State courts must conduct an examination regarding compliance with public order at their own initiative
The Parties of the dispute:
PJSC Pharmstandard is the plaintiff;
JSC Grindex is the defendant.
The Parties' representatives at the arbitration court:
no information
The Arbitrators:
O.N. Zimenkova (Presiding Arbitrator), A.V. Asoskov, A.P. Sergeev.
The Parties' representatives at the state court:
PJSC Pharmstandard: V.V. Karpov, B.A. Tatarintsev.
JSC Grindex: A.A. Popovich, D.V. Shomesov.
LLC Grindex Rus: A.V. Brutsky.
The judges issuing the judgment at the state court:
N.V. Pavlova (Presiding Judge), M.K. Antonova, D.V. Tutina.
On July 13, 2018 the Supreme Court of the Russian Federation decided to remit for retrial the case regarding enforcement of the award of the International Commercial Arbitration Court of the Chamber of Commerce and Industry of Russia (the ICAC at the CCI of Russia) in the claim of Russian PJSC Pharmstandard against Latvian company Grindex.[1]The court dismissed the judgment of the court of first instance and the decision of the court of cassation, referring to the requirement to examine whether arbitration awards comply with the public order of the Russian Federation, regardless of the respective arguments of the parties.
In May 2017 the panel of arbitrators of the ICAC at the CCI of the Russian Federation issued a decision in favor of Pharmstandard, granting an award of 53 million rubles in the dispute arising out of the supply contract concluded between the companies. The disputes regarding the contract were subject to consideration by the ICAC arbitrators as stipulated by the agreement of the parties. Grindex failed to comply with the arbitration award, and therefore, the Russian PJSC filed a suit with the state court to recognize and enforce the arbitration award. Since JSC Grindex owned a one hundred percent share in the Russian LLC Grindex Rus, the claim was filed with the Commercial (Arbitrazh) Court at the location of the defendant's property. The court of first instance and subsequently the court of cassation granted the claim to issue an enforcement order on the basis of the award of the ICAC at the CCI of Russia.
In January, 2018 JSC Grindex and its Russian subsidiary filed a cassation appeal with the Supreme Court of the Russian Federation. The appellants referred to the fact that enforcement of the arbitral award would contradict the public order of the Russian Federation, more specifically, that the court judgment would contradict the principles of justice, proportionality and lawful force of a judicial act. Grindex and Grindex Rus argued that there was an ICAC award that had been previously issued regarding the same dispute, as well as state courts judgments[2]. Pharmstandard’s re-filing of the suit serves as evidence of the company's bad faith and it also violates the principles of legal certainty and the principle of the finality and incontestability of a court judgment. Additionally, the appellants stated that Farmstadard's claims were based upon its right to a discount in accordance with the contract concluded between the companies, however, the Russian PJSC failed to perform its obligations under the agreement in good faith and referring to this, it demanded that a discount be provided. This argument of Grindex is also confirmed and mentioned by the aforementioned state courts judgments in the suit of the subsidiary company LLC Grindex Rus.
The cassation appeal also states that the award of the arbitration court should have been enforced through the state court of Latvia, since the location of the debtor was the Latvian Republic.
After reviewing the case, the Supreme Court expressed its disagreement with the arguments of JSC Grindex and LLC Grindex Rus regarding the jurisdiction of the suit for the enforcement of the award issued by the panel of arbitrators of the ICAC at the ICC of the RF, considering that it was permissible to file a claim at the location of the defendant's property. At the same time, the court concluded that the lower courts should have examined on their own initiation the possibility of dismissing the enforcement of the arbitral award on the basis of its failure to comply with the Russian public order (which the courts had failed to do). Therefore, the Supreme Court remitted the case for retrial to the Arbitrazh Court of the City of Moscow.
Valeria Pchelintseva
[1]Ruling of the Supreme Court of the Russian Federation of July 13, 2018 No. 305-ЭС18-476 in case No. A40-118786/2017.
[2]Judgments of the Arbitrazh Court of the City of Moscow of August 12, 2016, Decisions of the Ninth Arbitration Court of Appeal of October 28, 2016 and the Arbitrazh Court of the Moscow District of February 9, 2017 in case No. A40-45320/2016 in the suit of LLC Grindex Rus against PJSC Pharmstandard.