Effective notification of Russian participants in international arbitration (Autorobot v Sollers-Elabuga)
The Supreme Commercial (Arbitrazh) Court of Russia clarified recently whether or not a notification of arbitration is effective if it is received by a parent company rather than a subsidiary company who is the proper party to the arbitral proceedings. Mikhail Samoylov, Senior Associate at KIAP Attorneys at Law, discusses the case.
Background and relevant facts
Autorobot-Strefa Sp. z o.o. (Poland) entered into a contract with Sollers-Elabuga LLC (Russia) for the development, manufacturing and supply of automobile equipment. The contract included a LCIA arbitration clause and London was the seat of arbitration.
Autorobot-Strefa commenced arbitration against Sollers-Elabuga for breach of contract on 24 August 2011. Before the appointment of the arbitrator, on 30 September 2011 Sollers-Elabuga sent an e-mail to the LCIA stating that the company intended to settle the dispute pursuant to a settlement agreement. The e-mail was sent by Mr. Hvesenee B.M., head of legal at Sollers Group (Sollers-Elabuga is a subsidiary Sollers Group). Moreover, the e-mail contained the address of Sollers Group which differed from the address of Sollers-Elabuga (Sollers Group is located in Moscow while, Sollers-Elabuga is located in Yelabuga, the Republic of Tatarstan).
The arbitrator was appointed on 20 October 2011. The notification of appointment was sent to Yelabuga to Sollers-Elabuga’s address as provided on the contract.
On 21 November 2011, the parties concluded a settlement agreement. In accordance with that agreement:
- Sollers-Elabuga agreed to pay specified sums of money to Autorobot-Strefa until April 2012
- the arbitral proceeding were to be suspended
- if Sollers-Elabuga failed to make payments in accordance with the settlement agreement the arbitral proceeding would resume
The parties informed the arbitrator regarding the settlement agreement and the arbitral proceeding was accordingly suspended. Nevertheless, on 10 February 2012 Autorobot-Strefa notified the arbitrator that Sollers-Elabuga had failed to make an agreed payment and Autorobot-Strefa requested that the arbitration continue. On 16 February 2012 the arbitrator ordered Sollers-Elabuga to send to the LCIA a written response to the request for arbitration by 12 March 2012. The arbitrator’s order was sent to address of the parent company, Sollers Group, but not to Sollers-Elabuga’s address in Yelabuga.
Sollers-Elabuga did not participate in arbitration and an arbitral award was rendered against it, which ordered Sollers-Elabuga to pay Autorobot-Strefa approximately 1.4 million Euro plus interest and fees. The arbitral award was not executed voluntarily by Sollers-Elabuga and Autorobot-Strefa applied to the Arbitrazh Court of the Republic of Tatarstan for a writ of execution. Sollers-Elabuga objected to enforcement arguing that it was not notified of the arbitrator’s order dated 16 February 2012 that continued the arbitration proceeding because Mr. Hvesenee B.M. was not the representative of Sollers-Elabuga and he did not have a power of attorney issued by Sollers-Elabuga. Consequently, the arbitrator should have notified Sollers-Elabuga at the official address of Sollers-Elabuga.
The court agreed with Sollers-Elabuga and refused enforcement. The decision dated 21 March 2013 was based on the ground for refusal of enforcement set forth in Article V (1) (b) of the New York Convention:
- Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: …
(b) The party against whom the award is invoked was not given proper notice of … the arbitration proceeding or was otherwise unable to present his case.
The court of cassation upheld the decision of the Arbitrazh Court of the Republic of Tatarstan by a ruling dated 17 December 2013.
Decision of the Supreme Commercial (Arbitrazh) Court
Autorobot-Strefa applied to the Supreme Commercial (Arbitrazh) Court. Using the Civil Code of Russia, the court stressed that Mr Hvesenee B.M. as the head of legal department at Sollers Group obviously knew that Sollers-Elabuga was a subsidiary of Sollers Group and the Sollers Group had power to give directions to Sollers-Elabuga. Accordingly, the court stated that: a lawyer of a parent company performing his duties and entering into correspondence with the arbitrator takes ex officio obligations to represent the party in the arbitral proceeding even if he did not have a power of attorney issued by Sollers-Elabuga.
Moreover, the Supreme Commercial (Arbitrazh) Court repeated one of its previous decisions stating as follows: if a party to arbitration states its address it accepts the risk of obtaining of correspondence at this address as well as the risk of obtaining of correspondence by an unauthorised person (resolution № 17412/08 dated March, 31, 2009).
As a result, the Supreme Commercial (Arbitrazh) Court overturned the decisions of the lower courts and enforced the arbitral award.
The approach in this case acts as a reminder that parties in international arbitral proceedings, as a rule, enjoy full autonomy regarding its representative(s).
Although, in particular, article 18.2 of LCIA Rules provides an arbitral tribunal may require from any party a proof of authority granted to its representative(s), such an action is not mandatory. Hence, a party of arbitral proceedings should both to express the authority of its representative(s) at the beginning of the arbitral proceedings and to prevent any unauthorised person(s) from any communicating to the arbitral tribunal.