The case of AMSTRADSHIPPING OU, Estonia, against OOO Fingrain, Russia, on the recognition of an arbitral award made under the Terms of the London Maritime Arbitrators Association (LMAA)
On 16 January 2023, the Arbitrazh Court of the Rostov Region considered the application of the Estonian company AMSTRADshipping OU (claimant/applicant) to the Russian company Fingrain (respondent/interested party) for recognition and enforcement in Russia of an award made under the LMAA Small Claims Procedure 2021.
Facts of the case:
On 22 March 2022, the sole arbitrator, John Schofield, made an award for demurrage, interest and costs.
John Schofield has been a Full Member of the LMAA since 1999 and the author of the book Laytime and Demurrage, with experience in the maritime industry since 1965.
On 12 August 2021, the claimant and the respondent entered into an agreement for the carriage of goods by sea. The text of the contract for the carriage of goods by sea included the following clause: “Arbitration for general average in the United Kingdom, English law applicable.”
Between 7 - 13 December 2021, the representative of the respondent, Lev Reusin, agreed on the candidacy of the arbitrator and the LMAA Small Claims Procedure 2021.
Positions of the parties:
The claimant asked to recognize and enforce the arbitration award. The claimant relied on the GENCON 1994 arbitration clause (Article 19 Part 2 of the Proforma).
The respondent refused to comply with the arbitration award, citing the following:
- this representative was not authorized to agree on the arbitration procedure, but was only a sales representative,
- the respondent has not received the claim and notice of arbitration,
- the arbitration award did not contain information about the entry into force of the arbitration award, and the claimant did not provide evidence that the arbitration award became final for the parties,
- Estonia is classified as an unfriendly country, and approval of a special commission is required to repay obligations to foreign creditors of that country,
- the claimant did not open a bank account in Russia for the execution of the award,
- the case file does not contain the proforma GENCON 1994,
- the clause “Arbitration for general average in the United Kingdom, English law applicable” shall subject to arbitration only disputes arising out of general average and replaces the arbitration clause provided in GENCON 1994,
- the claimant is not an expert in English law and cannot therefore interpret English law for the Russian court.
The Court's decision:
The Court refused to recognize and enforce the arbitration award, partially accepting the respondent's arguments.
Comments:
It may be useful to consider the Court’s position on this case when preparing for arbitration and when negotiating an arbitration clause with Russian companies. Although the case is not completed, and the Court's decision can be appealed, nevertheless, the respondent's objections are complex.
First, unfortunately, when a foreign entity faces the Russian party respondent in arbitration, the first defense of the Russian party is aimed at conducting the arbitration through a representative whose powers are incorrectly formalized. Traditionally, either a power of attorney is not drawn up, or it is drawn up with errors on purpose. If only a foreign lawyer works in the case, then he may not take into account these Russian specifics. Moreover, English arbitrators cannot always detect any tricks in this matter. Therefore, if international arbitration is underway, it is desirable that lawyers from the country where the decision is planned to be enforced take part in the case.
Second, regardless of whether the respondent's representative will be notified of the arbitration, it is advisable to send all critical notices to the company's registered address rather than relying solely on email.
Third, a Russian court cannot rely on Russian lawyers' knowledge of English law. It is advisable to support all references to the interpretation of the arbitration clause in the context of English law with the opinion of an English lawyer translated into Russian. Unfortunately, this greatly increases the costs of conducting the case and, with small amounts, the meaning of this work is lost.
Fourth, in this case, the claim is for a very small amount and in order to save money, one could turn to the mediation procedure. Arbitration has become a very complex and bureaucratic procedure, and given the involvement of state courts in it at the execution stage, arbitration is losing its attractiveness. Of course, you also need to prepare for mediation and have serious arguments to substantiate your claims. However, this procedure is cheaper, faster and strategically more favorable than a dispute in the judicial arena. Since the parties to this dispute are commercial companies, they are in equal positions, the chances of reaching an agreement in mediation are very high.
Case No. А53-33710/2023
On 16 January 2023, the Arbitrazh Court of the Rostov Region considered the application of the Estonian company AMSTRADshipping OU (claimant/applicant) to the Russian company Fingrain (respondent/interested party) for recognition and enforcement in Russia of an award made under the LMAA Small Claims Procedure 2021.
Facts of the case:
On 22 March 2022, the sole arbitrator, John Schofield, made an award for demurrage, interest and costs.
John Schofield has been a Full Member of the LMAA since 1999 and the author of the book Laytime and Demurrage, with experience in the maritime industry since 1965.
On 12 August 2021, the claimant and the respondent entered into an agreement for the carriage of goods by sea. The text of the contract for the carriage of goods by sea included the following clause: “Arbitration for general average in the United Kingdom, English law applicable.”
Between 7 - 13 December 2021, the representative of the respondent, Lev Reusin, agreed on the candidacy of the arbitrator and the LMAA Small Claims Procedure 2021.
Positions of the parties:
The claimant asked to recognize and enforce the arbitration award. The claimant relied on the GENCON 1994 arbitration clause (Article 19 Part 2 of the Proforma).
The respondent refused to comply with the arbitration award, citing the following:
- this representative was not authorized to agree on the arbitration procedure, but was only a sales representative,
- the respondent has not received the claim and notice of arbitration,
- the arbitration award did not contain information about the entry into force of the arbitration award, and the claimant did not provide evidence that the arbitration award became final for the parties,
- Estonia is classified as an unfriendly country, and approval of a special commission is required to repay obligations to foreign creditors of that country,
- the claimant did not open a bank account in Russia for the execution of the award,
- the case file does not contain the proforma GENCON 1994,
- the clause “Arbitration for general average in the United Kingdom, English law applicable” shall subject to arbitration only disputes arising out of general average and replaces the arbitration clause provided in GENCON 1994,
- the claimant is not an expert in English law and cannot therefore interpret English law for the Russian court.
The Court's decision:
The Court refused to recognize and enforce the arbitration award, partially accepting the respondent's arguments.
Comments:
It may be useful to consider the Court’s position on this case when preparing for arbitration and when negotiating an arbitration clause with Russian companies. Although the case is not completed, and the Court's decision can be appealed, nevertheless, the respondent's objections are complex.
First, unfortunately, when a foreign entity faces the Russian party respondent in arbitration, the first defense of the Russian party is aimed at conducting the arbitration through a representative whose powers are incorrectly formalized. Traditionally, either a power of attorney is not drawn up, or it is drawn up with errors on purpose. If only a foreign lawyer works in the case, then he may not take into account these Russian specifics. Moreover, English arbitrators cannot always detect any tricks in this matter. Therefore, if international arbitration is underway, it is desirable that lawyers from the country where the decision is planned to be enforced take part in the case.
Second, regardless of whether the respondent's representative will be notified of the arbitration, it is advisable to send all critical notices to the company's registered address rather than relying solely on email.
Third, a Russian court cannot rely on Russian lawyers' knowledge of English law. It is advisable to support all references to the interpretation of the arbitration clause in the context of English law with the opinion of an English lawyer translated into Russian. Unfortunately, this greatly increases the costs of conducting the case and, with small amounts, the meaning of this work is lost.
Fourth, in this case, the claim is for a very small amount and in order to save money, one could turn to the mediation procedure. Arbitration has become a very complex and bureaucratic procedure, and given the involvement of state courts in it at the execution stage, arbitration is losing its attractiveness. Of course, you also need to prepare for mediation and have serious arguments to substantiate your claims. However, this procedure is cheaper, faster and strategically more favorable than a dispute in the judicial arena. Since the parties to this dispute are commercial companies, they are in equal positions, the chances of reaching an agreement in mediation are very high.
Case No. А53-33710/2023