Essential Russian Cases Alert

This overview looks at the most important cases decided by the Russian courts which relate to arbitration.

1. Public Procurement Disputes Not Arbitrable

State Establishment Proizvodstenno-Tekhnicheskoe Ob’edinenie Kapitalnogo Remonta i Stroitelstva … v. LLC Arbatstroy (Case No. A40-148581/12, Presidium of the Supreme Commercial Court, Resolution No. 11535/13 dated 28 January 2014 (published in June 2014)

The Presidium of the Supreme Commercial Court ruled that disputes arising from public procurement contracts are not arbitrable. On this basis it set aside an award rendered by a domestic arbitral tribunal in a dispute between a private contractor and a state establishment. The dispute concerned the failure of the private contractor to complete construction work on time.

Russian law treats most contracts for the supply of goods or services to a state authority, state enterprise or state establishment (but not a state-owned company) as public procurement contracts. Most of these contracts are awarded on the basis of public bidding.

The Supreme Commercial Court explained that only private law disputes are arbitrable under Russian law. Disputes arising from public procurement contracts are public rather than private, because such contracts are entered into to satisfy public interests rather than private ones.

The court further noted that transparency is a central principle of the Russian public procurement regime, and that submitting disputes arising from public procurement contracts to confidential arbitration is incompatible with this principle.

2. Arbitral Tribunal Entitled to Rely on Apparent Authority of Party’s Representative

Sp. z.o.o. v. LLC Sollers-Elabuga
(Case No. А65-30438/2012, Presidium of the Supreme Commercial Court Resolution No. 1332/14 dated 24 June 2014)

The court permitted the enforcement of an LCIA award in favour of Autorobot. It was not open to the respondent to challenge the authority of a person that purported to act on the respondent’s behalf in the arbitration, because that person’s authority had been apparent from the circumstances of the case. Nor was it open to the respondent to dispute the receipt of correspondence delivered to an address that the person acting under apparent authority had earlier provided.

Autorobot commenced arbitration to recover sums due for the goods it had supplied to Sollers-Elabuga. Shortly thereafter the head of legal of the respondent’s parent company sent an email to the LCIA requesting all further arbitration-related correspondence to be forwarded to his address. The arbitrator sent all further correspondence to this address. Eventually, he rendered in award in favour of Autorobot.

The respondent argued that it had not authorised the person that corresponded with the LCIA to represent the respondent in the arbitration and had not issued a power of attorney to him. The Supreme Commercial Court disagreed with this argument and held that the arbitrator had been entitled to rely on a communication which made reference to the arbitration and which was sent by a senior legal officer of the respondent’s parent company.

3. Effect of Respondent’s Insolvency on Arbitration Remains Uncertain

LLC Terminal-Vostok v. Vincia Establishment
(Case No. А40-166263/13, Presidium of the Supreme Commercial Court Resolution No. 5940/14 dated 15 July 2014)

The court held that once the first stage of insolvency proceedings – supervision («наблюдение») – commences all claims against the debtor company, including those heard in an ongoing arbitration, should be referred to the court supervising the insolvency. It set aside an award rendered by an arbitral tribunal sitting under the ICAC at the Russian CCI rules, because the tribunal had rendered the award after the court had put the respondent company under supervision.

The Presidium of the Supreme Commercial Court reversed this decision, but on a very narrow ground. It held that the tribunal had in fact rendered the award before the respondent was put under supervision. It was only the reasoned award that was produced after the cut-off date. However, the Presidium failed to address the more general question of insolvency’s effect on arbitration.

While the Presidium’s failure to tackle the issue is troubling, it should not be given too much weight. Earlier the Supreme Commercial Court held that an arbitral tribunal should terminate the proceedings once an insolvent company is put into liquidation («конкурсное производство») as from this moment disputes cease to be arbitrable. In fact, the law expressly provides that the creditors are entitled to pursue a case before state courts against a debtor put under supervision if litigation was commenced beforehand.

4. Respondent’s Failure to Promptly Invoke the Arbitration Clause Amounts to a Waiver

Demesne Investments Limited v. CJSC Metropolis
(Case No. А60-5127/2014, Commercial Court for the Ural Circuit, Resolution dated 19 August 2014)

The court refused to refer the dispute to arbitration. It held that the respondent had abused its rights by invoking the arbitration clause only after participating in two court hearings without objection.

Demesne commenced proceedings before the Sverdlovsk Region Commercial Court seeking recovery of the monies Demesne had lent to Metropolis. Metropolis’ counsel took part in two court hearings in the case without making any submissions in relation to the merits of the case. Before the third hearing Metropolis submitted an application asking the court to refer the parties to LCIA arbitration as provided for in the loan agreement.

The court rejected the application. It noted that Metropolis’ counsel had reviewed the case-file which, in the court’s opinion, meant that counsel had the opportunity to become aware of the arbitration clause in the loan agreement. Metropolis had then participated in a hearing without invoking the arbitration clause and only raised the issue before the next hearing. In these circumstances, the court concluded that the respondent’s conduct was an abuse and therefore it was no longer an option to invoke the arbitration clause.

5. Arbitrability of Concession-Related Disputes Left Unresolved

St. Petersburg Committee for the Management of City Property v LLC Nevskaya Concession Company
(Сase No. A56-45107/2013, Commercial Court for the North-Western Circuit, Resolution dated 14 August 2014 and Thirteenth Appellate Commercial Court Resolution dated 21 April 2014)

The claimant commenced proceedings before the St. Petersburg Commercial Court to recover rent allegedly due under lease agreements with the respondent. The respondent invoked the arbitration clause incorporated into the lease agreements by reference to the dispute settlement clause in the concession agreement between the respondent and the city of St. Petersburg. In the concession agreement the parties agreed that any disputes between them shall be resolved by arbitration under the UNCITRAL Rules by an arbitral tribunal seated in Moscow.

The first instance appellate and cassation instance courts both held that the dispute should be referred to arbitration. However, their reasoning differs.

The claimant relied on the invalidity of the arbitration clause. It argued that under the Russian law on concession agreements any disputes under such agreements shall be submitted to either state courts or domestic arbitral tribunals (“третейские суды”). A UNCITRAL arbitral tribunal is an international arbitral tribunal and therefore it cannot resolve disputes under a concession agreement.

The appellate court tackled the arbitrability of concession agreement-related disputes head-on. It held that the law on concession agreements permits the parties to refer disputes to arbitral tribunals (“третейские суды”). The court held that a tribunal seated in Moscow fell within this category even if the proceedings were to be governed by the UNCITRAL Rules and the arbitration in question was an international arbitration as a matter of the Russian law. The appellate court added that, in any event, the dispute between the parties concerned the lease agreement rather than the concession agreement.

The cassation instance court chose not to address the restrictions imposed by the law of concession agreements; the court limited itself to agreeing that the dispute concerned the lease agreements.

By Sergey Usoskin

This overview originally appeared in RAA40 Newsletter.

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