Russian court enforces SCC award.

31.03.2011

Practical Law Company. Arbitration.

On 10 March 2011 the Federal Arbitrazh Court of the North-West District confirmed the enforcement of a Stockholm Chamber of Commerce (SCC) award in a Norwegian-Russian dispute.

Norwegian shipping company, Odfjell, obtained the SCC award against Russia's state-owned shipyard, Sevmash, for recovery of a loss of around a USD44 million which it incurred as a result of termination of three contracts for supply of chemical tankers.

The Arbitrazh Court of the Arkhangelsk region ruled to enforce the award and Sevmash appealed the ruling before the North-West District Court on grounds that:

The tribunal lacked jurisdiction to render a consolidated award relating to three disputed contracts. Each of the three contracts had similar arbitration clauses but the disputes arising out of each contract should have been heard separately instead of together in one consolidated case.

The enforcement of the award would contradict Russian public policy because the defendant's liability under the award is disproportionally high.

The court rejected the first argument due to the close links between the contracts. The claim for loss arose out of the termination of the three contracts. The contracts were lawfully terminated by Odfjell due to serious violations of Sevmash's obligations under the first contract.

The reasoning given by the court is welcome because it now makes it easier for courts to enforce arbitral awards issued on consolidated cases, even if the parties had not expressly agreed that the cases should be heard together. In this case, the need for consolidation followed on from an implied will of the parties and from close connections between the disputed contracts.

The court also rejected the public policy argument: it did not consider that the enforcement of the award violated any fundamental principles of the Russian legal system. The obligation to compensate the losses of a contractual counterparty by those who violated the contract is a principle well known in Russian law. Furthermore, the court did not consider that the amount awarded was disproportionate.

If the ruling survives in the Russia Federal Supreme Court, where Sevmash is likely to appeal, then such a decision is a very positive sign in the further development of the Russian courts' attitude towards foreign arbitral awards.

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