Norbert Schaller Gesellschaft m.b.H v. First Investment Bank PJSC

At a glance

Parties

Norbert Schaller Gesellschaft m.b.H. (Austria), applicant/award creditor, v. PJSC First Investment Bank (Ukraine), debtor

Case no.

Supreme Court of Ukraine case No. 756/618/14-ц (proceeding No. 61-16732св18); Court of Appeal of Kyiv No. 22-ц/796/7389/2017

Forum and rules

Recognition and enforcement in Ukrainian courts under the New York Convention 1958, the Law of Ukraine "On International Commercial Arbitration" and the Civil Procedure Code of Ukraine

Court

Court of Appeal of Kyiv (5 July 2017); Supreme Court, Civil Cassation Court, First Judicial Chamber (27 March 2019)

Underlying award(s)

International Arbitral Centre of the Austrian Federal Economic Chamber, case No. SCH-5039, sole arbitrator Franz T. Schwarz: First Partial Award on jurisdiction (17 January 2011), Second Partial Award on the merits (28 February 2011), Final Award on costs (6 June 2012)

Court

Supreme Court panel: V. A. Strilchuk (presiding), S. O. Karpenko (judge-rapporteur), V. O. Kuznietsov, S. O. Pohribnyi, O. V. Stupak

Sector

Banking; bank guarantee; meat-processing equipment supply

Outcome

The Supreme Court set aside the lower courts' refusals and granted recognition and enforcement of all three awards, but refused the applicant's own calculation of interest up to 20 April 2017.

Amount

Awarded in arbitration: EUR 2,468,816.80 plus interest, and EUR 239,333.57 in costs. The applicant sought enforcement of EUR 4,238,979.00 (UAH 121,782,051.59) with interest calculated to 20 April 2017. Enforcement was granted for EUR 2,468,816.80 (UAH 75,200,159.73 at 27 March 2019) plus interest at the rates in the award, and for costs of EUR 239,333.57 (UAH 7,290,100.54).

The dispute

First Investment Bank (then OJSC, now PJSC) issued payment guarantee No. 27.04-19752 to Norbert Schaller Gesellschaft m.b.H. The guarantee secured payment under contract No. 105/2004 of 17 June 2005 between Navigator Handelgesellschaft M.B.H. and Schaller for equipment for slaughtering livestock and processing meat. The bank undertook to pay on first demand up to EUR 2,486,816.80. The guarantee was governed by Austrian law and referred disputes to a sole arbitrator of the Arbitral Centre of the Austrian Federal Economic Chamber, seated in Vienna. A sole arbitrator upheld jurisdiction and ordered the bank to pay. Earlier, however, Ukrainian commercial courts had declared the guarantee invalid in case No. 18/111, because the bank's board chairman had signed it in excess of his authority. In January 2014 Schaller applied to the Ukrainian courts to recognise and enforce the awards. The bank argued that the agreement was invalid and the parties lacked capacity, that the matter fell within the exclusive jurisdiction of Ukrainian courts, and that a final Ukrainian judgment already existed between the same parties.

Key holdings

1. The Court of Appeal upheld the refusal of enforcement. It held that the bank had proved, under Article V of the New York Convention and Article 396(2)(8) of the Civil Procedure Code, that the guarantee had been declared invalid by a final Ukrainian judgment. An arbitration clause applies only to a valid transaction, so no obligations arose on which the arbitrator could decide. Court of Appeal judgment, pp. 6–7
2. The Court of Appeal also held that the first-instance court wrongly relied on Article 61 of the Civil Procedure Code (facts established by a prior judgment need not be proved). That article applies to disputes on the merits, not to applications to enforce foreign decisions. Court of Appeal judgment, p. 6
3. The New York Convention prevails over Ukrainian legislation. Courts may apply the grounds in Article V(1) only at the request of the resisting party, but may raise the grounds in Article V(2) on their own motion. Courts may not review the merits of a foreign award. Supreme Court judgment, pp. 4–6
4. Separability: the invalidity of the guarantee does not automatically invalidate the arbitration clause in it. The commercial courts never decided the validity of the arbitration agreement separately, and did not apply the Austrian law the parties had chosen. Refusal under Article V(1)(a) was therefore wrong. The arbitrator's First Partial Award had already rejected the jurisdictional objection. Supreme Court judgment, p. 6
5. The written-form objection fails under Article II(2) of the Convention, since the bank sent the guarantee containing the clause to the creditor. Article VII(1) allows less strict national form standards. No breach of Ukrainian public policy was shown or found. Supreme Court judgment, p. 7
6. The awards were recognised and enforcement was granted. However, the applicant's calculation of 8.38% interest from 1 July 2009 to 20 April 2017 went beyond the operative part of the award, because the enforcing court's order must match it. That part of the application was refused. Supreme Court judgment, p. 8
7. The applicant's request to refer the case to the Grand Chamber was refused. The Court found no exceptional legal problem, and the request had been filed after the time limit for supplementing the cassation appeal. Supreme Court judgment, p. 7

Procedural history

1. 24 June 2008Commercial Court of Kyiv (case No. 18/111) declares guarantee No. 27.04-19752 and its supplement invalid. The Kyiv Appellate Commercial Court upholds this on 20 October 2008 and the Higher Commercial Court on 12 March 2009. On 9 April 2009 the Supreme Court of Ukraine refuses Schaller's cassation review.
2. 17 January 2011First Partial Award (jurisdiction) in VIAC case SCH-5039: the arbitration agreement is valid and the bank's jurisdictional objections are rejected.
3. 28 February 2011Second Partial Award (merits): the bank is ordered to pay EUR 2,468,816.80 plus interest.
4. 6 June 2012Final Award (costs): the bank is ordered to pay EUR 239,333.57.
5. January 2014Schaller applies to the Ukrainian courts for recognition and enforcement.
6. 15 May 2017Obolonskyi District Court of Kyiv refuses the application.
7. 5 July 2017Court of Appeal of Kyiv dismisses Schaller's appeal.
8. 2 August 2017Higher Specialised Court opens cassation proceedings. The case is transferred to the Supreme Court in April 2018.
9. 27 March 2019Supreme Court partly grants the cassation appeal: it sets aside the lower decisions and recognises and enforces the three awards, except the applicant's recalculated interest.

Tribunal, counsel and experts

Decided by

• L. D. Ukrainets Judge, Court of Appeal of Kyiv (presiding judge)
• M. I. Onishchuk Judge, Court of Appeal of Kyiv
• V. A. Shebuieva Judge, Court of Appeal of Kyiv
• V. A. Strilchuk Judge, Supreme Court of Ukraine (Civil Cassation Court) (presiding judge)
• S. O. Karpenko Judge, Supreme Court of Ukraine (Civil Cassation Court) (judge-rapporteur)
• V. O. Kuznietsov Judge, Supreme Court of Ukraine (Civil Cassation Court)
• S. O. Pohribnyi Judge, Supreme Court of Ukraine (Civil Cassation Court) (drafted the judgment as substitute judge-rapporteur)
• O. V. Stupak Judge, Supreme Court of Ukraine (Civil Cassation Court)

For the claimant

Dmytro Vasylovych Salatiuk

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Keywords

• New York Convention
• recognition and enforcement
• Ukraine
• Austria
• VIAC
• bank guarantee
• first demand guarantee
• separability
• autonomy of arbitration agreement
• Article V(1)(a)
• Article II(2) written form
• public policy
• invalid main contract
• partial award
• interest calculation
• Grand Chamber referral
• meat processing equipment

Summary generated with AI from the published documents — refer to the award for the authoritative text.