Interim measures in support of foreign arbitration
Unilateral option dispute resolution clauses


On July 9 2013 the presidium of the Supreme Arbitrazh Court issued Informational Letter 158 – the Practice Review on Certain Questions Relating to the Resolution of Disputes Involving Foreign Parties by the Arbitrazh Courts.(1) Although the practice review is largely dedicated to cross-border litigation questions, it is of interest to arbitration practitioners in two respects. First, it sets out the principles of granting interim measures in support of foreign arbitral proceedings; second, it leaves open the question of whether unilateral option dispute resolution clauses are valid in Russia.

Interim measures in support of foreign arbitration

In 2010 the presidium of the Supreme Arbitrazh Court ruled in Edimax Ltd v SP Chigirinsky(2) that arbitrazh courts have general powers to grant interim measures in support of foreign arbitral proceedings.

In 2009 Edimax commenced arbitration against Mr Chigirinsky at the London Court of International Arbitration (LCIA) for payment of over $30 million of the unpaid purchase price of its shares. The claim arose out of the letters of guarantee given by Chigirinsky as security for various legal entities under the share purchase agreements. Edimax sought attachment of certain property in Russia in aid of the LCIA proceedings. The first instance court rejected the Edimax application, stating that Edimax had not established the necessary conditions for granting interim measures. The appellate court reversed the lower court decision and granted the interim measures. The cassation court annulled the appellate court ruling on the basis that the arbitrazh court did not have jurisdiction to grant interim measures. Edimax appealed to the Supreme Arbitrazh Court.

The presidium of the Supreme Arbitrazh Court found in favour of Edimax and ruled that arbitrazh courts may grant interim measures in support of international arbitration proceedings if the matter in dispute is commercial in nature. However, the presidium failed to identify any further conditions for granting interim measures in such a case.

Section 29 of the practice review is essentially based on the Chigirinsky decision and confirms the general powers of Russian arbitrazh courts to grant interim measures at:

  • the place of arbitration;
  • the place of incorporation or residence of the debtor; or
  • the place in which the debtor's property is located.

Section 29 also sets out further conditions to be established in the course of considering the application. The presidium suggested that arbitrazh courts should check the validity of the arbitration agreement as well as the arbitrability of the dispute in question. The presidium further recommended that the court should take into account whether an arbitral tribunal had ordered interim measures and whether the respondent had complied voluntarily with such interim measures.

The practice review's endorsement of arbitrazh courts' powers to grant interim measures in aid of arbitral proceedings should be welcomed. Although practice reviews are considered guidelines, rather than binding rules, in practice the lower courts follow the interpretation of legislative provisions provided in such reviews.

Presumably, interim measures may be ordered before the relevant arbitral proceedings are initiated, but in such case the applicant would have to provide confirmation within the time ordered by the court that it has commenced the arbitral proceedings. It is likely that in this case the court would also pay greater attention to the question of the validity of the arbitration clause. However, if the arbitration is ongoing, the court may not go into such detail regarding the validity of the arbitration agreement. Nevertheless, the presidium failed to indentify the scope of review of the validity of an arbitration clause, and Russian courts may be unwilling to limit themselves to prima facie review.

Greater problems are likely to arise due to the requirement to consider the arbitrability of the dispute. The question of which disputes can be resolved by arbitration is still unsettled. For example, corporate disputes (which may include disputes for payment of share prices) have been considered non-arbitrable by some courts. Therefore, the arbitrability of the dispute from the perspective of Russian law may in fact become the greatest limitation to interim measures in support of foreign arbitral proceedings in Russia.

Unilateral option dispute resolution clauses

In June 2012 the presidium of the Supreme Arbitrazh Court issued its resolution in the infamous Russian Telephone Company v Sony Ericsson Communications Rus case, whereby the unilateral option choice of court clause was invalidated.(3) More than one year later, it its still unclear whether the Sony Ericsson principle is commonly applicable or fact-specific.

Sony Ericsson involved a master agreement between the parties for sale and purchase of mobile phones and accessories, which contained a unilateral option dispute resolution clause for the benefit of the seller (Sony Ericsson). Pursuant to the agreement, the dispute should have been referred to arbitration under the International Chamber of Commerce rules in London, but the seller was entitled to commence proceedings for recovery of the unpaid purchase price in Russian arbitrazh courts. The buyer in breach of the dispute resolution clause (RTC) commenced proceedings in the Moscow Arbitrazh Court seeking delivery of substitute mobile phones. Sony Ericsson objected with reference to the arbitration agreement and the objection was sustained by the lower courts.

RTC appealed to the Supreme Arbitrazh Court. The presidium found that the unilateral option dispute resolution clause gave one party unfair advantage over the other, and was thus contrary to the equality of arms principle (both in its substantive and procedural incarnations).

The case attracted much attention from arbitration specialists and the decision was widely criticised. Some judges privately admitted that the case was decided on facts and the decision was taken by a split presidium. One Supreme Arbitrazh Court justice hinted that the case lacked a foreign element, as both parties were incorporated in Russia.

Nevertheless, the draft practice review contained a section dealing with unilateral option dispute resolution clauses. The relevant part of this section read: "[O]n the basis of general principles of protection of civil rights, a dispute resolution agreement cannot grant to one party only a right to refer disputes to a competent state court, while depriving the other party of such right." Therefore, the draft practice review concluded that each of the parties was entitled to commence arbitration or litigation in a designated state court pursuant to the dispute resolution clause. This section was intended to confirm the validity of the arbitration clause within the unilateral option dispute resolution agreement, but the wording was criticised for being overly broad and general. In the end, this section was not included in the final text of the practice review.

The fact that the Sony Ericsson principle was not included in the final version of the practice review may suggest that the question of validity of unilateral option dispute resolution clauses in Russia remains unsettled. Therefore, there is still room for argument to distinguish the facts of Sony Ericsson from other situations in which a unilateral option dispute resolution clause may be said to be valid. Nevertheless, it is uncertain whether the same principle will be applied in other cases. Presumably, the Sony Ericsson principle may be inapplicable in enforcement cases where the Russian courts are called on only to enforce a foreign award or a decision of an arbitral tribunal or foreign court whose jurisdiction was based on the unilateral option dispute resolution clause.

Nevertheless, caution should be exercised in cases that have greater connections with Russia – for example, where the parties agree that one of them would have the option to commence proceedings before Russian courts.

For further information on this topic please contact Andrey Panov at Norton Rose Fulbright (Central Europe) LLP by telephone (+7 499 924 5101), fax (+7 499 924 5102) or email (andrey.panov@nortonrosefulbright.com).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

Endnotes

(1) Available in Russian at www.arbitr.ru/as/pract/vas_info_letter/89295.html.

(2) A partial translation of the ruling of the panel of Supreme Arbitrazh Court judges that granted leave for revision of the lower courts' decisions by the presidium of the Supreme Arbtirazh Court is available at www.arbitrations.ru/userfiles/file/Case%20Law/Enforcement/Edimax%20v%20Chigrinsky%20translation%20Zykov.pdf. Essentially, the resolution of the presidium of the Supreme Arbitrazh Court used the same reasoning.

(3) The English translation of the resolution is available at www.arbitrations.ru/userfiles/file/Case%20Law/Enforcement/Sony_Ericsson_Russian_Telephone_Company_Supreme
_Court%20eng.pdf
.