On 26 July 2024, the Russian Supreme Court annulled the enforcement of an arbitration award made in favour of the German company C. Thywissen GmbH (“Thywissen”) against the Russian company JSC Novosibirskhlebprodukt (“NHP”).
The dispute between the two companies arose from the performance of a contract for the purchase of linseed concluded in 2020. NHP had failed to meet the contractual delivery dates, citing force majeure to justify its delay, and requested an extension of the period for delivery. After Thywissen rejected its request, NHP initiated arbitration proceedings under the arbitration rules of the FOSFA (Federation of Oilseeds, Seeds and Fats Trade Associations).
The arbitral tribunal then issued an award on 16 November 2022, ordering NHP to pay damages of USD 600,000.
In this context, Thywissen applied to the Russian Court of First Instance for recognition and enforcement of the award. The first instance judge granted the application, holding that the award was not contrary to Russian public policy. NHP appealed against this decision, but the Court of Appeal upheld it.
NHP then appealed to the Russian Supreme Court, which ruled that the award was contrary to Russian public policy and could not be enforced. The Russian Supreme Court based its decision on two main grounds:
- The principle of proportionality: The Supreme Court criticised the failure to take into account the force majeure invoked by NHP to justify the delay in delivery. The Court also pointed out that the lower courts had overlooked the potential repercussions in the region of enforcing the arbitration award against NHP.
- The principle of impartiality: The Supreme Court held that the composition of the arbitral tribunal, which included nationals of states considered ‘hostile’ to Russia, undermined the arbitrators’ impartiality. In this case, the arbitral tribunal was composed of nationals of Ukraine, the United Kingdom and Denmark, all of which appear on the list of hostile states approved by the Russian government, which currently includes 49 countries.
The Supreme Court held that Russian courts must presume a lack of impartiality and objectivity on the part of the arbitrators in relation to the Russian party, unless proven otherwise. As a result, the Supreme Court refused to enforce the arbitral award and ordered a new trial.
This decision demonstrates the sensitivity of Russian courts to political considerations in international arbitration, particularly in the current context of geopolitical tensions.
Case No. A45-19015/2023, Supreme Court of Russia, 26 July 2024.
