On 8 February 2018, the Arbitrazh Court of Moscow refused to recognize and enforce an award issued by the ICC International Court of Arbitration on 15 September 2014, in proceedings filed by Dredging and Maritime Management SA against CJSC Transstroy Engineering Corporation.1 This decision was upheld by higher courts and the appeal filed with the Russian Supreme Court was rejected.

The arbitration clause in the contract was written as follows:

15.3 Arbitration

Any dispute that is not resolved amicably ... shall be finally settled by international arbitration. Unless otherwise agreed upon by the Parties:

A) the dispute shall be finally settled under the Rules for Arbitration of the International Chamber of Commerce;

B) the dispute shall be settled by three arbitrators appointed in accordance with these Rules, and

C) the arbitration shall be conducted in the language referred to in Clause 1.5.

The place of arbitration shall be Geneva, Switzerland. (Clause 15.3 of the Particular Conditions, Exhibit 2 to the Agreement). 2

This clause was identical to the Standard ICC Arbitration Clause recommended under the 1998 Arbitration Rules (in force at the time the ICC arbitration was initiated):

All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. 3

The courts believed that it was impossible, based on the terms of the arbitration agreement between the parties, to determine the specific institution where the dispute would be considered since the arbitration agreement only refers to the ICC Arbitration Rules but does not name the ICC Court as the competent authority for administering disputes.

The courts also pointed out that the chosen place of arbitration ‘Geneva, Switzerland’ creates uncertainty as to the competent authority for resolving disputes, since the ICC headquarters are located in Paris, France.

This decision caused panic in the Russian and international arbitration communities.4

After all, Russian courts had deemed the ICC Standard Arbitration Clause to be insufficiently specific. This negative analysis however showed a manifest lack of understanding of the difference between the place of arbitration and the location of the arbitration institution.5

To better understand why Russian judges have found the ICC Standard Arbitration Clause to be insufficiently specific, a few words should be said about the terminology commonly used in Russia with respect to court judgments and arbitration awards. While in the United Kingdom a reference to the court that handed down the judgment should include the judges' surnames,6 in Russia, surnames of judges are usually omitted but the reference to the deciding court that handed down the judgment is essential.7

By this same tradition, when an arbitration award is issued, it is not usually referred as ‘issued by an arbitral tribunal acting under the Rules of the ICAC [International Commercial Arbitration Court] at the Chamber of Commerce and Industry of the Russian Federation’, but rather as ‘issued by the ICAC at the Chamber of Commerce and Industry of the Russian Federation’. The emphasis is on the fact that the award was issued by the arbitration institution that administered the dispute.8 It is assumed that the arbitrators merely performed their functions within the framework of this institution.

In this regard, an arbitration clause stating that disputes must be heard, not by the ICC Court, but under the ICC Rules, may lead to doubts as to whether the clause assumes that such disputes are to be resolved by an ICC Court or in an ad hoc arbitration in which the arbitrators use the ICC Rules as the rules of procedure.

This misunderstanding increases in situations where the place of arbitration and the location of the arbitration institution are different, which is also not common in Russian arbitration. For example, according to the ICAC Rules of Arbitration of International Commercial Disputes the place of arbitration is the City of Moscow, and the Rules do not permit the parties to agree to the other place.9

However, despite these complications, ICC arbitration clauses indicating a place of arbitration different from Paris were previously quite often recognized by Russian courts.10 This suggests that the main reason for refusing to enforce this ICC Award was not the ambiguity of the arbitration clause, but rather considerations relating to the bankruptcy of the debtor.

Nevertheless, the fact remains that the alleged ambiguity of the arbitration clause was upheld in the case, and the Russian Supreme Court refused to re-examine the decisions handed down by the lower courts. Although the decision in this case does not set a precedent and other courts are not bound to follow it when hearing similar cases, it has created the risk that other courts may in future take the same approach. And the risk of refusal to enforce arbitration awards would be extended, not only to awards of the ICC, but also to those of other arbitration institutions, with standard arbitration clauses similar to the ICC's recommended arbitration clause.11

To reduce these risks, the ICC Court President, Alexis Mourre, sent a letter to the Supreme Court Chair, Vyacheslav Lebedev, on 9 November 2018, expressing his concerns about the situation.12 Alexis noted that the wording of the arbitration clause in the 1998 ICC Rules has remained the same over the years, and remains unchanged in the latest versions of the Rules (2012, 2017). To avoid any doubt as to which body has competence to administer disputes, a new provision was included in the ICC Rules of Arbitration in 2012. Previously, the 1998 Rules, provided that the ICC Court was ‘the arbitration body attached to the ICC’ and that it had the function of providing ‘settlement by arbitration … in accordance Rules of Arbitration of the International Chamber of Commerce’ and ‘ensuring the application of these Rules’ (Articles 1(1) and 1(2), 1998 Rules). Article 1(2) of the Rules (2012, 2017) now expressly states that ‘[t]he Court is the only body authorized to administer arbitrations under the Rules’. Similarly, Article 6(2) of the Rules (2012, 2017) explicitly sets out that, by agreeing to arbitration under the Rules, the parties accept that the arbitration shall be administered by the ICC Court. Accordingly, any reference to the ICC Rules of Arbitration shall be viewed as the parties' clear consent to submit their dispute to arbitration by the ICC Court.

The Supreme Court responded to Alexis Mourre on 30 November 2018, stating that only participants in a case have the right to contest judicial decisions, thus, making it clear that the ICC does not have the right to interfere in the consideration of cases by Russian courts.

Nevertheless, one month later, on 29 December 2018 the Supreme Court published its 2018 Review of Court Practice This annual Review, in which the Supreme Court summarizes Russian courts’ practice on various issues, serves as guidelines for courts that are considering similar cases to those included in the Review.

In the 2018 Review, the Supreme Court stated the following, however in reference to a different case where enforcement of the ICC Award was sought:

An arbitration agreement between the parties to a contract, which corresponds to the arbitration agreement recommended by the arbitral institution agreed upon by the parties, shall be enforceable. All doubts regarding the enforceability of the arbitration agreement in accordance with Article 7(8) of the Law on Arbitration and Article 7(9) of the Law on International Commercial Arbitration shall be interpreted in favor of its validity and enforceability.13

Thus, in essence, the Russian Supreme Court said:

  1. An arbitration clause recommended by an arbitration institution is deemed to be enforceable. Thus, even if its meaning might seem unclear, a situation is difficult to imagine where an arbitration institution would recommend a clause with a dispute resolution mechanism that the institution could not control. This, in essence, eliminated the concerns raised due to the above DMM decision.
  2. Arbitration clauses should be interpreted in an arbitration-friendly manner. Changes introduced in 2016 to the Russian Law on International Commercial Arbitration require Russian courts to interpret arbitration agreements in favor of their validity and enforceability.

It should also be mentioned that despite the widespread view that Russia is not an arbitration-friendly country, research by the Russian Arbitration Association (‘RAA’) shows the opposite. For instance, a 2018 RAA study reveals that within the past ten years (2007–2017), 472 applications were filed for the recognition and enforcement of foreign arbitral awards in Russia, of which 378 were granted, 45 rejected, and 49 not considered for various reasons mostly related to procedure.14

With regard to the enforcement of ICC awards, between 2007 and 2017, 13 applications were filed in Russian courts; in three cases the enforcement was rejected, and in two cases the proceedings were terminated. All three of the rejections were done on the basis of the 1958 New York Convention; one under Article V 1(b)15 and Article V 2(b)16 and the other two under Article V 2(b).

ICC case No. 17699/GZ/MHM/MD/TO, Russian case А40-176466/17-83-1232 available at http://kad.arbitr.ru/Card?number=%D0%9040-176466/17-83-1232.

Free translation of the Russian quote in the judgement.

An identical terminology is recommended under the 2017 Arbitration Rules, see https://iccwbo.org/dispute-resolution-services/arbitration/arbitration-clause/. The Russian version of the Rules and standard clauses are available at https://iccwbo.org/publication/2017-arbitration-rules-2014-mediation-rules-russian-version/.

See A. Yadykin, N. Rubins, ‘ICC seeks clarity after clause deemed unenforceable in Russia’, available on the Kluwer Arbitration Blog at http://arbitrationblog.kluwerarbitration.com/2018/11/28/russian-courts-hold-an-icc-arbitration-clause-to-be-unenforceable/ and GAR at https://globalarbitrationreview.com/article/1177002/icc-seeks-clarity-after-clause-deemed-unenforceable-in-russia.

According to the ICC Statistical Report, in 2017, ICC arbitrations were seated in 63 countries, and 82% of ICC arbitrations were seated outside Paris.

See citation rules at https://www.iclr.co.uk/archive/what-is-a-law-report/: ‘The identity of the judge, as well as that of the court where the hearing took place, is an essential element of any law report. Whilst it may be possible when discussing a case to identify it as “a decision of the Court of Appeal”, or to mention that such-and-such a case was “reversed by the House of Lords” in a subsequent appeal, no report of the relevant decision of the Court of Appeal or House of Lords could be relied upon which did not identify the “constitution” of the court, ie list the names of the judges sitting on the bench, even if they did not all give judgment’.

For example, Resolution of Arbitrazh Court of Moscow Circuit dd. 18 May 2018 in case A40-222661/17.

See, as an example, the ICAC arbitration clause for international disputes: ‘Any dispute, controversy or claim which may arise out of or in connection with the present contract (agreement) [in case a separate arbitration agreement is concluded a particular contract (agreement) is to be indicated], or the entering into force, conclusion, alteration, execution, breach, termination or validity thereof, shall be settled by arbitration at the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation in accordance with its applicable regulations and rules’, available at http://mkas.tpprf.ru/en/documents/

Par. 21, ‘Place of Arbitration’ of the Rules for the Arbitration of International Commercial Disputes of the ICAC at the Chamber of Commerce and Industry of the Russian Federation, available at: http://mkas.tpprf.ru/en/documents/.

See, for example, Ruling of the Russian Supreme Court dated 27 June 2016, No. 310-ES16-6467 in Case No. А83-2596/2012 (ICC Arbitration with the place of arbitration in Geneva); Resolution of the Arbitrazh Court of the West Siberian District dated 19 January 2018 in Case No. А81-4101/2016 (ICC Arbitration with the place of arbitration in Vienna); Resolution of the Arbitrazh Court of the Western Siberian District dated 28 April 2016 in Case No. А27-1875/2015 (ICC Arbitration with the place of arbitration in London).

See LCIA recommended arbitration clause: ‘Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause’, available at: http://www.lcia.org/Dispute_Resolution_Services/LCIA_Recommended_Clauses.aspx. SCC model arbitration clause: ‘Any dispute, controversy or claim arising out of or in connection with this contract, or the breach, termination or invalidity thereof, shall be finally settled by arbitration in accordance with the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce’, available at https://sccinstitute.com/dispute-resolution/model-clauses/english/

Available at: https://www.kommersant.ru/doc/3798973.

See item 5 of the Review of the Practice of Dispute Resolution by the Courts of the Cases Connected with the Fulfilment of the Function of Assistance and Control Related to Arbitration Courts and International Commercial Arbitration Courts, approved by the Supreme Court of the Russian Federation, 29 Dec. 2018, available at http://www.supcourt.ru/documents/all/27518/.

See RAA Survey on recognition and enforcement of foreign arbitral awards in Russia in 2007-2017, available at: https://journal.arbitration.ru/upload/iblock/95f/Arbitration_3_fin.pdf. It has further been pointed out that the percentage of foreign arbitral awards that are denied enforcement in Russia has risen in proportion to the monetary value of the dispute. Since a significant portion of cases considered at the ICC Court have a high monetary value, the percentage of ICC awards that are denied enforcement is higher.

Lack of proper notice.

Public policy.