Supreme Commercial Court considers arbitration agreements in boilerplate contracts.

02.06.2011

Arbitration PLC

In a decision dated 21 February 2011, but only recently published, the Russian Supreme Commercial Court in Sberbank v Business-Lada LLC, Lada-Forward LLC et al (case N A55- 11220/2010) considered arbitration agreements in standard form contracts. The Supreme Court stated that arbitration clauses included in boilerplate contracts are invalid unless the parties confirm their intent to arbitrate after the dispute arises.

Sberbank (claimant) and Business-Lada LLC (respondent) were parties to a number of loan agreements which referred all disputes to the arbitration institution at the Investment Company "SberbankInvestStroy". When disputes arose, the claimant filed claims against the respondent (and a number of its guarantors) at the arbitration institution. In 2010, the claimant obtained an arbitral award upholding its claims in full.

The claimant then enforced the arbitral award in Russia. The court decision enforcing the award was confirmed on appeal.

However, the Supreme Commercial Court, when approached by the respondents, found grounds for a supervisory review and accepted the case. The court made a noteworthy statement that there were reasons to consider the arbitration clause in the loan agreement invalid, since the loan agreements were concluded in the form of a boilerplate agreement, that is, all conditions in the loan agreement, including the arbitration clause, originated from one party, the bank. According to the court, in order for the arbitration clause to be valid, the agreement to arbitrate had to be confirmed by the parties once the disputes arose. In reaching this conclusion, the court relied on Article 5(3) of the Russian law on arbitration, which applies to domestic arbitrations, that is, arbitrations not involving foreign parties.

The Supreme Commercial Court also noted that the issue of impartiality had to be considered, taking into account that the arbitrators for the case were appointed by the arbitration institution, which had the claimant among its founders.

The Supreme Commercial Court will consider the above circumstances and issue a final ruling in the coming months.

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