Maximov v Open Joint Stock Company "Novolipetsky Metallurgichesky Kombinat"

Factual and Procedural Background

This case concerns an application to enforce an arbitral award issued by the International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation ('ICAC'), rendered by three Russian arbitrators. The award was for a sum exceeding RUB 8.9 billion plus interest. The award was subsequently set aside by the Moscow Arbitrazh Court, a decision upheld on appeal by the Federal Arbitrazh Court of Moscow District and with permission to appeal refused by the Supreme Arbitrazh Court of the Russian Federation.

The dispute arose from a Share Purchase Agreement dated 22 November 2007, under which the Defendant agreed to acquire a controlling stake in a Russian metallurgical company founded by the Claimant. The parties disagreed on the calculation of the purchase price, which was resolved by the Arbitrators in favor of the Claimant, dismissing a belated counterclaim by the Defendant alleging fraud and breach of contract.

Following the award, the Defendant initiated proceedings in the Moscow Arbitrazh Court, challenging the validity of the Share Purchase Agreement on grounds of fraud and subsequently applying to set aside the award based on alleged non-disclosure by arbitrators of their relationships with experts. The Moscow Arbitrazh Court set aside the award on three grounds, including the non-disclosure issue, a public policy ground, and a non-arbitrability ground. These decisions were upheld on appeal, and further appeals were refused.

Additional related proceedings occurred in Russia, France, and the Netherlands, with mixed outcomes on enforcement of the award. The Claimant now seeks enforcement of the award in this Court under the New York Convention and common law, challenging the recognition of the Russian court judgments that set aside the award.

Legal Issues Presented

1. Whether the Russian court judgments setting aside the arbitral award should be recognized and enforced by this Court.
2. Whether there is cogent evidence of actual or inferred bias on the part of the Russian courts in setting aside the award.
3. Whether the grounds relied upon by the Russian courts for setting aside the award—non-disclosure by arbitrators, breach of public policy, and non-arbitrability—are legally valid and free from bias.
4. Whether the doctrine of ex nihilo nihil fit applies, i.e., if the award is set aside, there is nothing to enforce.
5. The effect of issue estoppel arising from related French and Dutch court proceedings on the enforcement application.

Arguments of the Parties

Claimant's Arguments

• The Russian court judgments setting aside the award should not be recognized because they were tainted by bias, either actual or inferred.
• The non-disclosure ground was improperly applied, ignoring waiver provisions and procedural fairness.
• The public policy ground was a misconstruction of Russian law, as errors of law by arbitrators do not justify setting aside an award.
• The non-arbitrability ground was novel, not raised by the parties, and unsupported by precedent, thus evidencing bias.
• The Claimant relied on expert evidence highlighting systemic issues and risks of favoritism in Russian courts, and procedural irregularities in the Russian court judgments.
• The Claimant contended that issue estoppel should not apply due to ongoing appeals in the Netherlands and that the English court should independently assess the validity of the Russian judgments.

Defendant's Arguments

• The Russian court judgments are valid and should be recognized and enforced.
• The doctrine of ex nihilo nihil fit applies, meaning that once the award is set aside, there is nothing left to enforce.
• The non-disclosure of arbitrators’ relationships with experts justified setting aside the award as it raised justifiable doubts about impartiality.
• The public policy ground reflected a legitimate concern that the arbitrators failed to apply imperative provisions of Russian contract law.
• The dispute was non-arbitrable under Russian law as it involved corporate disputes reserved for Arbitrazh Courts.
• The Defendant relied on expert evidence to rebut claims of bias and supported the Russian courts’ approach and findings.
• Arguments on issue estoppel were acknowledged but considered unnecessary to address if Russian court judgments were recognized.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by acknowledging the heavy burden on the Claimant to establish actual bias or bad faith on the part of the Russian courts sufficient to refuse recognition of their judgments. Mere error or perversity is insufficient; the decision must be so extreme as to be evidence of bias.

Regarding the non-disclosure ground, the Court found that the Russian courts erred in law by concluding that non-disclosure was non-waivable, contrary to the arbitration rules. The Russian courts failed to make any factual finding on waiver and wrongly excluded consideration of whether the Defendant had waived the right to object. However, despite these legal errors, the Court was not persuaded that the decisions were so egregiously wrong as to amount to bias.

On the public policy ground, the Court found that the Russian courts' interference with the arbitrators' assessment of the purchase price was a misapplication of the principle that errors of law by arbitrators do not justify setting aside an award. The ground was unsupported by established law and was introduced by the judge sua sponte without notice to the parties, which was procedurally unfair. Nonetheless, the Court did not find this to be evidence of bias.

Regarding the non-arbitrability ground, the Court noted this was a novel ground, not raised by the parties, and contradicted prior decisions, including one by the same judge two months earlier. The Court found the reasoning of the Russian courts on this point to be flawed and unsupported by judicial authority. However, the Court considered that this ground was not sufficient to establish bias.

The Court considered expert evidence on the Russian judiciary's independence and the context of political influence but found the evidence inconclusive and insufficient to establish bias in this case.

The Court also noted the procedural irregularity of the Russian judge introducing new grounds in her judgment without prior notice, raising concerns under Article 6 of the European Convention on Human Rights, but concluded this did not amount to bias warranting refusal of recognition.

On the doctrine of ex nihilo nihil fit, the Court found it unnecessary to decide the issue because the Claimant failed to establish the required threshold of bias or bad faith.

Finally, the Court addressed issue estoppel arising from French and Dutch proceedings, finding that the ongoing appeal in the Netherlands meant issue estoppel did not apply, and thus no binding effect arose from those foreign decisions.

Holding and Implications

The Court dismissed the Claimant's application to enforce the arbitral award.

The direct effect is that the Russian court judgments setting aside the award will be recognized and enforced in this jurisdiction, preventing the Claimant from enforcing the award here. No new precedent was established, and the decision reflects strict adherence to the principle that only cogent evidence of bias or bad faith will justify refusal to recognize foreign court judgments. The ruling underscores the high threshold for challenging foreign court decisions and the importance of procedural fairness in arbitral award annulment proceedings.