How to turn an arbitral award into recovery of damages: experience of successful recognition of the arbitral award in Georgia

• Shipping
• International Trade
• Litigation & arbitration

One of the most frequently asked questions by the Clients who intend to refer the case for consideration of arbitration is: how to convert the arbitral award into real money?

Recognition and enforcement of arbitral award is indeed a quite a complicated mechanism involving application of both national and international law. Sometimes, differences in domestic legislation in the country, where the award is supposed to be enforced, and the governing law of the contract, in respect of which the dispute has arisen, put obstacles in the creditor’s way to recovery of damages. These obstacles might be both formal (the way of notification of the respondent on commencement of arbitration does not correspond to the customary rules of notification in the country of enforcement) and factual (public policy considerations).

In one of the recent Interlegal cases, the client, one of the major producers of oil commodities, requested assistance in respect of recognition and enforcement of arbitral award of International Commercial Arbitration Court at the Ukrainian Chamber of Commerce against a Georgian company.

Under the Georgian law, recognition of foreign arbitral awards is conducted by the Supreme Court of Georgia in compliance with provisions of Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York" Convention).

The following requirements should be satisfied in order to success with recognition of arbitral award in Georgia:

• Written agreement under which the Parties undertake to submit all and any disputes to arbitration (arbitration clause in contract or separate agreement signed by the Parties or contained in an exchange of letters);
• A duly authenticated final and binding arbitral award shall be present;
• Evidence that the Party against whom the award is issued has been properly notified on commencement of arbitral proceedings.

Generally the procedure of recognition of an award under Georgian law takes around 2 months and does not require oral hearings. Yet, in this case, the debtor actively participated in the proceedings and served several objections against recognition which led to appointment of oral hearing by the judge of Supreme Court.

The main argument of the debtor was that the conclusions of the ICAC in respect of awarding penalties contradicts the public policy of Georgia, therefore, the award of  ICAC should not be recognized. Under the provisions of Georgian law, in the event the penalties exceed half of the amount of the main indebtedness, they can be treated by the court as ungrounded enrichment. During the oral hearing Interlegal managed to prove to the Supreme Court that the award of ICAC did not contradict the public order of Georgia, as the amount of penalties did not evidence the possibility of ungrounded enrichment by the creditor.

The Supreme Court made a judgment in favour of the client of Interlegal and recognized the award of ICAC in full.

According to Georgian law, after the award is recognized, the creditor has to apply to enforcement bureau of Georgia, which arranges the enforcement of judgments.

Due to cooperation of experts from Odessa and Batumi, enforcement proceedings had been initiated and attachment of the debtor’s assets followed.

In the course of enforcement proceedings it turned out that the debtor’s assets are not sufficient for the purpose of recovery of the debt.

In order to secure recovery of the Client’s damages, Interlegal Georgia held successful negotiations with the debtor regarding the debt recovery. Negotiations resulted in the debtor’s consent on assignment of land plots in Georgia as debt recovery.

Interlegal experts drafted and concluded an agreement between the debtor and the creditor which provided allocation of land plots in the Online Auction in Georgia. Under the terms of the agreement, sales revenues will be remitted to the Interlegal client’s bank account.

Upon signing of the captioned agreement, Interlegal Georgia drafted and submitted all the documents required for allocation of lots in the Online Auction.

The land plots were successfully placed on the Online Auction and their sale goes on.

Published in Arbitration Watch.