Article II(3) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards requires state courts to respect arbitration agreements and refer parties to arbitration if one of them so requests, unless the court finds that the agreement is:
- null and void;
- inoperative; or
- incapable of being performed.
While the New York Convention is silent on when a party must make the request, national legislation usually fills this gap. From a Russian law perspective, the timing of raising jurisdictional objections before the state courts is of key importance. This was demonstrated once again in Credimundi NVSA member of Credendo group v JSC Southern Kuzbass Coal Company (Case А27-1875/2015).
Article 8(1) of the United Nations Commission on International Trade Law Model Law requires the relevant motion to be made no later than when the objecting party makes its first submission regarding the merits of the case. This article is reproduced in the Russian Law on International Commercial Arbitration.
Article 148(1)(5) of the Arbitrazh Procedural Code, which is relevant in commercial matters, requires that an objection to a state court's jurisdiction be raised no later than the day on which the opposing party's first statement regarding the merits of the case is filed with the arbitrazh first-instance court.
In Russian state court proceedings, a claimant commences an arbitrazh court case by filing a statement of claim, which usually contains the pleadings regarding the merits of the dispute and the relevant evidence. Although the claimant can file further written submissions and evidence during the proceedings, the statement of claim should outline the case in sufficient detail and include the legal arguments. The statement of claim should be sent to the respondent alongside the supporting documents, unless the respondent already possesses such documents. However, in practice, there is no guarantee that the respondent will receive the relevant documents in time, as the Russian postal service is slow and unreliable. If the respondent is a foreign party, delivery of the documents takes even longer, especially as they will often be accompanied by a translation.
In light of the above, a respondent may learn that a claim has been brought against it quite quickly using the electronic system maintained by the arbitrazh courts, but may not know for some time the essence of the case and the evidence that the other party is relying on. However, the respondent can use the case file to obtain copies of all of the documents submitted by the claimant immediately, which is usually a more efficient way of understanding a claim than waiting to see the copies sent by the claimant.
Respondents must submit a statement of defence outlining in sufficient detail their position regarding the claims and the relevant evidence. The statement should be submitted in advance to allow the claimant to review it or by the date specified by the judge. In practice, it is not uncommon for respondents to delay filing their statement of defence and attempt to deal first with procedural motions. However, if a respondent fails to submit its statement of defence in time, the court can hear the dispute on the merits based on the documents already in the case file.
Accordingly, the objections regarding the state court's jurisdiction should in any event be raised no later than the statement of defence.
It is well established in Russian case law that once a party becomes involved in litigation before a Russian court, it can be deemed to have submitted to the jurisdiction of the Russian court and should be estopped from raising any jurisdictional objection.(1)
However, the procedural actions that could lead to this rule being waived are less straightforward. In one case, a party representative who had been present at all of the preliminary hearings, and had even requested the participation of a third party and the production of documents, had raised a jurisdictional objection only during the third hearing. The court considered that, even though the objection had technically been raised before any submission regarding the merits of the case had been made, it was still inadmissible. The court reasoned that to rule otherwise would support the respondent's abuse of its procedural rights, as the respondent had remained passive throughout the proceedings and raised the jurisdictional objections only after the case had commenced.(2) In another case, the court considered that the respondent should be estopped from raising a procedural objection after it had filed a motion to have the case adjourned so that it could:
- study the case file;
- produce evidence of the money transfer under the loan agreement; and
- prepare its statement of defence.(3)
However, if a respondent's actions are purely procedural and imply no declaration of its intention to try the case on its merits before the Russian courts (eg, when the respondent files a motion only to study the case file), it should not be deemed to be estopped from raising a jurisdictional objection.(4) Further, a delay in raising an objection may be justified if, for example, a party was not duly notified of the hearing.(5)
In Credimundi, a claim against a Russian respondent (JSC Southern Kuzbass Coal Company) was filed with the arbitrazh court by Belgium underwriter Credimundi, which had acquired the claim on the basis of subrogation after it had made an insurance payment to Transityre BV Michelin Export Facilities for non-payment of the purchase price of the goods that Transityre supplied to the respondent. The sale and purchase agreement did not contain an arbitration clause, but was subject to the provisions of the cooperation agreement between Transityre and Southern Kuzbass Coal Company, which contained an International Chamber of Commerce arbitration clause.
After the claim was filed by Credimundi, the court scheduled a preliminary hearing. The respondent did not attend the preliminary hearing, but filed a statement of defence beforehand, in which it objected to the claim with reference to certain provisions of the Russian civil code and the sale and purchase contract (but not the cooperation agreement). During the main hearing, the respondent's counsel raised the jurisdictional objections with reference to the arbitration clause contained in the cooperation agreement. The first-instance court allowed the objection and terminated the proceedings. It concluded that the objection had been made in a timely manner, as it had preceded consideration of the case on the merits, which – according to the court – was to start only during the main hearing.(6)
The first-instance decision was upheld by the appellate court.(7) However, the Cassation Court disagreed with the lower courts' assessment and ordered that the case be heard on the merits by the first-instance court. The Cassation Court highlighted that the applicable legislation requires that any objections be made before making the first submission on the merits of the claim. As the respondent had expressed its position regarding the claim in its statement of defence, in which it had failed to refer to the arbitration clause, it was estopped from raising this objection at a later stage. Accordingly, the courts were wrong in terminating the proceedings, as the respondent should have been deemed to have submitted to the jurisdiction of the Russian courts.(8)
The Credimundi judgment once again shows that respondents should raise an objection as early as possible and, in any event, before clarifying their position regarding the merits of a claim. Respondents do not usually initially realise that an arbitration clause in a cooperation agreement will be binding on the insurer or applicable to the sales agreement. However, this shows the importance of early investigation of potential jurisdictional objections alongside substantive defences. While the availability of such jurisdictional objections may require closer investigation in some situations, which might take time, it is advisable for a respondent to delay filing a statement of defence or any objections to the merits of a claim until it has clarified its position regarding the applicability of the relevant arbitration clause. However, it is important for a respondent not to look abusive in delaying its jurisdictional objection and statement of defence.
Parties can always waive an arbitration clause and submit to the jurisdiction of the Russian courts (or any other state court) if they find it more convenient and efficient under the circumstances. That said, Credimundi is somewhat atypical, as usually a Russian party, rather than a foreign one, will file a claim with a Russian court in disregard of an arbitration clause. Nonetheless, Credimundi may not have known the cooperation agreement's contents and, given the amount in dispute, this was probably the right thing for it to do, as litigation in Russian courts would have been quicker and cheaper than an arbitration coupled with enforcement of the award in Russia. As for the jurisdictional objection raised by Southern Kuzbass Coal Company, it was most likely a strategic attempt to delay the enforcement of the debt, rather than a genuine desire to arbitrate. Nonetheless, if the objection had been made in a timely fashion, Credimundi would have had to arbitrate the matter despite the potential inconveniences.
For further information on this topic please contact Andrey Panov at Norton Rose Fulbright (Central Europe) LLP by telephone (+7 499 924 5101) or email ([email protected]). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.
(1) Presidium of the Supreme Arbitrazh Court resolution, April 23 2012, 1649/13 in Case А54-5995/2009; Paragraph 7 of the Informational Letter of the Presidium of the Supreme Arbitrazh Court, July 9 2013, 158.
(2) Urals Circuit Arbitrazh Court, August 19 2014, Resolution Ф09-5666/14 in Case А60-5127/2014.
(3) Urals Circuit Arbtirazh Court, August 20 2014, Resolution Ф09-5667/14 in Case А60-9091/2014.
(4) East-Siberian Circuit Federal Arbtirazh Court, October 2 2012, Case AЗЗ-1261/2012.
(5) Northwestern District Federal Arbtirazh Court, April 24 2014, Case А21-1842/2013.
(6) Kemerovo Region Arbitrazh Court, October 5 2015, Case A27-1875/2015.
(7) Seventh Arbitrazh Appellate Court, January 12 2016, Case A27-1875/2015.
(8) West-Siberian District Arbitrazh Court, April 28 2016, Case A27-1875/2015.