August 30, 2014
The UN Convention on Jurisdictional Immunities of States and their Property established the principle of state's immunity from foreign jurisdiction. It is based on internationally recognized norms of state sovereignty as well as the recognition of sovereign equality of states provided in the UN Charter.
In accordance with this principle, the immunity is applied to a foreign state, its organs and property. Thus, a foreign state cannot be defendant in courts of another state, subject to its consent. A foreign country, acting as a plaintiff cannot be brought a counterclaim without its consent. It is not allowed to arrest the property of a foreign state to maintain the claim.
Hence the immunity of foreign states from the jurisdiction of courts of another state and executive enforcement action is recognized in national legislation of most countries, including Uzbekistan. In spite of this, in practice there are still illegal attempts to attract the state to civil liability for the obligations of independent legal entities. In particular, the case on confiscating the property of Uzbekistan under liabilities of "Uzdon" company, which is an independent legal entity, was initiated in Paris, France in 2008. Swiss Romak S.A. initiated the case.
Business cooperation, which resulted in judicial proceedings, started in mid 90's when Romak S.A. signing trilateral agreement with "Uzdon" of Uzbekistan and "Adil" of Kazakhstan on supply of wheat. Under the contract, the Kazakh firm had to pay for supplied wheat to "Uzdon" under its debt to the Uzbek side on another contract. But as "Adil" did not deliver a dispute arose between Uzdon and Romak S.A.
In line with provisions of a trilateral agreement "Uzdon" refused payment to the Swiss company which initiated an arbitration against "Uzdon" at Grain and Feed Trade Association (GAFTA) in London. One to lack of experience in such proceedings, "Uzdon" failed to defend its interests at the arbitration and GAFTA awarded decision in favor of Romak S.A.
Swiss company presented this decision to the Paris city court for execution it in line with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The court recognized the award and adopted a decision on its execution in the territory of France.
In violation of the principles of the UN Convention on Jurisdictional Immunities of States and Their Property that does not allow arresting the property of a foreign state in maintaining the claim, Romak S.A. initiated the procedure on enforcement of arbitration award against the property of Uzbekistan. Under the Swiss company's demand, court officials arrested banking account of Uzbekistan at HSBC.
The decision was protested by Uzbekistan at the court of the first instance. The Uzbek side presented its argument to the position of Swiss company, which violates international law. In particular, representatives of Uzbekistan proved the independence of "Uzdon" company from state and government. They also pointed that there is no basis neither in international law, nor in national legal systems of France or Uzbekistan, to attract the state to joint liability of independent legal entities.
Irrefutable evidences of legal and financial independence of "Uzdon" from the state were presented by the Uzbek side. It was noted that "Uzdon" has its own detached property, legal status, management that acts directly on behalf of the company.
During consideration of the case, Uzbekistan relied on the principles of international law that provide immunity of state from jurisdiction of foreign courts and do not allow confiscation of state property. It was noted that the banking account, which Swiss company wanted to be arrested had been opened by Uzbekistan to accumulate payments for air navigation services in the territory of the Republic of Uzbekistan.
Agreeing with the arguments given by the Uzbek side, the court of the first instance in Paris considered the case and on 18 March 2011 adopted a decision in favor of Uzbekistan. The court stated that a state is may not be responsible for liabilities of independent enterprises.
Expressing dissatisfaction with this decision, Romak S.A. undertook an unsuccessful attempt to appeal to the Court of Appeal of Paris which also recognized the legitimacy of Uzbekistan's position, pointing out that state has immunity and property of the state cannot be confiscated or involved in a commercial transaction, in which the dispute arose.
Another defeat in the court did not affect the determination of the Swiss company and in 2012 it filed a complaint to the Court of Cassation of Paris city. On March 5 2014, the Court of Cassation rejected the claim by Romak S.A. and upheld the decision of the Court of Appeal of Paris, thereby confirming that the state will not be and should not be responsible for the acts of other independent legal entities operating on its territory.
According to experts, decision of the Cassation Court of Paris city indicates the validity of previously adopted decisions in favor of Uzbekistan by other courts and demonstrates the futility of attempts to hold the state accountable for contractual obligations of enterprises established by it. Even if a state has its share in the authorized fund of a company, according to the law, the state, like any other shareholder of an enterprise, is responsible for its obligations only within its share. The state property may not be affected because of a dispute between two business entities.
Furthermore, these judicial decisions once again proved in theory and in practice the principles of state's immunity in terms of being liable, and gave answers to a debate on the boundaries of liability for the obligations of state for the actions of public enterprises or enterprises with state shares in the authorized fund.
D.Ahmedov - Head of Information-Analytical group on International Arbitration of the Ministry of Justice of the Republic of Uzbekistan.
M.Rahmanova - Chief Specialist of Information-Analytical Group on International Arbitration of the Ministry of Justice of the Republic of Uzbekistan.