OOO Agroprosperis v. ZAO Sodruzhestvo-Soya

At a glance

Parties

OOO Agroprosperis (Ukraine; formerly OOO Sfera Agrokon) v. ZAO Sodruzhestvo-Soya (Russia)

Case no.

No. А21-4708/2018

Court

Arbitrazh Court of Kaliningrad Oblast (first instance); Arbitrazh Court for the North-Western District (cassation)

Underlying award(s)

FOSFA Appeal Award on liability No. 1130 of 29 June 2017 and Appeal Award on quantum No. 1130-2 of 17 August 2017, rendered under the FOSFA Rules of Arbitration and Appeal (arbitration in London)

Forum and rules

Recognition and enforcement under the New York Convention 1958 (Article V(2)(b)), Article 244 of the Russian Arbitrazh Procedure Code and Article 36 of Law No. 5338-1 on International Commercial Arbitration

Court

First instance: Judge M.S. Glukhoedov. Cassation: O.Yu. Nefedova (presiding), M.G. Vlasova, P.Yu. Konstantinov

Sector

Agricultural commodities (soybeans)

Outcome

Recognition and enforcement refused on public policy grounds (25 June 2018); refusal upheld on cassation (25 September 2018).

Amount

Awards sought to be enforced: USD 9,457,451.17 damages with 3% interest compounded quarterly from 19 January 2015, plus costs of GBP 18,594, GBP 24,718.74 and trade representative fees of GBP 6,950 and GBP 3,000. Nothing enforced. The applicant bore the RUB 6,000 state fee.

The dispute

OOO Sfera Agrokon, a Ukrainian company and the predecessor of OOO Agroprosperis, agreed under Contract No. ЗАО/10769-ДГВ of 26 March 2014 to sell soybeans to ZAO Sodruzhestvo-Soya. The buyer processes oilseeds at a plant in Kaliningrad Oblast. The contract was governed by English law and provided for FOSFA arbitration in London. From 1 August 2014, Rosselkhoznadzor (the Russian veterinary and phytosanitary authority) restricted imports of soybeans from Ukraine. The buyer told the seller that this prevented performance and terminated the contract on 4 December 2014 under clause 9.2. FOSFA tribunals found that the buyer had committed a material breach. On appeal, they awarded USD 9,457,451.17 in damages plus interest and costs. Agroprosperis then sought recognition and enforcement in Russia. Sodruzhestvo-Soya argued four grounds against enforcement: public policy; punitive damages; that it had not signed the arbitration clause; and that the tribunal's composition, the procedure and its right to a fair hearing had been violated.

Key holdings

1. The procedure and composition of the arbitral tribunal did not follow the parties' agreement. FOSFA appointed an arbitrator for the buyer (notice of 10 April 2015) without making sure the buyer had been properly notified, and it rejected the buyer's challenge to that arbitrator. p. 7
2. The buyer's right to a fair hearing was violated. FOSFA refused an oral hearing without good reason. It also refused, without giving reasons, to treat the case as one of 'special importance' under Rule 9(a), so the buyer could not be represented by a lawyer qualified in English law. Arbitrators without legal training decided complex questions of English law and force majeure. pp. 7–8
3. Performance became impossible regardless of the buyer's will, because of a mandatory Russian import ban. The damages calculation was therefore punitive and contrary to good faith. Enforcing awards that contradict overriding mandatory Russian rules would breach Russian public policy, so the application was refused and the state fee of RUB 6,000 was left with the applicant. pp. 9–10
4. On cassation, the court held that Article 417 of the Civil Code, read with the import ban, is an overriding mandatory rule under Article 1192(1). It applies whatever law governs the contract. FOSFA's finding that the buyer had to accept the goods despite the ban was therefore contrary to Russian public policy. The lower court had not reviewed the merits of the awards. p. 5
5. FOSFA's letter of 23 March 2015 set 6 April 2015 as the deadline for the buyer to appoint an arbitrator. The letter was sent only on 10 April 2015 and received on 26 May 2015, and FOSFA appointed the arbitrator itself by notice of 10 April 2015. This breached the notice requirement of Rule 1(f). The seller's own notice of arbitration did not trigger the buyer's duty to appoint. pp. 5–6
6. The cassation court upheld the refusal under Article V(2)(b) of the New York Convention, Article 244 of the Arbitrazh Procedure Code and Article 36 of Law No. 5338-1, and dismissed the appeal. pp. 6–7

Procedural history

1. 26 March 2014Soybean supply contract concluded between OOO Sfera Agrokon (seller) and ZAO Sodruzhestvo-Soya (buyer).
2. 1 August 2014Rosselkhoznadzor's temporary restrictions on imports of soybeans from Ukraine take effect.
3. 4 December 2014The buyer terminates the contract. On 13 February 2015 the seller demands FOSFA arbitration.
4. 12 February 2016FOSFA Award No. 4453 upholds jurisdiction and awards GBP 9,670 in costs; the buyer pays it voluntarily.
5. 17 January 2017FOSFA Award No. 4495 finds a material breach and awards USD 10,573,775.35 in damages with 4% interest, plus costs.
6. 29 June 2017FOSFA Board of Appeal Award No. 1130 on liability confirms the material breach.
7. 17 August 2017FOSFA Appeal Award No. 1130-2 on quantum awards USD 9,457,451.17 in damages with 3% interest from 19 January 2015, plus costs.
8. 25 June 2018The Arbitrazh Court of Kaliningrad Oblast refuses recognition and enforcement (operative part announced on 19 June 2018).
9. 25 September 2018The Arbitrazh Court for the North-Western District dismisses the cassation appeal (hearing held on 19 September 2018).

Tribunal, counsel and experts

Decided by

• O.Yu. Nefedova Judge, Arbitrazh Court for the North-Western District (presiding)
• M.G. Vlasova Judge, Arbitrazh Court for the North-Western District
• P.Yu. Konstantinov Judge, Arbitrazh Court for the North-Western District

For the claimant

I.A. Martvel · V.V. Rodionov

For the respondent

V.I. Moskovkin · V.A. Savostin · A. Karchemov

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Keywords

• New York Convention
• Article V(2)(b)
• public policy
• recognition and enforcement
• FOSFA
• soybeans
• Ukraine import ban
• Rosselkhoznadzor
• overriding mandatory rules
• Article 1192 Civil Code
• Article 417 Civil Code
• impossibility of performance
• appointment of arbitrator
• notice
• right to legal representation
• punitive damages
• Article 244 Arbitrazh Procedure Code
• Russia

Summary generated with AI from the published documents — refer to the award for the authoritative text.