Resisting Arbitral Award Enforcement Because of Excess of Mandate – Either at the Seat or Never
It seems that in at least one respect Russian courts are now more arbitration-friendly than courts in many other countries. In a string of cases decided during 2011 the Supreme Commercial Court held that enforcement of an arbitral award may not be refused on the basis of a tribunal’s lack of jurisdiction if the award was not challenged on this basis in the State where the tribunal was seated (or so it seems; the exact scope of the rule will be addressed below).
This holding departs from the practice of many other European States, where the process of resisting enforcement of arbitral awards is treated as separate from the process of seeking their annulment in the State of the tribunal’s seat. This rule has been confirmed most recently by the UK Supreme Court in Dallah v. Pakistan, where the award rendered in France was refused enforcement on the basis of the tribunal’s lack of jurisdiction even though the respondent only challenged the award in France after the proceedings in the UK had commenced. The same position was recently upheld by the German Supreme Court.
In this post I will look at the facts of these respective cases decided by the SCC in 2011 and try to determine the exact content of the rule that the SCC has formulated.
SCC Jurisprudence
The issue first arose in the Odfjell v Sevmash case. This concerned a Norwegian shipping company seeking enforcement of an award rendered in Sweden by a tribunal constituted under the Stockholm Chamber of Commerce Rules against a Russian shipyard. In the award the tribunal had among other things considered and dismissed the respondent’s objections to jurisdiction. When Odfjell sought enforcement in Russia Sevmash objected to it on various grounds, including jurisdiction.
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These objections were dismissed by the lower courts and the matter came before the three-judge panel of the SCC. The panel appears to have agreed with the lower courts that the tribunal was acting within its jurisdiction, but also noted that under Swedish law the tribunal’s award as to competence could have been separately challenged. At the time the significance of this comment was unclear.
Less than one month later, in June 2011, the SCC considered the Hipp v. SIVMA et al case. This was the culmination of a long-running battle over enforcement of an Austrian award rendered in 2009 in favour of an Austrian producer of baby food (Hipp) against its Russian buyer (SIVMA).
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The SIVMA parties resisted enforcement on various grounds including excess of jurisdiction. It appears as though a jurisdictional challenge had been raised before and subsequently dismissed by the arbitral tribunal. The lower courts in Russia agreed with SIVMA and refused enforcement; their decisions were, however, reversed by the SCC. Two points were highlighted by the SCC: (i) jurisdictional objections had already been dismissed by the tribunal; and (ii) the tribunal’s decision as to jurisdiction had not been challenged in Austria. For these reasons the SCC rejected SIVMA’s objection to enforcement.
In December 2011 a three-judge panel of the SCC refused to reconsider the lower court’s decisions in Living Consulting v. Sokotel, and, in the process, finally explained why the question of whether the award was challenged at the seat is relevant. This is another case concerning enforcement of an award rendered in Sweden by a tribunal constituted under the Stockholm Chamber of Commerce Rules.
Both before the tribunal and the Russian courts the respondent argued that the arbitration clause in the relevant contract had been superseded by a later parties’ agreement to refer all disputes to the St. Petersburg Commercial Court. This objection was dismissed by the tribunal and the lower courts in Russia. When the case came before the three-judge panel of the SCC they agreed with the Hipp analysis, but developed it further. The panel began by noting that the tribunal’s decision on jurisdiction was made in a separate award which could have been separately challenged under the law of Sweden and explained that this rule (along with a similar rule in Russian law) seeks to achieve predictability and procedural economy by requiring the respondent to bring the matter before State courts at the earliest possible juncture. It went on to note that because the respondent had failed to challenge the separate award on jurisdiction it should be deemed to have forfeited the right to object to the tribunal’s jurisdiction.
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This holding, so the panel concluded, was consistent with the SCC’s earlier decision in Hipp.
Scope of the SCC holdings
Now we are left to determine the scope of the rule that the SCC has formulated. At the very least it seems that where the tribunal has issued an interim award on jurisdiction and such award may be challenged in the State of the seat, in order to preserve its right to challenge the award’s enforcement on jurisdictional grounds, the respondent should lodge such a challenge in the State of the seat. Here, the logic is quite understandable. Where the award on jurisdiction was rendered and remained unchallenged the respondent may be deemed to have acquiesced to jurisdiction. However, this is not the end of story.
In the Odfjell and Hipp cases jurisdictional objections were dealt with in final awards, and therefore the respondents had had no opportunity to separately challenge the jurisdictional findings. Unless the SCC overlooked this fact (which seems unrealistic) it seems that the rule should be that either the respondent should request the tribunal to deal with jurisdictional matters separately and challenge such interim award (a solution which is not always practical) or that any award which deals with jurisdictional matters should be challenged. If the latter approach is adopted it is not entirely clear why the SCC singled out jurisdictional objections, but not others (such as impartiality of arbitrators, due process and sufficient notice requirements).
Overall the precise circumstances where failure to seek annulment of the award will result in the inability to object to its enforcement in Russia remain unclear. It seems as though prudent respondents who have assets in Russia and valid objections to the tribunal’s jurisdiction should now always seek the award’s annulment.
Sergey Usoskin
About the Author: Sergey Usoskin
Sergey Usoskin is an advocate (member of the Russian bar) and a senior associate at Ivanyan&Partners. He has experience advising clients on and representing them in commercial and investment arbitration matters as well as before the Russian court (including the Supreme Commercial Court). He is a graduate of St Petersburg State University, Faculty of Law and University College London Faculty of Laws.Subscribe
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