Validity of hybrid dispute resolution clauses to be considered by Russian Supreme Commercial Court.

01.06.2012

Tatiana Zakharova, Paralegal

Practical Law Company. Arbitration

On 19 June 2012, the Presidium of the Russian Supreme Commercial Court will consider the validity of so-called alternative hybrid arbitration clauses. In this particular case, the clause provides that only one party has the right to choose the dispute resolution forum.

A case concerning a dispute between Sony Ericsson Communication Rus LLC and Russian Telephone Company CJSC, arising under a supply agreement, was brought to the Supreme Commercial Court for consideration. The arbitration clause in the supply agreement provided that all disputes should be resolved under the Rules of Conciliation and Arbitration of the International Chamber of Commerce (www.practicallaw.com/8-201-5878), with London as the seat. The agreement also contained a provision allowing Sony Ericsson to file a claim to the state courts of competent jurisdiction notwithstanding the arbitration clause.

CJSC filed a suit with the commercial court of Moscow, claiming breach of the supply agreement by Sony Ericsson. The commercial court of Moscow, the 9th appellate court and the cassation court of Moscow region (2nd appeal) dismissed the claim without a hearing on the merits, referring to the arbitration clause in the contract. However, CJSC filed a supervisory appeal with the Supreme Commercial Court, which accepted the case for consideration. The Supreme Commercial Court found, during their preliminary analysis, that there might be grounds to annul the decisions of the lower courts because they did not properly consider the validity of the arbitration clause.

In its ruling of 28 March 2012, the Supreme Commercial Court accepted the case for consideration, finding that the lower courts had failed to analyse the validity of the hybrid clause in light of a condition in the agreement which gives only one of the parties the right to choose a competent body for dispute resolution. In its opinion, such a condition puts Sony Ericsson in a privileged position and violates the principle of equality between the parties. Referring to rulings of the European Court of Human Rights, the Supreme Commercial Court noted that parties should have equal procedural rights. Therefore, a clause giving options to only one of the parties of a contract should be considered as breaking the balance of parties' rights.

If the position of the Supreme Commercial Court is confirmed by the Presidium on 19 June 2012, it will drastically change existing court practice in the Russian Federation. We have previously reported on earlier decisions in which the courts of the Moscow region found similar alternative clauses valid (see Legal updates, Hybrid dispute resolution clauses: the story continues  and Hybrid dispute resolution clauses: green light?) However, this appears to be the first time that this issue has been brought to the highest instance, the Supreme Commercial Court, and it will be interesting to see the final verdict regarding such clauses on 19 June 2012.

Case: A40-29251/11-68-256.

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