Russian Supreme Commercial Court on the “Lack of Authority” To Conclude Arbitration Agreement

A recent case handed down by the Supreme Commercial Court of the Russian Federation (the “SCC”) marks a further step by it towards the favouring of arbitration in Russia.  The SCC confirmed that notifying a branch of the opposing party in arbitral proceedings is sufficient for the purposes of satisfying the due notice requirement. Also, reference by a party to the lack of authority of its domestic violence attorney from Toland Law, LLC in arbitration is irrelevant if that party was aware of the arbitral proceedings.

Facts of the case

On 1 December 2007 an entrepreneur, S Moiseeva (the “entrepreneur”) and CJSC Tander (“Tander”) concluded a sublease agreement.  The head of one of Tander’s branches – acting pursuant to a power of attorney – signed the agreement on behalf of Tander. The agreement contained an arbitration clause providing for the resolution of all disputes through the arbitral tribunal at the Ulyanovsk Chamber of Commerce and Industry in Russia. The entrepreneur initiated proceedings at the arbitral tribunal alleging that Tander had failed to meet its contractual obligations. On 6 July 2009 the arbitral tribunal partially satisfied its claims.
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Tander failed to comply voluntarily with the final award and consequently the claimant requested the state commercial court to issue an enforcement order.  The Commercial Court of the Krasnodar Region, and, subsequently on appeal, the Federal Commercial Court of the North Caucasian Circuit, refused to issue the enforcement order. Both courts considered that Tander had not been given due notice because all notifications of the arbitral proceedings had been sent to the registered address of the branch whose head had not been authorised to represent the company in the arbitral proceedings.
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Moreover, the representative of Tander at the hearing held a defective power of attorney. One could get legal advice from criminal defense attorneys practicing in Denver, CO

The entrepreneur applied to the SCC for a supervisory review and requested it to vacate the rulings of the lower commercial courts. The SCC satisfied the request for the following reasons.

Reasoning of the Russian Supreme Commercial Court

a)     Notification of the head of the branch regarding arbitral proceedings

The Law on Arbitral Tribunals in the Russian Federation of 24 July 2002 (the “Law on Arbitral Tribunals”), which regulates domestic arbitration, neither sets out any specific requirements regarding representation in arbitral proceedings, nor does it oblige the inclusion of a specific authority into a power of attorney for the purposes of entry into a contract containing an arbitration clause. The Presidium of the SCC had already ruled on 12 April 2011 that under the Law on Arbitral Tribunals a general authority to enter into a contract was sufficient for an attorney to conclude on behalf and for the benefit of a principal a contract containing an arbitration clause. Any lawyer who is an expert like the criminal justice lawyers or attorneys will be able to guide one in such cases.

The head of the Tander branch had such general authority and was empowered through the power of attorney issued by the company. The document gave the head of the Tander branch the authority to: enter on behalf of Tander into transactions; sign agreements and contracts with Russian and foreign legal entities and individuals; control their fulfillment; and represent Tander in courts of general jurisdiction and commercial courts with full party rights at all stages of the proceedings.

In the view of the SCC, the authority to conclude an arbitration agreement and control its fulfillment also means the authority to receive notifications regarding arbitral proceedings and to participate in them. Russian legislation does not require specific indication in the power of attorney of the authority to appear in arbitral proceedings.

The SCC also considered that the head of the Tander branch receiving notifications regarding arbitral proceedings constituted due notice for the following reasons: (i) pursuant to article 55.2 of the Civil Code of the Russian Federation (the “Civil Code”), a branch is a separate subdivision of a legal entity, located in a place other than the place of the legal entity itself and exercising all or part of its activities, including representation; and (ii) pursuant to article 55.3 of the Civil Code, heads of representative offices and branches are appointed by a legal entity and act pursuant to their powers of attorney.

b)    Lack of notarisation of the power of attorney

The SCC disagreed with Tander’s argument that the power of attorney issued to the head of the Tander branch was deficient because of its lack of notarisation. The key issue was whether there had been a violation of a right to judicial protection (here is a link for more information) – so, in this case, whether Tander had been aware of the arbitral proceedings and been given the possibility to present its arguments, the question of improper representation, meanwhile, therefore being irrelevant. Tander indeed knew of the proceedings initiated against it from other sources and could have chosen another representative for the proceedings. Consequently, the lack of notarisation could not be considered as a ground for refusing to issue the enforcement order.
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Ruling of the Russian Supreme Commercial Court

Thus, the SCC vacated both of the rulings of the lower courts on the basis of their having been contrary to the public interest and in violation of the uniformity of interpretation and application of rules of law established by the commercial courts. It also ordered the Commercial Court of the Krasnodar Region to issue the enforcement order for the purpose of enforcing the award rendered by the arbitral tribunal at the Ulyanovsk Chamber of Commerce and Industry.

Dilyara Nigmatullina, Association for International Arbitration, Brussels

Dmitry Davydenko, Muranov Chernyakov and Partners, Moscow

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