Moscow Commercial Court upholds arbitration despite no arbitration agreement between parties

by Practical Law Arbitration, with KK&P

In Case No. А40-264409/2019, the Moscow Commercial Court upheld the first instance court’s refusal to annul an arbitration award despite the absence of an arbitration agreement

Nikolay Pokryshkin (Partner), Olga Kokoz (Senior Associate), KK&P

The Moscow Commercial Court has refused to quash the lower court’s judgment approving an arbitration award against non-signatories to an arbitration agreement. The Moscow Commercial Court did so without any analysis of the arguments presented in four appeal petitions. In particular, the court upheld two grounds to extend the underlying arbitration clause to non-signatories, namely:

• That there is an expressed will of a company that any affiliated person be bound by the agreement containing the arbitration clause.
• That commission of a tort will bind a party to an arbitration clause.

The tribunal had found that it had jurisdiction in relation to the non-signatories on the basis of a provision under which the two parties to a settlement agreement  undertook to ensure that any affiliated persons recognise the settlement agreement’s final and binding nature. As a result, the tribunal concluded that the arbitration clause in the settlement agreement extended to the “parent” and “sibling” companies of those two parties. Moreover, the tribunal found that since the directors of the two parties signed the settlement agreement in their capacity as directors, and since they also participated in other unrelated events (such as drafting minutes of negotiations and unsigned drafts), the directors should also be deemed to be parties to the arbitration agreement.

It is notable that the first instance court, like the Moscow Commercial Court, confined itself to simply quoting the arbitration tribunal’s reasoning in relation to the issue of non-signatories instead of analysing the issue (as it is bound to do under the procedural rules). Such approach deprives  non-signatories of an opportunity to contest an award rendered by  third parties against them in the absence of an agreement. The approach of the tribunal also expressly contradicts  the Russian Supreme Court’s clarification that arbitration in relation to non-signatories violates their constitutional right to justice in a state court and Russian public policy.

It is also notable that this was alleged to be an ad hoc arbitration. However, the Moscow Commercial Court failed to take into account that consideration of a dispute of corporate nature in ad hoc is prohibited by Article 44 of the Law on Arbitration.

This decision is highly questionable and should not be relied on when drafting arbitration clauses. Nevertheless, claimants may attempt to use it in pending arbitrations against non-signatories. Accordingly, it is hoped that the Supreme Court will reverse it upon appeal.

Case: No. А40-264409/2019 (5 November 2020).

You can find the link to the full text of the article here.

Reproduced from Practical Law Arbitration with the permission of the publishers. For further information visit www.practicallaw.com or call 020 7542 6664.