Summary

The court refused an application to enforce an arbitration award made in Russia which had been later set aside by the Russian Commercial Court. An appeal to the Russian appeal court had also failed. Despite criticism of the Russian judgments, they were not so perverse that they could only be ascribed to bias against the claimant.

Facts

The claimant applied to enforce an arbitration award made in Russia by the International Commercial Arbitration Court (ICAC).

The award concerned a share purchase agreement (SPA) in which the defendant had agreed to purchase a majority share of the claimant's holding in a Russian company. A disagreement arose as to the calculation of the purchase price. The arbitration award was made by three Russian arbitrators. They awarded an extremely high sum in the claimant's favour, but the award was later set aside by a judge in the Russian Commercial Court. The grounds for setting aside the award were that (1) two of the arbitrators had failed to disclose their connections to the claimant's expert witnesses, and such connections put them in a subordinate position to the experts; (2) the arbitrators had breached a fundamental principal of Russian law and public policy demanded that the award be set aside; (3) the dispute between the parties was not arbitrable as it was a corporate claim and could only be heard by the courts. The second and third grounds were raised by the judge for the first time in her judgment. Her decision was upheld on appeal, and permission to appeal to the Russian Supreme Court was refused.

The claimant submitted that the court should not recognise the Russian court judgments, as bias could be inferred from the perverse nature of their decisions. The claimant relied on: published articles criticising the Russian courts; a demonstrated bias by Russian courts against international arbitration; the judge's failure to deal with the issue of waiver concerning the alleged non-disclosure of the arbitrators' links to the experts under the ICAC rules

Held

(1) Bias - The case was one in which the claimant had to establish actual bias, but that bias could be established by inference. The fact that a foreign court's decision was manifestly wrong or perverse was not sufficient. The decision had to be so wrong as to be evidence of bias, or be such that no court acting in good faith could have arrived at it. It was therefore necessary to address what the judge had decided (see paras 12, 15 of judgment).

(2) Non-disclosure - Under ICAC rules, and the Rules of the Russian Federation on International Commercial Arbitration, a party who wished to challenge an arbitrator had to do so within a specified period. If challenge was not made within that period he was deemed to have waived his right to challenge. The judge had made reference to the ICAC rules and the facts relating to the arbitrators' and experts' places of work, but had not considered the facts as to waiver, whether by reference to an actual or constructive notice test. She had concluded that waiver was not applicable, and a non-disclosure was not waivable. The appeal court also concluded that the non-disclosure was irremediable. However, the defendant's expert accepted in his evidence that that was wrong (paras 23, 27-29, 31).

(3) Public policy - This issue was raised by the judge of her own motion, and related to the arbitrators' conclusions on the contract price pursuant to the SPA. The major issue before the arbitrators in resolving the dispute was as to the proper accounting approach to part of the calculation. They were presented with two rival sets of accounts for that purpose and they averaged the figures to arrive at a finding following the requirements of the SPA. The judge concluded that that constituted a breach of art.485 of the Civil Code, which stated that goods had to be bought at the price provided by the contract, and if it could not be determined from its terms it had to be determined in accordance with art.424. It was difficult to see that the arbitrators were in any way in contravention of art.424 and 485. Even if they were in breach, it seemed impossible to see how it was more than an error of law. The judge herself had, in a number of previous cases, drawn a careful distinction between an error of law, which was not enough to set aside an award, and a fundamental violation of public policy and universal principles (paras 34, 40-42).

(4) Arbitrable dispute - Whether or not the judge was a pioneer in concluding that a corporate dispute was not arbitrable, neither expert had found any decision to the effect that a claim for a purchase price pursuant to a share purchase agreement was non-arbitrable. However, there had been some academic support for the concept of non-arbitrability. In addition, the arbitration had earlier included counterclaims of fraud. The two issues were related and it might be a ground for concluding that the whole question should be heard in one place, namely the court (paras 46, 60-61).

(5) Conclusions - Despite severe criticism of the non-disclosure and public policy grounds for the decision, and the fact that the latter two grounds were unfairly not canvassed at first instance, the court was unpersuaded that the decisions were so extreme and perverse that they could only be ascribed to bias against the claimant. The court was also not persuaded that the arguable issue of whether the dispute was arbitrable was tainted by the two grounds which were unarguable. The judge's decision was a public judgment, and it was not regarded as a one-off, but was regularly followed by later judges. The fact that such a harsh decision was made about the work of such distinguished arbitrators, was more indicative of the approach of the Russian Courts towards arbitration, rather than cogent evidence of bias against the claimant. The claimant's application to enforce the award was therefore refused (paras 62-63, 71).

Application refused