Paris Court of Appeal sets aside PCA award for lack of temporal jurisdiction over investment

Under article 1518 of the French Code of Civil Procedure (FCCP), international arbitration awards rendered by a tribunal seated in France may only be challenged by way of an action to set aside.

Article 1520 of the FCCP provides that set aside of an international arbitration award can only be granted on one or more of the following grounds:

Article 1466 of the FCCP (applicable to international arbitration by application of article 1506 of the FCCP) provides that:

Oschadbank is a joint stock company owned by Ukraine that previously operated in Crimea through a local branch headquartered in Simferopol, overseeing nearly 300 retail branches. In March 2014, Crimea acceded to the Russian Federation, and in April 2014, the Russian Federation enacted a series of laws relating to the provision of banking services in Crimea. Finding that these provisions de facto precluded Ukrainian banks from operating in Crimea, the Ukrainian National Bank rapidly issued a resolution prohibiting Ukrainian banks from operating in Crimea from June 2014 onwards. The Bank of Russia placed the local operations of Oschadbank in receivership at the end of May 2014.

Oschadbank initiated Permanent Court of Arbitration (PCA) proceedings against Russia in January 2016, arguing that Russia's actions resulted in unlawful expropriation in violation of Russia's international obligations pursuant to the 1998 Russia-Ukraine bilateral investment treaty (BIT).

In November 2018, the tribunal issued an award upholding jurisdiction over the dispute, finding that Russia was liable for the expropriation of Oschadbank's assets in Crimea and ordering Russia to pay USD1.1 billion. Russia did not participate in the arbitration.

In February 2019, Russia applied to the Paris Court of Appeal to set aside the award. In March 2019, it also applied for a stay of enforcement of the award, which the court denied in October 2019. Finally, Russa applied to the arbitral tribunal for revision of the award. In December 2019, the tribunal suspended its revision proceedings pending the decision of the court on the set aside application.

Russia sought to set aside the award on the ground that the tribunal lacked:

Russia further argued that enforcement of the award would be in breach of French international public policy to the extent that it had been obtained by fraud, as Oschadbank had withheld from the tribunal the fact that it had made the investment prior to January 1992.

In defending the award, Oschadbank argued that the jurisdiction of the tribunal must be assessed within the strict boundaries of the text of the BIT, without the imposition of any additional requirement not contained in the BIT. Accordingly, Oschadbank argued that as soon as an asset qualifies as an investment pursuant to the terms of the applicable BIT, whether and to what extent it was protected was a question for the merits, rather than an issue of jurisdiction. Therefore, it contended that the issue was not subject to review in set aside proceedings. Oschadbank further noted that while Russia had listed, at the outset of the arbitration, a number of jurisdictional objections to explain why it would not be participating in the arbitration, this specific objection was not part of the list, making it inadmissible at the set aside stage pursuant to article 1466 of the FCCP.

In addition, Oschadbank noted that the territorial and subject matter objections were also inadmissible as they were not raised in the arbitration and, in any event, would not warrant setting aside the award.

The Paris Court of Appeal set aside the award on the ground that the tribunal lacked temporal jurisdiction because the investment was made prior to the protected period provided for in the BIT. The court consequently held that it did not need to address the other grounds for set aside raised by Russia.

The court first examined Oschadbank's argument that Russia's temporal objection was inadmissible because Russia had not been raised it in the arbitration proceedings. The court recalled the well-established principle that, in reviewing the jurisdiction of a tribunal in set aside proceedings, a court is entitled to look at all pertinent factual and legal elements to assess the scope of the arbitral agreement. It further noted that while article 1466 of the FCCP provides that an objection not timely raised is deemed to be waived, when the issue of jurisdiction is raised in the arbitration, a party is entitled to raise additional arguments in support of its jurisdictional objection at the set aside stage. The court noted that it did not matter that the issue had not been argued in front of the tribunal, precisely because it formed the basis for Russia's decision not to participate in the proceedings in the first place.

The court went on to examine the specific language of the BIT, to conclude that the offer to arbitrate contained in the dispute resolution clause of the BIT was not "absolute and unconditional", but rather limited in scope to disputes relating to investments made in accordance with the BIT (that is, to investments made from January 1992 onwards). The court concluded that the issue of the timing of the investment was therefore a jurisdictional one and did not go to the merits of the dispute. Therefore, it was subject to review in set aside proceedings.

Finally, the court noted that, while the issue was not raised in the arbitration, the date on which the investment was made was a necessary criterion to determine whether an investment that otherwise met the definition of investment provided in the BIT was a protected investment. Ignoring this criterion would deprive the corresponding article of the BIT of any meaning or effect. The court then reviewed evidence as to the continued operations of the USSR state bank's legacy operations in Crimea, following the dismantling of the USSR's unified banking system, and transfer of its Ukrainian operations to Oschadbank in 1991. The court concluded that Oschadbank was operating in Crimea prior to 1992. Therefore, the corresponding investment necessarily pre-dated the January 1992 cut-off date provided for in the BIT.

Therefore, the court held that the tribunal did not have jurisdiction to hear the dispute.

It is well understood that French courts are bound to ascertain the boundaries of the arbitral tribunal's jurisdiction by looking at all legal and factual elements available. At the same time, until recently, French courts used article 1466 of the FCCP to ensure that parties did not conjure up new arguments at the set aside stage in a final effort to overturn an unfavourable ruling.

However, over the last two years, the Supreme Court has demonstrated a willingness to entertain all possible jurisdictional arguments, even where they were not directly argued in the arbitration. First, in March 2020, the Supreme Court held that a challenge to the validity of the constitution of the tribunal raised before the ICC Court was contained in a broader jurisdictional challenge made before the tribunal and relating to the "pathological nature" of the arbitration agreement (see Legal update, French Supreme Court reverses Paris Court of Appeal decision allowing enforcement of ICC award due to potential improper constitution of the arbitral tribunal). Shortly thereafter, in December 2020, the Supreme Court held that where jurisdiction has been debated in the arbitration, new factual and legal elements relating to the jurisdiction of the tribunal can properly be raised at the set-aside stage (see Legal update, French Supreme Court reverses and remands Paris Court of Appeal decision upholding Paris-seated ICSID Additional Facility award).

This decision embraces that trend. Here, the issue of jurisdiction was not argued at all in the arbitration, as Russia elected not to take part in the proceedings. However, the issue was raised in Russia's letter explaining that it would not take part in the proceedings.

With this decision, the Paris Court of Appeal embraces the Supreme Court's willingness to conduct an in-depth review of a tribunal's jurisdiction where and when possible.

Fédération de Russie c/ JSC Oschadbank, Cour d'appel de Paris, n° 19/04161, 30 March 2021 (Mr Ancel, presiding judge; Ms Schaller, judge; Ms Aldebert, judge).