The Supreme Court and the constitutional court have held that public procurement disputes are arbitrable

January 23, 2019

The Parties to the dispute: 

PJSC Mosteplosetstroi is the plaintiff;

PJSC Mosinzhproekt is the defendant.

The Parties' representatives at the arbitration court:

no information

The Arbitrators:

no information

The Parties' representatives at the state court:

PJSC Mosteplosetstroi – A.V. Kashirin, D.A. Kharlamov, A.A. Shiryaev;

PJSC Mosinzhproekt – N.M. Aleksandrov.

The judges issuing the judgment at the state court: 

T.V. Zavyalova (Presiding Judge), N.V. Pavlova, D.V. Tutina.

On July 19, 2018 the decision of the Panel for Economic Disputes of the Supreme Court confirmed the possibility of transferring disputes involving public procurement to arbitration courts.[1]As a result of its review of the case in the suit filed by PJSC Mosteplosetstroi against PJSC Mosinzhproekt, the court upheld the judgment of the court of first instance and the decision of the court of appeal regarding the equality of the parties to state and municipal public procurement contracts, and it stated that the freedom of contract applies to their relations.

In 2013, the two joint-stock companies registered in Moscow entered into a general contracting agreement where one of the provisions stipulated that all disputes arising from the agreement be settled at the Arbitration Court of Construction Organizations of the City under the Autonomous Non-Commercial Organization Center for Legal Support of City Construction Organizations. Mosinzhproekt failed to perform its obligations properly, and therefore Mosteplosetstroi filed a claim with the arbitration court which granted an award in favor of the plaintiff in 2016. Mosinzhproekt failed to comply with the award of the arbitration court voluntarily, so the creditor filed a suit with the state court to recognize and enforce the award.

The court of first instance adopted a judgment and the court of appeal adopted a decision granting the enforcement of the arbitral award. Mosinzhproekt filed a cassation appeal with the Panel for Economic Disputes of the Supreme Court of the RF, in which it referred to the special nature of the relationship between the parties, as well as to the special personal law status of the parties to the legal relations. One hundred percent of the shares of Mosinzhproekt, who acted as the customer under the contract, are owned by the City of Moscow. Therefore, according to Federal Law No. 223 regarding public procurement in Russia, the company's transactions are subject to the rules applicable to state and municipal public procurement, and in the opinion of the appellant in the cassation appeal, disputes arising from such agreements cannot be transferred to an arbitration court.

When reviewing the case, the Panel for Economic Disputes of the Supreme Court found ambiguity in the legal regulation of the arbitrability of public procurement disputes, so it suspended the proceedings in the case and made a request to the Constitutional Court of the Russian Federation to review the constitutionality of certain provisions of the Code of Commercial (Arbitrazh) Procedure, the aforementioned Federal Law No. 233-FZ and Federal Law No. 382-FZ “On Arbitration in the Russian Federation.” In its ruling, the Constitutional Court[2]emphasized the civil-law nature of the relationships arising from state and municipal public procurement as well as the fact that such they are fully subject to the principles of the equality of the subjects of civil-law relations and to the freedom of contract. When concluding state procurement agreements, the subjects of law who are regulated by Federal Law No. 223-FZ do not act as public authorities but as equal subjects of civil-law transactions, and thus they acquire all the corresponding rights and obligations. The possibility of concluding an agreement on transferring a dispute to an arbitration court is an integral part of the principle of freedom of contract, therefore, the parties to a state or municipal public procurement agreement are entitled to it.

Based upon the conclusions made by the Constitutional Court, the Panel for Economic Disputes of the Supreme Court of Russia decided that the arbitral award must be enforced. 

Valeria Pchelintseva

[1]Ruling of the Supreme Court of the Russian Federation of July 19, 2018 No. 306-ЭС16-19550 in case No. A55-25483/2015.

[2]Ruling of the Constitutional Court of the Russian Federation of April 12, 2018 No. 865-О "Regarding the Request of the Judicial Panel for Economic Disputes of the Supreme Court of the Russian Federation to Verify the Constitutionality of the Provisions of the Code of Arbitration Procedure of the Russian Federation, as well as the Federal Laws" On the Procurement of Goods, Works, Services by Certain Types of Legal Entities ," "On Arbitration Courts in the Russian Federation" and "On Arbitration (Arbitral Proceedings) in the Russian Federation."