Dredging and Maritime Management SA v. AO Inzhtransstroy

At a glance

Parties

Dredging and Maritime Management SA (Luxembourg) v. AO Inzhtransstroy (formerly ZAO Engineering Corporation Transstroy) (Russia); third parties: Federal Financial Monitoring Service (Rosfinmonitoring) and Federal Tax Service Inspectorate No. 45 for Moscow

Case no.

Supreme Court of the Russian Federation No. 305-ЭС18-11934; Moscow Arbitrazh Court Case No. А40-176466/17-83-1232

Court

Moscow Arbitrazh Court (first instance); Arbitrazh Court for the Moscow District (cassation); Supreme Court of the Russian Federation

Underlying award(s)

ICC Case No. 17699/GZ/MHM/MD/TO, award of 15 September 2014 (Geneva), with an addendum on costs of 10 December 2014

Treaty

New York Convention 1958, Article V(2)(b); Article 244(1)(7) of the Russian Arbitrazh Procedure Code

Court

Judge V.P. Sorokin (Moscow Arbitrazh Court); N.Yu. Dunaeva (presiding), S.V. Nechaev, N.D. Denisova (Moscow District); Judge M.V. Pronina (Supreme Court)

Sector

Dredging and maritime works

Outcome

Recognition and enforcement of the ICC award refused on public-policy grounds (the debtor's bankruptcy and court-approved settlement) and because the arbitration clause did not clearly name an institution. The refusal was upheld on cassation, and the Supreme Court declined to hear a further appeal.

Amount

Award: EUR 3,600,000 in damages, plus 5% simple interest from 21 November 2010; arbitration costs of USD 39,651 and USD 120,066; legal costs of EUR 283,135.36. The applicant put interest up to 15 September 2017 at EUR 1,227,945.20. Nothing was enforced in Russia.

The dispute

Dredging and Maritime Management SA, a Luxembourg company, brought ICC arbitration against the Russian company AO Inzhtransstroy, claiming the company had failed to perform Contract No. 4/2010/4 of 4 October 2010. A tribunal seated in Geneva issued an award on 15 September 2014 and an addendum on costs on 10 December 2014. Meanwhile, bankruptcy proceedings against Inzhtransstroy had begun on 25 June 2013 (Case No. А40-74931/13). The company's claim to be entered in the register of creditors for RUB 268,268,719.71 was filed late and had not been decided when a settlement with creditors was approved and the bankruptcy ended (operative part announced 14 September 2017). On 15 September 2017 the company applied to the Moscow Arbitrazh Court for recognition and enforcement of the award. Inzhtransstroy opposed it, arguing that the ICC lacked competence because the arbitration clause referred only to "international arbitration".

Key holdings

1. Enforcing the award would be contrary to Russian public policy under Article V(2)(b) of the New York Convention and Article 244(1)(7) of the Arbitrazh Procedure Code. Giving effect to the award outside the bankruptcy process would give one creditor unjustified preference, harm the creditors paid under the schedule in the approved settlement, and threaten the debtor's financial survival. pp. 6–8
2. The first-instance court found nothing in the record showing that the ICC tribunal had considered the effect of the bankruptcy proceedings opened on 25 June 2013. p. 6
3. The ICC lacked competence. Clause 15.3 of Annex 3 to the contract referred to "international arbitration" and, unless otherwise agreed, to the ICC Rules. The court held that this did not name a specific institution and was ambiguous. It construed the clause against the party relying on it (Article 4.6 of the UNIDROIT Principles) and held that deciding the dispute without competence also offended public policy. pp. 8–9
4. The cassation court upheld the refusal. It held that protecting third parties' interests, including creditors of an insolvent debtor, is part of public policy, which courts must review when asked to enforce an award against a party in bankruptcy. It rejected the argument that the applicant had been denied judicial protection, because the applicant could still sue in the state courts in the ordinary way. pp. 10–11
5. The Supreme Court refused to refer the cassation complaint to its Economic Disputes Chamber. It held that the lower courts had applied the law correctly on both grounds: public policy and protection of the bankruptcy creditors, and the lack of certainty and enforceability of the arbitration agreement. pp. 3–4

Procedural history

1. 25 June 2013Bankruptcy proceedings opened against the respondent (Case No. А40-74931/13).
2. 15 September 2014ICC award issued in Geneva (Case No. 17699/GZ/MHM/MD/TO); an addendum awarding USD 120,066 in costs followed on 10 December 2014.
3. 29 May 2015Observation stage of the bankruptcy introduced; the deadline for creditor claims expired on 20 July 2015.
4. 3 February 2016The claimant applied to be entered in the register of creditors for RUB 268,268,719.71; the court deferred the claim because it was filed late.
5. 14 September 2017Settlement in the bankruptcy approved and proceedings terminated (operative part announced).
6. 15 September 2017Application for recognition and enforcement filed in the Moscow Arbitrazh Court.
7. 8 February 2018Moscow Arbitrazh Court refuses recognition and enforcement (operative part announced 24 January 2018).
8. 25 April 2018Arbitrazh Court for the Moscow District dismisses the cassation appeal (operative part announced 19 April 2018).
9. 26 September 2018Supreme Court refuses to refer the claimant's cassation complaint of 25 June 2018 for hearing.

Tribunal, counsel and experts

Decided by

• V.P. Sorokin Judge, Moscow Arbitrazh Court
• N.Yu. Dunaeva Judge, Arbitrazh Court for the Moscow District (presiding judge)
• S.V. Nechaev Judge, Arbitrazh Court for the Moscow District
• N.D. Denisova Judge, Arbitrazh Court for the Moscow District
• M.V. Pronina Judge, Supreme Court of the Russian Federation
• Christophe Imhoos ICC Tribunal, ICC Tribunal (chair of the tribunal that issued the underlying award)
• Nicholas Dennys ICC Tribunal, ICC Tribunal (arbitrator in the underlying award)
• Andrew Baker ICC Tribunal, ICC Tribunal (arbitrator in the underlying award)

For the claimant

P.V. Novikov · V.S. Grebenkova

For the respondent

S.Yu. Voronin · K.A. Slobodyanina

For other participants

Federal Tax Service Inspectorate No. 45 for Moscow

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Keywords

• New York Convention
• Article V(2)(b)
• public policy
• recognition and enforcement
• refusal of enforcement
• bankruptcy
• insolvency
• creditor equality
• settlement agreement
• pathological arbitration clause
• choice of institution
• ICC arbitration
• Geneva
• Russia
• Inzhtransstroy
• Transstroy
• dredging
• UNIDROIT Principles

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