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Editorial

Disputes involving foreign parties: 2012 trends

Disputes involving foreign parties: 2012 trends. Issues of international jurisdiction, arbitrability, recognising and enforcing foreign courts' decisions and awards.

In 2012, the Presidium of the Russian Supreme Commercial (‘Arbitration') Court[1] adopted a number of newsworthy resolutions relating to recognising and enforcing foreign courts' decisions and awards, and concerning disputes involving foreign parties. The approaches formulated in these case decisions should be taken into account not only by those involve international proceedings but also parties to cross-border transactions when developing procedures for resolving eventual conflicts.

 

Resolution No. 1831 / 12 of the Presidium of the Supreme Arbitration Court dated 19 June 2012 featuring case No. А40-49223/11-112-401 "Russian Telephone Company CJSC v. Sony Ericsson Mobile Communications Rus".



[1] In Russia, the state court system is divided into two: courts of general jurisdiction and what, for historical reasons, are referred to as ‘arbitrazh' or ‘arbitration' courts. The latter hear commercial disputes and disputes with state authorities. When ‘Arbitration' is used in this article as a capitalised term in relation to a court, this is in reference to the relevant state courts in the Russian system and not to any kind of alternative dispute resolution system.   

The Presidium of the Supreme Arbitration Court has resolved that the parties' interests are violated if the choice of clause (the clause selecting a forum to resolve disputes) gives the right to file a claim with a state court in Russia only to one party to the contract: this contradicts the principle of granting equal procedural opportunities to all parties to defend their rights and legitimate interests. Under such circumstances a party whose rights were infringed by this discriminatory provision may not be denied the right to file a claim with a state court, and this party's claim must be considered, even if there is any effective arbitration clause.

 

Russian Telephone Company Closed Joint Stock Company ("RTC") and Sony Ericsson Mobile Communications Rus Limited Liability Company ("Sony Ericsson") entered into a contract containing an arbitration clause[1] which was agreed on by both parties. That arbitration clause stated that there would be no restriction on ".... the right of Sony Ericsson to file a claim with a court of the competent jurisdiction seeking recovery of amounts due for Products delivered".

RTC filed a claim with the Moscow Arbitration Court in relation to the above contract, demanding that Sony Ericsson fulfil its obligation to replace a number of cell phones with similar cell phones of the requisite quality. However, Sony Ericsson made an application to the court of first instance that the claim be dismissed, as the contract contained a clause that any dispute that arose should be considered by an arbitration tribunal; the parties named the arbitration tribunal which was to have jurisdiction to arbitrate disputes between them; the International Court of Arbitration at the International Chamber of Commerce is a body that remains in existence; a Russian state court may not resolve which procedural rules and regulations an arbitration tribunal may apply in initiating and settling a dispute; the parties did not rule out the possibility that regulations other than the Rules of Conciliation and Arbitration of the International Chamber of Commerce, which are no longer in force, may be applied to resolve a dispute. In view of the above, the court of first instance held the arbitration clause to be enforceable.

As a result, the Moscow Arbitration Court ruled on 8 July 2011 that the claim be dismissed under article 148(1)(5)[2] of the Russian Arbitration Procedural Code. By its resolution dated 14 September 2011, the Ninth Arbitration Appeal Court upheld the ruling of the court of first instance. While the appeal court agreed with the conclusions of the court of first instance, it also pointed out that there are no grounds to consider the arbitration clause in the contract to be invalid, unenforceable, or no longer in force since the parties, when entering into the contract, had observed the freedom-of-contract principle. This principle stipulates that the terms and conditions of a contract, including the provisions concerning dispute resolution and the procedure for referring certain disputes to the arbitration tribunal, should be set at the parties' discretion. The Federal Arbitration Court for the Moscow Region on 5 December 2011 upheld the ruling of the court of first instance and the resolution of the appeal instance.

It should also be noted that the Moscow Arbitration Court has already considered whether the above arbitration clause was valid and enforceable in the context of case No. А40-36609/11-56-324. In its ruling dated 25 April 2011, the same court determined that the above arbitration clause was indeed valid and enforceable.

However, the Presidium of the Supreme Arbitration Court did not agree with the conclusions of the lower courts and issued on 19 June 2012 Resolution No. 1831/12 in the case in question. where it revoked their decisions and returned the case file to the court of first instance for re-examination. In the opinion of the Supreme Arbitration Court, the courts did not take into account that the agreement (the clause) about settlement of disputes generally implies that, apart from elements of an arbitration clause, there are also elements of a prorogation agreement[3], since it sets out that disputes may be referred to international commercial courts and state courts.[4]

Such prorogation agreement, as stipulated in the Resolution, formalises the right of only one party to the contract, i.e., Sony Ericsson (the seller), to refer disputes to a state court. Together with the provision concerning the resolution of disputes that relate to the arbitration clause, such prorogation agreement gives priority to Sony Ericsson as compared with RTC, because only the former is given the right to choose the judicial means (either a state court or non-state arbitration) to resolve disputes, accordingly, the agreement creates an imbalance between the parties' rights.


[1] "Any dispute arising under this Agreement which cannot be resolved by way of negotiation shall be definitively resolved in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three (3) arbitrators appointed in accordance with such Rules. The venue of the arbitration shall be London, and English shall be the language of the proceedings. The arbitration clause shall remain in force even after this Agreement has been terminated and shall not restrict the right of the Parties to file claims with courts of competent jurisdiction for injunctive relief or an injunction to be awarded if there is an actual or potential violation of the provisions set out in sections "Sony Ericsson trademarks", "Software licenses", "Export controls", "Anti-counterfeiting trade", or "Confidentiality".

[2] "A state arbitration court shall dismiss a claim if, after the proceedings are commenced further to such claim, the parties have establishes that the parties agreed that this dispute would be considered by an arbitration tribunal and if any of the parties, acting no later than the day when it submitted its first claim concerning the merits of dispute to the first instance Arbitration Court objects on these grounds to the case being considered by an Arbitration Court, There is an exception if the court establishes that the agreement in question is ineffective, has become void, or cannot be enforced".

[3] As N. I. Marysheva explains: "By virtue of an agreement, a case which falls within the Russian jurisdiction may be referred to a foreign jurisdiction, or the parties may agree that a case which does not fall within Russian jurisdiction will be considered by a Russian court. The first situation is called ‘derogation', the second ‘prorogation'" // International Private Law: A Coursebook / Ed. by N. I. Marysheva. Moscow, "Contract", "Infra-M", p. 465.

[4] Article 249 of the Russian Arbitration Procedure Code No. 95-FZ dated 24 July 2002: "1. If the parties, at least one of which is a foreign person, have concluded an agreement in which they set out that an Arbitration Court in Russia has jurisdiction in relation to an actual or potential dispute concerning their business and other economic activities, then the Arbitration Court Russia will have exclusive jurisdiction over considering this dispute, provided that such agreement does not alter the exclusive jurisdiction of a foreign court. 2. The agreement regarding jurisdiction must be executed in writing".

 

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