As previously reported (see Legal update, Supreme Commercial Court considers arbitration agreements in boilerplate contracts), earlier this year, the Russian Supreme Commercial Court accepted for supervision a case involving a challenge to the enforcement of the arbitral awards issued in favour of Sberbank (the claimant) in its dispute with a number of borrowers. Two grounds for supervisory review were mentioned by the court:

As previously reported, the claim against the borrowers for about US$19 million was brought by the claimant before the arbitral tribunal of the arbitration institution, constituted by the Construction and Investment company "SberbankInvestStroy" (CJSC), as provided for by the arbitration clause in the loan agreement.

The Supreme Commercial Court found that the arbitrators of the arbitration institution in question were appointed in accordance with the rules of the arbitration institution by the meeting of the shareholders of CJSC. The claimant, as the shareholder of this entity, took part in confirmation of the list of the arbitrators for the arbitration institution.

This fact, in the view of the Supreme Commercial Court, resulted in a "breach of the principles of equality of parties". The Supreme Commercial Court went on to say that "[i]n this context the creation and financing of the arbitration institution by one of the parties to the commercial contract and submission of disputes under this contract to this particular arbitration institution breached the principle of the objective impartiality, taking into account that the other party to the contract is not in the same position".

Rejecting the enforcement of the arbitral awards, the Supreme Commercial Court referred to the practice of the European Court of Human Rights and highlighted that impartiality needs to be checked both in subjective (behaviour of the arbitrators) and objective (constitution of the tribunal) senses, that is, impartiality is a necessary requirement not only of arbitration proceedings as such but also, more globally, of the process of creation of the arbitration institution and its list of arbitrators.

The conclusion of the Supreme Commercial Court, even though expressed in a succinct form, might be seen as a serious attack on many arbitration institutions in Russia, which were indirectly created by big corporations and banks and which deal primarily with disputes involving the establishing entities and their affiliates. If this position is further developed and confirmed by the Supreme Commercial Court, this would mean that arbitral awards issued by such institutions will not be enforceable, which would require the reorganisation or liquidation of such arbitration institutions.

The Supreme Commercial Court, in its decision, did not specifically address the second ground for the supervisory review, namely the question of the validity of arbitration clauses in boilerplate contracts. However, previous conclusions of the Supreme Commercial Court, in this regard, seem to be largely based on the impartiality issue and the fact that the boilerplate contracts of the bank refer disputes to the arbitration institution indirectly created by the bank. In other words, the Supreme Commercial Court seems to consider invalid only those arbitration clauses in the boilerplate contract which give rise to impartiality issues. This conclusion needs to be expressly confirmed by the Supreme Commercial Court in further rulings.