Russia is one of a few jurisdictions to have settled case law which refuses to recognize the legal effect of so-called unilateral (asymmetrical or optional) dispute resolution clauses. Russian experience in this respect provides valuable insights into the peculiar problems related to these types of dispute resolution clauses.

1 What types of alternative dispute resolution clauses are enforceable in Russia?

Before considering alternative dispute resolution clauses that are unenforceable in Russia, it will be useful to describe the types of such clauses that are enforceable. For example, Russian courts generally do not question the validity and enforceability of various types of bilateral (symmetrical or mutual) dispute resolution clauses, i.e. clauses that provide all of the parties with more or less equal opportunity to choose the competent forum. In particular, the following types of clauses have been upheld in recent Russian case law:

a) Different arbitrations for different parties - In its Ruling No.11861/10 dated 13 January 2011, in the case of OJSC Efirnoe v. Delta Wilmar CIS Ltd., the Presidium of the Russian Supreme Arbitrazh (Commercial) Court ('SAC'), which was at that time the highest court for commercial disputes,1 confirmed the validity and enforceability of alternative clauses, whereby the jurisdiction of one or another arbitral tribunal depends on which party is the claimant and which is the respondent in the dispute. In this case, the parties agreed on the following alternative clause: 'Should the parties be unable to reach agreement, the dispute shall be referred to the International Commercial Arbitration Court at the Chamber of Commerce and Industry of Ukraine for consideration in accordance with its Rules by three arbitrators if the claimant is the seller; and to the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation for consideration in accordance with its Rules by three arbitrators if the claimant is the buyer'. In this case, the initial claim of the Ukrainian seller was considered by the ICAC at the Ukrainian Chamber of Commerce and Industry, while a subsequent claim of the Russian buyer (with a different subject and cause of action) was considered by the ICAC at the Russian Chamber of Commerce and Industry. SAC found no grounds to set aside the award of the ICAC at the Russian Chamber of Commerce and Industry. The same approach to such type of alternative clauses was demonstrated in respect of the prorogation agreements in Section Two of SAC's Information Letter No.158 dated July 9, 2013,2 where it concluded that Russian arbitrazh courts should recognize the validity and enforceability of a prorogation agreement according to which disputes will be referred to courts of the country where a claimant (or defendant) resides.

b) Option of the claimant to choose between arbitration and litigation - In its Ruling No.11196/11 dated 14 February 2012, in the case of Surgutfarmatsiya v. Katren Scientific Production Company, SAC came to the conclusion that 'dispute resolution agreements providing that each party may at its discretion refer to particular state courts or arbitration do not contravene the law'. In this case, the parties agreed on a symmetrical clause that granted the party acting as claimant the right to choose between a specified Russian state court or arbitration: 'In the event of any disputes hereunder the parties shall take all possible measures to resolve them by negotiation. If a resolution cannot be reached, the dispute shall be referred at the discretion of the claimant to: the Siberian Arbitration Court (Novosibirsk) or the Arbitrazh (Commercial) Court of Novosibirsk Region. The award of the Siberian Arbitration Court in the matter shall be final'.

c) Arbitration for one party and litigation for another - In its Ruling No.F03- 141/2014 dated 3 March 2014, in the case of Amursk Shipbuilding Factory v. VMF Partner Ship GmbH, the Federal Arbitrazh Court of the Far-Eastern District (acting as a court of cassation) recognized as valid and enforceable the clause according to which the Arbitrazh (Commercial) Court of Khabarovsk (Russia) has jurisdiction over the dispute if the German party is a claimant, and arbitration in Germany under the UNCITRAL Rules will resolve the dispute if a claim is brought by the Russian party. The Russian court emphasized that such a clause is not optional (i.e. each party has only one available method of dispute resolution) and therefore it does not violate the principle of balance of rights of the parties.

2 How have Russian courts treated asymmetrical dispute resolution clauses?

Until the year 2012, the Russian court practice had been developing favorably also with respect to asymmetrical clauses, i.e. dispute resolution clauses that provide one party with more options to choose a competent forum than another (e.g. only one party has an option to choose between arbitration and litigation, while the other party may only start arbitration). In particular, in a series of cases considered by the Moscow District Federal Arbitrazh Court, it was deemed at that moment permissible for one party to file claims with Russian state courts based on the option exclusively granted to that party under the terms of the contract. These contracts provided for dispute resolution under the LCIA Rules, but at the same time granted the party providing financing (lender or agent) the option to refer the dispute for settlement to English courts or any other competent courts. The claims were filed by the creditors with Russian arbitrazh (commercial) courts based on the general rules of international jurisdiction (in the country of domicile of the Russian defendants). The Russian courts denied the defendants' motion to refer the parties to LCIA arbitration, noting that the creditors have a unilateral option to bring a claim before any competent state court.3

However, the Russian courts' attitude towards asymmetrical dispute resolution clauses changed dramatically after SAC's Ruling No.1831/12 dated 19 June 2012, in the case of Russian Telephone Company v. Sony Ericsson Mobile Communications Rus LLC ('Sony Ericsson Ruling'). In this case, the seller (Sony Ericsson) entered into a general distribution agreement with the buyer (Russian Telephone Company) for the supply of mobile telephones and accessories. The agreement contained the following asymmetrical dispute resolution clause: 'Any dispute arising in connection with this Agreement that cannot be resolved by negotiation shall be finally resolved in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three (3) arbitrators appointed in accordance with these Rules. The seat of arbitration shall be London, and the proceedings shall be held in English… In addition, the arbitration clause shall not limit the right of Sony Ericsson to take action in any court having jurisdiction to recover debt owed for Product supplied'.

The buyer brought a claim against the seller with the Moscow Arbitrazh Court for replacement of allegedly defective mobile telephones. The seller (defendant) filed a motion to dismiss the claim on the ground that the parties had to refer the dispute to arbitration under the Rules of Arbitration of the International Chamber of Commerce. The Russian courts of the first three instances granted the motion, stressing the contractual provision according to which only the buyer was entitled to rely on international commercial arbitration. However, SAC set aside all of the prior court judgments and remanded the case for a new hearing on the merits in the court of first instance. SAC held that the asymmetrical dispute resolution clause in question was invalid and unenforceable.

3 Why are asymmetrical dispute resolution clauses now considered unenforceable in Russia?

In its 2012 decision, SAC came to the conclusion that asymmetrical dispute resolution clauses violate the fundamental principles of both substantive and procedural Russian law. Among the substantive legal principles, the court placed an emphasis on the principle of equality of participants of civil relationships, which is codified in Art.1(1) of the Russian Civil Code.

Reference to this principle seems dubious, however, since it should not be understood as prohibiting the parties to establish different legal rights and remedies within one and the same contract (e.g. to give only one party the right of early termination of the contract, the right to claim penalty or liquidated damages, to limit the amount of its liability, etc.). Otherwise, the principle of equality would block the normal application of the principle of freedom of contract, which is the cornerstone of the law of contracts. It is important to note that both parties in the Sony Ericsson case were commercial companies - so it is difficult to understand why Russian law would restrict the freedom of these parties to negotiate the available mechanisms of dispute resolution.

The main part of SAC's reasoning is devoted to violation of the procedural principle of "equality of arms". The court cites in this respect the jurisprudence of the Russian Constitutional Court and the European Court of Human Rights. However, none of the cases cited have direct relevance to the issue of asymmetrical dispute resolution clauses. In particular, SAC 58 | ICC Institute of World Business Law Jurisdictional Choices in Times of Trouble mentions the following ECHR cases, which could hardly be seen as providing any guidance, since they concern totally unrelated factual scenarios and legal problems:

• Batsanina v. Russia (No.3932/02), which related to the ability of the Russian prosecutor's office to bring a civil claim against an individual;

• Khuzhin and Others v. Russia (No.13470/02), and Sokur v. Russia (No.23243/03), both of which related to a party's inability to take part in the civil proceedings due to imprisonment;

• Steel and Morris v. the United Kingdom (No.68416/01), which considered circumstances in which the defendants could not receive access to legal aid that was available for other categories of disputes;

• Suda v. Czech Republic (No.1643/06), which was the only case that dealt with a dispute resolution clause, but under an unrelated factual scenario regarding extension of the arbitration agreement to a minority shareholder who never signed the agreement.

It is worth noting that SAC's ruling in the Sony Ericsson case does not mention the legal arguments that have been used in some foreign countries to limit the application of certain types of asymmetrical clauses. In particular, no attempt was made to qualify an asymmetrical clause as a so-called "potestative" conditional transaction, i.e. one in which fulfillment of a term or condition is entirely in the control of one party to the contract.4 This is particularly noteworthy, considering that Art.157 of the Russian Civil Code (and its interpretation in case law) is rather close to the French concept of potestativity.

Also, SAC has not mentioned the concept of a contract of adhesion containing conditions clearly unconscionable or unfair for the adhered party, which is implemented in Art.428 of the Russian Civil Code. This type of argument has been used in Germany5 and the USA,6 but for some reason the logic of this argument has not impressed Russia's highest court.

SAC preferred instead to accept the legal argumentation based on violation of the fundamental principles of Russian civil and procedural law. There could be different explanations of such an approach. For example, one could take note of the fact that SAC's ruling was rendered just about one month after the famous speech of SAC's President, Justice Ivanov, at St. Petersburg International Legal Forum, in which he blamed Anglo-American jurisdictions for 'unfair competition of the legal systems'.7 Asymmetrical dispute resolution clauses, which frequently indicate London or New York as an optional place of arbitration or litigation, could have been seen as manifestation of such 'unfair competition'.8 However, all such attempts to find the 'real' cause of the Russian judiciary's negative attitude towards asymmetrical clauses are largely speculative.

In any event, argumentation based on violation of the fundamental principles of Russian law creates a serious risk that Russian courts will consider this issue as touching upon Russian public policy or the overriding mandatory provisions of Russian law. This consideration is very important in determining the law applicable to a dispute resolution clause.

It is noteworthy that in the Sony Ericsson Ruling SAC applied Russian law without any specific discussion, notwithstanding the fact that the clause in question provided for arbitration in London.9 This may reflect an inclination of the Russian judiciary to apply Russian law to all such types of clauses, if their validity and enforceability are tested in the Russian courts. Thus, making a dispute resolution agreement subject to foreign law, which ordinarily would give full legal effect to such clauses, will not remove the serious legal risk that Russian courts may come to the conclusion that the dispute resolution clause is invalid because it violates Russian public policy.10

4 What are the legal consequences of the Sony Ericsson Ruling?

Often, even a conservative decision does not cause serious economic harm, as long as it creates a certain and predictable legal regime. Unfortunately, the Sony Ericsson Ruling is not among such decisions. The main deficiency of this decision is that it does not explain in a clear and unequivocal manner the legal consequences of the inclusion of an asymmetrical dispute resolution clause. As a result, several different approaches are possible, which creates a serious degree of legal uncertainty for every agreement utilizing an asymmetrical dispute resolution clause. Let us consider these potential consequences in turn.

a) Version 1 - Invalidation of the asymmetrical part of the dispute resolution clause only. If not for the specifics of the Sony Ericsson Ruling, this consequence would appear quite logical and preferable, since it helps to save the parties' agreement to the extent possible. Under the circumstances of the Sony Ericsson Ruling, for example, this would mean that the unilateral option of the seller to refer the disputes to the state courts would be cancelled, while the bilateral (mutual) arbitration agreement in favor of arbitration in London would survive.

Such an approach could be easily substantiated in Russian law: according to Art.180 of the Russian Civil Code 'invalidity of part of a transaction shall not entail invalidity of its other parts if it may be assumed that the transaction would have been concluded even without the inclusion of its invalid part'. In most cases, we can safely assume that the parties would have preferred to save the bilateral (mutual) part of the dispute resolution clause rather than to invalidate it in full.

However, one can hardly say that SAC was in favor of this version. If it had been, invalidation of the asymmetrical part of the agreement would have voided the prorogation clause, while maintaining the full force and effect of the bilateral (mutual) arbitration clause, which provided for arbitration in London. In this scenario, having stated that only the arbitration clause remained in full force and effect, the Russian courts would have been obliged to dismiss the claim without consideration and refer the parties to international commercial arbitration in accordance with Art. II of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Art. 148.1(5) of the Russian Arbitrazh Procedure Code. However, SAC instead vacated all of the judicial acts that had dismissed the claim and remanded the case for a new hearing on the merits in the court of first instance. Such procedural actions are clearly not consistent with the version that presumes invalidation of the asymmetrical part only.

b) Version 2 - Transformation of the asymmetrical clause into a symmetrical one. This approach assumes that all parts of the dispute resolution clause remain valid, but with both parties given equal rights to choose among the options mentioned in the clause. From the practical viewpoint, this version has the benefit of remedying the alleged defect in a jurisdictional agreement while retaining to the maximum extent possible the understandings regarding dispute resolution procedure reached by the parties.11

This approach is rather difficult to reconcile with the literal wording of the Sony Ericsson Ruling. The problem is that the Sony Ericsson Ruling explicitly mentions several times the invalidity of the dispute resolution agreement. Under Russian law, the invalidity of a transaction or certain of its provisions implies that the legal results the parties wished to attain could not be achieved. An invalid transaction, therefore, may only lead to such legal results that are expressly set forth in Russian law. And the law does not mention amendment (alteration, transformation) of the agreement as a legal consequence of invalidity.12

Russian civil law envisages the possibility of amending an agreement for contracts of adhesion (Art.428 of the Russian Civil Code). However, as previously mentioned, SAC did not base the Sony Ericsson Ruling on the concept of contracts of adhesion, which would have given the court an opportunity to amend the terms of the agreement. To the contrary, SAC's line of argument is based on breach of the fundamental principles of civil and procedural law and envisages no other legal implications than invalidation of an asymmetrical clause.

Furthermore, in the Sony Ericsson case it would have been extremely difficult to transform the asymmetrical agreement into a symmetrical one, because the wording agreed by the parties granted the seller the right to refer to a 'court of competent jurisdiction' not just any dispute, but only 'claims to recover debt owed for Product supplied'. Any attempt to transform this asymmetrical clause into a symmetrical one would have given rise to the complicated question of what claims the buyer could refer to a 'court of competent jurisdiction' since the buyer could never have 'claims to recover debt owed for Product supplied' against the seller.

Nevertheless, this version was supported by some of SAC's officials.13 Moreover, there was a proposal to fix this approach in an initial draft of SAC's Information Letter No.158.14 Section 6 of this draft, which was considered by SAC during an extended discussion session held on June 6, 2013, had the following general wording: 'In case the dispute resolution agreement provides one party only with an alternative option to start litigation in a competent state court in addition to a [bilateral] arbitration agreement, while the other party is deprived of such a right, the latter party receives the possibility to bring its claim to the agreed state court and to realize its right to fair justice on equal terms with the former party'. However, following fierce debate around this issue, section 6 was excluded altogether from the scope of Information Letter No.158, the final text of which was approved on 9 July 2013.

c) Version 3 - Saving validity of the bilateral (mutual) part of the clause with reinstatement of both parties' right to bring a claim to any competent court under general procedural rules. This version differs from the previous one, since it completely destroys the asymmetrical part of the clause giving each party an opportunity to bring its claim not only to the fora mentioned in the clause, but also to any other competent forum, which would be possible under general procedural rules on international jurisdiction. It also deviates from the first version, since it deprives the bilateral (mutual) arbitration agreement of its derogating effect, giving each party a chance to start litigation in any competent state court. This version, in principle, could have been applied to the Sony Ericsson case, since the Moscow Arbitrazh Court (where the buyer brought its claim) was competent under general procedural rules (since Moscow was the domicile of the defendant).

This version is of particular interest, since it was proposed (among the two preferable versions) in the Memorandum prepared by SAC's Department of International Law and International Cooperation during discussions over the draft Information Letter No.158.15 This particular version has also received support from SAC's President, Justice Ivanov, during the extended discussion session on June 6, 2013, when Section 6 of the draft was heavily criticized. However, this approach ultimately did not find its way into the text of Information Letter No.158, the final version of which refrained from dealing with the issue of asymmetrical clauses altogether.

d) Version 4 - Full invalidation of the dispute resolution agreement as to both its asymmetrical and symmetrical parts. This version seems to be the least desirable from the practical standpoint, since it destroys the whole dispute resolution clause, leaving the parties in a situation of total uncertainty. However, the literal wording of the Sony Ericsson Ruling does not exclude this approach, and it has been supported in the client alerts of the Moscow offices of many international law firms.

5 What are the lessons of Russian case law on this issue?

Unfortunately, evaluation of how Russian courts will deal with asymmetrical dispute resolution clauses is further complicated by the fact that, starting from August 2014, SAC ceased to exist, and the new Russian Supreme Court (which includes only a few judges from the former SAC) has become the key player for commercial disputes. It is very difficult to predict the attitude of the new staff of judges towards the Sony Ericsson Ruling and the problem of asymmetrical dispute resolution clauses in general. In these circumstances, legal practitioners are left to pursue practical solutions to the problem, taking what lessons they can from the relevant Russian case law.

From the practical point of view, one should think twice before including an asymmetrical dispute resolution clause into a contract with a Russian party. There is a serious risk such a clause would not be recognized by the Russian courts. As a result, this could give a party the opportunity to start parallel proceedings in the Russian courts. If a Russian court hands down a decision that contradicts the conclusions made in parallel by the agreed forum, the other party would face very difficult problems while trying to recognize and enforce the judgment of the agreed forum on the territory of Russia. All these problems cannot be excluded simply by choosing foreign law as the law governing the dispute resolution clause, since the Russian courts tend to discuss this issue in terms of Russian public policy and overriding mandatory provisions of Russian law.

From the theoretical point of view, the Russian saga of Sony Ericsson shows that refusal to enforce asymmetrical dispute resolution clauses opens a Pandora's box of unpredictable legal consequences. If a legislator or judiciary follows this approach, it should clearly explain all implications of such a step. Unfortunately, the Russian case law demonstrates how difficult the practical solutions can be, particularly where the courts take a cautionary approach and prefer to refrain from clear explanations.

1
Under recent constitutional reform, starting from 6 August 2014 SAC was merged into the united Russian Supreme Court. However, SAC's resolutions still have binding (quasi-precedential) effect for the lower arbitrazh courts, unless they are repealed by the united Supreme Court.

2
According to Russian law, the highest court instances have the power not only to make the final review of particular cases, but also to issue abstract interpretations of Russian statutes that are binding on the lower courts.

3
See Rulings of the Moscow District Federal Arbitrazh Court, dated 21 December 21 2009, in Case No. ??-?40/11967-09; 22 December 2009, in Case No. ??- ?40/11983-09; 23 December 2009, in Case No. ??-?40/13340-09; 25 December 2009, in Case No. ??-?40/13327-09; 28 December 2009, in Case No. ??- ?40/13190-09; 12 January 2010, in Case No. ??-?40/14014-09.

4
This type of argument was used in the infamous decision of the French Cour de cassation of 26 September 2012 No.11-26.022. See Ancel Marie-Elodie, Marion Lea, Wynaendts Laurence, Reflections on One-Sided Jurisdiction Clauses in International Litigation (About the Rothschild Decision, French Cour de Cassation, 26 September 2012), Banque & Droit, No.148, mars-avril 2013, pp. 3-9 (available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2258419).

5
See, e.g., the decision of the German Bundesgerichtshof of 24 September 1998 No.III ZR 133/97.

6
See the detailed examination of US case law in: Smit Hans, The unilateral arbitration clause: a comparative analysis, American Review of International Arbitration, Vol.20, 2009, p.391 ff.

7
Russian law and unfair competition, Russian Legal Information Agency, 25 May 2012, available at: http://rapsinews.com/judicial_analyst/ 20120525/263259093.html.

8
It is well-known that recent English case law is favorable towards all types of asymmetrical optional clauses - see, e.g., Nesbitt Simon, Quinlan Henry, The status and operation of unilateral or optional arbitration clauses, Arbitration International, Vol. 22, Issue 1, 2006, p.133 ff.

9
Both parties in the Son y Ericsson case were Russian legal entities, however none of the Russian court instances gave this circumstance any clearly expressed legal significance.

10
See in more detail: Asoskov Anton, Asymmetrical dispute resolution clauses: problems that were caused by SAC Ruling No.1831/12 dated 19 June 2012, Arbitral Tribunal (Tretejskij Sud), Vol. 5, 2012 (in Russian).

11
This approach has received support from some authors: see , e .g., Smit Hans, The unilateral arbitration clause: a comparative analysis, American Review of International Arbitration, Vol. 20, 2009, p.391 ff.

12
The only exception is sham transactions (Art.170(2) of the Russian Civil Code), but this exception is not applicable to the issue at hand.

13
See the following article of Andre y Egorov, who at that time was the Chief Administrative Officer of SAC: Egorov Andrey, Asymmetric dispute resolution clauses: one should not hurry up with the conclusions, Review of International Commercial Arbitration, Vol.2, 2012 (in Russian).

14
On file with the author , who participated in the discussion of this draft during the extended SAC discussion session.

15
On file with the author .