The Federal Commercial Court for the Moscow Circuit issued an important decision last Wednesday confirming the enforcement of a Swiss Rules arbitration order terminating arbitration proceedings.
The court confirmed that tribunal decisions other than awards may be enforced in Russia. It also confirmed the lower court’s finding that the parties may modify arbitration clauses by exchange of unsigned correspondence, which is unusual in light of the Russian courts’ usually strict approach to form requirements.
The dispute arose between LEMMI Vetriebsgesellschaft mdH & Co. КG, a leading German producer of child clothing and LLC Kompaniya C-Toys, which is apparently a subsidiary of Detskiy Mir, a leading Russian child goods retailer.
The contract between the parties apparently provided for arbitration in Switzerland without any more details. However, the tribunal found that in an exchange of letters in October 2009 the parties agreed to arbitration under the Swiss Rules.
When arbitration commenced in 2011, the respondent promptly objected to jurisdiction arguing that the parties have not agreed to arbitration under the Swiss Rules. On 30 October 2011 the tribunal dismissed this objection.
On 14 May 2012 the tribunal terminated the proceedings and ordered the respondent to compensate the claimant for part of the costs of the proceedings as well as part of its legal costs.
Arbitration Clause Amended by Unsigned Correspondence
As before the tribunal, the respondent argued that the parties had not agreed to arbitration under the Swiss Rules. The Moscow Commercial Court dismissed this objection for several reasons.
First, it said that it must defer to the tribunal’s conclusion that the parties agreed to modify the arbitration clause. The court noted that the tribunal confirmed the validity and enforceability of the clause under Swiss law. It went even further, holding that it may not engage in any substantive review of the tribunal’s analysis of the clause, because this would constitute review of the merits of the case.
Second, the court observed that Russian law equally permitted the parties to agree to an arbitration clause (or modify it) through correspondence (which in this case was even unsigned). This conclusion is remarkable given the Russian courts’ generally more demanding approach to form requirements.
The Federal Commercial Court for the Moscow Circuit apparently upheld this analysis (without separate discussion).
Should Order Terminating Proceedings Be Enforced
The key issue before the Russians courts was whether they should recognise an order, not an award.
The respondent relied on a 2010 Supreme Commercial Court decision in Living Consulting Group v Sokotel, where the court held that provisional decisions of arbitral tribunals are not enforceable (see our report here). The courts said this decision was inapposite, because they dealt with the final decision, which concluded the arbitration.
More fundamentally the courts had to deal with the wording both of the New York Convention and the Russian laws governing the enforcement of decisions of arbitral tribunals. If interpreted literally these provisions extend only to “awards” of tribunals.
However, the Moscow Commercial Court said there were strong policy reasons for not adopting the literal meaning. The decision of the tribunal was final (and therefore the tribunal may not modify or withdraw it). The order was the only procedural instrument available to the tribunal to allocate the costs between the parties. In these circumstances, the claimant’s only remedy to recover the costs from the respondent was enforcement of this order.
The Federal Commercial Court for the Moscow Circuit upheld this analysis. It noted that the Sokotel decision of the Supreme Commercial Court in fact supported the claimant’s case. The court read Sokotel as rejecting the enforcement of interim decisions of arbitral tribunals, but providing for the enforcement of any final ones.