Friday, March 2, 2012

Russia’s top commercial court holds corporate disputes are non-arbitrable

The Supreme Commercial Court of Russia 

On 30 January 2012, the Supreme Commercial Court of the Russian Federation upheld the decisions of the lower courts in Novolipetsk Steel v Maximov (case No. A40-35844/2011-69-311) that corporate disputes are not arbitrable in Russia.

Trial court set aside the arbitration award in the US$300 million sale of shares case because of defects in the composition of the arbitral tribunal and because the defendant claimed that corporate disputes are not arbitrable. All lower courts have agreed with these conclusions and now Russia’s top commercial court has upheld those findings.

In reaching the non-arbitrability conclusion, the courts have taken an exceptionally narrow approach to Sections 33 and 225.1 of the Russian Code of Commercial Procedure. These sections put corporate disputes within the “specific jurisdiction” of commercial courts. Russia’s commercial courts are set up separately from the system of the courts of general jurisdiction, so the “specific jurisdiction” clauses basically outline the types of cases that commercial courts can handle. Prior to the Novolipetsk case, specific corporate jurisdiction was not understood to be exclusive to the commercial courts. In other words, both commercial courts and arbitrators heard corporate disputes.

The Supreme Commercial Court did not provide much analysis on the non-arbitrability issue. The Court’s docket currently has some similar cases that deal with arbitrability of corporate disputes. After those cases are decided, it will become more clear whether Novolipetsk has strong precedential value or the Court simply wanted to “send a message” to the many corrupt arbitral panels to clean up their act or be out of business soon.