
The legal framework for ordering interim measures will be familiar; no surprises in that regard. Both arbitrators and courts can order interim measures, but their effectiveness is much greater with the courts in terms of how you enforce them and whether you can address third parties. Unfortunately, the situation is not so good when it comes to enforcing interim measures issued outside the region. There is the question of how you can recognise an interim measure issued outside and whether it falls under the category of court decision, as other decisions are, is still problematic in the region, except in Montenegro. Then again, when it comes to Montenegro, I’m referring to the letter of the law. There has been no experience so far with the new law on enforcement of an interim measure issued abroad and addressed to a debtor sitting in Montenegro. So, we do not know how that will go, but Montenegro has followed the example of providing court assistance, as such legal relevance to the interim measures issued abroad.
You should not face many difficulties when asking for an interim measure, but the relevant legal standards might be difficult to comply with. It’s not that the courts will not assist in your aim, it’s just that you may not meet the burden of proof required for such measures. What is the greatest difficulty in that scenario? It’s not the legal procedures that you must undertake; it’s not locating the assets of a debtor; or obtaining an interim measure to preserve them while proceedings are ongoing or after the award has been made. It’s how you comply with the administrative procedures for getting your client paid. Here I am referring to the banking procedures for setting up a non-resident account. So, if your client is a foreign business with a debtor sitting in Serbia, who requests the court to help him in such an endeavour, one of the elements that needs to be in place before starting enforcement proceedings is your bank account in Serbia. As a business operating outside Serbia, you have to open a non-resident bank account, which requires complying with certain formalities. These include opening a tax certification number, in which case you might need a tax proxy to help you in the process, and then going to the bank to open the account. These procedures are dictated by the Anti-Money Laundering Act.
I have been told by colleagues that this takes months to happen – if at all. Some of their clients have decided not to enforce an award in Serbia because of the hurdles associated with opening a non-resident bank account, including the requirement of a personal appearance for signing some of the documentation. If your client, for example, is sitting in Dubai, I don’t think he’s that interested in travelling to Belgrade just to sign a document and then getting all the identification documents of the owners of the business, including passports if we are talking about Serbian nationals. So, the more complex the corporate structure, the more difficulty you will have in providing all those documents needed to open an account to which where the money will be transferred once the award is enforced. I was told that in one Belgrade bank you can find the passports of George Bush, Donald Trump and other VIPs of today’s world since they were somehow involved in the corporate structures somewhere very far away from the person seeking enforcement. The law requires that everybody’s documents, from the first founder of a company, must be made available to the bank.
So, if you are representing a complex corporate structure that wants to enforce an award in Serbia but does not have a corporate presence, think about opening a non-resident account well in advance because this will take a long time to happen. Then the money can be transferred to your non-resident account and, from that moment on, you can convert it to whatever currency you wish and transfer it to wherever you want, provided you get a letter from the tax authorities confirming that all the taxes have been paid. So, according to colleagues and to my own great surprise, the biggest obstacle is not debtors trying to hide their assets, it’s not the enforcement procedures and it’s not the courts. It’s the bank and the non-resident account that are the biggest problem when it comes to enforcing awards.
Back to the legal terrain and how enforcement procedures work. I don’t think you will find any surprises in terms of the documents that need to be submitted to the court: the region of the award, the arbitration agreement and the translation of the certified document. Then, given that you are in New York Convention country, things go quite quickly. One further legal problem to anticipate is the form of the arbitration agreement. The courts tend to require a written form of the agreement, although Montenegro recently relaxed this requirement and Croatia says that oral arbitration agreements are valid provided that they’re followed by a written confirmation of the agreement which is not contested by the other party. So, to some extent, even oral agreements could be valid is these two jurisdictions.
When it comes to arbitrability, it’s usually all the pecuniary disputes that the parties can freely dispose of that are arbitrable, apart from those cases where courts have exclusive jurisdiction. In pretty much all the countries we’re discussing, real estate disputes are those where the courts have exclusive jurisdiction. In Croatia, this means not only the property rights, but also any contracts related to real estate, such as leasing a building. You can only arbitrate those kinds of disputes in Croatia – if the real estate is in Croatia. I mention this in case you have a client who wants to lease or rent a property in Croatia, which is wonderful for touristic purposes. But you can’t have an arbitration clause that calls for arbitration outside Croatia because, if you need to enforce the decision later on, it will not be recognised. A Swiss ad hoc award was denied enforcement in Croatia for just this reason.
With regard to non-signatories, this subject has not been addressed much in the court practice of the countries I am supposed to cover. Apart from the cases of assignment of contracts and universal succession, it’s in the letters of the law of many of the countries and supported in practice that, when you assign a contract, the arbitration clause follows. So, in that kind of a non-signatory type of situation, you should not have difficulties except in Bulgaria where assignment does not work. There you need to have an agreement to have the arbitration clause transferred to an assignee.
When it comes to the group of companies doctrine, estoppel and piercing the corporate veil, they are addressed neither by the law nor in practice. At least, I am not familiar with any cases in the countries under examination where the enforcement of such an award coming from the extension of the arbitration agreement to non-signatories has been requested, so I cannot say whether it would be accepted or not. I have read in the work of colleagues from Romania that they advocate strongly for cases similar, but not identical, to the group of companies doctrine – which is not surprising given the French model that Romania follows – but the courts did not resolve the issue. We cannot predict how things will advance in the future.
Finally, states are often sued in the region. If you look at ICSID statistics, Serbia, Montenegro, Croatia, Romania and Bulgaria are all on the list, typically as respondents in the cases. Most cases are still pending so we cannot say whether the states complied with the awards, because there has been no award yet. Cases from the investment contract – and not the BITs – that have been resolved are not within the public domain, but we have knowledge from colleagues in the area and sometimes the press says a few words on it. States are willing to comply with international arbitration awards if they’re found not guilty but, even if there is money to be paid, they’re willing to do so. Sometimes it takes time; you need to be persistent and use diplomatic channels, but in most cases states have complied with the request for enforcement of an award that was not in their favour. From my experience and that of colleagues, state-owned companies in the region are reliable debtors. Reports of assets being hidden throughout the world apply less to state-owned companies than private businesses. So, when you consult with clients or contract parties from the region, you should convey this message as well. This is where I stop talking. Thank you.
Dr. Alice Fremuth-Wolf: Thank you very much. Rafal, the floor is yours.
Poland, Slovakia, the Czech Republic and Hungary
Rafal Morek: Let me spread some news about current changes in regulations and practices from the northern countries of the CEE. My group includes Poland, Slovakia, the Czech Republic and Hungary. All four countries are parties to the New York Convention; all four have reservations regarding reciprocity and the commercial nature of disputes; and, interestingly, all four are parties to the European Convention of 1961, which is especially relevant in the context of article 9 of this convention. Why is it relevant? I will explain later. Now, within the last three years, all four countries have reviewed and substantially amended their arbitration regulations and enforcement execution law.
For example, in Hungary a new arbitration law came into force in January 2018. In Poland, there was the flattening of the post-arbitration state court proceedings; we now have a single-instance enforcement and set-aside procedures. In other respects, what is relevant are the technological changes regarding communications between court bailiffs and the financial institutions. From this year in Poland and also in some other countries, bailiffs are able to notify a freezing order on bank accounts to the financial institutions within a single business day. The effectiveness of the enforcement regime is strongly enhanced thanks to the new regulations.
Now, a quick review of asset tracing. In all four countries, the basic public registers – namely the commercial register, land and mortgage register and some others – are in theory available online, which makes access to information about assets and different kinds of property easier than it used to be. However, this is in theory: in Poland, which is relatively large, it’s not fully working across the whole country. There is still a role for private service providers, who will collect information not yet digitalised in local courts for a relatively low fee – or no fee at all in some instances. You can get such a package of financial information online within a couple of hours on business days.
This is a new market for professional services, based on the 2010 regulation on economic information bureaus, which are a new type of entity collecting and processing financial data. Those entities are licensed by the minister of economy and supervised by the inspector for personal data protection. They process huge amounts of financial information. So, for example, they produced 5.6 million reports and processed more than 7 million requests for financial reports about business partners or other entities. I believe that in the long run the role of court bailiffs in the countries covered will be increasingly important because of this new speed-link to the financial institutions.
In Slovakia public registers are also available online. You can check it on your smartphones if you need and, for the land and mortgage registry, full digitalisation is now complete and databases are updated daily. Same for the Czech Republic and Hungary. Right now, you can check your business partner for nothing. The first report you receive is free, but thereafter you pay. I guess that this is a trend; tracing assets will be easier and easier, and moving your assets outside Europe or the EU will become a real challenge.
Now, a few remarks about enforcement procedures and related fees. In 2015, there was the reform of Polish arbitration law with the intention of speeding up post-arbitration proceedings; a petition to get leave for enforcement is to be filed to the court of appeals. There are several courts of appeal in Poland but since 1 January 2016 they have been acting as a sole-instance court. Based on first-hand experience, I can say that this has improved the practice of enforcement. It’s quicker with no right to appeal to challenge. From the perspective of court fees, they are relatively low. A court fee, regardless of the value of the award, is a flat fee; a symbolic €75. Bailiffs fees are also way more reasonable than the examples given by Christian. Slovakia still sticks to the two-instance judicial model and an extraordinary appeal is also available. It can go either to the supreme court or, in some very limited instances, to the constitutional court.
Now, Czech Republic. The interesting thing is that in the Czech Republic you should be aware that the permanent courts of arbitration are licensed. They can act only if they are established by statutory provisions. This has led to refusals of enforcement in the past. For example, the Supreme Court of the Czech Republic in 2013 declared than an award was unenforceable due to the invalidity of an arbitration clause because it indicated a self-proclaimed arbitration court – a court which was not established by law. So, a typical arbitration clause may be difficult to enforce from the perspective of Czech arbitration law. Arbitration in the Czech Republic is highly concentrated. The arbitration court is a huge organisation – huge because it handles around 3,000 cases annually. This is in stark contrast to Slovakia where, before the reform of 2015, there were more than 170 permanent courts of arbitration. I don’t know the current number.
I mentioned that there was a reform of arbitration law in Hungary and there is an interesting new institution that you should be aware if you have cases related to Hungary. This institution allows for a retrial in cases where any relevant new fact or evidence emerges within a year of the receipt of the award that was not known at the time of the arbitration. A party may request retrial of the case by the arbitral tribunal and this may lead to suspension of the enforcement of the contested award. I see that you can sense problems in this regulation. It’s a brand-new thing and has no counterpart in the UNCITRAL model law. Let’s look forward to how it’s applied in practice.
Most of you have heard that national property in Hungary was excluded from the arbitration practice based on two regulations. The first was introduced in 2011; it prohibited public entities from stipulating arbitration in contracts concerning national property. It was expanded in 2012 by a new provision which excluded arbitrability of national assets located on the territory of Hungary. This was strongly criticised. It created a huge practical problem, for example, in relation to state property localised outside Hungary. In a decision of the constitutional court in 2013, the court held that this regulation complied with the constitution, but it was nonetheless amended and partly repealed in 2015. The reason was that Hungary at the time was contracting a huge infrastructural project with a Russian contractor related to a nuclear plant, and it became simply impossible to finalise the contract without arbitration. This forced the legislative changes.
Another peculiarity of Hungarian arbitration law relates to the judiciary’s control of legal fees. There is a widely reported judgment of the supreme court in 2003 where, due to the high amount of legal fees in the range of 290 million forints, or roughly €3 million, the arbitral judgment was declared unenforceable.
Now, I will discuss interim reliefs. There are different models. Poland represents the model where you can get interim measures from both an arbitral tribunal or a state court, but the former is useless from a practical point of view because it cannot be enforced without the legal assistance of a state court. So, you need to take the two steps, which make the process slow and inefficient. In Slovakia and Hungary there have been legislative changes which aim at enhancing the effectiveness of interim measures rendered by arbitral tribunals.
The enforcement of awards set aside in the jurisdiction. This problem was not expressly resolved in jurisprudence in any of the four countries. I think it’s going to happen sooner or later, and sooner in other countries in the region, including Lithuania. In 2014, a supreme court decision effectively introduced the group of companies doctrine. So, some attempts to pierce the corporate veil or to apply equivalence of estoppel doctrines are already visible and I predict they will be successful in some of those countries,
Now, a few words about enforcement against states. The most recent development is that Poland has started to terminate its BITs. The first was the BIT with Portugal. Based on information through diplomatic channels, the Polish government contacted other EU governments and agreed on the termination of BITs with Denmark, Romania, the Czech Republic, Estonia and Latvia. The same approach to the future of intra-EU bilateral investment treaties is being applied by other governments in the region.
Poland is not a party to the Washington Convention and the ICSID system; the other three countries are. Only the Czech Republic and Slovakia ratified the 2004 UN Convention on Jurisdictional Immunities of States and Their Property, but this convention has not yet entered into force. Thank you for your attention.
Dr. Alice Fremuth-Wolf: I will open now the floor for questions.
Jure Levovnik: My name is Jure Levovnik from Slovenia. I have one comment and then a question for Mr Konrad. It is a fact that the success of enforcing arbitral awards in Slovenia mostly depends on the proactivity of the law firm or enforcement agent looking for the assets. As far as registers are concerned, they’re relatively up to date; that’s not a major issue. What’s interesting is that Slovenian debtors often move their assets abroad where they think enforcement will be more difficult. There are three countries that are most interesting for Slovenians: Bosnia, Croatia and, interestingly, Austria. We’ve had a lot of experience with people having even more difficulties in tracing the assets in Austria than they would in Slovenia. You have experience with both Austrian and Slovenian cases. What is the key improvement in enforcement measures that Slovenia should make in comparison to Austria?
Christian Konrad: As far as enforcement measures are concerned, I can report one very practical example where enforcement for our client was very successful. As far as the registries are concerned, Slovenia is outstanding in terms of transparency. I didn’t have the time to go into details but, if I’m not mistaken, you have a central registry which obliges banks to register all the accounts of all companies, which is not the case in the other countries I was covering. You have relatively easy access to that information as you simply have to prove a legal interest. If you ask if there is room for improvement in Slovenia, I would assume yes but, from a practitioner’s point of view, I have no complaints when it comes to enforcement.
Dr. Alice Fremuth-Wolf: There was another question here.
Martin Wolfbauer: My name is Martin Wolfbauer, from the international legal department of the STRABAG Group, based here in Vienna. All of you agreed that, if you have an international award against a public debtor in these countries, they are recognised and more or less paid. Can you share any experiences you have where public debtors are unwilling to pay and therefore there be pressure on the courts to preventing it from being enforced. Have there been any attempts to use BITs because the state is not complying with its obligations?
Dr. Alice Fremuth-Wolf: Who wants to go first?
Milena Djordjević: In the countries I have covered, it’s surprising to see just how high the percentage of recognition and enforcement of awards is. So, from the perspective of how the courts treat arbitration agreements and consequent awards, I can say the picture looks great, but it’s a completely different issue as to how long it takes. There may be pressure on courts from the government or somebody else that we cannot see from a distance. The procedure might take longer when state entities are involved, [depending] on whether it’s the right moment to take the money from the state company’s account or the state budget. In that sense, it’s a different scenario from when you’re dealing with the private sector. However, Serbia and state companies in Serbia have, to the best of my knowledge, complied with all the awards decided against them.
Sometimes it’s the other party that didn’t trigger the enforcement; there were negotiations and settlements taking place after the award was made against the Serbian company. There were suggestions for having future business operations which did not require the court’s assistance at all. Those kinds of things happen as well. But a funny fact about enforcing against Serbia, a technical detail that could be useful, is that if you want to enforce an award against Serbia you need to figure out the exact line of the state budget against which you are enforcing. You need to know whether this particular award falls within the budget line of the ministry of interior or the ministry of infrastructure or the ministry of economy. It might take a while to figure things out, but you will succeed in the end.
Rafal Morek : For Poland, Hungary, Slovakia and the Czech Republic the situation is similar. The majority of awards are honoured but it sometimes takes a really long time. It’s a regular practice that, if the state treasury or another state-owned entity is losing a high-value case, it will certainly try a set-aside procedure. So, the tendency is to fight till the very end, and that’s why the reform flattening the set-aside and enforcement procedures to one instance isn’t really relevant or helpful in this regard. There was the widely publicised case of Diag Human in 2008 in which the Czech Republic lost over US$480 million against a supplier of blood plasma. There was a typical arbitration clause, which provided for some kind of review, and this review process took from 2008 till 2015. Diag Human tried to enforce this award in Austria, France and England, but failed. This is a good example of compliance application and harmonised application in the newer convention that in certain instances are a bit more complex. So, in those countries I covered, I didn’t come across any significant incompliance that would be clearly unjustified and would create a good ground for a BIT case for denial of justice.
Christian Konrad: When you talk about state or state-related entities in the region, you should start not with the enforcement, but with the arbitration itself. A common feature is that, when you involve them in an arbitration, it’s usually in the opening statement you find that it is against the state’s public policy. That’s an automatic response from all representatives of the state and I think they genuinely believe it. There’s some notion that, if you’re fighting against the state, this must be against public policy because no one does. So, it’s very hard to then explain to the other side that this might not be public policy and, of course, these arguments go right up to the enforcement stage. In the context of the enforcement issue, it’s important to mention the interplay between the European Convention and the New York Convention. Most of these countries are members of both treaties, but the European Convention is often overlooked. I suggest you advise everyone to have a look at it. Article 9 makes it very clear that courts in the state where enforcement is sought can only do so by respecting article 5.1 of the New York Convention. In other words, if an award has been set aside at the seat of the arbitration on grounds of public policy, that does not automatically mean a ground of refusal in the court of enforcement.
Milena Djordjević: If I may just follow up on what you have just said. Public policy is an argument that’s often brought by state entities and the state but, if you look at the courts’ practice, they’re not buying it. I have done a review of cases from the region regarding the public policy exception, or the reasons for non-enforcement and non-recognition of an award, and there are no public policy cases. Nothing has been found to be in contravention of public policy and the courts are interpreting this well. But back to the issue of enforcement. There was a case against the Serbian – then Yugoslav – company trading in armour and weapons. That case took over 20 years to have an award enforced. Not in Serbia – enforcement in Serbia was unthinkable at the beginning of the 1990s during the civil war – but in Singapore where the company had an account, which is important for you to know. I mean, don’t just look in the region for the money; look further. The enforcement proceedings in Singapore alone lasted for six or seven years. So, don’t blame the region if the proceedings are long; it happens in other jurisdictions as well.
Dr. Alice Fremuth-Wolf: That’s a perfect place to end. I would like to conclude with three remarks: first, I know we exposed you to a lot of information in this panel. That was on purpose because otherwise we would have just shared war stories and bashed countries. We didn’t want to do that; we wanted to provide you with a good overview so that, when you are in the state where you have to enforce, you know their specialities. Secondly, things are not always as they seem; the prejudices we usually have do not always materialise. And finally, you need to plan your enforcement as much in advance as you do when preparing your case. So, when you are arbitrating, you should already be thinking about the enforcement.
Please join me in thanking our panellists for their really excellent overview and all the hard work that went into it. Thank you.
GAR Live Vienna took place on Friday 20th October 2017 at the Austrian Federal Economic Chamber, Wiedner Hauptstraße 63, 1045 Vienna, Austria.
GAR Live Vienna 2018 is on Friday 19th October, please see our event page for further details.