Arbitrability of Disputes Related to the Termination of Russian Legal Entities

Jun 24, 2019

TD Estet LLC, a Russian entity, and GEMPERLE INC., a Canadian entity, were the stockholders in a Russian entity, JemEst LLC. The stockholders took a decision on the voluntary dissolution of JemEst LLC, but in the course of dissolution, a dispute arose between them. TD Estet LLC and GEMPERLE INC. entered into an arbitration agreement upon which the dispute should be resolved by arbitration. The arbitration seating in Canada (a city is not indicated in a court ruling) was commenced, and an arbitral award was issued in 2015 (hereinafter referred to as “Award”).

According to the Canadian Arbitral Award,

  1. TD Estet LLC was ordered to pay GEMPERLE INC. around US 43 000, and to provide the Canadian entity with documents related to the activity of JemEst LLC;
  2. the assets of JemEst LLC shall be sold, and an income shall be divided among the stockholders.

TD Estet LLC did not comply with the Award voluntary, consequently, GEMPERLE INC. brought an action before a Russian court seeking recognition and enforcement of the arbitral award in Russia.

On 25 March 2018, the Arbitrazh Court of the City of Moscow ("Court") by its ruling refused the recognition and enforcement of the award in the Russian Federation providing the following reasons:

Firstly, the Court recalls that according to Article V(2)(a) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) which reads as follows:

"Recognition and enforcement of an arbitral award may also be refused if the [court] finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration under the law of [the country where recognition is sought]."

Under Russian law, Russian courts have exclusive jurisdiction over the disputes concerning liquidation (dissolution) of Russian legal entities, if one of the stockholders (shareholders) therein is a foreign entity (Article 248 (1)(5) of the Russian Arbitrazh Procedural Code).

Therefore, taking into account that GEMPERLE INC. (i) is a stockholder in JemEst LLC, i.e., a Russian entity, (ii) it is a foreign legal entity, and (iii) there was a dispute concerning the end of the legal existence of a Russian legal entity, the Court decided that the dispute could not have been a subject to arbitration.

Secondly, having concluded that the dispute could not have been a subject to arbitration, the Court, nevertheless, pointed out that the recognition and enforcement of the Award would contradict to the Russian concept of public policy.

On 19 June 2019, the Arbitrazh Court of the Moscow District upheld the ruling.

Case No А40-296672/18-63-2466. GEMPERLE INC. v. TD Estet LLC.