Two Italian companies, BEG and Enelpower, signed a cooperation agreement for the construction and operation of a hydroelectric power station in Albania.
When Enelpower decided not to go ahead with the project, BEG brought claims for compensation before an arbitration tribunal as per the arbitration clause provided for in the contract. These claims were dismissed by an award rendered on 6 December 2002, which was declared enforceable in Italy.
In May 2004, the Albanian company set up by BEG to carry out the power plant project sued Enelpower before an Albanian court for damages for allegedly having been led to believe that the project would go ahead.
In a judgment dated 24 March 2009, upheld on appeal, the Albanian courts upheld the Albanian company’s claims and ordered Enelpower to pay it various sums as compensation for its non-contractual loss. The Albanian company then applied for this judgment to be declared enforceable in France. The Italian company opposed this application on the basis of the 2002 arbitration award, arguing that it was res judicata and constitutive of a fraud against the sentence.
In a ruling dated 4 May 2021 (RG 18/02914), the Paris Court of Appeal refused to grant the application for exequatur of the Albanian judgment, holding that, although BEG was not directly a party to the proceedings before the Albanian court, it had nevertheless acted before it by “artificially interposing its Albanian subsidiary“.
The Court of Appeal noted that, a few months before the action was brought before the Albanian courts, the Albanian company had gone through an apparent change in its shareholding structure designed to mislead as to its independence from BEG, under which it in fact retained full control.
The Court of Appeal held that in view of the similarity of the facts and arguments put forward, and the loss alleged in the arbitration and Albanian proceedings, the action brought before the Albanian courts in fact had the same purpose as the one brought before the arbitral tribunal, namely to obtain a declaration that Enelpower had breached the cooperation agreement. In reality, the action sought to obtain indirectly what BEG had failed to obtain directly from the arbitral tribunal.
The Cour de cassation upheld the analysis made by the Cour of Appeal, arguing that it had rightly found that the judgment had been obtained by fraud, which justified the refusal of exequatur.
This case is also interesting because of another proceeding initiated by BEG before the European Court of Human Rights (“ECHR”), following the dismissal by the Italian courts of its application to set aside the arbitration award for lack of impartiality of the co-arbitrator appointed by Enelpower.
Before the ECHR, BEG claimed a violation of its right to a fair trial under Article 6§1 of the European Convention on Human Rights, because one of the co-arbitrators had previously been vice-chairman of the board of directors, as well as a lawyer, of Enelpower’s parent company.
In a judgment dated 20 May 2021, the Court found a violation of Article 6§1 of the European Convention on Human Rights, insofar as BEG’s doubts about the impartiality of the appointed arbitrator were objectively justified. While BEG was seeking damages amounting to its claims in the arbitration proceedings and the costs of those proceedings (totalling more than €395 million), the ECHR awarded it only €15,000 for its non-pecuniary damage and €35,000 for the costs of the proceedings before the ECHR.
BEG’s attempts before the French and European courts to neutralise the arbitration award were both ultimately unsuccessful.
