The state arbitrazh (commercial) court has refused to enforce an arbitral award with regard to a major transaction of a Russian company
The Parties of the dispute:
PJSC Alchevsky Metallurgical Complex is the plaintiff;
LLC Russian Mining and Mettalurgy is the defendant.
The Parties' representatives at the arbitration court:
T.G. Zakharchenko (sole arbitrator).
The Parties' representatives at the state court:
PJSC Alchevsky Metallurgical Complex – no representative appeared at court.
LLC Russian Mining and Mettalurgy – E.V. Izyumov.
The Judge(s) issuing the judgment at the state court:
On July 18, 2018 the Ukrainian PJSC Alchevsky Metallurgical Complex filed a cassation appeal against the judgment of the State Arbitrazh (Commercial) Court of the City of Moscow dated July 6th, 2018
in the suit against the Russian LLC Russian Mining and Metallurgical Company amounting to nearly 39 million rubles. In the judgment under appeal, the Arbitrazh Court refused to recognize and enforce the award by the sole arbitrator of the International Commercial Arbitration Court under the International Chamber of Commerce and Industry of Ukraine (ICAC under the CCI of Ukraine), which provided for the recovery of the debt for the major transaction and the arbitral fee from the Russian company in favor of the metallurgical complex.
The Ukrainian PJSC and the Russian LLC concluded a supply agreement in 2013. The agreement provided that all disputes arising from it be settled by a sole arbitrator at the ICAC at the CCI of Ukraine, and that the agreement is governed by the material law of Ukraine. On April 24, 2015 this arbitration court granted the claims of the Alchevsky Metallurgical Complex, issuing an award stating that the debt under the supply agreement be recovered from the Russian LLC. Russian Mining and Metallurgy failed to comply with the arbitration court award, which served as the grounds for PJSC Alchevsky Metallurgical Complex to file a suit with the Russian state commercial (arbitrazh) court to recognize and enforce the award of the arbitration court.
However, the Arbitrazh Court of the City of Moscow concluded that enforcement of the award of the ICAC sole arbitrator would contradict the public order of the Russian Federation, since when considering the case, the arbitrator failed to consider rules of Russian limited liability company legislation as well as the provisions of the agreement concluded by the parties in regard to applicable law.
The Russian arbitrazh court found that the supply contract was one of a series of linked transactions, and their total amount comes to more than 40% of the assets of the Russian LLC. For this reason, the agreement was subject to approval by the company's general meeting of members as a “major transaction ” under the Russian limited liability company law. However, no evidence of the approval of the agreement between the Ukrainian company and the Russian company was presented to the court. The award of the ICAC sole arbitrator was made with no regard to the requirements of Russian law, and it violates the public order of the Russian Federation.
In its ruling, the Russian state court also indicated that when considering the case, the arbitrator of the arbitration court applied the rules of the Vienna Convention on Contracts for the International Sale of Goods of 1980, whereas the parties had agreed that Ukrainian material law applied for the resolution of a dispute. Thus the rules of international treaties should not have been directly applied when the sole arbitrator of the ICAC at the ICC of Ukraine was resolving a dispute. The Arbitrazh Court of the City of Moscow concluded that the failure to comply with the provisions of the agreement contradicted with the public order of the Russian Federation.
Additionally, the Arbitrazh Court of the City of Moscow noted that the arbitration court arbitrator did not take into consideration the negative consequences of the major transaction for the sole owner of the Russian LLC.
Ruling of the Arbitrazh Court of the City of Moscow of July 6, 2018 in case No. A40-77102/18-63-545.