On 16 August 2011, the Presidium of the Supreme Arbitrazh Court (the "SAC") published on its website Resolution No. 1787/11, dated 14 June 2011, on recognising and enforcing a foreign arbitral award issued by an international commercial arbitral tribunal (the "Resolution"). The Resolution is fundamental for the Russian court practice of recognising and enforcing international commercial arbitral tribunals' awards.
Facts of the case
A foreign supplier and a Russian buyer signed agreements for the supply of goods to Russia: a distribution agreement and a supply agreement. Additionally, the supplier, the buyer and its Russian affiliate entered into a trilateral surety agreement, with the latter acting as a surety for the buyer.
The documents signed provided for different dispute resolution procedures:
- pursuant to the supply agreement, the parties were to refer the dispute to an "arbitration court of the seller's country"; and
- pursuant to the distribution agreement and the surety agreement, the arbitration proceedings were to be "in accordance with the Rules of Arbitration and Conciliation of the International Arbitral Centre of the Austrian Federal Economic Chamber, Vienna (Vienna Rules)".
Following the buyer's failure to pay for the goods supplied, the supplier filed a claim against the buyer and the surety with an arbitration tribunal. The arbitral tribunal issued an award whereby both respondents were ordered to pay the outstanding amount due, plus the interest accrued and legal costs.
However, the supplier encountered certain difficulties in having the award enforced in Russia. The Arbitrazh Court of Moscow considered that the distribution agreement was irrelevant to the matter, as the dispute arose out of the supply agreement only. Accordingly, the dispute with the buyer should be resolved pursuant to the supply agreement provision stipulating an "arbitration court of the seller's country", rather than the arbitration clause contained in the distribution agreement. The Arbitrazh Court of Moscow also stated that the relevant arbitration provision wording did not allow a conclusion that a dispute arising out of the supply agreement should be considered by an arbitral tribunal under the Vienna Rules. Therefore, the arbitral tribunal in question had no jurisdiction over the buyer of the goods.
For the same reason, the Russian court questioned the jurisdiction of the arbitral tribunal over the surety. In the court's opinion, as the arbitral tribunal had no authority regarding the first respondent (the buyer), it, therefore, had automatically lost the right to consider the claim against the second respondent (the surety). In addition, the court backed its position by making reference to the surety agreement being invalid.
The court of cassation agreed with the first instance arbitrazh court's conclusions on the discrepancy between the arbitration clauses contained in various documents and on the invalidity of the surety agreement.
It should be noted that the difficulties encountered by the seller were quite predictable. In practice, arbitration proceedings involving several respondents, where there is no single arbitration agreement signed by all the parties to the dispute, can raise issues. Accordingly, it was difficult to have such an arbitral award recognised in Russia.
The SAC's position
The SAC has set aside the adopted judicial acts and recognised the arbitral award.
The SAC's position is reasoned as follows:
Considering the supplier's claim, the foreign arbitral tribunal assessed the interrelationship between the arbitration clauses contained in the various documents, and, on this basis, decided that it had jurisdiction. This decision was not challenged in the Austrian state courts.
In this respect, the Russian courts were not authorised to assess whether the foreign arbitral tribunal had jurisdiction and whether the surety agreement was valid, as it would lead to a review of the arbitral award on merits that conflict with the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).
In our view, the adopted Resolution will have a positive effect on Russian court practice in recognising and enforcing international commercial arbitral tribunals' awards.
First, this materially reduces the possibility to refuse the recognition of foreign arbitral awards in Russia on the basis of invalidity of the arbitration agreement.
Second, in this case, the SAC has confirmed its positive attitude to multi-party arbitration proceedings. Such arbitration proceedings are common abroad, however, to date, the chances have been low for the successful recognition of awards issued (in cases where there was no single arbitration agreement between all the parties to a dispute) as the result of such arbitrations.
Third, the SAC's position not only sets a unified approach for the arbitrazh courts' recognition of awards in the future, but also allows the revision of adopted rulings and resolutions due to newly discovered circumstances.