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How to win a case in the LCIA and to lose an enforcement case in Russia


At the end of 2013 the Supreme Commercial Court of Russiaput an end in a series of similar disputes concerning enforcement of the LCIA awards. The approach of Russiancourts to the enforcement issue looks controversial. The casesagain demonstrated how a broad interpretation of «public policy» may effect arbitration with Russians` parties.

Facts

Russian company, RosGazifikatsiya JSC entered into a series of complex contracts with Apaucuck point environmental limited, Traviata environmental limited and Backstreet environmental limitedfrom April to November 2007. They were investment contracts connected withGreenhouse Gases emissionsand contracts of guarantee. In relation to the latterRosGazifikatsiya JSC was obliged to reimburse any losses or costs of foreign companies. The total sum of guarantee was $ 2.5 billion.

It is not known exactly what caused disputed between the parties. Eitherthe Russian party breached the contracts or the foreign companies did it. Meanwhile, the conflict escalated in two jurisdictions. While one party tried to recover damages in the arbitration, the other challenged the subject matter of the contracts of guarantee by the action filed by its shareholders.

Shareholder`s first action

In 2009, an individual, shareholder of RosGazifikatsiya JSC, owning of 0.017 % of the shares of RosGazifikatsiya JSC brought an action against RosGazifikatsiya JSCand its counterparts in the Arbitrazh Court of Moscow. Latter, in 2012, an other shareholder, an individual owning of 0.0003 % of shares brought an action on the same ground. They suedfor rescission of all the contracts of guarantee on grounds of violating of Companies Act (case А40-151438/2009).In accordance with article 79 of the Act (the previous edition) major transaction must be approved by the Board of Directors (Supervisory Board) of the company or the general meeting of shareholders.

The plaintiffs stated that the contracts of guarantee were major transactions – the total sum of guarantee was $ 2.5 billion or 65 007 432 000 Rub. Compare it with the balance sheet of the company, whose assets were 63 513 427 000 Rub. Moreover, the plaintiffs referred that the contracts were not approving either by the Board of Directors (Supervisory Board) of the company or by the general meeting of shareholders.

The court held for the plaintiffs (the judgment dated 10 April 2012). In accordance with the decision, all the contracts of guarantee between RosGazifikatsiya JSCand Apaucuck point environmental limited, Traviata environmental limited and Backstreet environmental limited were repudiated as invalid. The court’s decision was confirmed subsequently by both the 9th Appellate Court (the ruling dated 26 June 2012) and the Federal Arbitrazh Court of Moscow region (the ruling dated 16 October 2012).

Meanwhile, the arbitration clauses were not a subject of the trial.

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