In its Ruling No VAS-15384/11, dated 30 January 2012 (the "Ruling") the Supreme Arbitrazh Court of the Russian Federation declared that corporate disputes cannot be referred to arbitration. This Ruling will very seriously impact on transactions with shares in Russian companies. Notably, one of three judges who signed the Ruling is judge Tatiana Neshataeva who is known for her negative attitude to international commercial arbitration.
Background to the dispute
The Ruling was issued following Mr Nikolay Maximov’s appeal of lower courts' decisions to set aside an award granted in his favour against JSC Novolipetsk Metallurgic Plant ("NLMK") by International Commercial Arbitration Court at the RF Chamber of Commerce and Industry ("ICAC").
Mr Maximov filed a claim with ICAC against NLMK seeking payment of RUR 9,5 billion under an SPA for the sale of JSC "Maxi-Group" shares transferred to NLMK. The Tribunal confirmed jurisdiction and granted an award ordering payment to Mr Maximov.
Pursuant to an application filed by NLMK, the award was set aside by the Moscow Arbitrazh Court. Its decision was further upheld at the cassation level and by the Supreme Arbitrazh Court which ruled that there were no grounds to reconsider the case and dismissed the appeal.
Among other arguments, the Supreme Arbitrazh Court stated that the lower courts had correctly agreed that a dispute arising out of an agreement identified by the courts as aimed at a transfer of shares, cannot be resolved by arbitration. This conclusion was based on Articles 33 and 225.1 of the Arbitrazh Procedure Code ("APC").
Comments
Article 33 of the APC establishes the "special jurisdiction" of the arbitrazh courts which includes jurisdiction over insolvency, corporate, depositary, business reputation, and other categories of economic disputes. The historic purpose of Article 33 was to establish the "special jurisdiction" of the arbitrazh courts over certain commercial matters involving individuals which, on a strict reading, due to such involvement, would normally have fallen under the jurisdiction of the courts of general jurisdiction.
Article 225.1 was adopted in 2009 and introduced rules relating to the specifics of considering "corporate disputes". This category was widely defined and included disputes over title to shares, invalidation of a company's transactions, claims against management for breach of fiduciary duties, and challenges to corporate resolutions, etc. A rule was introduced (in Article 38) that all corporate disputes fall within the "exclusive jurisdiction" of the arbitrazh court at the location of the company in question. Those changes were designed to consolidate all corporate disputes under one umbrella and in one set of rules to put an end to shareholders' claims being brought in different courts across the country resulting in contradictory judgments.
Although corporate disputes have been within the "special" and "exclusive" jurisdiction of the arbitrazh courts since 2009, this was generally not believed to mean that such disputes could not be subject to arbitration. The prevailing view was that any commercial dispute is capable of being referred to arbitration unless expressly prohibited.
Having ruled that corporate disputes are not arbitrable, the Ruling sadly represents a step back for arbitration in Russia, as it excludes an important and wide category of disputes from arbitration.
The same logic has been used by arbitrazh courts for years in relation to Article 248 of the APC (which includes, inter alia, real estate disputes), to declare that disputes under that Article were not arbitrable. However, the Constitutional Court confirmed in 2011 that Article 248 should not be deemed to delineate the jurisdiction of arbitral tribunals. That article, in the opinion of the Constitutional Court, only stipulates the jurisdictional boundaries between Russian and foreign state courts in international disputes. Its purpose was not to define the arbitrability of various matters.
Impact on business
If a corporate dispute is not capable of being resolved by arbitration the practical consequences for such disputes arising from agreements containing arbitration clauses could be the following:
- A claim can be brought in a Russian arbitrazh court regardless of the arbitration clause and the court would not send the parties to arbitration.
- Arbitral awards rendered in corporate disputes will not be enforceable in Russia.
- No interim measures will be available from a Russian court in aid of arbitral proceedings if they relate to a corporate dispute.
This will affect agreements made between direct shareholders of Russian entities which contain arbitration clauses. However, the Ruling will be unlikely to have an impact on shareholders' agreements made at the level of a holding company, e.g. where the Russian company is entirely owned by one Cyprus company which is in turn owned by two BVI companies which have agreed to arbitration among themselves.
In addition, not only disputes arising from shareholders' agreements but also those arising from contracts for the sale and purchase of shares in Russian companies would fall within the special and exclusive jurisdiction of Russian arbitrazh courts (which was the case in Mr Maximov's dispute with NLMK). Arbitral awards rendered in disputes relating to such contracts (and other issues which may be deemed to be "corporate") will probably be unenforceable in Russia. This difficulty could potentially be avoided if the enforcement of the award is not intended to occur in Russia.
Given that the question of arbitrability has never been considered by the Presidium of the Supreme Arbitrazh Court there is still hope that this question may be raised again in future cases and resolved differently. However, the Ruling will have a negative effect on further court practice until that time.
If you have any queries in relation to this issue, please contact Vladimir Melnikow in Moscow or Matthew Weiniger in London