International Arbitration Practice Newsletter (Issue 3, 2015)

The Moscow Arbitration Court refuses to set aside an arbitral award of the ICC

The Moscow Arbitration Court recently took the side of an investor in a dispute with the government of St. Petersburg, arising from the attempted cancellation by the government of a decision of the Arbitration Court of the International Chamber of Commerce (ICC) (Case number A40-66296 / 2015).

The arbitration clause at issue was in an agreement between the government of St. Petersburg and the investor; and it provided for the resolution of disputes by international commercial arbitration in the ICC.

When the government refused to bring the contracted project to implementation, it unilaterally rescinded the agreement. In 2013, the Government tried to challenge the validity of the arbitration clause on public policy grounds, because a government entity was a party to the dispute. However, the courts have rejected this argument because the other party is an enterprise with foreign investment. Therefore the Federal Law On International Commercial Arbitration applies.

The ICC arbitration tribunal deciding the dispute agreed with the company’s claim in large part; and then, on 16 February 2015, the company requested the Arbitration Court of the St. Petersburg and Leningrad Region to issue an execution writ to enforce the arbitral award (case number A56-9227 / 2015).

Simultaneously the St. Petersburg government applied to the Arbitration Court of Moscow to overturn the arbitration decision in the grounds stated above. The Moscow Arbitration Court denied the request, stating that by bringing the appeal, the government no longer could dispute the jurisdiction of the arbitration court. Nonetheless, when it considers an application for a writ of execution, the court will check the validity of the arbitration decision that is to be enforced.

Recognition of arbitral awards that contradict judgments of the Russian Courts

On 5 August 2015 the Moscow Arbitration Court (Case A40-50778 /2015) refused to recognize and enforce a foreign arbitration award in a dispute arising from agreements on joint activities between the Core Carbon Group ApS and Rosgazifikatsiya JSC. The investment agreement was concluded before an international treaty stipulating the order of execution such agreements had gone into effect. This prevented the Russian court from enforcing the foreign award.

This history of this case is interesting and instructive. In Russia, the Arbitration Court of Moscow had previously declared such investment agreements invalid (the case A40-184175 / 13). However, the Arbitration Institute of the Stockholm Chamber of Commerce acknowledged these agreements as valid and awarded Core Carbon Group US$ 152 million.

Core Carbon Group then applied to the Moscow Arbitration Court to enforce the Swedish arbitral award. The Russian court refused on the grounds that recognition of the Swedish award would give equal force and effect in the Russian Federation to two judicial acts with completely opposite conclusions. Moreover, such a ruling would violate the property rights and interests of the Rosgazifikatsiya shareholders, because the investment agreements between Core Carbon Group and Rosgazifikatsiya contradicted the provisions of the Kyoto Protocol and the Marrakesh Accords (case A40-50778 / 2015).

As follows from the reasoning of the court, the conclusion of such transactions would seem reasonable and prudent after Russia's accession to and compliance with the conditions of admissibility of the Kyoto Protocol and the Marrakesh Accords, and the Russian Federation had adopted national implementation procedures. The court also pointed out that Rosgazifikatsiya assumed debt in the absence of a commensurate counter, and that the loss ratio of the disputed transactions was clear to the parties at the time the deal was concluded.

The Supreme Court of Sweden refuses to review the forced sale of a building of the Russian Trade Representation

The Supreme Court of Sweden has dismissed the appeal of the Russian Federation against the forced sale, at the request of German businessman Franz Sedelmayer, of a building of the Trade Representation of Russia in Stockholm.

The Supreme Court of Sweden originally permitted the sale in 2011; but after three years the building still had not sold. The building was sold at the third attempt in September 2014.

The Russian Federation tried to appeal the sale of the building in three instances in the Swedish courts. In reaching its decision not to review the case, the Supreme Court of Sweden cited the provisions of the Swedish law On State Immunity and Its Property and the UN Convention on Jurisdictional Immunities of States and Their Property of 2004, which allow enforcement measures against a foreign state's property that is used for commercial purposes, as distinguished from sovereign ones.

Due to the fact that the building was leased to commercial organizations (and therefore used for commercial purposes) and that most of the people who used the building did not have diplomatic status, the Supreme Court of Sweden concluded that the foreclosure on the building is permissible and that there were no grounds for the Court to intervene.