Roughly translated as “remember to dot your i’s and cross your t’s”, the phrase “Rasstavit tocki nad i” is quite an apt description for some of the lessons learnt from recent judgments of the Russian courts on the enforcement of arbitration agreements and awards in Russia.
For a number of years now, arbitration has been the preferred method for resolving disputes involving Russian parties or legal entities ultimately controlled by Russian parties.
Russia ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1960 and has recently updated its already sophisticated law on international commercial arbitration, which is based on the UNCITRAL Model Law.
However, the reforms to the Russian Arbitration Act also restricted the scope of disputes that can be referred to ad hoc arbitration and made it more difficult to enforce awards rendered in ad hoc arbitrations in Russia. This, coupled with the recent negative trend in court decisions relating to the enforcement of arbitration agreements and arbitral awards generally, have highlighted the need for caution when drafting arbitration clauses when Russian parties are involved.
The recent case law
The three recent cases of the Russian courts discussed below highlight some particular areas of concern for foreign parties involved in conducting business with Russian parties.
In the first of these cases (A40-130828/16), Sira Industrie S.p.A, an Italian company, commenced litigation proceedings in the Commercial Court of Moscow for the recovery of unpaid debt and interest from LLC GL Termo, a Russian company, under a supply agreement. Sira Industrie obtained a judgment in the requested terms from the Moscow City Commercial Court, which GL Termo subsequently appealed on two grounds, one of which was that the supply agreement referred disputes arising out of or in relation to it to ad hoc arbitration under the UNCITRAL Rules with the seat of arbitration in London. The precise wording of the arbitration agreement is unclear, but it appears from the judgment of the Ninth Commercial Appeal Court that it contained a reference “to the arbitration being conducted at the arbitration court (including the rendering of an arbitral award) in London (England) in English language” in accordance with the UNCITRAL Rules.
The Ninth Commercial Appeal Court decided that the arbitration agreement was invalid by reason of uncertainty, as there are a number of potential courts in London including the High Court, the “London court of international arbitration (1981)” and the “International arbitration court of London LCIA (1892)”. The court concluded that the arbitration agreement was invalid, as the parties had failed to specify an arbitral institution with sufficient precision and that therefore the dispute between the parties should be resolved in state courts. The respondent unsuccessfully appealed the decision. The decision therefore remains a worrying precedent which may be followed in the future by the Russian courts.
In the second case (A40-176466/17), the Commercial Court of the Moscow Region considered an application by Dredging and Maritime Management SA, a company incorporated in Luxembourg, for the recognition and enforcement of an award for the recovery of unpaid debt, interest and costs, which was rendered in an arbitration conducted under the ICC Rules. The arbitral award was made against Russian company, JSC “Inzhtransstroy”. The application was dismissed by the Commercial Court on the basis, among other things, that it was not clear on a literal interpretation of the arbitration clause that an arbitral institution had been appointed to administer the arbitration between the parties. The court reached this conclusion in spite of the fact that the arbitration agreement between the parties contained the following wording widely used in international agreements to provide for the resolution of disputes by arbitration under the ICC Rules:
“Any dispute not settled amicably between the parties shall be finally resolved by international arbitration. Unless otherwise agreed by the parties, the dispute shall be finally resolved in accordance with the Arbitration Rules of the International Chamber of Commerce.”
An appeal against the decision was dismissed by the Cassation Court. It remains to be seen whether the judgment will be overturned by the Russian Supreme Court. However, for the time being, it is another worrying example of the Russian courts’ approach to the interpretation of arbitration clauses.
The third case (A40-60583/2016) concerned an application by Korean National Insurance Corporation (KNIC) for the recognition and enforcement of an ad hoc arbitral award rendered in an arbitration seated in London. The initial application was refused by the Moscow City Commercial Court on the grounds that KNIC failed to:
- Produce originals or duly authenticated copies of the underlying reinsurance agreements containing the arbitration agreement.
- Provide evidence that representatives of the respondent had authority to enter into the arbitration agreement with KNIC.
KNIC appealed the decision all the way up to the Russian Supreme Court. The Russian Supreme Court dismissed the appeal on the same grounds. The Russian Supreme Court emphasised that the recognition and enforcement of the award would violate public policy with regard to the right to a fair trial in these circumstances. The judgment is not clear as to why the Supreme Court reached this conclusion, but it appears that it might have been decided that the respondent, VTB Insurance, was not bound by the arbitration agreement, as a result of KNIC not being able to provide the documentary evidence referenced above.
Rasstavit tocki nad i
The three cases discussed above highlight some of the issues that can arise with the interpretation of arbitration clauses and recognition and enforcement of foreign arbitral awards in general in Russia. However, there are steps that parties can take in order to reduce the risk that an arbitration agreement will be held to be ineffective and to secure the recognition and enforcement of a foreign arbitral award.
Parties should take great care in drafting arbitration agreements providing for the resolution of disputes by ad hoc arbitration. For instance, they may consider providing for an arbitral institution to act as an appointing authority to avoid any uncertainty. Alternatively, the parties may consider avoiding referring their disputes to ad hoc arbitration altogether in agreements with Russian parties.
When choosing institutional arbitration, parties should take great care to ensure that the arbitration clause clearly and precisely identifies a recognised arbitral institution. It is important to note that a mere reference to a set of institutional arbitration rules may be interpreted as a failure to identify clearly an administering institution.
Parties should ensure that they retain both original and certified copies of all executed agreements containing arbitration clauses. They should also ensure that Russian signatories to arbitration agreements have the appropriate authority to enter into those agreements and that there is documentary evidence attesting to this authority. This may require parties to obtain copies of the Russian company’s corporate documents, preferably in notarised and apostilled form.