Arbitration.ru international review April-July 2018

FRANCE

Paris Court of Appeal, 29 May 2018, Federal State Unitary Enterprise Russian Satellite Communications Company v. Orion Satellite Communications and Céleste Financial Holding, no. 17/16484 

By a contract of 4 October 2001, Russian State Enterprise Russian Satellite Communications Company (“RSCC”) sold 20 million shares of a French company Eutelsat to Orion Satellite Communications Inc. (“Orion”). The contract contained a UNCITRAL arbitration clause. On 11 March 2002, Orion sold to Geosat 3 the rights it held in the acquisition of these shares. This purchase agreement contained an LCIA arbitration clause. On 11 July 2002, RSCC, Orion, and Geosat 3 entered into an assignment and pledge agreement for the implementation of the two previous contracts. This tripartite contract contained a clause conferring jurisdiction on the Paris Commercial Court. On 12 April 2010, Orion and Luxemburg Holding Celestial Financial (“HFC”) took ownership of the rights of Geosat 3.

HFC sued RSCC before the Commercial Court for the execution of the shares transfer and payment of various sums. RSCC submitted jurisdictional pleas by invoking the arbitration clauses appearing in the contracts dated 4 October 2001 and 11 March 2002. The Court of Appeal dismissed the objection, considering that no arbitration clause is binding upon RSCC and HFC. In addition, the action brought by HFC against RSCC is intended to enforce the obligations contracted by the latter solely under the terms of the tripartite agreement of 11 July 2002 containing the clause conferring jurisdiction to the Paris Commercial Court.

ENGLAND

High Court of Justice of England and Wales, 24 April 2018, Dreymore Fertilisers Overseas PTE Ltd. v. Eurochem Trading GMBH [2018] EWHC 909 

Dreymoor (“Plaintiff”) is an international trading company based in Singapore and ECTG (“Defendant”) is a production company in the field of phosphate mineral fertiliser production based in Switzerland. Both companies have Russian entities as final beneficiaries.

In this case, two jurisdictional issues were raised by Plaintiff. On one hand, it brought a challenge under section 67 of the Arbitration Act 1996 against an LCIA partial final award and, on the other hand, made an application to determine jurisdiction under section 32 of the Arbitration Act 1996. The applications considered similar and therefore were analysed jointly by the judge. 

Both proceedings concern contracts in which Plaintiff acted as Defendant’s commercial agent in fertiliser sales contracts in India. Defendant sued Claimant for suspicions of corruption occurred between Plaintiff and two former Defendant’s senior executives.

With respect to the LCIA arbitration, the judge first makes a broad interpretation of the wording of the arbitration clause which refers “any dispute or controversy arising under this contract” to the LCIA. According to the judge, this formulation is likely to cover disputes including non-contractual elements, such as allegations of corruption. Secondly, the judge considers that an interpretation of the clauses included in the agency contracts and those contained in the individual contracts did not prevent an LCIA tribunal to consider the allegations of corruption. In addition, some agency contracts did not include any specification

as to the competent jurisdiction, others contained LCIA arbitration clauses. The judge therefore seeks the center of gravity of the dispute and does not consider that the clause closest to the dispute was that of the framework contracts. Applying the approach of the court of appeal in Sebastian Holdings, he considers that the commercially rational interpretation, which gives effect to the clear terms of the relevant agreements, is that current disputes must be arbitrated in accordance with the LCIA arbitration clauses in individual sales contracts.

With respect to the ICC arbitration, Plaintiff considers that the clause contained in the framework contracts of sale to third parties is applicable only between the seller and the buyer. The Court rules that as a signatory of the agreements in its capacity of commercial agent, it is bound by the arbitration clause in the light, again, of the general and broad terms of the arbitration clause. In addition, the terms of the agreement expressly designate Plaintiff as the recipient of the letter of credit to be produced by the buyer as payment. Finally, Plaintiff validly argues that the arbitration clause does not provide for appointing an arbitrator for a party other than the buyer or seller. The judge replies that the clause should be interpreted on this point so as to give it effect.

Thus, if there are two parties to the dispute, each party may choose one arbitrator. But in the case where all 3 parties are involved, the commercial agent would be bound by the choice of arbitrators made by the buyer and seller. Finally, as with the LCIA arbitration, the judge does not consider that framework contracts constituted the center of gravity for applying their clause rather than that of individual contracts. Thus, the judge ultimately dismisses the challenge to the LCIA partial final decision of the sole arbitrator based on section 67 and the motion made under section 32 of the Arbitration Act 1996 in the ICC arbitration proceedings.

London High Court of Justice, 11 May 2018, Statis v. The Republic of Kazakhstan, no. CL-2014-000070

An arbitration award dated 19 December 2013 was made in favour of Statis against Kazakhstan in an international investment arbitration seated in Sweden. Statis requested the permission to enforce the award before the Courts of England and Wales. On 28 February 2014, Statis got the permission to enforce the award. The state of Kazakhstan applied to set the order aside, alleging that the award had been obtained by fraud.

In June 2017, the Court directed to proceed to trial because of Kazakhstan’s claim as the two conditions, pursuant the New York Convention regarding the awards obtained by fraud, were met (i.e. : the evidence to establish the fraud was not available to the party alleging the fraud at the time of the arbitration hearings and that there was a prima facie case of fraud). Statis filed a notice of discontinuance explaining that they do not have the resources to continue to a trial in the UK and that they have secured attachment orders in other countries and therefore there is no need to pursue enforcement in this country.

The Court sets aside the notice of discontinuance as it did not accept the explanations made by Statis.

England and Wales High Court of Justice, 6 June 2018, Nori Holdings Limited, Centimila Services Limited and Coniston Management Limited v. Public Joint-Stock Company “Bank Otkritie Financial Corporation” [2018] EWHC 1343 (Comm)

Nori Holdings Limited and Centimila Services Limited, the first and second Claimants respectfully, are Cypriot-incorporated companies. Coniston Management Limited, the third Claimant, is a BVI registered company. Bank Otkritie Financial Corporation, Defendant, is a licensed Russian bank (“Bank”). The abovementioned entities entered into numerous financial agreements, which contained different arbitration clauses. During Defendant’s temporary administration, aimed at preventing bankruptcy, the administrator initiated proceedings before the Moscow Arbitrazh Court in order to invalidate certain agreements. Claimants, it their turn, started an LCIA arbitration. Both Claimants and Defendant commenced proceedings in Cyprus, the former in support of the LCIA arbitration and the latter, alleging that certain transactions were a result of a fraudulent conspiracy, against Claimants and nine others. Before the English court, Claimants requested an anti-suit injunction restraining the further proceedings initiated by Defendant in Russia and in Cyprus against them. 

The High Court of Justice partially rules in favour of Claimants. First, it examines the allegations of the Bank, which argued that this request should have been made only to the LCIA arbitral tribunal. On this issue, the High Court of Justice upholds its concurring jurisdiction to grant the relief sought by Claimants. Second, considering whether the dispute is arbitrable, it emphasizes that the substance should override the form and rejects the allegation of non-arbitrability of the present dispute. Third, with the regard to the Cypriot proceedings, the High Court of Justice accepts the defence based on the decision of the CJEU in West Tankers Inc v Allianz SpA. The anti-suit injunction related to these proceedings is therefore refused. Forth, no strong reasons are found in the case preventing the Court from giving the requested relief.

Therefore, Defendant must discontinue the Russian proceedings and is precluded from starting new proceedings against Claimants seeking the same relief form a national jurisdiction outside the European Union or a party to the Lugano Convention.

England and Wales High Court of Justice, 27 June 2018, Fehn Schiffahrts GMBH & Co v. Romani SPA, [2018] EWHC 1606 (Comm) 

Fehn Schiffahrts GMBH (“Appellate”) chartered a vessel to Romani SPA (“Charterers”) for the purposes of transportation of cargo from Reni (Ukraine) to The Netherlands (Rotterdam). In two bills of lading, the consignee named was SC Justorganic Srl. Prior to discharge at Rotterdam, the cargo of sunflower seeds and wheat was fumigated. On the basis of these facts, the arbitral tribunal ruled that Appellant shall compensate Charterers for all the damages which occurred during its custody by the unauthorized fumigation.

In appeal, Appellant alleged that the arbitral tribunal erred in law since Charterers did not have title to sue, namely by answering positively and then incorrectly the question whether the “assignee” can claim substantial damages in circumstances where the assignor has suffered no loss and would be entitled (at most) to nominal damages.

The High Court of Justice considers that the appeal succeeds and that the question shall be remitted to the arbitral tribunal since the latter appeared not to distinguish the issue of title to sue and the issue of whether SC Justorganic Srl, assignor, suffered a loss.

England and Wales High Court of Justice, 13 July 2018, PAO Tatneft v. Ukraine [2018] EWHC 1797 (Comm)

In the OAO Tatneft v. Ukraine case (“investor” and “Respondent” respectively), the arbitral tribunal seated in Paris and constituted under the UNCITRAL Rules rejected all of Respondent’s jurisdictional objections in its decision on jurisdiction and ordered it to pay the investor 12 million dollars in its award. Respondent initiated annulment proceedings in France, the USA and Russia. The investor’s ex parte motion on recognition and enforcement of the arbitral award was granted by the English Court.

Thereafter, Respondent requested to set aside both the decision on jurisdiction and the arbitral award, relying on the requirement of consent to arbitrate expressly provided for under the Section 9 of the Immunity State Act (“ISA”) as an exception to the State’s immunity. In particular, according to Respondent’s position, it had never given consent to arbitrate any claim related to the fair and equitable treatment (“FET”), absent in the applicable BIT. Alternatively, it did not consent to arbitrate the dispute at stake because no investment was made, or because it was made with the sole purpose of bringing the claim before an arbitral tribunal (abuse of process). Therefore, it benefited from immunity before English Courts.

The investor contended that Respondent raised new jurisdictional points and opined that it waived its rights to do so. It explained that since the Most Favourable Nation clause was set up in the treaty, the FET was correctly imported from another BIT to the applicable one. The investor added that it had “active relationships with investments” and argued that the abuse of process was rather an admissibility issue.

The High Court of Justice dismisses Respondent’s application.

It considers first that there is no foreclosure requirement under ISA that would be similar to the Arbitration Act.

Second, having found that the scope of the subject matter of the arbitration agreement is broad as it refers to any dispute related to investments, the High Court of Justice rejects Respondent’s arguments on this issue.

Third, the notion of investments under the applicable BIT does not contain any reference as to active or passive relationships between the investor and investments. The High Court of Justice adds that even if it did, in the present case, the investor meets this requirement.

Fourth, it accepts that the State’s consent is limited to disputes over investments made prior to the dispute. However, in the present case, investments were made before the moment when the State failed to comply with its international obligations.

Finally, with regard to the abuse of process, the High Court of Justice holds that the abuse of process is a question of admissibility, not of jurisdiction.

In the light of the above, Respondent’s application to set aside the decision on jurisdiction and the arbitral award is dismissed by the Court.

SWITZERLAND

Swiss Federal tribunal, 1st Court of civil law, 24 May 2018, A. v. B., no. 4A_491/2017

A Russian company, A. (“Company A.”), and an Austrian company, B. (“Company B.”), entered into agreement stipulating that the Austrian company would manufacture and deliver, one by one, five machines for use in the railways sector. The purchaser was entitled, in accordance with a clause in the contract, to terminate the contract unilaterally in the event of a delay of more than 90 days in the delivery of a machine. The arbitration clause of the contract stipulated that disputes were to be decided by an arbitral tribunal governed by the UNCITRAL Rules, with its seat in Zurich and designated in particular the Swiss law and the United Nations Convention on Contracts for the International Sale of Goods as applicable law. According to Company A., Company B. did not duly deliver the machine. As a result, Company A. initiated arbitration proceedings. In its award of 28 July 2017, the arbitral tribunal found that the contract in this case was not a contract of sales, but a contract of enterprise, and that its termination was not well-founded. Subsequently, Company A. brought an action for annulment of the award on the ground that the arbitral tribunal had violated its right to be heard on the one hand and that the award was not compatible with Swiss public policy on the other hand.

The Swiss Federal Court recalls that it should not be confused with an court of appeal. Thus, if the right to be heard is a ground for annulment of an arbitral award, Claimants are precluded from using it as a disguised means to challenge the establishment by an arbitral tribunal of facts and, indirectly, the legal conclusions it draws from them. Finally, the arbitral tribunal’s conclusions on the improper termination of the contract by Company A. cannot be considered as violation of the principle of contractual fidelity, part of the Swiss public policy. The challenge is dismissed in its entirety.

by Ekaterina Grivnova and Elena Belova