Recognition of Awards in Russia under multi-tier arbitration agreements

Jun 19, 2019

In a recent case (No А40-169104/18-141-1317), the Russian court refused recognition and enforcement of a Swiss arbitral award after finding, among other, that the claimant should have complied with a multi-tier dispute resolution clause.

Protasn Capital Limited ("Claimant") brought an action before the Russian court seeking recognition and enforcement of an arbitral award issued on 15 June 2018 under the aegis of the Swiss Chambers of Commerce ("SCAI award"). By the SCAI award, Morton-RSO LLC ("Respondent"), a Russian firm, was ordered to pay the Claimant RUB 110 million, approx. USD 1,6 million, plus costs.

On 26 September 2018, the Arbitrazh Court of the City of Moscow ("Court") refused the recognition and enforcement of the SCAI award in the Russian Federation. The Court gave several reasons in favor of its ruling, but this post deals with only one, a highly controversial, argument. It is a non-compliance with a multi-tier dispute settlement mechanism.

As it follows from the Court ruling, a dispute resolution clause provided for a multi-tier dispute settlement mechanism. The relevant clause, as it appears in the court ruling, reads as follows (the author's translation into English):

Any dispute, controversy or claim arising out of or in relation to this contract, including the validity, invalidity, breach or termination thereof ("Dispute"), may be submitted to an expert who shall act as an expert, rather than an arbitrator; [the expert] shall be appointed by the agreement between the parties within 14 days.

In event of the parties fail to the appointment the expert, or the dispute remains unresolved within 30 days after the date of the expert appointment, the dispute shall be resolved by arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Chambers' Arbitration Institution.

When a dispute arose, the Claimant had proposed to submit the dispute to an expert, but there was no further development. It is unclear whether the Respondent responded to the Claimant. As a result, the Claimant commenced the arbitration proceedings. The arbitrator ruled on its jurisdiction and issued the final award.

The Arbitrazh Court of the City of Moscow has concluded otherwise. The recourse to arbitration was conditioned to recourse to an expert, emphasis the Court. In the view of the court, the effort to submit the dispute to an expert did not meet the dispute resolution clause criteria. Therefore, the Claimant was not entitled to submit the dispute to arbitration. As a result, the Court has refused the recognition and of the SCAI award, otherwise it would contradict to the Russian public policy doctrine, concludes the Court.

An appeal against the ruling of 26 September 2018 was unsuccessful; finally, on 29 March 2019, the Russian Supreme Court refused the appeal on reconsideration case.

Mikhail Samoylov