Russia’s Supreme Commercial Court Questions Impartiality of Party-Affiliated Arbitral Institutions

The Supreme Commercial Court is set to rule in two cases, which revolve around the fundamental principle of nemo iudex in causa sua. The cases arise out two arbitral awards. First case: the Arbitration Court of Gazprom rendered an award in favour of a Gazprom-affiliated entity. Second case: the tribunal administered by the Center of Dispute Settlement by Arbitration (Sberbank-affiliated) rendered an award in favour of a Sberbank-affiliated party.

In these cases the Supreme Commercial Court will have an opportunity to clarify two important questions. First, whether any involvement with the arbitral institution of an affiliate of a party to the dispute is permissible. Second, to what extent internal systems the arbitral institution established to ensure independence of the arbitral tribunals may offset such involvement. Both cases reflect the current policy of the Supreme Commercial Court to combat party-affiliated arbitral institutions.

Background on party-affiliated arbitral institutions

It is common knowledge that arbitral institutions established with the participation and assistance of blue chip companies are widespread in Russia. Tribunals administered by some of these institutions have shown high efficiency in dispute resolution. Frequently, at least one of the parties to the dispute before such a tribunal is affiliated with the company that established the institution. In such case objective doubts as to the independence of the tribunal may arise.

This issue has already been addressed by Russia’s highest commercial court. The Presidium of the Supreme Commercial Court in Resolutions № 17020/10 and № 16541/11 dated 24 May 2011 and 22 May 2012 reached the same conclusion. It held that creation and financing of the institution administering the arbitration by one party to the dispute led to violation of fundamental guaranties of an independent and impartial tribunal, because no one should be judge in their own cause.

Arbitration Court of Gazprom

In August 2012, the Arbitration Court of Gazprom rendered an award in favour of Yamalgasinvest ordering Institute Neftegasproekt to pay 1,617,618 roubles (c. 40,000 euro) to the former.

The Moscow Commercial Court set the award aside on application of Neftegazproekt. The court found that the Arbitration Court had been established by Gazprom and Yamalgasinvest, the claimant in the arbitration, is an affiliate of Gazprom. Accordingly, the court held that, as the tribunal was not independent, the award was contrary to Russian public policy.

The Federal Commercial Court for the Moscow Circuit disagreed and quashed the lower court’s decision. It noted that the Rules of the Arbitration Court of Gazprom provided a special procedure for the appointment of arbitrators, which ensured their independence of Gazprom.

The three-judge panel of the Supreme Commercial Court referred the case to the full Presidium. It noted that the award was rendered by a party-affiliated tribunal; therefore, it contradicted Russian public policy, which requires arbitral tribunals to be independent. The panel held irrelevant the special procedure for the appointment of arbitrators established to ensure their independence.

The case will be heard by the Presidium on 29 October 2013.

Meanwhile, if both parties to the dispute are affiliated with the tribunal problems with enforcement of the award of such tribunal will probably not arise. For example, the Saint-Petersburg Commercial Court enforced an award of the Arbitration Court of Gazprom in a dispute between Gazprom Invest and Giprospecgaz.  Gazprom Invest objected to enforcement. It argued that the tribunal was not impartial. The Saint-Petersburg Commercial Court rejected the argument referring to the Resolution № 16541/11 of the Presidium of the Supreme Commercial Court dated 22 May 2012. It held that both parties were Gazprom’s affiliates and therefore the tribunal was sufficiently independent.  The Federal Commercial Court of the North-Western Circuit confirmed the ruling.

Arbitration Court at the Center for Dispute Resolution by Arbitration

In this case the Arbitration Court at the Center for Dispute Resolution by Arbitration rendered an award in favour of Sberbank JSC against one of its borrowers – SOFIT LLC.  

The Moscow Commercial Court enforced the award.  The court dismissed the argument of SOFIT LLC that according to the publicly available information Sberbank jointly with two co-founders established the Center for Dispute Resolution by Arbitration. SOFIT argued that as a co-founder Sberbank participated in creation of the Arbitration Court, and so the tribunal could not be impartial. The Federal Commercial Court for the Moscow Circuit confirmed the ruling.

The Supreme Commercial Court quashed the decisions of the lower courts and refused enforcement of the award. The full text of the court’s resolution is not yet available. However, the three-judge panel, which referred the case for supervisory review, noted that Sberbank indirectly (through establishment of the Center for Dispute Resolution by Arbitration) took part in the creation of the arbitral institution, and so the forum could not be impartial.

The three-judge panel acknowledged that SOFIT failed to challenge the jurisdiction of the arbitral tribunal on the grounds it invoked during the enforcement stage. However, the panel concluded that it could not treat such conduct as a waiver, since the issue in question involved the basic guarantee of an independent tribunal.

During the oral hearing in the latter case Supreme Commercial Court Judge Babkin fairly observed that “case law on similar cases is inconsistent”. Nevertheless, the Supreme Commercial Court continues its struggle to enforce the principle “nobody should be judge in their own cause” and the relevant provision of the European Convention for the Protection of Human Rights and Fundamental Freedoms guaranteeing the right to an independent tribunal.

It is significant to note that the Supreme Commercial Court in its struggle against the so-called “pocket” courts should draw a proper line between party-controlled tribunals and arbitral institutions where the party’s involvement is minimal (e.g. an arbitral institution of a trade association, where one of the parties is a member of the association). In this respect, it may draw inspiration from the Decision of the Supreme Court of Poland rendered on 25 October 2012 in case III CSK 35/12. The Polish court held that the mere fact that one of the parties was a member of an organisation (Polish Confederation of the Private Employers Lewiatan) with which the arbitral institution was affiliated did not mean that the agreement to arbitrate would be invalid. The Supreme Court of Poland noted that members of the organisation had no undue influence on the conduct of the arbitration proceedings and their involvement with the association did not impair the independence of the arbitrators hearing the particular dispute.

Andrey Kalimanov,

Muranov, Chernyakov & Partners Law Firm