Russian 'Corporate Raid' to be Dealt with by English Arbitral Tribunal

Bryan Cave Leighton Paisner

Egiazaryan and Gogokhiya v OJSC OEK Finance and The City of Moscow [2015] EWHC 3532 (Comm)

The Arbitration Act 1996 allows a party to an arbitration with an English seat to appeal a decision on jurisdiction made by the arbitrators. Appeals usually involve a party seeking to argue that a tribunal ought not to accept jurisdiction. This case is a rare example of a successful appeal against a tribunal deciding to decline jurisdiction.

This case arose out of the redevelopment of the Moskva Hotel, to be carried out under the aegis of a BVI company. A number of agreements concerning the management and control of the BVI company were entered into, with disputes to be resolved by an LCIA arbitration seated in London. OJSC OEK Finance(“OEK”), a company owned by  The City of Moscow (“Moscow”), was a party to these agreements. Moscow was not a party to these agreements.

A so-called “corporate raid” was then alleged to have taken place. Supposedly it was orchestrated by OEK under the direction of Moscow. The result of this was that OEK gained sole effective control of the BVI company and, accordingly, the redevelopment of the Moskva Hotel. The Claimants commenced an LCIA arbitration against OEK and Moscow, and sought to introduce claims including a tortious claim under Article 1064 of the Russian Civil Code in respect of this corporate raid. They also sought to argue that Moscow should be joined to the arbitration as a co-tortfeasor.

The arbitration tribunal held that they did not have jurisdiction to hear the tort claim, nor did they have jurisdiction to hear the claim against Moscow. Mr. Gogokhiya appealed to the High Court.

Mr Justice Burton identified the following 3 issues to be decided:

  • Whether the Russian law tort claim fell within the arbitration clauses (“Issue 1”).
  • Whether Moscow, as a non-signatory to the arbitration agreement, could be joined to the arbitration (“Issue 2”).
  • If the answers to Issue 1 and Issue 2 was yes, should the Court remit the matter to the arbitrator or hold that the claim was an abuse of process (“Issue 3”).  

The Court first considered Issue 2, then Issue 1, then finally Issue 3.

Issue 2

The tribunal had decided that English law ought to be applied to this issue as the agreement was governed by English law. As Moscow was not a signatory to the arbitration agreement, the tribunal concluded that it had no jurisdiction over any claim against Moscow. Burton J decided that the question to be determined was whether there was jurisdiction to join a non-signatory to the arbitration agreement. He held that this was a matter to be decided by the law of the place of incorporation of the signatory, i.e. Russian law as OEK was incorporated in Russia. As the parties had agreed to accept evidence that Russian law provided that a holding company was bound to accept the obligations of its subsidiaries (pursuant to Article 105 of the Russian Civil Code) – including an obligation to arbitrate disputes –  Moscow could be joined to the arbitration.

Issue 1

The tribunal had decided that the Article 1064 claim did not fall within the scope of the arbitration agreement. Burton J did not agree. Considering that the tortious claim was essentially a claim for mal-performance of the various agreements he held that the principle identified in Fiona Trust & Holding Corporation & Ors v Privalov & Ors [2007] EWCA Civ 20 applied and that the Court should assume that parties to an arbitration agreement intended all disputes related to the business relationship to be resolved in the same forum.

Issue 3

OEK and Moscow argued that as this claim had been brought by Mr. Egiazaryan, that it would be an abuse of process for Mr. Gogokhiya to bring it. Burton J decided that the earlier claim had been brought in a different form and by a different party, so there was no abuse of process. He accordingly exercised his discretion to remit the claim to the tribunal. 

This decision is likely to be of considerable wider interest.  Corporate raids are a feature of the Russian and wider CIS business environment, and business agreements between Russian and CIS parties often are governed by English law and governed by an arbitration with a seat in London. In particular:

  • The Court will draw a distinction between ascertaining the parties to the arbitration agreement (dependent upon the agreement's governing law) and ascertaining the parties to the actual arbitration. In determining the latter, it is necessary to apply the law of the place of incorporation of the signatory to the arbitration agreement. This may be different from the governing law of the agreement itself.
  • Exclusively tortious claims, including claims for conspiracy, can be brought in arbitration even if not all conspirators may be caught by the arbitration agreement.
  • Practitioners should consider whether arbitration agreements should cover tort claims and, if so, whether the governing law for any potential claims ought to be specified.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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