In a number of cases previously considered by the commercial courts, the plaintiffs tried to prove that the government, for instance of Moscow region, was responsible for breach of agreement conditions in cases when the government was not a party to an agreement but such an agreement was concluded by a department of the government, forming an independent legal entity.
A similar attempt was made in the arbitration proceedings. A Germany company filled a statement of claim with the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry (the ICAC) against the Government of Moscow City.
The dispute arose from an agreement dated 09 July 1992 between the Germany company and the Department of Development of Moscow which contained an arbitration clause. The company thought that the department, being both a part of the Moscow government and a separate legal entity, in fact acted on behalf of the City of Moscow, consequently the Moscow government should be responsible for breach of the contract, i.e. the company intended to apply the rule of the «piercing the corporate veil».
According to the § 2 of the Rules of the ICAC the arbitral tribunal may take a separate decision on the jurisdiction issue before the case is examined on its merits. The ICAC rendered the decision on its competence in the case.
The ICAC found that the department in spite of the legal independence was a part of the Moscow government and it was under the control of the Moscow government and it acted only in interests of Moscow. Thus, the Moscow government was a part of the agreement on the substantive ground.
Meanwhile, any party to the arbitration proceedings may file with the commercial [arbitrazh] court an application for the revision of the arbitration tribunal’s preliminary judgment on its competence (See: the article 235 (1) of the Commercial Procedure Code of the Russian Federation; the article 16 of the Federal Law No 5338-1 dated 7 July 1993 «On International Commercial Arbitration»).
The Moscow government filed an application for the revision of the arbitration tribunal’s preliminary judgment on its competence.
Both the Arbitrazh Court of the City of Moscow (the ruling dated 30.05.2013) and the Federal Arbitrazh Court of Moscow Region (the ruling dated 05.09.2013) upheld the Moscow government (See: the case # А40-41781/13-69-197).
Finally, the panels of the judges of the Supreme Commercial [Arbitrazh] court of the Russian Federation refused the motion of review of the rulings of the lower courts (the ruling dated 23.12.2013).
The main ground of the all rulings is that the doctrine of the «piercing the corporate veil» is not applicable to the relations between the Moscow government and the department because these relations are not based on private law. These relations are based on public law but the relations based on public law are not subject to arbitration. As the result the ICAC`s decision on its competence in the case was cancelled.