Arbitrability of corporate disputes: dispute relating to “Delovye Linii”

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The Arbitration The court of St. Petersburg and Leningrad region (CA) in its decision of October 21, 2021 in case No. А56-25416 / 2021 refused the recognition and enforcement of the foreign arbitration award (decision) and In doing so, the CA (1) has broadly interpreted the concept of corporate litigation, and (2) applied restrictions on the arbitrability of corporate litigation.

According to the CA, the dispute resolved by arbitration under LCIA rules regarding an option agreement on shares of a Cypriot company was in fact a dispute relating to the creation, management or participation in a Russian legal entity, that is, a corporate dispute subject to restrictions under Russian law.

The CA ruled that the arbitration clause providing for arbitration under the LCIA rules was inapplicable and that the dispute should have been heard in a Russian court. arbitrator to research.

1. Origins

1.1 The decision refused to recognize and apply the corrected LCIA award (as defined below) in the “Delovye Linii” dispute:

1.1.1 Under the option agreement, Doglemor Trade Limited and AA Bogatikov have agreed to transfer shares of DL Management Limited in favor of Caledor Consulting Limited and MV Khabarov. DL Management Limited would become the sole owner of the Russian “Delovye Linii” group of companies.

1.1.2 Court under LCIA Rules upheld Caledor Consulting Limited and MV Khabarov’s claim against Doglemor Trade Limited, DL Management Limited and AA Bogatikov, acknowledged unilateral termination of the purchase option agreement regarding the actions of DL Management Limited as legal and awarded damages jointly with the respondents in the amount of US $ 58 million.

1.1.3 On November 25, 2020, the CA refused to recognize and enforce the LCIA award. The court justified the refusal by a miscalculation by the arbitrators (the arbitrators had not deducted but had added the amount of “tax risks” to the enterprise value).

1.1.4 On February 23, 2021, the court, under LCIA rules, issued a corrected award, which reduced the amount of damages awarded to $ 49 million (“Corrected LCIA Price”). Caledor Consulting Limited requested recognition and enforcement of the corrected LCIA award before the CA.

2. The position of the board

2.1 The CA, while admitting that the arbitrators corrected the previous error, nevertheless refused to recognize and execute the corrected LCIA Award, stating the following.

By recalculating the enterprise value, the arbitrators, on their own initiative, modified the estimate of EBITDA (for which there had been no previous error) without obtaining additional expertise. The AC considered that such an arbitrary estimate was in contradiction with the mandatory provisions of Russian law (because, according to the AC, “losses were awarded by an arbitrary amount”), therefore, the Prize LCIA corrected violates Russian public order.

2.2 Important: According to the CA, the dispute examined in the LCIA arbitration (under an option agreement concerning the shares of a Cypriot company) was in fact a dispute relating to the creation, management or participation in a Russian legal entity, that is, a corporate dispute. subject to the restrictions provided for by Russian law: “The use of a foreign holding structure for the effective management of Russian companies was of a formal, legal and technical nature. Therefore, based on the actual intention of the parties to the option agreement to regulate corporate relations in Russian companies, their relationship was born and was aimed at participating and managing Russian entities.

The arbitration clause providing for LCIA arbitration was ruled inapplicable and the dispute, according to the CA, should have been heard by a Russian arbitral tribunal. The CA refused to recognize and apply the corrected LCIA Award.

3. Conclusion

3.1 It is difficult to say at this stage whether the Decree will mark a new conservative trend in Russian judicial practice with regard to arbitrability in corporate disputes, whether the Decree will subsequently be annulled, or whether it will remain a unique example of such an approach.

3.2 However, the Decision demonstrates additional risks and uncertainties in the event that disputes arising from “offshore transactions” (for example, in relation to shares of Cypriot holding companies or other foreign holding companies) are submitted to institutions arbitration that do not have the status of “arbitration institutions” in Russia (eg LCIA) and it is necessary to recognize and enforce such arbitral awards in Russia.

3.3 We will monitor whether the parties will appeal the decision to the North-West District Arbitration Court and the Supreme Court of the Russian Federation.


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