Protasn Capital Limited v. OOO Morton-RSO

At a glance

Parties

Protasn Capital Limited (applicant, award creditor) v. OOO Morton-RSO (interested party, award debtor); third parties Rosfinmonitoring and Federal Tax Inspectorate No. 22 for Moscow

Case no.

Moscow Arbitrazh Court, Case No. А40-169104/18-141-1317

Court

Moscow Arbitrazh Court (Judge A.G. Avagimyan)

Underlying award(s)

Award of the Swiss Chambers' Arbitration Institution of 15 June 2018, Case No. 300389-2016 (arbitrator Rémy Gerbay)

Forum and rules

Recognition and enforcement under the New York Convention 1958 and Chapter 31 of the Russian Arbitrazh Procedure Code; underlying arbitration under the Swiss Rules of International Arbitration

Treaty

New York Convention (Articles III and V)

Sector

Share sale; suretyship

Outcome

Recognition and enforcement refused (26 September 2018). The court found the award contrary to Russian public policy and, as to the third payment, outside the conditions of the arbitration agreement.

Amount

Award sought to be enforced: RUB 110,670,695.33 in debt, USD 66,624.8 in arbitration costs and USD 170,635.66 in legal costs. State duty borne by the applicant.

The dispute

On 16 May 2014 Protasn Capital Limited sold Shawcross Limited (Belize) the shares of the Cypriot company Nussut Enterprises Limited. The main asset of Nussut was a 59.94% interest in OOO Galen. The price was payable in three instalments, and OOO Morton-RSO guaranteed Shawcross's obligations under a guarantee agreement of the same date. Shawcross did not pay the second and third instalments. Protasn then claimed against Morton-RSO as guarantor before the Swiss Chambers' Arbitration Institution. On 15 June 2018 the sole arbitrator ordered Morton-RSO to pay RUB 60,025,000 (second instalment) and RUB 50,645,695.33 (third instalment), plus costs. Protasn applied to the Moscow Arbitrazh Court for recognition and enforcement in Russia. Morton-RSO opposed the application.

Key holdings

1. The award is contrary to Russian public policy. The arbitrator had found that the sale was structured through foreign entities mainly to reduce tax; an email of 13 November 2013 put the tax saving at RUB 30 million. The court held that the transaction aimed to evade tax payable by the seller on the sale of property located in Russia. It relied on Article 3(1) of the Tax Code, Article 10(1) of the Civil Code and Information Letter No. 156 of 26 February 2013. pp. 4–5
2. Clause 18.2 of the guarantee agreement allowed arbitration only after the parties had tried, and failed, to resolve the dispute through an expert under clause 18.1. Read literally under Article 431 of the Civil Code, this was a condition of the arbitration agreement. The arbitrator was wrong to accept jurisdiction without it being met. p. 5
3. Protasn's letter of 26 August 2016 proposed expert determination only for the second instalment. The third instalment (RUB 50,645,695.33) was not yet due on that date. No expert referral was proposed for it before the claim was filed on 27 December 2016. The court therefore held that the award on the third instalment was made on a dispute not falling within the terms of the arbitration agreement. p. 6
4. The court rejected Morton-RSO's other objections because they went to the merits, and a public policy review must not lead to a review of the award on the merits. p. 6
5. The application was refused, and the state duty was charged to the applicant. An appeal lay to the Arbitrazh Court of the Moscow District within one month. p. 7

Procedural history

1. 16 May 2014Share sale agreement between Protasn and Shawcross Limited, and guarantee agreement between Protasn and Morton-RSO.
2. 26 August 2016Protasn proposes that the dispute over the second instalment be referred to an expert.
3. 27 December 2016Protasn files its claim with the Swiss Chambers' Arbitration Institution.
4. 15 June 2018Award in Case No. 300389-2016 against Morton-RSO.
5. 24 September 2018Hearing in the Moscow Arbitrazh Court; the operative part of the ruling is announced.
6. 26 September 2018Reasoned ruling issued: recognition and enforcement refused.

Tribunal, counsel and experts

Decided by

• A.G. Avagimyan Judge, Moscow Arbitrazh Court

For the claimant

S.G. Ross · S.E. Ogorodnikov

For the respondent

V.N. Melnikov · E.N. Zelensky

For other participants

Federal Tax Inspectorate No. 22 for Moscow

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Keywords

• New York Convention
• recognition and enforcement
• Russia
• public policy
• tax evasion
• Swiss Rules
• Swiss Chambers' Arbitration Institution
• multi-tier dispute resolution clause
• expert determination
• pre-arbitration condition
• scope of arbitration agreement
• guarantee
• suretyship
• share sale
• Article V(1)(c)
• Article V(2)(b)
• Information Letter No. 156

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