The partners of Gazprom are no longer within its jurisdiction. Its private arbitration court is acknowledged not impartial.

The case concerning the legitimacy of dispute consideration by the private arbitration court under Gazprom (PACG) was heard by the Board of the Higher Court of Arbitration (HCA) yesterday. An agreement to perform certain project and research works was executed between Yamalgazinvest CJSC (a subsidiary of Gazprom) and Neftegazproekt Institute LLC in February of 2009. It contained a private arbitration clause on settling disputed in the PACG. As the Institute breached the agreement terms, Yamalgazinvest was able to exact 1,6 million roubles of penalty from it in the PACG. After that, the LLC went to the Court of Arbitration of Moscow demanding that the private arbitration award be revoked. The Court upheld the Institute’s claim, but the cassation instance ruled the PACG award legal. The Neftegazproekt complaint was brought for consideration to the Board of the Judges of the HCA, which returned the case for review. The three judges believed that the private arbitration court that is under the organization affiliated with one of the parties to the dispute infringes upon the position of the other party and violates the impartiality principle that says that “nobody may be the judge of his own case”. The Board of the HCA agreed with the three judges and revoked the PACG award yesterday.

The court practice shows that the PACG awards are very rarely revoked. Lawyers confirm that the PACG has always been much trusted. Partner of the Law Firm "YUST" Alexander Bolomatov says: “I can’t remember the PACG being accused of making unjust or illegal awards”. The PACG was also created for the purpose of settling internal disputes between the monopolist’s structures, ensuring the confidentiality of disputes. The Board of the HCA acknowledged that the list of the private arbitrators of the PACG includes mostly outstanding scientists and practitioners, and that there are reasons to believe that “the objectively non-impartial private arbitration court has ways to ensure an impartial private arbitration by electing of subjectively impartial arbitrators by the parties”. However, the Board pointed out that Gazprom financed and controlled the PACG, and thus the case had been considered “with the guarantee of objective impartiality of the court breached and, as a consequence, the principles of equal rights and autonomy of will of the parties to the dispute also breached”.

Thus the HCA continues on the road of fighting “pocket courts” it started some years ago. The head of the HCA Anton Ivanov expressed the idea of elimination of all courts of private arbitration except those created under the chambers of commerce and industry (CCIs) as early as December of 2010. Rustam Kurmaev, Partner of Goltsblat BLP, states: “There is a multitude of courts of private arbitration not directly connected to the party to the dispute but established under the non-commercial organization, of which that party of a member. For example, the court under the Association of the Russian banks or under the Russian Automobile Insurers’ Association”.

Alexander Bolomatov believes that the HCA position regarding the PACG is too categorical and points out that “the subjective impartiality of concrete judges should have the main significance’. Rustam Kurmaev, to the contrary, supports the HCA decision: “There are two categories of private arbitration courts in Russia – those reputed to be reliable venues for settling disputes, like international commercial arbitration under the CCIs, whose awards are very rarely revoked, and pocket courts that need to be eliminated”.

Gazprom informed Kommersant that it “was not prepared to discuss the outcome before the full text of the decision by the HCA Board is received”. But lawyers believe that the monopolist will now have to systemically change the venue of dispute settlement in its agreements with contractors. Rustam Kurmaev points out: “Requests to the PACG lose their sense, since the courts of arbitration, following the HCA practice, may cease issuing writs of execution on its awards, if a party to the dispute is not affiliated with Gazprom”. If the monopolist won’t transfer the jurisdiction of the disputes, there is a risk that dishonest contractors will use this to drag the cases out. Mr. Bolomatov explains that, instead of paying the Gazprom structure, one can wait for the consideration of the case by the PACG and then revoke the award in a court of arbitration for impartiality, and hear the case anew – and this means another year of “mileage”. However, Rustam Kumraev says, if there is no such task, the parties may go directly to the cout of arbitration alleging the HCA position.

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