Russia Refuses to Recognise an ICC Award due to "Imprecise" Nature of the Parties' Arbitration Clause

The Supreme Court of the Russian Federation recently affirmed the judgments of two lower courts refusing to recognise an ICC Award on the basis that the arbitration clause in the Parties' agreement only referred to the Rules of Arbitration of the ICC and not a specific arbitration institution.

This note reviews the Russian court judgment and offers guidance on the steps parties can take to increase the chances of arbitration awards being recognised in Russia.

Dredging and Maritime Management SA (the "Company"), a Luxembourg company, applied to the Commercial Court of Moscow to enforce an ICC award dated 15.09.2014 against Inzhtransstroy JSC, a Russian company, which at the time of issue of the award was in the middle of insolvency proceedings.

On 08 February 2018 the Commercial Court of Moscow issued a judgment¹, subsequently upheld by the Commercial Court of Moscow Circuit (cassation court) on 25 April 2018 and confirmed by the Supreme Court of the RF on 26 September 2018, in which the court refused to recognise and enforce the ICC award on the following grounds:

1. Recognition and enforcement of the award outside the insolvency proceedings was against Russian public order as it prejudiced the other creditors of Inzhtransstroy;
2. The arbitration clause contained in the parties' agreement was invalid as it did not specify the body competent to resolve the disputes between the parties.

It is not unusual for Russian courts to refuse to enforce foreign judgments on the grounds of insolvency of the respondent², and this ground in itself would have been sufficient to dismiss the case. However, in this instance the court also considered and eventually agreed with Inzhtransstroy's objection that the International Court of Arbitration lacked jurisdiction to settle the dispute because the arbitration clause contained in the parties' agreement was not specific enough in its reference to the International Court of Arbitration.

The arbitration clause in question read as follows:

"…any dispute not resolved amicably shall be finally settled by international arbitration. Unless agreed otherwise by the Parties, the dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce…"

The parties did not, as many commentators have suggested, use the standard arbitration clause recommended by the ICC, although the wording they used was very similar, and this was one of the points the Commercial Court of Moscow specifically picked on, stating:

"Further, the official website of the International Chamber of Commerce (https://iccwbo.org/dispute-resolution-services/arbitration/arbitration-clause/) contains a recommendation that parties wishing to refer to the ICC Arbitration in their contracts should use the standard clause: "All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules".

The website also states that "When adapting the clause, care must be taken to avoid any risk of ambiguity. Unclear wording in the clause will cause uncertainty and delay and can hinder or even compromise the dispute resolution process."

In criticising the wording used by the parties the court stated that in order for an arbitration clause to be enforceable the parties must:

"state the name of the institution to which the dispute will be submitted, and, as well as stating the name of the institution … the parties must specify as precisely as possible the identifying characteristics of such institution, stating the name of the institution in "broad" terms is unacceptable".

The court concluded that the Agreement lacked "direct and written consent of the parties to submit all disputes to the ICC International Court of Arbitration", that mere reference to "international arbitration" was too ambiguous to confer jurisdiction on the International Court of Arbitration and that specification in the arbitration clause of "international arbitration under the Rules of Arbitration of the International Chamber of Commerce does not in and of itself amount to an agreement by the parties to submit their dispute to a particular arbitration court".

Although article 1(2) of the ICC Rules of Arbitration specifically states that the International Court of Arbitration "is the only body authorized to administer arbitrations under the Rules", this appears not to have been sufficient and Russian courts will likely wish to see all of the details pertaining to the dispute resolution procedure chosen by the parties within the arbitration clause not incorporated into the clause by reference to a particular set of arbitration rules.

Finally, the court noted that a statement in the arbitration clause that the place of arbitration was to be Geneva, Switzerland did not "amount to a direct consent by the parties to the Agreement to submit all their disputes under the Agreement to the ICC International Court of Arbitration."

Following the refusal by the Supreme Court of the Russian Federation on 26 September 2018 to admit the case for review by the Judicial Panel of the Supreme Court and confirmation by the same court that the courts of lower instances had correctly applied all substantive and procedural rules in this case, there were reports in the Russian media³ that on 12 November 2018 the ICC wrote to the Russian Supreme Court to request clarification on the use of the standard arbitration clause. The Supreme Court has not yet issued a response.

In the absence of specific wording approved by the Russian courts, it would be prudent when dealing with Russian counterparties to make all references to arbitration as specific as possible by including precise details of:

• the place of arbitration: e.g. Geneva, Switzerland;
• the name of the institution administering the arbitration: e.g. the ICC International Court of Arbitration;
• rules of arbitration applicable to the dispute: e.g. the Rules of Arbitration of the ICC;
• law applicable to the dispute: e.g. Russian law;
• the number of arbitrators: e.g. sole arbitrator/panel of three;
• language of arbitration: e.g. English;
• any negotiations/mediation in which the parties wish to engage before commencing proceedings.

Taking these steps will help minimise uncertainly and may improve the chances of getting the award recognised and enforced in Russia.

 This article was written by Galina Borshevskaya (Author) and Simon Sloane (Supervising Partner).

 

1. Judgment of the Commercial Court of Moscow in case No. A40-176466/2017 dated 08 February 2018

2. For example, a review of Russian enforcement decisions published in the official Russian Commercial Court Database (https://kad.arbitr.ru/) issued up to 31 October 2018 indicates that insolvency was used as a ground for refusal on five occasions not including the present case, and in 2017 it was used as a ground on four occasions.

3. See, for example: https://www.kommersant.ru/doc/3798973