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Информационный обзор практики Международного арбитража (1 июля - 15 августа, 2013)

Legislative initiatives to build confidence in Russian arbitration

We expect significant legislative initiatives in the coming months to improve confidence in Russian arbitration. The Economic Development Ministry has set a goal that by the end of 2016, 90% of arbitration proceedings between Russian legal entities will be conducted in the Russian Federation. This initiative is supported by the Justice Ministry. The two ministries share a desire to reestablish the business trust in Russian arbitration. Watch this newsletter and Art De Lex client bulletins for further developments.

May a foreign entity participate in arbitration in the Russian Federation?

The Supreme Arbitration Court of the Russian Federation (SAC) has published informational letter No. 158 of 9 July 2013 “Review of Court Precedent Regarding Arbitration Courts’ Reviewing Cases with Foreign Participants” (the “Letter”).

Specifically, the Letter reviews several important issues:

  • the legal competency of Russia’s arbitration courts in cases in which foreign parties participate
  • determining the governing law
  • applying foreign law
  • establishing the status of foreign parties
  • applying provisional measures in cases in which foreign parties participate

Consequently, a claim must originate from the activities of the management body, affiliate or representative office of the foreign party located in the Russian Federation in order to begin proceedings on a claim against said foreign party. Furthermore, jurisdiction may be based on the regular location through which foreign entity conducts its commercial activities in the Russian Federation, regardless of site of its formal registration.

Attempts to recover money from Bank of Cyprus unsuccessful

Two arbitration cases initiated in Russia in respect of the Bank of Cyprus have been halted, as the arbitration courts of Moscow and St. Petersburg have not found a sufficient basis to review the cases in the Russian Federation. It is worth noting that even though the respondent is not located in Russia, the claim was filed based on the fact that the respondent does have a representative office in the Russian Federation. However, there must be proof of a direct connection between the representative office in a specific country and the party in the dispute in order to confer jurisdiction in arbitration.

SAC settles the issue of the impartiality of "in-house" arbitrators

SAC has taken the position that associations or unions of legal entities that have established regularly functioning in-house arbitration courts are not permitted to have their own material or legal interests in a dispute reviewed by such "in-house" arbitrators.

The SAC recently transferred case A56-48511/2012 to the Presidium. In this particular dispute, one of the counter-parties to the civil agreement had indirectly participated in the formation and activity of the arbitration court that was hearing the dispute. The SAC believes that this could violate the guarantee of impartiality in arbitration. The Presidium has confirmed this position.

Arbitration clauses do not have to identify a specific arbitration court

The Presidium of the SAC has ruled (case A27-7409/2011) that reference in an arbitration clause to the pertinent arbitration regulation is sufficient to determine which arbitration institute the parties have agreed to have jurisdiction over the dispute.

U.S. Federal court rules in favour of Yukos Capital to enforce ICC arbitration award

The U.S. District Court (case 1:10-CV-06147-PAC, S.D., New York) granted on 8 August 2013 a motion by Yukos Capital for summary judgment to enforce an arbitration award it had earlier won in the International Court of Arbitration of the International Chamber of Commerce (ICC) against Russia’s OAO Samaraneftegaz for a recovery of RUB 3.5 billion (USD 109.8 million).

The case goes back to January 2006, when Yukos Capital initiated ICC arbitration proceedings against Samaraneftegaz to enforce a loan agreement. In August 2007 the ICC awarded in favor of Yukos Capital, and ordered Samaraneftegaz to pay the outstanding balance under the loans.

When Yukos Capital sought to enforce the award in Russia in 2010, a commercial court in Samara refused on public policy grounds. That court characterized the loan agreements as tax evasion and not having any business efficacy.

When the case was filed in the U.S. District Court, both sides moved for summary judgment. The court rejected the contentions of Samaraneftegaz that a notification issue in the ICC proceedings violated American standards of due process and therefore the award should not be enforced. With regard to the public policy argument, the U.S. District Court noted that its review of an arbitration award could not extend to a ruling on the validity of the loan agreements underlying the award. The court held that Samaraneftegaz had failed to advance a well-defined and dominant public policy in support of its argument that the initial arbitration award should be overturned.