Stans Energy and Kutisay unsuccessfuly challenge Commercial Court of Moscow decision

In Case No. А4064831/14, the Commercial Court of Moscow Region (the Court of Cassation) considered an appeal by Stans Energy and Kutisay Mining challenging the Commercial Court of Moscow’s decision to set aside an award between Stans Energy Corporation (Canada) and Kutisay Mining LLC, and the Kyrgyz Republic.

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

Speedread
The Commercial Court of Moscow Region (Court of Cassation) has refused an appeal by Stans Energy and Kutisay Mining challenging the Commercial Court of Moscow’s decision to set aside an award between Stans Energy Corporation (Canada) and Kutisay Mining LLC, and the Kyrgyz Republic.

On appeal, the Court of Cassation held that the Commercial Court of Moscow’s decision should be upheld as it did not violate any provisions of substantive or procedural law. Other reasons behind the Court of Cassation’s decision follow those of the lower court, namely that the appellants brought a claim in the arbitration without Kyrgyzstan’s actual consent and there was no valid agreement to arbitrate, so the arbitral tribunal lacked jurisdiction. Moreover, Kyrgyzstan had sovereign immunity and cannot be forced to arbitrate.

The court also rejected the appellants’ argument that the Moscow Commercial Court wrongly applied the UN Convention on Jurisdictional Immunities of States and Their Property (Convention) as Russia has not ratified the Convention and it applies only to state courts. The Court of Cassation agreed that the Convention applied, holding that it constitutes the “general principles of civilised nations”, which are part of international law.

This may not be the end of the matter, as the appellants are able to appeal once again, within two months of the Court of Cassation’s decision, in the socalled “second cassation” where cases are reviewed by the Judicial Chamber of the Supreme Court of the Russian Federation. (Case No. А4064831/14.)

The Commercial Court of Moscow Region (Court of Cassation) has refused an appeal against a decision of the Moscow Commercial Court setting aside an arbitral award.

In May 2015, the Moscow Commercial Court set aside a Moscow Chamber of Commerce and Industry (MCCI) award issued in the proceedings between Stans Energy Corporation (Canada) and Kutisay Mining LLC (Stans’ subsidiary in Kyrgyzstan) (investors) and the Kyrgyz Republic. The Moscow Commercial Court had found that it lacked jurisdiction over the parties’ dispute as there was no valid arbitration agreement (see Legal update, Moscow Commercial Court sets aside arbitral award and provides interpretation of Article 11 of Moscow Convention (www.practicallaw.com/76164529).

On appeal, the Court of Cassation held that the Commercial Court of Moscow’s decision should be upheld as it did not violate any provisions of substantive or procedural law. Apart from the reasons mentioned in the lower court decision, the Court of Cassation held that the Commercial Court of Moscow was entitled to rely also on part 3 of Article 233 of the Russian Commercial Procedure Code (CPC), which provides that the court may reverse an arbitral award if it establishes that the award violates fundamental principles of Russian law and Russian public order.

The Court of Cassation ruling stated that Russian public order implies that parties will act in good faith in private transactions. Therefore, to create the appearance that a private dispute exists means to infringe the public order. The same wording may be found in several decisions made by the Higher Commercial Court where the parties used arbitration to legalise some doubtful transactions between them (see the Ruling of the Higher Commercial Court of the Russian dated 14.06.2011 No. 1884/11 on case А419221/09 and the Decision of the Higher Commercial Court of the Russian Federation dated 28.03.2011 No. VAS1884/11 on case А419221/09). However, it is questionable whether a public order argument really applies to the given case as the parties did not try to create the appearance of a private dispute, as a dispute does actually exist.

Other reasons behind the Court of Cassation’s decision follow those of the lower court, namely that the appellants brought a claim in the arbitration without Kyrgyzstan’s actual consent and there was no valid agreement to arbitrate, so the arbitral tribunal lacked jurisdiction. Moreover, Kyrgyzstan had sovereign immunity and cannot be forced to arbitrate.

The Court of Cassation rejected the appellants’ argument that the Moscow Commercial Court wrongly applied the UN Convention on Jurisdictional Immunities of States and Their Property (Convention) as Russia has not ratified the Convention and it applies only to state courts. The Court of Cassation agreed that the Convention applied, holding that it constitutes the “general principles of the civilised nations”, which are part of international law. In particular, the court pointed out that there had been a violation of the principle of express consent to exercise jurisdiction (Article 7, Convention).

The appellants’ other arguments mirrored those before the Moscow Commercial Court and could not be entertained by the Court of Cassation: under Article 286 of the CPC, a court of cassation cannot reevaluate the evidence and the circumstances of the case.

This may not be the end of the matter, as the appellants are able to appeal once again, within two months of the Court of Cassation’s decision, in the socalled “second cassation” where cases are reviewed by the Judicial Chamber of the Supreme Court of the Russian Federation.
Case No. А4064831/14 (Commercial Court of Moscow Region).

This article has previously been published by Practical Law Arbitration on 12 August 2015.