The French courts have had very few opportunities to rule on the setting aside of an investment treaty arbitration award. For this reason, the decision of the Paris Court of Appeal in Moldova v société Komstroy (Court d'appel de Paris, Pôle 1- Chambre 1, République de Moldavie v société Komstroy, 12 avril 2016, n°13/22531) is of great interest. It deals with the degree of control over an investment arbitration award by the French courts and the definition of the legal concept of investment in the Energy Charter Treaty (ECT).

Facts and Procedure

The dispute arose in the context of a series of contracts made in the 1990s pursuant to which a Ukrainian company (Energoalians) would indirectly supply electricity to Moldtranselectro, a public company operating the Moldovan electricity network, through an intermediary company (Derimen). Derimen had transferred, to Energoalians, debt owed to it under an electricity supply contract between Derimen and Moldtranselectro. Energoalians then brought ad hoc arbitration proceedings under the UNCITRAL Arbitration Rules against Moldova, based on certain decisions taken by the Moldovan government which had resulted in cancelling Energoalians’ right to receive the payments due from Moldtranselectro. Energoalians alleged that Moldova, in doing this, was in breach of the ECT.

By an award dated 25 October 2013, notwithstanding a dissenting opinion from its president, the Arbitral Tribunal ruled that it had jurisdiction under the ECT and that Moldova had violated its treaty obligations.

Moldova filed an action before the Paris Court of Appeal (the arbitration’s seat was in Paris) to set aside the award alleging that the Arbitral Tribunal lacked jurisdiction.

Decision

To decide if the arbitral tribunal had jurisdiction, the Paris Court of Appeal focused on whether Energoalians’s right to receive payments from Moldtranselectro under the electricity supply contracts could qualify as an “investment” under the ECT.

Before considering the Court’s decision, it is worth noting that procedurally the investment arbitration award was not conducted within the self-contained ICSID system. The award against Moldova could therefore only be challenged under the normal commercial arbitration framework established by French law. Article 1520(1) of the French Code of Civil Procedure provides that an award may be set aside if the arbitral tribunal wrongly held that it had or did not have jurisdiction. Under French law, the review of an international award by the French courts in set aside proceedings is generally limited in scope. However, if the award is challenged on jurisdictional grounds, French courts conduct a full review (contrôle plein) of the facts and the law underlying the decision of the arbitrators to accept jurisdiction. The Court confirmed that this principle of full review applies in the same manner when the award is treaty based.

The Court started by referring to Article 31.1 of the Vienna Convention on the Law of Treaties (although it not ratified by France) which requires treaties to be interpreted “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose”. In interpreting the provisions of the ECT, the Paris Court of Appeal decided that to qualify as an “investment” under the ECT there needed to be a contribution from the investor since Article 1(6) in fine provides that an investment must be associated with an “Economic Activity in the Energy Sector.” The Court therefore ruled that that a mere debt arising under the performance of an electricity supply agreement did not qualify as an investment under Article 1(6)(c) of the ECT as it did not involve the transfer of capital or resources.

Furthermore, under Article 26(1) of the ECT an arbitral tribunal has jurisdiction to rule on disputes “which concern[ed] an alleged breach of an obligation of the [relevant contracting state] under Part III” of the ECT, Part III being entitled “Investment Promotion and Protection”. It does not have jurisdiction to rule on disputes which concerns Part II, entitled “Commerce.” According to the Paris Court of Appeal the debt arising under the electricity supply agreement fell within the scope of “Commerce” and therefore outside the jurisdiction of the Arbitral Tribunal.

Comment

The decision provides an interesting assessment by the French courts of the legal concept of investment. The Court’s approach is however somewhat puzzling, oscillating between a subjective and an objective approach to interpretation of that concept. According to the objective approach, the existence of an investment is determined on the basis of several pre-determined criteria; the existence of a contribution that extends over a certain period of time and involves some risk to the investor. This looks to the intention of the contracting states as expressed in the relevant investment treaty. By contrast some arbitral awards have adopted a subjective approach by adding a rather controversial requirement of a contribution by the investor to the economic development of the host State (See the Fedax and Salini cases).

In the present case, the Paris Court of Appeal seems first to have followed a subjective approach in adopting an interpretation of “investment” under the ECT which excluded a mere debt arising under the relevant electricity supply agreement (although in doing so it arguably also failed to consider the extensive definition of “Economic Activity in the Energy sector,” under Article 1(5) ECT which includes the “distribution, trade, marketing, or sale of Energy materials” and could potentially have included the contract for supply of electricity). At the same time, however, the Paris Court of Appeal also appears to have adopted something of an objective approach by arguing that the concept of investment in the ECT needs to be given its ordinary meaning, thus (contrary to the trend in investment treaty cases) leading it to give that concept a restricted meaning.

One final observation is that, of course, both the Arbitral Tribunal and the Paris Court of Appeal reached diametrically opposed conclusions on the matters under discussion, thereby only having the potential to increase the debate, and lack of uniformity, concerning the legal concept of an “investment” under the ECT.

Executive Summary

In Moldova v société Komstroy, 12 April 2016, n°13/22531, the Paris Court of Appeal has set aside an Energy Charter Treaty (ECT) investment award rendered against Moldova on the ground that a debt arising under an energy supply agreement did not constitute an investment under the ECT. The Paris Court of Appeal (i) clarifies the degree of control over an investment treaty arbitration award by the French courts in set aside proceedings (application of the full review doctrine) and (ii) adopts a rather restrictive definition of the legal concept of investment under the ECT.

Clément Fouchard

Managing Associate
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