Background of the arbitration proceedings

The case concerned a contract for the supply of equipment and related services entered into between an Italian manufacturer as seller (‘SPIG’) and a Russian company (JSC ‘Promkontroller’), partly and indirectly owned by the Russian Federation, as buyer.

On 1 September 2016, the arbitral tribunal acting under the 2010 Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (‘SCC Rules’) issued an award in favor of the claimant SPIG. The arbitral tribunal ruled that the contract had been rightfully terminated by the claimant and ordered the respondent to pay over 1 million euros in damages. The seat of arbitration was Stockholm, Sweden, whereas the hearing took place in Moscow, Russia.

The award triggered a series of battles in the Russian courts at the stage of recognition and enforcement. The Moscow Commercial Court (as the court of first instance) and thereafter the Commercial Court of the Moscow Circuit (as the court of second instance) denied recognition and enforcement of the award (Case No А40-230545/16). The Russian Supreme Court upheld these judgments on 2 October 2017.

Decisions of the Russian courts

The respondent invoked numerous grounds for refusal of recognition and enforcement of the arbitral award in Russia, such as the allegedly incorrect determination of the substantive law governing the contract. However, for the purposes of this note, we will focus only on the grounds relating to the alleged violations of due process.

The courts of the first and the second instances, and the Supreme Court unanimously held that the respondent was denied an opportunity to present its case or, more accurately, to prepare and present a reasoned position to the revised version of the claim submitted by the claimant on the first day of the hearing. This led the courts to apply Article V(1)(b) of the New York Convention1 and its counterpart in Russian Law - Article 36.1(1) paragraph 4 of the Russian Law on International Commercial Arbitration.

In the opinion of the courts, by submitting a revised version of the claim, the claimant amended both the subject-matter and the grounds of the claim. Specifically, whereas the claimant originally filed a debt claim under the contract, it subsequently replaced it by a claim for damages based on the avoidance of the contract. Under the procedural rules which apply in Russian courts, the claimant has the right to amend either the subject-matter or the grounds of the claim, but not both at the same time. The courts ruled that by amending both the subject-matter of the claim and the grounds thereof, the claimant violated the principle of procedural equality of the parties. As said principle forms part of the Russian public policy, the award was denied recognition and enforcement. Notwithstanding the foregoing, the judgments leave the impression that the real issue was in fact the last-minute change, rather than the simultaneous revision of the subject-matter and the grounds of the claim.

Another noteworthy aspect of this case with regards to due process relates to the deviation from the timetable of the arbitration proceedings as established by the arbitral tribunal. Thus, as follows from the judgement of the Moscow Commercial Court, the respondent had approximately four months to prepare its defense to the statement of claim under the original timetable. The hearing was scheduled one month after the submission of the respondent’s statement of defense. It remains unclear what prompted the claimant to revise the subject-matter and the grounds of its claim later in the proceedings, but apparently it did so by submitting a substantially revised version of the claim directly at the hearing. It follows from the case materials that while allowing such late submission of the amended claim, the arbitral tribunal did not consider it necessary to revisit the established timetable accordingly.

It is true that the SCC Rules allow the claim to be amended or supplemented at any time prior to the closing of the proceedings (Article 25 ‘Amendments’), 2 provided that the arbitral tribunal ‘is satisfied that the parties have had a reasonable opportunity to present their cases’ (Article 34 ‘Close of Proceedings’ of the 2010 SCC Rules). The arbitral tribunal has a broad discretion to determine whether the parties have had such an opportunity. However, the fact that, in these circumstances, the arbitral tribunal did not consider it necessary to revisit the procedural timetable, served as an additional element in support of the Russian courts’ finding of a violation of due process.

Conclusions

From the perspective of the Russian practice, the revision of the subject-matter or grounds of the claim, or submission of new evidence in the course of the hearing, do not automatically constitute a ground for refusal of recognition and enforcement of an award and courts’ decisions to deny recognition and enforcement of the award in SPIG v. Promkontroller are most likely explained by the fact that the interested party is a state entity. Yet, the case serves as a useful reminder that the principle of due process should be meticulously applied at all stages of the arbitration proceedings. This implies that the parties should be treated equally and be given a reasonable opportunity to present their arguments, be it on an issue of fact or law.



1
Article V(1)(b) of the New York Convention provides as follows: ‘(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case’.


2
Article 25, 2010 SCC Rules (and Art. 30 of the 2017 SCC Rules): ‘At any time prior to the close of proceedings pursuant to Article 34, a party may amend or supplement its claim, counterclaim, defence or set-off provided its case, as amended or supplemented, is still comprised by the arbitration agreement, unless the Arbitral Tribunal considers it inappropriate to allow such amendment or supplement having regard to the delay in making it, the prejudice to the other party or any other circumstances.’