Practical Law: Russian procurement disputes with state-owned companies are arbitrable (Russian Supreme Court) – an update by Maxim Kulkov and Sergey Lysov
The Russian Supreme Court has held that procurement disputes involving state-owned entities are arbitrable.
Recent amendments to Russian arbitration law introduced provisions stipulating that disputes arising out of public procurement contracts concluded with state bodies (that is, contracts aimed at securing state and municipal needs) are not arbitrable. Although there is no such limitation on procurements made by legal entities (even state-owned legal entities), Russian state courts have often held that such disputes are also not arbitrable due to their public nature.
For instance, in September 2017, the Commercial Court of the Moscow Circuit denied recognition of arbitration awards issued in procurement disputes concluded with state-owned companies (see cases N А40-79416/2017, А40-28167/2017, А40-22641/17).
By contrast, during the same period, several court judgments issued by the commercial courts of Bashkortostan (cases N А07-2132/2017, А07-2008/2017) and Krasnoyarsk Krai (case N А33-9884/2017) enforced arbitration awards issued in procurement disputes involving state-owned legal entities.
In procurement case N 305-ЭС17-7240, the lower courts had enforced an award issued against a company whose shareholder is the City of Moscow.
To clarify the ambiguity in case law, the Supreme Court decided to consider the correctness of the lower court’s approach. The Supreme Court filed a request with the Russian Constitutional Court for it to confirm whether disputes arising out of procurement contracts concluded with state-owned companies are arbitrable under Russian law.
However, the Constitutional Court ruled that uniformity of court practice falls under the jurisdiction of the Supreme Court and, therefore, refused to consider the request.
Finally, the Supreme Court carefully analysed whether the legislator had intended to limit the arbitrability of procurement disputes involving state-owned entities and came to the conclusion that such disputes are arbitrable.
The Supreme Court’s position is in line with the widely accepted approach that limitations of arbitrability should be the result of the express intention of the legislator. This means that arbitration’s popularity will increase in Russia.