Friday, October 5, 2012

Russia: Supreme Arbitrazh Court rejects alternative (asymmetrical) arbitral clause

Introduction

The Supreme Arbitrazh Court has issued Resolution 831/12 in a case regarding the claim of ZAO Russkaya Telephonnaya Companiya (RTC) against OOO Sony Ericsson Mobile Communications Rus.
The resolution reached a conclusion on the invalidity of alternative (asymmetrical) arbitral clauses – that is, agreements under which one party is entitled to refer a dispute to arbitration or to a state court, while the other party has no such alternative. Such clauses have become common in share sale and purchase agreements, immovable property leases and aircraft financel leases.
The resolution will have a significant impact on practice, despite the fact that it does not completely resolve the issue of the validity of arbitration selection as a means of dispute resolution in alternative arbitral clauses.
Facts

The agreement between RTC and Sony Ericsson contained an alternative arbitral clause entitling Sony Ericsson to submit its claim to either the International Chamber of Commerce (ICC) or the courts. RTC was entitled to submit its claim only to the ICC.
Despite this provision, RTC made a claim before the courts. Sony Ericsson requested the court, pursuant to Article 148 of the Arbitrazh Procedure Code, to decline to consider RTC's claim due to an arbitral clause agreed by the parties.
The court declined to consider RTC's claim. The courts at appellate and cassational instances upheld the conclusions of the first instance court.
Decision

The Supreme Arbitrazh Court ruled that the case should be sent back for reconsideration. It stated that an alternative arbitral clause entitles only one party to select the means of dispute resolution, thus creating a more favourable position for such party, upsetting the balance of the parties' interests and violating the principle of equal rights.
In justification of its position, the court referred to the general principles of law (equal rights) and to decisions of the European Court of Human Rights under the European Convention for the Protection of Human Rights and Fundamental Freedoms 1950.
Therefore, the court concluded that:
"an agreement on dispute resolution may not entitle only one of the parties (seller) of a contract to refer [a dispute] to a competent state court and deprive the other party (buyer) of such right. If such agreement is concluded, it is invalid as it violates the balance of the parties' rights. Therefore, a party whose right has been infringed by such agreement on dispute resolution may also refer to a competent state court, exercising the guaranteed right to relief in court on equal terms as its counteragent."

Comment:

The resolution will have a significant impact on practice. It was issued in the context of the negative attitude of the Supreme Arbitrazh Court to foreign arbitration tribunals, and is intended to shift disputes involving Russian and foreign entities from arbitration tribunals to Russian courts. Anton Ivanov, chairman of the Supreme Arbitrazh Court, has repeatedly declared this intention in the past.
The resolution results in the following conclusions:
  • An alternative arbitral clause is invalid insofar as the right to refer to the court is granted to only one party. The party which has not been granted such a right is entitled to refer a dispute to a Russian court.
  • The validity of an arbitral clause which determines the arbitration court (ICC) is less clear. On the one hand, the resolution did not analyse the validity of the agreement to select the ICC. Nevertheless, if the court had deemed the selection of the ICC to be valid, it would have had to uphold the conclusions of the lower courts (which it did not).
  • The resolution raises questions as to the enforceability of foreign arbitration awards. If a foreign arbitral award is passed pursuant to such arbitral clause, the court may deem the arbitral clause invalid and may refuse to recognise and enforce that award.
  • There is a risk that Russian courts may initiate proceedings in disputes under contracts including alternative arbitral clauses, thus depriving arbitral clauses of protection.
It is worth revising all agreements which include such alternative arbitral clauses, particularly if proceedings have already been commenced in foreign arbitration tribunals.
For further information on this topic please contact Yaroslav Moshennikov or Veronika Guseva at DLA Piper Rus Limited by telephone (+7 495 221 4400), fax (+7 495 221 4401) or email (yaroslav.moshennikov@dlapiper.com or veronika.guseva@dlapiper.com).
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