Russian Stock Exchange Disputes Found an Exception to Non-enforceability of Abitration by Contracts of Adhesion

The case illustrates a pro-arbitration approach of the Supreme Commercial Court of the Russian Federation (hereinafter referred to as “SCC”) in their interpretation of arbitration clauses.

OJSC “Kuznetskbusinessbank” (hereinafter referred to as “the Bank”) applied to the Arbitrazh Court of Saint-Petersburg and Leningradskaya Region for a writ of execution to enforce an award to recover damages for failure to perform a repurchase agreement from the OOO “KIT Finance” (hereinafter referred to as “the Company”).  The award was rendered by the Arbitration Commission at the CJSC “Stock Exchange “Moscow Interbank Currency Exchange” (hereinafter referred to as “the MICEX arbitration tribunal”). On 2 July 2009 the court of first instance granted the application by the Ruling.

However, by its Decree of 14 September 2009, the court of cassation instance (Federal Commercial Court of the North-West Circuit) set aside this ruling on the ground that the Bank and the Company failed to duly conclude an arbitration agreement. The Court found that submitting the dispute to MICEX arbitration tribunal was in fact a binding unilateral decision of MICEX rather than agreement of the parties.

The Bank then appealed to the SCC, asserting that uniform court interpretation and enforcement of the laws had been infringed. The SCC determined as follows:

1.  The Bank and the Company were bidders at CJSC Stock Exchange “Moscow Interbank Currency Exchange”;

2.  According to the exchange rules, being a bidder implied consent to the dispute settlement mechanism of the stock exchange; and

3.  According to the exchange rules, all civil disputes, arising in connection with exchange activity, are heard and settled by the arbitration tribunal at MICEX.

The court of cassation instance found:

conclusion of a valid arbitration agreement by way of adhesion requires that the parties express their will to submit the already-existing dispute to a particular arbitration tribunal. The Bank failed to provide a single document confirming the conclusion of the arbitration agreement, made by the parties in written form and signed by their authorized representatives. The case file contains no other evidence of the conclusion of such agreement in an acceptable form.

However, the SCC Presidium determined that this conclusion by the lower court was wrong:

Custom in the exchange trade has adopted a specific manner of entering into arbitration agreements, because at the moment one becomes an exchange member, the identity of the counterparty with whom a civil contract is concluded (and covering any dispute for which the exchange arbitration court has competence) cannot yet be established.  Hearing of exchange disputes by arbitration tribunals at the exchange is a wide-spread practice, and the exchange members, professional (securities) traders, must be well aware of it.

Thus, the SCC Presidium upheld the ruling of the court of first instance of 1 June 2010.  It held that filing an application to become an exchange member constituted compliance with the requirement of a written form to an arbitration agreement, which terms are determined by the exchange rules.

Taking into consideration the above, trading on stock exchange may imply consent to dispute resolution by the stock exchange arbitration tribunal, and constitutes an exception to the presumption against enforcing arbitration agreements entered into by way of adhesion.

Dmitry Davydenko, Maxim Mezentsev

Muranov, Chernyakov & Partners