Tacit Agreement to Arbitrate to be Examined by the Supreme Commercial Court

The Presidium of the Supreme Commercial Court will clarify which of a respondent’s actions may evidence implicit acceptance of an arbitral tribunal’s jurisdiction.
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The case which will be heard by the court in October focuses on the respondent’s constantly changing position as to the jurisdiction of the arbitral tribunal. Though the respondent eventually contested jurisdiction, the Supreme Commercial Court panel said this eleventh hour decision and subsequent objections raised in the enforcement proceedings may have amounted to an abuse.

The case is the latest in a line of cases which has followed the restructuring of the Russian electricity system. As part of the restructuring an arbitral institution which was embedded in most commercial contracts in the sector was sought to be replaced by PETEK (Arbitration Institution Law and Economics), a different arbitration provider.
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The founder of the former institution, RAO UES (the then Russian electricity monopoly), sought to achieve this by a unilateral decision to appoint PETEK as the “successor”. This unilateral appointment was subsequently ruled to be unenforceable by the Supreme Commercial Court, which led to the annulment of a number of arbitral awards rendered under the auspices of PETEK.

The Supreme Commercial Court then explained that a respondent which failed to contest the jurisdiction of a PETEK tribunal could not later object to the enforcement of the award. What distinguishes the present case is that the respondent objected to the jurisdiction of the tribunal and further argued that it did so immediately after it became aware of the Supreme Commercial Court’s earlier decision to treat as unenforceable the appointment of PETEK as the new arbitral institution.

Facts of the case

In 2007 JSC Tverskaya Electricity System (“TES”) entered into a contract with JSC Tverenergosbyt by which it agreed to provide electricity transmission services to the latter. Both companies were parties to a 2005 multilateral arbitration agreement concluded under the auspices of RAO UES by virtue of which they agreed to submit any disputes between them to arbitration administered by the Arbitration Court of RAO UES. In December 2007 RAO UES issued an order which, relying on the provisions of the multilateral arbitration agreement, replaced the Arbitration Court of RAO UES with PETEK.

In 2008 TES submitted a claim to a state arbitration court seeking to recover over RUR 500,000,000 due to it under its services agreement with Tverenergosbyt. The latter asked the court to dismiss the application relying on the arbitration clause. TES then commenced arbitration against Tverenergosbyt and Tverenergosbyt counterclaimed seeking approximately RUR 400,000,000.

In the middle of 2009 the Supreme Commercial Court ruled that the unilateral replacement of RAO UES arbitration with PETEK arbitration was not per se enforceable. In October 2010 Tverenergosbyt contested the tribunal’s jurisdiction for the first time.
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It appears that the tribunal separately dismissed this jurisdictional objection and then issued an award in favour of TES which also dismissed Tverenergosbyt’s counterclaim.

TES applied for the enforcement of the award. The first instance court in Tver granted the application. However, the Federal Circuit Court for the North-Western Circuit disagreed finding that the arbitral tribunal lacked jurisdiction. The Supreme Commercial Court panel (judges Babkin, Valyavina, Dedov) disagreed and referred the case to the full Presidium.

Circumstances Evidencing Implicit Consent to Arbitration

The Supreme Commercial Court panel concluded that the tribunal had jurisdiction and Tverenergosbyt’s conduct amounted to an abuse. In reaching this conclusion it relied on a number of factors without assigning specific weight to any of them:

• Tverenergosbyt relied on the arbitration clause to stay the state court proceedings against it;
• Tverenergosbyt participated in the formation of the arbitral tribunal and the subsequent proceedings initially without objecting to the jurisdiction;
• Tverenergosbyt lodged a counterclaim;
• After its jurisdictional objection was dismissed by the tribunal Tverenergosbyt continued to participate in the proceedings.

The panel was also unimpressed by the respondent’s argument that it objected against jurisdiction immediately upon learning of the position of the Supreme Commercial Court that the original arbitration clause may not be enforceable. The panel stressed two facts. The respondent was not relying on any prejudice to its rights caused by the arbitral proceedings but was rather trying to take advantage of the Supreme Commercial Court decision in a different case. Furthermore, the respondent tried to have two bites of the cherry by both contesting the tribunal’s jurisdiction and then continuing to participate in the proceedings after the challenge had been dismissed.

It remains to be seen to what extent the Presidium will follow the panel’s lead. However, the eventual decision will certainly provide important guidance to parties which participate in arbitration proceedings under objection to the tribunal’s jurisdiction.

The ruling of the panel is available here (in Russian).

Sergey Usoskin