Commercial Court of Russian North-Western region disregards approach of Constitutional Court and denies enforcement of arbitral award

Maxim Kulkov (Managing Partner) and Elena Zaltser (Associate), KK&P

On 14 March 2016, the Commercial Court of North-Western region refused to enforce an arbitral award finding that the dispute was not arbitrable as it involved real estate ownership and therefore, was of a public nature.

A dispute arose between an individual entrepreneur (seller) and a company (buyer) out of a real estate sale agreement. The buyer performed its part of the agreement and provided payment for the property. However, the seller did not register the transfer of title in the state register of real estate rights.

An arbitration was commenced and the tribunal made an award in favour of the buyer, stating that it had proprietary rights for the property.

The Commercial Court of Murmansk region granted a writ of execution for the award. However, the seller appealed and the Commercial Court of North-Western region (court of cassation) set aside the Commercial Court’s decision and denied issuing a writ of execution. It reasoned that an award declaring the ownership would lead to a transfer of title and impose on the registering authority an obligation to register such transfer. It concluded that state registration is the only evidence of existence of ownership and it is a legal act of recognition and confirmation by the state. This legal act relates to the creation, transfer and termination of proprietary rights. Therefore, the award had public effect and was of a public nature. Accordingly, the dispute was not arbitrable.

This decision contradicts the Ruling of the Constitutional Court of the Russian Federation No. 10-P dated 26 May 2011, in which it held that it was possible to arbitrate disputes related to real estate ownership. In that case the court found that issues relating to state registration of real estate titles did not change the private character of the dispute and therefore, did not make it a public one. Such contradiction may evidence a trend to limit the scope of arbitrable disputes.

Case: Case А42-7809/2015 (Commercial Court of North-Western region).

This article has been published by Practical Law Arbitration on 14 April 2016.