Communicated on 10 March 2016
FIRST SECTION
Application no. 16528/10
SCHOLZ AG
against Armenia
lodged on 19 March 2010
STATEMENT OF FACTS
The applicant, Scholz AG (“the applicant company”), is a corporation (Actiengesellshaft) registered in Germany. It is represented before the Court by Mr T. Atanesyan and Mr D. Abgaryan, lawyers practising in Yerevan.
A. The circumstances of the case
The facts of the case, as submitted by the applicant company, may be summarised as follows.
Since the 1990s the applicant company had regularly purchased scrap metal from A. Safaryan and friends LLC, a joint corporation registered in Armenia (“the joint corporation”).
On 8 February 1999, 10 April 2000 and 2 April 2003 the applicant company and KBKS, another German company owned by the applicant company, concluded three contracts with the joint corporation, according to which KBKS and the applicant company were to make advance payments to the joint corporation, which was to supply scrap metal in return. In particular, the contract of 2 April 2003 contained the following dispute resolution clause:
“...
7. Arbitration
7.1 The parties agreed that any disputes and differences arising out of the performance of this contract shall be resolved through negotiations in order to reach a mutually beneficial resolution.
7.2 If it is not possible to settle such disputes amicably, these matters shall, with the exception of those falling within the jurisdiction of ordinary courts, be referred to the Arbitration tribunal of the Chamber of Commerce of the respondent’s country.
...”
It appears that the contracts of 8 February 1999 and 10 April 2000 contained a similar clause.
On 8 April 2002 KBKS and the applicant company concluded an assignment agreement whereby KBKS transferred all its contractual rights, including those towards the joint corporation, to the applicant company.
On 8 November 2002 the applicant company provided the joint corporation with a loan in the amount of EUR 100,000 which was due to be repaid by 31 January 2003. The purpose of the loan was to assist the joint corporation in paying off a bank loan. It appears that this amount was not paid back to the applicant company.
It further appears that the joint corporation failed to meet its contractual obligations vis-à-vis the applicant company in that it supplied less scrap metal than the advance payments that it had already received.
On 28 October 2005 the representatives of the applicant company and of the joint corporation made a calculation of their liabilities as of that day and it was revealed that the joint corporation had accumulated debt in the amount of USD 1,213,824 to the applicant company. As a result of negotiations, the applicant company agreed to provide debt relief in the amount of USD 613,824 with a condition that the joint corporation would pay off the rest of the debt, namely USD 600,000, in accordance with a debt repayment schedule which was set up in a separate agreement, signed on the same day, between the directors of both companies. According to this agreement, the joint corporation undertook to repay the debt in five instalments, with the first one due by 15 December 2005. If the joint corporation failed to meet its obligations as set out in the payment schedule, it would be liable to pay the entire debt, and disputes with regard to its repayment were to be resolved through litigation.
On the same day the parties concluded another agreement setting out a payment schedule in respect of the loan of EUR 100,000 and arrears in the amount of EUR 10,000. This agreement also stated that an additional 6% would be payable in the event of failure to respect the payment schedule.
It appears that the joint corporation missed the required payments. In subsequent correspondence, the director of the joint corporation admitted the debt but postponed its repayment, each time referring to different reasons.
On 15 January 2007 the applicant company lodged a claim with the Commercial Court against the joint corporation, seeking to recover USD 10,000 from the initial debt of USD 1,213,824.
On 2 October 2007 the applicant company supplemented its initial claim and requested the seizure of a total of USD 1,516,442 and EUR 116,600, including the principal debt and interest, from the joint corporation. It also requested a deferral of the court fees.
On 4 October 2007 the joint corporation filed a counter-claim contesting the applicant company’s claims. The director of the joint corporation requested the annulment of the two documents dated 28 October 2005 arguing that, having no command of German, he had been unaware of their content and had signed them as a result of fraud.
On 15 October 2007 the applicant filed a response to the counter-claim arguing, inter alia, that the director of the joint corporation had been personally present during the negotiations in Germany when a recalculation of liabilities between the companies was carried out. Since the director of the joint corporation was fluent in Russian, the negotiations were conducted in Russian and there had also been a copy in Russian of the documents signed. Moreover, the fact that the director of the joint corporation had been fully aware of the content of the documents he signed of his own free will was confirmed by his numerous letters, where he provided justification for having failed to transfer the amounts due in a timely manner.
On 7 November 2007 the joint corporation requested the Commercial Court to leave the applicant company’s claim unexamined on the ground that the contracts of 8 February 1999, 10 April 2000 and 2 April 2003 contained a dispute resolution clause whereby disputes concerning their execution were to be resolved by the Arbitration Tribunal of the Chamber of Commerce of the country of the respondent. The joint corporation therefore claimed that, it being the respondent, the resolution of the dispute was within the jurisdiction of the Arbitration Tribunal of the Chamber of Commerce and Industry of Armenia (the Arbitration Tribunal).
On 16 November 2007 the Commercial Court granted the request and decided to leave the applicant company’s claim, and the counter-claim submitted by the joint corporation, unexamined. In doing so, it relied on Article 103 § 3 of the Code of Civil Procedure and found that the resolution of the dispute fell within the jurisdiction of the Arbitration Tribunal. Appeal against this decision lay to a three-judge formation within the Commercial Court within three days from the date of its receipt by the party.
On 23 November 2007 the applicant company submitted a complaint against the decision to leave the claim and the counter-claim unexamined. It argued, inter alia, that the agreements signed on 28 October 2005 which had succeeded the contracts of 8 February 1999, 10 April 2000 and 2 April 2003, provided that disputes concerning the failure by the joint corporation to respect the payment schedules set out in them would be determined by the courts. It further argued that, subsequent to the agreements of 28 October 2005, no other arrangements concerning dispute resolution had been concluded between the parties. Relying on Article 8 § 1 of the Law on Commercial Arbitration, the applicant company also argued that, contrary to its requirements, the court had decided to leave the claim unexamined, whereas the joint corporation had submitted the relevant request several months after the litigation had started and it had already made its submissions on the merits of the claim. The applicant company finally argued that its claim in the part relating to the recovery of the amount of the loan of EUR 100,000 was not connected in any way to the contracts of 8 February 1999, 10 April 2000 and 2 April 2003. However, the court had decided that the entirety of its claims were subject to determination through arbitration.
On 10 December 2007 a formation of three judges of the Commercial Court rejected the complaint submitted by the applicant company. The decision stated that, inter alia, the claims concerning the debt and the loan were interconnected and stemmed from the commercial relationships between the parties based on the contract for supply of scrap metal.
On 23 July 2008 the applicant company’s representative sent an enquiry to the President of the Arbitration Tribunal asking whether the arbitration clause contained in the contracts concluded between the parties was sufficient to admit the claim for examination by the Arbitration Tribunal and whether the decisions of the Commercial Court to leave the claim unexamined on the ground that the determination of the dispute fell within the jurisdiction of a commercial arbitration court provided a sufficient basis for admitting the claim. The translations into Armenian of the extracts of the contracts containing the arbitration clause and copies of the two decisions of the Economic Court were enclosed with the letter.
On 1 August 2008 the President of the Arbitration Tribunal replied that the question of whether the arbitration clause stipulated in the contracts concluded between the parties was sufficient to admit the claim for examination by the Arbitration Tribunal could be determined only upon submission of the claim.
At the same time, the registrar of the Arbitration Tribunal submitted to the representative of the applicant company a draft arbitration agreement to be concluded with the joint corporation. According to the applicant company, its representative told the registrar that the conclusion with the joint corporation of this type of new agreement was at that point impossible and unreasonable, since the Commercial Court had already found that the arbitration clauses contained in the contracts were sufficient to start arbitral proceedings.
On 17 September 2008 the applicant company lodged a claim with the Arbitration Tribunal in the amount of EUR 116,600 seeking the recovery of the loan. The copy of the promissory note signed on 8 November 2002 on providing a loan to the joint corporation in the amount of EUR 100,000, together with other documents, was attached to the claim. Also, it was stated in the claim that the decisions of the Economic Court and the extracts of the contracts containing the arbitration clauses had already been submitted to the President of the Arbitration Tribunal, enclosed with the letter of 23 July 2008.
On 7 October 2008 the President of the Arbitration Tribunal informed the applicant company that its request to start arbitral proceedings would not be granted. The relevant parts of the letter read as follows:
“... The promissory note of 8 November 2002 and the agreement of 28 October 2005, on which your claim was based, do not contain an arbitration clause and, moreover, the parties have not concluded any agreement to submit the disputes arising out of the performance of the above-mentioned promissory note and the agreement to the permanent arbitral institution of the Chamber of Commerce and Industry of Armenia for determination. Consequently, in the absence of an arbitration agreement between the parties, the [Arbitration Tribunal] cannot start arbitral proceedings.
Also, ... the original of the arbitration agreement or a properly certified copy of it should be attached to the claim ...”
In view of the fact that the Commercial Court had been abolished by that time, on 17 October 2008 the applicant company lodged a claim with the Yerevan Civil Court seeking to recover EUR 116,600, the amount of the loan and interest, from the joint corporation. It submitted that the Arbitration Tribunal had refused to admit its claim for examination while the Commercial Court had found earlier that the determination of the dispute fell within the jurisdiction of the former. In such circumstances, the applicant company’s right of access to court had been violated. The applicant company also requested an interlocutory measure seeking attachment of the respondent’s assets in the amount of the claim.
On 12 November 2008 the Yerevan Civil Court made a decision to admit the applicant company’s claim for examination and conduct a preparatory hearing.
On the same day the Yerevan Civil Court decided to grant the applicant company’s request for an interlocutory measure and issued an order to attach the property of the joint corporation in the amount of the claim.
On 27 February 2009 the Yerevan Civil Court transferred the case to the Kentron and Nork-Marash District Court of Yerevan (the District Court) based on territorial jurisdiction in view of the fact that on 1 March 2009 the Yerevan Civil Court would be abolished.
On 13 March 2009 the District Court admitted the case for examination.
On 12 June 2009 the joint corporation, relying on the decision of the Economic Court of 16 November 2007, requested the District Court to leave the applicant company’s claim unexamined. It submitted, in particular, that the applicant company had failed to substantiate that the grounds for leaving its claim unexamined no longer existed.
The applicant company contested the arguments put forward by the joint corporation, arguing that the possibility of applying to the Arbitration Tribunal no longer existed since, by the letter of 7 October 2008, the examination of the claim had been refused.
On 16 June 2009 the District Court decided to leave the claim submitted by the applicant company unexamined, finding that the refusal to start an arbitration procedure stated in the letter of 7 October 2008 did not substantiate the fact that there was no possibility to apply to the Arbitration Tribunal. The District Court further relied on the previous findings of the Economic Court to conclude that the claim should be left unexamined.
On 25 June 2009 the applicant company lodged an appeal. It argued, in particular, that the Arbitration Tribunal had been provided with the decisions of the Economic Court and the contracts concluded between the parties and, having examined them, it had concluded that it had no jurisdiction to determine the dispute. In such circumstances, the rationale for considering that the dispute should be determined by the Arbitration Tribunal was not comprehensible.
In its reply to the applicant company’s appeal, the joint corporation submitted, inter alia, that the applicant company had failed to provide the Arbitration Tribunal with the copies of the relevant extracts of the contracts that contained the arbitration clauses and the relevant decisions of the Commercial Court. Therefore, the Arbitration Tribunal had refused to accept the claim.
On 21 July 2009 the Civil Court of Appeal upheld the decision of 16 June 2009. In doing so, the Court of Appeal stated, in particular, that the applicant company had failed to submit to the Arbitration Tribunal the extracts of the contracts containing the arbitration clause as a result of which the admission of its claim had been rejected.
On 4 August 2009 the applicant company lodged an appeal on points of law. It argued, in particular, that the Civil Court of Appeal had upheld the lower court’s decision, despite the fact that there was no possibility to apply to the Arbitration Tribunal. The applicant company further pointed out that the argument that it had failed to submit the relevant extracts of the contracts to the Arbitration Tribunal was groundless since, in its claim lodged with this institution, it had expressly mentioned that the copies of the decisions of the Economic Court and the extracts of the contracts in question had already been submitted with the letter of 23 July 2008.
On 23 September 2009 the Court of Cassation declared the applicant company’s appeal on points of law inadmissible. In doing so, it stated the following:
“... As for the letter of the President of the Arbitration Tribunal of the Chamber of Commerce of 7 October 2008 concerning the non-admission of the claim lodged by [the applicant company], it was based on the ground that [the applicant company] had not submitted the original of the arbitration agreement or its certified copy as required by the Law on Commercial Arbitration and [its] rules in the absence of which arbitral proceedings could not be started.
The Court of Cassation finds that taking into account the failure to submit to the Arbitration Tribunal of the Chamber of Commerce and Industry the original of the arbitration agreement or its certified copy ... and the non-examination of [the applicant company’s] claim, [the applicant company] is not deprived of judicial protection in accordance with the general rules of the Code of Civil Procedure ...”
B. Relevant domestic law
1. The Code of Civil Procedure (in force since 1 January 1999)
Article 14 provides that a final judicial act is binding for all state agencies, local self-governance bodies, their officials, legal entities and citizens and is subject to execution in the entire territory of the Republic of Armenia.
According to Article 103 § 3, the court leaves the claim or the request unexamined if there is an agreement between the parties to the proceedings to submit the dispute to the determination of an arbitral tribunal, and the possibility to apply to an arbitral tribunal has not been abolished.
According to Article 104 § 4, the plaintiff or the appellant has the right to reapply to the court once the circumstances based on which the claim or the complaint were left unexamined have been abolished.
2. The Law on Commercial Arbitration (adopted on 25 December 2006 and in force from 10 February 2007)
According to Article 8 § 1, the court to which a claim has been submitted with regard to a dispute concerning which there is an arbitration agreement, has an obligation to leave the claim unexamined based on the motion of one of the parties lodged not later than the submission by that party of its first statement on the merits of the dispute, except when it finds that the agreement is void, no longer valid or cannot be performed.
According to Article 8 § 2, in case of the presence of a claim provided in the first paragraph, the arbitral proceedings can nevertheless be started or continued and a judgment reached while the claim is still in the court.
3. The Rules of the Permanent Arbitration Tribunal of the Chamber of Commerce and Industry of the Republic of Armenia (adopted on 3 April 2007)
Article 10 sets out the requirements with regard to the content of the claim to the Arbitration Tribunal and the documents to be attached to it. Article 10 § 1 (b) provides that the claim submitted to the Arbitration Tribunal should contain a reference to the arbitration agreement of which the original or a certified copy should be attached to the claim.
Article 12 § 1 provides that, having established that the claim submitted to the Arbitration Tribunal does not comply with the requirements of Article 10, the registrar of the Arbitration Tribunal proposes that the claimant rectify the errors in the claim within a reasonable time-limit.
COMPLAINT
The applicant company complains under Article 6 § 1 of the Convention that it was denied access to court as a result of the refusal of the ordinary courts and the Arbitration Tribunal to examine its claims.
QUESTION TO THE PARTIES
Did the refusal of the ordinary courts and the Arbitration Tribunal to examine the applicant company’s claim deprive it of effective access to a court, in breach of Article 6 § 1 of the Convention?
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