Russian Court Recognizes an ICC Partial Award Previously Set Aside in the State of Origin

On 20 July 2011, a Commercial Court of the Kemerovo region in Russia (the “Court”) recognized an ICC arbitral award in Ciments Français vs Sibirsky Cement Holding Company that had been set aside by a domestic court in the state of the seat of arbitration. In doing so, the Court applied Article IX of the European Convention on International Commercial Arbitration of 1961 (“European Convention”). This decision raises hopes that Russia’s reputation as an arbitration unfriendly country might take a turn for the better.

A partial declaratory award (the “Award”) was rendered in the dispute between a French company Ciments Français (as claimant; hereinafter “Ciments”) and Russian company Sibirsky Cement Holding Company (as respondent; hereinafter “SCHC”). The seat of arbitration was Turkey.

Ciments then sought recognition of the Award before the Russian court, while SCHC brought an action before the Turkish courts to set aside the award. The Turkish court set aside the award and Ciments appealed against this decision. However, in the recognition proceedings in Russia, SCHC objected to the recognition of the Award on the ground that the Award had been set aside by the Turkish court. According to SCHC, the reason for the setting aside had been that the award had been rendered on matters beyond the scope of the submission to arbitration and would thus, fall within the ambit of the recognition/enforcement exception of Article IX(1)(c) of the European Convention. SCHC further argued that the recognition of the Award would constitute a violation of the Russian public policy due to the fact that the underlying share purchase agreement had previously been deemed invalid in separate proceedings by another Russian state court, a decision which at that time was being appealed against by Ciments.

The Court dealt in detail with the relationship between provisions stipulating grounds for the setting aside of arbitral awards under Article V of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (“NYC”) and the recognition/enforcement exception of Article IX European Convention. Both Turkey and Russia are parties to both of these conventions. The Court rightly held that in such a case, the European Convention has priority over the NYC and that therefore, the setting aside of the award could by itself constitute grounds for refusal of recognition only in the limited cases listed in Article IX European Convention.

The Court reviewed the reason for which the Award had been set aside by the Turkish court, finding that this had been due to incompliance of the Award with certain Turkish domestic legislation, thus falling outside the scope of Article IX European Convention.

In relation to the second ground proffered by SCHC for refusal of recognition (the invalidation of the parties’ agreement by another Russian court), the Court found that this did not constitute grounds for refusal of recognition as the decision invalidating the parties’ agreement was being appealed against at that time by Ciments.

This is the first decision of a Russian court on the recognition of an arbitral award that has previously been set aside by a court in the country of origin. While the decision of the Court is currently under appeal, it should be viewed as another sign of certain positive developments in Russian jurisprudence towards a more arbitration friendly approach in cases on recognition and enforcement of foreign arbitral awards. The decision of the Court is thus further corroborating a trend that may be considered to have started with the Supreme Commercial Court of Russia’s ruling of March 2010, which had granted an interim injunction in aid of an LCIA arbitration (Edimax Limited vs S.P. Chigirinskiy).