Serbijos Respublikos privatizavimo ginčų sprendimo agentūra v. UAB „Arvi“ ir ko, UAB „SANITEX“ and BAB „Univerzal Holding“ a.d. Beograd

At a glance

Parties

Serbian Republic's Privatisation Dispute Resolution Agency (applicant; award creditor) v. UAB "Arvi" ir ko and UAB "Sanitex" (Lithuania) and the bankrupt Serbian company AB "Univerzal Holding" a.d. Beograd (interested persons; award debtors)

Case no.

Supreme Court of Lithuania No. e3K-3-182-969/2019; Court of Appeal of Lithuania No. e2T-4-370/2019

Forum and rules

Recognition and enforcement under the 1958 New York Convention, Article V(2)(b)

Court

Supreme Court of Lithuania: Janina Januškienė (presiding), Algis Norkūnas, Gediminas Sagatys (rapporteur). Court of Appeal of Lithuania: Danguolė Martinavičienė (presiding and rapporteur), Goda Ambrasaitė-Balynienė, Kazys Kailiūnas

Underlying award(s)

Award of 27 April 2012 of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce and Industry (Belgrade), Case No. T 7/09-05

Sector

Privatisation; fertiliser production (HIP-Azotara)

Outcome

The Court of Appeal recognised the award on 7 January 2019. On 13 June 2019 the Supreme Court reversed that ruling and refused recognition because the award breaches public policy.

Amount

Award: EUR 3,275,000 contractual penalty, jointly and severally, plus 2.25% interest from 10 January 2009, and RSD 8,251,286 in arbitration costs. Recognition refused. In the Supreme Court the Agency was ordered to pay costs of EUR 2,841.32 to Arvi and EUR 2,807.23 to Sanitex, plus EUR 32.10 to the State.

The dispute

On 11 April 2006 the Serbian Privatisation Agency sold 100% of the capital of HIP-Azotara to a consortium of Arvi, Sanitex and Univerzal. The price was EUR 13.1 million, and the consortium committed to a EUR 30 million investment programme over five years, of which it invested EUR 4.75 million. On 1 August 2007 Azotara sold an unfinished urea plant to a Russian buyer. The Agency treated this as a breach of clause 8.3.3(i), which barred disposals worth more than 5% of the company's assets without its consent. On 9 January 2009 it terminated the contract and took back the capital without refunding the price or the investments. It also claimed the 25% contractual penalty under clause 8.4 (EUR 3.275 million), and the Belgrade tribunal awarded that penalty on 27 April 2012. In 2017 the Agency, as successor to the Privatisation Agency since 2016, sought recognition in Lithuania. Arvi and Sanitex opposed it on several grounds: lack of independence of the tribunal and the arbitral institution, improper appointment of the respondents' arbitrator, a punitive penalty contrary to public policy, abuse of rights, and expiry of a five-year time limit.

Key holdings

1. Court of Appeal: none of the alleged links between the arbitrators, the institution's leadership and the Serbian State showed partiality or lack of independence. These included sharing a building with the Agency, the president's press comments and political past, and the deputy president's advisory work. The party to be assessed was the Agency, not the Serbian State as a whole. Because the consortium did not agree on a joint arbitrator, the institution was entitled to appoint one under Article 23 of its Rules. Court of Appeal ¶¶ 56–62
2. Court of Appeal: the penalty was agreed between professional market participants and must be respected. Deciding whether it was excessive would mean reviewing the award on the merits. The Serbian courts' refusal to set the award aside also supported rejecting the public-policy objection. Court of Appeal ¶¶ 66–68
3. Court of Appeal: the application was not time-barred. The five-year period for presenting enforcement documents under CPC Article 606(2) runs from the date the Lithuanian recognition ruling becomes final, not from the date of the foreign award. Court of Appeal ¶ 69
4. Supreme Court: the penalty cannot be assessed in isolation. The court must look at the whole 'package' of sanctions: termination, return of the privatised company with the investments made in it, retention of the price, and then the 25% penalty. A penalty that adds to other remedies differs in nature from one applied as the sole remedy. Supreme Court ¶ 36
5. Supreme Court: the Constitutional Court's ruling of 24 October 2012 holds that the State may keep the price and investments after taking back a privatised asset only to compensate its actual losses. Civil liability in privatisation relations therefore cannot be punitive. The Belgrade tribunal did not assess whether the penalty was reasonable or what loss the State had suffered, so the penalty cannot be seen as compensation. Supreme Court ¶¶ 30–38
6. Supreme Court: the award serves to punish, not to compensate. The ban on such penalties is part of both Lithuanian and international public policy, even though the penalty was written into the contract and the buyer was a professional. Recognising the award would create a situation worse than the one the Constitutional Court found unconstitutional. These exceptional circumstances justify refusal under Article V(2)(b). Supreme Court ¶ 41
7. Supreme Court: the Agency's authorities did not help it. Its 2004 Lithuanian case law no longer applies after the 2012 constitutional ruling. It quoted the Lithuanian privatisation statute selectively. In Pencil Hill Ltd v US Città di Palermo, the arbitrators themselves had reduced the penalty. The Court of Appeal's ruling was set aside, the application was dismissed, and the Court did not address the other grounds of appeal. Supreme Court ¶¶ 43–49

Procedural history

1. 11 April 2006The Privatisation Agency and the consortium sign the contract for the sale of 100% of HIP-Azotara.
2. 9 January 2009The Agency terminates the privatisation contract and takes back Azotara's capital.
3. 5 February 2009Arvi and Sanitex start an investment dispute under the Lithuania–Serbia BIT, pursued before ICSID.
4. August 2009The Agency starts the arbitration before the Belgrade Foreign Trade Court of Arbitration. Arvi and Sanitex contest its jurisdiction.
5. 27 April 2012Award orders the consortium members, jointly and severally, to pay EUR 3,275,000 plus interest and RSD 8,251,286 in costs.
6. 5 April 2017Serbian Commercial Appellate Court finally rejects the applications by Arvi and Sanitex to set the award aside.
7. 17 November 2017The Agency files its application for recognition and enforcement with the Court of Appeal of Lithuania.
8. 7 January 2019Court of Appeal recognises the award and allows its enforcement.
9. 13 June 2019Supreme Court sets aside the Court of Appeal's ruling and refuses recognition on public-policy grounds. The judgment is final.

Tribunal, counsel and experts

Decided by

• Janina Januškienė Judge, Supreme Court of Lithuania (presiding)
• Algis Norkūnas Judge, Supreme Court of Lithuania
• Gediminas Sagatys Judge, Supreme Court of Lithuania (rapporteur)
• Danguolė Martinavičienė Judge, Court of Appeal of Lithuania (presiding and rapporteur)
• Goda Ambrasaitė - Balynienė Judge, Court of Appeal of Lithuania
• Kazys Kailiūnas Judge, Court of Appeal of Lithuania

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Keywords

• New York Convention Article V(2)(b)
• public policy
• punitive penalty
• contractual penalty
• privatisation contract
• unilateral restitution
• HIP-Azotara
• Sanitex
• Arvi
• recognition and enforcement
• Belgrade Foreign Trade Court of Arbitration
• arbitrator independence
• IBA Guidelines on Conflicts of Interest
• time limit for enforcement
• Lithuanian Constitutional Court
• Lithuania–Serbia BIT
• fertiliser

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