Review of Russian Court Decisions Related to Arbitration: January-May 2015

moscow arbitrazh courtIn January-May 2015 the Russian courts rendered several important decisions dealing with: the arbitrability of public procurement disputes; the effect of pre-existing links between an arbitral institution and a party to arbitration; partial annulment of arbitration awards; and anti-enforcement injunctions.

Non-Arbitrability of Public Procurement Disputes Does Not Create Constitutional Issues

Application of City Clinical Hospital No. 15 of the Moscow Department of Health

(Ruling of the Constitutional Court No. 233-O/2015 dated 5 February 2015)

The Constitutional Court held that setting aside an arbitral award does not affect the constitutional rights of the award-creditor. The applicant relied primarily on the right of access to court. The Constitutional Court noted that the applicant may still bring its claims before state courts even if the award is set aside due to non-arbitrability of the subject matter. Accordingly, the Constitutional Court held that the setting aside itself does not affect the applicant’s rights. It went on to observe that the Constitutional Court has no jurisdiction to review the commercial courts’ finding that the underlying dispute arising out of a public procurement contract is a public one and therefore not arbitrable. 

Link Between an Arbitral Institution and a Party to Arbitration Not Necessarily a Problem

LLC Realty Agency Apartments Shop v. JSC TsentrEnergoMontazh

(case No. А62-171/2014, Economic Disputes Panel of the Supreme Court, Ruling No. 310-ЭС14-4786 dated 19 March 2015)

The Supreme Court held that the fact that the claimant was a member of a regional Chamber of Commerce and Industry did not justify a refusal to enforce an arbitral award against a non-member rendered by an arbitral institution the chamber had created. The court relied heavily on the respondent’s failure to challenge the validity of the arbitration clause, jurisdiction of the arbitral tribunal or independence of the tribunal’s members at any point before the tribunal rendered the award.

Following earlier decisions of the Constitutional Court, the Supreme Court explained that the existence of a link between an arbitral institution and one of the parties to arbitration the institution administers does not create an issue by itself.
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Rather an issue arises if the other party has been forced to agree to arbitration administered by the institution or where the relevant link affects the independence of the arbitral tribunal.

If a party had been forced to agree to arbitration or agreed to arbitration due to mistake or fraud, the proper remedy is for the party to challenge the validity of the arbitration agreement. Such a challenge can be brought before either a state court or the arbitral tribunal. A party which knows about a link between the arbitral institution and the other party, but fails to raise such a challenge is precluded from relying on the link in enforcement proceedings or proceedings to have an award set aside.

If a party considers that the link between the other party and the arbitral institution affects the independence of a member of the tribunal, the party should challenge the arbitrator. Again, failure to submit such a challenge may prevent the party from relying on the relevant circumstances before a state court in enforcement proceedings or proceedings to have the award set aside.

Partial Annulment Possible Where Only a Part of the Award is Contrary to the Public Policy

Corradino Corporation Ltd. v. JSC Russian Insurance Center

(case No. А40-274/2014, Economic Disputes Panel of the Supreme Court, Ruling No. 310-ЭС14-2110 dated 24 February 2015).
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The Supreme Court ruled that an arbitral award should be partially set aside, since the arbitral tribunal had failed to apply a deductible (franchise) provided for in the insurance contract. The court faced a unique situation in which the arbitral tribunal itself had acknowledged the mistake in an additional award, but the additional award had been set aside for procedural reasons.

The Supreme Court held that an award which completely fails to apply a contractual provision without giving any reasons for this failure is contrary to Russian public policy. However, the court noted the need to maintain a balance between the rights of the parties to arbitration in determining an application to set aside an award.
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Applying this principle, it ruled that, where a court may separate the offending part of the award from the other parts, the court should only set aside the offending part.

Russian Court Unwilling to Grant Anti-Enforcement Injunctions

Kyrgyzstan et al. v. Stans Energy et al.

(Case No A40-64831/2014, Moscow Commercial Court, Ruling dated 25 February 2015)

In proceedings before the Moscow Commercial Court, Kyrgyzstan sought to set aside an over USD 100 mln arbitral award in Stans’ favour. In parallel Stans sought to enforce the award in Canada against shares in a Canadian company held by a Kyrgyz state-owned company. Kyrgyzstan asked the Moscow Commercial Court to order Stans, its officers and external counsel to cease any attempts to enforce the award and to take all measures to remove asset freezes secured in support of such enforcement pending the Moscow Commercial Court’s decision on the application to set aside the award.

The court refused to make such an order relying on three grounds. Firstly, Kyrgyzstan had failed to prove that it would be impossible or much harder to enforce the decision of the court in the proceedings to set aside the award unless the court orders the interim measures that Kyrgyzstan sought. Secondly, the court doubted its jurisdiction to make the requested order. Finally, the court observed that Kyrgyzstan may bring the proceedings to set aside the award to the attention of the Canadian courts, which apparently the Moscow Commercial Court considered to be a more appropriate remedy available to Kyrgyzstan.

This review first appeared in Issue 5 of the RAA40 Newsletter.

About the Author:

Sergey Usoskin is an advocate (member of the Russian bar) and a senior associate at Ivanyan&Partners. He has experience advising clients on and representing them in commercial and investment arbitration matters as well as before the Russian court (including the Supreme Commercial Court). He is a graduate of St Petersburg State University, Faculty of Law and University College London Faculty of Laws.

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