International Arbitration Practice Newsletter (Issue 1, 2014)

Ministry of Justice continues lobbying for reform of the arbitration courts

The Ministry of justice of the Russian Federation has prepared four draft laws that would mark a turning point in the reform of arbitration courts in Russia.

The draft laws would amend the Federal constitutional law “On Arbitrazh Courts of the Russian Federation," the first and second parts of the Tax Code of the Russian Federation, and other federal laws. It would also enact a new Federal law “On Arbitration Courts and Arbitration (Arbitration Procedures) in the Russian Federation.”

The most important changes would be:

• a maximized scope of admissible disputes in commercial arbitration (including corporate disputes);
• assistance by federal courts in the promotion of arbitration proceedings; and 
• a new procedure for establishment of arbitration courts, which could be created only by non-commercial organizations after receipt of a permit from the Ministry of Justice.

The proposed amendments will be presented to the State Duma in the beginning of this summer.

Supreme Arbitrazh Court rules on the proper service of judicial documents for the recognition and enforcement of foreign court decisions

On 28 January 2014, during the hearings on case N А40-88300/2011, the Presidium of the Supreme Arbitrazh Court resolved a matter involving the proper service of pleadings in proceedings to recognize and enforce foreign court decisions.

The dispute arose between the English company Nortel Networks Island Ltd (Nortel) and the Russian company UNI Corporation CJSC. At the end of the litigation between the parties, the High Court of Justice of England and Wales decided against UNI Corporation, the defendant in the case. Nortel then applied to the arbitration court for the enforcement of the award in Russia.

Contesting the enforcement of award rendered by the High Court of Justice, UNI Corporation alleged that they had not received proper notification of the commencement of litigation in the English court. The arbitration court of the first instance and appellate court held opposing positions about the recognition and enforcement of the English court award.

The Presidium of the Supreme Arbitrazh Court upheld the decision by Moscow Arbitrazh Court of 21 February 2012 which denied the recognition and enforcement of the English court award.

The Judgment of the Presidium is not fully prepared yet. Presumably, the Presidium affirmed the opinion of the chamber of the Supreme Arbitrazh Court that examined the motion of UNI for a re-opening a case, in the exercise of its supervisory power, and issued the Decision to transfer the case to the Presidium. In the Decree transferring the case to the Presidium, the chamber of the Supreme Arbitrazh Court noted the mandatory nature of the Convention of 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters and the invalidity of the exclusion clause on the parties to the contract.

Judicial Committee of the Privy Council puts a trans-Atlantic spin on international litigation

In a case between the Turkish Cukurova Group and the subsidiary of the Russian Alfa Group, the Judicial Committee of the Privy Council decreed that Cukurova Group must pay a judgment to Alfa Telecom Turkey (Alfa Group’s subsidiary) only after the U.S. District Court for the Southern District of New York renders any judgment on the parallel lawsuit that the Swedish-Finnish company TeliaSonera had filed against Cukurova.

The disputes among Cukurova, Alfa Group and TeliaSonera arose in 2005 when Cukurova promised to convey a 27% stake in Turkcell, Turkish largest mobile service operator, to TeliaSonera and pledged the block of shares under a loan contract with Alfa Telcom Turkey.

In 2007 Alfa Group (represented its Turkish subsidiary) sued Cukurova for breach of the loan contract and claimed a early return of the US$ 1.45 billion that Alfa Telcom Turkey loaned to Cukurova. Cukurova did not deny the fact of violation; but when it decided to pay for the reserve of the shares, Alfa Telcom Turkey refused to accept the funds, stating that Cukurova was in arrears. Alfa Telcom Turkey wanted to acquire the pledged shares instead of the funds.

The Judicial Committee of the Privy Council held that Cukurova in fact broke the terms and conditions of the loan contract, and ordered the Turkish company within 60 days to pay US$ 1.565 billion to Alfa Group; however the court did not order the recovery in shares.

TeliaSonera also tried to acquire shares in Turkcell by judicial means on the grounds that Cukurova violated its obligation to sell its shares.

In 2011 the ICC Arbitration in Geneva held that Cukurova must pay out US$ 932 million to TeliaSonera as a recovery for the cancelled sale of shares; and at the end of April 2013, in U.S. Federal District Court in New York, TeliaSonera was able to obtain an injunction against the sale, transfer, lien, and other acts regarding Cukurova assets.

In July 2013 the U.S. Federal District Court agreed to extend the period for payment without setting a deadline. The court allowed the parties to raise issues about the payment deadline by 1 December 2013, and Alfa Group did so.

Meanwhile, The Judicial Committee of the Privy Council decided to prolong the period for Cukurova to make the payment that it had ordered until the U.S. District Court for the Southern District of New York renders its judgment in the case between Cukurova and TeliaSonera, or until Cukurova and TeliaSonera come to accord and satisfaction. After the New York court unfreezes Cukurova's assets, the Turkish company then will have 60 days to pay the recovery it owes to Alfa Group.

It is interesting to note that, according to the record of the procedural findings, the Judicial Committee of the Privy Council left a special message for U.S. District Court for the Southern District of New York: “If the New York Court can award a decision shortly, it will be helpful for resolving the dispute.”