On 21 April 2023, in a case between the Republic of Venezuela ("Venezuela") and members of the Spanish-Venezuelan García Armas family (the "García Armas family" or the "Garcías"), the Dutch Supreme Court ruled that an award concluding that the arbitral tribunal does not have jurisdiction for lack of a valid arbitration agreement cannot be set aside based on Article 1065 of the Dutch Civil Code of Procedure (DCCP). One such member of the García Armas family, Mr Manuel García Armas, has now challenged that determination before the European Court of Human Rights (ECtHR). According to him, the Supreme Court's decision breached his right to a fair trial as set out in Article 6 of the European Convention of Human Rights (ECHR). This blog post discusses the background of the decisions of the Dutch Court of Appeal and the Supreme Court (the "Dutch decisions") and the Supreme Court's decision confirming that certain negative jurisdictional decisions cannot be challenged before a Dutch court. It also briefly examines Mr García Armas' application to the ECtHR. 

Background Facts

After relocating from Spain to Venezuela in the 1950s and 1960s, part of the García Armas family obtained Venezuelan nationality in addition to their Spanish passports. In Venezuela, the family took over a food distribution business, which they expanded in the following years. The family shareholding comprised several companies and was active in various sectors, including supermarkets, catering and real estate. In 2010, several García Armas properties were expropriated by Venezuela without compensation. The family claimed it incurred loss in the amount of approximately USD 240,000,000. 

On 1 June 2015, members of the García Armas family submitted the dispute to arbitration pursuant to the bilateral investment treaty between the Kingdom of Spain and Venezuela (the "BIT"). Specifically, they opted to pursue arbitration under the BIT's ad hoc option under the UNCITRAL Arbitration Rules following Venezuela's renunciation of the ICSID Convention in 2012. The arbitral tribunal (the "Tribunal") determined that the seat of the arbitration would be located in The Hague, where the arbitration was also being administered by the Permanent Court of Arbitration. On 13 December 2019, the Tribunal rendered an award (the "Jurisdiction Award", in Spanish only) finding that it did not have jurisdiction to resolve the dispute under the BIT. Briefly put, the Tribunal reasoned that the Garcías' Venezuelan nationality precluded the Tribunal from exercising jurisdiction. According to the Tribunal, the BIT did not permit a State to be sued by one of its own nationals before an international court simply because that national happens to hold another nationality.

 

Annulment proceedings in the Netherlands

Court of Appeal
Following the Jurisdiction Award, the García Armas family initiated setting aside proceedings before the Dutch court of appeal in The Hague (the "Court of Appeal"). The grounds for setting aside arbitral awards are found in Article 1065 of the Dutch Code of Civil Procedure (the "DCCP"). These grounds are limited, primarily relating to the procedural integrity of the process, as follows:

• absence of a valid arbitration agreement (1065(1)(a));
• the arbitral tribunal was constituted in violation of the applicable rules (1065(1)(b));
• the arbitral tribunal has manifestly not complied with its mandate (1065(1)(c));

the award was not signed in accordance with the DCCP or did not contain reasons (1065(1)(d)); or
the award, or the manner in which it was made, violates public policy (1065(1)(e)).

The request to set the Jurisdiction Award aside was based on multiple complaints. According to the Garcías, the Jurisdiction Award violated public policy and the tribunal had manifestly not complied with its mandate by ignoring the Garcías' essential defences and impermissibly supplementing the parties' contentions. In other words, the Tribunal had violated the Garcías' right to be heard. The Garcías also argued that the tribunal erred in finding that it did not have jurisdiction. The complaints failed. The former complaints failed because the Court of Appeal found that the Tribunal had not violated the Garcías' right to be heard, having adequately assessed the parties' contentions. The Jurisdiction Award therefore also did not violate public policy. The latter complaint failed because, according to the Court of Appeal, Article 1065(1)(a) of the DCCP does not provide a ground to review the Tribunal's finding that it lacked jurisdiction because there was no valid arbitration award. The Court of Appeal furthermore considered that the Jurisdiction Award did not violate public policy and did not lack sufficient reasoning. 

Cassation at the Supreme Court
The García Armas family continued its fight against the Jurisdiction Award before the Dutch Supreme Court. Before the Supreme Court proceedings only one question of law remained: whether Article 1065(1)(a) of the DCCP permits the setting aside of a negative jurisdictional determination that there is no valid arbitration agreement. 

In its decision (in Dutch only), the Supreme Court first considered that the latest version of the Dutch Arbitration Act (arbitragewet) incorporates international developments in arbitration and is based in part on the UNCITRAL Model Law on International Commercial Arbitration. It then proceeded to discuss the relevant Articles 1052 and 1065 of the DCCP and their legislative history. 
Article 1052(5) of the DCCP states that if an arbitral tribunal has ruled negatively on its own jurisdiction due to the absence of a valid arbitration agreement, the state court shall have jurisdiction. The legislative history further showed that no claim can be brought before a state court seeking to determine that an arbitral tribunal unjustly denied jurisdiction. 

The Supreme Court then discussed the first ground for setting aside an arbitral award under Article 1065 of the DCCP: absence of a valid arbitration agreement (Article 1065(1)(a) DCCP). The Supreme Court cites the legislative history as follows: "Article 1065(a) DCCP comes into play only when the arbitral tribunal declares itself competent. If the arbitral tribunal accepts this plea [of lack of jurisdiction due to the absence of a valid arbitration agreement], the effect, according to the fifth paragraph of Article 1052, is that the state court has jurisdiction." There is thus an asymmetry when it comes to the review of jurisdictional determinations: if the arbitral tribunal assumes jurisdiction, the Dutch court conducts a full review because a party has foregone its basic right to a court. If the arbitral tribunal does not assume jurisdiction, the Dutch court does not conduct a review because the Dutch (or some other) court can still assume jurisdiction over the claim. The Supreme Court also considered the reasoning behind Articles 1052 and 1065 of the DCCP to be in line with Article 16 of the UNCITRAL Model Law, namely the principle of Kompetenz-Kompetenz (competence-competence). Under this foundational doctrine of modern arbitration law, the Supreme Court held that there is no room for a state court to override a tribunal's decision that it does not have jurisdiction.

Based on the reasoning as summarised above, the Supreme Court concluded that under Article 1065(1)(a) of the DCCP, the decision of an arbitral tribunal that it lacked jurisdiction because there was no valid arbitration agreement could not be set aside. The Supreme Court's decision that Article 1065(1)(a) DCCP did not provide a ground for setting aside the award was in line with the opinion of the Advocate General of the Supreme Court (in Dutch only). However, somewhat surprisingly, the Supreme Court was silent on whether the same reasoning would also apply to the other grounds for setting aside (i.e. Article 1065(1)(b)-(e)). This (lack of a) decision contradicted the opinion rendered by the Advocate General, who considered that a negative jurisdictional award is an arbitral award like any other and that the other grounds for setting aside can therefore be applied to negative jurisdictional determinations.

Scholars have also argued that the Dutch Arbitration Act already enables the Dutch court to set aside a negative jurisdictional determination by an arbitral tribunal by way of Article 1052(6) of the DCCP read in conjunction with Articles 1064-1068 of the DCCP and following the Supreme Court decision in Yukos. Prior to the Supreme Court's decision in García Armas, the Advocate General of the Supreme Court disagreed with this interpretation of the Supreme Court ruling in Yukos, stating that the legislature had thus far been clear as to whether a state court can set aside an arbitral award containing a negative jurisdictional finding altogether. However, the Advocate General did not exclude the possibility that this rule could change in the future, noting that it was not up to the Supreme Court to "correct" the choice made by the legislature in this respect.

In their appeal to the Supreme Court, the Garcías argued that the Dutch approach to the review of negative jurisdictional findings deviates from that of several other member states to the ECHR such as France, Sweden, Switzerland and the UK. The family accurately pointed out that there is a split between countries in the way this issue is handled. Currently, countries such as the Netherlands, Germany and Poland do not conduct a full review of a negative jurisdictional award, while the countries mentioned by the García Armas family do not apply this asymmetry. However, the Supreme Court did not address this argument.

 

ECtHR application

Manuel García Armas has now brought the matter before the ECtHR. In the ECtHR application, he argues that the Dutch decisions effectively deny the family their right to a fair trial. According to Mr García Armas, the rationale behind the Dutch decisions is flawed: while in general a party to a dispute can resort to a state court if the arbitral tribunal denies jurisdiction, there is no such corresponding right under the BIT. Rather, according to Mr García Armas, the BIT prevents him and the rest of the García Armas family from bringing an action before another arbitral tribunal, Venezuelan courts or Dutch courts. The application therefore focusses on whether the non-availability of setting aside proceedings for negative jurisdiction awards in treaty arbitration violates Article 6 of the ECHR. The ECtHR has a high threshold for taking cases into consideration fully on the merits,  rendering Mr García Armas' chances slim of the case even being considered before that court. However unlikely, it is nonetheless an interesting thought experiment to consider how the Dutch legislator would resolve this alleged inconsistency with Article 6 of the ECHR. Given the similarity of the German approach, it is a similarly interesting thought experiment for German arbitration lawyers as well, although the German legislator has proposed a shift towards the possibility to set aside negative jurisdictional findings in its White Paper for Modernization of German Arbitration Law.

We will monitor any case developments and will provide an update if the ECtHR accepts the case and renders a judgment.