Corporate Disputes in Russia: Arbitrable or Non-Arbitrable?

Several recent court decisions in Russia, the most recent of which was taken on December 6, 2011, show disagreement with regard to arbitrability of corporate disputes in Russian state courts. On May 26, 2011 the Constitutional Court of the Russian Federation confirmed arbitrability of real estate disputes. The decision on arbitrability of corporate disputes is yet to come.

On July 4, 2011, the 9th Commercial Appeals Court (the “Appeals Court”) vacated the ruling of the Moscow City Commercial Court (the “City Court”) dated April 26, 2011 in OJSC NLMK v. N.V. Maksimov.

When the dispute was considered in the City Court, OJSC NLMK (“NLMK”) requested to invalidate the share purchase agreement with N.V. Maksimov (“Maksimov”) and to order restitution of the amount paid under the agreement. The City Court dismissed the case based on the Respondent’s motion and article 148.5 of the RF Commercial Procedure Code (the “Commercial Procedure Code”), holding that the parties provided in their contract for the disputes to be resolved by arbitration.

NLMK appealed, alleging that the dispute was non-arbitrable, as it involved public interests and third parties’ rights were not reasonably protected in the proceedings. The Appeals Court vacated the lower court’s ruling for two main reasons, both relating to the fact that the International Commercial Arbitration Court at the RF Chamber of Commerce and Industry (the “ICAC”) lacked jurisdiction over the dispute.

First, despite the fact that the parties provided under article 17 of the Share Purchase Agreement to refer all disputes arising out of their Agreement, including those regarding the Agreement’s invalidity for resolution to the ICAC, NLMK argued that article 1.2 of the RF Law on International Commercial Arbitration establishes further requirements that had to be satisfied for a dispute to be referred to international commercial arbitration. That rule of Russian law provides that only issues arising from contractual or other civil law relationships in the course of foreign trade and other forms of international economic relations may be subjected to international commercial arbitration.

In the view of the Appeals Court, the record on appeal did not indicate that the dispute arose in the course of foreign trade or other forms of international economic relations, or that one of the parties was situated abroad or was an enterprise with foreign investment. That had to be established, and since it was not, the Appeals Court disagreed with the lower court on this issue.

Second, NLMK also argued that the dispute was non-arbitrable in light of domestic legislation which provided exclusive competence over commercial disputes to state commercial (arbitrazh) courts. In this, the Appeals Court referred to articles 225.1.3 and 33.1.2 of the Commercial Procedure Code in finding that under the existing legislation corporate disputes could not be referred to arbitration for resolution.

An article published previously on this blog in July 2011 addressed another case involving the same parties and the same share purchase agreement. There on June 21, 2011 the court of the first instance annulled the ICAC award and non-arbitrability of corporate disputes was one of the grounds of the annulment. Interestingly, in the current case the opposite position was taken by judges of the same City Court: the parties were initially referred to arbitration even though the corporate nature of the matter in the case was obvious.

As of late there has been much discussion regarding arbitrability in general, specifically of another matter – real estate disputes. That was until the RF Constitutional Court (the “Constitutional Court”) rendered a decision in that respect on May 26, 2011. The Constitutional Court first considered that the right to refer a dispute for resolution either to a state court (of general jurisdiction or commercial one) in accordance with its competence or to arbitration did not constitute violation of constitutional guarantees but instead broadened the possibilities of dispute resolution in civil turnover.

Furthermore, the Constitutional Court stated that the provisions of the Commercial Procedure Code under which disputes regarding real estate located in the Russian Federation belonged to the “exclusive” jurisdiction of state commercial courts still could not bar arbitration because the purpose of those provisions was merely to distinguish the competence of state courts of different countries in resolving cross-border disputes. The Constitutional Court concluded that the relevant provisions of Russian legislation constitutionally permitted resolution of real estate disputes by arbitration.

Similar reasoning might therefore apply to corporate disputes by analogy. If the “exclusive” jurisdiction for state courts over real estate matters is no bar to the arbitrability of such disputes, then neither should the “exclusive” jurisdiction over corporate matters be a bar to their arbitrability. Unfortunately, Maksimov’s request for assessment of the arbitrability of corporate disputes filed on July 19, 2011 with the Constitutional Court was dismissed on technical grounds.

Nevertheless, the arbitrability of OJSC NLMK v. N.V. Maksimov dispute has not been finally decided upon. On December 6, 2011 the Federal Commercial Court of the Moscow region (the “Federal Court”) vacated both abovementioned rulings, of the City Court of April 26, 2011 and of the Appeals Court of July 4, 2011, further to Maksimov’s appeal, and remanded the case for a new trial to the same City Court.

Among other raised points the Federal Court mentioned that the “exclusive” jurisdiction under article 38 of the Commercial Procedure Code distinguished the competence of state commercial courts within their own system as provided in article 3 of the Federal Constitutional Law “On Commercial Courts of the Russian Federation”. At the same time, article 33 of the Commercial Procedure Code contains a list of cases which are under “special” jurisdiction of state commercial courts. One of the questions that the City Court will have to analyze in a new trial, as per the Federal Court, is whether the “special” jurisdiction of state commercial courts over corporate disputes as set in article 33.1.2 of the Commercial Procedure Code excludes the possibility of resolution of such disputes by arbitration.

It seems that another decision of the Constitutional Court might be needed in order to put an end to the existing inconsistency in interpretation of arbitrability of corporate disputes.

Dilyara Nigmatullina
Association for International Arbitration, Brussels